We conducted a valuation of American Electric Power’s (AEP’s) Ohio customers using details about its Ohio subsidiary, Ohio Power. We wanted to use actual company information as an illustrative use case to calculate customer value. (We used only publicly available information and had no conversations with the company.)
In October 2020, AEP’s market capitalization was $44,000M with a reported long-term debt of $26,638M, for an enterprise valuation of $70,638M (A + B).
AEP reported earnings of $521M for second quarter 2020. Its subsidiary, Ohio Power, reported same-period earnings of $81M, yielding an enterprise valuation for Ohio Power of $10,982M (C * (E / D)).
We can use these figures to calculate Ohio Power’s average value per customer. Dividing Ohio Power’s $10,982M enterprise value by its customer base of 1.5M results in an average value per customer of $7,321 (F / G).
Similar calculations could be performed to arrive at valuations for the company’s residential, commercial, and industrial customer segments.
Note a couple of limitations with this analysis:
- The average value per Ohio Power customer of $7,321 includes the value of the company’s generation and transmission assets. Obviously, these assets have significant value, but that value could not be determined from the company’s financial statements.
- The average value of $7,321 is across Ohio Power’s residential, commercial, and industrial customers. We would expect the value of residential customers to be significantly lower than that of commercial and industrial customers.