For Nick Akins, the future success of utilities such as American Electric Power Co. rests with the ability to "provide whatever the customer wants," even as forecasts for electricity demand flatten and environmental mandates demand extensive changes.
"Our business is about optimization and about services to our customers. It’s not about building assets and building central station generation and meeting an ever-increasing load.
"That’s done and gone," Akins, 55, said during an interview last week at the Edison Electric Institute’s annual financial conference in Hollywood, Fla.
As chairman, president and CEO of Columbus, Ohio-based AEP, the affable Louisiana native also is looking to leverage his 40,000-mile transmission system — the largest in the United States — to better manage the new mix of electric generation that is expected to result from the Obama administration’s Clean Power Plan.
"The real issue coming up with the Clean Power Plan is the reoptimization of flows on the grid because as you take out generation, a large part of the mitigation’s going to be transmission. And then the flows on the lines themselves change as a result because everyone’s changing their generation-related connections to the system," Akins said.
Of AEP’s 32,000 megawatts of generation capacity, about 54 percent is coal-fired, followed by natural gas at 26 percent, then renewables, nuclear and efficiency. In 2020, AEP will still look to coal for 49 percent of its capacity.
A special challenge is how to better manage the grid "the more you go to distributed generation," he said.
"It’s asking the transmission system to do something it never has been asked to do before. It’s a different way of planning. It’s a different way of investment. When you take these large prime movers out of the system, you’re actually depending more on transmission for the flows to occur across the system."
And as AEP adds natural gas plants along its system, "that will also change the flows on the grid, as well," he said.
"We have to look at it in a no-regrets fashion. OK, this generation’s being retired. We expect this difference in flow, and this is the investment that needs to be made to ensure the integrity of the grid," Akins said.
Clean Power Plan as ‘catalyst’
Those investments in the grid and new generation will have to be vetted by regulators in the 11 states where AEP operates.
"There’s no doubt that having a catalyst like that helps when you have a federal mandate to do something. The states and our plans have to comport with that," Akins said.
He discounted the notion that "we are going to be able to get rid" of the EPA plan to cut carbon emissions.
"I just think that that’s difficult because customers, the customers are already expecting [that], and we are moving toward a cleaner energy environment. There’s no question about it.
"The real issue is the pace. Can an individual state address the pace and the targets that the EPA has given them? I think that’s where room for negotiation should exist because the fundamental driver is what the U.S. consumer expects from an environmental footprint perspective, but also from a cost perspective," Akins said.
"That’s where we need to be out in front of the regulators, but the Clean Power Plan no doubt is a catalyst for the investments to be made to support not only the movement of the customers, but also reducing the environmental footprint."
AEP has been in discussion with its states about how to approach compliance, even as some of those states are involved in lawsuits against EPA over the rule.
Akins said he has been involved personally in discussions with some regulators and is pleased with the willingness of states to also look at compliance by crafting a sate implementation plan.
"It’s already happening to a certain extent because we’ve had a lot of discussions with all of our states. Arkansas has turned around. Michigan’s turned around. Indiana, it looks like they’ll also be looking at a plan. West Virginia’s looking at a plan," Akins said.
"They’re all at least looking at a plan, looking at the facts," he said. Part of the equation will have AEP provide a version of its preferred plan to states and help them determine whether they are "long or short" on carbon. "Then we start addressing from a multi-state perspective," he said. "You don’t have to give up your legal position to do that."
AEP’s drive to "get out front" on the CPP is "somewhat selfish because we want to make sure that there’s a clear plan that we can adequately invest in and be assured of recovery of during that process," Akins said.
He gave complimented EPA for its changes in the final rule made in response to near-unanimous industry concerns. "I think we have a great relationship with EPA, and I think we have a lot of credibility with EPA because we’ve been factual.
"So what’d they do in the final rule? They delayed [compliance] for the states. They changed the trajectory so it is more back-end-loaded to give time for the development of the resources, and they put in a reliability provision. So you can take that and say they did listen," Akins said.
Rule offers ‘tremendous opportunity’
Even as AEP pursues energy efficiency, demand-side management and techniques to optimize the grid, a focus will be "making sure we have the resources and the ability to provide whatever the customer wants. Otherwise, we’re a sitting duck," Akins said.
"It’s a tremendous, tremendous opportunity for this country to rebalance out the entire fleet. But it has to be done in a credible fashion and understanding the difference between capacity and energy. Energy will get you the environmental results you need. Capacity gets you reliability."
Akins expressed hope that state regulatory commissions "don’t hold us back from being and having that relationship with the customers — because they do trust what we do. But if they hold us back, then they’re setting us up just to be a grid provider. I don’t think that’s a good answer," he said.