The Federal Energy Regulatory Commission (FERC) has agreed to set a hearing on the reasonableness of American Electric Power Co.'s (AEP) nonfirm, offpeak hourly rate for electric transmission...
The CEO Power Forum: The Best of the Best
very likely to maintain their credit quality.
In what other ways is your competitive generation business different from other companies in the independent power sector?
Many companies in the IPP sector build plants with the expectation that they can sell the power in the short-term market. We don't do that. Many of the players in the past have taken natural gas price risk and have guaranteed fixed priced contracts. We don't do that. We are not capable of adequately mitigating or hedging that risk. It is not a risk that we would take in the past and not a risk we would take in the future.
What are the macro-effects of an illiquid wholesale market to the industry?
It doesn't have much of an effect on us, to be perfectly honest, or our retail customers or other retail customers in this part of the country. That is one of the reasons that you can see such different views out of utilities and out of state regulators and governors regarding some of the wholesale market development and wholesale market proposals.
Say, for instance, a power plant that you have allocated to serve a particular customer goes down, and supplies are short. How would you be able to satisfy your obligation?
First of all, you plan for those events, and you have enough reserves to cover for those cases. But in addition, for decades we had the opportunity if one company gets into trouble-if it doesn't have enough capacity because of high load or outages-you simply purchase from parties around you, whether it's other utilities or other IPPs. That's nothing new. That was taking place before we had ever heard of an IPP and before we had ever heard of some of the current wholesale market concepts. You can do that with the wholesale market the way it was 30 years ago. You can do it with the wholesale market 20 years ago or 10 years ago.
What is your view on the wholesale market?
Let me clarify. The better the wholesale market works, the more efficient it is and the better for everybody. We fully support efficient wholesale markets, and we fully support transparency in wholesale markets. The point I am making is that as far as consumers are concerned, there is a different order of magnitude of dependence on wholesale markets depending on whether there is retail competition or not. In areas like the Southeast, where utilities still build enough generation to serve their customers, the great majority of cost associated with serving those customers is related to the cost of the plants those utilities build. Companies will feel optimized by buying and selling on the margin at the top of the stack into the wholesale market. The better the wholesale market works the better it is for retail markets, even here in the Southeast. It's just the relative impact is much smaller here than in an area where retail customers depend exclusively on the wholesale market.
Last year in your letter to shareholders you discussed your involvement in the Southeastern RTO.