AEP switching from gas to coal

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Natural gas might still win the war for U.S. power generation dominance, but at American Electric Power (NYSE:AEP), coal won the battle in the first quarter of 2013.

AEP officials said April 26 that when they were putting together their quarterly earnings presentation they noticed their usual “coal to gas switching” slide was no longer accurate.

That’s because coal power generation increased in AEP’s first quarter while gas-fired generation declined, noted AEP President and CEO Nicholas Akins.

The price of natural gas increased in the first quarter while AEP coal units were very competitive, AEP officials said. Whenever the price of gas hovers around $3.50/mmBtu, coal frequently becomes the better power option for AEP. Natural gas prices have now moved above $4, financial analysts noted during the call.

Overall AEP generation from natural gas has decreased over 30 percent year-to-date. At the same time, overall generation from coal has increased 9 percent year-to-date.

AEP coal units are typically “fully controlled” for emissions, which enables them fuel flexibility, including the ability to burn Northern Appalachian coal, AEP officials said.

In addition, AEP’s large concentration of coal-fired generation along the Ohio River gives it a big price edge over coal units that rely solely on railroad transportation for coal delivery, company officials said.

The AEP fleet had 43 days of system average coal inventory at March 31. That level of coal stockpile should make the coal units well prepared for the summer air conditioning system.

AEP officials noted that subsidiary Southwestern Electric Power (SWEPCO) has the John Turk power plant operational now. The 600 MW coal unit in Arkansas came online in late 2012.

Despite the recent good news for coal, the long-term trend still favors natural gas as AEP retires much of its older coal units due to tighter emission standards.

“We continue to transition our fleet with the retirement of over 5,500 MW,” Akins said.

AEP continues work on system changes in Ohio

“We also continue to make progress on the transition to full competition in Ohio. The Public Utilities Commission of Ohio finalized approval of our corporate separation order, and we anticipate a decision soon from the Federal Energy Regulatory Commission on our plan to fully separate our Ohio generation from our Ohio utility operations. We remain on track to complete corporate separation of our Ohio assets at the end of 2013,” Akins said.

The AEP system saw its first increase in residential growth since 2011. Likewise, unemployment in its service territory was at its lowest level since 2008, AEP said.

AEP sees its largest rate base opportunity as electric transmission and distribution, officials said.

AEP reported first-quarter earnings of $363 million or 75 cents per share, compared with $389m or 80 cents per share in 1Q 2012. Operating earnings (excluding special items) for first-quarter 2013 were $387 million or 80 cents per share, compared with 1Q 2012 operating earnings of $389 million or 80 cents per share.

“Our transmission business is delivering earnings improvement each quarter, and our performance to date this year has us on track to meet our 2013 transmission earnings goal of $0.14 per share. The positive decision last week from the Indiana Utility Regulatory Commission on the Pioneer project and the Transource Missouri settlement agreement filed earlier in April should allow us to make further progress this year on our longer-term transmission investment plan,” Akins said.

This story was originally published by GenerationHub. It is republished with permission.

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