From Pokémon to ROEs, AEP CEO Akins discusses various topics during earnings call

The popularity of Pokémon GO has extended into the energy industry as American Electric Power (NYSE:AEP) Chairman, President and CEO Nicholas Akins referenced the game during the company’s 2Q16 earnings call, saying that “several of our company sites have shown up in the latest craze of Pokémon GO.”

“The virtual reality of a Pokémon next to our generator turbine in Ohio made me think that it may be good for a game, but if the generator was virtual, we might have a real problem in our hands and that is where Ohio is heading if it depends too much on … markets that do not value the long-term baseload generation,” he said.

He invited those participating in the call to visit PJM Interconnection’s website to review the generation mix during recent peak periods, noting, “The vast majority of capacity at the time of the peak is delivered by coal and nuclear resources that are not valued properly in the market construct.”

Those markets do not take into account other issues that are of state concerns such as jobs and taxes, he added.

“These markets, including PJM, need to be improved to adjust to these realities,” he said. “With FERC’s order essentially taking the Ohio PPA proposal approved by the Ohio commission off the table, … AEP is addressing the situation by pursuing restructuring in Ohio. Note, this is restructuring, not reregulation. Our proposal for legislation is now being discussed with various stakeholders.”

As PennWell’s GenerationHub reported, Akins made it clear April 28 that he was not pleased that FERC would 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 at the time during a quarterly 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 in April. The CEO, however, added that AEP won’t stand still while a protracted FERC order plays out.

During the July 28 call, Akins said: “The proposed legislation strikes a balance between our ability to invest and maintain generation in the state and the customers’ ability to choose generation suppliers. This overall process would allow AEP Ohio to move forward with the transition of generation resources in a responsible way that would benefit the state of Ohio and AEP and its customers.”

Akins also said that the legislation would address any potential FERC jurisdictional matters, while allowing the state to take control of its own resources as well as any transition envisioned under initiatives such as the U.S. Environmental Protection Agency’s Clean Power Plan.

ROE

Among other things, Akins noted that AEP’s overall return on equity (ROE) continues to improve and is now at 9.8%, versus 9.4% that the company recorded last quarter.

The ROE is “still expected to move toward our forecasted 10.1% overall ROE for 2016, so all is moving according to plan,” he said.

The ROE for AEP Ohio Power at the end of the second quarter was 13.3%, he said, adding that that company “is doing very well at this point.”

He also noted that Kentucky state regulators authorized a $45m rate increase for Kentucky Power effective July 2015, and that rate case will continue to improve the ROE in 2016.

Of Indiana Michigan Power (I&M), Akins said that the company achieved an ROE of 10.1%, and continues to benefit from reasonable regulatory frameworks in place for major capital investment programs, including transmission projects.

Oklahoma state regulators last December heard a rate case for Public Service Company of Oklahoma, with the company implementing an interim base rate increase of $75m, subject to refund in January 2016; a final commission order is expected in 4Q16, he said.

Akins also noted that AEP Transmission Holdco’s ROE of 11.7% is outperforming the 2016 forecast of 10.2%.

“The increase in ROE is really focused on an annual true-up that occurs in the transmission formula so we expect that ROE to come down during the year, but still expect it to be around 10.7% by year-end,” he said.

Akins also noted the company’s new position of chief customer officer. As noted in a May 16 company statement, AEP named Bruce Evans to the newly created position as senior vice president and chief customer officer, effective June 1; Evans previously held the position of president and COO of AEP Texas.

The organizational redesign, Akins said during the call, “will focus on addressing the evolving nexus that exists between the regulatory framework, emerging technologies that enhance the customer experience, and deploying the analytics and technologies of the future to address resource needs and optimize smart grid applications.”

Earnings report

AEP on July 28 reported 2Q16 earnings, prepared in accordance with Generally Accepted Accounting Principles (GAAP), of $502m, or $1.02 per share, compared with GAAP earnings of $430m, or 88 cents per share in 2Q15. Operating earnings for 2Q16 were $466m, or 95 cents per share, compared with operating earnings of $429m, or 88 cents per share in 2Q15, the company said. 

About Corina Rivera-Linares 3155 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 15 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at clinares@endeavorb2b.com.