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Indiana Michigan Power, an operating unit of American Electric Power Co., Inc. (AEP - Analyst Report), has decided to retire unit 4 of Tanners Creek generating plant in Lawrenceburg, Ind. This coal-fueled plant has an electric generation capacity of 500 megawatt (MW).

In Feb 2013, the company was provided an option to either refuel Tanners Creek 4 or to retire the unit. However, taking into account its projections for limited electricity demand growth and the amount of generation currently available to serve Indiana Michigan Power customers, the company concluded that it is not financially feasible to refuel Tanners Creek 4. The company expects flat electricity demand and believes that Indiana Michigan Power customers currently do not require additional power.

In Jun 2011, the company had declared that by mid 2015, it will shut down units 1-3 that have a generation capacity of 495 MW. Therefore, by 2015, all 4 generating units at Tanners Creek will be retired.

The decision to retire unit 4 is part of its strategy to strike a balance between optimizing resource needs and keeping environmental costs under control. This would help the utility to maintain a disciplined capital investment strategy. Approximately 115 employees working at the plant will be affected by this decision. The company indicated that these employees will be considered for severance benefits, if it fails to position them in their other facilities.

The company stated that the retirement of the plant will neither impact its 2013 operating earnings guidance of $3.05 to $3.25 per share nor its long-term earnings growth rate of 4% to 6%.

Earlier the company had announced that it will retire 6,676 MW of coal-fueled generation. Shuttering Tanners Creek 4 would help in retiring a total of 7,176 MW of coal-fueled generation by early 2016.

In July this year, the company also decided to shut down unit 5 of its coal-fueled Muskingum River Plant in 2015. It had previously announced for the closure of the other 4 units. Taking into account the closure of the 5th unit, AEP Ohio's total generation capacity will come to 10,725 MW, comprising mainly of fully controlled coal-fueled plants, natural gas-fueled combined cycle and combustion turbines, and a small hydro plant.

We remind investors that in June this year, President Obama unveiled a fresh climate change strategy aimed at limiting pollution from existing coal-fired power plants. He issued directives asking environmental regulators to set up carbon pollution standards for active plants.  

Apart from complying with environmental rules, the company is also facilitating its customers with its gridSMART program that helps in giving more accurate information of their energy consumption and improved billing accuracy. Recently, the company has filed a request with the Public Utilities Commission of Ohio to expand this program.

These efforts would boost the share price of the company. However, we remain concerned about the tepid economies in a number of its service states and soft second quarter results due to a decline in residential, commercial and industrial sales. The company presently retains a short-term Zacks Rank #3 (Hold).

Stocks that are worth considering in the space are Huaneng Power International, Inc. (HNP - Snapshot Report), Brookfield Infrastructure Partners L.P. (BIP - Snapshot Report) and Integrys Energy Group, Inc. (TEG - Analyst Report). While Huaneng Power carries a short-term Zacks Rank #1 (Strong Buy), Brookfield Infrastructure and Integrys Energy Group hold a Zacks Rank #2 (Buy).

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