American Electric Power Co Earnings Call Nuggets: Planning Horizon, Economic Viability & Visibility
Greg Gordon – ISI Group: So, I hear your enthusiasm and optimism about the ongoing ability of the Company to improve ROEs in states where you’re under earning and control costs. But there is still a lot of skepticism about the very significant headwind between 2015 and 2017 coming from the most recent PJM capacity result as it pertains to your ability to sustain your 4% to 6% growth rate. So, can you just talk a little bit more about your planning horizon and what you think the tools are in your toolbox to plow through that headwind?
Nick Akins – President and CEO: Yes. Greg, I guess we sort of learned this early on in my tenure. We had a $250 million problem with Ohio. And now, this time around, we have 2.5 to 3 years to get this fully resolved from a sustainability fashion. But as I mentioned earlier on the O&M issues and the revenue enhancements that we have going on, it’s crescendoing over time. And like – the plant ideas were an example of that, where you have 6 to 8 plants going through it next year and then the rest of the plants going through the following year. And then we also have the buying measures, the differences in the way they operate the plants. Certainly, the unregulated plants are now looking at – I mean, they can look across the board at areas of fuel. I mean, fuel is part of the business case for some of the things that they do, which typically is hard to do in a regulated environment because of the different capital versus fuel decisions. But also, Chuck is looking deeply at that team to figure out, okay, what the overhead cost look like. We have to address that because it’s in a competitive environment. These plants are focused on making sure they survive. And they intend on doing that. So I think – and really, I guess, the optimism is coming from the fact that our employees have already come together to find objectives in terms of savings and revenue enhancements for the year that – or in excess of the targets that we had in place, and that’s sort of confirming this year, but also it is setting the track record for the future years, because we’re only getting partial benefits with some of these in ’13. Some of these things are starting to kick in now and it will kick in later in the year, and we’ll get the full year benefits in ’14, and then, with the additional ideas and things that we’re doing, particularly lean wires, those types of activities will continue and we’ll see those benefits going into those future years. I guess another issue with that is mid-2014 there will be another capacity auction for the future years, so that will give us some insight in terms of how we deal with it in that specific year of late ’16 and early ’17, which straddles two years. But as well we have to decide, okay, how much of this is one-time adjustments where we can move around outages and those types of things versus how much is actually sustaining into the future? But it really goes to the question of the volatility of that business and what that means to our planning associated with that. So we’re not wasting any time obviously, we’re acting like we’re going to have to have sustainable savings going forward that compensates for the capacity auction in late ’16, early ’17. But if it winds up being some – the capacity market moving up in the future, then that can be a different thing. I think we certainly are in a position now through – where we’re confident that we are changing a culture that focuses on our ability to address these types of issues. We have to, and that’s what we’re paid to do, and it’s something I think that our employees are certainly energized around to achieve. So, as I said earlier in the discussion I had, it probably – I was thinking originally, well, we may be able to exceed 6% if we had more transmission spending and those types of things. Well, the more transmission spending we have our eye on is going to fortify at 4% to 6%. So, yeah, I mean, I’d be silly for us to sit here and say, well, it hasn’t had any impact because it has had an impact, but I think it’s had an impact on our ability to exceed the 6% as opposed to be in that 4% to 6% range.
Economic Viability & Visibility
Daniel Eggers – Credit Suisse: Listen, I’m going to maybe carry one with Greg’s question. I know you gave a very thorough answer. But I guess just maybe a little more simply when you look at the Ohio generation and the uncertainty that RPM has created around economic viability and visibility to the business. How are you guys seeing that fit within AEP and was RPM kind of a point where you were pushed to make a more drastic decision than maybe you were hoping?
Nick Akins – President and CEO: Yeah, I think, currently if capacity prices have stayed in there at a reasonable level, it probably wouldn’t had everyone questioning the 4% to 6% or our ability to get the cost savings that we needed to make sure we were sustainable into the future. I think it raises a lot of questions and we’re addressing those questions. But it also puts us even more focused on how we adjust that particular business. And we talk about minimum load adjustments; for example, – I mean, the Amos Plant reduced its minimum load by over 1,000 megawatts, which – that’s a big change. It takes a lot of cost out of the way we operate in relation to the market. Our people have a very – I’m not going to say what it is. But certainly, they have a very aggressive measure on what they’re trying to achieve in terms of a clearing price for capacity that they operate under. And that’s – but we have a lot of work to do, and I can say that, that business, if it remains as volatile as it is, if we don’t get this capacity construct working to where it should, where it respects the long-term investments made by steel in the ground investors in the territory, then that’s not something we’re very interested in. And so it doesn’t fit what we believe our investors are looking for, and we’ll need to make adjustments…
Brian X. Tierney – EVP and CFO: Dan, I know you’ve talked about this in the past. We were very aggressive in moving our Muskingum River 5 as we saw the results of this and recognized that the capacity environment didn’t lend itself to invest – further investment in that unit. And we’re going to be very disciplined in terms of the capital that we put to work in that regard. And right now, that’s not an area that’s attracting a lot of capital from us as compared to lower-volatility, higher-growth areas like our transmission business. We’ve been disciplined in the past, and we’re going to demonstrate that discipline as we work our way through this capacity pricing issue.
Nick Akins – President and CEO: And I don’t know that the generation function itself can make up that difference. I mean, if you’re thinking about what energy prices can be in the future, well, we don’t want to bank on what energy prices are going to be in the future. We just assume they’re going to be low. So we have to adjust accordingly and it’s not just a matter of looking at the generation – the unregulated generation business itself, it’s also a matter of looking at the overhead that’s charged to that generation business, because if there’s less units running, if they’re running in different ways and you’re compartmentalizing the profit and loss picture of each unit, then it drives a very different supporting structure from corporate that supports it. So there’s a lot of work to be done and we’ll be doing it.
Daniel Eggers – Credit Suisse: Nick, I guess, one other question is kind of looking at the load trends and obviously the bankruptcies just kind of skew the industrial numbers maybe a little worse than they otherwise would be, but usage trends haven’t been great. You’ve seen unemployment fall. You’ve seen economic growth in the region. What is the prognosis do you think for power demand growth for your territories going forward? Is there something bigger structural happening from usages that’s really going to limit the amount of future demand growth?
Nick Akins – President and CEO: I think we continue to see probably soft load because – and it’s probably two things. I mean, energy efficiency is part of it. Also, it’s an area where the economy through the entire country, but certainly in our area as well, there’s been a lasting impact of that. At the first of the year, economists were saying by the third quarter things would pick up. We were always saying and have been saying for several quarters now, actually since the third quarter of last year, the industrials were tenuous at best, and that continues to be the case. I think there are some structural changes that are occurring. We will continue to have energy efficiency in play. The question is can the electrification of the economy outstrip the energy efficiency piece of the business that enables us to continue to grow. But you can’t bank on that and that’s why I say, our business is going to be more about optimization and providing services to customers as well that provide additional benefits beyond what you see just strictly in the load numbers. But I also believe that – and as Brian pointed out, the oil and gas activity in our footprint is prevalent with the Eagle Ford Shale or the Utica Shale and others. Those are wet gas, so we have a lot of dry gas type formations. So, if we can – if we ever get to a point where the economy starts to pick up like the economists keep projecting at some point, we’ll benefit probably more than others because of that indigenous growth associated with the shale gas footprint and the production capability associated with it and that’s actually been our saving grace on the other primary metals industrial losses that have occurred. So, I’d say, certainly with a growing economy, but also with the intensive focus on energy-related infrastructure, particularly in our service territory, that could be a benefit. So, I’m probably more optimistic – I guess I’m probably if it’s pessimism that is when is it going to happen and we’ve all been waiting for an economic recovery and you hear a lot about housing construction and I see a lot of commercial and housing construction in our service territory and I also see the top of the – all the corn in the fields are still green. So that’s a good sign. But we really do need an emphasis placed on how to move this economy forward.
A Closer Look: American Electric Power Co Earnings Cheat Sheet>>