U.S. OKs Deal to Create Biggest Utility Patrick Connole

Wed Mar 15 14:55:00 2000 EST WASHINGTON (Reuters) - Federal regulators on Wednesday ended years of wrangling and approved the merger of American Electric Power Co Inc (AEP.N) and Central and South West Corp (CSR.N), creating a mega-electric utility supplying power to millions in 11 states from Michigan to Texas. The merger would create the nation's largest electric utility based on generating capacity. The combined company, to be called American Electric Power, will control 38,000 megawatts of generation which equals about five percent of total U.S. capacity.

The Federal Energy Regulatory Commission said that to preserve competition in the fast-evolving electricity industry, the merged company must join a regional transmission organization by the end of next year and give up operational control of some generation facilities.

FERC favors regional transmission organizations as the best way to manage electric power lines to ensure that utilities have access to the transmission grid in a deregulated market.

"Together, they will form a large, efficient, highly competitive entity, and we think consumers will benefit from it," said FERC chairman James Hoeckert.

The agency, in a 3-to-1 vote approving the deal, found the merger would not harm competition as long as the strict conditions were met. The FERC vote came after the agency spent more than two years reviewing competition and market concentration concerns.

"If ever there was a merger likely to raise some eyebrows with its implications for the marketplace, this is one," Hoeckert said. "AEP is an enormous transmission backbone, and is also the owner of large amounts of transmission in the Midwest."

AEP said it would comply with the conditions.

"While we need time to examine the order, on the surface it seems the conditions placed on our merger are ones we can address," said AEP chairman Linn Draper. "We're prepared to do that and quickly move forward to completion of the merger."

The new company will serve nearly 5 million customers in 11 states from Indiana through Texas.

The Securities and Exchange Commission is expected to rubber stamp the deal within a few weeks. The Justice Department and state regulatory commissions have already cleared the merger.

The deal was originally valued at $6.6 billion, and is expected to become final in April or May, the two firms say.

In approving the merger, FERC said a combined AEP-CSW must join the Capital regional transmission organization by December 15, 2001. The agency also said the companies must change their previously agreed divestiture plan by giving up operational control of the generation facilities to be sold off.

Columbus, Ohio-based AEP and Dallas-based CSW originally announced the deal in 1997.

They have spent years seeking to assuage state and federal regulators' concerns the combined firm would not harm competition in the mostly Midwest and Southwest states it would operate.

A few months ago FERC reached a deal with the companies in which CSW would divest 300 megawatts of generating capacity in Oklahoma and 1,604 MW in Texas. The companies also agreed to set special rate tariffs for transmission and ancillary services, and to file a plan with FERC for the transferring of AEP's bulk transmission facilities to a regional system.

http://www.wired.com/news/reuters/story/0,1560,20000315RTBUSINESS-UTILITIES-AEP.htmlt,00.html

-- Martin Thompson (mthom1927@aol.com), March 15, 2000