American Electric Power (NYSE:AEP) reached important milestones in 2015 when it completed the sale of its commercial barge line river operations and also reached a settlement with several parties regarding in Ohio with the AEP Ohio power purchase agreement (PPA) case.
AEP Chairman, President and CEO Nicholas Akins added that AEP is continuing its review of its competitive generation as part of its goal to focus more on regulated utility operations. Akins noted that the company reached agreement with the staff of the Public Utilities Commission of Ohio (PUCO) along with industrial customers, the Sierra Club and others.
A number of parties, however, have challenged the eight-year AEP agreement in Ohio.
“As with any agreement, AEP and the other parties didn’t get everything they wanted, but this overall is a good deal that provides clarity and will ultimately benefit our customers and should be approved by the PUCO as quickly as possible,” Akins said. “We expect the record to be concluded by February 8 and an order from the Commission shortly thereafter.”
In answer to a question from a financial analyst, Akins acknowledged there are “rumblings” of a legal challenge. But the CEO didn’t necessarily think this could snarl the possible sale of certain AEP unregulated generation.
“So if there is a case out there, I think anyone that would look at it, if it’s only unregulated part of the generation, they – there will be people who are buying unregulated assets and fully understand the risk associated with that,” Akins said.
It’s “a great set of assets,” and AEP does not anticipate being “low-balled,” Akins said.
“We feel like we are in very good shape from a legal perspective,” Akins went on to say. “There is a lot of dust being kicked up. But that’s what happens when you try to do progressive things,” Akins said. AEP has elected not to wait on a federal outcome for a long-term capacity market.
Once a ruling comes out of Ohio, AEP can make a decision about its merchant power generation, Akins said.
“We are already in a strategic process around the unregulated generation,” Akins said. “The question is what’s in and what’s out?”
AEP also expects to re-power, retire or refuel generation as part of this transition and build up the 900 MW of renewable solar and wind generation to achieve a balanced generation portfolio in Ohio, Akins said.
AEP cites promising economic numbers
“For the year, we grew operating earnings per share by 7.6% and increased our quarterly dividend by nearly 6%,” Akins said.
“The positive load growth pattern we saw developing in the second and third quarters of 2015 moderated late in the year as we saw declines in economic activity related to the strong dollar, weak global economy and low oil prices, as well as unseasonably warm weather,” Akins said. As far as December, “winter never occurred,” Akins said.
United States auto sales in 2015 were at their highest level since 2000, and this helped the economy of areas like Elkhart, Indiana, whose economy is largely independent on transportation manufacturing, the company said.
“The primary metals and mining sectors, in particular, have been challenged. We experienced commercial load growth in several Midwestern states from domestic auto production, and we continue to see load increases in the parts of our service territory located near major shale formations,” Akins said. “Overall, we expect normalized load growth in 2016 to track slightly better than 2015,” Akins said.
AEP reported fourth quarter 2015 earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $469m or 96 cents per share, compared with $191m or 39 cents per share in fourth-quarter 2014. Operating earnings (GAAP earnings excluding special items) for 4Q 2015 were $233m 48 cents per share, compared with 4Q 2014 operating earnings of $232m or 48 cents per share.
The difference in both fourth-quarter and year-end 2015 GAAP and operating earnings was primarily due to the sale of AEP’s commercial barge operations in November 2015.