AEP To Seek Re-regulation in Ohio Due to FERC PPA Decision (Potential Transfer of Existing Generation to AEP Ohio); FirstEnergy Also Seeking "Legislative" Solutions

AEP will seek re-regulation of the Ohio market thanks to FERC's decision -- prompted by so-called merchant generators -- to review PUCO-approved PPAs between AEP Ohio and affiliated non-regulated generation under the Edgar standard.

During an earnings call, AEP CEO Nick Akins said, "We have no interest in getting involved in a protracted FERC-state jurisdictional dispute," and will be pursuing parallel tracks to achieve the company's goal of removing the volatility associated with the assets covered by the Ohio PPAs.

Under one of these tracks, "we'll push for re-regulation in the Ohio legislature to repeal and replace SB 221 or enable the transfer of and cost recovery for certain resources in AEP Ohio, thereby eliminating the need for a PPA," Akins said

In addition to a potential transfer of the PPA units back to AEP Ohio from AEP's non-regulated unit, re-regulation may include, "the development of new resources," by AEP Ohio.

"This will secure Ohio's role in determining its own resource mix with a structure that enables long-term and short-term deployment of generation-related resources in the state," Akins said

Akins suggested a "stopgap" legislative solution may be to, "basically allow the transfer of certain assets within the state of Ohio to AEP Ohio directly and avoid any kind of affiliate transaction, which I would say [there] is probably a better chance of accomplishing something like that than a full re-regulation, but I wouldn't take that off the table either."

Full re-regulation beyond this stopgap should be considered, Akins said, "because I think there's broader issues that are involved here like, for instance, if Ohio wants to move forward with renewables and renewable implementation and balance out the portfolio and focus on natural gas, those are clearly areas that can fall within some form of re-regulation."

Akins said that the AEP PPA assets would not cover the entirety of returning load, meaning the utility would have to address a capacity deficiency either through the market or building new capacity. "And I think it's a perfect opportunity for the state of Ohio to look at natural gas and renewables to fill out that approach. And as long as Ohio has control in doing that kind of thing, then we're ready willing and able to move that direction," Akins said

Apart from a legislative solution, Akins said that AEP will initiate a strategic review to potentially sell the PPA assets, similar to a separate, ongoing review undertaken for merchant AEP generation that is not subject to the Ohio PPAs

"[W]hichever results in AEP becoming fully regulated earliest will be completed," Akins said

Realistically, Akins said that such a strategic review of the PPA assets would likely extend into early 2017, though completing such a review by year-end may be "doable" but "aggressive." More likely, however, Akins said that PPA asset strategic review will extend into the first or second quarter of 2017

Akins also updated the market on the strategic review of AEP's non-PPA merchant assets (click here for related story)

"All of these state-related issues are occurring out of frustration with organized markets such as PJM that have an inherent inability to allow states to make decisions regarding their own resources. Ohio needs to decide expeditiously: does it want to control its own development of resources within the state, or leave it to PJM and the federal government who have conflicting multi-state interests," Akins said

FirstEnergy also said in an 8-K that it will consider, "both short-term and long-term legislative and regulatory solutions in Ohio to preserve the benefits associated with the ESP IV PPA for the customers of the Ohio Companies"