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AEP: Not Starting "National" Retail Play
February 10, 2012
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Copyright 2010-
AEP's competitive retail supplier will focus on hedging AEP's competitive generation in markets in which the company is already involved and which it understands, AEP CEO Nick Akins said during an analyst conference Friday.
"I want to make sure that everyone understands we're not trying to start a national play of retail," Akins said.
As a result of the corporate separation of its Ohio distribution and generation assets, AEP will have about 9,000 MW of competitive generation in PJM (after retirements and transfers to other AEP distribution companies).
Akins said that the retail supply business will be, "used as a tool in those areas that we understand to focus on the development and hedging activities surrounding that generation."
Akins noted that AEP already participates in default service auctions in eastern PJM, such as in Maryland, as well as in the Midwest ISO. Akins said that BlueStar Energy Services, which AEP is in the process of acquiring, has significant overlap with AEP's current marketing footprint, while also extending into New Jersey and New York.
AEP executives further told investors that the retail businesses' volumes will be driven by its hedging needs for its generation, rather than achieving a certain scale or number of customers. Furthermore, the retail business will focus on high-margin segments, and will have to compete will other hedging avenues, such as sales to munis and cooperatives, wholesale auctions, etc.
Of about 40,000 GWh of competitive generation that AEP expects to hedge in 2015 (at which time the Ohio distribution companies move to auction-based default service), AEP is targeting about 10,000 MWh hedged through competitive retail sales.
Akins said that AEP is acquiring BlueStar primarily for its backoffice systems, as BlueStar has, "very, very good systems to accommodate retail operations, and for us, to go to a scale of in excess of 1 million customers and beyond, those systems are already set up to do that."
Akins also cited BlueStar's demand-side management business as attractive, citing it as a driver for growth. "When you put it together with the generation, with the wholesale trading, the retail operation, it can be a very credible shop to really focus on providing a platform of services for customers. They are typically high margin," Akins said.
Akins called the generation that the AEP competitive segment will receive from corporate separation as "pretty decent," as the only coal units included will be, "well within the economic market."
Executives also reported that if the clarification order issued by the Public Utilities Commission of Ohio on January 23, which would expand the amount of discounted capacity available to retail suppliers from the level contained in an AEP Ohio compliance plan, were affirmed, it would negatively impact AEP by an incremental $400 million during the three-year transition period to market-based default service in Ohio.
Akins also offered the following commentary regarding new capacity and capacity markets:
"I think in any competitive market in this country, let alone PJM, there is not any adequate price signal for the building of new capacity. RPM, we know, is messed up ... It's really, to me, it's a short-term wholesale capacity rate, you can't invest with it."
Email This StoryCopyright 2010-
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