American Electric Power Co., Inc.
) has decided to retire unit 5 of its coal-fueled Muskingum River
Plant in 2015. Located in Beverly, Ohio, the coal plant has an
electric generation capacity of 585 megawatt (MW).
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The company arrived at this decision as it was unwilling to spend
additional capital on refueling the plant. In February this year,
the company had modified the 2007 New Source Review Consent
Decree that gave the company an option to either retire Muskingum
River Unit 5 or refuel it with natural gas.
The company expects to incur a non-operating, pre-tax impairment
charge for the unit in the range of $150 million to $170 million
in the second quarter of 2013. However, this will not impact the
company's full year earnings guidance range of $3.05 to $3.25 and
long-term earnings growth rate in the range of 4% to 6%.
Earlier, the company had announced that it will shut down
Muskingum's four other units. The closure of these units would
affect approximately 95 employees. The company will either move
these employees to other units or compensate them with severance
Taking into account the closure of the 5th unit, AEP Ohio's total
generation capacity will come to 10,725 MW comprising mainly of
fully controlled coal-fueled plants, natural gas-fueled combined
cycle and combustion turbines, and a small hydro plant.
With the rising demand for power and the phasing out of
coal-fired units, the company would have to shift its focus on
other fuel sources. Indeed, American Electric Power is busy
increasing its wind power deliveries in regions of Indiana,
Michigan and Oklahoma to meet the surging demand for renewable
energy. Recently, Indiana Michigan Power Company, a fully owned
subsidiary of American Electric Power, signed a 20-year power
purchase agreement with EDP Renewables North America LLC to buy
renewable energy from the 200 MW Headwaters wind farm.
Other energy companies are also shutting down their coal-based
units. In Feb 2013,
Duke Energy Corp.
) had announced the retirement of its Buck and Riverbend steam
stations, coal-fired power plants in the Charlotte area, two
years earlier than schedule. Earlier, both stations had been
slated for retirement in Apr 2015 in apprehension of upcoming
federal environmental regulations.
Recently President Obama unveiled a fresh climate change strategy
that will likely limit pollution from existing coal-fired power
plants. He issued directives asking environmental regulators to
set up carbon pollution standards for active plants.
This decision is likely to boost American Electric's share price.
However, tepid economies in a number of its service states,
pending regulatory cases, and lower wholesale sales keep us
concerned. The company presently retains a short-term Zacks Rank
However, stocks to look out for in the energy space are
The AES Corp.
Black Hills Corp.
), both with a Zacks Rank #2 (Buy).