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Rating Action:

Moody's places Ohio Power on review for possible downgrade, affirms Columbus Southern Power

23 Jan 2009

Approximately $4.5 billion of debt securities affected

New York, January 23, 2009 -- Moody's Investors Service placed the A3 senior unsecured rating for Ohio Power Company (Ohio Power) on review for possible downgrade. Moody's also affirmed the A3 senior unsecured rating for Columbus Southern Power (CS Power) and maintained the stable rating outlook. Ohio Power and CS Power are wholly-owned operating subsidiaries of American Electric Power Company (AEP). AEP's senior unsecured rating is Baa2 and its rating outlook is stable.

The review for possible downgrade for Ohio Power primarily reflects its persistently weak financial profile given its existing rating category and our expectation that resolution to the pending Electric Security Plan (ESP) filing is not likely to provide a sufficient enough increase in cash flow to justify maintaining an A3 senior unsecured rating.

Ohio Power has produced cash flow from operations before working capital adjustments (CFO pre w/c) to total adjusted debt of approximately 17% for the twelve months ended September 2008 and for the year ended 2007 and approximately 18% over the past 3 years (2005 -- 2007). These metrics are more commensurate with a Baa-ratings category. Moody's incorporates a view that Ohio Power is likely to continue producing CFO pre-w/c to debt metrics in the high-teen's range over the next several years.

The review for possible downgrade will primarily focus on Ohio Power's pending regulatory proceeding with respect to the ESP filing, which is expected to be resolved over the near-term. In our opinion, the ESP is essentially an extension of the expired Rate Stabilization Plan (RSP) which was, in turn, essentially an extension of the Market Development Plan (MDP). Moody's expects that additional transition extensions are likely.

We incorporate a view that there are acute economic recessionary pressures in Ohio and that Ohio Power's reasonably large industrial load will pose challenges for the PUCO. The review for possible downgrade is likely to result in a 1-notch downgrade, assuming the recovery provisions embedded in the ESP result in a financial profile that maintains high-teen's CFO pre w/c to debt metrics. Nevertheless, there is little certainty at this time as to the ultimate level of cash recoveries (as compared to reported earnings) which when coupled with the potential for large deferrals or other potential recovery mechanisms, a 2-notch downgrade can not be ruled out at this time.

The ratings for CS Power are affirmed and its rating outlook remains stable. CS Power is a much smaller utility than its affiliate, Ohio Power; it has a smaller exposure to industrial load pressures; and it continues to produce reasonably strong financial credit metrics for its rating category. For the latest twelve months ended September 2008, CS Power produced a ratio of CFO pre w/c to total adjusted debt of approximately 28%. This ratio was 25% for the year ended 2007 and averaged 23% over the past 3 years (2005 -- 2007). The A3 senior unsecured rating and stable rating outlook incorporates a view that CS Power will continue to produce cash flow to debt financial credit metrics of over 25% over the next several years.

To the extent that AEP decides to merge or otherwise combine its Ohio Power and CS Power subsidiaries, an event to which we currently ascribe a low probability, the ratings for CS Power would likely fall, given the size differential of the two utilities. Nevertheless, we acknowledge that AEP may attempt to utilize some flexibility between the two subsidiaries in an effort to reach an acceptable ESP resolution with its customers and the PUCO. This would most likely be associated with the "excess earnings test" provision. Moody's does not incorporate a view that AEP will pursue a generation divestiture of its Ohio legacy assets.

Moody's last rating action on Ohio Power and CS Power occurred on January 30, 2008, when the rating outlook for Ohio Power was changed to negative from stable and the ratings for CS Power were affirmed along with a stable rating outlook.

The principal methodology used in rating the utilities was the Rating Methodology: Global Regulated Electric Utilities. It can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors may have been considered in the process of the rating these issuers can also be found in the Credit Policy & Methodologies directory.

Ohio Power and CS Power are wholly-owned subsidiaries of American Electric Power Company. American Electric Power Company is headquartered in Columbus, Ohio.

On Review for Possible Downgrade:

..Issuer: Marshall (County of) WV

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently A3

..Issuer: Mason (County of) WV

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently A3

..Issuer: Ohio Air Quality Development Authority

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently A3

..Issuer: Ohio Power Company

....Issuer Rating, Placed on Review for Possible Downgrade, currently A3

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently Baa2

....Preferred Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently A3

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)A3

..Issuer: West Virginia Economic Development Authority

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently A3

Outlook Actions:

..Issuer: Ohio Power Company

....Outlook, Changed To Rating Under Review From Negative

New York
William L. Hess
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
James Hempstead
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's places Ohio Power on review for possible downgrade, affirms Columbus Southern Power
No Related Data.
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