AEP discusses coal retirements, gas developments during annual shareholders meeting

American Electric Power (AEP, NYSE: AEP) held its 105th annual meeting of shareholders April 24, 2012, in Tulsa, Okla., the home of AEP subsidiary Public Service Co. of Oklahoma (PSO).

Speaking as President and CEO of AEP for the first time during an AEP shareholders meeting, Nick Akins discussed AEP’s outlook for the future as they plan to retire about 4,600 MW of coal-fired generation. Akins said about 25 percent of all coal-fired generation in the U.S. could be shut down by 2014 due to EPA rules, unless there are extensions.

“That is a critical issue for the U.S.,” he said. “We’re turning our backs on an indigenous resource that means so much to this country.”

In the U.S., Akins said plans to retire about 60,000 MW of coal-fired generation would not only result in job loss, but higher rates for customers.

“You can’t retire that amount of capacity in this country at one time without having an impact on reliability and an impact on the customers themselves,” he said.

AEP generates about 40,000 MW total for its five million customers in 11 states. Of that, roughly 25,000 MW is coal-fired generation. Since 1990, AEP has spent more than $7 billion to reduce emissions from its coal-fired power plants.

And that has been very successful,” said Akins. “We have reduced SOx and NOx by over 80 percent.”

But AEP still has more to do. Akins said the Ohio-based utility will spend about $7 billion over the next decade on pollution control systems for converting coal-fired plants to natural gas. Rates, Akins said, for AEP customers could increase anywhere from 10 to 35 percent, depending on how much coal is in a specific territory and how much coal capacity must be retired. He added that retirements of coal-fired plants in the AEP fleet would result in the loss of less than 1,000 jobs. In the U.S., Akins said a total of 1.5 million people could be without work. Compared to the 120,000 jobs created in the U.S. in March, Akins said the move is irrational.

And for an electric utility that continues to grow, investments will be made to keep up with demand. In 2011, Akins said industrial-related energy use rose over 4 percent in AEP’s service territories. This year, AEP already has seen an increase of over 2 percent. In 2012, AEP will increase its capital investments to approximately $3.1 billion from $2.7 billion in 2011. As part of those investments, AEP will complete construction of the John W. Turk Jr. Plant, a 600 MW, ultra-supercritical coal-fired plant in Arkansas, in late 2012. AEP in 2011 settled lawsuits with opponents of the Turk plant, which is about 90 percent complete.

While discussing EPA’s rules on coal-fired power generation, PSO, a unit of AEP, announced plans to eventually retire two units at the Northeastern Station in Oologah, Okla. By entering an agreement with EPA, the State of Oklahoma and the Sierra Club that addresses PSO’s future obligations under EPA’s Regional Haze Rule and EPA’s Mercury and Air Toxics Standard (MATS), the AEP subsidiary said it will install emissions control equipment on one Northeastern unit in 2015 and retire the other unit in 2016. After installing emissions control equipment, PSO will retire the updated unit in the 2025-2026 timeframe. PSO will now withdraw its lawsuit against the EPA regarding the Regional Haze rule.

"This landmark agreement outlines a clear and cost-effective path for compliance by PSO’s Oklahoma coal-fired generating units with the EPA’s new rules," said Stuart Solomon, PSO’s president and chief operating officer.

Akins referred to PSO’s plan as good news for PSO and its customers.

This announcement “will define the tone for how we advance the ball, from a PSO perspective,” he said.

As regulations continue to decrease the amount of coal power plants in the U.S., historically low natural gas prices have utilities looking to add natural gas-fired power plants to keep up with demand.

Akins said shale gas is a perfect example of a “Black Swan event,” an event that reminds us that things we don’t know are just as important as the things we do know.

“The very low price of natural gas is having an impact and AEP is able to take advantage of that,” he said.
In February, AEP completed the 580 MW Dresden Plant, a combined-cycle natural gas-fired plant in Ohio. Akins said thanks to shale gas, the plant is already running at over 60 percent capacity factor while most of AEP’s gas plants are at a 70 to 80 percent capacity factor. AEP in just the past few years has added over 3,500 MW of gas–fired generation. With oil and gas shale play activity taking place in AEP’s territory (Utica and Marcellus shales in AEP’s Eastern footprint and Fayettville, Bossier, Haynesville, and Eagle Ford plays in its Western footprint), Akins said AEP must continue to utilize the cheap prices of gas and be able to make the transition to a new resource.

“We are very much for the development of shale gas activity as another tool in our tool kit for resource in the future,” he said.

While gas and coal continue to be the predominant forms of power generation, due to pricing and regulation, AEP will continue to have a balanced portfolio in the future that includes compliant coal, natural gas, renewable, such as wind and solar, smart grid technologies and nuclear power. AEP is in the midst of a Life Cycle Management Program at its Cook nuclear station that could require up to $1.2 billion of investment.

AEP will also invest about $922 million in transmission projects in 2012.

As a leader in coal-fired power generation, though, Akins said AEP will continue to take a strong stance in Washington for a rational energy policy. He said AEP is obviously in favor of reducing emissions, but objects to the timing associated with compliance.

“We have, and will continue to work with the EPA toward a rational solution,” Akins said.

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