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AEP Closes in On Louisiana Intrastate Gas Sale, Mulls HPL Options

AEP Closes in On Louisiana Intrastate Gas Sale, Mulls HPL Options

American Electric Power (AEP) executives on Tuesday said that the utility is in the final stages of selling Louisiana Intrastate Gas Co. (LIG) and is mulling options related to Houston Pipe Line Co. (HPL), which AEP purchased from now-bankrupt Enron Corp. in 2001 (see Daily GPI, June 4, 2001).

"We are moving toward that position even as we speak," said AEP CEO Michael Morris when asked about AEP's efforts to sell LIG. "We do have bids in hand and we're talking to potential successors in interest," Morris said in a conference call with analysts following the company's reporting of earnings results for the fourth quarter and full year 2003.

LIG operates 2,000 miles of pipeline with capacity of 800 MMcf/d. With its liquids processing facility at Plaquemine, LA, LIG is ideally situated to serve the Mississippi River Corridor, one of the top five industrial markets in the United States, according to AEP.

Meanwhile, AEP Vice Chairman Tom Shockley told analysts that the company's HPL assets "are still troubled by the Enron bankruptcy and will take more time to get sorted out."

An AEP official last year said that the utility planned to divest HPL sometime after the resolution of Enron bankruptcy issues (see Daily GPI, Oct. 24, 2003). But Shockley this week noted that AEP is "taking an additional look at how those assets might fit into our portfolio and will be prepared to make a strategic decision concurrent with the legal issues."

"We believe that there's a going-forward business model for HPL that may allow us to be very successful in the operation of that asset," noted Morris. He said that "this is a very important asset in the ongoing supply of energy to the Houston Ship Channel and the city of Houston, in particular."

AEP also believes that the Bammel storage field "has some very high potential utilization in the gas supply marketplace, as well."

AEP sees "the Ship Channel being very important as a longer-term LNG play, which everyone in this country surely has some conviction is the right thing -- oddly enough, even Alan Greenspan believes that to be the case -- and we believe that business model might make sense." At the same time, AEP "will continue, throughout the year, to analyze that, to convince ourselves that it's a story worth pursuing...," he added.

HPL operates 4,200 miles of natural gas pipeline with capacity of 2.4 Bcf/d, strategically located to serve the highly concentrated Houston Ship Channel market, the city of Houston, the Katy Hub, Beaumont/Port Arthur complex, Texas City and Corpus Christi.

AEP reported a fourth quarter 2003 loss of $762 million, or $1.93 per share, compared with a loss of $837 million, or $2.47 per share, in 4Q2002. For all of 2003, AEP reported earnings of $110 million, or $0.29 per share, compared with a loss of $519 million, or $1.57 per share, in 2002.

Results for the fourth quarter and 2003 were prepared in accordance with generally accepted accounting principles (GAAP).

Ongoing earnings for 2003 increased to $975 million from $948 million in 2002, but ongoing earnings per share (EPS) decreased to $2.53 from $2.86 because of the $0.41 dilutive effect of additional shares outstanding in 2003. Including discontinued operations that previously were part of ongoing earnings, AEP's ongoing earnings for 2003 would have been $2.21 per share, consistent with AEP's previously announced earnings guidance for 2003.

In the fourth quarter of 2003, AEP's United Kingdom operations and LIG became discontinued since the assets have been identified for sale during 2004. Seeboard and CitiPower, sold during 2002, also were discontinued operations. Ongoing earnings for current and prior periods were adjusted to reflect the changes.

Increased ongoing earnings from AEP's utility businesses, which benefited from robust wholesale sales and continued success in controlling costs, and reduced ongoing losses by investments contributed to the improvement in ongoing earnings.

GAAP and ongoing EPS for fourth quarter 2003 are based on an average of approximately 395 million shares outstanding, compared to an average of approximately 339 million shares outstanding for the same period in 2002. Fiscal 2003 GAAP and ongoing EPS are based on an average of approximately 385 million shares outstanding, compared to an average 332 million shares outstanding for the same period in 2002.

Among items excluded from fourth quarter and 12-month ongoing earnings are impairments for non-core businesses, losses from discontinued operations and changes in accounting principles totaling charges of $960 million for fourth quarter 2003 and charges of $865 million for 12-month 2003.

"We're pleased with the continued improvement in ongoing earnings from our utility operations in the quarter and year, despite unfavorable weather in both periods," said Morris in a prepared statement. "Wholesale power sales were strong, which allowed us to overcome relatively flat retail demand, and we are continuing to see positive results from our efforts to reduce and control utility operating and maintenance expenses.

"We are actively working to divest our investments in the UK, Louisiana Intrastate Gas and various other non-core investments this year," Morris said. "We have assumed that the sale of the UK assets will happen toward the end of the year and LIG toward mid-year, although we will complete the transactions as soon as possible."

Meanwhile, AEP revised its 2004 ongoing earnings guidance to between $2.20 and $2.40 per share from the previous guidance of between $2.10 and $2.30 per share. The primary drivers for this change in guidance are the reclassification of the UK operations and LIG to discontinued and anticipated improved operational performance.

In providing ongoing earnings guidance, AEP said its management is aware of potential differences between 2004 ongoing earnings and 2004 GAAP earnings because of the classification of UK operations and LIG as discontinued. At this time, AEP management is not able to accurately estimate the impact on GAAP earnings of potential differences in timing of planned disposals of UK operations, LIG and other non-core assets, or the potential impact of any future changes in accounting principles. Therefore, AEP is not able at this time to provide a corresponding GAAP equivalent for 2004 earnings guidance.

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