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Texas State Court to Hold Rehearing on Preliminary Ruling Regarding Stranded Costs Determination for AEP's Texas Central Company

COLUMBUS, Ohio, Feb. 5 /PRNewswire-FirstCall/ -- A Texas state district court judge has granted a rehearing of a preliminary ruling he made regarding the determination of stranded costs for American Electric Power's (NYSE:AEP) Texas Central Company (TCC) unit in an April 4, 2006, order from the Public Utility Commission of Texas (PUCT).

In that order, the PUCT authorized TCC to recover $1.804 billion in stranded costs and regulatory assets.

TCC was notified late Friday that Texas 250th District Court Judge John K. Dietz has scheduled March 22 for re-argument of a preliminary ruling included in a Thursday letter from Dietz. In that letter, the judge indicated he planned to remand the determination of TCC's stranded costs to the PUCT while affirming much of the remainder of the commission's order.

According to Thursday's letter, the court would find that the PUCT erred in using the sale of asset valuation for determining stranded costs for TCC's 25.2-percent, 650-megawatt share of the South Texas Project nuclear plant rather than the Excess Cost Over Market (ECOM) method of valuation.

No order or judgment has been entered.

"We strongly believe Judge Dietz has misinterpreted the Texas statutes and regulations regarding stranded costs determination," said Charles Patton, president and chief operating officer of AEP Texas. TCC is part of AEP Texas. "In 2003, we received clarification we sought from the PUCT and received the PUCT's unchallenged, unappealed order confirming that Texas companies had the authority to use any of the valuation methods specified in the law -- including sale of assets -- to value stranded costs. We would not have pursued a sale of the South Texas Project without that assurance."

The company said it is analyzing the impact the informal ruling, if it became an order or judgment, would have on the PUCT order and on the company's financial statements.

In December 2002, AEP petitioned the PUCT for approval of a plan to sell all 4,497 megawatts of generation assets owned by its TCC unit, including the company's share of South Texas Project, to determine their market value for calculating stranded costs (the amount by which the book value exceeds the market value of the assets) under Texas restructuring legislation.

In March 2003, the PUCT reviewed the law and associated legislative history relating to stranded cost recovery and determined that the rule ultimately adopted by the commission granted companies the authority to use any of the valuation methods specified in the law, including the sale of assets, to value stranded costs. After this order from the PUCT, which was not appealed by any party, TCC began plans to sell its generation assets to determine their market value.

In May 2005, TCC completed the sale of its share of South Texas Project to plant co-owners Texas Genco LLC and CPS Energy (formerly City Public Service of San Antonio) for approximately $314 million and shortly afterward filed with the PUCT for true-up of the difference between the book value and the market value of the generation.

TCC and entities representing various customer groups appealed portions of the PUCT decision to Texas district court.

AEP Texas, a unit of American Electric Power, delivers electricity to 900,000 homes, businesses and industries in south and west Texas. AEP Texas provides regulated energy delivery service to consumers, regardless of which retail electric provider they choose. The region headquarters is in Corpus Christi.

American Electric Power is one of the largest electric utilities in the United States, delivering electricity to more than 5 million customers in 11 states. AEP ranks among the nation's largest generators of electricity, owning nearly 36,000 megawatts of generating capacity in the U.S. AEP also owns the nation's largest electricity transmission system, a nearly 39,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. AEP's utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana and east Texas). AEP's headquarters are in Columbus, Ohio.

This report made by AEP and certain of its subsidiaries contains forward- looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of its registrant subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are: electric load and customer growth; weather conditions, including storms; available sources and costs of, and transportation for, fuels and the creditworthiness of fuel suppliers and transporters; availability of generating capacity and the performance of AEP's generating plants; the ability to recover regulatory assets and stranded costs in connection with deregulation; the ability to build or require generating capacity when needed at acceptable prices and terms and to recover those costs through applicable rate cases or competitive rates; the ability to recover increases in fuel and other energy costs through regulated or competitive electric rates; new legislation, litigation and government regulation including requirements for reduced emissions of sulfur, nitrogen, mercury, carbon and other substances; timing and resolution of pending and future rate cases, negotiations and other regulatory decisions (including rate or other recovery for new investments, transmission service and environmental compliance); resolution of litigation (including pending Clean Air Act enforcement actions and disputes arising from the bankruptcy of Enron Corp. and related matters); AEP's ability to constrain its operation and maintenance costs; AEP's ability to sell assets at acceptable prices and on other acceptable terms; the economic climate and growth in AEP's service territory and changes in market demand and demographic patterns; inflationary and interest rate trends; AEP's ability to develop and execute a strategy based on a view regarding prices of electricity, natural gas, and other energy-related commodities; changes in the creditworthiness of the counterparties with whom AEP has contractual arrangements, including participants in the energy trading market; changes in the financial markets, particularly those affecting the availability of capital and AEP's ability to refinance existing debt at attractive rates; actions of rating agencies, including changes in the ratings of debt; volatility and changes in markets for electricity, natural gas, and other energy-related commodities; changes in utility regulation, including implementation of EPACT and membership in and integration into regional transmission structures; accounting pronouncements periodically issued by accounting standard-setting bodies; the performance of AEP's pension and other postretirement benefit plans; prices for power that AEP generates and sells at wholesale; changes in technology, particularly with respect to new, developing or alternative sources of generation, and other risks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes and other catastrophic events.

Source: American Electric Power

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