AEP Retail Focused on Margin, Akins Says

AEP's retail supply business, now branded as AEP Energy, is focused on margins as it pursues growth, American Electric Power President and Chief Executive Officer Nicholas Akins said during an earnings call Friday.

"I'm not interested in signing up every customer we can sign up. I'm interested in margins associated with that because we are providing a hedge, ultimately, for the generation that separated, so we want to maximize value associated with that," Akins said.

Executives forecast AEP Retail margins as in the high single-digits to mid double-digits (mid-teens), on a dollar per megawatt-hour basis.

AEP also reported that operating earnings declined by $38 million, quarter over quarter, due to customer switching to competitive suppliers at its Ohio distribution utility. Gross customer switching was up $56 million from the prior year.

By the end of June, 34% of AEP Ohio load had switched to alternative suppliers.

Akins conceded that this migration was lower than AEP's expectation, including forecasts from Ohio Power in testimony in several cases before PUCO, but said that AEP expects switching to accelerate under the PUCO's recent capacity order, which requires competitive suppliers to (at this time) pay no more than the RPM capacity price for capacity provided by AEP under the Fixed Resource Requirement, with additional costs being deferred.

In addition to seeking rehearing of the PUCO capacity order, Ohio Power has renewed its motion at FERC for a ruling on its complaint regarding FERC's prior interpretation affirming supremacy of the state compensation mechanism in establishing the capacity rate, and related cases, and Ohio Power continues to seek its higher, cost-based capacity rate.