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1 September 2006 -- American Electric Power (AEP) has reached an agreement to sell its Plaquemine Cogeneration Facility in Plaquemine, Louisiana, US, to The Dow Chemical Co.
Under terms of the agreement, Dow will pay AEP $64 million at closing. The sale agreement also 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 MW. AEP retains the rights to any judgment paid by Tractebel Energy Marketing Inc. (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 $123 million plus interest in August 2005. That judgment is under appeal.
"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-MW Plaquemine Cogeneration Facility has four 170-MW gas-fired combustion turbine generators and a 200-MW steam turbine. It began commercial operations on March 18, 2004. Steam from the cogeneration facility, located inside Dow Chemical's plant near Baton Rouge, La., is supplied to Dow Chemical. Power output from the plant was to be sold to Tractebel under long-term contract.
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