By the OGJ Online Staff
HOUSTON, Oct. 8 -- American Electric Power Co. Inc. Monday said it agreed to buy 4,000 Mw of coal-fired electric generation in the UK from Edison Mission Energy, a unit of Edison International, for $960 million.
The largest US power producer said it is buying the 2,000 Mw Fiddlers Ferry and the 2,000 Mw Ferrybridge plant plants for about $200/kw. The deal will increase AEP's earnings about 6¢/share in 2002, CEO E. Linn Draper Jr. said on a conference call and is expected to be completed by yearend.
AEP executives reported the majority of the output is the plants is hedged forward for the first few years. They said the plants have a capacity factor of about 40% tied primarily to restrictions on sulfur emissions.
Draper said the acquisition is consistent with the strategic objectives "of our European business, which is to build a trading, marketing, and optimization business across key aspects of the wholesale fuel and power generation value chain in Europe."
With the prospect of a "vigorous" wholesale market developing in the UK and Europe, Draper said the acquisition will give the company both attractively priced power and a "window on the market." He said AEP has successfully linked its US wholesale marketing and trading operations to generating assets. "This acquisition allows us to replicate our successful US wholesale model in the UK," Draper said.
He noted AEP has "looked at a lot" of potential deals in the past few years but until now hadn't found one that was particularly attractive. The company said it will fund the acquisition with a combination of short-term debt and nonrecourse debt. Executives said the company is still negotiating with its banks, but expected the nonrecourse portion to represent more than half the deal.
Since it will generate sufficient cash flow after all debt service, AEP said it anticipated credit ratings will not be impacted. The transaction also includes the fuel supplies associated with Fiddler's Ferry and Ferrybridge.
Separately, Edison Mission said the deal and related currency adjustments are expected to result in a aftertax write-off of about $1.18 billion. Edison Mission bought the plants from the UK's Powergen PLC for about $2 billion in 1999.
Edison Mission CEO Al Fohrer said the sale will cause a significant one-time loss but the disposition also is expected to result in an improvement in the company credit rating and earnings potential. The company also said it contracted for the sale of seven interests in undisclosed power plants in the US, as part of a previously reported plan to dispose of noncore assets.
"These sales are above book value and, upon final closing, will generate net proceeds to the company of approximately $460 million," Fohrer said. In addition, the company reported concluding a new $750 million credit facility with 18 lending institutions Sept. 18. The new facility includes a component that expires in September 2002 and another in September 2004.