This Week in Utilities: The End of Coal and More Natural Gas
Utilities have been busy this week, making moves to maximize profit potential. With new coal closings and fresh starts into natural gas, here's what you need to know to stay on top of your dividend stocks' latest moves.
FirstEnergy is out 2,080 MW
FirstEnergy announced earlier this week that it plans to close down two Pennsylvania coal-fired power plants by the end of October, knocking 2,080 MW off its total generation capacity.
In its press release, the company noted that a combination of cheap electricity and costly environmental regulations tipped the scales on coal's cost-competitiveness for these two plants. FirstEnergy estimated that while the plants' generation amounts to around 10% of total capacity, the plants' environmental compliance costs would've accounted for around 30% ($280 million) of the company's total spending.
Along with nine other plants already on the deactivation list, FirstEnergy notes that "nearly 100 percent" of its electricity will now come from low- or non-carbon-emitting sources.
AEP is out 585 MW
American Electric Power followed in FirstEnergy's footsteps two days later, when it announced the expected closure of a 585 MW Ohio coal-fired power plant. For the utility's AEP Ohio subsidiary, this latest announcements brings its grand total to 3,123 MW of coal-fueled generation to be retired by 2016.
Just like FirstEnergy, AEP pointed the finger at environmental regulation as a main driver behind its ultimate decision. But unlike FirstEnergy's focus on cheap electricity prices, AEP kept its other reason generalized as "current market conditions." And while it expects to fully retire the plant, AEP did mention the possibility of a natural gas refuel.
Although the expected closure won't affect the utility's 2013 operating earnings, the company is taking a $150 million to $170 million non-operating pre-tax impairment charge for Q2 to account for the decision
Natural gas notions
AEP isn't alone in considering natural gas options over coal. TECO Energy , one of the most coal-centric utilities around, took another step this week toward ramping up its natural gas investments.
After announcing in May that it would spend $950 million to buy out regulated New Mexico Gas Co. from Continental Energy Systems, TECO officially filed its acquisition approval application with state regulators this week.
The move would boost TECO's customer base by 50% and, more importantly, increase its energy diversity as the company cuts down on its 61% coal capacity for its regulated utilities.
In the same week that TECO is applying for its foray into New Mexico natural gas, Illinois is solidifying its own reliance on the fuel source. Integrys released a statement this week commending Illinois politicians for their "swift signing" of the Natural Gas Consumer, Safety, & Reliability Act.
According to Integrys' regulated Chicago utility Peoples Gas, the act is crucial to Chicago's ability to maintain and upgrade its current natural gas infrastructure, by allowing it to recover costs in a timely manner. On its website, the utility notes:
Peoples Gas wants to continue to upgrade our infrastructure, but under the current regulatory system, those upgrades could take over 40 years to complete. Illinois natural gas utilities need legislation to be confident in continuing to invest in infrastructure upgrades .
On the news of the act's approval, Peoples Gas President Will Evans said that "[w]e are pleased this law will provide the confidence and timely cost recovery necessary to support Peoples Gas' accelerated main replacement program over the next 10 years."
Stay current on electricity
If the switch from coal to natural gas is any evidence, the world of utilities is changing fast, and dividend stocks aren't the stable stalwarts they once were. Be sure to check back weekly for the latest on your portfolio's moves, and you'll be well on your way to electrifying earnings.
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The article This Week in Utilities: The End of Coal and More Natural Gas originally appeared on Fool.com.Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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