FERC, in an order issued on Sept. 22, authorized a proposed transaction under which AEP Texas North and AEP Texas Central will merge into a single entity.
As noted in the order, in June, American Electric Power (NYSE:AEP), on behalf of its affiliates AEP Texas Central, AEP Texas North and AEP Utilities, submitted an application seeking authorization for an internal corporate reorganization under which AEP Texas North and AEP Texas Central will merge into a single entity.
AEP Texas Central and AEP Texas North, which are wholly owned subsidiaries of AEP, provide wholesale and retail electric service entirely within the borders of ERCOT, FERC noted. While AEP Texas North has divested its electric generation facilities, it has retained an undivided ownership interest of 54.69% in the 690-MW Oklaunion generation facility and certain other mothballed power plants, FERC said.
AEP Texas Central and AEP Texas North operate under the name AEP Texas and provide wholesale transmission service at rates on file with FERC, the commission said. AEP Utilities, a first tier subsidiary of AEP, is the direct parent of AEP Texas Central and AEP Texas North.
FERC added that according to the applicants, the proposed transaction, which they expect will occur in 4Q16, involves the merger of AEP Texas Central and AEP Texas North into AEP Utilities, which will then change its name to AEP Texas.
The companies have noted that the purpose of the transaction is to align the legal structure of AEP Texas Central and AEP Texas North with the current organizational and operational structure. FERC also said that according to the companies, the proposed transaction should lead to improved access to financing for the newly formed legal entity, AEP Texas, because it will be able to issue one set of financial instruments and access financial markets with a larger and stronger financial base.
Furthermore, the companies have noted that the proposed transaction will allow AEP Texas to streamline its financial and regulatory filings.
“Based on [the] applicants’ representations, we find that the proposed transaction will not have an adverse effect on horizontal competition,” FERC said. “As [the] applicants correctly note in their application, the commission has generally held that internal corporate reorganizations where there is no addition of assets from outside the corporate family do not have adverse effects on competition. Therefore, because no generating assets will be entering or leaving the AEP corporate family as a result of the proposed transaction, we find that the proposed transaction will not have an adverse effect on horizontal competition.”
Similarly, FERC said that it finds that the proposed transaction will not have an adverse effect on vertical competition, noting that the applicants have demonstrated that the proposed transaction will not result in AEP owning or controlling any new entities that provide inputs to electricity products and/or new entities that provide electric generation products.
In addition, FERC said, AEP Texas will provide wholesale transmission service over the AEP Texas transmission assets under the rates and terms of the AEP open access transmission tariff on file with FERC.
FERC also noted that it finds that the proposed transaction will not have an adverse effect on rates. The applicants have said that after the proposed transaction, the two divisions will continue to charge customers the same rates as they would have been charged had the divisions remained legally separate entities, FERC said.
Among other things, FERC also said that it finds no evidence that either state or federal regulation will be impaired by the proposed transaction. After the proposed transaction is consummated, FERC will regulate AEP Texas in the same manner as it regulates AEP Texas Central and AEP Texas North today, the commission said.