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American Electric Profit Declines on Lower Demand

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Oct. 24 (Bloomberg) -- American Electric Power Co., which delivers electricity to more than 5 million customers in 11 states, said third-quarter profit fell 48 percent on customer defections, storm clean-up costs and sluggish demand for electricity.

Net income decreased to $487 million, or $1 a share, from $928 million, or $1.92, a year earlier, Columbus, Ohio-based American Electric said in a statement today. Excluding one-time costs, per-share profit was 1 cent less than the $1.03 average of 15 analysts’ estimates compiled by Bloomberg. Revenue fell 2.3 percent to $4.2 billion

The company also spent $230 million restoring power to 1.4 million homes and businesses from Indiana to Virginia buffeted by a rare storm system known as a derecho that produced gusts of 91 miles (146 kilometers) an hour on June 29. Regulators should allow the company to recoup most of its costs from utility customers, Andrew Bischof, a Chicago-based equity analyst with Morningstar Inc., said in a telephone interview today.

“Despite some bright spots in the economy, particularly related to shale-gas development, the recovery is tenuous and overall load growth in the regions where we operate is expected to remain essentially flat,” Nicholas Akins, American Electric’s chief executive officer, said in the statement.

American Electric is benefiting from increased power sales to companies drilling and transporting natural gas from the Utica, Marcellus and other shale basins that lace its service territory.

‘Flat Loads’

American Electric said year-earlier net income was “substantially higher” than operating income as a result of a favorable 2011 Texas Supreme Court ruling.

The company’s operating earnings, which excludes adjustments associated with the ruling, fell 13 percent to $496 million from a year earlier, as growth in power demand failed to materialize as anticipated and utility customers switched to rival power marketers in Ohio, its largest market.

“They’re expecting flat loads for the year, which also doesn’t help, although they’re gaining some benefit from shale-gas plays in their region,” Bischof said.

American Electric benefited from hot summer weather across its service territory, as the number of cooling-degree days during the quarter were 36 percent above average in the central Midwest and 9 percent above average in southwestern states such as Texas and Oklahoma, Angie Storozynski, a New York City-based utilities analyst with Macquarie Capital USA Inc., wrote in a Oct. 16 note to clients.

Falling Demand

Weather-related sales were also tempered by falling demand for electricity, which was caused by energy conservation efforts and slow economic growth among American Electric’s industrial customer base, Bischof said. Demand declined 1.3 percent from a year earlier in the central U.S. and 4.1 percent in south-central states, according to Storozynski.

American Electric owns nearly 39,000 megawatts of generating capacity and the largest U.S. electricity transmission system, the company said on its website.

American Electric, which has 13 buy and 10 hold ratings from analysts, fell 1.8 percent to $43.82 at the close in New York.

To contact the reporter on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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