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Friday, Jul. 24, 1998
Power plant debt targeted in proposed merger
Regulators to rule on American's purchase of CPL's parent
By GLASTON FORD
Staff WriterThe company that plans to buy Central & South West Corp. wants to use half the $2 billion in projected savings from the merger to pay down debt on power plants, including the nuclear plant partially owned by Central Power and Light Co.
E. Linn Draper Jr., chairman, president and chief executive officer of American Electric Power Co., said that his company proposed in its filing to the Texas Public Utility Commission that $1 billion of the money saved by combining the companies be used to pay down stranded costs.
In utility industry jargon, stranded costs are investments in power plants, many built years ago, that would be difficult to recoup in a deregulated, competitive electricity market.
The merger has to be approved by eight regulators, none of whom have made a ruling on it yet. The deal is expected to be complete in mid-1999, Draper said.
The companies project $2 billion in savings over the next 10 years from the combination of two electric utilities, which would create the largest electricity generating utility in the Western Hemisphere, Draper said.
The savings could be split between customers and shareholders, with the customers' portion going to pay down stranded costs, Draper told the Caller-Times Editorial Board.
In December, Ohio-based American Electric announced a $6.6 billion stock-for-stock purchase of Central & South West, whose shareholders would wind up owning 40 percent of the combined utility, which would retain the American name.
At the time, company officials estimated the merger would take 18 months, pending state and federal regulatory approval.
The Texas Public Utility Commission is one of eight regulatory bodies that must approve the merger before it is complete, Draper said. American Electric has filed the necessary paperwork before five of the agencies, including state regulators in Texas, Louisiana, and Arkansas; and two federal agencies, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission.
The first public hearing on the acquisition was held in Arkansas on July 13, Draper said. Other hearings should begin later this year.
The PUC will begin hearing testimony on the acquisition on Dec. 2, officials with the PUC said.
The company still has to file with the Securities and Exchange Commission, the Justice Department, and state regulators in Oklahoma.
American Electric also has proposed capping CPL's base rate through 2002, but allowing any reduced fuel costs to be passed through to consumers immediately, Draper said.
CPL, Central & South West's most profitable utility, would become the fourth largest utility in the combined system, Draper said.
The combined company would be better able to compete in a coming deregulated environment, Draper and Central & South West Chairman E.R. Brooks told the Caller-Times Editorial Board.
The companies could save money by eliminating duplicate positions and by improving purchasing power, Draper said.
The combined company would also have a balance of coal, natural gas and nuclear power plants. It would be the largest coal burner in the Western Hemisphere and the third-largest natural gas burner in the Western Hemisphere, he said.
The power system, which would stretch across 11 states from Mexico to Canada, also would have good customer and geographic diversity, Draper said. For example, Central & South West's industrial customers are primarily petrochemical whereas American Electric's industrial customers are related to the automobile industry.
As many as 50 people at a time are working on getting the merger approved, he said. Although no agencies have made a decision, the initial response has been more positive than expected, he said.
Staff writer Glaston Ford can be reached at 886-3678 or by e-mail at fordg@scripps.comPost your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web