AEP CEO Akins talks about EPA CO2 plan, wires, market concerns

American Electric Power (NYSE:AEP) Chairman, President and CEO Nicholas Akins said Jan. 28 that the company benefitted from the “upside” of the polar vortex by having many fossil units that operated during the extremely cold winter of 2014.

During a quarterly earnings call, Akins again voiced deep concerns about the Environmental Protection Agency (EPA) proposal to cut power sector carbon dioxide emissions 30% by 2030.

The AEP CEO said his company also continues to seek market tweaks in the PJM Interconnection and Ohio that might result in more value being attributed to baseload energy resources.

Akins praised the performance of the company’s growing electric transmission sector. The CEO again said that AEP prefers to operate chiefly as a regulated utility company, although the company continues to take a hard look at various assets, which could lead to some assets being retired or spun off.

Akins confirmed published reports that AEP has retained an investment banking firm to help it in evaluating the future of assets like its Ohio power plants.

AEP reported fourth-quarter 2014 earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $191m or 39 cents per share, compared with $346m or 71 cents per share in 4Q 2013.

Operating earnings (GAAP earnings excluding special items) for 4Q 2014 were $232m or 48 cents per share, compared with 4Q 2013 operating earnings of $296m or 60 cents per share.

The difference in fourth-quarter 2014 GAAP and operating earnings, as well as year-end 2014 GAAP and operating earnings, was primarily due to the termination of a long-term coal contract.

“Our solid performance in 2014 reinforces the viability of our earnings growth strategy. Our focus on infrastructure investments in our core, regulated operations, including our transmission business, and on identifying sustainable process improvements, has delivered value for our shareholders. AEP was in the top five best-performing utility stocks for 2014,” said Akins.

“The economy in the AEP territory continues to show a rebound,” Akins said. That said, economic growth in AEP service territories are somewhat behind economic growth for the nation as a whole, AEP officials said.

Some of the largest AEP business growth occurred in the counties that produce natural gas from shale.

AEP concerned about capacity market issues; EPA CO2 plan

Akins said that AEP and other parties are continuing to work toward capacity market changes. Akins noted that much additional baseload coal capacity is expected to retire this year.

 A revised capacity market should provide a more “balanced” approach to baseload resources Akins said. Changes proposed for capacity market reform should help “ensure the reliability of the PJM footprint,” Akins said.

AEP is also seeking a power purchase agreement that could keep much of its endangered Ohio coal power capacity running. AEP wants PPAs put in place to protect Ohio customers from volatility, Akins said.

On EPA’s Clean Power plant, Akins said the timing of the 2020 interim targets “are not achievable.”

AEP looks forward to being part of upcoming reliability reviews on the Clean Power Plan by the Federal Energy Regulatory Commission (FERC). EPA is pursuing a “much too aggressive path” and “we risk a more costly and chaotic path toward a clean energy economy,” Akins said.

“We continue to invest heavily in the transmission business,” Akins said.

“Our transmission business continues to thrive, and its contribution to 2014 earnings exceeded our expectations by 2 cents at 31 cents per share. In the past 12 months, AEP Transmission Holding Co.’s net plant assets grew by approximately $1.1 billion to $2.7 billion, an increase of 65 percent,” Akins said.

“We also benefited from successful regulatory proceedings in several states and strong off-system sales margins. The reliable performance of our generation fleet during colder than normal temperatures in 2014 gave us the ability to advance spending from future years into 2014. Those shifts, combined with our initiatives to put in place sustainable process improvements, will help us manage the revenue challenges presented by the Ohio deregulation transition and the 2016-2017 PJM capacity market results,” Akins said.

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.