Where Does AEP Make Its Money?

Pam Kasey has a concise summary over at Grounded of AEP’s current financial situation.

CEO Nick Akin is doing his quarterly conference call today, and Pam’s story must have come from AEP’s advance press release.  Here’s the heart of the story:

The company continues to experience load decline in parts of its service territory due to lagging industrial demand, said, AEP President and CEO Nicholas K. Akins.

There also was a slight decline in commercial demand in the second quarter, and residential load remains essentially flat year over year, Akins said.

“The strong results from our regulated businesses, including transmission, are offsetting some of the negative earnings impacts from the transition to competition in Ohio,” he said.

When AEP’s sales from industrial and commercial customers decline, the company still has to cover its overhead costs for generating and providing electricity.  Who gets stuck paying higher rates when there are fewer kilowatt hours sold to cover the same fixed costs?  You guessed it – residential customers in regulated markets.  In AEP’s case, that means us in West Virginia.

Note also that AEP’s transmission business remains profitable.  And why is that?  Largely because of the FERC boondoggle created by Congress in the 2005 Energy Policy Act that allows higher returns on equity for high voltage transmission projects.  Through the FERC cost recovery process, those guaranteed higher profits get passed on to rate payers.  Again, as demand from industrial and commercial customers falls, those costs fall more and more on residential customers.

In WV, we see the results of AEP’s current business strategy.  Fortunately, citizen resistance led to the killing of the PATH transmission line, but AEP is now trying to dump more fixed costs, namely Unit 3 of the John Amos plant and half of the Mitchell plant, onto WV rate payers.

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