FERC OKs AEP-CSW Merger Forming Largest Electric Utility
American Electric Power (AEP) and Central and South West Corp.
(CSW) moved one step closer to becoming the largest electric
utility last week when FERC approved the $6 billion marriage of the
two electric powerhouses. It imposed some conditions on the merger
deal, but the companies said they weren't anything they couldn't
By a vote of 3 to 1, with Commissioner Curt Hebert Jr.
dissenting, the Commission majority conditioned its approval on the
merged utility transferring operational control of its transmission
facilities to a FERC-approved regional transmission organization
(RTO) by Dec. 15, 2001. AEP and CSW would be allowed to close their
merger prior to joining an RTO, FERC said, but in the interim they
would have to implement certain mitigation measures. These would
include arranging for an independent party to calculate/post
available transmission capacity and monitor the operation of the
transmission system to determine whether the merged utility is
discriminating against customers or exercising market power.
The decision further requires the merged company to divest its
ownership interests in 550 MW of generating capacity at two
facilities in Texas and Oklahoma. AEP and CSW already have agreed
to this condition.
"We're very pleased that we do have FERC's approval," said AEP
spokesman Pat Hemlepp. "On the surface, from what we heard during
the meeting, it appears the conditions placed on the merger are
ones we will be able to address."
The Commission had no other choice than to impose these
conditions on the AEP-CSW marriage, Chairman James Hoecker said. If
ever there was a utility merger to "raise eyebrows," this was the
one, he noted.
The marriage of AEP of Columbus, OH, and Dallas-based CSW will
create the biggest electric utility in the nation in terms of
customer base, with Pacific Gas and Electric (PG&E) falling
into second place. A combined AEP-CSW will have an "enormous
transmission backbone," 38,000 MW of generation capacity, about 4.7
million electric customers in the U.S. and 4 million gas/electric
users outside of the country. PG&E still will remain the
largest combined utility in the U.S., with 4.5 million electric
customers and 3.7 million natural gas users.
The geographic market of the merged company will span from
Canada to Mexico, including 11 states: Ohio, Indiana, Michigan,
West Virginia, Virginia, Tennessee, Kentucky, Oklahoma, Louisiana
The merged utility, which would be named American Electric
Company, will have a combined market capitalization of about $6.9
billion. Hemlepp said AEP and CSW expect to close the transaction,
which still is awaiting the approval of the Securities and Exchange
Commission, sometime this spring. It already has passed muster in
about seven states, and undergone antitrust review by the Justice
Hebert dissented from the majority on two grounds. First, he
doesn't think the Commission should review utility mergers anymore.
".....Congress should remove us from the merger business."
Secondly, Hebert believes the majority saw market-power problems
with the proposed merger where none existed. "Our claimed expertise
leads.....[the] majority to invent market power out of thin air."