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AEP Forms Transmission JV

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American Electric PowerCompany Inc. (AEP) announced that it has formed a new joint venture (:JV) with Great Plains Energy Incorporated (GXP) in order to develop and invest in transmission projects. The majority of the new company Transource Energy LLC would be owned by American Electric Power (86.5% stake) while the rest (13.5% stake) would be owned by Great Plains Energy.

Through Transource, American Electric Power and Great Plains Energy plan to pursue competitive transmission projects in regional transmission organizations - PJM Interconnection, Southwest Power Pool and Midwest Independent Transmission System Operator Inc.

Going forward, Transource would seek approval from the Missouri Public Service Commission for line certificates granting authority to construct, own and operate two projects currently under the purview of Great Plains Energy.

Of the two projects, the Sibley-Nebraska City line is a 175-mile, 345-kilovolt line linking the Nebraska City substation with the Sibley substation. Transource will construct and own around 170 miles of the transmission line. The project, estimated to cost $380 million, has an anticipated in-service date of 2017. The other project  - the Iatan-Nashua line - is a 30-mile, 345-kilovolt line from the Iatan substation near Weston to the Nashua substation near Smithville. The Iatan-Nashua project, estimated to cost $54 million, has an anticipated in-service date of 2015.

Columbus, Ohio-based American Electric Power is a public utility holding company which, through directly and indirectly owned subsidiaries, generates, transmits, and distributes electricity, natural gas, and other commodities. The company derives revenues mainly from power-generating activities.

American Electric Power is one of the largest electric utilities in the U.S., delivering electricity to more than 5 million customers in 11 states. The company ranks among the nation's largest generators of electricity, owning nearly 39,000 megawatts of generating capacity in the U.S.

American Electric Power also owns the nation's largest electricity transmission system, a nearly 39,000-mile network which includes additional 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. The company's utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana and east Texas).

In recent times, American Electric Power is experiencing growth in industrial volume. In fiscal 2011, the company saw a 4% jump in industrial volume owing to increased production. We view the growth in industrial demand as a significant indicator of a reviving economy, a fact that will surely benefit the company going forward.  

We appreciate the company’s decision to focus on shareholder value through payment of incremental dividends. The company currently dishes out an annualized dividend of $1.88 with a yield of 4.8%. American Electric Power presently retains a short-term Zacks #3 Rank, which translates into a short-term Hold rating. We have a long-term Neutral recommendation on the stock.

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