AEP Formalizes Plant Closures, Power Grid Trouble Ahead? (AEP)

American Electric Power Company (NYSE: AEP) is making its closure plans official.  The power generator and utility has made its notifications to the PJM Interconnection and Southwest Power Pool to retire more than 4,600 megawatts of coal-fueled power generation.  This move is “primarily to comply with a series of U.S. Environmental Protection Agency regulations” and the company was required to file its plan for plant retirements prior to PJM’s auction in May 2012 that will set electric generation capacity prices for June 2015 through May 2016.

This is no happy day for AEP and it marks a change that other power generators and utilities will have to consider around their coal-fired power plants.  AEP further noted that these retiring units were required to run to meet peak demand last summer and it warns that there is little new generation is scheduled to come on-line prior to the retirement dates that will replace the lost capacity.

AEP also said that it plans to install or upgrade emission control systems on more than 13,000 MW of capacity.

Here is a list of the closures:

• Conesville Plant Unit 3, Conesville, Ohio – 165 MW;
• Big Sandy Plant Unit 1, Louisa, Ky. – 278 MW;
• Clinch River Plant Unit 3, Cleveland, Va. – 235 MW;
• Glen Lyn Plant (two units), Glen Lyn, W.Va. – 335 MW;
• Kammer Plant (three units), Moundsville, W.Va. – 630 MW;
• Kanawha River Plant (two units), Glasgow, W.Va. – 400 MW;
• Muskingum River Plant Units 1, 2, 3 and 4, Beverly, Ohio – 840 MW;
• Picway Plant (one unit), Lockbourne, Ohio – 100 MW;
• Philip Sporn Plant (four units), New Haven, W.Va. – 600 MW;
• Tanners Creek Plant Units 1, 2 and 3, Lawrenceburg, Ind. – 495 MW; and
• Welsh Plant Unit 2, Pittsburg, Texas – 528 MW.

It is probably worth noting that AEP said this plan is different from the near-6,000 megawatts of anticipated retirements that it announced last June, due to the retirement of the 450-MW Sporn Unit 5 in February 2012 and due to AEP’s decision to request regulatory approval in Kentucky to retrofit the 800-MW Big Sandy Unit 2 with environmental control equipment rather than retiring the unit.

Now that shares are back off of the highs, AEP trades at only about 12-times this year’s expected earnings.  The company already raised its dividend late last year and it still seems to have room to raise its dividend for the years ahead.  The dividend yield is now 4.9% for investors buying today.

Today’s move was mostly expected and AEP shares are down 0.2% at $38.15 against a 52-week trading range of $33.09 to $41.98.  This stock remains one of our Model Dividend Stocks for 2012 and it remains one of our picks to own for the next decade.

JON C. OGG