notice of 2006 annual meeting • proxy statement · notice of 2006 annual meeting • proxy...
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Notice of 2006 Annual Meeting • Proxy StatementAmerican Electric Power1 Riverside PlazaColumbus, OH 43215
Michael G. MorrisChairman of the Board,President andChief Executive Officer
March 15, 2006
Dear Shareholder:
This year’s annual meeting of shareholders will be held at The Embassy Suites Hotel, 300 Court Street, Charleston,West Virginia, on Tuesday, April 25, 2006, at 9:30 a.m. Eastern Time.
Your Board of Directors and I cordially invite you to attend. Registration will begin at 8:00 a.m. Only shareholderswho owned shares on the record date, March 2, 2006, are entitled to vote and attend the meeting. PLEASE NOTETHAT YOU WILL NEED TO PRESENT AN ADMISSION TICKET TO ATTEND THE MEETING. If your shares are regis-tered in your name, and you received your proxy materials by mail, your admission ticket is attached to your proxycard. A map and directions are printed on the admission ticket. If your shares are registered in your name and youreceived your proxy materials electronically via the internet, you will need to print an admission ticket after you voteby clicking on the “Options” button. If you hold shares through an account with a bank or broker, you will need tocontact them and request a legal proxy, or bring a copy of your statement to the meeting that shows that youowned the shares on the record date. Each ticket will admit a shareholder and one guest.
During the course of the meeting there will be the usual time for discussion of the items on the agenda and for ques-tions regarding AEP’s affairs. Directors and officers will be available to talk individually with shareholders beforeand after the meeting.
Your vote is very important. Shareholders of record can vote in any one of the following threeways:
• By internet, at www.computershare.com/expressvote
• By toll-free telephone at 800-652-8683
• By completing and mailing your proxy card in the enclosed envelope
If your shares are held in the name of a bank, broker or other holder of record, you will receive instructionsfrom the holder of record that you must follow in order for you to vote your shares.
If you have any questions about the meeting, please contact Investor Relations, American Electric Power Company,1 Riverside Plaza, Columbus, Ohio 43215. The telephone number is 800-237-2667.
Sincerely,
NOTICE OF 2006 ANNUAL MEETING
American Electric Power Company, Inc.1 Riverside Plaza
Columbus, Ohio 43215
TIME . . . . . . . . . . . . . . . . . . . 9:30 a.m. Eastern Time on Tuesday, April 25, 2006
PLACE . . . . . . . . . . . . . . . . . . The Embassy Suites Hotel300 Court StreetCharleston West Virginia
ITEMS OF BUSINESS . . . . . (1) To elect 13 directors to hold office until the next annual meet-ing and until their successors are duly elected.
(2) To ratify the appointment of Deloitte & Touche LLP as in-dependent registered public accounting firm for the year 2006.
(3) To consider and act on such other matters as may properlycome before the meeting.
RECORD DATE . . . . . . . . . . Only shareholders of record at the close of business on March 2,2006, are entitled to notice of and to vote at the meeting or anyadjournment thereof.
ANNUAL REPORT . . . . . . . Appendix A to this proxy statement has AEP’s audited financialstatements, management’s discussion and analysis of results ofoperations and financial condition and the report of theindependent registered public accounting firm. AEP’s SummaryAnnual Report to Shareholders contains our chairman’s letter toshareholders and condensed financial statements.
PROXY VOTING . . . . . . . . . It is important that your shares be represented and voted at themeeting. Please vote in one of these ways:(1) MARK, SIGN, DATE AND PROMPTLY RETURN the enclosed
proxy card in the postage-paid envelope.(2) USE THE TOLL-FREE TELEPHONE NUMBER shown on the
proxy card.(3) VISIT THE WEB SITE shown on your proxy card to vote via the
internet.
Any proxy may be revoked at any time before your shares are votedat the meeting.
March 15, 2006 John B. KeaneSecretary
Our annual meeting of shareholders also will be webcast at http://www.AEP.com/go/webcasts at9:30 a.m. Eastern Time on April 25, 2006.
Proxy StatementMarch 15, 2006
Proxy and Voting InformationTHIS PROXY STATEMENT and the accompanyingproxy card are to be mailed to shareholders,commencing on or about March 15, 2006, inconnection with the solicitation of proxies bythe Board of Directors of American ElectricPower Company, Inc., 1 Riverside Plaza, Co-lumbus, Ohio 43215, for the annual meeting ofshareholders to be held on April 25, 2006 inCharleston, West Virginia.
We use the terms “AEP,” the “Company,”“we,” “our” and “us” in this proxy statementto refer to American Electric Power Company,Inc. and, where applicable, its subsidiaries.All references to “years,” unless otherwisenoted, refer to our fiscal year, which ends onDecember 31.
Who Can Vote. Only the holders ofshares of AEP Common Stock at the close ofbusiness on the record date, March 2, 2006,are entitled to vote at the meeting. Each suchholder has one vote for each share held on allmatters to come before the meeting. On thatdate, there were 393,903,133 shares of AEPCommon Stock, $6.50 par value, outstanding.
How You Can Vote. Shareholders of re-cord can give proxies by (i) mailing theirsigned proxy cards; (ii) calling a toll-free tele-phone number; or (iii) using the internet. Thetelephone and internet voting procedures aredesigned to authenticate shareholders’ identi-ties, to allow shareholders to give their votinginstructions and to confirm that shareholders’instructions have been properly recorded. In-structions for shareholders of record who wishto use the telephone or internet voting proce-dures are set forth on the enclosed proxy card.
When proxies are returned, the sharesrepresented thereby will be voted by the per-sons named on the proxy card or by their sub-stitutes in accordance with shareholders’directions. If a proxy card is signed and re-turned without choices marked, it will bevoted for the nominees for directors listed onthe card and as recommended by the Board of
Directors with respect to other matters. Theproxies of shareholders who are participantsin the Dividend Reinvestment and Stock Pur-chase Plan include both the shares registeredin their names and the whole shares held intheir Plan accounts on March 2, 2006.
Revocation of Proxies. A shareholdergiving a proxy may revoke it at any time beforeit is voted at the meeting by giving notice of itsrevocation to the Company, by executing an-other proxy dated after the proxy to be re-voked, or by attending the meeting and votingin person.
How Votes are Counted. The presence ofthe holders of a majority of the outstandingshares of common stock entitled to vote at theAnnual Meeting, present in person or repre-sented by proxy, is necessary to constitute aquorum. Abstentions and “broker non-votes”are counted as present and entitled to vote forpurposes of determining a quorum. A “brokernon-vote” occurs when a broker holdingshares for a beneficial owner does not vote ona particular proposal because the broker doesnot have discretionary voting power for thatparticular item and has not received in-structions from the beneficial owner.
If you are a beneficial shareholder andyour broker holds your shares in its name, thebroker is permitted to vote your shares on theelection of directors and the ratification ofDeloitte & Touche LLP as our independentregistered public accounting firm even if thebroker does not receive voting instructionsfrom you.
A plurality of the votes cast is required forthe election of directors. Only votes “for” or“withheld” affect the outcome. Abstentionsare not counted for purposes of the election ofdirectors.
The votes cast “for” must exceed the votescast “against” to approve the ratification ofDeloitte & Touche LLP as our independentregistered public accounting firm. Abstentionsand broker non-votes are not counted as votes“for” or “against” this proposal.
Your Vote is Confidential. It is AEP’spolicy that shareholders be provided privacyin voting. All proxies, voting instructions and
ballots, which identify shareholders, are heldon a confidential basis, except as may benecessary to meet any applicable legalrequirements. We direct proxies to an in-dependent third-party tabulator, who receives,inspects, and tabulates them. Voted proxiesand ballots are not seen by nor reported toAEP except (i) in aggregate number or to de-termine if (rather than how) a shareholder hasvoted; (ii) in cases where shareholders writecomments on their proxy cards; or (iii) in acontested proxy solicitation.
Multiple Copies of Annual Report orProxy Statement to Shareholders. Securitiesand Exchange Commission (SEC) rules pro-vide that more than one annual report orproxy statement need not be sent to the sameaddress. This practice is commonly called“householding” and is intended to eliminateduplicate mailings of shareholder documents.Mailing of your annual report or proxy state-ment is being householded indefinitely unlessyou instruct us otherwise. If more than oneannual report or proxy statement is being sentto your address, at your request, mailing of theduplicate copy will be discontinued. If youwish to resume receiving separate annual re-ports or proxy statements at the same address,you may call our transfer agent, Computer-share Trust Company, N.A., at 800-328-6955or write to them at P.O. Box 43081, Provi-dence, RI 02940-3081. The change will be ef-fective 30 days after receipt. We will deliverpromptly upon oral or written request a sepa-rate copy of the annual report or proxy state-ment to a shareholder at a shared address. Toreceive a separate copy of the annual report orproxy statement, contact AEP ShareholderDirect at 800-551-1AEP (1237) or write to AEP,attention: Investor Relations, at 1 RiversidePlaza, Columbus, OH 43215.
Additional Information. Our websiteaddress is www.aep.com. We make availablefree of charge on the Investor Relations sectionof our website (www.AEP.com/investors) ourAnnual Report on Form 10-K, Quarterly Re-ports on Form 10-Q, Current Reports onForm 8-K and all amendments to those reportsas soon as reasonably practicable after suchmaterial is electronically filed with or fur-nished to the SEC pursuant to Section 13(a) or15(d) of the Securities Exchange Act of 1934
(Exchange Act). We also make availablethrough our website other reports filed with orfurnished to the SEC under the Exchange Act,including our proxy statements and reportsfiled by officers and directors under Sec-tion 16(a) of the Exchange Act. You may re-quest any of these materials and informationin print by contacting Investor Relations at:AEP, attention: Investor Relations, 1 RiversidePlaza, Columbus, OH 43215. We do not intendfor information contained in our website to bepart of this proxy statement.
You also may read and copy any materialswe file with the SEC at the SEC’s Public Refer-ence Room at 100 F Street, N.E., Washington,DC, 20549. You may obtain information on theoperation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330. The SECmaintains an Internet site (www.sec.gov) thatcontains reports, proxy and informationstatements, and other information regardingissuers that file electronically with the SEC.
1. Election of DirectorsCURRENTLY, AEP’s Board of Directors (Board)consists of 13 members. Thirteen directors areto be elected by a plurality of the votes cast atthe meeting to hold office until the nextannual meeting and until their successorshave been elected. AEP’s By- Laws providethat the number of directors of AEP shall besuch number, not less than 9 nor more than17, as shall be determined from time to timeby resolution of the Board.
The 13 nominees named on pages 3through 6 were selected by the Board on therecommendation of the Committee on Direc-tors and Corporate Governance of the Board.The proxies named on the proxy card or theirsubstitutes will vote for the Board’s nominees,unless instructed otherwise. Shareholders maywithhold authority to vote for any or all ofsuch nominees on the proxy card. All of theBoard’s nominees were elected by the share-holders at the 2005 annual meeting, except forMs. Goodspeed and Mr. Crosby, who wereelected as a director as of October 26, 2005and January 25, 2006, respectively, by theBoard. Ms. Goodspeed and Mr. Crosby wererecommended to the Board by a directorsearch firm, which was paid a fee to identify
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and evaluate potential Board members.Dr. Hudson, the Presiding Director, and Mr.Morris interviewed Ms. Goodspeed and Dr.Hudson, Mr. Fri and Mr. Morris interviewedMr. Crosby and recommended each of them tothe Committee on Directors and CorporateGovernance. That Committee reviewed thequalifications of each of the proposed direc-tors and recommended them to the full board.It is not expected that any of the nomineeswill be unable to stand for election or be un-able to serve if elected. In the event that a va-cancy in the slate of nominees should occurbefore the meeting, the proxies may be votedfor another person nominated by the Board orthe number of directors may be reduced ac-cordingly.
Cumulative Voting. With respect to theelection of directors, shareholders may
exercise cumulative voting rights. That rightpermits each shareholder to multiply thenumber of shares the shareholder is entitled tovote by the number of directors standing forelection to determine the number of votes theshareholder is entitled to cast for directornominees. The shareholder can then cast allsuch votes for a single nominee or spread suchvotes among the nominees in any manner.
Biographical Information. The follow-ing brief biographies of the nominees includetheir principal occupations, ages on the date ofthis statement, accounts of their businessexperience and names of certain companies ofwhich they are directors. Data with respect tothe number of shares of AEP’s Common Stock,options exercisable within 60 days and stock-based units beneficially owned by each ofthem appears on page 32.
Nominees For Director
E. R. Brooks
Retired Chairman and ChiefExecutive Officer, Centraland South West Corporation,Granbury, Texas
Age 68
Director since 2000
Chairman and chief executive officer of Centraland South West Corporation (CSW) (February1991-June 2000). A director of Hubbell, Inc.
Donald M. Carlton
Retired President and ChiefExecutive Officer, RadianInternational LLC,Austin, Texas
Age 68
Director since 2000
Retired president and chief executive officer ofRadian International LLC. A director of NationalInstruments Corporation and Temple-InlandInc. and trustee of 32 mutual funds in the LeggMason fund complex.
Ralph D. Crosby, Jr.
Chairman and ChiefExecutive Officer, EADS NorthAmerica, Inc., Arlington, Virginia
Age 58
Director since 2006
Chairman and Chief Executive Officer,EADS North America, Inc since 2002. President,Integrated Systems Sector, Northrop GrummanCorporation from 1998 to 2002. A director ofDucommun Incorporated.
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Nominees For Director — continued
John P. DesBarres
InvestorPark City, Utah
Age 66
Director since 1997
Former Chairman of the Board, President andChief Executive Officer of Transco EnergyCompany (natural gas). A director of MagellanMidstream Partners, L.P.
Robert W. Fri
Visiting Scholar,Resources for the Future,Washington, D.C.
Age 70
Director since 1995
Retired President of Resources for the Future(non-profit research organization). Assumed hispresent position with Resources for the Futurein 2001.
Linda A. Goodspeed
Executive Vice President andChief Technology Officer,Lennox International, Inc.,Richardson, Texas
Age 44
Director since 2005
Executive Vice President and Chief TechnologyOfficer of Lennox International, Inc. sinceAugust 2001. President and Chief OperatingOfficer of PartMiner, Inc. (a semiconductorbroker and business-to-business exchange) fromDecember 2000 to August 2001. A director ofColumbus McKinnon Corp.
William R. Howell
Chairman Emeritus, J. C. PenneyCompany, Inc., Dallas,Texas
Age 70
Director since 2000
Retired Chairman of the Board and ChiefExecutive Officer of J. C. Penney Company.Chairman emeritus of J. C. Penney Company(1997-present). A director of Exxon MobilCorporation, Halliburton Company, Pfizer Inc.,and The Williams Companies, Inc. He is also adirector of Deutsche Bank Trust Corporationand Deutsche Bank Trust Company Americas,non-public wholly owned subsidiaries ofDeutsche Bank A.G.
Lester A. Hudson, Jr.
Professor and the Wayland H.Cato, Jr. Chair in LeadershipMcColl Graduate School ofBusinessQueens University of CharlotteCharlotte, North Carolina
Age 66
Director since 1987
Professor and the Wayland H. Cato, Jr. Chair inLeadership at McColl Graduate School ofBusiness at Queens University of Charlottesince 2003. Professor of Business Strategy atClemson University (1998-2003). Retiredchairman, chief executive officer and presidentof Wunda Weve Carpets, Inc. and Dan River,Inc. A director of American NationalBankshares Inc.
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Nominees For Director — continued
Michael G. Morris
Chairman, President andChief Executive Officer of AEPand AEP Service Corporation;Chairman and Chief ExecutiveOfficer of other major AEPsubsidiaries
Age 59
Director since 2004
Elected president and chief executive officer ofAEP in January 2004; chairman of the board inFebruary 2004; and chairman, president andchief executive officer of all of its majorsubsidiaries in January 2004. A director ofcertain subsidiaries of AEP with one or moreclasses of publicly held preferred stock or debtsecurities and other subsidiaries of AEP. From1997 to 2003 was chairman of the board,president and chief executive officer ofNortheast Utilities, an unaffiliated electricutility system. A director of Cincinnati Bell,Inc. and The Hartford Financial Services Group,Inc.
Lionel L. Nowell III
Senior vice president andtreasurer of PepsiCo, Inc.Purchase, New York
Age 51
Director since 2004
Senior vice president and treasurer of PepsiCo,Inc. since 2001. Executive vice president andchief financial officer of Pepsi Bottling Group,Inc. from 2000-2001. A director of Church &Dwight Co., Inc.
Richard L. Sandor
Chairman and ChiefExecutive Officer,Chicago ClimateExchange, Inc.,Chicago, Illinois
Age 64
Director since 2000
Chairman and chief executive officer of ChicagoClimate Exchange, Inc. (a self-regulatoryexchange that administers a greenhouse gasreduction and trading program) since 2003.Chairman and chief executive officer of theChicago Climate Futures Exchange (adesignated contract market regulated by theCFTC) since 2004. Chairman of ClimateExchange PLC since 2003. Research professor atthe J.L. Kellogg School of Management,Northwestern University since 1999. Chairmanand chief executive officer of EnvironmentalFinancial Products LLC (1998-2003). A directorof Intercontinental Exchange, Inc. andMillenium Cell, Inc.
Donald G. Smith
Chairman of the Board,Chief Executive Officerand Treasurer ofRoanoke Electric SteelCorporation, Roanoke, Virginia
Age 70
Director since 1994
Chairman of the Board, Chief Executive Officerand Treasurer of Roanoke Electric SteelCorporation (steel manufacturer) since 1989.
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Nominees For Director — continued
Kathryn D. Sullivan
Science Advisor,COSI Columbus,Columbus, Ohio
Age 54
Director since 1997
Science Advisor to Columbus’ science museumCOSI (Center of Science & Industry) sinceDecember 2005. President and chief executiveofficer of COSI from 1996 to 2005.
AEP’s Board of Directors andCommittees
UNDER NEW YORK LAW, AEP is managed underthe direction of the Board of Directors. TheBoard establishes broad corporate policies andauthorizes various types of transactions, but itis not involved in day-to-day operational de-tails. During 2005, the Board held eight regularmeetings. AEP encourages but does not requiremembers of the Board to attend the annualshareholders’ meeting. Last year, all membersattended the annual meeting.
Board Meetings and Committees. TheBoard expects that its members will rigorouslyprepare for, attend and participate in all Boardand applicable committee meetings. Directorsare also expected to become familiar withAEP’s management team and operations as abasis for discharging their oversight re-sponsibilities.
The Board has seven standing committees.The table below shows the number of meet-ings conducted in 2005 and the directors whocurrently serve on these committees. Thefunctions of the committees are described inthe paragraphs following the table.
DIRECTOR
BOARD COMMITTEES
Audit
Directorsand
CorporateGovernance Policy Executive Finance
HumanResources
NuclearOversight
Mr. Brooks X (Chair) X X X
Dr. Carlton X X X
Mr. Crosby* X X X
Mr. DesBarres X X X X (Chair)
Mr. Fri X X X
Ms. Goodspeed X X X
Mr. Howell X X X X (Chair)
Dr. Hudson X X (Chair) X X
Mr. Morris X X (Chair)
Mr. Nowell X X X
Dr. Sandor X X X
Mr. Smith X (Chair) X X
Dr. Sullivan X X (Chair)
2005 Meetings 10 6 3 1 4 6 4
* Mr. Crosby was elected to the Board in January 2006 and was elected to the indicated commit-tees in February 2006.
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During 2005, no director attended fewerthan 90% of the aggregate of the total numberof meetings of the Board and the total numberof meetings held by all committees during theperiod on which he or she served.
Corporate Governance
AEP maintains a corporate governancepage on its website which includes key in-formation about its corporate governance ini-tiatives, including AEP’s Principles of Corpo-rate Governance, AEP’s Principles of BusinessConduct, Code of Business Conduct and Ethicsfor members of the Board, and charters for theAudit, Directors and Corporate Governanceand Human Resources Committees of theBoard. The corporate governance page can befound at www.aep.com/investors/corporategovernance. Printed copies of all ofthese materials also are available upon writtenrequest to Investor Relations at: AEP, atten-tion: Investor Relations, 1 Riverside Plaza,Columbus, OH 43215.
AEP’s policies and practices reflect corpo-rate governance initiatives that are designed tocomply with SEC rules, the listing require-ments of the New York Stock Exchange(NYSE) and the corporate governancerequirements of the Sarbanes-Oxley Act of2002, including:
• The Board of Directors has adoptedcorporate governance policies;
• A majority of the Board members areindependent of AEP and its manage-ment;
• All members of the Audit Committee,Human Resources Committee and theCommittee on Directors and CorporateGovernance are independent;
• The non-management members of theBoard meet regularly without thepresence of management, and the in-dependent members of the Board meetat least once a year;
• AEP has a code of business conductthat also applies to its principal execu-tive officer, principal financial officerand principal accounting officer;
• The charters of the Board committeesclearly establish their respective rolesand responsibilities; and
• AEP has an ethics office with a hotlineavailable to all employees, and AEP’sAudit Committee has procedures inplace for the anonymous submissionof employee complaints on account-ing, internal controls or auditing mat-ters.
Director Independence. The Board hasadopted categorical standards it uses to de-termine whether its members are independent.These standards are consistent with the NYSEcorporate governance listing standards and areas follows:
1. Employment: A member who is an em-ployee, or whose immediate family mem-ber is an executive officer of AEP or any ofits subsidiaries is not independent untilthree years after such employment hasended.
2. Other Compensation: A member who re-ceives, or whose immediate family mem-ber receives, more than $100,000 per yearin direct compensation from AEP or anyof its subsidiaries, other than director orcommittee fees, and pension or otherforms of deferred compensation for priorservice (provided such compensation isnot contingent in any way on continuedservice), is not independent until threeyears after he or she ceases to receivemore than $100,000 per year in suchcompensation.
3. Material Relationship: A member, orwhose immediate family member, (a) is acurrent partner of AEP’s external auditor;(b) is a current employee of such firm;(c) is a current employee of such firm whoparticipates in that firm’s audit, assuranceor tax compliance practice; or (d) waswithin the last three years a partner oremployee of such firm and personallyworked on AEP’s audit, is not in-dependent.
4. Interlocking Directorships: A memberwho is employed, or whose immediatefamily member is employed, as an execu-
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tive officer of another company on whosecompensation committee any of AEP’sexecutive officers serve is not in-dependent until three years after suchservice or employment has ended.
5. Business Transactions: A member who isa current executive officer or an employ-ee, or whose immediate family member isan executive officer, of a company thatmakes payments to, or receives paymentsfrom, AEP or any of its subsidiaries forproperty or services in an amount which,in any fiscal year, exceeds the greater of$1 million or 2% of such other company’sconsolidated gross revenues is not in-dependent.
6. Charitable Contributions: A member, orwhose family member, serves as an execu-tive officer of a non-profit organization,which receives discretionary charitablecontributions in an amount exceeding thegreater of $100,000 or 2% of such organ-ization’s latest annual gross revenues, isnot independent until three years aftersuch service has ended.
7. Director Status: A relationship arisingsolely from a director’s position as adirector or advisory director (or similarposition) of another company or entitythat engages in a transaction with AEP isindependent so long as the director sat-isfies the other standards.
Each year, our directors complete a ques-tionnaire that, among other things, elicits in-formation to assist the Committee on Directorsand Corporate Governance in assessingwhether the director meets the Company’sindependence standards. Utilizing these re-sponses and other information, the Committeeon Directors and Corporate Governance eval-uates, with regard to each director, whetherthe director has any material relationship withAEP or any of its subsidiaries (either directlyor as a partner, shareholder or officer of anentity that has a relationship with AEP or anyof its subsidiaries). If a director has a relation-ship with an organization which made or re-ceived payments from AEP, information re-garding the amount of such payments isprovided to the Committee on Directors and
Corporate Governance. The Committee on Di-rectors and Corporate Governance then de-termines whether the amount of any suchpayments requires, pursuant to the Company’sindependence standards or otherwise, a find-ing that the director is not independent. TheCommittee on Directors and Corporate Gover-nance also discusses any other relevant factsand circumstances regarding the nature ofthese relationships, to determine whetherother factors, regardless of the categoricalstandards the Board has adopted, might im-pede a director’s independence. No member ofthe Board is independent unless the Board af-firmatively determines that such member isindependent.
The Board has affirmatively determinedthat Messrs. Brooks, Carlton, Crosby, Des-Barres, Fri, Howell, Hudson, Nowell,Ms. Goodspeed and Ms. Sullivan, all of whomare Board nominees at this meeting, are in-dependent and meet these standards. None ofthe directors who were determined to be in-dependent had any relationships that wereoutside the categorical standards identifiedabove. Mr. Morris is not independent becausehe is an executive officer of AEP. Mr. Smith,who is Chief Executive Officer of RoanokeElectric Steel Corporation (RESC), is not in-dependent because RESC pays more than 2%of its consolidated gross revenues to an AEPsubsidiary for electric service. AlthoughDr. Sandor currently meets the independencestandards, the Board of Directors has de-termined that he is not independent becauseof AEP’s relationship with the Chicago Cli-mate Exchange (CCX). Dr. Sandor serves asChief Executive Officer of CCX. AEP is afounding member of the CCX and during 2005AEP and its subsidiaries transacted trades ofgreenhouse gas emission allowances on theCCX. AEP paid CCX approximately $9,700 incommissions and dues in 2005. AEP paymentsto CCX currently do not exceed $1 million butAEP’s payments in the future may exceed thatthreshold. Dr. Sandor is also the Chief Execu-tive Officer of the Chicago Climate FuturesExchange (CCFE), which is an exchange estab-lished for trading of SO2 and NOx allowances.AEP anticipates paying commissions and duesto CCX and CCFE in 2006 in an amount equalto or greater than amounts paid in 2005.
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Communicating with the Board. If youwould like to communicate directly with ourBoard, our non-management directors as agroup or Dr. Hudson, our Presiding Director,you may submit your written communicationto American Electric Power Company, Inc.,P.O. Box 163609, Attention: AEPNon-Management Directors, Columbus OH43216. AEP’s Business Ethics and CorporateCompliance department will review such in-quiries or communications. Communicationsother than advertising or promotions of aproduct or service will be forwarded to ourBoard, our non-management directors as agroup or our Presiding Director, as applicable.
The Committee on Directors and Corpo-rate Governance has the responsibilities setforth in its charter, including:
1. Recommending the size of the Boardwithin the limits imposed by the By-Laws.
2. Recommending selection criteria fornominees for election or appointment tothe Board.
3. Conducting independent searches forqualified nominees and screening thequalifications of candidates recommendedby others.
4. Recommending to the Board nominees forappointment to fill vacancies on the Boardas they occur and the slate of nomineesfor election at the annual meeting.
5. Reviewing and making recommendationsto the Board with respect to compensationof directors and corporate governance.
6. Recommending members to serve oncommittees and chairs of the committeesof the Board.
7. Reviewing the independence and possibleconflicts of interest of directors andexecutive officers.
8. Supervising the AEP Corporate Com-pliance Program.
A copy of the charter can be found on ourwebsite at www.AEP.com/investors/corporategovernance. Consistent with therules of the NYSE, all members of the Commit-tee on Directors and Corporate Governance areindependent.
The Committee on Directors and Corpo-rate Governance will consider shareholderrecommendations of candidates to be nomi-nated as directors of the Company. All suchrecommendations must be in writing andsubmitted in accordance with the proceduresdescribed under Shareholder Proposals andNominations on page 34 and must includeinformation required in AEP’s Policy on Con-sideration of Candidates for Director Recom-mended by Shareholders. A copy of thispolicy is on our website at www.AEP.com/investors/corporategovernance. Shareholders’nominees who comply with these procedureswill receive the same consideration that allother nominees receive.
In evaluating candidates for Board mem-bership, the Committee on Directors and Cor-porate Governance reviews each candidate’sbiographical information and assesses eachcandidate’s skills and expertise based on avariety of factors. Some of the major factorsinclude whether the candidate:
• maintains the highest personal andprofessional ethics, integrity and val-ues;
• is committed to representing the long-term interests of the shareholders;
• has an inquisitive and objective per-spective, practical wisdom and maturejudgment;
• contributes to the diversity of viewsand perspectives of the Board as awhole;
• possesses a willingness to devote suffi-cient time to carrying out the dutiesand responsibilities effectively,including attendance at meetings.
The Committee on Directors and Corpo-rate Governance also seeks balance on theBoard by having complementary knowledge,expertise, experience and skill in areas such asbusiness, finance, accounting, marketing, pub-lic policy, government, technology and envi-ronmental issues and other areas that theBoard has decided are desirable and helpful tofulfilling its role. Diversity in gender, race, andbackground of directors, consistent with theBoard’s requirements for knowledge, stan-
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dards, and experience, is desirable in the mixof the Board.
The Policy Committee is responsible forexamining AEP’s policies on major public is-sues affecting the AEP System, including envi-ronmental, industry change and other matters.
The Executive Committee is empoweredto exercise all the authority of the Board, sub-ject to certain limitations prescribed in theBy-Laws, during the intervals between meet-ings of the Board.
The Finance Committee monitors andreports to the Board with respect to the capitalrequirements and financing plans and pro-grams of AEP and its subsidiaries including,reviewing and making recommendations con-cerning the short and long-term financingplans and programs of AEP and its sub-sidiaries.
The Human Resources Committee hasthe responsibilities set forth in its charter, in-cluding recommending compensation for theCEO to the independent Board members, ap-proving compensation for other senior officersand making recommendations to the Boardregarding incentive and equity-based compen-sation plans. The Human Resources Commit-tee also communicates the Company’scompensation policies to shareholders (as re-quired by the SEC).
A copy of the Human Resources Commit-tee charter can be found on our website atwww.AEP.com/investors/corporategovernance.Consistent with the rules of the NYSE, allmembers of the Human Resources Committeeare independent.
The Nuclear Oversight Committee is re-sponsible for overseeing and reporting to theBoard with respect to the management andoperation of AEP’s nuclear generation.
Audit Committee DisclosureTHE AUDIT COMMITTEE of the Board operatespursuant to a charter and is responsible for,among other things, the appointment of theindependent registered public accounting firm(independent auditor) for the Company; re-
viewing with the independent auditor the planand scope of the audit and approving auditfees; monitoring the adequacy of financialreporting and internal control over financialreporting and meeting periodically with theinternal auditor and the independent auditor.A more detailed discussion of the purposes,duties and responsibilities of the Audit Com-mittee is found in the Audit Committee char-ter, a copy of which can be found on our web-site at www.AEP.com. Consistent with therules of the NYSE and the Sarbanes-Oxley Actof 2002, all members of the Audit Committeeare independent. The Board determined thatMr. Nowell is an audit committee financialexpert as defined by the SEC.
Audit Committee ReportTHE AUDIT COMMITTEE reviews AEP’s financialreporting process as well as the internal con-trols over financial reporting on behalf of theBoard. Management has the primary responsi-bility for the financial statements and the re-porting process, including the system of in-ternal control over financial reporting.
In this context, the Audit Committee metten times during the year and held dis-cussions, some of which were in private, withmanagement, the internal auditor, and theindependent auditor. Management representedto the Audit Committee that AEP’s con-solidated financial statements were preparedin accordance with generally acceptedaccounting principles. Management has alsoconcluded that the Company’s internal controlover financial reporting was effective as ofDecember 31, 2005. The Audit Committee hasreviewed and discussed the consolidatedfinancial statements and internal control overfinancial reporting with management, the in-ternal auditor, and the independent auditor.The Audit Committee discussed with the in-dependent auditor matters required to be dis-cussed by Statement on Auditing StandardsNo. 61, as amended (Communication WithAudit Committees).
In addition, the Audit Committee has dis-cussed with the independent auditor its in-dependence from AEP and its management,including the matters in the written dis-closures required by the Independence Stan-
10
dards Board Standard No. 1 (IndependenceDiscussions With Audit Committees). TheAudit Committee has also received writtenmaterials addressing the independent auditorinternal quality control procedures and othermatters, as required by the NYSE listing stan-dards.
In reliance on the reviews and discussionsreferred to above, the Audit Committeerecommended to the Board, and the Board hasapproved, that the audited financial state-ments be included in AEP’s Annual Report onForm 10-K for the year ended December 31,2005, for filing with the SEC.
Audit Committee MembersE. R. Brooks, ChairLinda A. GoodspeedLester A. Hudson, Jr.Lionel L. Nowell, III
Directors Compensation and StockOwnership
Annual Retainers and Meeting Fees. Mr.Morris is the only director who is an officer ofAEP. He does not receive any compensation,other than his regular salary and the accidentinsurance coverage described below, for serv-ing on the Board. The other members of theBoard received an annual cash retainer of$60,000 in 2005. The chairman of the AuditCommittee receives an additional annual re-tainer of $15,000 and other members of theAudit Committee receive an additional annualretainer of $12,000. The Presiding Directorreceives an additional annual retainer of$15,000. Each of these cash retainers is paid inquarterly increments. Each non-employee di-rector also received $80,000 in AEP StockUnits in 2005 payable quarterly pursuant tothe AEP Stock Unit Accumulation Plan forNon-Employee Directors (Stock AccumulationPlan) described below. Each non-employeedirector is paid a fee of $1,200 per day for spe-cial assignments (such as attendance at Nu-clear Regulatory Commission meetings or forservices on ad hoc subcommittees).
In December 2005, upon the recom-mendation of the Committee on Directors andCorporate Governance and based on com-petitive data, the Board determined that Board
compensation (i) should be targeted to fallwithin the second highest quartile of a peergroup of companies of comparable size(including both energy and general industrycompanies) and (ii) should consist of a targetmix of 45% cash and 55% AEP stock equiv-alents. Therefore, the Board approved the fol-lowing changes to compensation effective Jan-uary 1, 2006: (1) the amount of AEP stockunits awarded to non-employee directors pur-suant to the Stock Accumulation Plan willincrease from $80,000 to $82,500 annually and(ii) the amount of the annual cash retainerpaid to non-employee directors will increasefrom $60,000 to $67,500 annually. Thesechanges were adopted in order to bring thecompensation packages of AEP’s Board mem-bers more in line with compensation paid todirectors of comparable companies and enableAEP to attract qualified directors when need-ed.
Expenses. Non-employee directors arereimbursed for expenses (including costs oftravel, food and lodging) incurred in attendingBoard, committee and stockholder meetings.Directors are also reimbursed for reasonableexpenses associated with other business activ-ities, including participation in directoreducation programs.
The Company from time to time invitesdirectors’ spouses to travel with the directorsto attend Board meetings. Spouses may alsojoin non-employee directors on Company air-craft when a non-employee director is travel-ing to or from a Board meeting. The Companygenerally provides for, or reimburses expensesof, the non-employee directors’ and spouses’travel, food and lodging for attendance at suchevents, which may result in a non-employeedirector recognizing income for tax purposesunder applicable regulations. The Companytherefore reimburses the non-employee direc-tor for the estimated taxes incurred in con-nection with any income recognized by thedirector as a result of the non-employee direc-tor’s or spouse’s attendance at such events.
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The following table presents the compensation provided by the Company in 2005 to thenon-employee directors standing for election at the 2006 annual meeting.
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
Name
AnnualCash
Retainer Stock Units
Audit Committee/Presiding Director
Retainer Per Diem Total
E. R. Brooks . . . . . . . . . . . . . . . . . . . . . . . . $60,000 $80,000 $11,250 $ 0 $151,250Donald M Carlton . . . . . . . . . . . . . . . . . . . 60,000 80,000 -0- 0 140,000Ralph D. Crosby, Jr. . . . . . . . . . . . . . . . . — — — — —John P. DesBarres . . . . . . . . . . . . . . . . . . . 60,000 80,000 -0- 0 140,000Robert W. Fri . . . . . . . . . . . . . . . . . . . . . . 60,000 80,000 -0- 0 140,000Linda A. Goodspeed . . . . . . . . . . . . . . . . 15,000 20,000 3,000 0 38,000William R. Howell . . . . . . . . . . . . . . . . . . 60,000 80,000 -0- 0 140,000Lester A. Hudson, Jr. . . . . . . . . . . . . . . . 60,000 80,000 27,000 2,400 169,400Lionel L. Nowell III . . . . . . . . . . . . . . . . . 60,000 80,000 12,000 0 152,000Richard L. Sandor . . . . . . . . . . . . . . . . . . 60,000 80,000 -0- 0 140,000Donald G. Smith . . . . . . . . . . . . . . . . . . . . 60,000 80,000 -0- 0 140,000Kathryn D. Sullivan . . . . . . . . . . . . . . . . . 60,000 80,000 1,000 0 141,000
Retainer Deferral Plan. The RetainerDeferral Plan for Non-Employee Directors(formerly called the Deferred Compensationand Stock Plan for Non-Employee Directors) isa non-qualified deferred compensation planthat permits non-employee directors to chooseto defer up to 100% of their annual Board cashretainer into a variety of investment fund op-tions, all with market-based returns, includingan AEP stock fund. The Plan permits thenon-employee directors to defer receipt untiltermination of service or for a period that re-sults in payment commencing not later thanfive years after termination of service.
Stock Unit Accumulation Plan. In 2005the Stock Unit Accumulation Plan forNon-Employee Directors awarded $80,000 inAEP Stock Units to each non-employee direc-tor. As mentioned earlier in DirectorsCompensation and Stock Ownership, this Planwas amended effective January 1, 2006 to in-crease the annual award to $82,500 in AEPStock Units. These AEP Stock Units are cred-ited to directors quarterly, based on the clos-ing price of AEP Common Stock on the pay-ment date. Amounts equivalent to cashdividends on the AEP Stock Units accrue asadditional AEP Stock Units. AEP Stock Unitsare not paid to the director in cash untiltermination of service unless the director haselected to further defer payment for a period
that results in payment commencing not laterthan five years after termination of service.
Insurance. AEP maintains a group24-hour accident insurance policy to provide a$1,000,000 accidental death benefit for eachdirector, $100,000 for each spouse of a directorand $50,000 for all dependent children. Thecurrent policy, effective September 1, 2004through September 1, 2007, has a premium of$29,000. In addition, AEP pays eachnon-employee director an amount to providefor the federal and state income taxes incurredin connection with the maintenance of thiscoverage ($589 for 2005).
Central and South West CorporationMemorial Gift Programs. AEP is continuinga memorial gift program for former CSW direc-tors and executive officers who had been pre-viously participating in this program. The fourformer CSW directors who are members ofAEP’s Board (Messrs. Brooks, Carlton, Howelland Sandor) are participants. Under this pro-gram, AEP makes donations in a director’sname to up to three charitable organizations inan aggregate amount of up to $500,000, pay-able by AEP upon such person’s death. AEPmaintains corporate-owned life insurancepolicies to support the program. The annualpremiums paid by AEP are based on pooledrisks and averaged $3,322 per participant for2005.
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Stock Ownership. The Board considersstock ownership in AEP by Board members tobe important. As noted above in DirectorsCompensation and Stock Ownership under thecaption Stock Unit Accumulation Plan,non-employee directors are required to defer$80,000 (increasing effective January 1, 2006to $82,500) annually in AEP Stock Units untiltermination of his or her directorship. Asnoted below under Share Ownership of Direc-tors and Executive Officers, eachnon-employee director of AEP owns more than11,000 shares of AEP Common Stock and AEPStock Units, except for Mr. Nowell,Ms. Goodspeed and Mr. Crosby, who wereelected to the Board of Directors in July2004, October 2005 and January 2006, re-spectively.
InsuranceThe directors and officers of AEP and its sub-sidiaries are insured, subject to certain ex-clusions, against losses resulting from anyclaim or claims made against them while act-ing in their capacities as directors and officers.The AEP System companies are also insured,subject to certain exclusions and deductibles,to the extent that they have indemnified theirdirectors and officers for any such losses. Suchinsurance, effective January 1, 2005 throughMarch 15, 2006, is provided by: AssociatedElectric & Gas Insurance Services, Energy In-surance Mutual, Zurich American InsuranceCompany, National Union Fire InsuranceCompany of Pittsburgh, PA, Federal InsuranceCompany, Liberty Mutual Insurance Company,Twin City Fire Insurance Company, QuantaReinsurance U.S. Ltd., AXIS ReinsuranceCompany, Starr Excess International, OilCasualty Insurance, Ltd, Arch Insurance Com-pany, RSUI Indemnity Company, XL SpecialtyInsurance Company, U.S. Specialty InsuranceCompany and XL Insurance (Bermuda). Thetotal cost of this insurance is $4,938,942.
Fiduciary liability insurance providescoverage for AEP System companies, their di-rectors and officers, and any employeedeemed to be a fiduciary or trustee, for breachof fiduciary responsibility, obligation, or du-ties as imposed under the Employee Retire-ment Income Security Act of 1974. Thiscoverage, provided by Zurich American In-
surance Company, Energy Insurance Mutual,Indian Harbor Insurance Company, HoustonCasualty Company and AXIS Specialty Re-insurance Company, was renewed, effectiveMarch 15, 2005 through March 15, 2006, for acost of $800,000.
2. Proposal to RatifyAppointment of IndependentRegistered Public AccountingFirmTHE AUDIT COMMITTEE has appointed the firmof Deloitte & Touche LLP as the Company’sindependent registered public accounting firmfor 2006. Although action by the shareholdersin this matter is not required, the Audit Com-mittee believes that it is appropriate to seekshareholder ratification of this appointment inlight of the critical role played by the in-dependent registered public accounting firmin maintaining the integrity of Companyfinancial controls and reporting, and will seri-ously consider shareholder input on this issue.Whether or not the appointment of Deloitte &Touche LLP is ratified by the shareholders, theAudit Committee may, in its discretion,change the appointment at any time during theyear if it determines that such change wouldbe in the best interests of the Company and itsshareholders.
One or more representatives of Deloitte &Touche LLP will be in attendance at theannual meeting on April 25, 2006. The repre-sentatives will have the opportunity to make astatement, if desired, and will be available torespond to appropriate questions from share-holders.
Vote Required. Approval of this pro-posal requires the affirmative vote of holdersof a majority of the shares present in person orby proxy at the meeting.
Your Board of Directors recommends avote FOR this proposal.
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Audit and Non-Audit FeesThe following table presents fees for pro-
fessional audit services rendered by Deloitte &Touche LLP for the audit of the Company’sannual financial statements for the years endedDecember 31, 2005 and December 31, 2004, andfees billed for other services rendered by De-loitte & Touche LLP during those periods.
2004 2005
Audit Fees(1)Financial
Statements . . $ 9,489,000 $ 8,680,000Internal Control
overFinancialreporting . . . . $ 6,321,000 $ 4,210,000
Total AuditFees . . . . . . $15,810,000 $12,890,000
Audit-RelatedFees(2) . . . . . . . $ 818,000 $ 591,610
Tax Fees(3):Settlement of
ContingentFeearrangements $ 6,962,500 $ —
Other taxfees . . . . . . . . $ 1,554,500 $ 1,116,000
Total TaxFees . . . . . . $ 8,517,000 $ 1,116,000
TOTAL . . . . . $25,145,000 $14,597,610
(1) Audit fees in 2004 and 2005 consistedprimarily of fees related to the audit of theCompany’s annual consolidated financialstatements. Audit fees also includedauditing procedures performed in accord-ance with Sarbanes-Oxley Act Section 404and the related Public Company Account-ing Oversight Board Auditing StandardNumber 2 regarding the Company’s in-ternal control over financial reporting.This category also includes workgenerally only the independent registeredpublic accounting firm can reasonably beexpected to provide, such as attestationrequirements on statutory reports andregulatory filings of the Company andcertain of its wholly owned subsidiaries.
(2) Audit related fees consisted principally ofaudits of employee benefit plans andaudit-related work in connection withacquisitions and dispositions.
(3) Other tax fees consisted principally of taxcompliance services. Tax complianceservices are services rendered based uponfacts already in existence or transactionsthat have already occurred to document,compute, and obtain government approvalfor amounts to be included in tax filings.
In May 2004, the SEC clarified its positionon the provision of services with respectto contingent, findings-based and value-added fee arrangements. In response tothis clarification, in 2004 the Companyconverted five contingent feearrangements, previously entered into in2000, to “time and material” feearrangements and made a payment of$6,962,500 for services performed throughMay 2004. The Company will not enterinto such arrangements with theindependent registered public accountingfirm in the future. These services areconsidered tax compliance services basedon the above definition.
The Audit Committee has consideredwhether the provision of services other thanaudit services by Deloitte & Touche LLP andits domestic and global affiliates is compatiblewith maintaining independence and the AuditCommittee believes that this provision of serv-ices is compatible with maintaining Deloitte &Touche LLP’s independence.
Policy on Audit CommitteePre-Approval of Audit andPermissible Non-Audit Services of theIndependent Auditor
The Audit Committee’s policy is topre-approve all audit and non-audit servicesprovided by the independent auditor. Theseservices may include audit services, audit-related services, tax services and other serv-ices. Pre-approval is provided for up to oneyear and any pre-approval is detailed as to theparticular service or category of services and issubject to a specific limitation. The in-dependent auditor and management are re-quired to report to the Audit Committee ateach regular meeting regarding the extent ofservices provided by the independent auditorin accordance with this pre-approval policy,
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and the fees for the services performed to date.The Audit Committee may also pre-approveparticular services on a case-by-case basis. In2005, all Deloitte & Touche LLP services werepre-approved by the Audit Committee.
Other BusinessTHE BOARD OF DIRECTORS does not intend topresent to the meeting any business other thanthe election of directors and the ratification of
the appointment of the independent registeredpublic accounting firm.
If any other business not described hereinshould properly come before the meeting foraction by the shareholders, the persons namedas proxies on the enclosed card or their sub-stitutes will vote the shares represented bythem in accordance with their best judgment.At the time this proxy statement was printed,the Board of Directors was not aware of anyother matters that might be presented.
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Executive Compensation
THE FOLLOWING TABLE shows for 2005, 2004 and 2003 the compensation earned by the chief execu-tive officer and the four other most highly compensated executive officers (as defined by SEC regu-lations) of AEP at December 31, 2005. The table includes a total of six executive officers becauseMr. Hagan and Ms. Koeppel had the same salary and bonus in 2005.
Summary Compensation Table
Name and Principal Position
Annual Compensation Long-Term Compensation
Awards Payouts
YearSalary($)(1)
Bonus($)(2)
Other AnnualCompensation
$(3)
RestrictedStock
Award($)(4)
SecuritiesUnderlyingOptions (#)
LTIPPayouts
$(5)
All OtherCompensation
($)(6)
Michael G. Morris —Chairman of the board,president and chiefexecutive officer of AEPand the ServiceCorporation; chairman ofthe board and chiefexecutive officer of otherAEP System companies(7)
20052004
1,150,0001,123,577
2,250,0001,250,000
614,191613,287
163,5009,228,000
-0-149,000
-0--0-
107,400178,058
Carl L. English —President-AEP Utilities ofthe Company;President-AEP Utilities anddirector of the ServiceCorporation; vice presidentand director of other AEPSystem companies(7)
20052004
500,000211,538
575,000125,000
22,0735,848
-0-942,600
-0--0-
-0--0-
66,23712,444
Susan Tomasky —Executive vice presidentand chief financial officerof the Company; executivevice president-chieffinancial officer anddirector of the ServiceCorporation; vice presidentand director of other AEPSystem companies
200520042003
500,000503,846476,827
575,000350,000256,137
-0--0--0-
-0--0--0-
-0--0-
25,000
221,269-0--0-
55,05050,79137,208
Robert P. Powers —Executive vice president ofthe Company; Executivevice president-Generationand director of the ServiceCorporation; vice presidentand director of other AEPSystem companies
200520042003
450,000433,308416,596
500,000275,000300,000
1,368654-0-
-0--0--0-
-0--0-
25,000
193,337-0--0-
39,00334,87929,007
Thomas M. Hagan —Executive vicepresident-AEP UtilitiesWest and director of theService Corporation; vicepresident and director ofother AEP Systemcompanies
200520042003
440,000443,385421,615
464,183241,684237,850
7,11058,330
-0-
-0--0--0-
-0--0-
25,000
195,650-0--0-
47,228141,398
29,326
Holly K. Koeppel —Executive vicepresident-AEP Utilities Eastand director of the ServiceCorporation; vice presidentand director of other AEPSystem companies
200520042003
440,000443,385426,635
464,183267,217175,000
3972,404
-0-
-0--0--0-
-0--0-
25,000
197,985-0--0-
42,02537,30425,451
(1) Amounts in the Salary column are composed of executive salaries, and additional days of pay earned for years withmore than the standard 260 calendar workdays and holidays.
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(2) Amounts in the Bonus column reflect awards under the Senior Officer Annual Incentive Compensation Plan (SOIP).Payments pursuant to the SOIP are made in the first quarter of the succeeding fiscal year for performance in the yearindicated.
(3) Amounts shown in the Other Annual Compensation column include perquisites if the aggregate amount of such bene-fits exceeds $50,000. The perquisites the Company offers to its executive officers include club memberships, financialcounseling services, personal use of the executive dining room, and personal use of Company aircraft. For Mr. Morris,the amount shown includes the incremental cost associated with his personal use of the Company’s aircraft of$309,435. The incremental cost to the Company of personal use of Company aircraft is calculated based on the variableoperating costs to the Company, including fuel costs, trip-related maintenance, on-board catering, landing/ramp feesand other miscellaneous variable costs. Fixed costs which do not change based on usage, such as pilot salaries, thelease costs of the Company aircraft, and the cost of maintenance not related to trips, are excluded. Mr. Morris’ amountalso includes premiums for life insurance that the Company funds on his behalf of $141,403 and temporary living ex-penses of $27,500. The Other Annual Compensation column also includes tax gross-up payments for Mr. Morris andthe other named executive officers as well as cash payments for fractional shares resulting from dividend reinvestmenton restricted stock unit awards.
(4) The values shown in the Restricted Stock Award column are the grant date values calculated using the closing price ofAEP Common Stock on the New York Stock Exchange on each grant date without any vesting or other deductions. Divi-dends are paid on all restricted shares and restricted stock units at the same rate as paid on AEP’s Common Stock.Mr. Morris received an award of 5,000 restricted stock units on February 22, 2005, of which 1,666 shares vested onFebruary 22, 2006 and the remaining shares will generally vest, subject to his continued employment, in two equal partsof 1,667 and 1,667 shares on February 22, 2007 and February 22, 2008, respectively. Dividends on these shares weremandatorily reinvested in an additional 144 restricted stock units that vest, subject to Mr. Morris’s continued employ-ment, on February 22, 2008. Fractional shares that would result from the reinvestment of dividends are paid in cash andare included in the Other Annual Compensation column. On December 31, 2005 Mr. Morris held a total of 5,144 un-vested restricted stock units with a value of $190,791, based on the closing price of AEP Common Stock on the last trad-ing day of 2005 ($37.09).
On January 2, 2004 with the commencement of his AEP employment, Mr. Morris received an award of 300,000 re-stricted shares granted under the Company’s Long-Term Incentive Plan. Dividends on these shares are paid toMr. Morris and are not included in this table. 50,000 shares vested on January 1, 2005 and 50,000 shares vested on Jan-uary 1, 2006 and, as a result, the restrictions on the sale of these shares were removed giving Mr. Morris full and unre-stricted ownership of them. The remaining 200,000 shares of restricted stock were granted as a replacement for certainlong-term compensation that Mr. Morris forfeited from his prior employer in order to accept his position at AEP. Theseshares vest, subject to his continued employment, in three approximately equal components on November 30, 2009,November 30, 2010 and November 30, 2011, respectively. On December 31, 2005 Mr. Morris held a total of 250,000unvested restricted shares, with a value of $9,272,500, based on the closing price of AEP common stock on the last trad-ing day of 2005 ($37.09).
On August 2, 2004 with the commencement of his AEP employment, Mr. English received an award of 30,000 restrictedstock units granted under the Company’s Long-Term Incentive Plan. Dividends on these shares were mandatorily re-invested in an additional 632 and 1,024 restricted stock units in 2004 and 2005, respectively. Fractional shares thatwould result from the reinvestment of dividends are paid in cash and are included in the Other Annual Compensationcolumn. The additional restricted stock units attributable to reinvested dividends vest, subject to Mr. English’s continuedemployment, on August 2, 2007. 10,000 shares vested on August 2, 2005 and, as a result, the restrictions on the sale ofthese stock units were removed giving Mr. English full and unrestricted ownership of them. The remaining 20,000 re-stricted stock units vest, subject to his continued employment, in two equal components on August 2, 2006, and Au-gust 2, 2007. On December 31, 2005 Mr. English held a total of 21,656 unvested restricted stock units with a value of$803,221, based on the closing price of AEP common stock on the last trading day of 2005 ($37.09).
(5) Amounts in the Long-Term Compensation — Payouts column reflect the value of performance units earned under theAmended and Restated AEP System Long-Term Incentive Plan for the three-year performance period ended De-cember 31, 2005. Earned performance units are mandatorily deferred as phantom stock units (“career shares”) until theexecutive has achieved all of his or her stock ownership requirements. Once an executive has achieved all of his or herstock ownership requirements, earned performance units are paid to such executive in cash or deferred if the executivemakes an election. See below under Long-Term Incentive Plans — Awards in 2005 on page 19 and “Long-Term In-centive” on page 28 for additional information.
(6) Amounts in the All Other Compensation column for 2005, except for additional compensation to Mr. English disclosedin footnote (7), include (i) AEP’s matching contributions under the AEP Retirement Savings Plan and the AEP Supple-mental Retirement Savings Plan, a non-qualified plan designed to supplement the AEP Retirement Savings Plan;(ii) relocation expenses and (iii) subsidiary companies’ director fees. Detail of the 2005 amounts included in the AllOther Compensation column is shown below.
Item Mr. Morris Mr. English Ms. Tomasky Mr. Powers Mr. Hagan Ms. Koeppel
Savings Plan MatchingContributions . . . . . . . . . . . . . . . . . . . . $ 8,440 $ 9,450 $ 7,615 $ 6,640 $ 8,198 $ 6,692
Supplemental Savings Plan MatchingContributions . . . . . . . . . . . . . . . . . . . . 81,560 18,675 30,635 19,763 20,638 25,133
Relocation . . . . . . . . . . . . . . . . . . . . . . . . . -0- -0- -0- -0- 11,792 -0-Subsidiary Director Fees . . . . . . . . . . . . . 17,400 11,400 16,800 12,600 6,600 10,200
(7) No 2003 compensation information is reported for Messrs. Morris and English because they were not executive officersin those years. Mr. Morris joined the Company on January 1, 2004. Mr. English joined the company on August 2, 2004and, as such, the compensation information for 2004 reflects his salary for only a portion of that year. Club initiationfees of $26,713 were included in the All Other Compensation column in 2005 for Mr. English.
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Option Grants in 2005
There were no options granted to executive officers in 2005.
Aggregated Option Exercises in 2005 and Year-end Option Values
Name
SharesAcquired onExercise(#)
ValueRealized ($)
Number of SecuritiesUnderlying UnexercisedOptions at 12-31-05(#)
Value of UnexercisedIn-The-Money Options at
12-31-05($)*
Exercisable Unexercisable Exercisable Unexercisable
M. G. Morris . . . . . . . . . . — — 49,666 99,334 $314,386 $628,784C. English . . . . . . . . . . . . — — — — — —S. Tomasky . . . . . . . . . . . 29,333 346,085 208,333 46,001 $369,164 $446,556R. P. Powers . . . . . . . . . . 66,999 550,924 133,300 46,001 $ 91,563 $446,556T. M. Hagan . . . . . . . . . . 25,000 273,500 104,499 46,001 $505,396 $446,556H. K. Koeppel . . . . . . . . . 20,167 220,627 41,200 46,001 $202,829 $446,556
* Based on the difference between the closing price of AEP Common Stock on the New YorkStock Exchange on December 30, 2005 ($37.09) (the last trading day of 2005) and the optionexercise price. “In-the-money” means the market price of the stock is greater than the exerciseprice of the option on the date indicated.
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Long-Term Incentive Plans — Awards In 2005
The executive officers named in theSummary Compensation Table were awardedperformance units in January 2005 pursuant tothe Amended and Restated American ElectricPower System Long-Term Incentive Plan. Per-formance units are generally equivalent invalue to shares of AEP Common Stock. Divi-dends are reinvested in additional perform-ance units for the same performance and vest-ing period using the closing price of the AEPCommon Stock on the dividend payment date.The performance units granted in 2005 aresubject to two equally weighted performancemeasures for the three-year performanceperiod 2005-2007. These performance meas-ures are: three-year total shareholder returnmeasured relative to the S&P Utilities andthree-year cumulative earnings per sharemeasured relative to a board-approved target.The scores for these performance measuresdetermine the percentage of the performanceunits outstanding at the end of the perform-ance period that are earned and can rangefrom zero percent to 200 percent. The value ofeach performance unit that is earned equalsthe average closing price of AEP Common
Stock for the last twenty days of the perform-ance period.
The number of performance units thatmay be earned at threshold, target and max-imum performance levels, excluding any re-invested dividends, is shown in the table be-low. The HR Committee may, in its discretion,reduce the number of performance unitsotherwise earned. In accordance with the per-formance goals established for the periods setforth below, the threshold, target and max-imum awards are equal to 25%, 100% and200%, respectively, of the performance unitawards.
Deferral of earned performance units intophantom AEP Stock Units (equivalent toshares of AEP Common Stock) is mandatoryuntil the officer has met his or her stockownership requirements discussed in theHuman Resources Committee Report onExecutive Compensation. Once their stockownership requirement is met, officers mayelect to continue to defer earned performanceunits or to receive subsequently earned awardsin cash or AEP Common Stock.
Name
Number ofPerformance
Units
PerformancePeriod UntilMaturationor Payout
Estimated Future Payouts ofPerformance Units Under
Non-Stock Price-Based Plan
Threshold(#)
Target(#)
Maximum(#)
M. G. Morris . . . . . . . . . . . . . . . . . . . 150,000 1/1/05 – 12/31/07 37,500 150,000 300,000C. English . . . . . . . . . . . . . . . . . . . . . 34,100 1/1/05 – 12/31/07 8,525 34,100 68,200S. Tomasky . . . . . . . . . . . . . . . . . . . . 37,500 1/1/05 – 12/31/07 9,375 37,500 75,000R. P. Powers . . . . . . . . . . . . . . . . . . . 22,500 1/1/05 – 12/31/07 5,625 22,500 45,000T. M. Hagan . . . . . . . . . . . . . . . . . . . 21,200 1/1/05 – 12/31/07 5,300 21,200 42,400H. K. Koeppel . . . . . . . . . . . . . . . . . . 21,200 1/1/05 – 12/31/07 5,300 21,200 42,400
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Retirement Benefits
AEP maintains qualified and nonqualifieddefined benefit ERISA pension plans for eligi-ble employees. The tax-qualified plans are theAmerican Electric Power System RetirementPlan (AEP Retirement Plan) and the Centraland South West Corporation Cash Balance Re-tirement Plan (CSW Cash Balance Plan). Thenonqualified plans are the American ElectricPower System Excess Benefit Plan (AEP Ex-cess Benefit Plan) (together with the AEP Re-tirement Plan, the AEP Plans) and the Centraland South West Corporation Special ExecutiveRetirement Plan (CSW SERP) (together withthe CSW Cash Balance Plan, the CSW Plans),each of which provides (i) benefits that cannotbe payable under the respective tax-qualifiedplans because of maximum limitations im-posed on such plans by the Internal RevenueCode and (ii) benefits pursuant to individualagreements with certain AEP employees. TheCSW Plans continue as separate plans forthose AEP System employees who wereparticipants in the CSW Cash Balance Plan asof December 31, 2000. Each of the executiveofficers named in the Summary CompensationTable (other than Mr. Hagan) participates inthe AEP Plans. Mr. Hagan participates in theCSW Plans.
The benefit formula generally used to cal-culate benefit additions under the pensionplans for all plan participants (including theexecutive officers named in the SummaryCompensation Table) is a cash balance for-mula. When the cash balance formula wasadded to each plan, an opening balance wasestablished for employees then participatingunder each plan’s prior benefit formula (asfurther described below), using a number offactors as set forth in the appropriate plan.Under the cash balance formula, each partic-ipant has an account established (for recordkeeping purposes only) to which dollaramount credits are allocated each year basedon a percentage of the participant’s eligiblepay. The amount of pay taken into account forthe executive officers named in the SummaryCompensation Table has been capped at thegreater of $1,000,000 or two times the partic-ipant’s annual base rate of pay as of the lastday of a given year (or, if the participant’s
employment was terminated during the year,as of the date of such termination ofemployment). The applicable percentage ofeligible pay credited to a participant’s accountis determined each year by reference to theparticipant’s age and years of vesting serviceas of December 31 of that year (or as of theparticipant’s termination date, if earlier). Thefollowing table shows the applicable percent-age used to determine the annual dollaramount credits based on the sum of age andyears of service indicated:
Sum of Age Plus Years of ServiceApplicablePercentage
Less than 30 . . . . . . . . . . . . . . . . . . . . . . . 3.0%30-39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5%40-49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5%50-59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5%60-69 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0%70 or more . . . . . . . . . . . . . . . . . . . . . . . . . 8.5%
All amounts in the cash balance accountsof participants earn a fixed rate of interest thatis also credited annually. The interest rate for aparticular year is the Applicable Interest Rateset in accordance with Section 417(e)(3)(A)(ii)of the Internal Revenue Code and is currentlythe average interest rate on 30-year Treasurysecurities for the month of November of theprior year. For 2005, the interest rate was4.89%. Interest continues to be credited to anyunpaid balance.
The CSW SERP also includes a final aver-age pay cash balance formula which providesthat the cash balance account of participantswho at termination of employment hold theoffice of Vice President or higher of anemployer participating in the CSW Plans willbe no less than (i) the sum of the ApplicablePercentages from the foregoing table generallyfor each year that the participant earned serv-ice credit under the CSW Cash Balance Plan,multiplied by (ii) the participant’s final aver-age pay. “Final average pay” for executiveofficers generally is the average annual com-pensation (consisting of the sum of the Salaryand Bonus columns shown in the SummaryCompensation Table) during the 36 consec-utive months of highest pay during the 120months prior to retirement.
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Under the cash balance formula, anamount equal to the vested balance (includingtax-qualified and nonqualified benefits) thencredited to the account is payable to theparticipant in the form of an immediate ordeferred lump-sum or an annuity or, with re-spect to the nonqualified benefits, in install-ments. Benefits under the AEP Plans and theCSW Plans generally do not become vesteduntil the participant has been credited with atleast 5 years of service. Mr. Morris has an in-dividual agreement with AEP that providesthat Mr. Morris will become vested in theamount credited to his cash balance account ata rate of 20% per year as of each of the firstfive anniversaries of his commencement date(January 1, 2004).
Benefits (from both the tax-qualified andnonqualified plans) under the cash balanceformula are not subject to reduction for SocialSecurity benefits or other offset amounts, ex-cept that Ms. Koeppel and Mr. Powers eachhave an individual agreement which providesthat their supplemental retirement benefits arereduced by pension entitlements, if any, fromplans sponsored by prior employers. Theestimated annual benefit that would be pay-able as a single life annuity under the cashbalance formula (or, with respect toMr. Hagan, under the CSW Plans’ final averagepay cash balance formula) to each of theexecutive officers named in the SummaryCompensation Table at age 65 is:
NameAnnualBenefit
M. G. Morris . . . . . . . . . . . . . . . . . . . . . 391,100C. English . . . . . . . . . . . . . . . . . . . . . . . 46,700S. Tomasky . . . . . . . . . . . . . . . . . . . . . 287,700R. P. Powers . . . . . . . . . . . . . . . . . . . . . 193,500T. M. Hagan . . . . . . . . . . . . . . . . . . . . . 123,000H. K. Koeppel . . . . . . . . . . . . . . . . . . . 186,900
These amounts are based on the followingassumptions and agreements:
• The amounts shown in the Salary col-umn of the Summary CompensationTable are used for calendar year 2005and all subsequent years, assuming nosalary changes. The amounts shown inthe Bonus column are used for 2005and annual incentive awards at the2006 target level (as further described
in the Human Resources CommitteeReport on Executive Compensationunder the heading Annual Incentiveon page 28) capped at 100% of salaryare used for all subsequent years be-yond 2005.
• Conversion of the lump-sum cash bal-ance to a single life annuity at age 65,based on an interest rate of 4.73% (theApplicable Interest Rate being used bythe Plans for 2006) and the 1994 GroupAnnuity Reserving Table published bythe Internal Revenue Service.
• Mr. Morris has an individual agree-ment with AEP that provides for anopening cash balance account of$2,100,000 as of January 1, 2004 (hisemployment commencement date) andannual credits at the maximum rateprovided under the AEP Plans(currently 8.5%). Mr. English also hasan individual agreement with AEP thatprovides for annual credits at the max-imum rate provided under the AEPPlans (currently 8.5%).
• Ms. Tomasky, Ms. Koeppel andMr. Powers have individual agree-ments with AEP that credit them withyears of service in addition to theiryears of service with AEP as follows:Ms. Tomasky, 20 years; Ms. Koeppel,15.25 years; and Mr. Powers, 17 years.That service credit was taken into ac-count in calculating their accruedbenefit under the AEP Plans as of De-cember 31, 2000, and therefore wasreflected in the amount credited totheir opening cash balance account asof January 1, 2001, the date the cashbalance formula first became effective.As mentioned above, the agreementsfor Ms. Koeppel and Mr. Powers pro-vide that their respective supple-mental retirement benefits are reducedby pension entitlements, if any, fromplans sponsored by prior employers.
In addition, employees who have con-tinuously participated in the AEP Plans sinceDecember 31, 2000 remain eligible for a pen-sion benefit using the final average pay for-mula that was in place before the im-
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plementation of the cash balance formula de-scribed above. Employees who are eligible forboth formulas will receive their benefits underthe formula that provides the higher benefit,given the participant’s choice of the form ofbenefit (single life annuity, lump sum, etc.).Participants who remain eligible to receive thefinal average pay formula will continue to ac-crue pension benefits under that formula untilDecember 31, 2010, at which time each partic-ipant’s final average pay benefit payable at theparticipant’s normal retirement age (the laterof age 65 or 5 years of service) will be frozenand unaffected by the participant’s subsequentservice or compensation. After December 31,2010, each participant’s frozen final averagepay benefit will be the minimum benefit a par-ticipant can receive from the AEP Plans at theparticipant’s normal retirement age.
Final average pay under the AEP Plans iscomputed using the highest average 36
consecutive months of the salary and bonusearned out of the participant’s most recent 10years of service. The information used tocompute the final average pay benefit forexecutive officers named in the SummaryCompensation Table above, other thanMr. Morris and Mr. English (who are not eligi-ble for the final average pay formula under theAEP Plans) and Mr. Hagan (whose final aver-age pay benefits are discussed below in con-nection with the CSW Plans), is equal to thesum of the Salary and Bonus columns shownin the Summary Compensation Table.
The following table shows the approx-imate annual annuities that would be payableto executive officers and other managementemployees under the final average pay formulaof the AEP Plans, assuming termination ofemployment on December 31, 2005 after vari-ous periods of service and with benefits com-mencing at age 65.
AEP Plans Pension Plan Table
Annual HighestAverage Earnings
Years of Accredited Service
15 20 25 30 35 40
$ 700,000 $164,535 $219,380 $274,225 $329,070 $383,915 $430,465750,000 176,535 235,380 294,225 353,070 411,915 461,790800,000 188,535 251,380 314,225 377,070 439,915 493,115850,000 200,535 267,380 334,225 401,070 467,915 524,440900,000 212,535 283,380 354,225 425,070 495,915 555,765950,000 224,535 299,380 374,225 449,070 523,915 587,090
1,000,000 236,535 315,380 394,225 473,070 552,915 618,8351,100,000 260,535 347,380 434,225 521,070 607,915 681,0651,200,000 284,535 379,380 474,225 569,070 663,915 743,7151,300,000 308,535 411,380 514,225 617,070 719,915 806,365
The amounts shown in the table are thestraight life annuities payable under the finalaverage pay formula of the AEP Plans withoutreduction for any optional features that may beelected at the participant’s expense. Retire-ment benefits listed in the table are not subjectto any further reduction for Social Security orother offset amounts. The retirement annuityis reduced 3% per year for each year prior toage 62 in the event of a termination ofemployment after age 55 and the participant’selection to commence benefits between ages55 and 62. If an employee terminatesemployment after age 55 and commencesbenefits at or after age 62, there is no reductionin the retirement annuity.
Under the AEP Plans, as of December 31,2005, for the executive officers named in theSummary Compensation Table (except forMr. Morris, Mr. English and Mr. Hagan), thenumber of years of service applicable for thefinal average pay formula were as follows:
Ms. Tomasky, 27.5 years; Ms. Koeppel, 20.75years; and Mr. Powers, 24.5 years. The years ofservice for Ms. Tomasky, Ms. Koeppel andMr. Powers include years of service providedby their respective agreements with AEP asdescribed above in connection with the cashbalance formula. The agreements forMs. Koeppel and Mr. Powers provide thattheir respective supplemental retirement bene-
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fits are reduced by pension entitlements, ifany, from plans sponsored by prior employers.
Under the CSW Plans, certain employeeswho were 50 or over and had completed atleast 10 years of service as of July, 1997, re-main eligible for benefits under the prior pen-sion formulas based on career average pay andfinal average pay. Of the executive officersnamed in the Summary Compensation Table,only Mr. Hagan is eligible to participate in theCSW Plans. He has a choice upon his termi-nation of employment to elect his benefit
based on the cash balance formula or the priorpension formulas.
The following table shows the approx-imate annual annuities that would be payableto employees in certain higher salary classi-fications under the prior benefit formulas pro-vided through the CSW Plans, assumingtermination of employment on December 31,2005 after various periods of service and withbenefits commencing at age 65, and prior toreduction by up to 50 percent of the partic-ipant’s Social Security benefit.
CSW Plans Pension Plan Table
Highest AverageAnnual Earnings
Years of Accredited Service
15 20 25 30 or more
$ 400,000 $100,000 $133,333 $166,667 $200,000450,000 112,500 150,000 187,500 225,000500,000 125,000 166,667 208,333 250,000550,000 137,500 183,333 229,167 275,000600,000 150,000 200,000 250,000 300,000650,000 162,500 216,667 270,833 325,000700,000 175,000 233,333 291,667 350,000
Under the CSW Plans, the annual normalretirement benefit payable from the final aver-age pay formula is based on 12⁄3% of “AverageCompensation” times the number of years ofcredited service (up to a maximum of 30years), reduced by no more than 50 percent ofthe participant’s age 62 or later Social Securitybenefit and then adjusted annually based onchanges in the consumer price index.
“Average Compensation” equals the averageannual compensation, reported as Salary inthe Summary Compensation Table, during the36 consecutive months of highest pay duringthe 120 months prior to retirement. Mr. Haganhas an agreement entered into with CSW priorto its merger with AEP under which he is enti-tled to a retirement benefit that is based upon30 years of credited service.
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Employment Agreement
The Company entered into an employ-ment agreement (Agreement) with Mr. Morristhat became effective January 1, 2004 for athree-year period. The Agreement is automati-cally renewed for additional one-year periodsunless Mr. Morris or the Company takesspecific actions to terminate it. The Agreementprovides that Mr. Morris receives an initialannual salary of $1,115,000, subject to in-crease, and will participate in the annual bo-nus and long-term incentive plans. Mr. Morrisis eligible to receive an annual bonus underthe Senior Officer Annual IncentiveCompensation Plan and his target percentagewill be equal to at least 100% of his base sal-ary. The Agreement awarded Mr. Morris anonqualified stock option grant for 149,000shares, a performance share grant for 119,000shares and 100,000 restricted shares as a bo-nus and an additional 200,000 restrictedshares as a replacement for certain long-termcompensation that Mr. Morris forfeited fromhis prior employer in order to accept employ-ment with the Company. One-half of the re-stricted shares awarded to Mr. Morris as abonus (50,000 shares) vested on January 1,2005 and the remaining 50,000 shares vestedon January 1, 2006. The restricted sharesawarded to Mr. Morris as a replacement forforfeited compensation will vest, subject to hiscontinued employment, in three approx-imately equal components of 66,666, 66,667and 66,667 shares on November 30, 2009,November 30, 2010 and November 30, 2011,respectively. Mr. Morris may use the Com-pany aircraft for personal use and receivesgross-up payments to cover applicable federal,state and local income taxes on the portion ofthe imputed income associated with such per-sonal use in accordance with AEP policy,which currently provides a gross-up only forincome taxes associated with certain spousaltravel. Mr. Morris is entitled to use ofmemberships sponsored by the Company atlocal country clubs and luncheon clubs and toparticipate in the Company’s financialcounseling program. Mr. Morris also is enti-tled to participate in the Company’s retireemedical insurance program as in effect on thedate of his retirement, although the Companymay pay Mr. Morris an amount in cash suffi-
cient, in the Company’s good faith determi-nation, for Mr. Morris to purchase a retireemedical insurance policy that provides equiv-alent benefits. The Company has purchased auniversal life insurance policy for Mr. Morristhat provides a $3 million death benefit.Mr. Morris was provided an opening balancein the AEP Excess Benefit Plan of $2.1 million,which vests in increments of 20% on each ofthe first five anniversary dates of his employ-ment. Mr. Morris is credited with the max-imum rate permitted under the RetirementPlan (currently at 8.5%) on all eligible earn-ings up to two times his annual base salary.See above under Retirement Benefits for addi-tional information. In the event the Companyterminates the Agreement for reasons otherthan cause, Mr. Morris will receive a sev-erance payment equal to two times his annualbase salary.
The Company entered into an employ-ment agreement (English Agreement) withMr. English that became effective August 2,2004. The English Agreement provides thatMr. English receives an initial annual salary of$500,000, subject to increase, twenty-five daysof vacation annually, and will participate inthe annual bonus and long-term incentiveplans. Mr. English is eligible to receive anannual bonus under the Senior Officer AnnualIncentive Compensation Plan and his targetpercentage will be equal to at least 65% of hisbase salary. The English Agreement awardedMr. English 30,000 restricted stock units.One-third of the restricted stock units awardedto Mr. English (10,000 units) vested on Au-gust 2, 2005 and the remaining 20,000 re-stricted stock units will vest in two equalcomponents of 10,000 units on August 2, 2006and August 2, 2007. Mr. English’s cash bal-ance account under the AEP Excess BenefitPlan is credited with the maximum ratepermitted (currently at 8.5%) on all eligibleearnings up to the greater of $1,000,000 or twotimes his annual base salary. See above underRetirement Benefits for additional information.In the event the Company terminatesMr. English’s employment for reasons otherthan cause before August 2, 2007, Mr. Englishwill receive a severance payment equal to hisannual base salary.
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Change-In-Control Agreements
AEP has change-in-control agreementswith all of the executive officers named in theSummary Compensation Table. If there is a“change-in-control” of AEP and the executiveofficer’s employment is terminated (i) by AEPwithout “cause” or (ii) by the officer becauseof a detrimental change in responsibilities, arequired relocation or a reduction in salary orbenefits, these agreements provide for:
• Lump sum payment equal to 2.99times the officer’s annual base salaryplus target annual incentive under theSenior Officer Annual Incentive Com-pensation Plan.
• Payment, if required, to make the offi-cer whole for any excise tax imposedby Section 4999 of the Internal Rev-enue Code.
• Outplacement services and othernon-cash severance or separationbenefits under the terms of a plan oragreement as may then be available toother employees.
“Change-in-control” under ourchange-in-control agreements means:
• The acquisition by any person of thebeneficial ownership of securities rep-resenting more than one-third of AEP’svoting stock;
• A merger or the consolidation of AEPwith another corporation unless AEP’svoting securities outstanding immedi-ately before such merger or con-solidation continue to represent atleast two-thirds of the total votingpower of AEP or the surviving entityoutstanding immediately after suchmerger or consolidation; or
• Approval by the shareholders of theliquidation of AEP or the dispositionof all or substantially all of the assetsof AEP.
In addition to the change-in-controlagreements described above, the Amendedand Restated American Electric Power SystemLong-Term Incentive Plan (as approved at the2005 meeting of shareholders) authorizes theHR Committee to include change-in-controlprovisions in award agreements. Such provi-sions may include one or more of the follow-ing: (1) the acceleration or extension of timeperiods for purposes of exercising, vesting inor realizing gains from any award; (2) thewaiver or modification of performance orother conditions related to the payment orother rights under an award; (3) provision forthe cash settlement of an award for an equiv-alent cash value; and (4) modification or ad-justment to the award as the HR Committeedeems appropriate to protect the interests ofparticipants upon or following achange-in-control. The outstanding awardagreements issued to the executive officerscontain provisions that accelerate the vestingand exercise dates of unexercised options andthat offer a cash settlement upon achange-in-control.
“Change-in-control” is defined under theAmended and Restated American ElectricPower System Long-Term Incentive Plan as:
• The acquisition by any person of thebeneficial ownership of securities rep-resenting 25% or more of AEP’s votingstock;
• A change in the composition of a ma-jority of the Board of Directors undercertain circumstances within anytwo-year period; or
• Approval by the shareholders of theliquidation of AEP, disposition of allor substantially all of the assets of AEPor, under certain circumstances, amerger of AEP with another corpo-ration.
The AEP Excess Benefit Plan also pro-vides that all accrued supplemental retirementbenefits become fully vested upon achange-in-control, defined in a manner similarto the Amended and Restated Long-Term In-centive Plan as described above.
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Human Resources Committee Report On Executive Compensation
The Human Resources Committee of theBoard of Directors (HR Committee) annuallyreviews AEP’s executive compensation in thecontext of the performance of managementand the Company. None of the members of theHR Committee is an officer or employee of anyAEP System company. In addition, each of thecurrent members of the HR Committee hasbeen determined to be independent by theBoard in accordance with SEC and NYSErules. The HR Committee held 6 meetings in2005.
In setting compensation levels, the HRCommittee recognizes that AEP’s executiveofficers are charged with managing one of thelargest and most geographically diverse elec-tric generation, transmission and distributioncompanies in a dynamic business atmospherethat requires high levels of business and man-agement innovation.
AEP’s executive compensation is designedto maximize shareholder value, to support theimplementation of the Company’s businessstrategy, and to improve both corporate andpersonal performance. The HR Committee’scompensation policies supporting these ob-jectives are:
• To pay in a manner that motivatesboth short- and long-term perform-ance, focuses on meeting specifiedcorporate goals and promotes the long-term interests of shareholders.
• To place a substantial amount of com-pensation for senior executives at riskin the form of variable incentive com-pensation instead of fixed or base pay,with much of this risk similar to therisk experienced by other AEP share-holders.
• To establish compensation oppor-tunities that enhance the Company’sability to attract, retain, reward, moti-vate and encourage the developmentof exceptionally knowledgeable,highly qualified and experiencedexecutives.
• To provide compensation that is re-flective of current market practices inorder to maintain a stable and success-ful management team.
In carrying out its responsibilities, the HRCommittee has hired a nationally recognizedindependent consultant to provide recom-mendations to the HR Committee regardingAEP’s compensation and benefits programsand practices, and to provide information oncurrent trends in executive compensation andbenefits within the energy services industryand among U.S. industrial companies in gen-eral. The HR Committee regularly holdsexecutive sessions with its independent con-sultant and without Company managementpresent to help ensure that it receives full andindependent advice.
The HR Committee annually reviewsAEP’s executive compensation relative to aCompensation Peer Group comprised of com-panies that represent the talent markets fromwhich AEP must compete to attract and retainexecutives. The HR Committee annually re-views and adjusts the composition of theCompensation Peer Group to ensure that itprovides appropriate compensation compar-isons. For 2005, the Compensation Peer Groupconsists of 14 large and diversified energyservices companies, plus 12 Fortune 500 com-panies, which, taken as a whole, approx-imately reflect the Company’s size, scale,business complexity and diversity. This Com-pensation Peer Group differs from the S&P 500and the S&P Utility indexes, which are usedfor financial comparison purposes in the graphtitled “Comparison of Five Year CumulativeTotal Return” on page 31 in this proxy state-ment. The HR Committee generally uses me-dian compensation information of theCompensation Peer Group as its benchmarkbut does consider other comparisons, such asalternative percentile benchmarks andindustry-specific compensation surveys, whenevaluating compensation.
In 2005 the HR Committee also began us-ing “tally sheets” to evaluate the total rewardspackage for the CEO. These “tally sheets” in-clude all significant aspects of the total re-wards program under various performance,termination and stock price scenarios that il-lustrate the upper and lower extremes of thepotential value of this package.
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Stock Ownership Guidelines
The HR Committee believes that linking asignificant portion of an executive’s currentand potential future net worth to the Compa-ny’s success, as reflected in the stock priceand dividends paid, gives the executive astake similar to that of the Company’s share-holders and further encourages long-termmanagement strategies for the benefit ofshareholders. Therefore, the HR Committeerequires senior managers to accumulate andhold a specific amount of AEP Common Stockor stock equivalents in order to further alignexecutive and shareholder interests. The HRCommittee annually reviews the minimumstock ownership levels for each salary gradeand periodically adjusts these levels as theydetermine to be appropriate. Due to changes inthe ownership levels and promotions, execu-tives may have multiple stock ownership re-quirements that they are expected to achievewithin five years of the date each suchrequirement is assigned. AEP’s minimumownership levels are directly related to the of-ficer’s corporate position, with the largest re-quirement assigned to the Chief ExecutiveOfficer (CEO). The largest minimum stockownership requirements assigned to each ofthe executive officers named in the SummaryCompensation Table are 109,300 shares forthe CEO; 52,700 for the Chief Financial Offi-cer (CFO) and President of AEP Utilities;and 35,300 for each of the Executive VicePresidents.
Personal AEP stock holdings, restrictedstock, and common stock equivalents resultingfrom performance units, deferred compensa-tion and balances in the AEP stock fund of theAEP System Retirement Savings Plan, AEPSystem Supplemental Retirement Savings Planand the AEP Incentive Compensation DeferralPlan can be included in determining com-pliance with minimum stock ownership re-quirements. All performance units that areearned are mandatorily deferred into phantomstock units (“career shares”), a common stockequivalent, for participants who have not metall of their minimum stock ownershiprequirements. Participants are required to holdthese career shares at least until after theirAEP employment ends. In addition, executivesthat have not met a minimum stock ownership
requirement within its associated five-yearperiod will be required to (i) defer twenty-fivepercent (25%) of annual incentive compensa-tion into AEP phantom stock units and(ii) retain all AEP shares realized through AEPstock options exercises, except an amountequal to the exercise costs and tax with-holding, until the minimum stock ownershiprequirement has been satisfied. On January 1,2006, the mandatory annual incentivecompensation deferral, described in (i) above,was increased to fifty percent (50%).
Messrs. Morris, Hagan and Powers havemet all of their stock ownership requirements.Ms. Tomasky has met her two previously as-signed stock ownership requirements and ison track to meet the ownership requirementassigned to her in January 2005. Ms. Koeppelhas met the stock ownership requirement as-signed to her in January 2004 and is on trackto reach the stock ownership target require-ment assigned to her in January 2005.Mr. English is also on track to meet the stockownership requirement assigned to him inJanuary 2005, which is the only such require-ment he has been assigned. See the table onpage 32 for actual ownership amounts.
Components of Executive Compensation
Base Salary. When reviewing executivebase salaries, the HR Committee considers thepay practices of its Compensation Peer Group;the responsibilities, performance, and experi-ence of each executive officer; reporting rela-tionships; supervisor recommendations; andthe relationship of the base salaries of execu-tive officers to the base salaries of other AEPemployees. Base salaries are reviewed annu-ally and adjusted, when and as appropriate, toreflect individual performance, changes inresponsibility, external market data, internalpay equity and other factors.
The HR Committee generally targets totalcompensation levels at the median of AEP’sCompensation Peer Group. This practice pla-ces at risk more than 80 percent of the totalcompensation opportunity for the CEO and 65percent of that for the other executive officerslisted in the Summary Compensation Table,which is consistent with the HR Committee’spolicy of placing a substantial portion of thecompensation for executive officers at risk.
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Annual Incentive. The primary purposeof AEP’s annual incentive compensation is tomotivate senior management to meet and ex-ceed annual objectives that are part of theCompany’s strategic plan for maximizingshareholder value. AEP’s Senior Officer In-centive Plan (SOIP) provides a variable,performance-based annual incentive as part oftotal compensation for the Company’s execu-tive officers.
SOIP participants are assigned an annualtarget award expressed as a percentage of baseearnings for the period. For 2005 the HRCommittee established the annual SOIP targetawards at 100% of salary for Mr. Morris; 65%for Ms. Tomasky and Mr. English; and 60% ofsalary for the other executive officers namedin the Summary Compensation Table. For2006 the HR Committee increased the annualSOIP target award for Mr. Morris to 110 per-cent of salary. All other SOIP targets are thesame as they were in 2005.
SOIP awards for 2005 were based onpre-established performance measures thatincluded an earnings per share component,which determined the size of the company-wide bonus pool that provides an annual in-centive award opportunity for the generalworkforce as well as executive officers, andthe following additional performance meas-ures, which determined the allocation fromthe company-wide bonus pool to the SOIP:
• Safety Performance (25%),
• Workforce Development (25%),
• Strategic Planning (25%), and
• Environmental Stewardship (25%).
The HR Committee maintains both pos-itive and negative discretion over all SOIP per-formance measure results and individualawards to help insure that awards are alignedwith results. Actual awards for 2005 couldhave varied from zero percent to 200 percentof the target award based on performance.
AEP’s earnings per share in 2005 ex-ceeded the level needed to fully fund thecompany-wide bonus pool and this, combinedwith the scores for the above performancemeasures, produced an aggregate award score
of 179.4% of the sum of the target awards forall SOIP participants. Individual awards fromthe bonus pool for senior officers, except forthe CEO, are made at the discretion of the CEOto reflect each executive’s performance andcontribution and are subject to the approval ofthe HR Committee. The award for the CEO ismade at the discretion of the HR Committeeand is subject to the approval of the in-dependent members of the Board. The actualamounts earned for 2005 are shown for theexecutive officers listed in the SummaryCompensation Table.
Long-Term Incentive. The primary pur-pose of longer-term, equity-based, incentivecompensation is to motivate senior managersto maximize shareholder value by linking aportion of compensation directly to share-holder return.
All AEP long-term incentive (LTI) awardsto executive officers are made under theshareholder-approved Amended and RestatedAmerican Electric Power System Long-TermIncentive Plan. This plan provides varioustypes of LTI awards and a wide variety of per-formance measures from which the HR Com-mittee may choose to provide the most effec-tive incentives to Company management forachievement of the Company’s strategies andgoals.
Stock Options
Beginning in January 2005 the HR Commit-tee stopped issuing new stock options as partof its regular LTI program, in favor of in-creased utilization of performance units. TheHR Committee believes this change wasnecessary to reflect changes in AEP’s businessobjectives, external market compensationpractices, and the cost-benefit ratio of stockoptions relative to other alternatives. There-fore, no stock options were awarded to anyexecutive officer in 2005.
Performance Units
The HR Committee’s practice is to annu-ally grant long-term incentive awards in theform of performance units to senior manage-ment for a three-year performance and vestingperiod beginning January 1st of the current
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year. Beginning with 2005, the HR Committeedecided to rely entirely on performance unitsfor the Company’s regular long-term incentiveprogram in lieu of utilizing a mix of stock op-tions and performance units. The HR Commit-tee granted target performance unit awards,effective January 1, 2005, to Mr. Morris,Ms. Tomasky, Mr. English, Mr. Powers,Mr. Hagan and Ms. Koeppel in the amounts of150,000, 37,500, 34,100, 22,500, 21,200 and21,200, performance units, respectively. Theseperformance units were granted for the three-year performance period (2005-2007) and gen-erally vest, subject to the participant’s con-tinued employment, at the end of theperformance period. Dividends are reinvestedin additional performance units for the sameperformance and vesting period using theclosing price of AEP Common Stock on thedividend payment date. The performance unitawards for the 2005-2007 performance periodmay be earned subject to two equally weightedperformance measures: three-year total share-holder return measured relative to the S&PUtilities and three-year cumulative earningsper share measured relative to a board-approved target. The scores for these perform-ance measures determine the percentage of theperformance units outstanding at the end ofthe performance period that are earned andcan range from zero percent to 200 percent.The value of each performance unit that isearned equals the average closing price of AEPCommon Stock for the last 20 days of the per-formance period.
Payments of earned performance unitawards are initially deferred in the form ofcareer shares (equivalent in fair value to sharesof AEP Common Stock) until the participanthas met his or her stock ownership require-ment. Such deferrals continue until at least theparticipant’s termination of employment.Once participants reach their stock ownershiprequirement, they may then elect either to de-fer subsequently earned awards into the AEPIncentive Compensation Deferral Plan, whichoffers returns equivalent to various market-based investment options, including AEPstock equivalents, or to receive subsequentlyearned awards in cash or AEP Common Stock.
As previously reported in the 2004 proxystatement, the HR Committee established per-formance unit targets in January of 2003 for
the then current members of senior manage-ment with respect to the 2003-2005 perform-ance period. AEP’s total shareholder returnrelative to the S&P Utilities was established asthe sole performance measure for thisperformance period. During this period AEP’stotal shareholder return was at the 35th percen-tile of the S&P Utilities, which resulted in par-ticipants earning 49.0 percent of the perform-ance unit targets originally established for thisperformance period and the associated divi-dend credits. The awards earned for the 2003-2005 performance period are listed as LTIPPayouts in the Summary Compensation Table.
A further description of performance unitawards is shown under Long-Term IncentivePlans – Awards in 2005 on page 19.
Restricted Stock and Restricted Stock Units
Upon his hire and pursuant to his employ-ment agreement, the HR Committee granted100,000 restricted shares to Mr. Morris as abonus and an additional 200,000 restrictedshares as a replacement for certain long-termcompensation from his prior employer thatMr. Morris was required to forfeit in order toaccept employment with AEP. These restrictedshares are shares of AEP Common Stock thatinclude dividend and voting rights but thatcannot be sold, transferred, pledged or other-wise encumbered until they vest. One-half ofthe restricted shares awarded to Mr. Morris asa bonus (50,000 shares) vested on January 1,2005, and the remaining one-half vested onJanuary 1, 2006. The restricted shares awardedto Mr. Morris as a replacement for forfeitedcompensation will vest, subject to his con-tinued employment, in three approximatelyequal components of 66,666, 66,667 and66,667 shares on November 30,2009, November 30, 2010 and November 30,2011, respectively. The HR Committee be-lieves that granting these restricted shares toMr. Morris was reasonable, appropriate andnecessary in order to ensure his hire and atimely and successful CEO transition, as wellas to motivate Mr. Morris to vigorously pursuethe interests of shareholders. The value of therestricted shares awarded to Mr. Morris is in-cluded in the Restricted Stock Award columnof the Summary Compensation Table.
On February 22, 2005 Mr. Morris was alsoawarded 5,000 restricted stock units as part of
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his annual incentive award for 2004. One-third of these restricted stock units vested onFebruary 22, 2006 and the remainder will gen-erally vest, subject to Mr. Morris’ continuedemployment, in two equal portions on thesecond and third anniversary of the grant date(February 22 of 2007 and 2008). Dividends onAEP’s restricted stock units are mandatorilyreinvested in additional units using the clos-ing price of AEP Common Stock on the divi-dend payment date. Restricted stock units thatresult from the reinvestment of dividends gen-erally vest, subject to the participant’s con-tinued employment, on the last vesting dateassociated with the underlying award.Mr. Morris received an additional 144 AEPstock units during 2005 due to the reinvest-ment of dividends on these restricted stockunits.
Upon his hire, the HR Committee granted30,000 restricted stock units to Mr. English asboth a replacement for certain long-term com-pensation from his prior employer that he wasrequired to forfeit in order to accept employ-ment with AEP and as a signing bonus.One-third of these restricted stock units vestedon August 2, 2005 and the remainder willgenerally vest, subject to his continued em-ployment, in equal parts on the second andthird anniversary of the grant date (August 2 of2006 and 2007). Mr. English also received anadditional 1,024 AEP stock units during 2005due to the reinvestment of dividends on theserestricted stock units.
No restricted shares or restricted stockunits were awarded to any other executivenamed in the Summary Compensation Table,but the HR Committee did award restrictedstock units to other executives and keyemployees who are not listed in the SummaryCompensation Table during 2005 and expectsto continue to do so periodically in the future.
Tax Policy on Deductibility of Compensation
The HR Committee has considered theeffect of Section 162(m) of the Internal Rev-enue Code, which limits the deductibility ofcompensation in excess of $1,000,000 paid inany year to the Company’s chief executiveofficer or any of the next four highest paidexecutive officers named in the SummaryCompensation Table who are serving as such
at the end of the year. The HR Committee con-siders the limits imposed by Section 162(m)when designing compensation programs forthe Company. However, the HR Committeebelieves that the Company needs flexibility tomeet its incentive and retention objectives,even if the Company may not deduct all of itscompensation. Performance units and stockoptions issued under the Amended and Re-stated American Electric Power System Long-Term Incentive Plan have been structured tobe exempt from the deduction limit becausethey are made pursuant to a shareholder-approved, performance-driven plan. Annualincentive awards under the SOIP are not eligi-ble for the performance-based exemption be-cause the SOIP has not been designed or im-plemented in a manner that would complywith the requirements of Section 162(m). TheHR Committee believes that it is in the inter-ests of the Company to maintain flexibility toadjust annual incentive awards above or belowthe amount a strict performance formula mightprovide to reflect qualitative performance fac-tors. The reservation of such discretion, in it-self, would preclude the application of theexemption from the Section 162(m) deductionlimits.
Other than the compensation describedbelow for Mr. Morris and Mr. English, nocompensation was paid in 2005 in excess ofthe Section 162(m) limit. The restricted sharesgranted to Mr. Morris upon his hire and pur-suant to his employment agreement are notperformance-based awards. The value of theseawards upon vesting, his 2005 annual bonusand the portion of his salary in excess of $1million, will not be tax deductible for theCompany. The restricted stock units granted toMr. English upon his hire are notperformance-based awards. The value of theseawards upon vesting and a portion of hisannual incentive for 2005 will not be tax de-ductible for the Company. The HR Committeeintends to continue to consider the effect ofSection 162(m) in its executive compensationdecisions and in evaluating AEP’s executivecompensation programs.
Human Resources Committee MembersJohn P. DesBarres, ChairDonald M. CarltonRobert W. Fri
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Comparison of 5 Year Cumulative Total Return*Among American Electric Power Company, Inc., the S&P 500 Index
and the S&P Utilities Index
* $100 invested on 12/31/00 in stock or index-including reinvestment of dividends. Fiscal yearending December 31.
Copyright©2006, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.All rights reserved. www.researchdatagroup.com/S&P.htm
12/00 12/01 12/02 12/03 12/04 12/05
AEP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00 98.72 66.30 79.04 92.87 104.33S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00 88.12 68.64 88.33 97.94 102.75S&P Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00 83.22 70.69 87.71 111.01 130.62
The total return performance shown on the graph above is not necessarily indicative of futureperformance.
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Share Ownership of Directorsand Executive OfficersTHE FOLLOWING TABLE sets forth the beneficialownership of AEP Common Stock and stock-based units as of January 1, 2006 for all nomi-nees to the Board of Directors, each of the per-sons named in the Summary Compensation
Table and all such Directors and executive offi-cers as a group. Unless otherwise noted, eachperson had sole voting and investment powerover the number of shares of AEP CommonStock and stock-based units of AEP set forthacross from his or her name. Fractions ofshares and units have been rounded to thenearest whole number.
Name SharesStock
Units(a)Options Exercisable
Within 60 Days Total
E. R. Brooks . . . . . . . . . . . . . . . . . . . . . . 21,221 9,482 — 30,703D. M. Carlton . . . . . . . . . . . . . . . . . . . . . 7,432 9,482 — 16,914R. D. Crosby, Jr. . . . . . . . . . . . . . . . . . . . — — — —J. P. DesBarres . . . . . . . . . . . . . . . . . . . . 5,000(c) 12,799 — 17,799C. E. English . . . . . . . . . . . . . . . . . . . . . . — (d) 28,461 — 28,461R. W. Fri . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 11,695 — 14,695L. A. Goodspeed . . . . . . . . . . . . . . . . . . . — 539 — 539T. M. Hagan . . . . . . . . . . . . . . . . . . . . . . 15,972(b) 28,467 142,166 186,605W. R. Howell . . . . . . . . . . . . . . . . . . . . . 1,692 9,821 — 11,513L. A. Hudson, Jr. . . . . . . . . . . . . . . . . . . 1,853(e) 14,314 — 16,167H. K. Koeppel . . . . . . . . . . . . . . . . . . . . . 256(b) 28,702 78,867 107,825M. G. Morris . . . . . . . . . . . . . . . . . . . . . . 301,085(g) 164,034 99,333 564,452L. L. Nowell III . . . . . . . . . . . . . . . . . . . . — 3,152 — 3,152R. P. Powers . . . . . . . . . . . . . . . . . . . . . . 685(b)(d) 29,705 170,968 201,358R. L. Sandor . . . . . . . . . . . . . . . . . . . . . . 1,092 12,204 — 13,296D. G. Smith . . . . . . . . . . . . . . . . . . . . . . . 2,500 12,282 — 14,782K. D. Sullivan . . . . . . . . . . . . . . . . . . . . . — 18,322 — 18,322S. Tomasky . . . . . . . . . . . . . . . . . . . . . . . 3,357(b)(d) 35,353 246,000 284,710All directors, nominees and executive
officers as a group (20 persons) . . . . 407,376(d)(f) 452,447 737,334 1,597,157
(a) This column includes amounts deferred in Stock Units and held under AEP’s various directorand officer benefit plans.
(b) Includes the following numbers of share equivalents held in the AEP Retirement Savings Plan:Ms. Tomasky, 3,357; Ms. Koeppel, 256; Mr. Hagan, 5,479; Mr. Powers, 685; and all directorsand executive officers as a group, 9,777.
(c) Includes 5,000 shares held in joint tenancy with a family member.(d) Does not include, for Ms. Tomasky, Mr. English and Mr. Powers, 42,231 shares in the Ameri-
can Electric Power System Educational Trust Fund over which Ms. Tomasky, Mr. English andMr. Powers share voting and investment power as trustees (they disclaim beneficialownership). The amount of shares shown for all directors and executive officers as a groupincludes these shares.
(e) Includes 750 shares held by family members of Dr. Hudson over which he disclaims beneficialownership.
(f) Represents less than 1% of the total number of shares outstanding.(g) Includes restricted shares with different vesting schedules.
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Section 16(a) BeneficialOwnership ReportingComplianceSECTION 16(a) of the Exchange Act requiresAEP’s executive officers and directors to fileinitial reports of ownership and reports ofchanges in ownership of Common Stock ofAEP with the SEC. Executive officers and di-rectors are required by SEC regulations to fur-nish AEP with copies of all reports they file.Based solely on a review of the copies of suchreports furnished to AEP and written repre-sentations from AEP’s executive officers anddirectors during the fiscal year ended De-cember 31, 2005, AEP believes that all Sec-tion 16(a) filing requirements were met during2005.
Share Ownership of CertainBeneficial OwnersSET FORTH BELOW are the only persons orgroups known to AEP as of December 31,2005, with beneficial ownership of five per-cent or more of AEP Common Stock.
AEP Shares
Name, Address ofBeneficial Owner
Amount ofBeneficialOwnership
Percent ofClass
AXA Financial, Inc., 27,585,092(a) 7.0%1290 Avenue of the
AmericasNew York, NY 10104
Barrow, Hanley,Mewhinney &Strauss, Inc. 24,562,886(b) 6.24%2200 Ross Avenue31st FloorDallas, TX 75201-2761
(a) Based on the Schedule 13G jointly filedwith the SEC, AXA Financial, Inc., AXAAssurances I.A.R.D. Mutuelle, AXAAssurances Vie Mutuelle and AXA Court-age Assurance Mutuelle, and AXA re-ported that they have sole voting powerfor 16,014,740 shares, shared votingpower for 2,579,251 shares, sole dis-positive power for 27,555,013 shares andshared dispositive power for 30,079shares.
(b) Based on the Schedule 13G, Barrow, Han-ley, MeWhinney & Strauss, Inc. reportedthat it has sole power to vote 4,907,630shares, shared voting power for19,655,256 shares, sole dispositive powerfor 24,562,886 shares.
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Shareholder Proposals andNominationsTO BE INCLUDED in AEP’s proxy statement andform of proxy for the 2007 annual meeting ofshareholders, any proposal which a share-holder intends to present at such meetingmust be received by AEP, attention: John B.Keane, Secretary, at AEP’s office at 1 RiversidePlaza, Columbus, OH 43215 by November 15,2006.
Notice to nominate a director must in-clude your name, address, number of sharesyou own; the name, age, business address,residence address and principal occupation ofthe nominee and the number of shares benefi-cially owned by the nominee. It must also in-clude all the information required in AEP’sPolicy on Consideration of Candidates for Di-rector Recommended by Shareholders. A copyof this Policy is posted on our website atwww.AEP.com. All such notices must be re-ceived by AEP, attention: John B. Keane,Secretary, at AEP’s office at 1 Riverside Plaza,Columbus, OH 43215 by November 15, 2006.The Secretary will forward the recom-mendations to the Committee on Directors andCorporate Governance for consideration.
For any proposal intended to be presentedby a shareholder without inclusion in AEP’sproxy statement and form of proxy for the2007 annual meeting, the proxies named inAEP’s form of proxy for that meeting will beentitled to exercise discretionary authority onthat proposal unless AEP receives notice of thematter by January 30, 2007. However, even ifnotice is timely received, the proxies maynevertheless be entitled to exercise discre-tionary authority on the matter to the extentpermitted by SEC regulations.
Solicitation ExpensesThe costs of this proxy solicitation will be
paid by AEP. Proxies will be solicited princi-pally by mail and the internet, but some tele-phone or personal solicitations of holders ofAEP Common Stock may be made. Any offi-cers or employees of the AEP System whomake or assist in such solicitations will re-ceive no compensation, other than their regu-lar salaries, for doing so. AEP will requestbrokers, banks and other custodians orfiduciaries holding shares in their names or inthe names of nominees to forward copies ofthe proxy-soliciting materials to the beneficialowners of the shares held by them, and AEPwill reimburse them for their expenses in-curred in doing so at rates prescribed by theNew York Stock Exchange. Morrow & Co., Inc.will assist in the solicitation of proxies by AEPfor a fee of $8,500, plus reasonableout-of-pocket expenses.
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