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
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
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
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.