AMERICAN ELECTRIC POWER SYSTEM
MANAGEMENT INCENTIVE COMPENSATION PLAN
1996
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 T&D ENERGY DELIVERY PERFORMANCE CRITERIA . . . . . . . . . 8
4.1 Customer Satisfaction & Loyalty . . . . . . . . . 8
4.2 Safety Performance . . . . . . . . . . . . . . . 10
4.3 O&M Expense vs. Budget. . . . . . . . . . . . . . 11
4.4 Customer Service Reliability Index . . . . . . . 13
4.5 Material & Supply Inventory Reduction . . . . . . 13
4.6 Marketing Performance . . . . . . . . . . . . . . 14
5.0 MARKETING BUSINESS UNIT PERFORMANCE CRITERIA . . . . . . . 17
5.1 Annual Marketing Objective . . . . . . . . . . . 17
5.2 Annual Account Management Objective . . . . . . . 18
5.3 Market Share of Electricity . . . . . . . . . . . 19
5.4 Market Share of Energy . . . . . . . . . . . . . 20
5.5 Loyalty Objective . . . . . . . . . . . . . . . . 20
6.0 POWER PLANT MANAGERS . . . . . . . . . . . . . . . . . . . 22
7.0 REGION PLANT SERVICES . . . . . . . . . . . . . . . . . . 22
8.0 CENTRAL MACHINE SHOP MANAGER . . . . . . . . . . . . . . . 22
9.0 FUEL SUPPLY PERFORMANCE CRITERIA . . . . . . . . . . . . . 23
9.1 Adjusted Cost of Coal Produced from
Affiliated Mines . . . . . . . . . . . . . . . 23
9.2 PUCO Cap Performance . . . . . . . . . . . . . . 24
9.3 Safety Performance . . . . . . . . . . . . . . . 24
9.4 Senior Vice President and Senior Staff-Fuel
Supply - Delivered Fuel Prices . . . . . . . . 25
9.5 Vice President - Fuel Procurement Measures . . . 25
9.6 General Mine Manager/General Superintendent
Measures . . . . . . . . . . . . . . . . . . . 26
9.7 Manager-River Transportation Measures . . . . . . 26
9.8 Manager-Cook Coal Terminal Measures . . . . . . . 27
9.9 Managing Director-Transportation Measures . . . . 28
9.10 Senior Vice President, Vice Presidents, Senior
Staff-Fuel Supply & Managing Director-
Transportation. . . . . . . . . . . . . . . . . 28
10.0 POWER GENERATION PERFORMANCE CRITERIA . . . . . . . . . 29
11.0 DEPARTMENT/BUSINESS UNIT OBJECTIVES . . . . . . . . . . 29
12.0 THE MICP IN ACTION . . . . . . . . . . . . . . . . . . . 30
13.0 PAYMENT RIGHTS AT TERMINATION OF ACTIVE EMPLOYMENT . . . 33
13.1 Termination After Completion of Plan Year. . . 33
13.2 Termination Due to Death, Retirement, or
Disability . . . . . . . . . . . . . . . . . 33
13.3 Involuntary Termination During Plan Year . . . 34
14.0 CHANGES IN SALARY/POSITION/PARTICIPATION . . . . . . . . 35
15.0 PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . 36
16.0 MICP AWARD DISTRIBUTIONS AND DEFERRALS . . . . . . . . . A-1
17.0 POSSIBLE ADJUSTMENTS TO CORPORATE PERFORMANCE DATA . . . A-3
18.0 FUEL SUPPLY PAYMENT SCHEDULES . . . . . . . . . . . . . A-4
18.1 Senior Vice President-Fuel Supply. . . . . . . A-4
18.2 Delivered Fuel Prices. . . . . . . . . . . . . A-4
18.3 Vice President-Fuel Procurement. . . . . . . . A-5
18.4 Delivered Fuel Prices. . . . . . . . . . . . . A-5
18.5 Power Generation Production Cost . . . . . . . A-6
18.6 General Mine Managers/General Super-
intendent (Meigs). . . . . . . . . . . . . . A-6
18.7 Southern Ohio Coal Company - Meigs . . . . . . A-6
18.8 Central Ohio Coal Company. . . . . . . . . . . A-7
18.9 Windsor Coal Company . . . . . . . . . . . . . A-7
18.10 All Coal Mines - Safety Incidence Rate . . . . A-8
18.11 Manager - River Transportation . . . . . . . . A-9
18.12 River Transportation Operating Cost Per
Ton Mile . . . . . . . . . . . . . . . . . . A-9
18.13 River Transportation Safety Incidence Rate . . A-9
18.14 Manager-Cook Coal Terminal . . . . . . . . . . A-10
18.15 Cook Coal Terminal Adjusted Cost Per Ton . . . A-10
18.16 Cook Coal Terminal Safety Incidence Rate . . . A-10
18.17 Managing Director-Transportation . . . . . . . A-11
18.18 Cook Coal Terminal Adjusted Cost Per Ton . . . A-11
18.19 River Transportation Operating Cost
Per Ton Mile . . . . . . . . . . . . . . . . A-11
18.20 Delivered Fuel Prices. . . . . . . . . . . . . A-12
18.21 River Transportation and Cook Coal Terminal
Safety Incidence Rate. . . . . . . . . . . . A-12
19.0 POWER GENERATION DEPARTMENT/BUSINESS UNIT
PAYMENT SCHEDULES . . . . . . . . . . . . . . . . . . A-13
19.1 O & M Expenditure . . . . . . . . . . . . . . A-13
19.2 Power Generation Production Cost . . . . . . . A-13
19.3 Capital Expenditures . . . . . . . . . . . . . A-14
19.4 Equivalent Availability. . . . . . . . . . . . A-14
19.5 Heat Rate. . . . . . . . . . . . . . . . . . . A-15
INTRODUCTION
The American Electric Power System is continuing the Management
Incentive Compensation Plan (MICP) during 1996, with revisions
from the 1995 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 Director-
Compensation and Benefits through the respective business unit
head.
1.0 OVERVIEW OF THE
MANAGEMENT INCENTIVE COMPENSATION PLAN
A participant's MICP annual target award is 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 annually for the following
organizational units:
- AEP Corporate
- Energy Delivery T&D Business Group
- Power Generation
- Marketing
- Fuel Supply
- Individual Units
Each participant's target award is allocated by organizational
unit. The organization's success in meeting the year's
established performance criteria determines the participant's
actual award.
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
16.2. 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
16.2.
1.1 PARTICIPATION IN MICP - A select group of key managers and
executives whose performance most significantly affects the
Company's success participate in the MICP. Positions
eligible and individual executives were approved for
participation in the 1996 Plan by the Chief Executive
Officer. The following procedures apply to the addition of
any other positions or executives:
A. NEW PARTICIPANTS - 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.
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
Director-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 or 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
EVP-Energy Delivery 25 75 Corporate Performance
Group, Controller, VPs, 25 Department/Business Unit Performance
SVPs and State Presidents or
60 Corporate
40 Department/Business Unit Performance
or
100 Corporate Performance
Fuel Supply SVP and VPs 25 25 Corporate Performance
45 Fuel Supply Performance
25 Delivered Fuel Prices
5 Power Generation Production Cost
AEP Division Managers 20 75 Corporate Performance
and Others as Designated 25 Department/Business Unit Performance
or
60 Corporate Performance
40 Department/Business Unit Performance
or
50 Corporate
50 Department/Business Unit Performance
or
100 Corporate
Region Managers 20 50 Corporate Performance
50 Region/Business Unit Performance
Power Plant Managers 20 25 Corporate Performance
(including Cook) 75 Plant Incentive Plan
Site VP (Cook) 25 25 Corporate Performance
75 Plant Incentive Plan
Region Plant Services 20 25 Corporate Performance
Managers and Production 75 Region Plant Services Performance
Services Manager
Central Machine Shop 20 25 Corporate Performance
Manager 75 Central Machine Shop Performance
Fuel Supply Lancaster 20 25 Corporate Performance
Senior Staff 45 Fuel Supply Performance
25 Delivered Fuel Prices
5 Power Generation Production Cost
Vice President-Fuel 25 25 Corporate Performance
Procurement 20 Fuel Supply Performance
50 Department Performance
5 Power Generation Production Cost
Managing Director- 20 25 Corporate Performance
Transportation 20 Fuel Supply Performance
50 Department Performance
5 Power Generation Production Cost
Fuel Supply General Mine 20 25 Corporate Performance
Managers/General Super- 25 Fuel Supply Performance
intendent (Meigs) 50 Division/Mine Performance
Manager-Cook Coal 20 25 Corporate Performance
Terminal 75 Cook Coal Terminal Performance
Manager-River Trans- 20 25 Corporate Performance
portation 75 River Transportation Performance
VP & General Manager 25 25 Corporate Performance
(Meigs) 25 Fuel Supply Performance
50 Division/Mine Performance
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
Performance S&P Utility Performance
Absolute 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) / 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 TRANSMISSION AND DISTRIBUTION ENERGY
DELIVERY PERFORMANCE CRITERIA
There are six T&D Energy Delivery performance criteria that are
individually weighed to determine a single performance factor for
the T&D Energy Delivery Group, Energy Distribution, Energy
Transmission and each Region. The six are as follows:
- - Customer Satisfaction and Loyalty - weighted at 20%;
- - Safety - weighted at 20%;
- - O&M Expense vs. Budget - weighted at 20%;
- - Customer Service Reliability Index - weighted at 20%;
- - Material and Supply Inventory Reduction - weighted at 10%;
- - Marketing - weighted at 10%.
The following describes each measure in more detail.
4.1 CUSTOMER SATISFACTION AND LOYALTY is based on a weighted
average of the performance factors of the National Key
Account Benchmark study by TQS Research (TQS), the
Commercial and Industrial Customer Satisfaction Study by RKS
Research and Consulting (RKS) and the Corporate Positioning
and Communication Tracking Study by Market Strategies, Inc.
(MSI) survey instruments in proportions of 61.3%, 28.5%, and
10.2% respectively. The TQS, RKS, and MSI represent the key
accounts, major accounts, and residential segments,
respectively. The "Customer Loyalty-Electric" score will be
utilized from the TQS study, the "Customer Assessment Score"
will be utilized from the RKS study, and the "Overall
Satisfaction" score will be utilized form the MSI study.
The performance factor for each instrument will be computed
in accordance with the following payment schedule. Note
that while a percentile approach is preferred in the
computation of a performance factor with all three of the
instruments, a raw score is utilized in the RKS instrument
as the timing of the study is not anticipated to permit
comparison to other utilities' scores. The award will not
be distinguishable between Transmission and Distribution.
Targets and results will be system-wide. The 1996 targets
and performance factors are:
ENERGY DISTRIBUTION BUSINESS UNIT AND REGION
TARGET AWARD PAYMENT SCHEDULE
TQS AND MSI TARGETS
Ranking Result (percentile) Performance Factor*
--------------------------- -------------------
Top 10% 1.50
15% 1.25
20% 1.00
25% 0.50
Bottom 70% 0.00
*Interpolate at intermediate performance.
ENERGY DISTRIBUTION BUSINESS UNIT AND REGION
TARGET AWARD PAYMENT SCHEDULE
RKS TARGETS
Customer Acceptance Score Performance Factor*
------------------------- -------------------
Over 3.2 1.50
3.1 1.25
3.0 1.00
2.9 0.50
Below 2.85 0.00
*Interpolate at intermediate performance.
The use of the RKS instrument is dependent on receiving
survey results prior to computation of the annual MICP
results. In the event this information is unavailable, the
performance measures of the TQS and MSI will be computed as
a weighted average in the proportions 85%.7% and 14.3%
respectively.
4.2 SAFETY PERFORMANCE of the T&D Energy Delivery Business
Group, the Energy Distribution Business Unit, the Energy
Transmission Business Unit and the transmission and
distribution Regions is measured by two equally weighted
indices. The indices are combined to determine a single
performance factor for each organizational unit.
- 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 group and the appropriate Units and Regions
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.
T&D ENERGY DELIVERY SAFETY PERFORMANCE
TARGET AWARD PAYMENT SCHEDULE
RATIO TO THE LATEST EEI RATE
Ratio to EEI Performance Performance Factor*
------------------------ -------------------
0.70 1.50
0.85 1.00
0.93 0.50
1.000 or more 0.00
*Interpolate at intermediate performance.
Example: If a Transmission Region 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 .50 and 1.50.
Averaging the two yields a single performance factor of 1.00
The performance factor shall be zero for any Region 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 T&D Energy Delivery 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 the AEP Corporate Safety &
Health Division on or before January 15 of the following
year for the T&D Energy Delivery Group/Unit/Region.
- 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 AEP Corporate Safety & Health Section will calculate the
performance factors for the T&D Energy Delivery Group, and
each Business Unit and Region. 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. The EVP-Energy Delivery
Group is responsible for monitoring expenses in each
budgeting organization 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.
T&D ENERGY DELIVERY GROUP
BUSINESS UNIT AND REGION
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% 0.50
103% but less than 105% 0.25
105% or higher 0.00
*All numbers to be rounded to nearest whole numbers.
Example: If Distribution Region's actual result is 93% of
budget, the Region 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 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/5-Year Avg. Intm. Freq.
Index) + (Cur. Interpt. Dur. Index/5-Year Avg. Intm.
Dur. Index)] x 100/2
Resulting performance factors are determined as follows:
T&D ENERGY DELIVERY GROUP, UNITS AND REGIONS
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% 0.50
110% or higher 0.00
*Interpolate at intermediate performance.
Example: If a Region's current reliability index is 97%, 3%
better than its five-year average of 100%, the performance
factor is:
[(100%-97%)/(100%-92.5%) x .25] + 1 = 1.10
Special adjustments may be considered for catastrophic
situations.
4.5 MATERIAL AND SUPPLY INVENTORY REDUCTION is based on
attainment of a dollar inventory reduction goal established
for 1996. The goals will be adjusted to accommodate the
Capital Spare Parts transfer to Materials & Supplies that
began last year. Energy Delivery Support participants will
have a $4 million meter inventory reduction goal in lieu of
the M&S inventory reduction goal. The 1996 targets are:
T&D ENERGY DELIVERY GROUP DELIVERY
BUSINESS GROUP, UNITS AND REGIONS
TARGET AWARD PAYMENT SCHEDULE
MATERIAL & SUPPLY INVENTORY REDUCTION
Results as Percent of Goal Performance Factor*
-------------------------- -------------------
150% 1.50
100% 1.00
50% 0.50
0% 0.00
*Interpolate at intermediate performance.
Example: If a region's results as a percent of goal
were 125%, the performance factor is 1.25.
4.6 MARKETING performance is measured by two indices that are
weight-averaged to yield a single performance factor. The
target, results, and award are the same for both the
Transmission and Distribution groups. The indices are
further defined below.
MARKETING results constitute 70% of the marketing
performance factor. The results are measured by comparing
actual performance against marketing objectives for the
current year. Marketing objectives are expressed as a
collection of product goals which are weighted in value
through the assignment of Smart Point equivalents.
Marketing objective performance is computed by dividing the
total Smart points earned by the Smart Point goals assigned.
The total assigned 1996 Smart Points are 6,496,398. The
1996 performance factors are:
ENERGY DELIVERY BUSINESS GROUP, UNITS AND REGIONS
TARGET AWARD PAYMENT SCHEDULE
MARKETING RESULTS
Percent of Goal Performance Factor*
--------------- -------------------
110% 1.50
105% 1.25
100% 1.00
95% 0.50
90% 0.00
*Interpolate at intermediate results.
MARKETING ACCOUNT MANAGEMENT OBJECTIVES constitute 30% of
the marketing performance factor. Achievement is measured
by comparing actual performance with account objectives for
the year. Account management objectives are expressed as a
collection of loyalty enhancing activities, including
identification of decision groups, development of business
plans, customer presentation and agreements, and
implementation of two or more business plan items with
designated customers. These activities are weighted in
value through the assignment of point equivalents as a
function of assigned customers. Account management
objective performance is computed in accordance with the
following tables which are preset to result in a 100 point
base for easy conversion to percentage attainment.
NATIONAL ACCOUNT MANAGEMENT
Maximum Actual
Measurement Goal Accomplishment Score Score*
----------- ---- -------------- ------- ------
Compl. Interv. 70 20
Meter Maps 50 10
ID Decision Groups 50 20
Business Plans 25 35
Cust. Pres. & Agree. 25 15
Bus Plan Impl. 15 10
Total 110
*(Accomplishment/Goal) x Maximum Score = Actual Score (not
to exceed maximum score)
KEY ACCOUNT MANAGEMENT
Maximum Actual
Measurement Goal Accomplishment Score Score*
----------- ---- -------------- ------- ------
ID Decision Groups 170 20
Business Plans 136 50
Cust. Pres & Agree. 110 30
Business Plans 50 10
Total 110
*(Accomplishment/Goal) x Maximum Score = Actual Score (not
to exceed maximum score)
The results for key and national accounts are then weighted
3:1, respectively. The resulting percentage achievement is
utilized in the following payment schedule to determine the
composite account management performance measure for this
index.
ENERGY DELIVERY BUSINESS GROUP, UNITS AND REGIONS
TARGET AWARD PAYMENT SCHEDULE
ACCOUNT MANAGEMENT OBJECTIVES
Results as % of Goal Performance Factor*
-------------------- -------------------
Over 110% 1.50
105% 1.25
100% 1.00
95% 0.50
Below 90% 0.00
*Interpolate at intermediate results.
5.0 MARKETING BUSINESS UNIT PERFORMANCE CRITERIA
The MARKETING PERFORMANCE of the marketing organization is
measured by five indices which are weighted to yield a single
performance factor. These five indices are the annual marketing
objective, the annual account management objective, the electric
market share objective, the energy market share objective, and
the loyalty objective. These indices are weighted at 50%, 25%,
5%, 5%, and 15%, respectively, for computation of a single
performance factor.
The description of each of these indices and the performance
factor computation methodology is as follows:
5.1 ACHIEVEMENT OF THE ANNUAL MARKETING OBJECTIVE is measured by
comparing actual performance against marketing objectives
for the current year. Marketing objectives are expressed as
a collection of product goals which are weighted in value
through the assignment of Smart Point equivalents.
Marketing objective performance is computed by dividing the
total Smart Points earned by the Smart Point goals assigned.
The total Smart Points assigned for 1996 is 6,496,398. The
performance factor is calculated in accordance with the
following payment schedule.
MARKETING BUSINESS UNIT
TARGET AWARD PAYMENT SCHEDULE
ANNUAL MARKETING OBJECTIVE
Results as % of Goal Performance Factor*
-------------------- -------------------
Over 110% 1.50
105% 1.25
100% 1.00
95% 0.50
Below 90% 0.00
*Interpolate at intermediate results.
Example: If 105% of the marketing goals has been achieved,
the performance factor is 1.25. If 108% has been attained,
the performance factor would be calculated as follows:
[(108%-105%)/(110%-105%) x 0.25] + 1.25 = 1.40
5.2 ACHIEVEMENT OF THE ANNUAL ACCOUNT MANAGEMENT OBJECTIVE is
measured by comparing actual performance with account
objectives for the current year. Account management
objectives are expressed as a collection of loyalty-
enhancing activities, including identification of decisions
groups, development of business plans, customer presentation
and agreements, and implementation of two or more business
plan items with designated customers. These activities are
weighted in value through the assignment of point
equivalents as function of assigned customers. Account
management objective performance is computed as per the
following tables, which are preset to result in a 100 point
base for easy conversion to percentage attainment.
NATIONAL ACCOUNT MANAGEMENT
Maximum Actual
Measurement Goal Accomplishment Score Score*
----------- ---- -------------- ------- ------
Compl. Interv. 70 20
Meter Maps 50 10
ID Decision Groups 50 20
Business Plans 25 35
Cust. Pres. & Agree. 25 15
Bus Plan Impl. 15 10
Total 110
*(Accomplishment/Goal) x Maximum Score = Actual Score (not
to exceed maximum score)
KEY ACCOUNT MANAGEMENT
Maximum Actual
Measurement Goal Accomplishment Score Score*
----------- ---- -------------- ------- ------
ID Decision Groups 170 20
Business Plans 136 50
Cust. Pres & Agree. 110 30
Business Plans 50 10
Total 110
*(Accomplishment/Goal) x Maximum Score = Actual Score (not
to exceed maximum score)
The results for key and national accounts are then weighted
3:1, respectively. The resulting percentage achievement is
utilized in the following payment schedule to determine the
composite account management performance measure for this
index.
MARKETING BUSINESS UNIT
TARGET AWARD PAYMENT SCHEDULE
ACCOUNT MANAGEMENT OBJECTIVE
Results as % of Goal Performance Factor*
-------------------- -------------------
Over 110% 1.50
105% 1.25
100% 1.00
95% 0.50
Below 90% 0.00
*Interpolate at intermediate performance
5.3 ACHIEVEMENT OF THE MARKET SHARE OF ELECTRICITY OBJECTIVE is
measured by comparing the actual market share performance of
retail electricity sales against the market share of
electricity objectives for the current year. Market share
of electricity is computed by dividing the AEP total retail
electricity sales by the electricity consumed by ultimate
consumers in the 15 state regional market with both values
expressed in kWh units. The performance measure for this
index will be computed in accordance with the following
payment schedule.
MARKETING BUSINESS UNIT
TARGET AWARD PAYMENT SCHEDULE
MARKET SHARE OF ELECTRICITY
Results (market share %) Performance Factor*
------------------------ -------------------
Over 8.25% 1.50
8.20% 1.25
8.15% 1.00
8.00% 0.50
Below 7.90% 0.00
*Interpolate at intermediate performance
5.4 ACHIEVEMENT OF THE MARKET SHARE OF ENERGY OBJECTIVE is
measured by comparing the actual market share performance of
retail energy sales against the market share of electricity
objectives for the current year. Market share of energy is
computed by dividing the AEP total retail energy sales by
the energy consumed in the 15 state regional market with
both values expressed in Btu equivalents. The performance
measure for this index will be computed in accordance with
the following payment schedule.
MARKETING BUSINESS UNIT
TARGET AWARD PAYMENT SCHEDULE
MARKET SHARE OF ENERGY
Results (market share %) Performance Factor*
------------------------ -------------------
Over 3.25% 1.50
3.20% 1.25
3.15% 1.00
3.05% 0.50
Below 3.00% 0.00
*Interpolate at intermediate performance
5.5 ACHIEVEMENT OF THE LOYALTY OBJECTIVE is measured by
comparing the actual performance against loyalty objectives
for the current year. The loyalty objective performance
will be based on a weighted average of the performance
factors of the National Key Account Benchmark study by TQS
Research (TQS), the Commercial and Industrial Customer
Satisfaction Study by RKS Research and Consulting (RKS), and
the Corporate Positioning and Communication Tracking Study
by Market Strategies, Inc. (MSI) survey instruments in
proportions of 61.3%, 28.5%, and 10.2%, respectively. The
TQS, RKS, and MSI represent the key accounts, major
accounts, and residential segments, respectively. The
"Customer Loyalty - Electric" score will be utilized from
the TQS study, the "Customer Assessment Score" will be
utilized from the RKS study and the "Overall Satisfaction"
score will utilized from the MSI study. The performance
factor for each instrument will be computed in accordance
with the following payment schedules. Note that while a
percentile approach is preferred in the computation of a
performance factor with all three of the instruments, a raw
score is utilized in the RKS instrument as the timing of the
study is not anticipated to permit comparison to other
utilities' scores.
MARKETING BUSINESS UNIT
QS AND MSI TARGET AWARD PAYMENT SCHEDULE
TQS AND MSI SCORE
Results (market share %) Performance Factor*
------------------------ -------------------
Top 10% 1.50
15% 1.25
20% 1.00
25% 0.50
Bottom 70% 0.00
*Interpolate at intermediate performance
MARKETING BUSINESS UNIT
RKS TARGET AWARD PAYMENT SCHEDULE
RKS SCORE
Customer Acceptance Score Performance Factor*
------------------------- -------------------
Over 3.2% 1.50
3.1% 1.25
3.0% 1.00
2.9% 0.50
Below 2.85% 0.00
*Interpolate at intermediate performance
The use of the RKS instrument is dependent on receiving
results prior to computation of the annual MICP results. In
the event this information is unavailable, the performance
measures of the TQS and MSI will be computed as a weighed
average in the proportions 85.7% and 14.3%, respectively.
6.0 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%.
7.0 REGION PLANT SERVICES MANAGERS AND
PRODUCTIONS SERVICES MANAGERS
Incentive awards for the managers of the Northern and Southern
Region Plant Services are from two sources:
- - AEP Corporate performance - weighted 25%; and
- - Performance as determined by the Region Plant Services
Incentive Compensation Plan - weighted 75%.
8.0 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%.
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 (cents/MM BTU) for the current
year as reduced to reflect extraordinary costs due to
downsizing and/or other special expenses and a volume
adjustment of 55cents/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 cents/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
Cents/MM BTU Performance Factor*
------------ -------------------
154.3 or lower 1.50
156.3 1.25
158.3 1.00
160.3 0.75
162.3 0.50
164.3 0.25
166.3 or higher 0.00
*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*
--------------- -------------------
$5.0 million 1.50
$7.5 million 1.25
$10.0 million 1.00
$12.5 million 0.75
$15.0 million 0.50
$17.5 million 0.25
More than $20 million 0.00
*Interpolate at intermediate performance
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 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.
Example: If Fuel Supply's incidence rate were 92% of the
coal industry rate, the performance factor is:
[(95%-92%)/(95%-90%) x 0.25] + .25 = .40
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. (See Page A-4 for the target
award payment schedule.)
9.5 VICE PRESIDENT - FUEL PROCUREMENT
In addition to the Corporate performance measures weighted
25% and the overall Fuel Supply performance measure weighted
20%, the Vice President - Fuel Procurement has a single
Department performance weighing of 50% for delivered fuel
prices.
Tables showing the performance factors and how they relate
to achievement begin on page A-5 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 weighing 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 (cents/MM BTU) for the
current year as reduced to reflect extraordinary costs
due to downsizing and/or other special expenses, and a
+/- volume adjustment of $.55/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 perform-
ance measures which are weighted to determine a single
Department performance weighing 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 +/- volume adjustment of 1.55 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-9 of the Addendum.
9.8 MANAGER - COOK COAL TERMINAL MEASURES - The Manager-Cook
Coal Terminal (CCT) has, in addition to the overall
Corporate performance measures weighted 25%, two Department
performance measures which are weighted to determine a
single Department performance weighing of 75% for Cook Coal
Terminal. These are:
- Operating costs measured by adjusted cost per ton of
affiliated coal transloaded less other fixed and special
expenses (e.g., harbor dredging), as approved by the SVP-
Fuel Supply, +/- adjustment volumes times $.28/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-10.
9.9 MANAGING DIRECTOR - TRANSPORTATION - In addition to the
Corporate performance measures weighted 25% and the overall
Fuel Supply performance measure weighted 20%, 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 cost per
ton), River Transportation (adjusted cost per ton mile)
and delivered fuel prices - 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-11.
9.10 SENIOR VICE PRESIDENT, VICE PRESIDENTS, SENIOR STAFF-FUEL
SUPPLY, AND MANAGING DIRECTOR-TRANSPORTATION
In addition to other measures, the Lancaster based
participants are assigned a 5% award allocated to Power
Generation Production Costs. The Power Generation
Production Cost measures the cost of fuel consumed and the
operating and maintenance costs at the fossil power plants.
(See page A-6 for the target award payment schedule.)
10.0 POWER GENERATION PERFORMANCE CRITERIA
There are five performance criteria that are used as part of the
power plant and power plant technical support portion of the
performance for Power Generation Group. The participant's
function within the organization determines the performance
criteria weighting.
Tables showing the performance factors and how they relate to
achievement begin on page A-13 of the Addendum.
11.0 DEPARTMENT/BUSINESS UNIT OBJECTIVES
Performance criteria, with appropriate weightings, may be
established each year based on agreed objectives in each
department/business unit.
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. Department/Business Unit Heads who set 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
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.
12.0 THE MICP IN ACTION
Following is an illustration to demonstrate the mechanics of the
MICP. For purposes of this example, assume that an Energy
Distribution Region Manager with annual base salary earnings of
$100,000 has a target award of 20%, or $20,000. This
individual's target award is allocated among the following
performance criteria:
- AEP Corporate Performance: 50%, or $10,000
- Energy Distribution Region: 50%, or $10,000
12.1 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% weighing; Total Investor Return (TIR) is
given a 25% weighing; and Realization Ratio is given a 50%
weighing.
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 $10,000, or $11,250.
12.2 In determining the Energy Distribution Region's portion of
the MICP award, results are measured against six Energy
Distribution performance criteria to arrive at the Region's
performance factor.
Customer Result
Satisfaction TQS/MSI = 15% (1.25) = 1.20 x 20% = 0.24
& Loyalty RSK = 2.95 (0.75)
Safety
Performance Result = 0.70 = 1.50 x 20% = 0.30
O&M Expense
Performance
vs. Budget Result = 93% = 1.25 x 20% = 0.25
M&S Inventory
Reduction Result = 75% = 0.75 x 10% = 0.075
Customer Service
Reliability Result = 105% = 0.50 x 20% = 0.10
Index Marketing
Performance Result = 100% = 1.00 x 10% = 0.10
======
Energy Distribution Performance Factor = 1.065
The Energy Distribution Business Unit Award, then, is 1.065 x $10,000
or $10,650.
12.3 The Energy Distribution Region Manager in our example
earned a total award of $20,700, as follows:
- AEP Corporate $11,250.00
- Energy Distribution Business Unit 10,650.00
$21,900.00
Of that amount, 80%, or $17,520.00 is paid during the first
part of the following year, assuming the participant has
not elected to defer receipt of that payment under Section
16.2. The balance, $4,380.00, 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.) A participant may elect to defer the 20% award
beyond the mandatory three years in accordance with Section
16.2.
13.0 PAYMENT RIGHTS AT TERMINATION
OF ACTIVE EMPLOYMENT
13.1 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 prior deferred
award that has met the three calendar year requirement.
For example, an employee who is actively employed on
12/31/96, and subsequently terminates is entitled to the
80% cash award for Plan year 1996, and if applicable, the
value of any 1993 Plan year deferred amount.
Alternatively, a participant may elect to defer receipt of
awards in accordance with Section 16.2.
13.2 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 this Plan, disability shall mean the employee
meets the definition of permanent and total disability
under the AEP System Retirement Plan. For purposes of this
Section 13.2 and Section 13.4, "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.
13.3 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.
13.4 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 16.1, 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 13.3.
14.0 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.
15.0 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, weights, 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 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.
16.0 MICP AWARD DISTRIBUTIONS AND DEFERRALS
16.1 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 16.2, eighty percent of the award earned will be
paid in cash. 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 16.2.
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.
16.2 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
13.3, 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
16.1.
17.0 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.
18.0 FUEL SUPPLY PAYMENT SCHEDULES
18.1 SENIOR VICE PRESIDENT - FUEL SUPPLY
18.2 FUEL SUPPLY TARGET AWARD PAYMENT SCHEDULE
DELIVERED FUEL PRICES
Cents/MM BTU Performance Factor*
------------ -------------------
135.0 1.50
136.5 1.25
138.0 1.00
139.5 0.75
141.0 0.50
142.5 0.25
144.0 0.00
*Interpolate at intermediate performance.
18.3 VICE PRESIDENT - FUEL PROCUREMENT
18.4 Fuel Supply Target Award Payment Schedule
DELIVERED FUEL PRICES
Cents/MM BTU Performance Factor*
------------ -------------------
135.0 1.50
136.5 1.25
138.0 1.00
139.5 0.75
141.0 0.50
142.5 0.25
144.0 0.00
*Interpolate at intermediate performance.
18.5 FUEL SUPPLY TARGET AWARD PAYMENT SCHEDULE
POWER GENERATION PRODUCTION COST
mils/KWH Performance Factor*
-------- -------------------
16.78 or lower 1.50
16.98 1.25
17.18 1.00
17.38 0.50
17.58 0.00
*Interpolate at intermediate performance.
18.6 GENERAL MINE MANAGERS/GENERAL SUPERINTENDENT (MEIGS)
18.7 SOUTHERN OHIO COAL COMPANY - MEIGS
ADJUSTED COST OF COAL PRODUCED
Cents/MM BTU Performance Factor*
------------ -------------------
150.4 or lower 1.50
152.4 1.25
154.4 1.00
156.4 0.75
158.4 0.50
160.4 0.25
162.4 or higher 0.00
*Interpolate at intermediate performance.
18.8 CENTRAL OHIO COAL COMPANY
ADJUSTED COST OF COAL PRODUCED
Cents/MM BTU Performance Factor*
------------ -------------------
226.4 or lower 1.50
228.4 1.25
230.4 1.00
232.4 0.75
234.4 0.50
236.4 0.25
238.4 or higher 0.00
*Interpolate at intermediate performance.
18.9 WINDSOR COAL COMPANY
ADJUSTED COST OF COAL PRODUCED
Cents/MM BTU Performance Factor*
------------ -------------------
127.2 or lower 1.50
129.2 1.25
131.2 1.00
133.2 0.75
135.5 0.50
137.2 0.25
139.2 or higher 0.00
*Interpolate at intermediate performance.
18.10 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 0.75
90 0.50
95 0.25
Higher than 95 0.00
*Interpolate at intermediate performance.
18.11 MANAGER - RIVER TRANSPORTATION
18.12 RIVER TRANSPORTATION
OPERATING COST PER TON MILE
Mils/Ton Mile
($.00x) Performance Factor*
------------- -------------------
4.07 or lower 1.50
4.12 1.25
4.17 1.00
4.22 0.75
4.27 0.50
4.32 0.25
4.37 or higher 0.00
*Interpolate at intermediate performance.
18.13 RIVER TRANSPORTATION
SAFETY INCIDENCE RATE
Incidence Rate -
% Industry Rate Performance Factor*
---------------- -------------------
55 or lower 1.50
65 1.25
75 1.00
85 0.75
90 0.50
95 0.25
Higher than 95 0.00
*Interpolate at intermediate performance.
18.14 MANAGER - COOK COAL TERMINAL
18.15 COOK COAL TERMINAL
ADJUSTED COST PER TON
Adjusted Cost per Ton Performance Factor*
--------------------- -------------------
$1.47 or better 1.50
$1.49 1.25
$1.51 1.00
$1.53 0.75
$1.55 0.50
$1.57 0.25
$1.59 or higher 0.00
*Interpolate at intermediate performance.
18.16 COOK COAL TERMINAL
SAFETY INCIDENCE RATE
Incidence Rate -
% Industry Rate Performance Factor*
---------------- -------------------
55 or better 1.50
65 1.25
75 1.00
85 0.75
90 0.50
95 0.25
Higher than 95 0.00
*Interpolate at intermediate performance.
18.17 MANAGING DIRECTOR - TRANSPORTATION
18.18 COOK COAL TERMINAL
ADJUSTED COST PER TON
Adjusted Cost Ton Performance Factor*
----------------- -------------------
$1.47 or better 1.50
$1.49 1.25
$1.51 1.00
$1.53 0.75
$1.55 0.50
$1.57 0.25
$1.59 or higher 0.00
*Interpolate at intermediate performance.
18.19 RIVER TRANSPORTATION
OPERATING COST PER TON MILE
Mils/Ton Mile ($.00x) Performance Factor*
--------------------- -------------------
4.07 or lower 1.50
4.12 1.25
4.17 1.00
4.22 0.75
4.27 0.50
4.32 0.25
4.37 or higher 0.00
*Interpolate at intermediate performance.
18.20 DELIVERED FUEL PRICES
Cents/MM BTU Performance Factor*
------------ -------------------
135.0 1.50
136.5 1.25
138.0 1.00
139.5 0.75
141.0 0.50
142.5 0.25
Higher than 144.0 0.00
*Interpolate at intermediate performance
18.21 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 0.75
90 0.50
95 0.25
Higher than 95 0.00
*Interpolate at intermediate performance
19.0 POWER GENERATION DEPARTMENT/
BUSINESS UNIT PAYMENT SCHEDULES
19.1 O&M EXPENDITURE
Actual O&M (Mils/KWH) Performance Factor*
--------------------- -------------------
3.29 or lower 1.50
3.34 1.25
3.39 1.00
3.44 0.50
3.49 or higher 0.00
*Interpolate at intermediate performance
19.2 POWER GENERATION PRODUCTION COST
Actual O&M (Mils/KWH) Performance Factor*
--------------------- -------------------
16.78 or lower 1.50
16.98 1.25
17.18 1.00
17.38 0.50
17.59 or higher 0.00
*Interpolate at intermediate performance.
19.3 CAPITAL EXPENDITURES
Actual Capital
Exenditures ($ Million) Performance Factor*
----------------------- -------------------
135.5 or lower 1.50
140.3 1.25
145.3 1.00
150.3 0.50
155.4 or higher 0.00
*Interpolate at intermediate performance
19.4 EQUIVALENT AVAILABILITY
Equivalent Availability (%) Performance Factor*
--------------------------- -------------------
84.0 1.50
82.0 1.25
80.0 1.00
78.0 0.75
76.0 0.50
74.0 or lower 0.00
*Interpolate at intermediate performance
19.5 HEAT RATE
Heat Rate (BTU/KWH) Performance Factor*
------------------- -------------------
9,655 1.50
9,663 1.25
9,670 1.00
9,677 0.75
9,685 0.50
9,700 or Higher 0.00
*Interpolate at intermediate performance.