EXHIBIT 10(i)(1)
CONFIDENTIAL
AMERICAN ELECTRIC POWER SYSTEM
MANAGEMENT INCENTIVE COMPENSATION PLAN
1995
TABLE OF CONTENTS
PAGE
INTRODUCTION iv
1.0 OVERVIEW 1
1.1 Participation in MICP 1
1.2 MICP Award Limitation 2
2.0 TARGET AWARD ALLOCATIONS 3
3.0 AEP CORPORATE PERFORMANCE CRITERIA 5
3.1 Average Annual ROE 5
3.2 Total Investor Return 6
3.3 Realization Ratio 7
4.0 OPERATING COMPANY/DIVISION PERFORMANCE CRITERIA 8
4.1 Marketing Performance 8
4.2 Safety Performance 9
4.3 O&M Expense vs. Budget 11
4.4 Customer Service Reliability Index 12
5.0 POWER PLANT MANAGERS 13
6.0 CENTRALIZED PLANT MAINTENANCE MANAGERS 13
7.0 CENTRAL MACHINE SHOP MANAGER 13
8.0 TIDD PLANT MANAGER 13
9.0 FUEL SUPPLY PERFORMANCE CRITERIA 14
9.1 Adjusted Cost of Coal Produced from
Affiliated Mines 14
9.2 PUCO Cap Performance 15
9.3 Safety Performance 15
9.4 Senior Vice President and Senior Staff - Fuel
Supply - Delivered Fuel Prices 16
9.5 Vice President - Fuel Procurement Measures 16
9.6 General Mine Managers/General Superintendent
Measures 17
9.7 Manager - River Transportation Measures 18
9.8 Manager - Cook Coal Terminal Measures 18
9.9 Managing Director - Transportation Measures 19
10.0 DEPARTMENT OBJECTIVES 20
11.0 THE MICP IN ACTION 21
12.0 PAYMENT RIGHTS AT TERMINATION OF ACTIVE EMPLOYMENT 24
12.1 Termination After Completion of Plan Year 24
ii
12.2 Termination Due to Death, Retirement, or
Disability 24
12.3 Involuntary Termination During Plan Year 25
13.0 CHANGES IN SALARY/POSITION/PARTICIPATION 26
14.0 PLAN ADMINISTRATION 27
ADDENDUM
PAGE
15.0 MICP AWARD DISTRIBUTIONS A-1
16.0 POSSIBLE ADJUSTMENTS TO CORPORATE PERFORMANCE DATA A-3
17.0 FUEL SUPPLY PAYMENT SCHEDULES A-4
17.1 Senior Vice President - Fuel Supply A-4
17.2 Delivered Fuel Prices A-4
17.3 Vice President - Fuel Procurement A-4
17.4 Delivered Fuel Prices A-4
17.5 Sum Total of PV Benefits/Special Contract
Renegotiations A-5
17.6 General Mine Managers/General Superintendent
(Meigs) A-6
17.7 Southern Ohio Coal Company - Meigs A-6
17.8 Central Ohio Coal Company A-6
17.9 Windsor Coal Company A-7
17.10 All Coal Mines - Safety Incidence Rate A-7
17.11 Manager - River Transportation A-8
17.12 River Transportation Operating Cost Per
Ton Mile A-8
17.13 River Transportation Safety Incidence Rate A-8
17.14 Manager - Cook Coal Terminal A-9
17.15 Cook Coal Terminal Adjusted Expenses A-9
17.16 Cook Coal Terminal Safety Incidence Rate A-9
17.17 Managing Director - Transportation A-10
17.18 Cook Coal Terminal Adjusted Expenses A-10
17.19 River Transportation Operating Cost Per
Ton Mile A-10
17.20 Delivered Fuel Prices A-11
17.21 River Transportation and Cook Coal Terminal
Safety Incidence Rate A-11
iii
INTRODUCTION
The American Electric Power System will continue the Management Incentive
Compensation Plan (MICP) during 1995, with revisions from the 1994 Plan.
The Plan's purpose is to bring together the interests of key managers with
those of the AEP System's customers and shareholders by providing
performance incentives to serve customers' needs and meet shareholders'
financial expectations at the highest possible levels.
Through the MICP, a key manager can receive an annual monetary award in
addition to base salary, if certain performance levels are met. The Plan
is designed to help motivate a consistent level of superior Company
performance by rewarding those principally accountable for achieving it.
This Plan provides an element of compensation which will vary directly with
Company performance. It will ensure that key managers are compensated
competitively and consistent with the AEP System's financial and operating
performance.
Any questions about the Plan should be directed to the Assistant Vice
President-Compensation and Benefits through the respective Operating
Company President, Senior Vice President-Fuel Supply, or AEPSC Department
head.
iv
1.0 OVERVIEW OF THE
MANAGEMENT INCENTIVE COMPENSATION PLAN
A participant in the MICP is assigned an annual target award expressed as a
percentage of annual base earnings. Actual awards can vary from 0% to 150%
of the target award, based on performance.
Performance criteria are established each year for the following
organization units:
- AEP Corporate
- Each Operating Company (including Fuel Supply)
- Individual Units
Each participant in the MICP is assigned a target award percentage and
advised how that target award is allocated by organizational unit. After
the end of a year, actual awards are determined based on how well the
participant and/or the organizational units meet their performance
criteria.
During the first part of the year following each performance year a
participant will receive 80% of any actual award in cash unless a deferral
election had been made in accordance with Section 15.2. The remaining 20%
is deferred in the form of AEP common stock units payable 3 years later
(see Addendum page A-1) unless a deferral election had been made in
accordance with Section 15.2. The Plan will pay out 75% and defer 25% of
the award to those employees participating in the MICP and an all-employee
variable pay plan.
1.1 PARTICIPATION IN MICP
Participation in MICP is limited each year to a select group of key
managers and executives whose performance most significantly affects
the Company's success. Positions eligible and individual executives
were approved for participation by the Chief Executive Officer at the
inception of the Plan. The following procedures apply to the addition
of any other positions or executives:
A. OPERATING COMPANIES
Participation is generally automatic for employees promoted or
transferred to a position that has been previously approved as
eligible for participation in the Plan, effective on the
promotion or transfer date. However, if an employee is demoted
to a position normally covered by the MICP, approval of the Chief
Executive Officer is required for the demoted employee to be
eligible to continue as a participant. Requests for such
approval should be submitted to the Executive Vice President.
B. AEPSC AND FUEL SUPPLY DEPARTMENT
Prior to becoming a participant in the Plan, specific approval of
the Chief Executive Officer is required for all employees or
positions not previously eligible to participate in the Plan.
Requests for approval by the Chief Executive Officer should be
submitted through the AVP-Compensation & Benefits.
An executive who is not currently a Plan participant and who is
entering an eligible position for the first time, will generally be
eligible to participate in that year's Plan if the promotion/transfer
date is prior to October 1. If it is after this date, the executive
will be eligible to participate in the following year's Plan.
1.2 MICP AWARD LIMITATION
No award is payable unless AEP's dividends remain at prevailing levels
and net income is greater than dividend payments in the current year.
2.0 TARGET AWARD ALLOCATIONS
Target awards of MICP participants are allocated to AEP Corporate and other
organization units, as follows:
Target
Award* as
Percent of Percent of Awards Allocated
Participant Base Salary to Organizational Units
Office of the Chairman 30 100 Corporate Performance
AEPSC Treasurer, VPs, and SVPs 25 75 Corporate Performance
25 Department Performance
or
100 Corporate Performance
Senior VP - Fuel Supply 25 25 Corporate Performance
50 Fuel Supply Performance
25 Delivered Fuel Prices
Operating Company Presidents 25 50 Corporate Performance
50 Operating Company Performance
AEPSC Senior Division Managers 20 75 Corporate Performance
and Others as Designated 25 Department Performance
or
100 Corporate Performance
Operating Company VPs 20 50 Corporate Performance
50 Operating Company Performance
Operating Company G.O. Department 20 25 Corporate Performance
Heads and Executive Assistants 50 Operating Company Performance
25 Department Performance
or
25 Corporate Performance
75 Operating Company Performance
Operating Company Division/Region 20 25 Corporate Performance
Managers 25 Operating Company Performance
50 Division/Region Performance
Power Plant Managers (including 20 25 Corporate Performance
Cook & Tidd) 75 Plant Incentive Plan
Centralized Plant Maintenance 20 25 Corporate Performance
Managers 75 Central Plant Maintenance Performance
Central Machine Shop Manager 20 25 Corporate Performance
75 Central Machine Shop Performance
Fuel Supply Lancaster Senior Staff 20 25 Corporate Performance
50 Fuel Supply Performance
25 Delivered Fuel Prices
Vice President - Fuel Procurement 20 25 Corporate Performance
25 Fuel Supply Performance
50 Department Performance
Managing Director - Transportation 20 25 Corporate Performance
25 Fuel Supply Performance
50 Department Performance
Fuel Supply General Mine Managers/ 20 25 Corporate Performance
General Superintendent (Meigs) 25 Fuel Supply Performance
50 Division/Mine Performance
Manager - Cook Coal Terminal 20 25 Corporate Performance
75 Cook Coal Terminal Performance
Manager - River Transportation 20 25 Corporate Performance
75 River Transportation Performance
*Target awards are proportionately reduced for those participants in other all-
employee variable pay plans.
3.0 AEP CORPORATE PERFORMANCE CRITERIA
There are three AEP Corporate performance criteria which are weighted to
determine a single Corporate performance factor. The three are as follows:
- A two-component measure of Annual Return on Average Stockholder
Equity (ROE) for the current year - weighted at 25%;
- A component measuring the Three-year Average Total Investor Return
(TIR) - weighted at 25%; and
- A component comparing the Realization Ratio (Average Price of Power
Sold to Retail Customers vs. Other Utilities) for the current year -
weighted at 50%.
The following describes each in greater detail.
3.1 RETURN ON EQUITY (ROE) is corporate annual after-tax income as a
percentage of average annual stockholder equity. It is an indication
of how profitably AEP manages its investors' capital. For purposes of
the MICP, ROE is measured in the following two ways, each of which is
weighted 12.5%:
- In terms of absolute performance; and
- Relative to the ranking of the AEP ROE among the 20 other
electric utilities that together with AEP make up the Standard &
Poor's Utility Index.
The results of these two measures are averaged to determine performance
on this component.
The following chart indicates both of these ROE measurements and the
performance factors for each.
Average Annual ROE
Absolute Performance S&P Utility Performance
ROE Factor* ROE Ranking** Factor
16 or more 1.50 1 - 6 1.50
15 1.25 7 1.40
14 1.00 8 1.30
13 .80 9 1.20
12 .60 10 1.10
11 .40 11 1.00
10 or less 0 12 .80
13 .60
14 .40
15 .20
16 or more 0
*Interpolate at intermediate performance.
**Highest ROE is ranked first.
Example: If AEP's annual ROE is 14%, and AEP achieves an S&P Utility Index
rank of seventh out of 21, the average performance factor will be
calculated this way: (1.00 + 1.40) <divide> 2 = 1.20.
3.2 TOTAL INVESTOR RETURN (TIR) is an indicator of the increase in value of
AEP shareholders' investment. It measures the annual percentage
increase in stock price as well as dividends paid over a three-year
period (the current and two prior years). AEP System results are then
compared with the other 20 companies in the Standard & Poor's Utility
Index and are ranked for each of the three years. Performance factors
are determined based on the average of the TIR rankings for the three
years, as follows:
Three-Year Average Total Investor Return
AEP TIR Ranking* Performance Factor
6 or higher 1.50
7 1.40
8 1.30
9 1.20
10 1.10
11 1.00
12 .80
13 .60
14 .40
15 .20
16 0
*Highest TIR is ranked first.
Example: If the three-year average rank of AEP is 12 out of 21, the
performance factor is .80.
3.3 REALIZATION RATIO is a measure of relative cost efficiency and
productivity -- from AEP customers' perspective. It compares the AEP
System's average price of power sold to ultimate customers with other
utilities' corresponding average price. The realization ratio is
based on average realization for sales to ultimate customers by other
investor-owned utilities in the seven states in which AEP operates,
weighted by the respective proportions of AEP's corresponding sales in
those states. (Because Kingsport Power is the only investor-owned
electric utility in Tennessee, the realization ratio for that state is
based on retail rates of TVA Tennessee distributors.) Performance
factors are then derived, as follows:
AEP REALIZATION RATIO
AEP Ratio Performance Factor*
.75 or less 1.50
.80 1.25
.85 1.00
.90 .75
.95 .50
1.00 .25
above 1.00 0
*Interpolate at intermediate performance.
Example: If AEP's average realization is 20% below the seven-state
average, its ratio will be .80 and the performance factor will be 1.25.
4.0 OPERATING COMPANY/DIVISION PERFORMANCE CRITERIA
There are four Operating Company and Division performance criteria, each of
which is given equal weighting to determine a single performance factor for
each Operating Company and each Division. The four are as follows:
- Achievement of Annual Marketing Objectives - weighted at 25%;
- Safety Performance - weighted at 25%;
- O&M Expense Performance vs. Budget - weighted at 25%; and
- Customer Service Reliability Index - weighted at 25%.
The following describes each measure in more detail.
4.1 ACHIEVEMENT OF ANNUAL MARKETING OBJECTIVES is measured by comparing
actual performance against marketing objectives for the current year.
Performance factors relate to achievement, as follows:
Operating Company and Division
Target Award Payment Schedules
Annual Marketing Results vs. Goal
Results as Percent of Goal Performance Factor*
Over 110% 1.50
105% 1.25
100% 1.00
95% .50
Below 95% 0
*Interpolate at intermediate performance.
Example: If 105% of the marketing goal has been achieved, the
performance factor is 1.25. If 108% had been obtained, the
performance factor would be calculated as follows:
(108%-105%/110%-105% x 25) + 1.25 = 1.40
4.2 SAFETY PERFORMANCE of each Operating Company and Division is measured
by two indices, equally weighted at 50%:
- RECORDABLE CASE INCIDENCE RATE - Number of recordable cases per
200,000 work hours.
- LOST AND RESTRICTED WORKDAY (SEVERITY) RATE - Number of days away
from work AND restricted activity days per 200,000 work hours.
The rate for the appropriate group will be compared to the most
recently published EEI rate calculated for each measure. The related
performance factors are determined from the following schedule and
averaged to yield a single performance factor for safety performance.
Operating Company and Division/Region
Target Award Payment Schedule
Ratio to the Latest EEI Rate
Operating Company or Division/Region Safety Performance
Ratio to EEI Performance Performance Factor*
0.700 1.50
0.850 1.00
0.925 0.50
1.000 or more 0
*Interpolate at intermediate performance.
Example: If a Division achieves a ratio of .9250 to the EEI recordable
case incidence rate and a ratio of .6500 to the EEI lost and
restricted workday (severity) rate, the respective
performance factors are .5000 and 1.50. Averaging the two
yields a single performance factor of 1.000.
For the purposes of these safety measures, Wheeling Power and
Kingsport Power are considered Divisions.
The performance factor shall be zero for any Division whose recordable
injuries include a fatality or a permanent total disability case.
SOURCE OF DATA
- EEI Rate and AEP Data
The EEI rates will be taken from the latest EEI Safety Statistical
Survey Report at the time the awards are calculated. The data for
the companies and divisions is taken from the year-end AEP System
Report of Employee Injuries and Illnesses. This information is
compiled by the Safety & Health Section of System Human Resources.
The following data for the December cumulative year-to-date report is
to be compiled by each Operating Company and forwarded to the AEPSC
Safety & Health Division on or before January 15 of the following
year:
- Company/Division
- Total Hours Worked
- Lost Workdays (LWD Case - days away from work)
- Restricted Activity Days
- Lost and Restricted Workday (Severity) Rate
- Recordable Cases
- Recordable Case Incidence Rate
DATA AVAILABILITY, CALCULATIONS AND AWARD DETERMINATIONS
The AEPSC Safety & Health Section will calculate the performance
factors for each Company and Division. The calculations will be
completed by January 30 and approved by the SVP-Human Resources.
4.3 O&M EXPENSE PERFORMANCE VS. BUDGET is measured by comparing
controllable operating and maintenance expenses against budget for the
current year. Performance factors are designed to provide increased
awards for expense performance which is below budget. However,
because some O&M budgets are developed based primarily upon historical
expenses and not upon need to complete specific projects, close
monitoring of expenses is required. Each Operating Company president
is responsible for monitoring expenses in each operation to ensure
that projects that should have been accomplished are not delayed or
omitted in order to achieve a higher performance factor score. If
this is judged to occur, the approved budget will be commensurately
reduced by an amount equal to the estimated cost of the project, and a
revised performance factor determined.
Operating Company and Division/Region
Target Award Payment Schedule
Controllable O & M Expenses vs. Budget
Expenses as Percent of Budget* Performance Factor
Less than 91% 1.50
91% but less than 96% 1.25
96% but less than 101% 1.00
101% but less than 103% .50
103% but less than 105% .25
105% or higher 0
*All numbers to be rounded to nearest whole numbers.
Example: If an Operating Company's actual result is 93% of budget, the
company has placed between the 91% and 96% bracket, achieving
a performance factor of 1.25.
4.4 CUSTOMER SERVICE RELIABILITY INDEX is measured by comparing the
current year annual service interruption frequency index and the
interruption duration index against prior five-year average indices.
The reliability index is determined by the following formula:
[(Cur.Interpt.Freq.Index) + (Cur.Inerpt.Dur.Index)]
_______________________________________________________ X 100 / 2
[(5-yr.Avg.Intm.Freq.Index) (5-yr.Avg.Intm.Dur.Index)]
Resulting performance factors are determined as follows:
Operating Company and Division/Region
Target Award Payment Schedule
Customer Service
Reliability Index vs. Prior Five-Year Average
Service Reliability Index Performance Factor*
85% or lower 1.50
92.5% 1.25
100% 1.00
105% .50
110% or higher 0
*Interpolate at intermediate performance.
Example: If an Operating Company's current reliability index is
97%, 3% better than its five-year average of 100%, the
performance factor is:
(100%-97%)
_________ x.25)+1=1.10
(100%-92.5%)
SPECIAL ADJUSTMENTS MAY BE CONSIDERED FOR CATASTROPHIC SITUATIONS.
(SEE PAGE 2 OF THE ADMINISTRATION MANUAL.)
5.0 POWER PLANT MANAGERS
INCENTIVE AWARDS FOR POWER PLANT MANAGERS ARE FROM TWO SOURCES:
--AEP CORPORATE PERFORMANCE - WEIGHTED 25%;
AND
--PERFORMANCE AS DETERMINED BY POWER PLANT
INCENTIVE COMPENSATION PLAN - WEIGHTED 75%.
6.0 CENTRALIZED PLANT MAINTENANCE MANAGERS
INCENTIVE AWARDS FOR THE MANAGERS OF APPALACHIAN POWER'S
AND OHIO POWER'S CENTRALIZED PLANT MAINTENANCE DIVISIONS
ARE FROM TWO SOURCES:
--AEP CORPORATE PERFORMANCE - WEIGHTED 25%;
AND
--PERFORMANCE AS DETERMINED BY THE
CENTRALIZED PLANT MAINTENANCE DIVISION'S
INCENTIVE COMPENSATION PLAN - WEIGHTED 75%.
7.0 CENTRAL MACHINE SHOP MANAGER
INCENTIVE AWARDS FOR THE CENTRAL MACHINE SHOP MANAGER ARE FROM TWO SOURCES:
--AEP CORPORATE PERFORMANCE - WEIGHTED 25%;
AND
--PERFORMANCE AS DETERMINED BY THE CENTRAL
MACHINE SHOP INCENTIVE COMPENSATION PLAN - WEIGHTED 75%.
8.0 TIDD PLANT MANAGER
INCENTIVE AWARDS FOR THE TIDD PLANT MANAGER ARE FROM TWO SOURCES:
--AEP CORPORATE PERFORMANCE - WEIGHTED 25%;
AND
--PERFORMANCE AS DETERMINED BY THE TIDD PFBC
INCENTIVE COMPENSATION PLAN - WEIGHTED 75%.
9.0 FUEL SUPPLY PERFORMANCE CRITERIA
THERE ARE THREE OVERALL FUEL SUPPLY PERFORMANCE MEASURES, WHICH
ARE WEIGHTED TO DETERMINE A SINGLE FUEL SUPPLY PERFORMANCE FACTOR.
THESE ARE AS FOLLOWS:
--ADJUSTED COST OF COAL PRODUCED FROM AFFILIATED MINES,
MEASURED BY CENTS PER MILLION BTU (<cent>/MM BTU)
FOR THE CURRENT YEAR AS REDUCED TO REFLECT EXTRAORDINARY
COSTS DUE TO DOWNSIZING AND/OR OTHER SPECIAL EXPENSES AND
A<plus-minus> VOLUME ADJUSTMENT OF 50<cent>/MM BTU FOR
VARIANCE FROM BUDGETED TONS - WEIGHTED AT 50%; AND
--PERFORMANCE RELATIVE TO THE PUCO NEGOTIATED EFC CAP -
WEIGHTED AT 25%; AND
--SAFETY INCIDENCE RATE AS A PERCENT OF THE INDUSTRY
INCIDENCE RATE FOR THE CURRENT YEAR - WEIGHTED AT 25%.
THE FOLLOWING DESCRIBES EACH IN GREATER DETAIL.
9.1 ADJUSTED COST OF COAL PRODUCED FROM AFFILIATED MINES
The adjusted cost of coal produced as measured by
<cent>/MM BTU is a measure of how efficiently
affiliated mines produce clean coal for use in the
System's power plants. Performance factors relate
to achievement as follows:
Fuel Supply Target Award Payment Schedule
Affiliated Mine Costs
<cent>/MM BTU Performance Factor*
178.2 or lower 1.50
180.2 1.25
182.2 1.00
184.2 .75
186.2 .50
188.2 .25
190.2 or higher 0
*Interpolate at intermediate performance.
9.2 PUCO CAP PERFORMANCE
The PUCO cap performance measures the
amount of operating loss as defined
in the Settlement Agreement dated
February 28, 1995.
Fuel Supply Target Award Payment Schedule
PUCO CAP PERFORMANCE
CAP PERFORMANCE Performance Factor*
$ 0 1.50
$ 5 million 1.25
$ 10 million 1.00
$ 15 million .75
$ 20 million .50
More than $ 20 million 0
*Interpolate at intermediate Performance
Example: If the average cap performance was $8.0 million,
the performance factor would be:
( 10-8)
(______ x.25)+1.00=1.10
( 10-5)
9.3 SAFETY PERFORMANCE
Achievement of the safety objective is measured by comparing the
incidence rate for the current year with the comparable coal
industry incidence rate (including Fuel Supply). Performance
factors relate to achievement as follows:
Fuel Supply Target Award Payment Schedule
Safety - Incidence Rate vs. Coal Industry
Incidence Rate - Percent Performance Factor*
Industry Rate
55 or lower 1.50
65 1.25
75 1.00
85 .75
90 .50
95 .25
higher than 95 0
*Interpolate at intermediate performance.
Example: If Fuel Supply's incidence rate were 92% of the coal
industry rate, the performance factor is:
(95%-92%)
(_______x.25)+.25=.40
(95%-90%)
9.4 SENIOR VICE PRESIDENT AND SENIOR STAFF-FUEL SUPPLY - DELIVERED
FUEL PRICES
In addition to the awards allocated to Corporate performance and
Fuel Supply performance, the Senior Vice President and Senior
Staff-Fuel Supply are assigned a 25% award allocated to delivered
fuel prices, (spot/contract) composited change as a percent of the
GDP price index (fixed weight). (See Page A-4 for the target award
payment schedule.)
9.5 VICE PRESIDENT - FUEL PROCUREMENT MEASURES
In addition to the Corporate performance measures weighted 25% and
the overall Fuel Supply performance measure weighted 25%, the Vice
President - Fuel Procurement has two Department performance measures
which are weighted to determine a single Department performance
weighting of 50%. These are as follows:
--Delivered fuel prices (spot/contract) composited change as
a percent of the GDP price index (fixed weight), a national
index which measures inflation of price for the current year -
weighted 75%; and
--Sum total of present value benefits from renegotiation of existing
contracts for coal and transportation outside of existing contract
price adjustment provisions - weighted at 25%.
Tables showing the performance factors and how they relate to
achievement begin on page A-4 of the Addendum.
9.6 GENERAL MINE MANAGERS/GENERAL SUPERINTENDENT (MEIGS) MEASURES
In addition to the Corporate performance measures weighted 25%
and the overall Fuel Supply performance measures weighted 25%, the
Fuel Supply General Mine Managers and General Superintendent (Meigs)
have two Division/Mine performance measures which are weighted to
determine a single Division/Mine performance award weighting of 50%
for the mines for which they are responsible.
These are as follows:
--Adjusted cost of coal produced from affiliated mines, measured by
cents per million BTU (<cent>/MM BTU) for the current year as
reduced to reflect extraordinary costs due to downsizing and/or
other special expenses and a<plus-minus> volume adjustment of
50<cent>/MM BTU for variance from budgeted tons - weighted at 75%;
and
--Safety incidence rate for the current year as a percent of the
comparable industry incidence rate for either underground or
surface mines (whichever is applicable) - weighted at 25%.
Tables showing the performance factors and how they relate to
achievement begin on page A-6 of the Addendum.
The performance factor shall be zero for any mine whose lost
workdays charged for any single occurrence total 6,000 days
or higher.
9.7 MANAGER - RIVER TRANSPORTATION MEASURES
The Manager-River Transportation has, in addition to the overall
Corporate performance measures weighted 25%, two Department
performance measures which are weighted to determine a single
Department performance weighting of 75% for River Transportation.
These are:
--Operating costs measured by adjusted mils per ton mile (mils/ton
mile-$0.00x) for the current year, excluding cost for fuel,
associated taxes and other fixed and special expenses, as
approved by the SVP-Fuel Supply, with a<plus-minus> volume
adjustment of 1.5 mils/ton mile for variance from budgeted
mils per ton mile - weighted 75%;
and
--Safety incidence rate for the current year as a percent of the
most recently published incidence rate for the water transportation
industry - weighted 25%.
The performance factor shall be zero for any operation whose lost
workdays charged for any single occurrence total 6,000 days or higher.
Tables showing the performance factors and how they relate to
achievement are on page A-8 of the Addendum.
9.8 MANAGER - COOK COAL TERMINAL MEASURES
The Manager-Cook Coal Terminal has, in addition to the overall Corporate
performance measures weighted 25%, two Department performance measures
which are weighted to determine a single Department performance weighting
of 75% for Cook Coal Terminal. These are:
--Adjusted expenses measured by total costs incurred less rental
expenses, other fixed and special expenses (e.g., harbor dredging),
as approved by SVP-Fuel Supply, <plus-minus> adjustment volumes
times 25<cent>/ton - weighted 75%;
and
--Safety incidence rate at CCT for the current year as a percent of
the most recently published incidence rate for the coal preparation
plants - weighted 25%.
The performance factor shall be zero for any operation whose lost
workdays charged for any single occurrence total 6,000 days or higher.
Tables showing the performance factors and how they relate to
achievement are on page A-9.
9.9 MANAGING DIRECTOR - TRANSPORTATION MEASURES
In addition to the Corporate performance measures weighted 25%
and the overall Fuel Supply performance measure weighted 25%,
there are two overall transportation department performance
criteria which are weighted to determine a single department
performance factor. These are:
--Transportation cost of fuel delivered comprised of performance
at Cook Coal Terminal (adjusted expenses), River Transportation
(adjusted cost per ton mile) and delivered fuel prices
(spot/contract) - each weighted 25%; and
--Safety incidence rate at River Transportation and Cook Coal for
the current year as a percent of the most recently published
comparable industry rate for each location (RTD vs water
transportation industry; CCT vs coal preparation plants) -
each weighted 12.5%.
Tables showing the performance factors and how they relate to
achievement are on page A-10.
10.0 DEPARTMENT OBJECTIVES
Performance criteria, with appropriate weightings, may be established each
year based on agreed objectives in each department in AEPSC, the Operating
Companies, or Fuel Supply.
The performance rating scale is similar to those used in other measures,
with ratings from 0 to 1.5, and 1.0 as target performance. Managers who
set department objectives which are subjective in nature will determine
the degree of accomplishment in accordance with the 0 to 1.5 scale, taking
into consideration such factors as timeliness, degree of accomplishment,
acceptability of results, etc.
In situations where a participant who has been assigned department
objectives leaves the position during a Plan year, his successor will
generally assume the same objectives and both participants will share the
final performance factor score.
11.0 THE MICP IN ACTION
Following is an illustration to demonstrate how the mechanics of the MICP
work. For purposes of this example, assume that an Operating Company
Division Manager with annual base salary earnings of $90,000 has a target
award of 20%, or $18,000. This individual's target award is allocated among
the following performance criteria:
--AEP Corporate Performance: 25%, or $4,500
--Operating Company Performance: 25%, or $4,500
--Division Performance: 50%, or $9,000
11.1 In determining the AEP Corporate portion of the MICP award, results
are measured for three separate Corporate performance criteria to
arrive at a single Corporate performance factor. ROE is measured in
two ways, averaged, and given a 25% weighting; Total Investor Return
(TIR) is given a 25% weighting; and Realization Ratio is given a 50%
weighting.
ROE 14% actual ROE = 1.00
S&P ranking (7th) = 1.40
_______________________________
Average 1.20 x 25% = .30
TIR S&P ranking (12th) = .80 x 25% = .20
Realization
Ratio AEP ratio (.80) = 1.25 x 50% = .625
______
Corporate Performance Factor = 1.125
The AEP Corporate award, then, is 1.125 x $4,500, or $5,062.50.
11.2 IN DETERMINING THE OPERATING COMPANY PORTION OF THE MICP AWARD, RESULTS
ARE MEASURED AGAINST FOUR OPERATING COMPANY PERFORMANCE CRITERIA TO
ARRIVE AT THE OPERATING COMPANY PERFORMANCE FACTOR. ALL FOUR PERFORMANCE
CRITERIA ARE WEIGHTED EQUALLY AT 25% EACH:
Marketing Performance Result = 105% = 1.25 x 25% = .3125
Safety Performance Result = 22.5% = .75 x 25% = .1875
O&M Expense Performance
vs. Budget Result = 93% = 1.00 x 25% = .2500
Customer Service
Reliability Index Result = 97% = 1.10 x 25% = .2750
______
Operating Company Performance Factor = 1.025
The Operating Company Award, then, is 1.025 x $4,500, or $4,612.50
11.3 IN DETERMINING THE DIVISION PORTION OF THE MICP AWARD, WE MEASURE
RESULTS AGAINST FOUR PERFORMANCE CRITERIA TO ARRIVE AT THE PERFORMANCE
FACTOR--AGAIN GIVING EQUAL WEIGHTING TO ALL FOUR CRITERIA.
Marketing Performance Result = 107% = 1.35 x 25% = .3375
Safety Performance Result = 22.5% = 1.25 x 25% = .3125
O&M Expense Performance
vs. Budget Result = 97% = 1.50 x 25% = .3750
Customer Service
Reliability Index Result = 100% = 1.00 x 25% = .2500
______
Performance Factor = 1.275
The Division award, then, is 1.275 x $9,000, or $11,475.00
11.4 THE OPERATING COMPANY DIVISION MANAGER IN OUR EXAMPLE EARNED A TOTAL
AWARD OF $21,150.00, AS FOLLOWS:
--AEP CORPORATE $ 5,062.50
--OPERATING COMPANY 4,612.50
--DIVISION 11,475.00
___________
$ 21,150.00
Of that amount, 80%, or $16,920.00 is paid during the first part of the
following year, assuming the participant has not elected to defer receipt
of that payment under Section 15.2. The balance, $4,230.00, is deferred
in AEP common stock units for three years. (No actual shares of stock
are purchased--the amount deferred is merely treated as if shares had
been purchased with these funds.) During that time dividends, which
are credited on the deferred stock units, are used to "purchase"
additional deferred stock units. After three years, the individual will
receive a cash payment in the amount of the deferred units' value,
which shall be equal to the average daily high and low market price of
AEP common stock for the quarter preceding the payment date. (See
page A-1 in the Addendum for further details.)
12.0 PAYMENT RIGHTS AT TERMINATION OF ACTIVE EMPLOYMENT
12.1 TERMINATION AFTER COMPLETION OF PLAN YEAR
A participant who is actively employed on December 31 of the Plan year
is entitled to receive the regular cash award (80%) for that year and,
if applicable, the value of his deferred award that has met the three
calendar year requirement. For example, an employee who is actively
employed on 12/31/95, and subsequently terminates is entitled to the
80% cash award for Plan year 1995, and if applicable, the value of his
1992 Plan year deferred amount.
Alternatively, a participant may elect to defer receipt of awards in
accordance with Section 15.2.
12.2 TERMINATION DUE TO DEATH, RETIREMENT, OR DISABILITY
If a participant should leave active employment during a Plan year
because of death, retirement, or disability, the award will be pro-
rated based on the time the participant was actively employed in
positions covered by the Plan during that year. Full payment of
100% of the pro-rated award will be made as soon as practicable in
the following year.
The mandatory deferrals of the 20% portions of any awards are normally
paid as soon as practicable after the participant's death, retirement,
or disability. For purposes of the MICP, disability shall mean the
employee meets the definition of permanent and total disability under
the AEP System Retirement Plan. For purposes of this Section 12.2 and
Section 12.4, "retirement" occurs on the date an employee who is at
least age 55 and who has five or more years of vesting service, ceases
active employment with the company.
In situations where a participant retires, plan participation ends on
the date that full control and responsibility for the function ceased.
The manager who is on vacation prior to and extending immediately into
retirement has effectively ended his responsibility for managing the
unit.
Upon the death of an active or terminated participant, all deferred
awards are immediately payable to the participant's surviving spouse.
If the participant's spouse is not living, the deferred awards are
immediately payable to the participant's estate.
12.3 INVOLUNTARY TERMINATION DURING PLAN YEAR
If a participant is involuntarily terminated from employment during a
Plan year because of (1) the permanent closing of an office, plant or
other facility, or (2) as a direct result of restructuring,
consolidation, change in control of the corporation or downsizing, the
award will be pro-rated based on the time the participant was actively
employed in positions covered by the Plan during that year. Full
payment of 100% of the pro-rated award will be made as soon as
practicable in the following year. Deferred awards are payable as
soon as practicable after the participant's involuntary termination.
12.4 Any potential award for the current Plan year, and all mandatory
deferrals of the 20% portions of any awards that have not met the
three calendar year requirement pursuant to Section 15.1, are forfeited
when a participant terminates active employment during the Plan year for
reasons other than (1) death, retirement, disability, or (2) involuntary
termination as described in Section 12.3.
13.0 CHANGES IN SALARY / POSITION / PARTICIPATION
Awards are paid as a percentage of the performance year's annual base
earnings, including merit and promotional increases.
In situations where participation changes as a result of job assignment,
the employee will be entitled to a pro-rata share of any incentive award
earned during the period he or she is employed in a position covered by
the Plan.
In the event an MICP participant is transferred from a position covered by
the Plan to another such covered position within the AEP System, the
participant will be entitled to a pro-rata share of any incentive award
earned during the period he or she is employed in each of the positions.
If the participant is subject to different target awards as a percent of
base salary in the same performance year, each target award percentage will
be applied to the base salary earned during the period employed in the
related position.
14.0 PLAN ADMINISTRATION
The MICP is administered by the Human Resources Committee of the American
Electric Power Company, Inc. Board of Directors through the Executive
Compensation Committee of AEPSC. Subject to the approval of the Chief
Executive Officer, the Executive Compensation Committee's interpretation
of the Plan's provisions are conclusive and binding on all participants.
Participation in the MICP in any Plan year shall not be viewed as conferring
any right to continued employment, or to continued participation in the MICP.
Subject to the approval of the Chief Executive Officer, the Executive
Compensation Committee of AEPSC may vary performance criteria, weightings,
and/or performance factor schedules from time to time when appropriate,
enlarge or diminish the number of participants, or make other adjustments
or amendments to improve the workings of the Plan.
The Board of Directors reserves a right to amend or terminate the MICP.
Amendment or termination of the Plan will not adversely affect any funds
deferred into stock unit accounts prior to the amendment or termination.
For good and sufficient cause, on petition by an Operating Company president
or by a senior officer of the Company, and with the approval of the Chief
Executive Officer, any performance factor(s) for any participant(s) may be
varied not more than plus or minus 25% to reflect exceptional circumstance.
15.0 MICP AWARD DISTRIBUTIONS AND DEFERRALS
15.1 WHEN ALL OF THE NECESSARY DATA ARE AVAILABLE AFTER THE END OF THE PLAN
YEAR, PERFORMANCE RESULTS WILL BE CALCULATED AND AWARDS MADE AS SOON
AS PRACTICABLE. UNLESS THE PARTICIPANT HAS MADE AN ELECTION TO DEFER
RECEIPT OF AN ADDITIONAL PORTION OF THE ENTIRE AWARD IN ACCORDANCE
WITH SECTION 15.2, EIGHTY PERCENT OF THE AWARD EARNED WILL BE PAID IN
CASH, EXCEPT FOR VARIABLE PAY PLAN PARTICIPANTS AS NOTED IN SECTION
1.0. TWENTY PERCENT OF ANY AWARDS MADE UNDER THE MICP WILL BE
DEFERRED. ALL DEFERRALS ARE INVESTED IN AEP STOCK UNIT ACCOUNTS. NO
AEP STOCK IS ACTUALLY PURCHASED -- THE AMOUNT DEFERRED IS TREATED AS
IF ACTUAL SHARES HAD BEEN PURCHASED.
THE NUMBER OF STOCK UNITS IS DETERMINED BY DIVIDING THE AMOUNT
DEFERRED BY THE AVERAGE OF THE DAILY HIGH AND LOW AEP COMMON STOCK
PRICES DURING THE PLAN YEAR IN WHICH THE INCENTIVE AWARD WAS EARNED.
AN AMOUNT EQUAL TO AEP COMMON STOCK DIVIDENDS IS CREDITED ON THE DATE
PAYABLE EACH CALENDAR QUARTER COMMENCING WITH THE FIRST QUARTER OF THE
YEAR FOLLOWING THE YEAR IN WHICH THE AWARD WAS EARNED. THOSE AMOUNTS
ARE "REINVESTED" TO "PURCHASE" ADDITIONAL DEFERRED STOCK UNITS AT THE
AVERAGE OF THE DAILY HIGH AND LOW MARKET PRICE FOR THE QUARTER IN
WHICH THE STOCK DIVIDEND APPLIES.
AMOUNTS DEFERRED IN STOCK UNITS ARE PAYABLE IN CASH TO PARTICIPANTS
AFTER THE END OF THREE CALENDAR YEARS FOLLOWING THE END OF THE YEAR
FOR WHICH THE 80% PORTION OF THE AWARD WAS SCHEDULED TO BE PAID.
HOWEVER, A PARTICIPANT MAY ELECT TO DEFER RECEIPT AS OUTLINED IN
SECTION 15.2.
THE VALUE OF STOCK UNITS PAID IS BASED ON THE AVERAGE DAILY HIGH AND
LOW MARKET PRICE OF AEP COMMON STOCK FOR THE QUARTER IMMEDIATELY
PRECEDING THE DATE OF PAYMENT.
BECAUSE AMOUNTS HELD IN DEFERRED STOCK UNIT ACCOUNTS DO NOT INVOLVE
THE ACTUAL PURCHASE OF STOCK, PLAN PARTICIPANTS ARE NOT ENTITLED TO
VOTING OR CERTAIN OTHER RIGHTS APPLICABLE TO AN ACTUAL SHAREHOLDER.
AMOUNTS HELD IN DEFERRED STOCK UNIT ACCOUNTS MAY NOT BE ASSIGNED,
TRANSFERRED, OR PLEDGED BY A PLAN PARTICIPANT NOR WILL THEY BE SUBJECT
TO EXECUTION, ATTACHMENT OR OTHER SIMILAR PROCESS.
IF THE EXECUTIVE COMPENSATION COMMITTEE DETERMINES THAT THE OCCURRENCE
OF ANY MERGER, RECLASSIFICATION, CONSOLIDATION, RECAPITALIZATION,
STOCK DIVIDEND OR STOCK SPLIT REQUIRES AN ADJUSTMENT IN ORDER TO
PRESERVE THE BENEFITS INTENDED UNDER THE PLAN, THEN THE COMMITTEE MAY,
IN ITS DISCRETION, MAKE EQUITABLE PROPORTIONATE ADJUSTMENTS IN THE
NUMBER OF DEFERRED STOCK UNITS HELD BY PARTICIPANTS.
15.2 ELECTIONS TO DEFER RECEIPT OF A PORTION OF THE PLAN'S 80% CASH AWARD
(UP TO THE FULL AMOUNT) OR ANY PREVIOUSLY DEFERRED 20% AWARDS MUST BE
EXECUTED ONE YEAR PRIOR TO THE DATE EACH AWARD WOULD OTHERWISE BE
PAYABLE. THE INITIAL ELECTIVE DEFERRAL PERIOD IS ONE 3-YEAR TERM FOR
THE 80% CASH AWARD. SUBSEQUENT DEFERRALS, FOLLOWING THE INITIAL
DEFERRAL PERIOD, SHALL APPLY TO THE AGGREGATE AMOUNTS INITIALLY
DEFERRED AND SHALL BE FOR PERIODS OF NOT LESS THAN ONE YEAR; HOWEVER,
IF THE PARTICIPANT'S ELECTIVE DEFERRAL PERIOD EXTENDS BEYOND THE
PARTICIPANT'S EMPLOYMENT TERMINATION DATE AND THE PARTICIPANT'S
TERMINATION OCCURRED UNDER CIRCUMSTANCES OTHER THAN THOSE DESCRIBED IN
SECTION 12.3, PAYMENT WILL BE MADE NO LATER THAN FIVE YEARS AFTER THE
PARTICIPANT'S TERMINATION OF EMPLOYMENT.
ALL AMOUNTS DEFERRED IN ACCORDANCE WITH THE PRECEDING ARE REINVESTED
IN AEP STOCK UNIT ACCOUNTS DESCRIBED IN SECTION 15.1.
16.0 POSSIBLE ADJUSTMENTS TO CORPORATE PERFORMANCE DATA
IF ESTIMATED DATA ARE REQUIRED TO CALCULATE CORPORATE PERFORMANCE AWARDS, OR
IF CORRECTIONS ARE MADE TO DATA PREVIOUSLY REPORTED AS FINAL, ADJUSTMENTS TO
AWARDS MAY BE MADE WHEN FINAL DATA ARE AVAILABLE.
17.0 FUEL SUPPLY PAYMENT SCHEDULES
17.1 SENIOR VICE PRESIDENT - FUEL SUPPLY
17.2 Fuel Supply Target Award Payment Schedule
Composited Change in Price of Purchased Coal as Percent
of GDP Price Index (Fixed Weight)
Percent of GDP Price Index Performance Factor*
60 or lower 1.50
70 1.25
80 1.00
100 .50
110 .25
Higher than 110 0
*Interpolate at intermediate performance.
Example: If the average percentage increase in the price of purchased coal is 85%
of the GDP price index, the performance factor is .875.
17.3 VICE PRESIDENT - FUEL PROCUREMENT
17.4 Fuel Supply Target Award Payment Schedule
Composited Change in Price of Purchased Coal as
Percent of GDP Price Index (Fixed Weight)
Percent of GDP Price Index Performance Factor*
60 or lower 1.50
70 1.25
80 1.00
100 .50
110 .25
Higher than 110 0
*Interpolate at intermediate performance.
Example: If the average percentage increase in the price of purchased coal is 85%
of the GDP price index, the performance factor is .875.
17.5 Fuel Supply Target Award Payment Schedule
Sum Total of PV Benefits
Special Contract Renegotiations
PV Benefits
Total Dollars Performance Factor*
$64 million or higher 1.50
$32 million 1.25
$16 million 1.00
$8 million .75
$4 million .50
$2 million .25
0 0
*Interpolate at intermediate performance.
Example: If the sum total of PV benefits from special
contract negotiations were $1.6 million, the performance
factor would be 0.20.
17.6 GENERAL MINE MANAGERS/GENERAL SUPERINTENDENT (MEIGS)
17.7 Southern Ohio Coal Company - Meigs
Adjusted Cost of Coal Produced
<cent>/MM BTU Performance Factor*
173.6 or lower 1.50
175.6 1.25
177.6 1.00
179.6 .75
181.6 .50
183.6 .25
185.6 or higher 0
*Interpolate at intermediate performance.
17.8 Central Ohio Coal Company
Adjusted Cost of Coal Produced
<cent>/MM BTU Performance Factor*
207.8 or lower 1.50
209.8 1.25
211.8 1.00
213.8 .75
215.8 .50
217.8 .25
219.8 or higher 0
*Interpolate at intermediate performance.
17.9 Windsor Coal Company
Adjusted Cost of Coal Produced
<cent>/MM BTU Performance Factor*
168.6 or lower 1.50
170.6 1.25
172.6 1.00
174.6 .75
176.6 .50
178.6 .25
180.6 or higher 0
*Interpolate at intermediate performance.
17.10 All Coal Mines
Safety Incidence Rate
Incidence Rate - Percent Industry Rate Performance Factor*
55 or lower 1.50
65 1.25
75 1.00
85 .75
90 .50
95 .25
Higher than 95 0
*Interpolate at intermediate performance.
17.11 MANAGER - RIVER TRANSPORTATION
17.12 River Transportation
Operating Cost Per Ton Mile
Mils/Ton Mile
($.00x) Performance Factor*
3.544 or lower 1.50
3.681 1.25
3.818 1.00
3.955 .75
4.092 .50
4.229 .25
4.366 or higher 0
*Interpolate at intermediate performance.
17.13 River Transportation
Safety Incidence Rate
Incidence Rate - % Industry Rate Performance Factor*
55 or lower 1.50
65 1.25
75 1.00
85 .75
90 .50
95 .25
Higher than 95 0
*Interpolate at intermediate performance.
17.14 MANAGER - COOK COAL TERMINAL
17.15 Cook Coal Terminal
Adjusted Expenses
Adjusted Expenses Performance Factor*
$7.30 million or better 1.50
$7.50 1.25
$7.70 1.00
$7.90 .75
$8.10 .50
$8.30 .25
$8.50 million or higher 0
*Interpolate at intermediate performance.
17.16 Cook Coal Terminal
Safety Incidence Rate
Incidence Rate - % Industry Rate Performance Factor*
55 or better 1.50
65 1.25
75 1.00
85 .75
90 .50
95 .25
Higher than 95 0
*Interpolate at intermediate performance.
17.17 MANAGING DIRECTOR - TRANSPORTATION
17.18 Cook Coal Terminal
Adjusted Expenses
Adjusted Expenses Performance Factor*
$7.30 million or better 1.50
$7.50 1.25
$7.70 1.00
$7.90 .75
$8.10 .50
$8.30 .25
$8.50 million or higher 0
*Interpolate at intermediate performance.
17.19 River Transportation
Operating Cost Per Ton Mile
Mils/Ton Mile ($.00x) Performance Factor*
3.544 or lower 1.50
3.681 1.25
3.818 1.00
3.955 .75
4.092 .50
4.229 .25
4.366 or higher 0
*Interpolate at intermediate performance.
17.20 Composited Change in Purchased Coal As
Percent of GDP Price Index (Fixed Weight)
PERCENT OF GDP PRICE INDEX (FIXED WEIGHT) PERFORMANCE FACTOR*
60 or lower 1.50
70 1.25
80 1.00
100 .50
110 .25
Higher than 110 0
*Interpolate at intermediate performance
Example: If the average percentage increase in the price of purchased coal
is 85% of the GDP Price Index, the performance factor is .875.
17.21 River Transportation and Cook Coal Terminal
Safety Incidence Rate
INCIDENCE RATE - % INDUSTRY RATE PERFORMANCE FACTOR*
55 or lower 1.50
65 1.25
75 1.00
85 .75
90 .50
95 .25
Higher than 95 0
*Interpolate at intermediate performance