AEP and CSW Settlement with Intervenor Groups Would Result In Rate Reductions Totaling $221 Million for Texas Customers During Six-Year Period Following Approval of Proposed Merger

May 5, 1999•News Release

Columbus, Ohio, and Dallas, Texas (May 4, 1999) – American Electric Power Company, Inc., (NYSE: AEP) and Central and South West Corporation (NYSE: CSR) today announced a stipulated settlement with several intervenor groups that addresses the proposed merger between AEP and CSW. The settlement would result in combined rate reductions totaling $221 million over a six-year period for Texas customers of the three CSW Texas electric operating companies after the settlement is approved by the Public Utility Commission of Texas (PUCT) and the merger is completed as planned. The settlement with the General Counsel of the PUCT, the State of Texas, the Texas Industrial Energy Consumers, the Low Income Intervenors, the Office of Public Utility Counsel (OPUC) and the Steering Committee of the Cities of McAllen, Corpus Christi, Victoria, Abilene, Big Lake, Vernon and Paducah expands upon a previous Texas settlement announced on Nov. 12, 1998 with the OPUC and the Cities’ Steering Committee. That prior settlement agreement provided for Texas retail rate reductions of $180 million over the six years following completion of the merger. The new settlement agreement proposes additional rate reductions totaling $41 million for a total of $221 million. The settlement also calls for the divestiture of a total of 1,604 megawatts of existing and proposed generating capacity within Texas. The merger settlement in Texas follows settlements during the last few weeks in Oklahoma, in Indiana, with the International Brotherhood of Electrical Workers and with six wholesale customers. These settlements reflect increased momentum for completion of the merger, according to E. Linn Draper Jr., AEP’s chairman, president and chief executive officer. “Given that all of the retail jurisdictions of two of the CSW operating companies and part of a third are located in Texas, this settlement, which resolves all issues with the signatories, is a very significant step toward completion of our merger,” Draper said. “The Texas settlement and the other agreements we’ve recently announced follow months of discussions between AEP and CSW representatives and with representatives of many state agencies and customer groups. We are making tremendous progress with our states and we’re looking forward to the June hearing before the Federal Energy Regulatory Commission. “This merger is good for the consumer, competition and our industry, in general, as well as beneficial to our employees and shareholders,” Draper said. “We want to complete the regulatory approval process so that we can take the next major steps: providing the benefits of the merger to our customers and preparing our new company for the future competitive electricity marketplace.” The proposed settlement in Texas provides for combined rate reductions totaling approximately $221 million over a six-year period for CSW’s electric operating companies through rate-reduction riders. The rate-reduction riders will become effective upon approval of the settlement and completion of the merger. The first rate-reduction rider provides for $84.4 million in net-merger savings. The amounts are to be credited to Texas customers’ bills through a net-merger-savings-rate-reduction rider over six years following completion of the merger. Additional rate-reduction riders will be implemented to resolve issues associated with CSW’s Central Power and Light Company (CPL), West Texas Utilities Company (WTU) and Southwestern Electric Power Company (SWEPCO) subsidiary rate and fuel reconciliation proceedings in Texas. The settlement provides for an additional reduction of $136.6 million, which will be implemented over the six years following completion of the merger. The cumulative amount of these rate-reduction riders will result in total reductions over the six-year period in the following amounts:

 Cumulative Reduction Annual Reduction
 CPL $142.8 million $23.8 million
SWEPCO $42.1 million $7.0 million
WTU $36.1 million $6.0 million

AEP and CSW also agree to divest a total of 1,604 megawatts of generation capacity in the Electric Reliability Council of Texas (ERCOT), while retaining the right to purchase power from the CPL plants during peak periods. The generation to be divested includes the previously announced plan to divest 250 megawatts of CSW Energy’s Frontera Plant, which is currently under construction near Mission, Texas, as well as the following power plants currently owned by CPL:

Lon C. Hill Power Station Corpus Christi 546 megawatts
Nueces Bay Power Station Corpus Christi 559 megawatts
Ennis S. Joslin Power Station Point Comfort 249 megawatts

If it is determined that the divestiture can proceed immediately after the merger closes without jeopardizing pooling-of-interests accounting treatment for the merger, sale of the plants would begin no later than 90 days after the merger closes. Without that determination, the divestiture would occur consistent with Securities and Exchange Commission pooling-of-interests requirements, approximately two years after the merger closes. Other provisions of the integrated settlement include: · Accelerate depreciation and amortization by CPL of $60 million over the six-year period to reduce its amount of potentially stranded cost. · Quality-of-service standards that the newly merged company must meet. · Continuation of programs for low-income and elderly customers and expansion of these programs by $4.5 million over the six-year period. · In the absence of legislative or regulatory initiatives establishing affiliate standards, AEP and CSW have agreed to affiliate standards that will be observed by their subsidiaries. · As provided in the earlier settlement, CSW has agreed to withdraw its appeal of the CPL glide-path rate reduction of $13 million implemented in May 1998 as well as the second glide-path rate reduction of $13 million scheduled to take effect in May 1999 if the settlement is approved and the AEP/CSW merger is completed. · AEP and CSW commit to file prior to Dec. 31, 2000, with the Federal Energy Regulatory Commission (FERC) an application to transfer the operational control of bulk transmission facilities located in the Southwest Power Pool (SPP) to a FERC-approved Regional Transmission Organization directly interconnected with AEP’s existing SPP transmission facilities. · CPL, SWEPCO and WTU agree not to seek an increase in base rates before Jan. 1, 2003, or three years from the effective date of the merger, whichever is later. All signatories to the agreement except the Texas PUCT General Counsel have agreed not to initiate rate reviews that would result in a change in base rates prior to Jan. 1, 2001. · The settlement proposal also provides for a sharing of margins from off-system sales on the wholesale electricity market after the effective date of the merger. Applications seeking approval of the merger also have been filed with the Louisiana Public Service Commission, the Federal Energy Regulatory Commission and the Securities and Exchange Commission. The Indiana Utility Regulatory Commission has approved a settlement. The Arkansas Public Service Commission has granted conditional approval of the merger. On April 26, an Oklahoma administrative law judge recommended approval of the merger, subject to conditions that should be resolved by mid-June. Hearings have been postponed in Louisiana, as AEP and CSW work with all parties on settling all issues in that state. On April 28, a settlement agreement was reached with the International Brotherhood of Electrical Workers (IBEW) that will result in the IBEW local unions withdrawing their opposition to completion of the merger. Additionally, the Nuclear Regulatory Commission has approved the license transfer application regarding the South Texas Project nuclear power plant. Central and South West Corporation is a Dallas-based public utility holding company that owns four U.S. electric utility subsidiaries with 1.7 million customers, a regional electricity company serving 2 million customers in the United Kingdom, and nonutility subsidiaries involved in energy-related investments as well as subsidiaries that offer telecommunications, energy efficiency and financial transactions. On Dec. 22, 1997, CSW announced a definitive merger agreement for a tax-free, stock-for-stock transaction with AEP. American Electric Power Company, Inc., a global energy company, is one of the United States' largest investor-owned utilities, providing energy to 3 million customers in Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. AEP has holdings in the United States, the United Kingdom, China and Australia. Wholly owned subsidiaries provide power engineering, energy consulting and energy management services around the world. The company is based in Columbus, Ohio.

For More Information, Contact: For American Electric Power: Pat Hemlepp 614/223-1620 For Central and South West Larry Jones 214/533-1276

Topic

Corporate View All Topics

Related News

View More News Stories