YAHOO FINANCE, SEPTEMBER 1, 2006
COLUMBUS, Ohio, Sept. 1 /PRNewswire-FirstCall/ — American Electric Power (NYSE: AEP – News) has reached an agreement to sell its Plaquemine Cogeneration Facility in Plaquemine, La., to The Dow Chemical Company (NYSE: DOW – News).
Under terms of the agreement, Dow will pay AEP $64 million at closing. The sale agreement also allows AEP to participate in gross-margin sharing on the Plaquemine facility for five years. Dow will also reduce AEP’s existing below- current-market long-term power supply contract with Dow in Texas by 50 megawatts. AEP retains the rights to any judgment paid by Tractebel Energy Marketing Inc. (now known as Suez Energy Marketing N.A. Inc.) for breaching a long-term contract to purchase power generated by the Plaquemine plant. AEP received a judgment of $123 million plus interest in August 2005. That judgment is under appeal.
The sale, which must be approved by the Federal Energy Regulatory Commission and must receive antitrust clearance from the Federal Trade Commission or the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, is expected to close in December 2006. Proceeds from the transaction will be used to reduce debt.
As a result of the transaction, AEP expects to record a one-time net impairment charge of approximately $136 million, or approximately $0.34 per share, in its third-quarter earnings prepared in accordance with Generally Accepted Accounting Principles (GAAP).
“Because of Tractebel’s breach of contract, the Plaquemine Cogeneration Facility has been a drag on our earnings since it began operating in 2004,” said Michael G. Morris, AEP’s chairman, president and chief executive officer. “In 2000, when AEP began the project, Tractebel signed a long-term contract to purchase the large quantities of electricity that were not needed by the Dow Chemical complex. We would not have gone forward with the construction without a buyer for that electricity. When Tractebel breached the contract, we were left to contend with attempting to sell the power into an overbuilt, illiquid regional market, which resulted in losses.
“Selling the plant does create a one-time loss, but it eliminates what we project would be an escalation of the plant’s ongoing losses,” Morris said.
The 880-megawatt Plaquemine Cogeneration Facility has four 170-megawatt gas-fired combustion turbine generators and a 200-megawatt steam turbine. It began commercial operations on March 18, 2004. Steam from the cogeneration facility, located inside Dow Chemical’s plant near Baton Rouge, La., is supplied to Dow Chemical. Power output from the plant was to be sold to Tractebel under long-term contract.
American Electric Power is one of the largest electric utilities in the United States, delivering electricity to more than 5 million customers in 11 states. AEP ranks among the nation’s largest generators of electricity, owning nearly 36,000 megawatts of generating capacity in the U.S. AEP also owns the nation’s largest electricity transmission system, a nearly 39,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. AEP’s utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana and east Texas). American Electric Power, based in Columbus, Ohio, is celebrating its 100th anniversary in 2006.
This report made by AEP and certain of its subsidiaries contains forward- looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although AEP and each of its registrant subsidiaries believe that their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Among the factors that could cause actual results to differ materially from those in the forward-looking statements are: electric load and customer growth; weather conditions, including storms; available sources and costs of, and transportation for, fuels and the creditworthiness of fuel suppliers and transporters; availability of generating capacity and the performance of AEP’s generating plants; the ability to recover regulatory assets and stranded costs in connection with deregulation; the ability to build or require generating capacity when needed at acceptable prices and terms and to recover those costs through applicable rate cases or competitive rates; the ability to recover increases in fuel and other energy costs through regulated or competitive electric rates; new legislation, litigation and government regulation including requirements for reduced emissions of sulfur, nitrogen, mercury, carbon and other substances; timing and resolution of pending and future rate cases, negotiations and other regulatory decisions (including rate or other recovery for new investments, transmission service and environmental compliance);resolution of litigation (including pending Clean Air Act enforcement actions and disputes arising from the bankruptcy of Enron Corp. and related matters); AEP’s ability to constrain its operation and maintenance costs; AEP’s ability to sell assets at acceptable prices and on other acceptable terms; the economic climate and growth in AEP’s service territory and changes in market demand and demographic patterns; inflationary and interest rate trends; AEP’s ability to develop and execute a strategy based on a view regarding prices of electricity, natural gas, and other energy-related commodities; changes in the creditworthiness of the counterparties with whom AEP has contractual arrangements, including participants in the energy trading market; changes in the financial markets, particularly those affecting the availability of capital and AEP’s ability to refinance existing debt at attractive rates; actions of rating agencies, including changes in the ratings of debt; volatility and changes in markets for electricity, natural gas, and other energy-related commodities; changes in utility regulation, including implementation of EPACT and membership in and integration into regional transmission structures; accounting pronouncements periodically issued by accounting standard-setting bodies; the performance of AEP’s pension and other postretirement benefit plans; prices for power that AEP generates and sells at wholesale; changes in technology, particularly with respect to new, developing or alternative sources of generation, and other risks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes and other catastrophic events.