AEP to spend $4 bln-$5 bln on coal plants, burn more gas

Fri Feb 15, 2013 3:22pm EST

Feb 15 (Reuters) - U.S. power company American Electric Power Co Inc (AEP) said Friday it expects to spend $4 billion to $5 billion between now and 2020 to make its remaining coal plants compliant with current and proposed federal environmental regulations.

The Ohio-based company - long known as the nation's biggest coal generator - is moving its generating fleet away from coal toward cleaner burning natural gas, AEP CEO Nick Akins told analysts after the company released its fourth quarter earnings.

"Historically, our culture was if a coal unit went down we did everything possible and spent everything possible to keep it running. Today's analysis is very different," Akins said.

He said about 65 percent of AEP's generating capacity today comes from coal-fired plants, estimating that coal capacity would decline to about 50 percent by 2020.

"We want to see a balancing out of our (generating) footprint," Akins said, noting the company was taking advantage of lower cost resources like shale gas.

He said AEP's breakpoint on gas prices was about $3.25 per million British thermal units (mmBtu).

"When you get beyond $3.25 on the gas price, the coal units are going to start picking up at full capacity," he said.

Gas prices remained below $3.25 for most of the first three quarters of 2012 and averaged just $2.77 for the full year, a 13-year low, due in part to record shale production.

And those shale gas producers have become AEP's biggest new industrial customers.

AEP CFO Brian Tierney told the analysts that gas producers in Ohio, West Virginia and Oklahoma were expected to start buying over 100 gigawatt-hours (GWh) of power per month in 2013 to pump their gas.

A gigawatt can power about a million homes.

AEP plans to retire over 5,400 MW of coal generation by 2016 and is considering the conversion of another 1,800 MW of coal units to gas.

Since President Barack Obama took office in 2009, power companies have announced plans to shut more than 40,000 megawatts (MW) of coal capacity over the next several years as weak gas prices pushed power prices to decade lows.

That made it uneconomical for the generators to invest in emission control equipment needed to keep their older coal plants compliant with the administration's stricter federal environmental rules.

CUTTING SPENDING

Akins said AEP has reduced the amount it expects to spend on environmental costs by retiring more coal units and picking lower cost retrofits. He said the company would invest some of those savings in its growing transmission business.

According to its presentation, AEP expected to spend $6 billion-$8 billion from 2012-2020 on environmental upgrades, but dropped that spending level to $5 billion-$7 billion by February 2012 and has now decreased expected environmental spending to just $4 billion-$5 billion.

Some of the coal units AEP plans to retire are at the company's new unregulated business in Ohio, which was created as part of the state's ongoing transition to a competitive market.

The competitive business in Ohio has about 13,000 MW of generating capacity but will retire some units and transfer others to AEP's regulated Appalachian and Kentucky utilities, leaving the competitive business with about 8,900 MW by 2015.

Akins said AEP is primarily a regulated business - 86 percent regulated and 14 percent unregulated - and does not plan on expanding its unregulated business.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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