COLUMBUS, Ohio, Jan. 26, 2005 - American Electric Power (NYSE: AEP) today closed the sale of controlling interest in Houston Pipe Line Co. to Energy Transfer Partners, LP (ETP). According to the terms of the transaction, ETP purchased 98 percent of the partnership interests in Houston Pipeline Co. (HPL) for $825 million and also purchased 30 billion cubic feet (Bcf) of working gas and working capital, for a total consideration of approximately $1 billion. AEP will retain a 2 percent ownership interest in the HPL partnership interests and will provide certain transitional administrative services.
The transaction includes an agreement to indemnify the purchaser for damages, if any, arising from ongoing litigation with Bank of America relating to HPL’s right to use certain natural gas contained in the Bammel storage reservoir. The determination of the amount of the gain on the sale and the recognition of the gain is dependent on the ultimate resolution of the litigation.
HPL includes approximately 4,200 miles of natural gas intrastate and gathering pipelines in Texas with capacity of approximately 2.4 Bcf per day, the 7,000-acre underground Bammel storage reservoir near Houston and related transportation assets.
The sale of AEP’s controlling interest in HPL essentially completes AEP’s divestiture of natural gas assets in the United States.
“We have honed our strategy to focus on our core domestic electric utility business,” said Michael G. Morris, AEP chairman, president and chief executive officer. “Although we had not made a definitive decision to market the HPL assets, once we resolved the Bammel storage ownership issue with Enron we found strong market interest. We determined that moving ahead with the sale of controlling interest in HPL was our best option.”
AEP acquired HPL, including a 30-year, pre-paid lease arrangement to use and operate the Bammel storage reservoir, June 1, 2001, from Enron for approximately $727 million. AEP subsequently purchased the residual rights in and to the Bammel storage reservoir, related pipeline and compressor assets and a quantity of natural gas stored there from the Enron bankruptcy estate for $115 million Nov. 5, 2004. AEP recorded a $300 million pre-tax impairment to the HPL assets in fourth-quarter 2003. This impairment reduced the value of the HPL assets on AEP’s books to approximately $430 million.
Lehman Brothers advised AEP on the sale of controlling interest in HPL.
American Electric Power owns more than 36,000 megawatts of generating capacity in the United States and is the nation´s largest electricity generator. AEP is also one of the largest electric utilities in the United States, with more than 5 million customers linked to AEP’s 11-state electricity transmission and distribution grid. The company is based in Columbus, Ohio.
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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 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; resolution of pending and future rate cases, negotiations and other regulatory decisions (including rate or other recovery for new investments and environmental compliance); oversight and/or investigation of the energy sector or its participants; resolution of litigation (including pending Clean Air Act enforcement actions and disputes arising from the bankruptcy of Enron Corp.); AEP´s ability to constrain its operation and maintenance costs; the success of disposing of investments that no longer match AEP´s business model; AEP´s ability to sell assets at acceptable prices and on other acceptable terms; international and country-specific developments affecting foreign investments including the disposition of any foreign investments; the economic climate and growth in AEP´s service territory and changes in market demand and demographic patterns; inflationary 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 and number of 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 and preferred stock; volatility and changes in markets for electricity, natural gas, and other energy-related commodities; changes in utility regulation, including membership and integration in a regional transmission structure; 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 and other risks and unforeseen events, including wars, the effects of terrorism (including increased security costs), embargoes and other catastrophic events.