Financial Risk Management at American Electric Power

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Case Details:

Case Code : FINA013
Case Length : 14 Pages
Period : 2003
Pub. Date : 2003
Teaching Note :Not Available
Organization : American Electric Power Company
Industry : Electric
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction

American Electric Power Company (AEP), one of the largest electric public utility holding companies in the US, served customers in 11 states - Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. AEP had a generating capacity of 38,000 MW in the US and 4000 MW in the UK. The company owned 38,000 miles of transmission lines, 186,000 miles of distribution lines and 6400 miles of gas pipelines. AEP's financial performance had deteriorated sharply in the early 2000s, as the wholesale energy market in the US shrank significantly. AEP had also incurred significant losses in options trading. In 2002, AEP recorded sales of $14.56 billion and a loss of $519 million.

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Business Segments

AEP's principal business segments were:

Wholesale:
• Generation of electricity for sale to retail and wholesale customers
• Gas pipeline and storage services
• Marketing and trading of electricity, gas, coal and other commodities
• Coal mining, bulk commodity bargaining operations and other energy supply related businesses...

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