AEP CEO Akins says over-ambitious EPA risks ‘convoluted mess’ on CO2

American Electric Power (NYSE:AEP) CEO Nick Akins said July 25 that the Environmental Protection Agency (EPA) Clean Power Plan is “too aggressive” in its timeline for making dramatic reduction to carbon dioxide emissions.

During the company’s quarterly earnings call, Akins warned that EPA’s proposal for having states cut CO2 emissions from the power sector 30% by 2030 could end up being a “convoluted mess.”

Akins said AEP is committed to a balanced portfolio and much progress has already been made on cutting emissions, including CO2.

“Rational timing and targets are absolutely critical.” Akins said. This far-reaching proposal sets very aggressive goals for things like 70% combined-cycle gas usage; 6% heat rate improvements in coal plants and dramatic improvements in energy efficiency, the CEO said.

In addition, this would all be governed by state plans that must be drawn up across the country.

When asked by a financial analyst what impact the EPA CO2 rule would have in states where AEP has coal plants, Akins replied that he didn’t know.

“I don’t know if I have a good answer…I’m not sure anybody does …I really can’t tell you what the process is at this point,” Akins said.

The AEP CEO also noted that the Clean Power Plan for existing generating plants is purely a proposed rule at this point. EPA is preparing to hold public hearings in Atlanta, Denver, Pittsburgh and Washington, D.C.

It’s clear that the proposal will put additional pressure on coal-fired power plants, Akins said. AEP is already planning for more than 6,000 MW of coal unit retirements by 2016 as a result of the Mercury Air Toxic Standards or MATS.

Most of the AEP capacity due to be retired under MATS actually was deployed during the recent harsh winter, Akins noted.

The impact of coal retirements is bound to increase electricity prices, Akins said.

Gas prices, while cheap, “are still higher than our coal prices.” This is before a slew of coal plant retirements. “I would fully expect energy prices to move up as a result,” Akins said in response to an analyst question.

The AEP chief also spent much time talking about generation market issues in Ohio. The Ohio market is largely deregulated when it comes to power generation. Among other things, that caused AEP to spin off several Ohio power plants to a non-regulated affiliate at the end of 2013.

AEP is working to limit risk to Ohio customers, Akins said. Ohio could end up becoming a “purchaser in the market” if it’s not careful, Akins said.

During the call, AEP officials also noted the Indiana Michigan Power subsidiary is planning to bring online about 16 MW of new solar power.

Akins also said changes brought about by AEP employees have helped improve coal unloading at the Amos coal plant and improve refueling outages at the Cook nuclear power plant.

“I’m very proud of what our employees at the front line are accomplishing,” Akins said.

AEP reports strong financial quarter

AEP reported second-quarter 2014 earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $390m or 80 cents per share, compared with 69 cents per share or $338m in 2Q 2013, an increase of 16% in earnings per share.

“Between June 2013 and June 2014, we grew Transmission Holding Co.’s net plant assets by 92 percent, to nearly $2.1 billion, Akins said.

“Economic improvement in the states where we operate is encouraging, particularly in areas with shale gas development. Excluding the 2013 closure of our largest industrial customer [Ormet], overall industrial sales increased 4.5 percent for the quarter, and in counties with significant shale gas development, our industrial sales increased by 39 percent.

The Appalachian Power subsidiary also filed a base rate case in West Virginia in June, officials noted.

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.