What's Nick's idea? Getting out of the generation business and betting AEP's future on long-distance transmission.
...a transformation of the company’s structure and a shifting notion of what AEP needs to do to remain relevant in a changing energy landscape.
In doing so, the company is de-emphasizing what was once a crown jewel, the fleet of Ohio power plants, and putting a greater focus on developing an interstate network of power lines.
“The less we have to spend on centralized generation, the better off we are,” he said in a recent interview.
When he says “centralized generation,” he means big power plants. AEP will be closing more plants than it is building.
The company is shifting resources so it can expand its transmission system, made up of the high-voltage power lines that carry electricity across state lines and between metro areas.
While getting out of the competitive centralized generation business "addresses" the threat that AEP may lose some of it's golden eggs in an unpredictable market, AEP is not embracing new technology or making itself relevant in a changing energy landscape. It's simply putting even more of its golden eggs into a business plan that it will help to make obsolete.
As competitive centralized generation closes, it is being replaced by independently owned distributed generation. Distributed generation doesn't need new transmission. Nick won't be collecting any eggs if he kills all the chickens.
A better idea to embrace new technology and establish future relevance was adopted by competitive generation company NRG earlier this year.
...NRG is installing solar panels on rooftops of homes and businesses and in the future will offer natural gas-fired generators to customers to kick in when the sun goes down, Chief Executive Officer David Crane said in an interview.
AEP, which was reluctant to split its Ohio operations, has responded by focusing on the delivery business.
Meanwhile, the Ohio power plants are a shrinking asset. Because of environmental rules and the age of some of the plants, the company has announced a series of shutdowns that will occur over the next few years.
Also, AEP is in the process of transferring two plants away from Ohio regulation. The plants, both of which are in West Virginia near the Ohio line, will be regulated in nearby states that allow a utility to sell electricity directly to consumers.
Once the moves are complete, AEP will have 8,668 megawatts of power-plant capacity in the new Ohio power-plant subsidiary, which will be down from 11,652 megawatts today.
Akins says the company is responding to an economic climate in which there is little reason to build power plants in Ohio. The state’s electricity demand has been flat, and the regulatory structure provides no clear way to pay for plant construction.
While AEP is banking on federally regulated interstate transmission to nearly double earnings from transmission activities from 2013 to 2014, AEP seems to have forgotten what happened with its PATH project. Big, interstate transmission projects with long lead times lead to big failure. That's because "need" for these projects is constantly shifting, and if opposition can delay them long enough, they become obsolete. Opposition is growing by leaps and bounds. AEP ain't seen nothing yet!
It's a risky proposition and I don't think it's a particularly good idea.
Akins says he’s having fun and is eager to see the work of the past two years come to fruition.
“We are now at a point where we can start defining our success,” he said. “Before, we had a huge anvil we were dragging around, whether it be environmental expense or whether it be other things we were dealing with that were reactionary. We’re finally at a point where we can map out the strategy of this company going forward. It is exhilarating.”