美國電力 (AEP) 2002 Q1 法說會逐字稿

Thank you for standing by, and welcome to the sale of Texas REP conference call. At this time, all participant lines are in a listen-only mode. Later, there will be a question and answer session, and instructions will be given at that time. If you do need assistance during the call today, please press the "0" followed by the star. As a reminder, today's call is being recorded. At this time then, I'd like to turn the conference over to Armando Pena. Please go ahead, sir.

Good morning and welcome all of you to this conference call to discuss the announcement that AEP issued this morning related to the retail REPs in Texas. We have two groups of folks from AEP, I mean Columbus, with Susan Tomaski, who is our CFO. But actually, the bulk of the folks who will be talking this morning are in Corpus Christi. And what I would like to do is actually turn over this call to Tom Shockley, who is the Chief Operating Officer of the company -- who is in Corpus, and he will lead the call from there. So Tom, here you go.

Thanks Armando. It is indeed a pleasure to be able to tell you that AEP has just entered into a definitive agreement with Centrica to transfer two of AEP's Texas-affiliated retail electric providers or REPs, that being CP&L retail energy group and West Texas Utilities, WTU as a group that serves approximately 860,000 small commercial and residential customers. The ultimate price that will be paid will be determined by an independent appraiser, and we expect that final price to be determined in mid summer or perhaps around June 30th. The treatment of this particular transaction is totally consistent with AEP's [indiscernible] of interest accounting that is being applied to the CSW acquisition of several years ago. The transaction has a collar of 133 million to a 153 million with regard to the appraisal that I mentioned earlier. If it is outside of that collar, the disadvantaged party has a right to renegotiate or take another look at the transaction.

Just the quick numbers, this range equates to approximately a $155 to $178 per customer. We're excited about this transaction because it continues to position AEP to focus on the things that we do best. It gives us an opportunity to continue to be an aggressive wholesale energy provider, not only nationally, but in the state of Texas, while at the same time, allowing a company to have -- that has expertise in the retailing side of the business to move in and take over our customers. We think that it's going to be truly a win-win situation, actually win-win-win. We think it's going to be good for all parties involved. The transaction, in fact, is going to be virtually transparent to the customers because the transaction invasions and includes the sale of the name Central Power and Light Company, CP&L as well as West Texas Utilities, WTU. So from a customer perspective, there will be very, very little differences, if any, that would be noticeable. Additionally, AEP will remain very active as the supply partner with these customers, because part of the transaction includes a number of purchase power agreements where AEP will be providing the actual supply of energy for Centrica to deliver to these customers. Likewise, AEP has developed the back office activities to support this business, and we will be continuing to provide that particular service to Centrica for these customers as well. Additionally, the transparency to the customer will include the fact that AEP will continue to operate and maintain all of the wires and the generation in Texas that it currently has to serve these customers. So truly, it will be an opportunity for us to focus on what we do best and for Centrica to have an opportunity to bring some real expertise from the retail mass-market arena into serving these customers. The transaction will be subject to two primary regulatory approvals. We will have to get approval from the Public Utility Commission of Texas, and we'll also have to get clearance under the Hart-Scott Rodino from either the DOJ or the Federal Trade Commission. The profits, we do not think, will be terribly lengthy. There will a little bit of time involved, but we would anticipate that we could close this in the fourth quarter. With regard to earnings impact, we would anticipate that in the quarter that we close, we would have a one-time nonrecurring gain as a consequence of the transaction, and because of the combination of ongoing services and the opportunity for continued robust activity from the wholesale side, we would see no ongoing negative impact to earnings, going forward.

I think we might best use our time at this point to move into questions and answers, and we will try to respond to any questions that any of the callers might have.

Tom, before we start taking questions, let me just take a minute to read our disclosure statement just to say that this discussion we're about to engage in includes -- may include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements reflect assumptions and involve a number of risks and uncertainties. Among the factors, both foreign and domestic, that could cause actual results to differ materially from forward-looking statements are electric lower in customer growth, abnormal weather conditions, available sources of and prices for fuel and gas, availability of generating capacity, risks related to energy trading and construction under contract, the speed and degree to which competition is introduced to our power generation business, the structure and timing of a competitive market for electricity and its impact on prices, the ability to recover net regulatory assets of its stranded cost and implementation cost in connection with deregulation or generation in certain states, the timing of the implementation of AEP's restructuring plan, new legislation and government regulations, the ability to successfully control costs to successive new business ventures, international developments affecting our foreign investments, their economic climate and growth in our service and trading territories -- both domestic and foreign, the ability of the company to comply with and to successfully challenge innumerable amount of regulations, and to successfully litigate claims of the company-violated [indiscernible] Act, inflationary trends, litigation concerning AEP's merger with CSW, changes in electricity and gas market prices and interest rates, fluctuations in foreign currency exchange rates, and other risks and unforeseen events.

Thank you. And ladies and gentlemen, if you do wish to ask a question, please press the "1" on your touch-tone phone. You'll hear a tone indicating you've placed in queue, and you may remove yourself from queue at any time by pressing the pound key. If you are using a speakerphone, please pick up your handset before pressing any of the numbers. So once again, if you do have a question, please press "1" at this time.

And our first question comes from David Ranelcline with Morgan Stanley DeanWitter. Please go ahead.

Yes, good morning everyone. Just two quick questions here. In terms of the arrangement to sell power to Centrica, will you be selling a fixed value, fixed price type deals or will you essentially have the obligation to deliver for all of the loads that Centrica may be serving? And that's the first question. Second question I have, how are you going to record the $39 million up front payment for the service agreement, and if it's deferred revenue, over how long will that be amortized? Thomas V Shockley, American Electric Power - Vice President and COO With response to the purchase-power agreements from AEP to Centrica to serve the load, it is a combination of a number of different agreements that basically are structured to provide them a shake load but not a load-following commitment. The purchase-power agreement is projected to cover somewhere between 80 and 90 percent of their requirements, and they have some flexibility with regard to the last layer or two being called that they can make in time of need, but we'll have the ability to understand exactly what their needs are and be able to work around that. So it's a very -- it's a structured deal that has time-of-day, time-of-year type commitments, but it's not a load following load.

So you don't have open-ended liability to deliver power to those end customers? At some point, AEP's obligation is fixed? Thomas V Shockley, American Electric Power - Vice President and COO That's correct, and the obligation -- the initial obligation is a two-year obligation.

Okay. And is the pricing fixed or does that index somehow? Thomas V Shockley, American Electric Power - Vice President and COO There is a tranche of it that's fixed, and then several tranches that are indexed.

Okay. And again, I guess just the question about 39 million for the service agreement. Thomas V Shockley, American Electric Power - Vice President and COO Actually, that service agreement is for service that we'll be providing on an ongoing basis. And so as that service is rendered and revenues received, we will be recording the earnings. And how many years is that expected to be right now for amortizing the deferred revenue? Thomas V Shockley, American Electric Power - Vice President and COO Well, it's a two-year contract.

Okay. But is it possible that that 39 million will be for services beyond that time period or is this strictly for those two years? Thomas V Shockley, American Electric Power - Vice President and COO That's strictly for those two years, and we would hope that we can create a positive relationship going forward with Centrica to be a partner with them, not only here longer perhaps, but in other areas as well.

Okay, thank you very much. I appreciate it.

Thank you and again if anyone does have a question please press the "1" on your phone at this time.

And at this time I'm showing no further questions in queue. Thomas V Shockley, American Electric Power - Vice President and COO Very good. Well, we appreciate your listening in, and for those of you who may be listening to this on a replay, it's a busy morning for a conference call. We'll be happy to take your calls later after you have them. So thanks again, all.

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