American Electric Power (AEP) and Central and South West Corp.(CSW) moved one step closer to becoming the largest electricutility last week when FERC approved the $6 billion marriage of thetwo electric powerhouses. It imposed some conditions on the mergerdeal, but the companies said they weren’t anything they couldn’tlive with.

By a vote of 3 to 1, with Commissioner Curt Hebert Jr.dissenting, the Commission majority conditioned its approval on themerged utility transferring operational control of its transmissionfacilities to a FERC-approved regional transmission organization(RTO) by Dec. 15, 2001. AEP and CSW would be allowed to close theirmerger prior to joining an RTO, FERC said, but in the interim theywould have to implement certain mitigation measures. These wouldinclude arranging for an independent party to calculate/postavailable transmission capacity and monitor the operation of thetransmission system to determine whether the merged utility isdiscriminating against customers or exercising market power.

The decision further requires the merged company to divest itsownership interests in 550 MW of generating capacity at twofacilities in Texas and Oklahoma. AEP and CSW already have agreedto this condition.

“We’re very pleased that we do have FERC’s approval,” said AEPspokesman Pat Hemlepp. “On the surface, from what we heard duringthe meeting, it appears the conditions placed on the merger areones we will be able to address.”

The Commission had no other choice than to impose theseconditions on the AEP-CSW marriage, Chairman James Hoecker said. Ifever there was a utility merger to “raise eyebrows,” this was theone, he noted.

The marriage of AEP of Columbus, OH, and Dallas-based CSW willcreate the biggest electric utility in the nation in terms ofcustomer base, with Pacific Gas and Electric (PG&E) fallinginto second place. A combined AEP-CSW will have an “enormoustransmission backbone,” 38,000 MW of generation capacity, about 4.7million electric customers in the U.S. and 4 million gas/electricusers outside of the country. PG&E still will remain thelargest combined utility in the U.S., with 4.5 million electriccustomers and 3.7 million natural gas users.

The geographic market of the merged company will span fromCanada to Mexico, including 11 states: Ohio, Indiana, Michigan,West Virginia, Virginia, Tennessee, Kentucky, Oklahoma, Louisianaand Arkansas.

The merged utility, which would be named American ElectricCompany, will have a combined market capitalization of about $6.9billion. Hemlepp said AEP and CSW expect to close the transaction,which still is awaiting the approval of the Securities and ExchangeCommission, sometime this spring. It already has passed muster inabout seven states, and undergone antitrust review by the JusticeDepartment.

Hebert dissented from the majority on two grounds. First, hedoesn’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 problemswith the proposed merger where none existed. “Our claimed expertiseleads…..[the] majority to invent market power out of thin air.”

Susan Parker

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