Plans to sell the two REPs - Mutual Energy WTU and Mutual Energy CPL - were announced in April. The transaction received approval from the Public Utility Commission of Texas and clearance under the Hart-Scott-Rodino Act from the Federal Trade Commission and the U.S. Department of Justice.
The immediate cash proceeds from the transaction are valued at $185 million, which includes $146 million for the customers and $39 million related to the access to AEP´s customer relationship management and billing arrangement systems. The funds will be used by AEP to retire outstanding debt and strengthen its balance sheet.
In addition to the immediate cash proceeds, the transaction includes two-year power supply and back office agreements. The transaction also includes an earnings-sharing arrangement through 2006, which allows AEP to share if the Texas retail market develops increased earnings opportunities and protects the company against downside exposure.
Mutual Energy WTU and Mutual Energy CPL sell retail electricity to more than 810,000 residential and small commercial customers in south and west Texas. These customers are served at the "price to beat," a statutorily defined rate for customers with a peak demand of one megawatt or less who do not switch to competitive providers. Full customer choice began in the Electric Reliability Council of Texas (ERCOT) on Jan. 1, 2002.
"AEP´s strengths are in wholesale energy markets and in the efficient operation of electricity transmission and distribution systems," said Tom Shockley, AEP´s vice chairman and chief operating officer. "Building the business design necessary to be successful in a competitive retail market like Texas requires a special focus, which Centrica has with its background in retail marketing. AEP´s resources are better focused on our strengths and strategy."
As part of the transaction, Centrica assumes the obligation to serve those customers who choose the "price to beat" and gains the "West Texas Utilities," "WTU," "Central Power and Light" and "CPL" brand names. Centrica also takes on provider of last resort (POLR) responsibilities as defined by Texas regulations.
This transaction does not affect AEP´s ownership of its power plants in Texas and its transmission and distribution network that delivers electricity to customers. AEP also will continue to serve customers with electric demand greater than one megawatt.
"The transition from AEP to Centrica will be seamless for customers, since little will change from the customer´s perspective," Shockley said. "The name of the electricity supplier will remain the same, even though the owner has changed. The price-to-beat rates and responsibilities will remain the same. The wires bringing electricity to the customers will still be owned by AEP and we will continue to be responsive to customers´ needs for service connections and restoring power after outages."
The transaction does not affect AEP´s Texas customers in the Southwest Power Pool who are not part of the Texas competitive electricity marketplace at this time. Those customers include all of the Texas customers of AEP´s Southwestern Electric Power Company (SWEPCO) subsidiary and about 7,100 WTU customers who will be served by another AEP company, Mutual Energy SWEPCO LP (dba Mutual Energy SPP).
American Electric Power, an energy company with a balanced portfolio of energy assets, owns and operates more than 42,000 megawatts of generating capacity in the United States and select international markets and is the largest electricity generator in the U.S. AEP is a leading wholesale marketer of energy commodities, utilizing its energy expertise and risk management skills to make optimal use of its generation, natural gas pipeline systems, natural gas storage, coal mines and inland barge fleet. AEP is also one of the largest electric utilities in the United States, with almost 5 million customers linked to AEP´s 11-state electricity transmission and distribution grid. The company is based in Columbus, Ohio.
The comments set forth above include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including (1) statements concerning the Company´s plans, objectives, expected performance and expenditures and (2) other statements that are other than statements of historical fact. These forward-looking statements reflect assumptions, and involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially from forward-looking statements are electric load and customer growth, abnormal weather conditions, availability of generating capacity, the ability to recover net regulatory assets and other stranded costs in connection with deregulation of generation, the outcome of environmental regulation and litigation, the impact of fluctuation in commodity prices and interest rates, and other risks and unforeseen events over which the Company has no control. The reader is also directed to the Company´s periodic filings with the Securities and Exchange Commission for additional factors that may impact the Company´s results of operations and financial condition. Furthermore, historical results may not be indicative of the Company´s future performance.
Contacts:
Media: Pat D. Hemlepp
Director, Corporate Media Relations
614-716-1620
Analysts: Julie Sloat
Manager, Investor Relations
614-716-2885
Media: Pat D. Hemlepp
Director, Corporate Media Relations
614-716-1620
Analysts: Julie Sloat
Manager, Investor Relations
614-716-2885