Official: Aep Coal On Block – American Electric Power Co
American Electric Power Co. (AEP) has made it official: its AEP Coal subsidiary, comprised chiefly of assets acquired from bankrupt Quaker Coal Co. two years ago, continues to be a drain on the company’s earnings and will be sold.
For now, at least, the Columbus, Ohio-based energy giant plans to retain ownership of its poorly performing Fiddler’s Ferry and Ferrybridge coal-burning generating stations in the United Kingdom. An improvement in the sluggish British power market could cause AEP to jettison them, as well.
E. Linn Draper Jr., AEP’s chairman, president, and CEO, delivered the official word about AEP Coal during an April 29 first-quarter earnings report. The sale decision was not unexpected. AEP has long been disappointed with AEP Coal and last fall lumped the subsidiary among its non-core assets – an indication AEP Coal’s days could be numbered.
Draper, who also announced plans to step down in April 2004, told analysts during a conference call that AEP had secured a financial advisor for the sale of AEP Coal. The advisor was not identified, nor were the names of any potential purchasers readily available.
According to AEP’s first-quarter report, AEP Coal lost $2 million during the quarter, virtually equaling its loss in the first quarter of 2002.
AEP Coal consists of AEP Kentucky Coal, which includes 11 surface and underground locations in southeastern Kentucky, employing some 850 people and producing about 5 million tons of high-quality, lower-sulfur coal annually. It also consists of AEP Ohio Coal, which includes an underground operation near Cadiz in Harrison County that employs about 220 people and produces about 2 million tons of good quality, medium-sulfur coal annually.
AEP’s other mining operation is Dolet Hills Lignite Co. near Mansfield, La., a wholly owned subsidiary of AEP’s Southwestern Electric Power Co. (SWEPCO). Dolet Hills employs some 150 people and its surface mine produces about 3 million tons of lignite annually for the nearby Dolet Hills power stations, co-owned by SWEPCO and CLECO Power LLC. Dolet Hills apparently is not on the selling block.
Draper said AEP also is unhappy with Fiddler’s Ferry and Ferrybridge, each rated at 2,000 megawatts. They were acquired from Edison Mission Energy in late 2001 for about $1 billion. Since then, AEP has written down their value by nearly $500 million.
“Power prices in the UK remain depressed, and we do not expect much improvement in the immediate future,” Draper said. “It’s obviously not a great market for selling power, but it’s also not a great market for selling the plants.” For now, AEP intends to continue running the plants “as long as revenues exceed the variable costs of operating them.”
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