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Entergy-Koch, Sierra Pacific-PGE Deals OK'd by FERC

Entergy-Koch, Sierra Pacific-PGE Deals OK'd by FERC

FERC last week approved a proposed $1 billion venture between New Orleans-based Entergy Corp. and privately held Koch Industries Inc., which many believe will emerge as one of the top energy traders in North America. The deal still requires the approval of the Securities and Exchange Commission (SEC).

Reno, NV-based Sierra Pacific Resources (SPR), parent of Sierra Pacific Power and Nevada Power, also got the go-ahead from FERC to acquire Portland General Electric (PGE) from Enron Corp. (EC00-63, ER00-1801). The marriage needs the blessing of the SEC as well.

Analysts predict the Entergy-Koch partnership, which will be called Entergy-Koch L.P. and will include only "selected assets" from the two companies, will become a North American and European powerhouse in electricity and gas trading, gas transmission and weather derivatives --- possibly rivaling Enron Corp. and Duke Energy (see NGI, May 1, 2000).

Entergy and Houston-based Koch say the venture will be among the nation's top 10 energy commodity traders, trading physical volumes in excess of 100 million MWh of electricity annually and 5 Bcf of natural gas daily.

The new partnership, once completed, would include the capabilities of Koch Energy Trading, Koch Gateway Pipeline's interstate transportation system and related gas storage assets. It also will include Entergy Power Marketing, which markets and trades physical and financial energy commodity products, as well as provides industrial energy management and risk management services (EC00-106). The companies expect to close the transaction in January 2001.

FERC noted Koch and Entergy would not merge as a result of the partnership, but rather would maintain separate corporate existences. Subsidiaries of the two companies not contributing to the venture will be unaffected by the transaction, it said.

Some protesters were concerned the partnership would create an incentive for Koch Gateway Pipeline to favor Entergy's generation facilities over those of rival generators, thus adversely affecting prices or output in retail electric markets. As a preventive measure, they asked FERC to apply its marketing standards of conduct to all affiliates created by the partnership or to the corporate family as a whole. But the Commission rejected their request, saying it agreed with Entergy and Koch that the "proposed transaction will not adversely affect prices or output as a result of vertical competitive concerns."

It also rejected a request by some protesters to delay approval of the Entergy-Koch partnership until the Commission reviews Entergy's announced merger with FPL Group Inc., parent of Florida Power and Light.

Last July, the Commission put the Sierra Pacific-PGE merger on hold while it established further procedures to address the competitive concerns that it had with the proposed transaction --- specifically its impact on Sierra Pacific's destination market and its effect on market-clearing prices in the California power markets.

In its order last Tuesday, FERC ruled that the merger partners "have addressed these issues...and have offered mitigation measures to address potential anticompetitive effects of the proposed merger."

After owning the utility for just two years, Enron announced its decision to sell PGE to Sierra Pacific last November due in part to the adverse regulatory changes in the California and Oregon markets. Enron's asking price was $2.1 billion, including $2.02 billion in cash and the assumption of Enron's $80 million PGE merger payment obligation. Sierra Pacific also will assume $1 billion in PGE debt and preferred stock. This will give Enron a slight profit over its original purchase price for PGE of $2.962 billion in July 1997 (see NGI, Nov. 15, 1999).

Sierra Pacific moved to snatch up PGE only months after it completed its merger with Las Vegas-based Nevada Power in July 1999. It said it hopes to close the PGE deal during the first quarter of 2001.

A combined Sierra Pacific-PGE company will have a total of more than $9 billion in assets and serve more than 1.7 million electric and gas customers in California, Nevada and Northwest Oregon.

Susan Parker

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