Akins says AEP has no interest in being part of state, FERC dispute

American Electric Power (NYSE:AEP) Chairman, President and CEO Nicholas Akins made it clear April 28 that he was not pleased that FERC will examine recently-approved power purchase agreements (PPAs) for some AEP affiliates in Ohio.

“Obviously we were disappointed with the FERC decision to review our PPA arrangements,” Akins said during the company’s 1Q16 earnings call.

“AEP is moving toward being a premium regulated utility … we have no interest in getting involved in a protracted FERC-state jurisdiction dispute,” Akins told financial analysts.

The regularly-scheduled earnings call happened to occur on the morning after FERC issued orders on motions filed by the Electric Power Supply Association (EPSA) and other critics of the PPA deal. The FERC orders remove the waivers protecting the controversial Ohio PPAs from full FERC review under the Federal Power Act, EPSA said.

The Public Utilities Commission of Ohio (PUCO) “did the right thing” in late March when it ensured long-term contracts with baseload energy providers while moving toward deployment of more renewable energy, Akins said.

“But FERC has spoken,” Akins said. The CEO, however, added that AEP won’t stand still while a protracted FERC order plays out.

AEP had already opened confidential data rooms on its competitive generation assets that are not included in the PPA. There is considerable interest and a transaction could be announced by the end of the year, Akins said.

In addition, AEP will initiate a strategic review of the PPA assets (separate from the current strategic review of the other assets) and also determine if there is an option of legislation that would allow transfer of generation to AEP Ohio without a PPA or affiliate transaction review requirement, Akins indicated.

AEP’s moves in Ohio have been largely driven by “frustration” with regulated markets, Akins said.

During the call, Akins fielded questions on what degree of “re-regulation” or asset transfers might come to pass in Ohio.

The AEP CEO stressed his desire to achieve resolution on the Ohio generation questions after protracted deliberations at PUCO.

“It’s time to get this resolved once and for all,” Akins said. “We’re not waiting” before exploring other options, Akins said. On the bigger picture, Akins said Ohio will need more power generation in the future.

AEP dealt with weather fluctuations, coal bust

The first three months of 2016 were vastly different from a year ago weather-wise. The unseasonably mild temperatures reduced earnings by 12 cents compared with last year. The warm winter and low natural gas prices also resulted in significantly lower power prices and sales volumes compared with the first quarter of 2015, AEP reported.

But these negative impacts were mitigated by the continued success of AEP’s transmission business and our ongoing regulatory strategy, company officials said. 

“We overcame the winter that never happened,” Akins said.

“We had the sixth warmest winter in the past 30 years,” Akins said. That was a far different from the unusually cold winter the prior year.

AEP continues to have strong sales in areas benefitting from production of natural gas from shale.

But industrial sales in coal counties were down 17% this quarter. This is a reflection of the number of bankruptcies and mine closures occurring in the coal-mining areas, AEP officials said.

AEP reported 1Q16 earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $501m, or $1.02 per share, compared with $629m, or $1.29 per share in 1Q15.

Operating earnings (GAAP earnings excluding special items) for 1Q16 were the same as GAAP earnings, compared with 1Q15 operating earnings of $625m, or $1.28 per share.

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.