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AEP Expects $53 Million Negative Impact from Migration in 2011
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October
20, 2010
AEP expects customer migration in Ohio to negatively impact 2011 earnings
by $53 million (7¢ per share), as it forecasts customer migration increasing to 14%
of sales at Columbus Southern Power.
"I don't like customers switching in Ohio, but a 7 cent hit based on what we'll do with our own retail operation and other things that we'll do in 2011 as we look at the challenges in front of us, we can tolerate those kinds of things inside of the portfolio that we have," said AEP CEO Michael Morris.
Switching across all of AEP Ohio is about 2% of customers and less than 5% of load through the end of September.
Regarding the merger of the Columbus Southern Power and Ohio Power operating companies, first reported by Matters yesterday, Morris said that, "[t]his we think is just a better way over time to blend together the rate structure, so that has a constructive impact on the potential shopping, not enough to make it as though it would seem to dampen shopping."
"While the merger itself won't affect rates for the Columbus Southern and Ohio Power Company customers, we do expect in future filings including the upcoming ESP [electric security plan] to start to move toward a combined set of rates and programs for customers, and it will position us well for the coming environment," added Joe Hamrock, president and chief operating officer of AEP Ohio
"In terms of the ESP, you will see from the Ohio company [a] new ESP filing by the
end of the year ... We have in our current ESP some legacy rate designs, rates that
don't necessarily reflect the way the market would structure rates. We expect to
show a much more comprehensive market-
Morris said that, "going in with the belief that rates go down in the ESP to avoid shopping is probably a concept that won't materialize in what we file."
Still, Morris noted that, "you won't see the same kinds of increases [in the ESP] you may have seen in the last couple of years for that shopping piece on the G [generation] rate. But you'll see some increases without question in the T and the D [transmission and distribution] and other activities that go into an overall ESP filing."
Hamrock said that AEP Ohio is, "proactively reaching out to customers, making sure that they are making informed decisions," when it comes to shopping. In particular, Hamrock said that many competitive supply arrangements are for terms longer than the duration of the current electric security plan, and AEP Ohio encourages customers to be informed that their default generation rate will change at the end of next year, and to, "look at all of the options that they have, including the tariffs that CSP and OP provide."
Nick Akins, executive vice president for generation, said that competitive supplier AEP Retail Energy has begun retail operations.
"It's been in operation for several months, and we're aggressively pursuing customers in all of the jurisdictions in Ohio. We're certified to do business in FirstEnergy, Dayton and Duke as well as AEP. And certainly we see that as a potential for our growth engine in the future in relation to addressing customer needs through the areas that have retail choice," said Akins.
"So we're very proud of that activity, it's also moving very well, and it's something that I think ... will be able to hedge against some of the issues of customer migration,” Akins said.
“[W]e're going to be very measured in our approach but at the same time, we're going to look at opportunities throughout our footprint in terms of the ability to grow that type of operations. So we see that as a key for the future," Akins added regarding competitive retail supply.
AEP reported that ongoing earnings for the third quarter from its Generation and
Marketing segment, which includes AEP's non-
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