American Electric PowerIntegrated Disability Management

NCSI – Naples, FLJune 2008Loyd Hudson, IDM Manager

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

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

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.

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

Why Implement Integrated Disability?

Why Implement Integrated Disability

Costs Containment Direct Indirect

Increased Service Increased Efficiencies Increased Morale Increases Communication Benefits Already Offered

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

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

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

What Does AEP IDM Program Look Like?

It’s a changing and evolving process

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

AEP’s Integrated Disability Components

Absence Management Employee Advocacy Consulting Services Subject Matter Resources Cost Containment / Liability

Management

Compliance Management Development of Policy/

Legislation Managing Department

Relationships Vendor Management

What Has AEP Done Right!

Total Integration Absence Management

Use of Technology to Improve Efficiencies

Third Party Administrators (TPA) Oversight

Consulting Measurements/Benchmarks

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

Management Reports

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

6

More than 20% of AEP’s total population is involved with the Recovery Center on a yearly basis

Workers’ Compensation

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.

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.70%

1.90%

19941995199619971998199920002001200220032004200520062007

AEP

NationalAverage

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.

Workers’ Comp costs are significantly lower than the national average and lower than our 1997 benchmark year and continue to decline

13The Recovery Center’s oversight of workers’ compensation has helped lead to a decrease in associated costs.

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.

14

The Recovery Center’s oversight has led to more available productive employees – (45 FTEs)

Days of Lost Time Indemnity Payments

0.00

10000.00

20000.00

30000.00

40000.00

50000.00

60000.00

2001 2002 2003 2004 2005 2006 2007

Days

Long Term Disability

0

0.001

0.002

0.003

0.004

0.005

0.006

0.007

0.008

0.009

0.01

199319941995199619971998199920002001200220032004200520062007

AEP

NationalAverage

Long Term Disability costs as apercentage 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.

Long Term Disability (LTD) costs are above the national average but have been steadily decreasing since the inception of the Recovery Center

15 The Recovery Center’s involvement has led to decreased Long Term Disability costs.

Long Term Disability Employee Count

Long Term Disability employee count continues to decline resulting in 167 more full time equivalent employees since 2001.

16

The Recovery Center’s oversight has led to more productive employees – (167 FTEs)

Long Term Disability Employee Count

0

200

400600

800

1000

2001 2002 2003 2004 2005 2006 2007

LTD

Sick Leave Plan

1999 – Eliminated the 3 day wait ($4.1 million dollars)2001 – Eliminated the banks to give 6 months of benefits ($5.3 million dollars)

0.01

0.012

0.014

0.016

0.018

0.02

0.022

0.024

0.026

0.028

0.03

199319941995199619971998199920002001200220032004200520062007

AEP

NationalAverage

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.

17 Increased benefits have resulted in higher Sick Pay cost which has been mitigated by Integrated Disability

Sick pay costs are at the national average

Sick Hours Used

Sick hours continue to decline resulting in 61 more full time equivalent employees since 2001.

18

The Recovery Center’s oversight of sick leave has helped lead to a decrease in associated costs – (61 FTEs)

Sick Hours Used

0.00200,000.00400,000.00600,000.00800,000.00

1,000,000.001,200,000.001,400,000.001,600,000.00

2001 2002 2003 2004 2005 2006 2006 2007

SickHoursUsed

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

0.025

0.027

0.029

0.031

0.033

0.035

0.037

0.039

0.041

0.043

0.045

1994

19951996

1997

19981999

2000

2001

20022003

2004

20052006

2007

AEP

Marsh

Disability costs are lower than the 1997 benchmark and well below the national average while providing additional benefits to our employees

19 With Recovery Center involvement disability costs continue to decline while employee benefit costs have increased.

Absent Non-Productive Full Time Employees (FTE)

20

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)

0500

100015002000

Absent Nonproductive FTEs

Sick Pay

LTD

Workers'Comp.

Additional Productive FTE Available for Work

Compared to 2001 we have 334 additional productive employees

Recovery Center Survey 2007

Employees who have utilized the Recovery Center rate our performance a 4.24 out of 5.00

7

The Recovery Center has proven its ability to manage the programs with high employee satisfaction

January February March April May June July August Sept Oct Nov Dec1. Was the Recovery Centerstaff courteous and 4.59 4.53 4.09 4.57 4.49 4.60 4.24 4.57 4.41 4.40 4.27 4.44responsive?

2. Was the Recovery Center staff knowledgeable about 4.31 4.25 4.29 4.35 4.48 4.62 4.04 4.46 4.30 4.27 4.09 4.46your disability relatedquestions or benefits?

3. Was the Recovery Center's 4.32 4.30 4.06 4.38 4.39 4.55 4.00 4.33 4.23 4.25 4.05 4.20assistance helpful?

4. Were your benefits 4.43 4.41 4.13 4.36 4.44 4.50 4.17 4.43 4.44 4.38 4.23 4.38provided in a timely manner?

5. How would you rate the 4.41 4.39 4.05 4.46 4.38 4.62 4.12 4.36 4.36 4.25 4.18 4.24Recovery Center's overall performance?

Employee Survey -- 2007

Question

Management Expenses As a Percentage of Disability Costs

AEP Management Expenses are 5.13% -- well below the 10% target.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

1998199920002001200220032004200520062007

Expenses as a Percentage of Claim Costs

22

HR Function

Through improved process efficiency, the Recovery Center has continued to decrease operational expenses as a percentage of claim costs.

Measurementsof

IDM

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

Companies that we have benchmarked at our center since 1998

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The AEP Human Resources Recovery Center is a nationally recognized leader in Integrated Disability Management.

Questions & Comments Thank you

WC Claim Cost By State

Claim Costs are totals paid out and do not reflect recoveries made through subrogation and excess insurance.

32

STATE 2003 2004 2005 2006 2007

Arkansas $16,400 $34,088 $2,144 $1,163 $3,744Illinois $45,636 $47,706 $225,263 $55,002 $61,018Indiana $373,584 $285,424 $534,283 $374,812 $283,448Kentucky $1,053,479 $1,012,387 $1,100,321 $679,525 $863,403Louisiana $134,588 $143,455 $257,567 $208,463 $189,834Michigan $414,223 $159,874 $79,175 $81,318 $82,836Ohio $5,055,449 $5,667,976 $4,998,987 $4,567,966 $4,255,909Oklahoma $813,490 $841,725 $864,819 $782,061 $534,688Tennessee $167,412 $79,310 $45,902 $177,544 $226,728Texas $2,465,819 $1,496,713 $1,868,304 $2,762,663 $1,496,405Virginia $629,139 $766,580 $1,135,579 $739,524 $748,058W. Virginia $3,629,551 $3,378,786 $2,518,229 $2,271,268 $1,976,344

$14,798,770 $13,914,024 $13,630,573 $12,701,309 $10,722,415

AEP Workers’ Compensation Assessments

33

STATE 2003 2004 2005 2006 2007Illinois $2,440 $588 $2,267 $486 $1,177Arkansas $1,200 $2,300 $2,300 $2,000 $22,419Texas $30,147 $12,812 $27,027 $1,303 $44,848Michigan $9,795 $12,129 $1,646 $1,646 $2,715W. Virginia $899,327 $917,002 $708,414 $804,945 $895,948Ohio $767,496 $637,094 $698,375 $654,833 $612,040Virginia $18,225 $19,012 $18,135 $10,689 $13,891Tennessee $11,919 $6,876 $7,425 $6,876 $10,159Kentucky $279,653 $61,056 $29,393 $21,997 $13,673Louisiana $3,183 $1,195 $957 $2,886 $12,779Oklahoma $14,236 $25,186 $29,487 $27,089 $13,075Indiana $1,714 $5,869 $4,704 $14,918 $2,933Longshore & Harbor $41,153 $23,905 $5,947 $4,918 $7,906

$2,080,489 $1,725,024 $1,536,077 $1,554,587 $1,653,563