Every quarter, AEP CEO Mike Morris holds a conference call with financial analysts, many of whom are engaged in the electricity trading business. Mr. Morris and his company associates always try to put a happy face on AEP’s current situation. Despite that understandable motivation, company officials cannot misrepresent the financial situation of publicly traded companies, or they will be breaking US securities laws.
Here are some of the things Mr. Morris said in the July 31 conference call. I will leave it up to you whether he was misreprenting anything or not.
Although neither Morris nor AEP’s CFO Holly Koeppel mentioned much about PATH in their opening summary, the very first questions from analysts were specifically about PATH. The questions were asked by Michael Lapides, from Goldman Sachs, one of the largest electricity trading firms in the US. I don’t think any of this was a coincidence. PATH is absolutely vital for electricity speculators if they want to grab profits from nationwide energy trading that helps them and their stockholders at the expense of electricity users and rate payers.
Here’s how Mr. Morris answered several questions by Mr. Lapides:
The PATH project which is greatly needed to decongest, if you will, some of the activities in the PJM, when you look at the capacity market price is on the congestive side versus its non-congestive side, you could see why East Coast customers would be eager to have that happen. It is moving along relatively rapidly in front of State Regulators. As you know, they have received their [FERC] approvals. We think that that line will be up and running by 2013, 2014 as I remember the dates.
It’s not clear if AEP’s “customers” are “eager” for PATH, but it is clear that the 10 governors of the states where those “customers” operate don’t want PATH. I added the bold emphasis above. These transcripts are prepared very hastily, so they often transcribe words incorrectly. I have corrected some obvious mistakes in brackets. Where the intention of the speaker is not clear, I have not corrected mistakes.
Michael Lapides – Goldman Sachs
Got it. One follow-up on PATH and thank you for that overview. Can you give an update on whether there are any significant legal or litigation challenges to PATH?
At the end of the day, there will only be, please don’t put this in my backyard which I am not uncommon, but I don’t think you are going to find any significant legal challenges that will delay any of that activity. Once you receive final authority from the FERC which we have and ultimate authority from the states and the alignments, then you will move into an eminent domain world where the [argument] really gets down to what’s my property worth and there are longstanding methods to take care of that.
Note that Mr. Morris is basically saying PATH is a done deal because, with FERC and PSC approval, he will be able to take our land “in the eminent domain world” and we can’t do anything about it. For Mr. Morris, and AEP, this is what it is all about. Using their corporate lobbying power to get government authority to take our land.
Still need more convincing? Here is what Mr. Morris said earlier about AEP’s project for getting the US Senate to restore federal eminent domain power to the new energy bill.
And of course, we think that the transmission concept that was build in the Waxman-Markey is equally offered [ph] too. Effective back up authority in the Western States and a logical back up authority in the Eastern States is just about (inaudible) that will get fixed in the Senate. On the Senate side, we are encouraged by the energy bill that Senate Bingaman has been working on. We think that the way that he treats transmission particularly inside of a renewable energy standard is an appropriate way to about doing it.
The transcript of the phone call is garbled here, and you may not be familiar with some of the references, so I’ll help you out here. “Waxman-Markey” refers to the energy bill pending in the US House. That bill removes the NIETC requirement that allows the federal government to impose federal eminent domain powers if states east of the Rockies (the Eastern Interconnection) do not approve new power lines including PATH, TrAIL, MAPP and the Susquehanna Roseland line. While the US Fourth Circuit Court of Appeals overturned the current NIETC rules in WV, NC, SC and VA, the law remains in effect in the rest of the US. The FERC and power company euphemism for federal land seizure is “backup authority” used above. The Waxman Markey bill would remove this affront to state sovereignty for states in the Eastern Interconnection.
AEP and Mr. Morris don’t like the transmission line/federal eminent domain part of Waxman Markey. Mr. Morris must know something from his AEP lobbyists that we don’t know, because he is confident that we will be back under federal control when the energy bill gets “fixed” in the US Senate. There is a Senate version of the House Waxman Markey bill in the Senate committee chaired by Sen. Bingaman, who Mr. Morris indicates is a friend of AEP.
Meanwhile, Mr. Morris left it to CFO Koeppel to provide information that directly contradicted the reasons that he thinks PATH is needed. Here’s what she said:
These increases were offset somewhat by lower industrial sales of $89 million as industrial load was down 17% year-on-year.
Load at our East utilities is down 8% year-on-year.
Off system sales were down $291 million due to lower volumes and market prices, reflecting weak market demand and a significant drop in power prices.
AEP’s one bright spot: energy trading. That is what PATH is really about. Because energy trading is about speculating and shuffling paper, you can make money as easily in a down market as you can when demand is rising … if you have big transmission lines so you can move power around.
Marketing and trading margins improved by $35 million year-on-year …
Mr. Morris is very proud of the trading division. Guess where they are based? Are they based in the US where they will be taxed by the US government?
So Barbarados [ph] commercial office people deserve a great deal of credit. The Energy Trading Group has been conservative but successful.
Barbados! Why should AEP pay US taxes? Taxes are for chumps, not corporations.
Here is a link to the entire conference call transcript, if you want to see the whole thing. Oh, yes, AEP is having major trouble with one of their nuclear plants in Michigan. The analysts were very interested in that, too.