CEO hints AEP will focus more on transmission; touts CO2 progress

American Electric Power (NYSE:AEP) is nearing completion of key generation investments and could soon be turning more attention toward transmission, President and CEO Nick Akins said July 25.

During its quarterly investment call with analysts, AEP executives said the company has notched many generation milestones in the past year. It brought online the modern Turk coal plant; moved to retrofit or retire several existing coal plants; moved toward more natural gas capacity and won approval for a major capital investment in the Cook nuclear plant.

Muskingum River 5 was a unit that AEP thought it could retrofit with natural gas and run it for years. Upon further review, AEP has decided to retire this “bubble unit,” AEP said.

AEP also has made much state regulatory progress on transfer of certain coal plants between subsidiaries, the CEO noted.

With this work largely behind it, coupled with projections for flat load growth and the uncertainty of generation markets, AEP is looking more at investments in transmission infrastructure, Akins said.

 “We are already looking at additional transmission projects,” Akins said. In today’s electricity marketplaces, transmission and distribution tend to be “no regrets” investments compared to the generation market, Akins said.

AEP could have more to say about this topic in coming months, Akins said.

Speaking of the generation market, AEP officials voiced displeasure with the performance of PJM’s capacity market.

Akins optimistic that McCarthy-led EPA will work with industry

The AEP fleet is expected to meet President Obama’s 17% reduction target for CO2 five years sooner than the 2020 Waxman-Markey target and without additional regulation. Existing regulations and market conditions drive a 64% increase in gas capacity and a 27% decrease in coal capacity by 2016, AEP said.

The mercury rules and other related EPA air standards are already forcing coal retirements. “I believe a Gina McCarthy-led EPA will be more responsible and reasonable.”

Akins suggested that McCarthy will consider the progress the power sector has already made when drafting EPA CO2 rules for power plants.

“I want to give you my perspective on the challenges we face and what we are doing about them,” Akins said. This includes “an economy that continues to be tenuous at best” as reflected in industrial load and other factors, he said.

Loads both in AEP areas and nationally are still “soft” in part because of the economy and partly because of energy efficiency. “Can the electrification of the economy outstrip the energy efficiency,” Akins said.

“The strong results from our regulated businesses, including transmission, are offsetting some of the negative earnings impacts from the transition to competition in Ohio,” Akins said.

AEP reported 2013 second-quarter earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $338m or $0.69 per share, compared with $362m or $0.75 per share for 2Q12.

Operating earnings from transmission operations during second-quarter 2013 increased $10m compared with the same period in 2012 due to increased transmission investment.

It was a typical second quarter, “weather dependent, load dependent,” Akins said. Temperatures were milder across all AEP jurisdictions in the second quarter and that hurt earnings.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.