American Electric Power Co. (AEP) Sunday forecast ongoing earnings of $2.80 to $3.20 a share and a 19% drop in capital spending for 2010, and said it was forming a new transmission company.

"Our earnings projections for 2010 are driven by new rate recovery activity underway in several jurisdictions across our service territories, an expected increase in off-system sales of electricity as that market improves after a weak year in 2009, and a general increase in retail load," AEP's chairman and chief executive, Michael Morris, said in a press release.

The Columbus, Ohio-based power company, one of the nation's biggest, last week narrowed its forecast for 2009 ongoing earnings, which exclude one-off items, to between $2.90 and $3.05 a share. AEP also posted an 18% rise in third-quarter earnings, to $443 million, or 93 cents a share, as higher electric rates offset slumping demand.

AEP said it expects its 2010 capital expenditures will come to $1.933 billion, down from $2.466 billion.

The new transmission company AEP is forming will operate in the company's current service territory, and will be dedicated to enhancing and improving the grid in that 11-state area, said company spokesman Pat Hemlepp. He added that putting the new company in charge of grid work would get it off the utility units' books and increase transparency for shareholders.

"It's a clearer transmission play in the eyes of investors," Hemlepp said, adding the new company hasn't been named yet and is envisioned as a wholly owned subsidiary of AEP. The company said it expects to invest $118 million in the new company's activities next year.

The new company comes as part of AEP's broader transmission strategy, which includes a joint venture with Warren Buffett's MidAmerican Energy Holdings Co. in Texas and ventures with several other companies elsewhere in the country.