American Electric Power
has reached an agreement to sell its Plaquemine Cogeneration Facility in Plaquemine, Louisiana, toThe Dow Chemical Company
Under terms of the agreement, Dow will pay AEP $64m at closing. The sale agreement allows AEP to participate in gross-margin sharing on the Plaquemine facility for five years. Dow will also reduce AEP’s existing below-current-market long-term power supply contract with Dow in Texas by 50 megawatts.
AEP retains the rights to any judgment paid by Tractebel Energy Marketing - now known as Suez Energy Marketing N.A. Inc - for breaching a long-term contract to purchase power generated by the Plaquemine plant. AEP received a judgment of $123m plus interest in August 2005. That judgment is under appeal.
The sale, which must be approved by the Federal Energy Regulatory Commission and must receive antitrust clearance from the Federal Trade Commission or the Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, is expected to close in December 2006. Proceeds from the transaction will be used to reduce debt.
As a result of the transaction, AEP expects to record a one-time net impairment charge of approximately $136m, or approximately $0.34 per share, in its third-quarter earnings.
‘Because of Tractebel’s breach of contract, the Plaquemine Cogeneration Facility has been a drag on our earnings since it began operating in 2004,’ said Michael G. Morris, AEP’s chairman, president and chief executive officer. ‘In 2000, when AEP began the project, Tractebel signed a long-term contract to purchase the large quantities of electricity that were not needed by the Dow Chemical complex. We would not have gone forward with the construction without a buyer for that electricity. When Tractebel breached the contract, we were left to contend with attempting to sell the power into an overbuilt, illiquid regional market, which resulted in losses.
‘Selling the plant does create a one-time loss, but it eliminates what we project would be an escalation of the plant’s ongoing losses,’ Morris said.
The 880-megawatt Plaquemine Cogeneration Facility has four 170-megawatt gas-fired combustion turbine generators and a 200-megawatt steam turbine. It began commercial operations on March 18, 2004.
Steam from the cogeneration facility, located inside Dow Chemical’s plant near Baton Rouge, Louisiana, is supplied to Dow Chemical. Power output from the plant was to be sold to Tractebel under long-term contract.