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FERC OKs AEP-CSW Merger Forming Largest Electric Utility

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 live with.

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 and Arkansas.

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 Department.

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."

Susan Parker

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