American Electric Power Brings Two New Plants Online Amid Rocky 2012, Sees Smoother Path Ahead in 2013

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Researched by Industrial Info Resources (Sugar Land, Texas)--American Electric Power (NYSE:AEP) (AEP) (Columbus, Ohio), one of the largest electric utilities in the U.S., navigated rough waters in 2012 as regulatory uncertainty in Ohio markets, weakening demand growth and several large, unexpected storms affected the company's bottom line, although cost controls and rate proceedings proved beneficial. Net earnings for the year were reported to be $21 million, compared with $308 million in fourth-quarter 2011, $1.26 billion for the year, a 35.14% decrease from 2011.

AEP executives said that results were better representative of the company's year when excluding numerous special and one-time items, including $184 million in Ohio plant impairment costs; a $30 million charge related to cost-restructuring efforts; a $15 million provision associated with U.K. windfall taxes; and a $9 million adjustment related to the Texas cost cap on the construction of the John W. Turk power plant. AEP refers to this measurement as "operating earnings," which stood at $242 million for the quarter, a 24.74% increase from the same period in 2011, and $1.5 billion for the year, basically unchanged from 2011.

Total revenue was reported to be $3.6 billion for the quarter, a 5.88% increase from fourth-quarter 2011, and $14.9 billion for the year, a 1.32% decrease from 2011. In addition to slowing demand growth and lost earnings from customer switching in Ohio, AEP's Utility Operations segment was negatively affected by high storm restoration costs and temperatures that were milder than those in 2011. However, the segment benefited from cost-containment efforts and a string of successful rate proceedings, and earnings improved each quarter in the Transmission Operations segment. The River Operations segment incurred lower earnings due to the mid-year drought, which reduced grain exports.

During the year, AEP brought two new power plants online: the 580-megawatt combined-cycle natural gas Dresden Plant and the 600-megawatt Turk Plant, which is the first ultra-supercritical coal plant in the U.S. AEP executives are optimistic that coal power could see improved demand in the future; for more information, see November 2, 2012, article - AEP, Peabody Hint that 'King Coal' Could Return to the Throne in 2013, and January 30, 2013, article - Inside Power: Environmental Regulations and Coal-Fired Power Generation - The State of Play.

Industrial Info is tracking $6.59 billion in active projects involving AEP, including $460 million in additions at the Clifty Creek Power Station in Madison, Indiana. The project involves installing two Chiyoda wet flue gas desulfurization scrubbers onto six Babcock &Wilcox coal front-fired wet bottom boilers to further reduce SO2 emissions. The Clifty Creek Power Station is owned by Indiana-Kentucky Electric Corporation, a subsidiary of Ohio Valley Electric Corporation, in which AEP is a 39.17% shareholder.

"The growth in transmission has been very good for us," said Nick Akins, the president and chief executive officer of AEP, in a conference call. "The Competitive Renewable Energy Zone build-out in Texas and Electric Transmission Texas continue to grow, and we've had $720 million of cumulative investment in the [AEP Transmission companies]." The Competitive Renewable Energy Zone is an area in West Texas where wind power facilities will be constructed and from which mostly renewable power will be transmitted to other areas of the state.

The Transmission Operations segment was the only segment to report improved earnings for both the quarter, although the Utility Operations segment saw improvement when using the operating earnings measurement:

• The Utility Operations segment reported earnings of $79 million for the quarter, compared with $289 million in fourth-quarter 2011, and $1.3 billion for the year, a 32.29% decrease from 2011. Operating earnings stood at $283 million for the quarter, a 61.71% increase from the same period in 2011, and $1.52 billion for the year, a 4.26% increase from 2011.
• The Transmission Operations segment reported earnings of $12 million for the quarter, a 9.09% increase from fourth-quarter 2011, and $43 million for the year, a 43.33% increase from 2011. Operating earnings stood at $13 million for the quarter, an 18.18% increase from the same period in 2011, and $1.52 billion for the year, a 46.67% increase from 2011.
• The AEP River Operations segment reported earnings of $4 million for the quarter, compared with $22 million in fourth-quarter 2011, and $15 million for the year, compared with $45 million in 2011. Operating earnings were the same.
• The Generation and Marketing segment reported earnings of $3 million for the quarter, compared with a loss of $6 million in fourth-quarter 2011, and $7 million for the year, a 50% decrease from 2011. Operating earnings were the same.
• All other segments reported a loss of $77 million for the quarter, compared with a loss of $8 million in fourth-quarter 2011, and a loss of $102 million for the year, compared with a loss of $62 million in 2011. Using the operating earnings measurement, all other segments incurred a loss of $61 million for the quarter, compared with a loss of $8 million in the same period in 2011, and a loss of $86 million for the year, compared with a loss of $40 million in 2011.

AEP executives say they now have a much clearer outlook for corporate restructuring in Ohio.

"In the Ohio situation, we've been through multiple orders and multiple areas where we had to deal with capacity cases, Electric Security Plan cases, all those types of things--but we've finally reached a point where we have clarity related to Ohio," Akins said in the conference call. "I think that certainly the [Public Utilities Commission of Ohio] and the company were very focused on trying to achieve a solution that made sense for the customers in Ohio, but also made sense for the company, and we wound up in the situation where we do have that clarity to move forward. We've also filed all the FERC cases, and they're going well; we continue to have discussions with the interveners in those cases and with the states involved, and those communications are going very well.

AEP delivers power to more than 5 million customers in 11 U.S. states.

For more information, visit Industrial Info's North American Power Project Database.

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