American Electric Power has signed a memorandum of understanding with MidAmerican Energy Holdings Co. to form a joint venture company to build and own new electric transmission assets within the Electric Reliability Council of Texas.
Under the terms of the MOU, AEP will contribute AEP Texas transmission assets currently under construction valued at approximately $100 million to the joint venture company. A MidAmerican Energy Holdings Co. subsidiary will make a cash contribution to the joint venture company. The equity ownership of the new company would be split 50-50 between AEP and MidAmerican Energy Holdings Co. with an anticipated utility capitalization structure targeted at 40 percent equity and 60 percent debt.
AEP and MidAmerican intend for the joint venture company to invest in additional transmission projects in ERCOT. The scope of the future transmission investment will be determined by the board of the joint venture company, which will include two representatives from AEP and two from MidAmerican. Subject to completion of operating and service agreements by the end of 2006 and approval of regulatory filings in 2007, the companies anticipate up to $1 billion of projects could be included in the new company over the next several years. The joint venture would operate as a transmission utility and would be subject to the rules and regulations governing utilities within ERCOT. Initially, AEP will act as project manager and will develop, build and operate the transmission lines and facilities for the joint venture company.
AEP’s contribution to the joint venture will include transmission assets already under construction in the Laredo area that are designed to strengthen transmission grid reliability in South Texas and reduce the need for older reliability-must-run generation in that area. The assets include a variable frequency transformer, a device that will facilitate bidirectional power flow between the U.S. and Mexico transmission grids, and other associated transmission system facilities.
AEP and MidAmerican Energy Holdings expect to execute definitive agreements for the joint venture by the end of 2006. The joint venture will require regulatory approval from the Public Utility Commission of Texas and the Federal Energy Regulatory Commission (for the transfer of AEP Texas transmission assets to the joint venture). The companies anticipate the joint venture will begin operations in the second half of 2007.