American Electric Gets Fed Funds

American Electric Power Company Inc. (AEP - Analyst Report) is set to receive $334 million from the U.S. Energy Department to develop a commercial scale project that will capture carbon from its Mountaineer coal fired plant in West Virginia and then inject the gases underground. The grant is part of the $979 million to be awarded by the U.S. Energy Department to three projects aimed at developing technology to trap and store carbon emissions from coal plants. The other two companies to receive grants are Southern Company Services Inc. (SO - Analyst Report), and Summit Texas Clean Energy LLC.
 
The money will go toward retrofitting existing coal-fired power plants owned by American Electric Power, Southern Co. and Summit Texas Clean Energy to capture and store carbon dioxide, the chief greenhouse gas linked to climate change. The Energy Department is aiming to have the technology available commercially − and share it with other big coal-using countries − in 8 to 10 years.
 
American Electric Power already is capturing and storing carbon dioxide at its Mountaineer power plant in Mason County. The federal stimulus funding is aimed at allowing the plant to capture and store 90% of carbon emissions from the plant.
 
Southern Co. is getting $295 million for carbon capture at an Alabama power plant north of Mobile and Summit Texas is getting $350 million for a 400-megawatt plant planned for Midland-Odessa. The carbon dioxide from that plant will be piped underground to increase oil recovery in the Permian Basin. The projects are expected to use an additional $2.2 billion in private capital.
 
American Electric is one of the largest public utility holding companies catering to approximately 5.2 million customers spread over 11 states. In the recently reported quarter of fiscal 2009, the company’s revenue fell 17% to $3.5 billion from $4.2 billion in the year-ago quarter. A tepid economy, coupled with a summer cooler than average, has affected electricity demand. The downturn has mostly affected demand from industrial customers. Industrial retail sales fell 16.9% year-over-year. Commercial retail sales also fell 1.2%. However, residential retail sales remained stagnant. We maintain our cautious Neutral recommendation on the stock.

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