August 5, 2008

AEP Acquires Large Tract It May Mine Near John Amos Plant

By George Hohmann, Charleston Daily Mail, W.Va.

Aug. 5--CHARLESTON, W.Va. -- American Electric Power has purchased a 27,000-acre tract of mineral rights in parts of Putnam, Mason and Jackson counties that might eventually be mined, the company said.

The tract was purchased in January for $2.5 million by Franklin Real Estate Co., a wholly owned subsidiary of AEP, from American Land Holdings of West Virginia Limited Liability Co.

Records posted on West Virginia Secretary of State Betty Ireland's Website traces the company back to American Land Development of 701 Market St., St. Louis, Mo. That is the address for Peabody Energy's headquarters.

The mineral rights are in Buffalo and Union districts, a spokeswoman in the Putnam County assessor's office said. Those districts extend from the town of Buffalo on the Kanawha River eastward along the Putnam-Mason border to the Jackson County border.

The power company's real estate subsidiary paid $690,000 for the portion of the tract that is in Putnam County, $1.78 million for the portion in Mason County and $30,000 for the portion in Jackson County, according to a deed filed Jan. 9 with the Putnam County Clerk.

During a conference call with analysts Thursday, Dan Eggers, an analyst with Credit Suisse, asked Michael Morris, AEP's chairman, president and chief executive officer, where the utility was looking for coal in the market.

Morris said the utility is seeing some opportunities to become an "anchor" purchaser for new mines being opened by coal companies. He also said AEP is looking at a number of the resources that it owns, where the company could potentially bring in third-party mining companies to develop the sites.

During an interview following his address to the West Virginia Coal Association at The Greenbrier Resort Thursday afternoon, Morris was asked if any of the properties are in West Virginia.

"We own a tremendous resource base," he said. "Some is in the Illinois basin. I expect there is some here." He promised to get back with a more definitive answer.

Spokeswoman Jeri Matheney later reported that the company's fuel procurement group informed her that AEP acquired the coal reserve in Putnam, Mason and Jackson counties in January.

"We are in the process of further evaluating this reserve from a geological and geotechnical aspect before making future plans," Matheney said. "Because this reserve is in reasonably close proximity to several of AEP's generating plants, we believe it could have strategic value as a prospective source of coal for future generation."

AEP's John Amos power plant is 17 1/2 miles up the Kanawha River from Buffalo. The company also has power plants on the Ohio River.

Matheney said, "AEP has other coal holdings in states where it operates, and is always studying its long-range needs for coal and coal reserves that would enhance customer and shareholder value."

During Thursday's interview Morris said, "We decided a long time ago that actual mining is not one of our long suits, so we contract-mine some three or four properties that we own."

One of those properties is across W.Va. 62 from AEP's Mountaineer Plant in New Haven, Mason County. The coal there has a high-sulfur content and was of little use to AEP until a $533 million scrubber was installed on the Mountaineer Plant in February 2007. The scrubber allows the plant to burn high-sulfur coal.

When AEP began installing the scrubber, it reached an agreement with Cline Energy to mine the coal, said AEP spokesman Pat Hemlepp. Cline built an underground mine that now supplies the plant using a conveyor erected over the highway. Cline also has the right to sell surplus coal into the market.

From the 1970s to the late 1990s AEP operated mines in West Virginia and Ohio through several subsidiaries, including Southern Ohio Coal Co., Central Ohio Coal, Cedar Coal and Windsor Coal, according to book on AEP's history, "A Century of Firsts." The company sold many of its smaller mines over the years and sold several of its large mining operations to Consol Energy in 2001.

AEP is America's largest generator of electricity. The company owns and operates about 80 generating stations with a capacity of nearly 38,000 megawatts. Coal-fired plants account for 73 percent of the generating capacity. The company consumes about 76 million tons of coal annually.


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