Stan Geiger

PSO: Ripping People Off Again

KOTV took a look at PSO's desire for more money this evening. The station gets kudos on this one, as the reporter noted PSO's parent company, AEP, posted Q1 '04 earnings of $278 million, or 70 cents per share, and posted Q1 '08 earnings of $573 million, or $1.43 per share. The company's profit has doubled in 4 years.

Understand, we're not talking revenue here; we're talking bottom line profit.

A PSO spin doctor said we should pay no attention to the man behind the curtain. AEP profits and PSO's request for a huge rate hike are unrelated, he said. The company, he said, makes no money from fuel.

Let's see, AEP buys fuel and uses it to make electricity. Then it takes the electricity and sells it to customers. That transaction results in huge profits. But AEP makes no money on fuel.

What a ridiculous contention.

I took a quick look at Charles Schwab's website and figured I would augment the information provided by KOTV.

AEP has a market cap of $17 billion.

The company is showing trailing 12-month earnings per share of $3.47. The company has 401 million shares outstanding, so it has netted $1.4 billion over the past 12 months.

Broker ratings on the company are stout. Schwab, on a scale of A to F, rates AEP a "B." Reuters gives the company an "outperform" rating. S&P, on a scale of 1 to 5 stars, gives the company a "4-star" rating. Both Argus and Goldman Sachs rate the company a "buy."

The company pays an annual dividend of $1.64 per share, which means it is passing out $657 million per year in cash to shareholders.

Does AEP sound like a company in distress to you?

AEP investors have done very well. They've enjoyed a 5-year total return of 110 percent. The 1-year return, however, is not so hot. Over the past 12 months, investors have drawn a goose egg. And that might go a long way toward explaining things.

Of the 401 million outstanding shares, 73 percent of them, or about 292 million, are held by institutions. AEP---like most major corporations these days---is mostly owned by hedge funds, mutual funds, pension funds and private equity firms. Heavy hitters, in other words. Heavy hitters don't like it when they don't make money.

PSO's proposed rate hike hit the wire yesterday. AEP stock closed up today---on volume 50 percent above its 10-day average.

AEP doesn't need more money; AEP wants more money. The company wants more money because its wealthy investors want more money.

Given that knowledge, how good do you feel about paying $200 or $300 more per year for your electricity?

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