News Column

AEP Burns More Coal as Natural Gas Costs Rise

April 25, 2013
american electric power

Rising natural-gas prices mean American Electric Power is burning more coal and less gas compared with a year ago, according to the company's chief executive.

"Our coal generation has picked back up considerably," said Nick Akins, the president and CEO, in an interview.

AEP is one of the largest users of coal in the country. But the coal industry has suffered as AEP and other utilities have made use of what had been less expensive natural gas.

The market price of natural gas bottomed out last year at about $2 per 1,000 cubic feet. Since then, it has gradually risen, hitting $4 last month. This is still a low price in the context of the past decade or so, but that is a substantial increase in the short term.

Now, the price exceeds a level at which "you'll see the pendulum swing back toward coal-fired generation," Akins said.

He spoke after the company's annual shareholders meeting, held in Columbus. AEP will release its first-quarter earnings report on Friday.

Right now, the company's coal plants are operating at about a 65 percent "capacity factor," which refers to how much energy was generated compared with the maximum possible; AEP's natural-gas plants are operating at about half that level, which is almost a complete reversal from last year at this time, Akins said. AEP chooses how much it wants to use each plant based on market demand and the cost of operation.

The whole electricity-utility sector is going through some version of this process, trying to figure out which fuel will have the lowest cost today and in the near future, said Kenneth B. Medlock III, an economist at Rice University in Houston.

"We're going to be walking that knife's edge for a while," he said. By that, he means that there will be more switching from coal to gas, and back again, as prices change.

While coal is a less-expensive fuel for existing plants, natural gas remains the best option for AEP's new power plants, Akins said.

"The capital cost (of a new gas plant) is so much less," he said.

And he doesn't expect that to change.

"I see (the gas price) staying below $7 for the next decade or so," he said.

The annual meeting included shareholder votes for the board of directors and to approve an executive-pay plan, both of which are routine items. Shareholders rejected a proposal that would have required an increase in disclosure of the company's donations to state-level lobbying.

AEP's chairman, Michael Morris, was CEO until he retired in November 2011. He introduced the audience to Pablo Vegas, who was appointed president of AEP Ohio about a year ago.

"Rest assured, when the lights go out through the system, the lights are out at Pablo's house," he joked. "It's one of the requirements here."

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(c)2013 The Columbus Dispatch (Columbus, Ohio)

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Source: Copyright Columbus Dispatch (OH) 2013