Businessmodel of American Electric Power (AEP)

Customer Segments

AEP has a segmented market business model, with customers that have slightly different needs. The company targets its offerings at retail and wholesale customers.

Value Proposition

American Electric Power offers three primary value propositions: accessibility, innovation, and brand/status.

The company creates accessibility by providing a wide variety of options. It has acquired numerous firms since its founding, including Indiana and Michigan Electric, Appalachian Power Company, Indiana Service Corporation of Fort Wayne, Columbus and Southern Ohio Electric Company, and Central and South West Corporation. This strategy has enabled it to greatly diversify its portfolio.

The company has embraced innovation throughout its history. Its industry firsts include:

• First long-distance transmission line connecting a mine-mouth power plant with a major load center
• First application of carrier-current telephony to transmission lines for system dispatching
• First use of automatic frequency and tie-line load control
• First ultra-high-speed (one cycle or 1/60th of a second), high-voltage reclosing circuit breaker
• First sleet melting of transmission line

• First use of “open loop” shield wire design with gapped insulators on EHV lines to reduce power losses The company has established a strong brand due to its success. It is one of the largest electric utility firms in the U.S., serving almost 5.4 million customers in 11 states. It has a service territory of over 200,000 square miles and owns the largest electricity transmission network in the U.S. – more than 40,000 miles. It owns over 765-kilovolt extra-high voltage transmission lines, more than all other U.S. transmission systems combined. It possesses 31,000 megawatts of generating capacity. Lastly, it has won many honors, including the following:

• The Edison Award from the Edison Electric Institute (2013 and 2016)
• Recognition as one of the World’s Most Admired Companies in Electric and Gas Utilities Sector by Fortune (2014 – 2016)
• Recognition as a Top 100 Military Friendly Employer by Victory Media (2006 – 2016)
• Recognition as one of the Best of the Best: Top Veteran-Friendly Companies by U.S. Veterans Magazine (2014-2015)
• The Corporate Caring Award from Columbus Business First (2014) ### Channels

AEP’s main channel is its direct sales team. The company promotes its offerings through its website, social media pages, TV advertising, and participation in trade shows and conferences.

Customer Relationships

AEP’s customer relationship is primarily of a self-service nature. Customers utilize its products while having limited interaction with employees.

Key Activities

AEP’s business model entails generating, transmitting, and distributing its utility products to customers.

Key Partners

AEP’s key partners are the suppliers who provide it with the equipment and materials it needs to run its operations. The company has also formed numerous joint ventures with other electric utilities with the aim of providing transmission access to remote generation sources in North America. It currently maintains the following joint ventures:

• ETT – Partner is Berkshire Hathaway Energy
• Prairie Wind – Partners are Westar Energy and Berkshire Hathaway Energy
• Pioneer – Partner is Duke Energy
• RITELine IN – Partners are Exelon and Commonwealth Edison
• Transource Missouri – Partner is Great Plains Energy
• Transource West Virginia – Partner is Great Plains Energy ### Key Resources

AEP’s main resources are its physical resources, particularly its electricity transmission network, which consists of over 40,000 lines.

Cost Structure

AEP has a cost-driven structure, aiming to minimize expenses through significant automation. Its biggest cost driver is likely cost of fuel, a variable expense. Other major drivers are in the areas of sales/marketing and administration, both fixed costs.

Revenue Streams

AEP has one revenue stream: revenues it generates from sales of its electrical products to its customers.