AES Files for Indiana Plant Upgrade

The AES Corporation’s (AES - Analyst Report) business wing, Indianapolis Power & Light Company filed for an approval to modernize its Indianapolis and Petersburg plants located in Southwestern Indiana with the Indiana Utility Regulatory Commission. The company plans to spend $511 million for this initiative. AES Corp. expects the program to take three years for completion.

Meanwhile, the company is also contemplating to idle some of its aging small coal units like the Eagle Valley facility in the Martinsville County.

AES Corp's decision comes in the wake of the Environmental Protection Agency’s ("EPA") stringent rules regarding curbing of mercury emissions from oil- and coal-fired plants. The EPA’s regulation is targeted to reduce mercuric emissions by 90% from coal, 88% from lung-damaging acids and 41% from soot-manufacturing SO2. The policies will be effective by 2016.

Simultaneously, to cover up the cost from this program, the company submitted an application for power rate hikes to the federal body.

We believe a degree of uncertainty is associated with the final decision from the Indiana Regulatory body. If rate changes are not approved, AES Corp. is likely to witness severe margin pressure in the near term.

Furthermore, due to its long-term supply agreements the company would fail to pass on the increase in coal and gas prices to customers which in turn will hurt profitability. These possibilities are mirrored in AES Corporation current Zacks Rank #4 (Sell).

Other utility players relentlessly working to meet regulatory yardsticks are NRG Energy Inc. (NRG - Analyst Report) and Integrys Energy Inc. (TEG - Analyst Report). NRG Energy will carry on with its emission cutback plans at its Big Cajun II Electrical generating facility in Louisiana. Integrys Energy on the other hand faced charges for not obtaining air permits in its coal-fired Weston Plant units near Wausau, Wisconsin.

Another utility Dominion Resources Inc. (D - Snapshot Report) has taken initiative to cut emission and generate cleaner power. The company decided to hive three of its old coal power unit and sought approval from Virginia State Corporation Commission to construct a 1,358 MW natural gas power plant in Brunswick County, Virginia.

Based in Arlington, VA, AES Corporation operates a portfolio of electricity generation and distribution businesses. Its Generation business owns and/or operates power plants to generate and sell power to wholesale customers, such as utilities and other intermediaries.