The Columbus, Ohio, company, the largest coal consumer in the Western Hemisphere, also said a report released by an independent committee of the company's board of directors determined that AEP is "well-positioned" to deal with proposed federal legislation and regulations for reducing regulated emissions and carbon dioxide.
AEP is proposing by 2010 to build at least one plant that would be able to produce as much as 1,000 megawatts of power and use a technology that pulverizes coal into gas before burning it, substantially reducing harmful emissions of nitrogen oxides, sulfur dioxide, mercury and carbon dioxide.
AEP, which owns the most U.S. power plants, said the technology is known as integrated gasification combined cycle, or IGCC.
Hugh Wynne, an analyst for Sanford C. Bernstein, said the company should be able to reap other benefits besides improved emissions from the new plant.
He said the cost of building an IGCC plant is similar to the cost of building a conventional coal plant, and that gas turbines have a higher output of electricity per unit of heat than conventional coal-burning methods.
"It is a logical step because they will have a competitive capital cost, competitive fuel efficiency and they're using a cheap fuel," said Wynne, who has a "Market Perform" rating on AEP. "All these things are good."
No decisions on construction timetables or locations have been made, the company said.
In the near term, AEP said its plan to invest $3.5 billion in new environmental equipment to cut greenhouse gases in its existing plants is unlikely to be stranded, meaning the money will not end up being scrapped in 10 years because new environmental regulations force them to retire the plants.
However, the company may have to invest more after 2010 than the $1.5 billion it currently plans, depending on what happens with proposed regulations.
Coal-fired power plants generate about half of the nation's electricity supplies, but few new plants have been built in the last decade because of uncertainty over federal clean air standards.
The U.S. Department of Energy estimates the nation will need more than 100 new coal plants by 2025 to keep pace with growing electricity demand. The department has said it is on track to spur development of cleaner coal plants, noting last month that it has received $6 billion in private-industry proposals for its clean coal initiative, with government funds to be awarded by year-end.
Emissions from coal-fired power plants and refineries can aggravate asthma, chronic bronchitis and pneumonia.
The independent committee's report was done as part of an agreement with shareholders, including the Connecticut Retirement Plans and Trust Funds, in response to a shareholder proposal.
Shares of AEP rose 15 cents to $32.52 in afternoon New York Stock Exchange trade yesterday.