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AEP continues pursuit of Ohio restructuring

American Electric Power Co. Inc. will continue to pursue restructuring of Ohio's electricity market and is open to support for nuclear generation, depending on who picks up the tab.

"AEP will not invest in new generation in Ohio unless we have a clear path to recovery of our investment, so enabling legislation is critical," AEP Chairman, President and CEO Nicholas Akins said Jan. 26 on the company's fourth-quarter 2016 earnings call.

Akins said the company would like to make investments in renewable energy and potentially natural gas, along with other forms of resources, such as distributed generation.

"Those are key areas for us in terms of the build-out of what we believe is the smart grid of the future and all the interoperability issues associated with it," Akins said. "So, we want to have provisions ... to allow us a more prescriptive path to the commission for recovery of those expenses."

AEP announced in late April 2016 that it will pursue a legislative fix to Ohio's regulatory market after FERC's decision to review controversial generation subsidies approved by state regulators. AEP has since announced the sale of its Midwest generation assets and is nearing a decision on divesting ownership interests in four unregulated Ohio coal units.

Akins said the aim is for the legislation to make regulations "very clear, so that we're not winding up back at the Ohio Supreme Court all the time."

The legislation is expected to be ready for a sponsor in the second quarter.

"We're having regular meetings with leaders in the Legislature," Akins said in response to an analyst question on the status of the measure. "I think really a major focus right now is not to burden the legislation with provisions that may slow it down. If you start talking about re-regulation or obligation to serve, or all those kinds of things, it just brings in more issues associated with, OK, how do you actually restructure this market.

"But if it's surgical in terms of its approach, and actually there may be other surgical provisions that other companies want, let's put those together and move forward very quickly through the Legislature."

Akins added that the company does not want AEP Ohio to be responsible for providing capacity in the state.

"Obviously, if you try to have AEP Ohio responsible for capacity ... you may wind up in a situation where we have long-term large PPAs and that would be a balance sheet issue for AEP Ohio," he said. "If it's more surgical in its approach in terms of new facilities and that kind of thing, then I think it's a lot easier."

The CEO also signaled support for a zero-emissions credit, or ZEC, program to subsidize ailing nuclear plants. New York and Illinois approved nuclear subsidy plans in 2016 and while AEP Ohio does not own any nuclear assets, Ohio utility FirstEnergy Corp. has pressed the need for nuclear generation support.

"If there is support, in terms of a ZEC or something like that for nuclear, I'm supportive of that being in the legislation as long as it's a ZEC that's attributable to [FirstEnergy's] connected customers," Akins said. "I think it's a travesty that these nuclear units are getting retired and if there's any kind of state support that they can be given to support these nuclear units, that's a good thing because this competitive market ... in [PJM Interconnection LLC] is not working for long-term baseload capacity.

"I really believe that there can be some provision, but the cost of that can't be borne by our customers because AEP Ohio is moving toward its own set of resources, including renewables. We want to make sure there's the ability for us to invest in relation to impact on customer rates."

AEP Ohio is the trade name for Ohio Power Co.