American Electric Power (NYSE:AEP) has completed the sale of two of its Texas retail electric providers (REPs) to Centrica, a leading provider of retail energy and other essential consumer services.
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 in 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 opportunity 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 the 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 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.”
American Electric Power 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. The company is based in Columbus, Ohio.
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