American Electric Power Integrated Disability Management

1. NCSI – Naples, FL June 2008 Loyd Hudson, IDM Manager American Electric PowerIntegrated Disability Management

2. Who is AEP? • One of the Largest Investor-Owned Utilities • Largest Generator of Electricity in the United States • Serves Customers in 11 States • 23,000 Employees in 400+ Locations • One of the Largest Inland River Transportation System in US with over 60 boats in operation. • Headquarters in Columbus, Ohio

3. AEP Environment • Self-Insured for Sick Pay, Long Term Disability & Workers’ Compensation • Unionized (UMWA, IEBW, USWA) • Rich Benefits • Long Term Employees • Aging Workforce • Employees are Exempt or Highly Paid Skilled Laborers

4. What is IDM? • Integrated Disability Management is a holistic approach and philosophy to how an organization uses the processes, tools, and benefits associated with occupational and non-occupational programs to minimize • Disabilities from occurring • Cost • Impact on productivity.

5. What Is AEP’s IDM? • Culture Change • Managing the disability not the payment stream • Focusing on claims management, not risk management • Early intervention, early connection • Continuity of care • Promoting RTW and quality care • Control Costs • Employee Advocate

6. Why Implement Integrated Disability?

8. Why Implement Integrated Disability • Costs Containment • Direct • Indirect • Increased Service • Increased Efficiencies • Increased Morale • Increases Communication • Benefits Already Offered

9. What’s In It For Senior Management? • Reduced Cost of Services • RTW and Productivity Improvement • Improved Management of Non-Productive Time • Increased Employee Morale and Job Satisfaction Through a System Designed to Value an Employee’s Contribution to Organizational Success • Sentinel Effect that an Employee is Needed and Missed

10. What’s In It For The Supervisor? • Help in Managing the Workforce and Time-Off Costs • Increasing Productivity and Decrease Costs • Information to Help Manage Short-Term Disability and Absence Control • Additional Expertise

11. What’s In It For The Employee? • Support from Internal Sources with Advocate • Medical Advice, Guidance and a Source of Information • Quick Response with Appropriate Treatment • Recovery Plan Options that Enhance Ability to RTW • RTW Plans Based on Realistic Goals / Expectations with Supervisory Support • Joint Participation in Decision Making

12. What Does AEP IDM Program Look Like? • It’s a changing and evolving process

13. Recovery Center Vision Statement • Recovery Center Mission: “Manage Absence Recovery” • Recovery Center Vision: “Maintain Excellence and National Leadership in Integrated Disability Management” • Recovery Center Purpose: “Provide a Customer-Focused, Flexible Human Resource Team Dedicated to Providing High Quality, Timely and Consistent Service While Striving For Continuous Improvement” 3

14. Absence Management Employee Advocacy Consulting Services Subject Matter Resources Cost Containment / Liability Management Compliance Management Development of Policy/ Legislation Managing Department Relationships Vendor Management AEP’s Integrated Disability Components

15. What Has AEP Done Right! • Total Integration • Absence Management • Use of Technology to Improve Efficiencies • Third Party Administrators (TPA) Oversight • Consulting • Measurements/Benchmarks

16. Measure and Benchmark • Costs as a Percentage of Payroll • Historical • Business Unit Comparisons • Productive Employees (FTE) • Employee Satisfaction • Business Unit Satisfaction • Expenses as a Percentage of Claim Costs • Claim Specialist Matrix

17. Management Reports

18. Recovery Center Utilization • The Recovery Center managed absences for 3,006 employees consisting of 3,733 individually reported claims • Processed 844 employee workers compensation claims • Contacted over 1,084 supervisors, of whom 69 supervisors had 10 employee absences or more More than 20% of AEP’s total population is involved with the Recovery Center on a yearly basis 6

19. Workers’ Comp costs are significantly lower than the national average and lower than our 1997 benchmark year and continue to decline Workers’ Compensation Workers’ Compensation Costs as a percentage of payroll are: Actual • 2007 costs are $7.8 million dollars lower than 1997 costs. • Costs average $2.7 million dollars per year lower since the inception of the Recovery Center – a total reduction of $27.3 million dollars. Benchmark • 2007 costs are $8.0 million dollars lower than the national average • Costs are an average of $6.0 million dollars per year lower than the national average since the inception of the Recovery Center resulting in an accumulative total of $60.2 million dollars below the national average. Self-Insured Workers’ Compensation is an assumption of risk that is impacted by severity and frequency of accidents. Self-insured losses are capped by excess insurance for most states based upon the date of the accident. The self-insured retention for 2007 was $500,000 per claim and The Jones Act per claim was $150,000. The Recovery Center’s oversight of workers’ compensation has helped lead to a decrease in associated costs. 13

20. Workers’ Compensation Non-Productive Full Time Employees Workers’ Compensation days continue to decline resulting in 45 non-productive full time equivalent employees being made available for productive employment since 2001. The Recovery Center’s oversight has led to more available productive employees – (45 FTEs) 14

21. Long Term Disability Long Term Disability (LTD) costs are above the national average but have been steadily decreasing since the inception of the Recovery Center Long Term Disability costs as a percentage of payroll are: • Actual • 2007 costs are $3.7 million dollars lower than 1997 costs. • Costs are an average of $3.2 million dollars per year lower since the inception of the Recovery Center – a total reduction of $32.7 million dollars. • Benchmark • 2007 costs are $1.6 million dollars higher than the national average. • Costs are an average of $1.0 million dollars higher than the national average since the inception of the Recovery Center resulting in an accumulative total of $10.0 million dollars above the national average. 15 The Recovery Center’s involvement has led to decreased Long Term Disability costs.

22. Long Term Disability Employee Count Long Term Disability employee count continues to decline resulting in 167 more full time equivalent employees since 2001. The Recovery Center’s oversight has led to more productive employees – (167 FTEs) 16

23. Sick pay costs are at the national average Sick Leave Plan AEP Sick Pay Costs as a percentage of payroll are: • Actual • While Plan changes averaged $7.7 million dollars since the inception of the Recovery Center, costs have increased an average of $5.6 million dollars – a net savings to the company of $2.1 million dollars per year. • Total net benefit increases have been $69.1 million dollars while costs have only increased by $45.0 million dollars – a net total savings of $24.1 million dollars since the inception of the Recovery Center. • Benchmark • 2007 costs are $2.0 million dollars higher than the national average. • Accumulative cost averages since the inception of the Recovery Center have been $21.9 million dollars lower than the national average resulting in a yearly average of $2.2 million dollars below the national average. 1999 – Eliminated the 3 day wait ($4.1 million dollars) 2001 – Eliminated the banks to give 6 months of benefits ($5.3 million dollars) Increased benefits have resulted in higher Sick Pay cost which has been mitigated by Integrated Disability 17

24. Sick Hours Used Sick hours continue to decline resulting in 61 more full time equivalent employees since 2001. The Recovery Center’s oversight of sick leave has helped lead to a decrease in associated costs – (61 FTEs) 18

25. Disability costs are lower than the 1997 benchmark and well below the national average while providing additional benefits to our employees AEP Total Disability Costs AEP’s Total Disability Costs as a percentage of payroll are: • Actual • 2007 costs are $9.5 million dollars lower than 1997 costs even with a $7.7 million dollar benefit increase. • Costs average $5.6 million dollars per year lower since the inception of the Recovery Center – a total reduction of $55.8 million dollars. • Benchmark • 2007 costs are $11.4 million dollars lower than the nation average. • Costs average $6.1 million dollars per year lower than the national average since the inception of the Recovery Center resulting in an accumulative total of $60.9 million dollars below the national average 1999 – Eliminated the 3 day wait 2001 – Eliminated the banks gave 6 months of benefits With Recovery Center involvement disability costs continue to decline while employee benefit costs have increased. 19

26. Absent Non-Productive Full Time Employees (FTE) 334 non-productive full time employees have been made available for productive employment The Recovery Center’s Integrated Disability Program has led to more available productive employees – (334 FTEs) 20

27. Additional Productive FTE Available for Work • Compared to 2001 we have 334 additional productive employees

28. Employees who have utilized the Recovery Center rate our performance a 4.24 out of 5.00 Recovery Center Survey 2007 The Recovery Center has proven its ability to manage the programs with high employee satisfaction 7

29. Management Expenses As a Percentage of Disability Costs • AEP Management Expenses are 5.13% -- well below the 10% target. HR Function Through improved process efficiency, the Recovery Center has continued to decrease operational expenses as a percentage of claim costs. 22

30. Measurementsof IDM

31. Companies that we have benchmarked at our center since 1998 AEP – National Leader in Integrated Disability Management • Mercer/Marsh -- Columbus, Ohio, Cleveland, Ohio, Chicago, Illinois • Consol Energy -- Pittsburgh, Pennsylvania • ArvinMeritor Corporation -- Detroit, Michigan • Kaiser Permanente – CA • The Ohio State University -- Columbus, Ohio • Longaberger Basket Company -- Dresden, Ohio • Dow Chemical Corporation -- Charleston, West Virginia • Honda of American -- Marysville, Ohio • Southern Company -- Atlanta, Georgia • Alabama Power Company – Birmingham, Alabama • First Energy -- Akron, Ohio • Goodwill Industries -- Columbus, Ohio • Holiday Retirement Corporation -- Portland, Oregon • PCC Structurals -- Portland, Oregon • Ohio Health -- Columbus, Ohio • Chevron Texaco Corporation -- California • Owens Corning Corporation -- Toledo, Ohio and Newark, Ohio • Portland General Electric – Portland, Oregon • Eugene Electric and Water – Eugene, Oregon • Allegheny Energy – Greensburg, Pennsylvania • Southern California Edison -- California 23 The AEP Human Resources Recovery Center is a nationally recognized leader in Integrated Disability Management.

32. Questions & Comments Thank you

33. WC Claim Cost By State Claim Costs are totals paid out and do not reflect recoveries made through subrogation and excess insurance. 32

34. AEP Workers’ Compensation Assessments 33