SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

(Amendment No. )

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Filed by a Party other than the Registrant    ¨

Check the appropriate box:

x    Definitive Proxy Statement

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¨    Soliciting Material Pursuant to Rule 14a-12.

American Electric Power Company, Inc.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

Notice of 20062007 Annual Meeting • Proxy Statement

				American Electric Power 1 Riverside Plaza Columbus, OH 43215
				Michael G. Morris Chairman of the Board, President and Chief Executive Officer

March 15, 20062007

Dear Shareholder:

This year’s annual meeting of shareholders will be held at The Embassy Suites Hotel, 300 CourtShreveport Convention Center, 400 Caddo Street, Charleston, West Virginia,Shreveport, Louisiana, on Tuesday, April 25, 2006,24, 2007, at 9:30 a.m. EasternCentral Time.

Your Board of Directors and I cordially invite you to attend. Registration will begin at 8:00 a.m. Only shareholders who owned shares on the record date, March 2, 2006,6, 2007, are entitled to vote and attend the meeting. PLEASE NOTE THAT YOU WILL NEED TO PRESENT AN ADMISSION TICKET TO ATTEND THE MEETING. If your shares are registered in your name, and you received your proxy materials by mail, your admission ticket is attached to your proxy card. A map and directions are printed on the admission ticket. If your shares are registered in your name and you received your proxy materials electronically via the internet, you will need to print an admission ticket after you vote by clicking on the “Options” button. If you hold shares through an account with a bank or broker, you will need to contact them and request a legal proxy, or bring a copy of your statement to the meeting that shows that you owned 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 questions regarding AEP’s affairs. Directors and officers will be available to talk individually with shareholders before and after the meeting.

Your vote is very important. Shareholders of record can vote in any one of the following three ways:

If your shares are held in the name of a bank, broker or other holder of record, you will receive instructions from 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,

/s/ Michael G. Morris

NOTICE OF 20062007 ANNUAL MEETING

American Electric Power Company, Inc.

1 Riverside Plaza

Columbus, Ohio 43215

Our annual meeting of shareholders also will be webcast at http://www.AEP.com/go/webcasts at 9:30 a.m. EasternCentral Time on April 25, 2006.24, 2007.

Proxy Statement

March 15, 20062007

Proxy and Voting Information

THISPROXYSTATEMENT and the accompanying proxy card are to be mailed to shareholders, commencing on or about March 15, 2006,2007, in connection with the solicitation of proxies by the Board of Directors of American Electric Power Company, Inc., 1 Riverside Plaza, Columbus, Ohio 43215, for the annual meeting of shareholders to be held on April 25, 200624, 2007 in Charleston, West Virginia.Shreveport, Louisiana.

We use the terms “AEP,” the “Company,” “we,” “our” and “us” in this proxy statement to refer to American Electric Power Company, Inc. and, where applicable, its subsidiaries. All references to “years,” unless otherwise noted, refer to our fiscal year, which ends on December 31.

Who Can Vote.Vote.    Only the holders of shares of AEP Common Stock at the close of business on the record date, March 2, 2006,6, 2007, are entitled to vote at the meeting. Each such holder has one vote for each share held on all matters to come before the meeting. On that date, there were 393,903,133397,839,949 shares of AEP Common Stock, $6.50 par value, outstanding.

How You Can Vote.Vote.    Shareholders of record can give proxies by (i) mailing their signed proxy cards; (ii) calling a toll-free telephone number; or (iii) using the internet. The telephone and internet voting procedures are designed to authenticate shareholders’ identities, to allow shareholders to give their voting instructions and to confirm that shareholders’ instructions have been properly recorded. Instructions for shareholders of record who wish to use the telephone or internet voting procedures are set forth on the enclosed proxy card.

When proxies are returned, the shares represented thereby will be voted by the persons named on the proxy card or by their substitutes in accordance with shareholders’ directions. If a proxy card is signed and returned without choices marked, it will be voted for the nominees for directors listed on the card and as recommended by the Board ofDirectors with respect to other matters. The proxies of shareholders who are participants in the Dividend Reinvestment and Stock Purchase Plan include both the shares registered in their names and the whole shares held in their Plan accounts on March 2, 2006.6, 2007.

Revocation of Proxies.Proxies.    A shareholder giving a proxy may revoke it at any time before it is voted at the meeting by giving notice of its revocation to the Company, by executing another proxy dated after the proxy to be revoked, or by attending the meeting and voting in person.

How Votes are Counted.Counted.    The presence of the holders of a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting, present in person or represented by proxy, is necessary to constitute a quorum. Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A “broker non-vote” occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.

If you are a beneficial shareholder and your broker holds your shares in its name, the broker is permitted to vote your shares on the election of directors and the ratification of Deloitte & Touche LLP as our independent registered public accounting firm even if the broker does not receive voting instructions from you. Under the New York Stock Exchange (NYSE) rules, your broker may not vote your shares on the proposal relating to the adoption of the Senior Officer Incentive Plan.

A plurality of the votes cast is required for the election of directors. Only votes “for” or “withheld” affect the outcome. Abstentions are not counted for purposes of the election of directors.

The votes cast “for” must exceed the votes cast “against” to approve the ratification of Deloitte & Touche LLP as our independent registered public accounting firm.firm and the adoption of the Senior Officer Incentive Plan. Abstentions and broker non-votes are not counted as votes “for” or “against” this proposal.these proposals.

Your Vote is Confidential.Confidential.    It is AEP’s policy that shareholders be provided privacy in voting. All proxies, voting instructions and

ballots, which identify shareholders, are held on a confidential basis, except as may be necessary to meet any applicable legal requirements. We direct proxies to an independent third-party tabulator, who receives, inspects, and tabulates them. Voted proxies and ballots are not seen by nor reported to AEP except (i) in aggregate number or to determine if (rather than how) a shareholder has voted; (ii) in cases where shareholders write comments on their proxy cards; or (iii) in a contested proxy solicitation.

Multiple Copies of Annual Report or Proxy Statement to Shareholders.Shareholders.    Securities and Exchange Commission (SEC) rules provide that more than one annual report or proxy statement need not be sent to the same address. This practice is commonly called “householding” and is intended to eliminate duplicate mailings of shareholder documents. Mailing of your annual report or proxy statement is being householded indefinitely unless you instruct us otherwise. If more than one annual report or proxy statement is being sent to your address, at your request, mailing of the duplicate copy will be discontinued. If you wish to resume receiving separate annual reports or proxy statements at the same address, you may call our transfer agent, Computershare Trust Company, N.A., at 800-328-6955 or write to them at P.O. Box 43081, Providence, RI 02940-3081. The change will be effective 30 days after receipt. We will deliver promptly upon oral or written request a separate copy of the annual report or proxy statement to a shareholder at a shared address. To receive a separate copy of the annual report or proxy statement, contact AEP Shareholder Direct at 800-551-1AEP (1237) or write to AEP, attention: Investor Relations, at 1 Riverside Plaza, Columbus, OH 43215.

Additional Information.Information.    Our website address iswww.aep.com. We make available free of charge on the Investor Relations section of our website (www.AEP.com/investors) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after suchmaterial is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934(Exchange (Exchange Act). We also make available through our website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act. You may request any of these materials and information in print by contacting Investor Relations at: AEP, attention: Investor Relations, 1 Riverside Plaza, Columbus, OH 43215. We do not intend for information contained in our website to be part of this proxy statement.

You also may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC, 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

1. Election of Directors

CURRENTLY, AEP’s Board of Directors (Board) consists of 13 members. Thirteen directors are to be elected by a plurality of the votes cast at the meeting to hold office until the next annual meeting and until their successors have been elected. AEP’s By- Laws provide that the number of directors of AEP shall be such number, not less than 9 nor more than 17, as shall be determined from time to time by resolution of the Board.

The 13 nominees named on pages 3 through 6 were selected by the Board on the recommendation of the Committee on Directors and Corporate Governance of the Board.Board, following individual evaluation of each nominee’s performance. The proxies named on the proxy card or their substitutes will vote for the Board’s nominees, unless instructed otherwise. Shareholders may withhold authority to vote for any or all of such nominees on the proxy card. All of the Board’s nominees were elected by the shareholders at the 20052006 annual meeting, except for Ms. Goodspeed and Mr. Crosby, who were elected as a director as of October 26, 2005 and January 25, 2006, respectively, by the Board. Ms. Goodspeed and Mr. Crosby were recommended to the Board by a director search 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 interviewed Mr. Crosby and recommended each of them to the Committee on Directors and Corporate Governance. That Committee reviewed the qualifications of each of the proposed directors and recommended them to the full board. It ismeeting. We do not expected thatexpect any of the nominees will be unable to stand for election or be unable to serve if elected. In the event thatIf a vacancy in the

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slate of nominees should occur before the meeting, the proxies may be voted for another person nominated by the Board or the number of directors may be reduced accordingly.

Cumulative Voting.Voting    With respect to.    Shareholders may exercise cumulative voting rights in the election of directors, shareholders mayexercise cumulative voting rights.directors. That right permits each shareholder to multiply the number of shares the shareholder is entitled to vote by the number of directors standing for election to determine the number of votes the shareholder is entitled to cast for director nominees. The shareholder can then cast all such votes for asingle nominee or spread such votes among the nominees in any manner.

Biographical Information.Information.    The following brief biographies of the nominees include their principal occupations, ages on the date of this statement, accounts of their business experience and names of certain companies of which they are directors. Data with respect to the number of shares of AEP’s Common Stock, options exercisable within 60 days and stock-based units beneficially owned by each of them appearsappear on page 32.69.

Nominees For Director

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Nominees For Director — continued

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Nominees For Director — continued

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Nominees For Director — continued

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Nominees For Director — continued

AEP’s Board of Directors and Committees

UNDER NEW YORKLAW, AEP is managed under the direction of the Board of Directors. The Board establishes broad corporate policies and authorizes various types of transactions, but it is not involved in day-to-day operational details. During 2005,2006, the Board held eight regular meetings.meetings, three of which were held in cities where we have regional offices and one at a generating plant to further the directors’ education about our operations. AEP encourages but does not require members of the Board to attend the annual shareholders’ meeting. Last year, all members attended the annual meeting.

Board Meetings and Committees.    The Board expects that its members will rigorously prepare for, attend and participate in all Board and applicable committee meetings. Directors are also expected to become familiar with AEP’s management team and operations as a basis for discharging their oversight responsibilities.

The Board has seven standing committees. The table below shows the number of meetings conducted in 20052006 and the directors who currently serve on these committees. The functions of the committees are described in the paragraphs following the table.

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During 2005,2006, no director attended fewer than 90%82% of the aggregate of the total number of meetings of the Board and the total number of meetings held by all committees during the period on which he or she served.

Corporate Governance

AEP maintains a corporate governance page on its website which includes key information about its corporate governance initiatives, including AEP’s Principles of Corporate Governance, AEP’s Principles of Business Conduct, Code of Business Conduct and Ethics for members of the Board, and charters for the Audit, Directors and Corporate Governance and Human Resources Committees of the Board. The corporate governance page can be found atwww.aep.com/investors/corporategovernance. Printed copies of all of these materials also are available upon written request to Investor Relations at: AEP, attention: Investor Relations, 1 Riverside Plaza, Columbus, OH 43215.

AEP’s policies and practices reflect corporate governance initiatives that are designed to comply with SEC rules, the listing requirements of the New York Stock Exchange (NYSE)NYSE and the corporate governance requirements of the Sarbanes-Oxley Act of 2002, including:

Director Independence.    The Board has adopted categorical standards it uses to determine whether its members are independent. These standards are consistent with the NYSE corporate governance listing standards and are as follows:

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Each year, our directors complete a questionnaire that, among other things, elicits information to assist the Committee on Directors and Corporate Governance in assessing whether the director meets the Company’s independence standards. Utilizing these responses and other information, the Committee on Directors and Corporate Governance evaluates, with regard to each director, whether the director has any material relationship with AEP or any of its subsidiaries (either directly or as a partner, shareholder or officer of an entity that has a relationship with AEP or any of its subsidiaries). If a director has a relationship with an organization which made or received payments from AEP, information regarding the amount of such payments is providedisprovided to the Committee on Directors andCorporateand Corporate Governance. The Committee on Directors and Corporate Governance then determines whether the amount of any such payments requires, pursuant to the Company’s independence standards or otherwise, a finding that the director is not independent. The Committee on Directors and Corporate Governance also discusses any other relevant facts and circumstances regarding the nature of these relationships, to determine whether other factors, regardless of the categorical standards the Board has adopted, might impede a director’s independence. No member of the Board is independent unless the Board affirmatively determines that such member is independent.

The Board has affirmatively determined that Messrs. Brooks, Carlton, Crosby, DesBarres, Fri, Howell, Hudson, Nowell, Smith, Ms. Goodspeed and Ms. Sullivan, all of whom are Board nominees at this meeting, are independent and meet these standards.independent. None of the directors who were determined to be independent had any relationships that were outside the categorical standards identified above. In addition, the Board considered transactions and relationships between each director and any member of his or her immediate family and AEP and its subsidiaries. The purpose of this review was to determine whether any such transaction or relationship was inconsistent with a determination that the director is independent.

The Board considered the fact that Mr. Brooks is a director of Hubbell, Inc., which provided approximately $16,000,000 of equipment to us in 2006. The Board considered the fact that Mr. Fri is a director of EPRI, which is an independent, nonprofit center for public interest energy and environmental research and to which the Company contributed approximately $15,000,000 in 2006. The Board also considered that Mr. Fri is a visiting fellow for Resources for the Future (RFF) and that AEP contributed $50,000 in 2006 to RFF. The Board noted that since Messrs. Fri and Brooks do not serve as executive officers and do not own a significant amount of stock of these companies, these relationships are not material, and determined that these directors are independent. The Board considered the fact

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that Ms. Goodspeed serves as Executive Vice President and Chief Supply Chain Logistics and Technology Officer of Lennox International, Inc. Although Ms. Goodspeed is an executive officer of Lennox International, Inc., we purchased only $47,000 of equipment from Lennox in 2006, which the Board considered immaterial. The Board considered the fact that Mr. Crosby serves as Chairman and Chief Executive Officer of EADS North America, Inc. Although Mr. Crosby an executive officer of EADS North America, Inc., we purchased only $68,000 of equipment from it. Lastly, the Board considered the fact that Mr. Nowell is a Senior Vice President and Treasurer of PepsiCo, Inc. Although Mr. Nowell is an executive officer of PepsiCo, Inc., we purchased only $31,000 of products from it. The Board also determined that there were no discretionary contributions to a non-profit organization with which a director or any of his or her immediate family members has a relationship that impairs the directors’ independence.

Mr. Morris is not independent because he is an executive officer of AEP. Mr. Smith, who is Chief Executive Officer of Roanoke Electric Steel Corporation (RESC), is not independent because RESC pays more than 2% of its consolidated gross revenues to an AEP subsidiary for electric service. Although Dr. Sandor currently meets the independence standards, the Board of Directors has determined that he is not to be classified as independent because of AEP’s relationship with the Chicago Climate Exchange (CCX). Dr. Sandor serves as Chief Executive Officer of CCX. AEP is a founding member of the CCX and during 20052006 AEP and its subsidiaries transacted trades of greenhouse gas emission allowances on the CCX. AEP paid CCX approximately $9,700 in commissions and dues in 2005. AEP payments to CCX currently do not exceed $1 million but AEP’s payments in the future may exceed that threshold. Dr. Sandor is also the Chief Executive Officer of the Chicago Climate Futures Exchange (CCFE), which is an exchange established for trading of SO₂ and NO_x allowances. AEP paid CCX and CCFE approximately $44,000 in commissions and dues in 2006. AEP payments to CCX and CCFE currently do not exceed $1 million but AEP’s payments in the future may exceed that threshold. AEP anticipates paying commissions and dues to CCX and CCFE in 20062007 in an amount equal to or greater than amounts paid in 2005.2006.

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Communicating with the Board.    If you would like to communicate directly with our Board, our non-management directors as a group or Dr. Hudson, our Presiding Director, you may submit your written communication to American Electric Power Company, Inc.,P.O. Box 163609, Attention: AEP Non-Management Directors, Columbus OH 43216. AEP’s Business Ethics and Corporate Compliance department will review such inquiries or communications. Communications other than advertising or promotions of a product or service will be forwarded to our Board, our non-management directors as a group or our Presiding Director, as applicable.

TheCommittee on Directors and Corporate Governance has the responsibilities set forth in its charter, including:

A copy of the charter can be found on our website atwww.AEP.com/investors/corporategovernance.corporategovernance. Consistent with the

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rules of the NYSE, all members of the Committee on Directors and Corporate Governance are independent.

The Committee on Directors and Corporate Governance will consider shareholder recommendations of candidates to be nominated as directors of the Company. All such recommendations must be in writing and submitted in accordance with the procedures described underShareholder Proposals and Nominations on page 3470 and must include information required in AEP’s Policy on Consideration of Candidates for Director Recommended by Shareholders. A copy of this policy is on our website atwww.AEP.com/investors/corporategovernance. Shareholders’ nominees who comply with these procedures will receive the same consideration that all other nominees receive.

In evaluating candidates for Board membership, the Committee on Directors and Corporate Governance reviews each candidate’s biographical information and assesses each candidate’s skills and expertise based on a variety of factors. Some of the major factors include whether the candidate:

The Committee on Directors and Corporate Governance also seeks balance on the Board by having complementary knowledge, expertise, experience and skill in areas such as business, finance, accounting, marketing, public policy, government, technology and environmental issues and other areas that the Board has decided are desirable and helpful to fulfillingtofulfilling its role. DiversityThe Committee on Directors and Corporate Governance also seeks diversity in gender, race, experience, geographic location and educational background of directors, consistent with the Board’s requirements for knowledge, stan - -directors.

9The American Electric Power Company, Inc. Related Person Transaction Approval Policy (Policy) was adopted by the Board on December 13, 2006. The Policy is administered by the Directors and Corporate Governance Committee.

The Policy defines a “Transaction with a Related Person” as any transaction or series of transactions in which (i) the Company or a subsidiary is a participant, (ii) the aggregate amount involved exceeds $120,000 and (iii) any “Related Person” has a direct or indirect material interest. A “Related Person” is any Director or member of the executive council or Section 16 officer of the Company, any nominee for director, any shareholder owning an excess of 5% of the total equity of the Company and any immediate family member of any such person. The Directors and Corporate Governance Committee considers all of the relevant facts and circumstances in determining whether or not to approve such transaction and approves only those transactions that are in the best interests of the Company.

If Company management determines it is impractical or undesirable to wait until a meeting of the Directors and Corporate Governance Committee to consummate a Transaction with a Related Person, the Chair of the Corporate Governance Committee may review and approve the Transaction with a Related Person. Any such approval is reported to the Directors and Corporate Governance Committee at or before its next regularly scheduled meeting.

No approval or ratification of a Transaction with a Related Person necessarily satisfies or supersedes the requirements of the Company’s Code of Business Conduct and Ethics for Members of the Board of Directors or AEP’s Principles of Business Conduct applicable to any Related Person. To the extent applicable, any Transaction with a Related Person is also considered in light of the requirements set forth in those documents.

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dards, and experience, is desirable in the mix of the Board.

ThePolicy Committee is responsible for examining AEP’s policies on major public issues affecting the AEP System, including environmental, industry change and other matters.

TheExecutive Committee is empowered to exercise all the authority of the Board, subject to certain limitations prescribed in the By-Laws, during the intervals between meetings of the Board.

TheFinance Committeemonitors and reports to the Board with respect to the capital requirements and financing plans and programs of AEP and its subsidiaries including, reviewing and making recommendations concerning the short and long-term financing plans and programs of AEP and its subsidiaries.

TheHuman Resources Committee (HR Committee) annually reviews AEP’s executive compensation in the context of the performance of management and the Company. None of the members of the HR Committee is an officer or employee of any AEP System company. In addition, each of the current members of the HR Committee has been determined to be independent by the Board in accordance with SEC and NYSE rules. The HR Committee held six regular meetings as well as a working session and a conference call in 2006.

In carrying out its responsibilities, the HR Committee has hired a nationally recognized consultant (Towers Perrin) to provide recommendations to the HR Committee regarding AEP’s compensation and benefits programs and practices, and to provide information on current trends in executive compensation and benefits within the electric utility industry and among U.S. industrial companies in general. The HR Committee annually reviews and discusses the independence of its executivecompensation consultant considering the extent of all other business that Towers Perrin performs for the Company. The HR Committee concluded that, although Towers Perrin does perform actuarial and benefits consulting services for AEP, there were adequate barriers in place to ensure that Towers Perrin’s executive compensation recommendations were not in any way influenced by this other business and concluded that Towers Perrin was independent. The HR Committee also instructed management to avoid using Towers Perrin for executive compensation work not relevant to the HR Committee to avoid creating a conflict of interest. The HR Committee regularly holds executive sessions with its independent consultant to help ensure that it receives full and independent advice.

The HR Committee administers AEP’s executive officer compensation program. The HR Committee reviews and determines all compensation and significant benefit and perquisite changes for AEP’s executive officers. The HR Committee makes recommendations to the independent board members regarding the compensation of the Chief Executive Officer, and those independent board members approve the CEO’s compensation.

The HR Committee also reviews the Compensation, Discussion and Analysis section of this proxy statement and recommends that it be included in the Company’s Annual report on Form 10-K.

The HR Committee has the responsibilities set forth in its charter, including recommending compensation for the CEO to the independent Board members, approving compensation for other senior officers and making recommendations to the Board regarding incentive and equity-based compensation plans. The Human Resources Committee also communicates the Company’s compensation policies to shareholders (as required by the SEC).

Aa copy of the Human Resources Committee charterwhich can be found on our website atwww.AEP.com/investors/corporategovernance.Consistent with the rules of the NYSE, all members of the Human Resources Committee are independent.

The Nuclear Oversight Committee is responsible for overseeing and reporting to the Board with respect to the management and operation of AEP’s nuclear generation.

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Audit Committee Disclosure

THE AUDIT COMMITTEE of the Board operates pursuant to a charter and is responsible for, among other things, the appointment of the independent registered public accounting firm (independent auditor) for the Company; reviewingreviewing with the independent auditor the plan and scope of the audit and approving audit fees; monitoring the adequacy of financial reporting and internal control over financial reporting and meeting periodically with the internal auditor and the independent auditor. A more detailed discussion of the purposes, duties and responsibilities of the Audit Committee is found in the Audit Committee charter, a copy of which can be found on our website atwww.AEP.com. Consistent with the rules of the NYSE and the Sarbanes-Oxley Act of 2002, all members of the Audit Committee are independent. The Board determined that Mr. Nowell is an audit committee financial expert as defined by the SEC.

Audit Committee Report

THE AUDIT COMMITTEE reviews AEP’s financial reporting process as well as the internal controls over financial reporting on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal control over financial reporting.

In this context, theThe Audit Committee met tennine times during the year and held discussions, some of which were in private, with management, the internal auditor, and the independent auditor. Management represented to the Audit Committee that AEP’s consolidated financial statementsfinancialstatements were prepared in accordance with generally accepted accounting principles. Management has also concluded that the Company’s internal control over financial reporting was effective as of December 31, 2005.2006. The Audit Committee has reviewed and discussed the consolidated financial statements and internal control over financial reporting with management, the internal auditor, and the independent auditor. The Audit Committee discussed with the independent auditor matters required to be discussed by Statement on Auditing Standards No. 61, as amended (Communication With Audit Committees).

In addition, the Audit Committee has discussed with the independent auditor its independence from AEP and its management, including the matters in the written disclosures required by the Independence Stan - -

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dardsStandards Board Standard No. 1 (Independence Discussions With Audit Committees). The Audit Committee has also received written materials addressing the independent auditor internal quality control procedures and other matters, as required by the NYSE listing standards.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in AEP’s Annual Report on Form 10-K for the year ended December 31, 2005,2006, for filing with the SEC.

Audit Committee Members

E. R. Brooks, Chair

Linda A. Goodspeed

Lester A. Hudson, Jr.

Lionel L. Nowell, III

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DIRECTOR COMPENSATION

Directors who are employees of the Company receive no additional fee for service as a director other than accidental insurance coverage. The following table presents the compensation provided by the Company in 2006 to the non-employee directors standing for election at the 2007 annual meeting.

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Directors Compensation and Stock Ownership

Annual Retainers and Meeting Fees.    Mr. Morris is the only director who is an officer

The Board has determined that Board compensation should consist of AEP. He does not receive any compensation, other than his regular salarya target mix of 45% cash and the accident insurance coverage described below, for serving on the Board. The other members of the Board received an annual cash retainer of $60,000 in 2005. The chairman of the Audit Committee receives an additional annual retainer of $15,000 and other members of the Audit Committee receive an additional annual retainer of $12,000. The Presiding Director receives an additional annual retainer of $15,000. Each of these cash retainers is paid in quarterly increments. Each non-employee director also received $80,000 in55% AEP Stock Units in 2005 payable quarterly pursuant to the AEP Stock Unit Accumulation Plan for Non-Employee Directors (Stock Accumulation Plan) described below. Each non-employee director is paid a fee of $1,200 per day for special assignments (such as attendance at Nuclear Regulatory Commission meetings or for services on ad hoc subcommittees).

stock equivalents. In December 2005,October 2006, upon the recommendation of the Committee on Directors and Corporate Governance and based on competitive data, the Board determined that, Boardcompensationeffective October 1, 2006, (i) should be targeted to fall within the second highest quartile of a peer group of companies of comparable size (including both energy and general industry companies) and (ii) should consist of a target mix of 45% cash and 55% AEP stock equivalents. Therefore, the Board approved the following changes to compensation effective January 1, 2006: (1) the amount of AEP stock units awarded to non-employee directors pursuant to the Stock Unit Accumulation Plan willshould increase from $80,000$82,500 to $82,500$88,000 annually and (ii) the amount of the annual cash retainer paid to non-employee directors willshould increase from $60,000$67,500 to $67,500$72,000 annually. These changes wereThe Presiding Director fee was increased from $15,000 to $20,000 annually effective October 1, 2006. The chairman of the audit committee fee was increased from $15,000 to $22,000 annually effective October 1, 2006. The other members of the Audit Committee continue to receive an additional annual retainer of $12,000. Effective October 1, 2006, the chairman of the HR Committee receives anannual fee of $10,000. Each of these cash retainers is paid in quarterly increments.

The Company believes that the standard director compensation amount compensates directors appropriately for all general services that are rendered as a director. The Company does, however, occasionally ask directors to undertake special assignments. In December 2004 the Board adopted in ordera policy (Special Compensation Policy) that provides for directors to bringbe compensated at a daily rate when called upon to undertake special additional services beyond those contemplated by the compensation packagesAnnual Retainer. The Company pays each non-employee director a fee of AEP’s$1,500 per day ($1,200 per day for periods before October 1, 2006) when any such director undertakes such special assignments. The Committee on Directors and Corporate Governance has pre-approved the following director activities as special assignments under the Special Compensation Policy, which qualify for the per diem fee, and has delegated to the secretary of the Company the authority to approve the payment of the appropriate per diem fee upon written request from a director:

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(i) attendance as a representative of AEP at meetings of regulatory agencies or other governmental bodies; (ii) attendance as a representative of AEP at meetings of industry, corporate governance, advocacy or comparable groups; (iii) attendance as a representative of AEP at corporate governance or other board education seminars; (iv) travel for interviews of potential AEP directors; and (v) attendance at AEP-sponsored training sessions, plant tours, facility visits or other AEP venues, other than attendance as a part of a regular meeting of the Board members more in line with compensation paid to directorsor a committee of comparable companies and enable AEP to attract qualified directors when needed.the Board.

Expenses.    Non-employee directors are reimbursed for expenses (including costs of travel, food and lodging) incurred in attending Board, committee and stockholder meetings. Directors are also reimbursed for reasonable expenses associated with other business activities, including participation in director education programs.

The Company from time to time invites directors’ spouses to travel with the directors to attend Board meetings. Spouses may also join non-employee directors on Company aircraft when a non-employee director is traveling to or from athose Board meeting.meetings. The Company generally provides for, or reimburses the expenses of, the non-employee directors’directors and spouses’ travel, food and lodgingtheir spouses for attendance at such events,meetings, which may result in a non-employee director recognizing income for tax purposes under applicable regulations. The Company therefore reimburses the non-employee director for the estimated taxes incurred in connection with any income recognized by the director as a result of the non-employee director’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 the non-employee directors standing for election at the 2006 annual meeting.

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

Retainer Deferral Plan.    The Retainer Deferral Plan for Non-Employee Directors (formerly called the Deferred Compensation and Stock Plan for Non-Employee Directors) is a non-qualified deferred compensation plan that permits non-employee directors to choose to defer up to 100% of their annual Board cash retainer and fees into a variety of investment fund options, all with market-based returns, including an AEP stock fund. The Plan permits the non-employee directors to defer receipt until termination of service or for a period that results in payment commencing not later than five years after termination of service.

Stock Unit Accumulation Plan.    In 20052006 the Stock Unit Accumulation Plan for Non-Employee Directors awarded $80,000$83,875 in AEP Stock Unitsstock units to each non-employee director. As mentioned earliernoted above inDirectorsCompensationAnnual Retainers and Stock OwnershipMeeting Fees, thisthe Stock Unit Accumulation Plan was amended effective JanuaryOctober 1, 2006 to increase the annual award to $82,500$88,000 in AEP Stock Units.stock units. These AEP Stock Unitsstock units are credited to directors quarterly, based on the closing price of AEP Common Stock on the payment date. Amounts equivalent to cash dividends on the AEP Stock Unitsstock units accrue as additional AEP Stock Units.stock units. AEP Stock Unitsstock units are not paid to the director in cash until termination of service unless the director has elected to further defer payment for a periodthat results in payment commencing not later than five years after termination of service.

Insurance.    AEP maintains a group 24-hour accident insurance policy to provide a $1,000,000 accidental death benefit for each director, $100,000 for each spouse of a director and $50,000 for all dependent children. The current policy, effective September 1, 2004 through September 1, 2007, has a premium of $29,000. In addition, AEP pays each non-employee director an amount to provide for the federal and state income taxes incurred in connection with the maintenance of this coverage ($589 for 2005).and is reflected in the tax gross up column of the Non-Employee Director Compensation Table.

Central and South West Corporation Memorial Gift Programs.    AEP is continuing a memorial gift program for former CSW directors and executive officers who had been previously participating in this program. The four former CSW directors who are members of AEP’s Board (Messrs. Brooks, Carlton, Howell and Sandor) are participants. Under this program, AEP makes donations in a director’s name to up to three charitable organizations in an aggregate amount of up to $500,000, payable by AEP upon such person’s death. AEP maintains corporate-owned life insurance policies to support the program. The annual premiums paid by AEP are based on pooled risks and averaged $3,322 per participant for 2005.

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Stock Ownership.    The Board considers stock ownership in AEP by Board members to be important. As noted above inDirectors Compensation and Stock Ownership under the captionStock Unit Accumulation Plan,, non-employee directors are required to defer $80,000 (increasing effective January 1, 2006 to $82,500)$88,000 annually in AEP Stock Unitsstock units until termination of his or her directorship. As noted below underShare Ownership of Directors and Executive Officers,, each non-employee director of AEP owns more than 11,00013,000 shares of AEP Common Stock and AEP Stock Units,stock units, except for Mr. Nowell, Ms. Goodspeed and Mr. Crosby, who were elected to the Board of Directors in July 2004, October 2005 and January 2006, respectively.

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Insurance

The directors and officers of AEP and its subsidiaries are insured, subject to certain exclusions, against losses resulting from any claim or claims made against them while acting 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 their directors and officers for any such losses. Such insurance, effective January 1, 2005March 15, 2006 through March 15, 2006,2007, is provided by: Associated Electric & Gas Insurance Services, Energy Insurance Mutual Ltd., Zurich American Insurance Company, St. Paul Mercury Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA, Federal Insurance Company, Liberty Mutual Insurance Company, Twin City Fire Insurance Company, Quanta Reinsurance U.S. Ltd.Westchester Fire Insurance Company (ACE), AXIS Reinsurance Company, Starr Excess International Oil Casualty Insurance, Ltd,Ltd., Arch Insurance Company, RSUI Indemnity Company, XL Specialty Insurance Company, U.S. Specialty Insurance Company and XL Insurance (Bermuda).Ltd. The total cost of this insurance is $4,938,942.$4,536,849.

Fiduciary liability insurance provides coverage for AEP System companies, their directors and officers, and any employee deemed to be a fiduciary or trustee, for breach of fiduciary responsibility, obligation, or duties as imposed under the Employee Retirement Income Security Act of 1974. This coverage, provided by Zurich American Insurance Company, Energy Insurance Mutual Ltd., Indian Harbor Insurance Company Houston Casualty(XL America Companies), U.S. Specialty Insurance Company (HCC), and AXIS Specialty Reinsurance Company, was renewed, effective March 15, 20052006 through March 15, 2006,2007, for a cost of $800,000.$783,720.

2. Proposal to Approve the American Electric Power System Senior Officer Incentive Plan

THE BOARDOF DIRECTORS proposes that shareholders approve the American Electric Power System Senior Officer Incentive Plan (the “2007 Plan”). The Board of Directors adopted the 2007 Plan on December 13, 2006, subject to the approval of the Company’s shareholders. The 2007 Plan amends and restates the American Electric Power System Senior Officer Annual Incentive Compensation Plan dated January 1, 1997 (the “Existing Plan”).

You are being asked to approve the adoption of the 2007 Plan in order to preserve the Company’s federal income tax deduction when payments are made to certain executives based on established performance goals. The Company is seeking to preserve its ability to claim tax deductions for compensation paid to executives to the greatest extent practicable; therefore, the 2007 Plan is intended to comply with the requirements of Code Section 162(m). Code Section 162(m) limits how much the Company can deduct on its federal income tax return for compensation paid in a taxable year to an individual who, on the last day of the fiscal year, was either (i) the chief executive officer or (ii) among the four other highest-compensated executive officers. Compensation that is considered “performance-based compensation” under Code Section 162(m) is not subject to this limit if certain conditions are met. One such condition is that the shareholders initially approve the material terms of the performance goals and re-approve those material terms every five years. Approval of this proposal will ensure that the Company is able to receive tax-deductions for the full amount of performance based compensation paid to officers under the 2007 Plan.

The more significant features of the Annual Plan are described below. This summary is subject, in all respects, to the terms of the Annual Plan, which is attached to this Proxy Statement as Exhibit A.

Administration.    The HR Committee, all of whose members are outside directors, will administer the 2007 Plan. The HR Committee will have the authority to grant awards upon such terms (not inconsistent with the terms of the 2007 Plan) as it considers appropriate. In addition, the HR Committee will have complete authority to interpret all provisions of the 2007 Plan, to adopt, amend and rescind rules and regulations pertaining to the administration of the 2007 Plan and to make all other determinations necessary or advisable for the administration of the 2007 Plan.

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Eligibility.    Any person who, during the term of the 2007 Plan, is a corporate officer of the Company or any subsidiary of the Company is eligible to participate under the 2007 Plan. The HR Committee determines which corporate officers will be participants under the 2007 Plan. The Company anticipates that approximately 8 employees will be eligible to receive awards under the 2007 Plan.

Performance Objectives.    2007 Plan participants will receive awards under the 2007 Plan after the end of a fiscal year if certain specified performance objectives are met during such fiscal year. The performance objectives are set by the HR Committee at the start of each fiscal year and are based on one or more of the following performance criteria: (i) earnings measures: primary earnings per share; fully diluted earnings per share; net income; pre-tax income; operating income; earnings before interest, taxes, depreciation and amortization; net operating profits after taxes; income before income taxes, minority interest and equity earnings; income before discontinued operations, extraordinary items and cumulative effect of accounting changes, or any combination thereof; (ii) expense control: operations & maintenance expense; total expenditures; expense ratios; and expense reduction; (iii) customer measures: customer satisfaction; service cost; service levels; responsiveness; bad debt collections or losses; and reliability—such as outage frequency, outage duration, and frequency of momentary outages; (iv) safety measures: recordable case rate; severity rate; and vehicle accident rate; (v) diversity measures: minority placement rate and utilization; (vi) environmental measures: emissions; project completion milestones; regulatory/legislative/cost recovery goals; and notices of violation; (vii) revenue measures: revenue and margin; (viii) shareholder return measures: total shareholder return; economic value added; cumulative shareholder value added; return on equity; return on capital; return on assets; dividend payout ratio and cash flow(s)—such as operating cash flows, free cash flow, discounted cash flow return on investment and cash flow in excess of cost of capital or any combination thereof; (ix) valuation measures: stock price increase; price to book value ratio; and price to earnings ratio; (x) capital and riskmeasures: debt to equity ratio and dividend payout as percentage of net income; (xi) employee satisfaction; (xii) project measures: completion of key milestones; (xiii) production measures: generating capacity factor; performance against the Institute of Nuclear Power Operation index; generating equivalent availability; heat rates and production cost. The targeted level or levels of performance with respect to such business criteria may be established at such levels and in such terms as the HR Committee may determine, in its discretion, including in absolute terms, as a goal relative to performance in prior periods (e.g., earnings growth), or as a goal compared to the performance of one or more comparable companies or an index covering multiple companies.

Payment of Awards.    All awards under the 2007 Plan for a fiscal year will be paid in cash following the end of such fiscal year. The maximum individual award that can be made under the 2007 Plan for a fiscal year is the lesser of (i) $6,000,000 or (ii) 400% of the corporate officer’s base salary (prior to any deferral elections) as of the date of grant of the award. The HR Committee does not currently intend to grant individual awards that approach the maximum allowable amount, but is asking shareholders to approve the maximum amount to preserve flexibility over the next five years.

Amendment and Termination.    The Company has the right, at any time and from time to time, to amend in whole or in part any of the terms and provisions of the 2007 Plan to the extent permitted by law for whatever reason the Company may deem appropriate; provided, however, that any such amendment which requires approval of the Company’s shareholders in order to maintain the qualification of awards as performance-based compensation pursuant to Code Section 162(m)(4)(C) shall not be made without such approval.

Federal Income Tax Consequences.    All cash awards under the 2007 Plan are taxable to the participant when paid. The 2007 Plan has been designed to comply with Code Section 162(m) such that all awards under the 2007 Plan qualify as performance-based com - -

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pensation and, therefore, the Company will be entitled to claim a federal income tax deduction for the full amount of any cash award paid under the 2007 Plan.

Vote Required.    Approval of this proposal requires the affirmative vote of holdersof a majority of the shares present in person or by proxy at the meeting.

Your Board of Directors recommends a voteFOR this proposal.

Equity Compensation Plan Information

All of AEP’s equity compensation plans (as defined by applicable SEC regulations) have been approved by its shareholders. AEP’s equity compensation plan information as of December 31, 2006 is as follows:

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3. Proposal to Ratify Appointment of Independent Registered Public Accounting Firm

THE AUDIT COMMITTEE has appointed the firm of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2006.2007. Although action by the shareholders in this matter is not required, the Audit Committee believes that it is appropriate to seek shareholder ratification of this appointment in light of the critical role played by the independent registered public accounting firm in maintaining the integrity of Company financial controls and reporting, and will seriously consider shareholder input on this issue. Whether or not the appointment of Deloitte & Touche LLP is ratified by the shareholders, the Audit Committee may, in its discretion, change the appointment at any time during the year if it determines that such change would be in the best interests of the Company and its shareholders.

One or more representatives of Deloitte & Touche LLP will be in attendance at the annual meeting on April 25, 2006.24, 2007. The representatives will have the opportunity to make a statement, if desired, and will be available to respond to appropriate questions from shareholders.

Vote Required.    Approval of this proposal requires the affirmative vote of holders of a majority of the shares present in person or by proxy at the meeting.

Your Board of Directors recommends a voteFOR this proposal.

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Audit and Non-Audit Fees

The following table presents fees for professional audit services rendered by Deloitte & Touche LLP for the audit of the Company’s annual financial statements for the years ended December 31, 20052006 and December 31, 2004,2005, and fees billed for other services rendered by Deloitte & Touche LLP during those periods.

This category also includes work generally only the independent registered public accounting firm can reasonably be expected to provide, such as attestation requirements on statutory reports and regulatory filings of the Company and certain of its wholly owned subsidiaries.

In May 2004, the SEC clarified its position on the provision of services with respect to contingent, findings-based and value-added fee arrangements. In response to this clarification, in 2004 the Company converted five contingent fee arrangements, previously entered into in 2000, to “time and material” fee arrangements and made a payment of $6,962,500 for services performed through May 2004. The Company will not enter into such arrangements with the independent registered public accounting firm in the future. These services are considered tax compliance services based on the above definition.19

The Audit Committee has considered whether the provision of services other than audit services by Deloitte & Touche LLP and its domestic and global affiliates is compatible with maintaining independence and the Audit Committee believes that this provision of services is compatible with maintaining Deloitte & Touche LLP’s independence.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Auditor

The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent auditor. These services may include audit services, audit-related services, tax services and other services. Pre-approval is provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific limitation. The independent auditor and management are required to report to the Audit Committee at eachateach regular meeting regarding the extent of services provided by the independent auditor in 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-approve particular services on a case-by-case basis. In 2005,2006, all Deloitte & Touche LLP services were pre-approved by the Audit Committee.

Other Business

THE BOARDOF DIRECTORS does not intend to present to the meeting any business other than the election of directors, a proposal to approve the American Electric Power System Senior Officer Incentive Plan and the ratification ofthe appointment of the independent registered public accounting firm.

If any other business not described herein should properly come before the meeting for action by the shareholders, the persons named as proxies on the enclosed card or their substitutes will vote the shares represented by them in accordance with their best judgment. At the time this proxy statement was printed, the Board of Directors was not aware of any other matters that might be presented.

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Compensation Discussion and Analysis

Overview

The HR Committee administers AEP’s executive officer compensation program. The HR Committee reviews and determines all compensation and significant benefit and perquisite changes for AEP’s executive officers. The HR Committee makes recommendations to the independent board members regarding the compensation of the Chief Executive Officer, and those independent board members approve the CEO’s compensation. That compensation includes:

The overall compensation philosophy of the HR Committee and of AEP’s management is that total compensation should be tied to individual performance, should be closely linked to AEP’s performance in achieving financial and non-financial objectives, and that any long-term incentive compensation should be closely aligned with shareholders’ interests. AEP’s executive compensation programs are therefore designed to:

Overall, AEP’s executive compensation program is intended to create a total compensation opportunity that, on average, is equal to the median of AEP’s peer group, which is made up of other utility companies and industrial companies as described below under “Compensation Peer Group.” The HR Committee’s independent compensation consultant, Towers Perrin, participates in HR Committee meetings, assists the HR Committee in developing the compensation program and meets with the HR Committee in executive session during most meetings without management present. See Corporate Governance - Human Resources Committee on page 11 for additional information regarding the independence of Towers Perrin’s advice to the HR Committee.

Compensation Program Design

To meet the above objectives, the HR Committee seeks to establish compensation opportunities that enhance the Company’s ability to attract, retain, reward, motivate and encourage the development of exceptionally knowledgeable, highly qualified and experienced executives and to align the interests of these executives with the long-term interests of the Company’s shareholders. AEP’s compensation program for executive officers includes base salary, annual incentive compensation and long-term incentive compensation (LTI). Annual incentive compensation is generally used to reward the achievement of specific near-term corporate objectives, while LTI compensation is generally used to reward longer-

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term strategic objectives and financial objectives. Both short and long-term compensation are linked to the Company’s financial objectives. In 2006, for example, a portion of the annual incentive for executive officers was tied to near-term improvements in the performance of AEP’s distribution system, while funding for the whole annual incentive compensation program was dependent on AEP’s 2006 ongoing earnings per share (EPS) performance. This balanced approach helps ensure that neither operating objectives nor financial objectives will take precedence over the other, since the annual incentive plan only rewards participants when both types of objectives are achieved. For 2007, funding for the annual incentive compensation program will remain dependent on AEP’s ongoing EPS performance relative to AEP’s 2007 earnings guidance, which is currently $2.85 to $3.05 per share.

AEP’s long-term incentive program also provides a retention incentive that fosters management continuity. To accomplish this, the HR Committee made three-year performance unit awards under the LTIP in 2006, andtied the value to AEP’s three-year total shareholder return (TSR) relative to the S&P Utility Index and AEP’s three-year cumulative ongoing EPS.

AEP’s compensation programs are also designed to place a substantial amount of compensation for senior executives at risk in the form of variable incentive compensation instead of fixed or base pay, with much of this risk similar to the risk experienced by other AEP shareholders. For 2006, 81 percent of the total target compensation opportunity for the Chief Executive Officer and at least 68 percent of that for the other executive officers listed in the Summary Compensation Table (Named Executive Officers or NEOs) was at risk in the form of incentive compensation.

The HR Committee also uses “tally sheets” to evaluate the total rewards package for the NEOs. These “tally sheets” include all significant aspects of the total rewards program and illustrate the potential value of all compensation programs under various performance, termination and stock price scenarios.

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Compensation Peer Group

The HR Committee annually reviews AEP’s executive compensation relative to a peer group of companies that represent the talent markets from which AEP must compete to attract and retain executives. Towers Perrin annually recommends a peer group to the HR Committee, which is comprised of companies that are comparable in size to AEP in revenues and market capitalization and other factors and for which compensation data is available. The peer group includes an approximately equal balance of utilities and non-utility industrial companies. The HR Committee includes industrial companies outside the utility industry because AEP is larger than most of its energy industry peers and because AEP must compete with non-utility companies to attract and retain executives. The HR Committee annually determines the composition of the peer group to ensure that it provides appropriate compensation comparisons (the Compensation Peer Group). For 2006, the Compensation Peer Group consisted of 14 large and diversified energy services companies, plus 12 Fortune 500 companies shown in the table below.

AEP’s Compensation Peer Group

Towers Perrin provides market information and analyses of compensation programs of companies in the Compensation Peer Group. The HR Committee generally uses the median value of compensation paid by theCompensation Peer Group as its benchmark but occasionally considers other comparisons, such as alternative percentile benchmarks and industry-specific compensation surveys, when evaluating compensation.

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Executive Compensation Program Detail

The elements of AEP’s executive compensation program are base salary, annual incentive compensation, long-term incentive compensation, health and welfare benefits, retirement benefits and perquisites. AEP also maintains a deferred compensation program that is designed to provide executives with an income tax deferral option that provides market-based rates of return on their deferred balances.

THEFOLLOWINGTABLE showsBase Salary.    AEP pays base salaries to provide a market-competitive and consistent source of income to executives. In the event of a performance downturn that reduces or eliminates incentive award payouts, base salaries would be the primary source of pay for 2005,AEP executives. When determining executive base salaries, the HR Committee considers:

The CEO recommends base salaries for executive officers, other than himself, to the HR Committee. The HR Committee recommends the base salary for the CEO. The HR Committee generally targets TCC at the median of AEP’s Compensation Peer Group, rather than considering base salary independently of annual incentive compensation.

Annual Incentive Compensation.    The primary purpose of AEP’s annual incentive compensation is to motivate senior management to meet and exceed annual objectives that are part of the Company’s strategic plan. AEP maintains the Senior Officer Annual Incentive Compensation Plan (SOIP) for this purpose. The SOIP supports a pay-for-performance culture by providing greater rewards to the highest performing executives. On or before the end of the third month of each year, the HR Committee establishes operating performance measures for the SOIP. After the end of each year, the HR Committee reviews and certifies performance and the resulting score for each of these performance measures. Funding for the 2006 SOIP was contingent on meeting minimum ongoing EPS requirements set by the HR Committee and the Board, such that no awards would have been paid unless the Company met a minimum ongoing EPS threshold. For 2006, possible EPS scores ranged from 0% at the low point of AEP’s earnings guidance to 200% at the high point of AEP’s earnings guidance.

In 2006, AEP produced ongoing EPS of $2.77, which was in the higher end of our 2006 earnings guidance range of $2.50 to $2.80 per share. This resulted in an EPS Score of 184.9% for 2006. For 2006, ongoing EPS differed from earnings per share reported in AEP’s financial statements principally due to an impairment for a disposition and discontinued operations. (See our Form 8-K filed on January 30, 2007 announcing 2006 fourth quarter and year-end earnings for a reconciliation of on-going and reported EPS.) The EPS score establishes the total funding available each year for cash bonuses payable out of all of the AEP business unit incentive plans, including the SOIP. The total target funding is then multiplied by the EPS Score (184.9%) to determine the total dollars available for incentive awards. This amount is then reduced to the extent that any groups would receive more funding than the 200% of target maximum level.

To determine the funding available for annual incentive awards at the business unit or group level, including for the SOIP participants, the combined operating performance scores for all business units and groups are averaged to create a par score for the year.

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Consistent with AEP’s philosophy of rewarding performance, the EPS Modifier allocates the available funding to each group in accordance with their combined operating performance score relative to par. Thus, business units and groups with above average scores receive a higher final composite score than the EPS score, and groups with below average scores receive a lower final composite score than the EPS score. Each group’s final composite score is then multiplied by their target funding level to determine their annual incentive funding for the year. This process resulted in a final composite SOIP score of 151.6% for 2006 (105.8% combined operating performance score times 143.3% EPS Modifier score).

For 2006, an SOIP funding pool was created by multiplying the target funding pool by the composite score. The HR Committee retained both positive and negative discretion over all SOIP performance measure results and individual awards to help ensure that awards were aligned with performance results. Individual SOIP awards for senior officers, other than the CEO, are determined by the HR Committee, based in part on the CEO’s assessment of the individual’s performance and contribution to strategic goals. The HR Committee annually conducts a confidential CEO Leadership Assessment to gather input about the CEO’s performance from members of the Board of Directors, senior AEP management, AEP’s outside auditor and other people who frequently interact with the CEO. The SOIP award for the CEO is determined by the independent members of the Board of Directors, based in part on the recommendation of the HR Committee.

The HR Committee established the following performance measures for the 2006 SOIP, each of which had minimum and maximum scores of 0% and 200% of target, respectively:

2006 SOIP Performance Measures

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Maintaining the safety of AEP employees, customers and the general public is always the primary consideration, and safety is an AEP core value. 25% of our operating objectives for 2006 was tied to reducing accidents and the severity of injuries across the AEP system. The frequency and severity of on-the-job injury accidents were substantially improved from the prior year. However, the Company experienced one worker fatality during the year, which reduced the score for this category to zero.

The SOIP also ties 25% of the potential annual incentive award to the operating performance of our assets. This component measures the reliability of our wires assets, the availability of our generating plants and environmental performance across the AEP system. AEP achieved approximately target results for 2006 operating performance due to strong wires reliability performance and below target results for the other performance measures.

AEP’s business plan calls for extensive capital investment in environmental equipment, new generating units and major transmission lines. Since we must recover these additional costs through rate proceedings, 25% of our 2006 operating performance score was tied to the success of our regulatory proceedings with FERC and with our state public utility commissions. Since we were successful in obtaining recovery in nearly all of our regulatory proceedings, the HR Committee subjectively determined that AEP’s regulatory performance merited a 175% score.

The strategic initiatives category measures AEP’s performance toward (i) improving workforce diversity, (ii) expanding the generating fleet at our subsidiaries, SWEPCO and PSO, as well as the development of IGCC plants in our eastern service territory, and (iii) issuing approximately $1.7 billion of securitized bonds for our stranded costs in Texas. For 2006 AEP achieved a better than target score for its strategic initiatives of 152.4% based on both objective and subjective performance measures.

Annual Incentive Targets.

The HR Committee, in consultation with Towers Perrin and Company management, hasestablished and periodically adjusts the annual incentive targets for all positions by salary grade, including each position held by an NEO. Annual incentive targets are expressed as a percentage of each participant’s base salary and represent the mid-point of the range of each participant’s potential annual incentive opportunity for the year. Actual awards generally vary from 0% to 200% of the annual incentive target, although awards larger than 200% can be approved for NEOs on an exception basis by the HR Committee. In setting annual incentive targets, the Company and the HR Committee consider market survey information showing:

For 2006 and 2007 the HR Committee established the following annual SOIP target opportunities for the NEOs:

The annual incentive target opportunity is converted to a dollar value target by multiplying each participant’s target percentage by his or her actual base salary for the year. These targets are then multiplied by the final composite score to calculate an initial award for each participant. The sum of all initial awards creates an annual incentive funding pool for each group and for the Company as a whole.

In keeping with the Company’s pay for performance philosophy, the HR Committee awarded annual incentive compensation for 2006 that generally varied both above and be - -

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low the initial (calculated) award for each NEO based on a subjective assessment of their individual performance for the year. The independent members of the Board also awarded Mr. Morris annual incentive compensation for 2006 that was approximately 10% higher than his initial (calculated) award based on their assessment of his individual performance during 2006. In total, AEP’s annual incentive awards were slightly less than the overall funding pool available for 2006. The actual annual incentive compensation earned for 2006 by the NEOs is shown in the Non-Equity Incentive Compensation column of the Summary Compensation Table on page 36.

Long-Term Incentive Compensation.    AEP uses equity-based awards in its long-term incentive program to motivate AEP management to maximize shareholder value by linking a substantial portion of compensation directly to shareholder return. These awards also help ensure that Company management remains focused on longer-term results, which the HR Committee considers to be essential given the large amount of long-term investment required in the utility industry. In addition, the vesting requirements on these awards are a retention incentive that helps reduce executive turnover and maintain consistent management.

AEP annually reviews the mix of base salary, annual incentives and LTI that it provides to executives and targets this mix to the median for similar positions in AEP’s Compensation Peer Group. Consistent with AEP’s Compensation Peer Group, more than 60% of the target compensation opportunity for the CEO and between 48% and 55% of that for the other NEOs is in the form of LTI compensation. The HR Committee does not consider any executive’s current AEP stock holding to be so large as to warrant the reduction or elimination of AEP’s regular long-term incentive opportunity.

AEP also annually reviews the mix of LTI compensation it provides its executives. December 2003 was the last time the HR Committee granted stock options as part of its long-term incentive mix. Since then, the HR Committee has used only performance units for regular LTI awards. The HR Committee eliminated the regular use of stock options infavor of performance units because of employee, investor and public concerns about options that diminished their perceived value to employees and their effectiveness as a compensation tool. In addition, FAS 123R eliminated the preferential accounting treatment for stock options.

Our internal audit function completed a review of our stock option grant practices in 2006. The review was initiated as a matter of prudence resulting from our desire to ensure we had not engaged in the kinds of practices that have received adverse publicity and resulted in investigations of other companies. Our internal auditors found no indication of backdating or special option grant timing.

The HR Committee grants nearly all LTI awards on a fixed annual cycle that currently takes place at its regularly scheduled December meeting following its annual executive compensation review. It is a long-standing HR Committee practice to consider the impact of any recent and upcoming Company announcements and financial disclosures that have or may materially influence AEP’s share price, as well as the grant date share price itself, when making LTI awards.

The HR Committee also periodically grants restricted stock unit awards (RSUs) with long-term vesting for one-time events such as new hires, retention agreements or in connection with accomplishments on unique special projects, such as the engineering and construction of IGCC generating plants.

When determining the size of LTI awards, the HR Committee first establishes award guidelines for each executive salary grade. The HR Committee bases these guidelines on total direct compensation practices for similar positions in AEP’s Compensation Peer Group as well as typical LTI levels expressed as a percent of base salary from other survey sources. When determining individual LTI awards, the HR Committee considers the manager’s award recommendations, peer group compensation for similar positions, individual performance, future potential and other factors, all within the context of an overall award budget. When determining LTI awards for the CEO, the independent members of the Board consider the HR Committee’s award recommendation for

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the CEO and Company performance, in addition to the factors listed above. The HR Committee also considers the value of all other types of compensation when establishing LTI award targets for NEOs.

Performance Units

Currently, it is the HR Committee’s practice to grant LTI awards annually in the form of performance units with a three calendar year performance and vesting period. For 2006, performance units were the only type of LTI awarded to executive officers.

The HR Committee granted performance unit awards, effective January 1, 2006, as follows:

These performance units were granted for the three-year performance period consisting of 2006, 2007 and 2008 and generally vest, subject to the participant’s continued employment, at the end of the performance period. Dividends are reinvested in additional performance units. The performance unit awards for the 2006-2008 performance period may be earned subject to two independent and equally weighted performance measures:

The threshold (0% payout), target (100% payout) and maximum (200% payout) for the relative TSR performance measure were set at the 20^th percentile, 50^th percentile and 80^th percentile of the S&P Utility Index, respectively. The threshold (25% payout), target (100% payout) and maximum (200% payout)for the cumulative EPS performance measure were set at 92% of target, 100% of target, and 108% of target, respectively. The HR Committee established the three-year cumulative EPS target at the midpoint of AEP’s strategic planning target of $7.92 as of December 2005. The scores for these performance measures determine the percentage of the performance units outstanding at the end of the performance period that are earned and can range from zero percent to 200 percent. The value of each performance unit that is earned is based on the average closing price of AEP common stock for the last 20 days of the performance period.

Executives’ earned performance unit awards are deferred mandatorily into AEP Career Shares in AEP’s Stock Ownership Requirement Plan unless the participant has met all of his or her stock ownership requirements. The amounts that are deferred into AEP Career Shares are not paid until after the participant’s termination of employment. See Stock Ownership Guidelines on page 33 for further details. Once executives reach their respective stock ownership requirement, they receive subsequently earned awards in cash, or at the participant’s election, AEP common stock. Participants may also elect to voluntarily defer receipt of earned performance unit awards into AEP’s Incentive Compensation Deferral Plan (ICDP).

Restricted Stock and Restricted Stock Units (RSUs)

AEP primarily issues restricted stock and RSUs as a special reward for key contributors; as a long-term retention incentive; or as a signing bonus that often is, at least in part, a buyout of compensation and benefits from a prior employer that they forfeit to accept AEP’s employment offer. The Company and the HR Committee believe that using restricted stock or RSUs in such situations in lieu of cash ties the value of such compensation to AEP’s long-term share price performance and helps motivate the recipient to act in the interests of shareholders. The HR Committee generally ties vesting to continued employment over three or more years to provide a retention incentive that helps reduce executive turnover and provide consistent management.

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The HR Committee generally considers grants of restricted stock and RSUs to be one-time events for special circumstances and generally does not consider the value of such awards to be an ongoing element of executive pay.

One-Time Restricted Stock/Unit Grants

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The restricted shares granted to Mr. Morris upon his hire were negotiated as part of his employment agreement. These restricted share awards were reasonable, appropriate and necessary in order to ensure his hire, provide a timely and successful CEO transition, and to motivate Mr. Morris to vigorously pursue the interests of shareholders. The 200,000 restricted shares that have not yet vested are included in the Number of Shares or Units of Stock That Have Not Vested column in the Outstanding Equity Awards at Fiscal Year-End Table on page 46.

No restricted shares or RSUs were awarded to any NEO in 2006, but the HR Committee did approve RSU awards for other employees and expects to continue to make RSU awards in the future.

Recoupment of Incentive Compensation.Consistent with the requirements of the Sarbanes-Oxley Act, the Board of Directors believes that incentive compensation provided by the Company should be reimbursed to the Company if, in the Board’s view:

Therefore, the Board adopted a policy at its February 2007 meeting, and the HR Committee directed the Company to design and administer all of the Company’s incentive compensation programs in a manner that provides for and preserves the Company’s ability to obtain such reimbursement if and to the extent that, in the Board’s view, such reimbursement is warranted by the facts and circumstances of the particular case.

Change In Control Agreements.    The Company and the HR Committee believe that the interests of shareholders are best served when the interests of executive managementare aligned with them. Therefore, the Company provides Change In Control Agreements to help align the interests of executive management with shareholders by mitigating the financial impact to executives if their employment is terminated as a result of a change in control. These Change In Control Agreements are common among our Compensation Peer group. We believe that these Change In Control Agreements reduce any reluctance on the part of management to pursue large business combinations that may be in the best interests of shareholders. AEP’s agreements require a “double trigger” – a Change In Control accompanied by an involuntary termination or constructive termination within two years.

In response to a shareholder proposal that was approved at the 2004 Annual meeting, the Board adopted a policy that requires shareholder approval of future executive severance agreements that provide benefits generally exceeding 2.99 times the sum of the NEO’s salary plus bonus.

Benefits.    The Company and the HR Committee consider benefit changes in the context of AEP’s total compensation and benefits program. The Company and the HR Committee also consider benefit trends among large utility and U.S. industrial companies as well as emerging best practices. The HR Committee considers the value of benefits within the context of total compensation for each NEO as part of its annual review of tally sheets. The HR Committee periodically reviews the value and composition of non-contractual benefits provided to executives and other employees within the constraints of applicable law, such as ERISA, and makes adjustments as needed.

AEP generally provides the same health and welfare benefits to executives as it provides to other employees, including:

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AEP also provides executive officers with either four or five weeks of paid vacation, depending on officer level. The Company believes that these are all reasonable and appropriate benefits for executive officers.

Our executives participate in the same pension and savings plans as other eligible employees. These include tax-qualified and non-qualified defined contribution and defined benefit plans. AEP’s non-qualified retirement benefit plans are largely designed to provide “supplemental benefits” that would otherwise be offered through the tax-qualified plans if not for the limits imposed by the Internal Revenue Code (IRC) on those tax-qualified plans. As a result, the combined plans allow the eligible employees to accumulate an appropriate level of replacement income upon retirement.

The HR Committee recognizes that non-qualified retirement programs, such as AEP’s, result in the deferral of an income tax deduction for the Company equal to the value credited to participant accounts until such benefits are paid. The HR Committee chooses to provide these supplemental benefits both because it believes that executives generally should be entitled to the same retirement benefits, as a percentage of their eligible pay, as other employees receive and because such benefits are part of a market competitive benefits program.

The non-qualified defined contribution plans (described in greater detail following the Non-Qualified Deferred Compensation Table on page 54) provide participants an income tax deferral opportunity (and related Company matching contributions) and market-based investment options identical to those offered in AEP’s tax-qualified Retirement Savings Plan. The nonqualified Supplemental Retirement Savings Plan also offers an Interest Bearing Account investment option, which provides an earnings rate equal to 120% of the Applicable Federal Rate (5.61% for 2006), which is not available through the qualifiedRetirement Savings Plan. The Company believes that the return provided through the Interest Bearing Account option represents a reasonable market-based interest rate.

AEP also uses the nonqualified plans to provide market-based benefit enhancements and contractual benefits to its executives that cannot be provided under the tax-qualified plans, including the final average pay formula of the nonqualified American Electric Power System Excess Benefit Plan (the AEP Supplemental Benefit Plan) takes both base salary and annual incentive compensation into account, while that formula in the qualified American Electric Power System Retirement Plan (the AEP Retirement Plan) takes into account only base salary.

These particular enhancements are not available to new hires. Eligibility for the final average pay formula under the AEP Plans and the CSW SERP was frozen at the end of 2000, and all new hires on or after January 1, 2001 are eligible to participate only in the cash balance formula of the AEP Retirement and AEP Supplemental Benefit Plans.

The Company and the HR Committee believe that AEP’s continued use of its qualified and nonqualified retirement plans (including the enhancements offered through the nonqualified plans) is consistent with competitive practice and necessary to attract and retain essential executive talent.

The HR Committee does, however, put upper limits on these plans because it believes that compensation above these limits should not be further enhanced by including it in retirement benefit calculations. Therefore,

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The non-qualified plans allow AEP flexibility to structure individualized benefit packages that help in recruiting and retaining key executives. For example, pursuant to Mr. Morris’ employment agreement, AEP provided an opening cash balance account credit of $2,100,000 and continuing company credits at the maximum rate permitted under the AEP Supplemental Benefit Plan regardless of the age and service requirements that otherwise would have applied under the qualified plan.

In 2006, AEP formally documented its AEP Stock Ownership Requirement Plan, the primary purpose of which is to provide stock and stock equivalent deferrals that facilitate senior executives in satisfying their minimum stock ownership requirements. By documenting this plan, the Company intends to assure compliance with the requirements of IRC section 409A. See Stock Ownership Guidelines below for more information on the AEP Stock Ownership Requirement Plan.

AEP provides group term life insurance benefits to its NEOs in the amount of two times their base salary, which is consistent with the term life insurance coverage provided to other employees. Mr. Hagan has been grandfathered under a discontinued split-dollar life insurance program, in lieu of the term insurance. Under the split dollar insurance program, AEP will provide a paid-up life insurance policy to those eligible participants who contribute toward their policy for at least 15 years. AEP is continuing this insurance benefit for participants who were at least age 55 with five years of service as of February 28, 2003, due to concerns about the ability of older participants to replace this insurance coverage economically and to honor the commitment made to these participants. AEP is not currently making premium contributions to Mr. Hagan’s policy because of AEP’s concern that such payments may be construed as a loan that is prohibited under the Sarbanes-Oxley Act. However, the Company intends to fulfill its commitment to Mr. Hagan under that program once Mr. Hagan is no longer an executive officer.

In addition to the life insurance benefit provided to the other NEOs, Mr. Morris’ employment agreement stipulates that AEP will provide him a cash value life insurance policy with a face value of $3,000,000, along with a tax gross-up for the imputed income on thispolicy. Mr. Morris also receives accidental death benefit coverage consistent with that provided to the non-executive members of the AEP Board of Directors.

Perquisites.    AEP generally provides perquisites that help executives conduct AEP business. The HR Committee annually reviews the perquisites provided by the Company to ensure that they are efficient and effective uses of corporate resources. The HR Committee also reviews the value of perquisites provided to each NEO, in the context of total compensation, as part of its annual review of tally sheets. The incremental cost to AEP of perquisites provided to the NEOs is included in the Summary Compensation Table on page 36.

AEP provides country club and dining club memberships to executives who use such memberships for business entertainment purposes because the HR Committee believes such business entertainment is valuable for the Company. The Company reimburses executives for business expenses, initiation fees, assessments and dues incurred at these clubs. AEP provides a gross-up to executives for the tax withholding on the initiation fees and certain assessments.

For executives who relocate to accept an AEP position, AEP provides relocation assistance that includes travel costs, costs associated with the purchase and sale of a home, fixed payment associated with miscellaneous relocation expenses, limited temporary living expenses and gross-up for taxes on these amounts. AEP’s relocation package is intended to offset nearly all of the cost of a move for AEP executives. It is market competitive and is necessary to obtain high quality new hires and internal candidates for such assignments.

AEP also offers executives the following services:

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Income is imputed to executives and taxes are withheld for financial counseling and tax preparation services, personal use of the executive dining room and expenses associated with personal services provided by Company personnel.

The Company provides personal use of corporate aircraft to executives, primarily Mr. Morris, subject to aircraft availability. Mr. Morris negotiated to use AEP’s corporate aircraft for personal travel as part of his employment agreement, and he uses this perquisite frequently to travel to and from his homes outside of Ohio. The value of an executive’s personal use of corporate aircraft is imputed as income in accordance with IRS standards and is not grossed-up for taxes.

The Company transports spouses of executives to business meetings that spouses are invited to attend. The HR Committee believes that such travel is a necessary business expense and, therefore, we provide a gross-up to executives on the taxes associated with such spousal travel. The Company does not gross-up imputed income for spouses traveling to personal destinations.

Stock Ownership Guidelines

The HR Committee believes that linking a significant portion of an executive’s financial rewards to the Company’s success, as reflected by the value of AEP stock, gives the executive a stake similar to that of the Company’s shareholders and further encourages long-termmanagement strategies for the benefit of shareholders. Therefore, the HR Committee requires senior executives to accumulate and hold a specific amount of AEP common stock or stock equivalents. The HR Committee annually reviews the minimum stock ownership levels for each salary grade and periodically adjusts these levels. AEP’s minimum ownership levels are directly related to the executive’s salary grade, with the largest requirement assigned to the CEO. Executives generally are expected to achieve their required stock ownership level within five years of the date it is assigned. Due to changes in the ownership levels and promotions, executives may have multiple stock ownership requirements that they are expected to achieve within five years of the date each was assigned.

AEP’s stock ownership requirements were originally targeted at three times base salary for the CEO and two to two and a half times base salary for the other named executive officers, but these multiples have increased over time with AEP’s stock price growth. The HR Committee believes that its stock ownership requirements are consistent with best practices and in line with the stock ownership requirements maintained by the companies in AEP’s Compensation Peer Group that have such requirements. The highest minimum stock ownership requirement assigned to each of the NEOs is shown in the table below.

Performance units that are earned are mandatorily deferred into AEP Career Shares for participants who have not met all of their minimum stock ownership requirements. Participants are required to hold AEP Career Shares until after their AEP employment ends. In addition, executives that have not met a

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minimum stock ownership requirement within the specified interval will be subject to (i) required deferral of 50% of their annual incentive compensation into AEP Career Shares and (ii) required retention of all AEP shares realized through AEP stock option exercises, except an amount equal to the exercise costs and tax withholding, until the minimum stock ownership requirement has been satisfied.

In addition to AEP Career Shares, executives may satisfy their minimum stock ownership requirements with personal AEP stock holdings owned directly or in the AEP Stock Fund option under the qualified AEP System Retirement Savings Plan, as well as stock equivalents held in the AEP Stock Fund option under the AEP Supplemental Retirement Savings Plan and the AEP Incentive Compensation Deferral Plan.

Messrs. Morris, Hagan and Powers have satisfied all of their stock ownership requirements. Ms. Koeppel has met the stock ownership requirement assigned to her in January 2004 and 2003is on track to reach the compensation earned bystock ownership requirement assigned to her in January 2005. Ms. Tomasky has satisfied two of her previously assigned stock ownership requirements and is on track to meet the chief executive officerownership requirement assigned to her in January 2005. Messrs. English and Keane are also on track to meet the stock ownership requirement assigned to them in 2005, which is the only such requirement they have been assigned.

The Company maintains an insider trading policy that prohibits directors and officers from directly hedging their AEP stock holdings through short sales and the use of options, warrants, put and calls or similar instruments. The Company is unaware of any executive who has attempted to directly or indirectly hedge the economic risk associated with a minimum stock ownership requirement. In addition, the Company and the HR Committee are not aware of any NEO who has pledged or otherwise encumbered their shares of AEP stock.

Tax Considerations

Section 162(m) of the IRC limits the deductibility for the Company of compensation in excess of $1,000,000 paid in any year to the Company’s CEO or any of the next four other most highly compensatedhighest paid executive officers (as definednamed in the Summary Compensation Table. The HR Committee considers the limits imposed by SEC regulations)Section 162(m) when designing compensation programs for the Company and its NEOs. Performance units and stock options issued under the Amended and Restated American Electric Power System Long-Term Incentive Plan have been structured to be exempt from the deduction limit because they are made pursuant to a shareholder-approved, performance-driven plan. Our restricted shares and restricted stock units are not tax deductible under Section 162(m). Annual incentive awards under the SOIP for 2006, although performance based, are not eligible for the exemption because the SOIP has not been designed or implemented in a manner that would comply with the requirements of AEPSection 162(m).

However, the Board has adopted a restatement of the Senior Officer Incentive Plan (2007 SOIP), subject to shareholder approval at the Annual Meeting, which would permit awards paid under the 2007 SOIP to qualify as performance-based compensation that is exempt from the limitations of IRC Section 162(m). The HR Committee intends that awards under the 2007 SOIP will use a funding approach that will provide the HR Committee with sufficient flexibility to award appropriate incentives to the participating executives while allowing the Company to take a tax deduction for the annual incentive compensation paid, even if a participant’s total compensation exceeds $1,000,000. The Company’s management and Board recommend that shareholders approve the 2007 SOIP at the Annual Meeting. The HR Committee intends to continue to consider the effect of Section 162(m) in its executive compensation decisions and in evaluating AEP’s executive compensation programs.

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Human Resources Committee Report

In fulfilling its oversight responsibilities, the HR Committee reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Proxy Statement. Based on its review and these discussions, the HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. The table includes a total2006 and the Company’s proxy statement to be filed in connection with the Company’s 2007 Annual Meeting of six executive officers because Mr. HaganStockholders, each of which will be filed with the Securities and Ms. Koeppel had the same salary and bonus in 2005.Exchange Commission.

Human Resources Committee Members

Donald M. Carlton

Ralph D. Crosby, Jr.

John P. DesBarres, Chair

Robert W. Fri

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Summary Compensation Table

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On January 2, 2004 with the commencement of his AEP employment,For Mr. Morris, received an awardthe amount shown for 2006 includes the aggregate incremental cost associated with his personal use of 300,000 restricted shares granted under the Company’s Long-Term Incentive Plan. Dividends on these shares are paid to Mr. Morris and are not included in this table. 50,000 shares vested on January 1, 2005 and 50,000 shares vested on January 1, 2006 and, as a result, the restrictions on the saleCompany-provided aircraft of these shares were removed giving Mr. Morris full and unrestricted ownership of them. The remaining 200,000 shares of restricted stock were granted as a replacement for certain long-term compensation that Mr. Morris forfeited from his prior employer in order to accept his position at AEP. These shares 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 250,000 unvested restricted shares, with a value of $9,272,500,$305,676. This amount is calculated based on the closing pricevariable operating costs to the Company, including fuel costs, trip-related maintenance, on-board catering, landing/ramp fees and other miscellaneous variable costs. Fixed costs that do not change based on usage, such as pilot salaries, the lease costs for Company aircraft and the cost of AEP common stockmaintenance not related to personal trips, are excluded. For proxy reporting purposes, personal use of corporate aircraft includes use of the aircraft for relocation purposes.

The Company reimburses executives for expenses for spouse travel to events that the Company invited the executive’s spouse to attend. A tax gross-up on the last trading day of 2005 ($37.09).

On August 2, 2004 with the commencement of his AEP employment, Mr. English received an award of 30,000 restricted stock units granted under the Company’s Long-Term Incentive Plan. Dividends on these shares were mandatorily reinvested in an additional 632 and 1,024 restricted stock units in 2004 and 2005, respectively. Fractional shares that would result from the reinvestment of dividends are paid in cash and are included in theOther Annual Compensation column. The additional restricted stock units attributable to reinvested dividends vest, subject to Mr. English’s continued employment, on August 2, 2007. 10,000 shares vested on August 2, 2005 and, as a result, the restrictions on the sale of these stock units were removed giving Mr. English full and unrestricted ownership of them. The remaining 20,000 restricted stock units vest, subject to his continued employment, in two equal components on August 2, 2006, and August 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).such spousal travel in Company aircraft is included under tax gross-ups below.

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All Other Compensation