Retiring coal units were ‘backbone of American Dream,’ says AEP’s Akins

American Electric Power (NYSE:AEP) Chairman, President and CEO Nicholas Akins used a portion of his quarterly earnings comments April 23 to praise employees at many AEP coal plants that are being retired.

“I want to give a shout-out to our employees who typically listen to these calls,” especially those who work at coal plants that are being taken out of service,” Akins said. More than 5,000 MW of AEP capacity will be retiring by the end of May largely due to the Mercury and Air Toxics Standards (MATS).

It’s a “difficult process” that results in many AEP employees either retiring or relocating, Akins said.

“These generating units have provided the backbone of the American Dream for decades,” Akins said. Although coal has become “a four-letter word … it’s important to say ‘thank you for a job well done,” Akins said.

Akins’ tribute to the retiring coal plants and their employees was one of the highlights of the conference call on AEP earnings.

Akins also said a recent report by the North American Electric Reliability Corp. (NERC) validates his concerns about the Environmental Protection Agency (EPA) Clean Power Plan.

The NERC analysis backs up “what AEP has been saying all along” about the proposal to have states cut power sector CO2 emissions 30% by 2030. NERC’s review agreed that the EPA deadlines are too short and that other fundamental concerns need to be addressed, Akins said.

Akins also updated financial analysts on regulatory proceedings in Arkansas, Kentucky and West Virginia. Changes in Arkansas could make it easier for an AEP utility to recover its investment in the company’s newest coal plant, Turk, he added.

AEP still has rate cases yet to be resolved in Kentucky and West Virginia.

Elsewhere, “the Rube Goldberg capacity market” of the PJM Interconnection cannot be depended on although PJM is trying to fix the problem, Akins said. The AEP CEO said the company is seeking more clarity on capacity market issues involving PJM and Ohio before making final decisions on the future of its competitive generation.

But most of the AEP economic news in the first quarter was upbeat.

Weather, wires, shale development all cited in first quarter

AEP reported first-quarter 2015 earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $629m or $1.29 per share, compared with $560m or $1.15 per share in 1Q014. Operating earnings (GAAP earnings excluding special items) for 1Q15 were $625m or $1.28 per share, compared with 1Q14 operating earnings of $560m or $1.15 per share.

“Our strong first-quarter financial results reflect the continued success of our strategy of investing in regulated operations, growing the transmission business and effectively managing our operations and maintenance spending,” Akins said. “First-quarter results were also bolstered by the solid performance of our competitive businesses,” he added.

AEP is “off to a great start” in 2015, Akins said. The weather helped the bottom line.

Weather had a positive impact in both first-quarter 2014 and 2015 – the coldest and second coldest winters respectively in AEP’s service territory during the past 35 years, AEP reported. Overall, weather-normalized sales for 1Q15 were 1.3% lower than last year. Industrial sales grew 1.2%, commercial sales fell slightly, and residential sales declined 4% as expected, due to extremely high usage by customers during the polar vortex events of 2014, AEP said in its earnings release.

“We continue to see significant industrial load growth in our shale gas counties, with a 14 percent increase year-over-year,” Akins said. “Although growth in the oil and gas industry may be impacted by the decline in oil prices, other industrial sectors in our service area are benefiting from lower fuel costs.”

On the future of AEP’s unregulated generation, the company’s process continues, Akins said. AEP will see how some ongoing issues play out in Ohio, but “the framework is set, the groundwork is set,” Akins said.

AEP sales to oil and gas sector continue to be strong.

“AEP’s Transmission Holding Co. continues to be a key part of our earnings growth strategy. Our investment in this segment has grown significantly in the last three years, and we expect it to contribute 38 cents per share this year. AEP’s combined transmission and distribution investment will represent 70 percent of our capital expenditures over the next three years as we continue making infrastructure and system improvements to benefit customers and build the integrated grid of the future,” Akins said.

When asked about disposition of the river operations, Akins noted that Morgan Stanley has been retained to look at a spinoff. “That process continues,” 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.