Mega AEP-CSW Merger on Hold
The proposed merger of electric powerhouse American Electric
Power (AEP), which also owns the midstream gas assets formerly held
by Equitable Resources, and Central and Southwest Corp. (CSW) was
placed on hold last week, as FERC set the case for an evidentiary
hearing, saying "sufficient concerns" had been raised about
potential market power in both the transmission and generation
"This is a combination of two very large utilities that own
substantial transmission facilities. AEP [alone] owns about 22% of
all transmission at or above 230 kV in the eastern
interconnection," which has led some critics to suggest that the
merged company could "foreclose competition through, for example,
manipulation of transfer capability," said Commissioner William
Opponents of the proposed merger "also point out that the
geography of these systems matters. The location of the applicants
- one in ECAR and the other in SPP and ECAR and ERCOT - may give
them an incentive and the ability through the use of their
transmission system to foreclose competitors from selling into the
CSW electricity market, and thereby raising wholesale electric
prices," he noted.
In addition, concerns have been raised that the location of
strategically placed generation capacity could give rise to AEP-CSW
market power over transmission, Massey said. "By dispatching
generation in a particular way, transmission may not be available
to other competitors who would want to sell into their combined
markets." In short, critics fear that AEP-CSW "can use the
concentrated upstream market to raise electricity prices in the
downstream wholesale power market."
AEP and CSW have proposed steps to mitigate potential market
power arising from the merger, such as the sale of 320 MWs of
generation capacity on a short-term basis, but opponents doubt that
this would be effective since the merger partners still would
maintain control over the capacity. They also have questioned other
proposed mitigation measures. The Commission directed that an
administrative law judge convene a hearing within two weeks of the
order to explore these and other competition-related issues.
Commissioner Vicky Bailey dismissed any hint that the proposed
AEP-CSW merger, simply because of its size, may have undergone
tougher scrutiny at the Commission. ":..[W]e are not diverging from
our standard analysis because of the size or location of the
applicants. Nor are we holding the applicants to a higher standard
because of the current absence of an ISO or any regional structures
in AEP's service territory."
In fact, "I am encouraged by the recently announced proposal of
AEP, FirstEnergy and Virginia Power to create their own regional
transmission entity...by as early as March of next year," she said
at the bi-weekly FERC meeting.
Columbus, OH-based AEP would be the surviving company in the
event the merger is approved by the Commission. AEP, a registered
public holding company, owns seven electric utilities: Appalachian
Power, Columbus Southern Power, Indiana Michigan Power, Kentucky
Power, Kingsport Power, Ohio Power and Wheeling Power. It has 38
power plants with generation capacity of 23,800 MWs, and 119,000
miles of transmission and distribution lines. Its AEP Resources
subsidiary purchased in September the midstream operations of
Equitable Resources, principally the Louisiana Intrastate Gas
system, for $320 million in cash.
Dallas, TX-based CSW, also a registered public holding company,
owns four electric utilities: Central Power and Light, Public
Service Company of Oklahoma, Southwestern Electric Power Co.
(SWEPCO), and West Texas Utilities. The utilities serve about 1.7
million customers in Arkansas, Louisiana, Oklahoma and Texas. CSW
also owns substantial generation and transmission assets.