American Electric Power (NYSE: AEP) President and CEO Nick Akins stressed to Wall Street analysts Sept. 6 that despite Ohio’s transition to a more competitive model, AEP likes being primarily in the regulated utility business and plans to stay that way.
Roughly 86% of AEP’s total assets are regulated and the Columbus, Ohio,-based company isn’t interested in a more “hybrid” business model, Akins told the Barclays Energy Conference.
On other issues, Akins said that a federal appeals court’s decision to vacate the Cross-State Air Pollution Rule (CSAPR) should have minimal impact on AEP’s capital expenditure plans. The coal-heavy AEP system is also increasing its use of natural gas and the company is eventually interested in building a combined-cycle gas plant at its Muskingum River power complex – if a rate recovery agreement can be reached with Ohio.
In response to an analyst question, Akins said that AEP is interested in developing a new natural gas generating unit at Muskingum. “We continue to look at Muskingum River for a transition to natural gas,” Akins said.
But Ohio is moving to a more competitive model and AEP would need some type of recovery assurance before it could move forward. Akins did mention New Jersey as an example of a competitive state that recently elected to support new generation because of what the state sees as a gap in market incentives.
Overall generation from natural gas has increased dramatically in the AEP system. The 500-MW Dresden natural gas combined-cycle plant in Ohio came online in February.
Meanwhile AEP is moving ahead with the transfer of two West Virginia coal plants from Ohio Power to its Appalachian Power subsidiary. The Mitchell and John Amos coal plants are both in the process of moving to Appalachian, which is short on generation capacity, said an AEP spokesperson.
Akins also told the Barclays gathering that AEP’s purchase earlier this year of Blue Star Energy Holdings should not be taken as a major move toward a national competitive power platform. Instead, Blue Star will help AEP grow its existing retail business and hedge the output of the soon-to-be unregulated Ohio generation..
Cross-State decision won’t change much at AEP
It is expected that AEP’s regulated environmental capital expenditures will amount to $5bn to $6bn between 2012 and 2020, Akins said in his presentation.
This will be largely unaltered by the U.S. Court of Appeals for D.C. Circuit’s decision to throw out CSAPR, Akins said. The decision could affect the timing of certain environmental work, the CEO said. Overall, however, the mercury and air toxics standard (MATS) remains a larger issue, Akins said.
About 75% of the AEP environmental capex spending is earmarked for air pollution compliance while water and coal ash regulation account for the other 25%, Akins said.
The company expects to retire roughly 3,000 MW in regulated fossil capacity in the next few years. The company is one of the few adding new coal capacity, through the Turk ultra-supercritical coal plant in Arkansas.
AEP Generation, which includes most of AEP’s portfolio in the East, had a 2012 capacity profile of 12,932 MW and about 60% of that capacity is coal power that already has environmental controls. Uncontrolled coal units are slated for retirement, according to Akins’ presentation.
The Ohio fleet’s statistics in 2011 indicated an average delivered coal price of $2.35/mmBtu (roughly $56/ton) compared to a delivered gas price of $4.23/mmBtu. The typical coal plant inventory as of June 30 was 48 days.
AEP’s coal barge subsidiary has been hurt by ongoing drought in many areas that it serves, Akins said.
AEP envisions making a $4bn transmission investment portfolio between 2012 and 2015.