AEP Reiterates Retail Strategy, Focus on Margins

AEP is not focused on creating a national retail energy player, AEP President & Chief Executive Officer Nick Akins affirmed during an investor presentation last week.

Discussing its Ohio generation which is in the process of being transferred from the utility to a competitive affiliate, Akins said:

"I do want to reiterate that the reason why we have our wholesale business, [and] our retail business, is really to focus on hedging that generation. It's not about being a national energy player in terms of retail. That's not what we're about. What we are focused on is margins in our retail play ... and that's focused on specific customers. It's not about how many kilowatt-hours or how many megawatt-hours you can serve ... We're trying to maximize the hedging margins associated with that generation that becomes available."

This strategy was first reported by Matters a year ago

After retirements and transfers to other AEP regulated utilities, the transfer of Ohio generation out of the utility will result in a competitive fleet with about 8,900 MW. About 65% of the capacity is coal-fired (largely controlled), and 35% is gas-fired. The generation spans baseload, intermediate and peaking capacity.

Executives forecast that the competitive Ohio generation will produce about 40 million to 45 million megawatt-hours annually. In 2014, executives anticipate 25% to 30% of that generation will serve competitive retail load. The remainder will serve legacy default service obligations in Ohio, and various wholesale marketing opportunities.

In 2012, AEP's retail unit, with the acquisition of BlueStar Energy Services, served 7.5 million megawatt-hours and 168,000 retail customers.

About 60% of the retail load was in Ohio; 27% in Illinois, 7% in Pennsylvania, 4% in New Jersey, and 1% in Maryland, D.C., and Delaware.

About 87% of the load was in the C&I space and 13% was residential.

Executives noted that all of the load is currently hedged with market purchases, with the intent to match such load with the Ohio competitive generation as it becomes available.

Executives reiterated that the focus of the retail business will be in areas where AEP has traditionally done business, including PJM and the Midwest.

Executives said that the new retail business, resulting from the acquisition of BlueStar Energy Services, was profitable in its first year.

AEP said that its 2013 retail plan includes plans to "[a]dd to the customer relationship," but did not specify on what additional services may be offered. BlueStar has offered energy contracting and efficiency-type services, and though BlueStar has natural gas supplier licenses in certain areas, AEP said that AEP Energy was limited to "electric service only" during 2012.