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Keeping us cool heats up AEP's profits

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This year's hotter-than-usual summer has helped the electric company's profits and kept heating and air contractors hopping.

By Landmark News Service

Mike likes it hot.
"Like most other reporting utilities this quarter, our best friend has been the weather," said Mike Morris, chairman, president and chief executive officer of American Electric Power.

Morris spoke July 30 while discussing the utility's second quarter financial results. The three-month period ended June 30. AEP's subsidiaries include Appalachian Power Co., which serves Galax, Carroll and Grayson.
This year, several Southwest Virginia localities endured their hottest June on record, breaking some records dating to 1912. That month alone burned through 13 days when temperatures reached 90 degrees or higher, according to the National Weather Service.
Air conditioning weather. Service call weather.
Since June, the weather has stayed friendly for AEP and Appalachian. And many Appalachian customers again face higher than anticipated summertime bills — heftier because of both customers' increased use for cooling and by rate increases granted to Appalachian in recent years by the State Corporation Commission.
"I've had three customers tell me they've gotten their highest bill ever," said Todd Burns, a spokesman for Appalachian. "Every time I ask, I realize they heat with something other than electric and they've just gotten a big energy bill for cooling."
Appalachian supplies electricity to about 500,000 customers in Virginia. The company took a pounding earlier this year after customers received bills for December and January — atypically cold months besetting the region in the midst of three rate increases.
The timing coincided with the General Assembly's new session. Some politicians joined the bashing, and Appalachian ultimately agreed to suspend collection of an interim increase in its base rate.
Burns said the company is still evaluating, case-by-case, how to refund customers who paid the interim rate until its suspension.
"Any refunds will be completed by mid-September," he said.

Hot beneath the dollar
This summer, homeowners' central air systems, like Kenyan marathoners, have run on and on and on. As have window unit air conditioners and fans of all types.
Nighttime lows have been warm, too.
Electric meters have spun like hamsters in wheels.
AEP, a public company, and subsidiary Appalachian answer to stockholders and, like any business, they strive for profits and a return on investment.
But many customers wonder whether Appalachian is milking consumers too much and too often. The SCC regulates Appalachian because the company operates as a monopoly in its Virginia territory.
During AEP's second quarter, which ended before July and August sizzled forth, the utility notched profits of $136 million — a total that would have been higher absent $185 million in expenses tied to severance packages, reorganization and other costs.
About four months ago, citing a lingering recessionary hangover, AEP announced plans to cut its work force through buyouts or layoffs. As of July 30, AEP had shed 2,461 employees.
That includes about 350 former employees of Appalachian, which also sells electricity to residential, commercial and industrial customers in parts of West Virginia and Tennessee.
Appalachian's financial results also reflected severance expenses.
For the six-month period that ended June 30, Appalachian's share totaled about $55 million.
Other expenses included $54 million associated with the utility's participation in a carbon capture and storage project at a coal-fired power plant in West Virginia.
The SCC rejected Appalachian's attempt to recover those costs through its base rate.
But Appalachian still made a profit of $51 million for the six-month period — a total enhanced by a $75 million increase tied to rate increases and a $17 million jump in residential use linked mostly to unusual heat on the heels of unusual cold. Both numbers compare with the same period in 2009.

No panacea
Glenn Hourahan is a vice president for Air Conditioning Contractors of America, a national trade association.
"This has been a very busy summer. Lots of service calls," Hourahan said. "[Contractors] are not doing a whole lot of replacement work except for those systems that are so far gone they can't be repaired."
Homeowners typically neglect routine maintenance of their central air systems, he said.
"We all treat our air conditioners like gutters. We don't do anything until we notice something wrong," Hourahan said.
Maintenance activities can be simple things, such as changing air filters, cleaning heat pump coils, checking refrigerant levels and trimming vegetation near outdoor units.
So, have the service calls helped heating, ventilation and air conditioning companies survive the free fall in new residential construction?
"Yes and no," Hourahan said. "Almost all of the contractors have had to have layoffs. Even though you are doing more maintenance work, it's not the same kind of dollar flow that comes with installing new systems."
AEP and Appalachian's third quarters end Sept. 30 and will include revenues from July, August and September.
And although a base rate charge increased Aug. 1, a simultaneous drop in a fuel charge helped soften the effect.
Burns said an average residential customer consuming 1,000 kilowatt hours this month will pay about $103, or roughly $3 more for the month than last August.
Meanwhile, Hourahan, on behalf of his trade association members, emphasized that late summer and early fall are prime maintenance months for HVAC systems.
"Most people can get by when it's really hot if their systems fail," he said. "Cold is something very different."