Dive Brief:

• American Electric Power (AEP) officials said last week they anticipate a decision by the end of the year on power purchase agreements designed to guarantee income at six coal plants in the state, SNL reports.
• The controversial proposal has been dragging on for about two years, officials said, and mirrors a similar proposal made by FirstEnergy for a coal and nuclear facility.
• The company is saying little about a potential sale of its merchant generation fleet, but said that decision will be made after Ohio regulators weigh in on the PPAs.

Dive Insight:

AEP's bid for power purchase agreements that will keep its merchant fleet afloat – a process now going on two years – will likely be determined by the end of the year, officials said last week during the company's earnings call. But while the decision is linked to the company's decision on whether to sell its merchant fleet, AEP CEO Nick Akins said he understood the lengthy process.

The issue is not just AEP's power agreements, but also: "What’s the total answer for Ohio? And I even think about it from a clean power plant perspective. The state of Ohio needs to have some framework for the foundation of a transition with base load generation," Akins said.

He predicted the company would reach a settlement on the PPAs, rather than going the litigation route. And he said all additional generation in Ohio would come from natural gas or renewables along with the use of energy efficiency.

"Those are the kinds of investments that I think can really drive Ohio to a more balanced energy future that mitigates lot of risk for consumers," Akins said. "And so what we are talking about here is the foundation that we provided for a transition, and that’s clearly important. And I think it should be important to the governor, it should be important to the policymakers in the state. And if you drive that kind of solution, you could wind up at a much better place than you would otherwise."

Similarly, FirstEnergy has asked the commissioners to approve a 15-year PPA for two plants — one coal and one nuclear — that they say would become unprofitable and likely shuttered without support. Hearings on those agreements began last month.

Industry observers told SNL they believe AEP is not yet willing to compromise on its proposal, calling for income guarantees for the remaining life of its plants, despite PUCO staff essentially outlining the guidelines for a potential settlement.

In a rejection of FirstEnergy's proposal earlier this year, the staff of the regulatory body recommended the company shorten its PPA proposal to three years, a period that the AEP Ohio president called "too short" to make investments. Staff decisions, however, are merely recommendations for the regulators, who could choose to approve the PPA proposals.

Earlier this year, the Public Utilities Commission of Ohio (PUCO) rejected a similar PPA proposed by AEP, but in doing so found the agreements were legal – setting up the current proposals being debated. Hearings began this month.

AEP last week reported third-quarter earnings of $519 million, compared with $493 million in the same quarter last year. Operating earnings this past quarter were $521 million, compared with third-quarter 2014 operating earnings of $493 million.