Coal will be just 50 percent of AEP generation in 2020: CEO - Business, Government Legal News from throughout WV

Coal will be just 50 percent of AEP generation in 2020: CEO

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American Electric Power is "repositioning its assets" for a "more sustainable fuel mix," according to a Leadership Message from President and CEO Nicholas K. Akins.

Akins' message was issued April 24 in conjunction with the utility's annual meeting in Tulsa, Okla.

It doesn't simply mean a shift from coal to gas, although that's a large element.

"Several factors are driving us in this direction, including new environmental regulations; the economics of coal versus natural gas; the operating cost, age and efficiency of some coal units; increased competition; and grid reliability," Akins wrote.

"We will retire more than 5,100 megawatts of coal-fired generation and retrofit nearly 11,000 megawatts with new, advanced pollution controls or upgrade existing control equipment," he wrote. "Additional coal-fired generation may be refueled with natural gas."

The company's new Dresden combined cycle natural gas plant in Ohio represents increased generation from natural gas, Akins noted. But completion later this year of the highly efficient coal-fired John W. Turk Jr. in Arkansas keeps coal in the fuel mix.

"By 2020, we estimate natural gas will account for 27 percent of AEP's generating capacity, compared with 24 percent today," he said.

Coal will fall to 50 percent in 2020 from 67 percent in 2011, with the rest made up of nuclear, renewables, hydro and pumped storage and energy efficiency.

"This effort to create a more sustainable balance of our generation resources will be very challenging and expensive but will provide long-term fuel stability and allow us to adapt to the major upcoming market and operational changes," he said.

Akins listed the generation shift as one part of a four-part risk-management strategy.

Another part is to invest in the company's regulated utilities and to optimize returns on those investments, he said. With this, the company has changed its business model to provide its operating companies with greater influence at the corporate level and greater autonomy at the local level.

A third part of the strategy is to grow earnings through the transmission business. Short term, the company will invest $2 billion on transmission enhancements over the coming four years. The longer-term strategy includes interstate projects with partners.

"This results in better reliability, greater availability of renewable energy, and downward pressure on prices," Akins wrote.

Fourth is a robust, competitive retail business.

Akins said the lack of a comprehensive national energy policy and the lack of coordination among federal and state regulators are matters of concern for AEP, specifically underlining the company's leadership on greenhouse gas reductions.

"Unfortunately, our efforts were penalized when regulators rejected our request to recover the cost of those investments," he said. "We took a $76 million write-off, for example, on our carbon capture and storage projects in West Virginia. We still believe there will be benefits from our work in developing this technology, but we can't afford to move ahead with it at this time.

Still, he said, the company continues to reduce greenhouse gas emissions in other ways.

"Our goal is to reduce our greenhouse gas emissions by 10 percent from 2010 levels by 2020," he said. "Every coal-derived megawatt-hour we replace with natural gas will reduce our greenhouse gas emissions by about 50 percent. Even so, we anticipate that, ultimately, we will need to address the carbon emissions of natural gas."

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