Saturday, August 01, 2009
Utility profits climb 12 percent for quarter
American Electric Power's CEO is hoping for "blistering weather" this month.
The Roanoke Times
File Appalachian Power Co. has about 500,000 customers in Virginia. The company also serves parts of West Virginia and Tennessee.
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Rate increases in Virginia, Indiana and Oklahoma and cost-cutting measures in the midst of a tough economy helped boost second-quarter profits by about 12 percent for American Electric Power, parent company of Appalachian Power Co., when compared with the same period last year.
Ohio-based AEP is one of the nation's largest electric utilities and, according to the company, delivers electricity to more than 5 million customers in 11 states.
AEP's second quarter ended June 30. Profits were $316 million, or 67 cents per share, compared with $281 million, or 70 cents per share, during the second quarter of 2008. Earnings per share decreased because the company issued new stock in the first quarter.
Michael Morris, AEP's chairman, president and chief executive officer, attributed the increase in earnings primarily to "improved rate structures in a number of our states and to our successful efforts to control costs."
Last year, subsidiary Appalachian, which has about 500,000 customers in Virginia, received approval from the Virginia State Corporation Commission for increases in its base rate, fuel factor and an environmental and reliability surcharge. State law allows Appalachian, as a regulated monopoly, to recover reasonable costs of doing business and a reasonable rate of return.
Another increase sought
Appalachian is seeking SCC approval for additional increases this year.
By some estimates, if current rate requests are granted on top of last year's increases, the monthly bill for a residential customer in Appalachian's Virginia territory who consumes 1,000 kilowatt-hours per month has the potential to jump approximately 76 percent over a period of 17 months, according to the SCC. That period could be longer, depending on the timing of SCC rulings.
Appalachian officials report that even though the SCC allowed the utility a return on common equity in its Virginia territory of 10.2 percent in calendar 2008, the actual return was only 2 percent.
During a recent interview, Barry Thomas, director of regulatory services for Appalachian, said a reasonable return on common equity offers AEP shareholders the rewards necessary "to entice them to stay invested in AEP common stock."
And the utility emphasizes that its electric rates in Virginia have historically been low when compared with many other providers in Virginia and elsewhere. But those rates are catching up.
Appalachian also serves customers in parts of West Virginia and Tennessee.
Revenues drop for AEP
AEP's second-quarter profits increased even though revenues for the period dropped.
And for AEP's first six months of fiscal 2009, profits and revenues both fell when compared with the same period last year.
Morris said sales to industrial customers were off, as were sales of electricity into the wholesale market, because of the recession. Cool summer weather in the East also affected revenues because customers have relied less on air conditioning, he said.
During a Friday conference call with analysts, Morris said wryly that AEP is hoping for some "blistering weather" in August.
Morris said AEP loves the "cash for clunkers" federal program that is designed to encourage the purchase of high-mpg vehicles. Congress is scrambling to add funding to the program. He said that some of the utility's "metal melters" -- industrial customers that would include the Steel Dynamics, Roanoke Bar Division -- seem to be upping production. The Roanoke plant manufactures steel by melting scrap metal in electric-arc furnaces.
Joe Crawford, vice president and general manager of the Steel Dynamics Roanoke operation, recently expressed concerns about the bottom-line effects of Appalachian rate increases. Other regional businesses reported similar worries.
Meanwhile, the cost of coal is dropping, which should be good news for AEP and Appalachian going forward. About 98 percent of Appalachian's electricity is generated by coal-fired power plants -- which is one reason the utility anticipates increased environmental compliance expenses in the years ahead.
On Friday, the stock price of AEP, which trades on the New York Stock Exchange, closed at $30.96, up 31 cents.
