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The Southern Company (SO), Duke Energy Corp (DUK), American Electric Power Company, Inc. (AEP): Here’s Why You Should Watch Out for Coal-Reliant Utilities

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Despite July’s heat wave in the Northeast, summer temperatures in the majority of the United States have been cooler than last year’s. For the entire year, U.S. retail sales of electricity to the residential sector during 2013 are forecasted to average 1.3% higher than in 2012, as lower summer consumption is offset by higher consumption during the non-summer months. President Barack Obama wants to reduce carbon dioxide emissions to 17% below 2005 levels by 2020, and in June instructed the EPA to write extra rules to make it happen. This has forced some of the largest utility companies to reevaluate their energy mix.

The Southern Company (NYSE:SO) is facing increasing scrutiny from state regulators who are frustrated about cost overruns at electric-power projects in Mississippi and Georgia. Problems with cost controls in Mississippi are focusing attention on an even larger project in Georgia, where Southern subsidiary Georgia Power Co. is building two nuclear reactors at its existing Vogtle power site.

The Southern Company (NYSE:SO)The latest earnings for the Atlanta-based utility slumped 52% because of the cost overruns at the coal-fired power plant under construction in Mississippi. The plant uses an advanced gasification technology, which reduces the cost of producing electricity. Cost overruns close to $1 billion have now made the project unattractive for shareholders of The Southern Company (NYSE:SO).

Duke Energy Corp (NYSE:DUK) bought a San Francisco solar project from developer Recurrent Energy. The diversification into solar energy comes four months after the company bought Highlander solar power projects in Twentynine Palms. Duke Energy Corp (NYSE:DUK) is the largest electric power company in the U.S. and is currently struggling with demand from its commercial customers and high restructuring expenses.

The company’s latest earnings showed dwindling demand in Indiana, Florida, Ohio and Kentucky. With gas becoming increasingly expensive, Duke Energy’s decision to stay with coal-fired power plants that meet the EPA’s standards looks to be a wise move. Currently, Duke Energy Corp (NYSE:DUK)’s reliance on coal is only about 37%.

American Electric Power Company, Inc. (NYSE:AEPshowed signs of massive struggle in its latest earning release due to weak electricity demand, causing a drop in net income. The company had an increase in maintenance expenses in the quarter because of storms and power plant outages.

The company owns over 300 megawatts of wind generating capacity within Texas and 800 megawatts of hydroelectric power from its 17 hydroelectric facilities, but still has too much exposure to coal as it generated nearly 66% of its energy using coal power. It expects to retire 3,000 megawatts of coal power by 2016.

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