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AEP Reports Negative Impact from Customer Switching

July 29, 2011
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AEP Ohio recorded a negative impact of $26.0 million on second quarter gross margin due to customer switching, AEP reported this morning.

The impact excludes offsetting benefits from competitive retail sales by AEP Retail Energy, and off-system sales of energy and capacity to other competitive retail suppliers from generation made available to the market a result of lower Standard Service Offer volumes.

The majority of the negative impact was at Columbus Southern Power, where the distribution company recorded a negative gross margin impact from switching of $23.8 million.

The commercial class, particularly at Columbus Southern Power, remains the most active for switched load.

The year-to-date gross margin impact from switching at AEP Ohio was negative $45.6 million.

The year-to-date lost load due to switching has been 14.8% at Columbus Southern Power, and 0.8% at Ohio Power.

Regarding switching, executives said during an earnings call that, "we're capturing about 25% of our own market share ... with AEP Retail having success," which we take to mean AEP Retail is winning 25% of migrated load at AEP Ohio, although the meaning of the statement was not exactly clear.

Switching has been ahead of the pace anticipated by AEP when it issued guidance, and executives said that they expect this accelerated pace to be maintained through the rest of the year. Executives reiterated that, should AEP Ohio's proposed electric security plan be accepted as filed, migration to competitive supply would be significantly reduced.

Due to the partially offsetting increase in margin from off-system sales and competitive retail sales by AEP Retail Energy, AEP is not adjusting earnings guidance as a result of the accelerated switching. While not providing a net impact from switching across all of its businesses, AEP called the net impact "tolerable."

Competitive retail sales are included within AEP's Generation and Marketing segment results, where operating earnings for the second quarter increased to $11 million from $7 million a year ago.

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