American Electric Power Buys Houston Pipe Line

American Electric Power Thursday announced it has made a major move to expand 
its wholesale natural gas business in the Southwest, agreeing to acquire the 
2.4 Bcf/d Houston Pipe Line (HPL) along with the Bammel storage field, one of 
the largest storage fields in North America, from Enron. AEP said since some 
details remain to be worked out, it was not disclosing the terms of the 
transaction at this time. AEP will be acquiring the stock of HPL and it 
expects to complete the deal in the next couple months. 

HPL, one of the two original pipelines joined by Enron Chairman Ken Lay to 
form the company in the mid-1980s, has an extensive 4,400 mile transportation 
and gathering system through southern Texas. The 118 Bcf Bammel field, 
located near the Houston Ship Channel market area, has a 65.7 Bcf working gas 
capacity and is known for its fast in and out capabilities. It has a 1.4 
Bcf/d peak withdrawal rate and a 365 MMcf/d injection capacity. 

"Adding HPL to our natural gas asset portfolio will help us reach our goal of 
becoming a top-10 gas trader and marketer," said Paul Addis, executive vice 
president for AEP. The company currently is second in the U.S. in electricity 
volume. "HPL will enhance AEP's natural gas business with its multiple 
connections into the production areas of Texas, its numerous interconnects 
with intrastate and interstate pipelines and its position in and around 
Houston as a premier provider of natural gas." 

AEP, headquartered in Columbus, OH, has numerous power generation plants in 
the Midwest and Southwest, including a number of gas-fired plants in Texas. 
In 1998 it bought the Louisiana Intrastate Gas (LIG) system. 

John Olson, energy analyst with Sanders, Morris & Mundy in Houston, said "for 
55 years HPL has enjoyed a reputation as one of the strongest pipelines in 
the country. As a stand-alone operation it is first class. It's a very, very 
strong asset." He said HPL has been showing losses of $50 million a year or 
more in recent years, "but those numbers are meaningless" because Enron has 
been using it at discounted transportation rates to underpin its marketing 
efforts. Olson said the sale is a continuation of Enron's move to sell most 
of its hard assets and become a soft asset player. "They are emphasizing 
their trading. They are doing far better at trading." 

For one Houston-based risk manager, the sale of HPL by Enron was a question 
of rate of return. The competition among intrastates in Texas is fiercely 
competitive and for gas delivered to the Houston Ship Channel it can be a 
game of half-cents, with a shipper on one of the multiple intrastates 
undercutting another to try to shave a profit, he said. Enron recognized this 
and wanted out, he speculated. 


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