Entergy Merges with Koch Industries to Create $1 billion Energy Company
According to Entergy CEO J. Wayne Leonard, "The complementary strengths being contributed by Entergy and Koch – in natural gas and in the marketing and trading of power and other energy commodities – bring a unique set of resources to the new company. Entergy-Koch will have the assets and the scale to compete and grow. It will trade volumes in excess of 100 million MWh of electricity annually and 5 Bcf of gas daily – a scale that is generally recognized as necessary for ongoing profitability. For Entergy, the new company will not only contribute to our earnings growth on its own but will offer risk-management tools to our existing businesses."
The new company will be the first venture between Koch, one of the nation's most successful energy traders, and Entergy, the third-largest U.S. generator of electric power and the nation's largest natural gas-fired generating fleet. The attributes of Entergy-Koch L.P., which will have its asset base in the Gulf South and a trading presence in North America and Europe, clearly set it apart from its competitors.
Entergy-Koch L.P. will deliver, market and trade power, natural gas and other energy-related commodities, including weather derivatives, through wholly owned subsidiaries, including a pipeline company, which will operate the interstate natural gas pipeline system now called Koch Gateway.
In addition to the Koch Gateway Pipeline Company interstate pipeline system and related storage assets, Koch Industries will also contribute the capabilities of its affiliate Koch Energy Trading, which markets and trades gas, power and weather derivatives. Entergy will contribute to the venture its power marketing and trading businesses – consisting of Entergy Power Marketing Corporation in the United States, and Entergy Trading and Marketing in Europe – and also cash. Entergy estimates this cash contribution at approximately $350 million, $150 million of which would be funded with equity and $200 million with debt.
"This innovative new company promises to add value for all energy customers," said Joe Moeller, president of Koch Industries. "Entergy-Koch would offer customers a variety of services to mitigate risk, helping them minimize potential volatility in the marketplace as deregulation continues to transform the gas and electric power industries. Entergy's trading groups bring significant capabilities in physical power markets in North America and Europe that would be key to the success of the venture. We're pleased to be working with Entergy and are enthusiastic about furthering our vision for building a world-class energy marketing and trading company."
The deal is still subject to the completion of some final details, and the merger will of course require the approval of both company board, FERC, and the SEC. All of this is expected to take about six to nine months.
Entergy-Koch L.P. will benefit from Koch Energy Trading's leading position in energy commodities markets, including weather derivatives, and from Koch Energy Trading's highly disciplined commodity trading controls, policies, procedures, systems and infrastructure. The new company will also benefit from Entergy's capabilities in domestic and international power marketing and trading. Entergy-Koch L.P. will be able to provide customers a broad range of commodity sources and options, including gas, oil, coal and power, weather derivatives and additional risk management tools.
Entergy-Koch L.P. will also market the power and provide risk management and trading services for Entergy's existing and future merchant plants. Entergy will retain its growing merchant generation fleet, enabling it to establish a singular focus on developing profitable merchant plants, while benefiting from its relationship with Entergy-Koch's skilled trading and risk management team. Entergy Corp. is expecting the venture to contribute $0.25 to $0.30 to its earnings in the venture's first full year of operation.
The expanded scope and resources of the new venture are expected to create additional growth opportunities for weather derivatives – financial instruments designed to enable utilities and other businesses to hedge their risks of cost or sales volume fluctuations associated with temperature changes. Koch Energy Trading is now a market leader in that area, currently accounting for about 30 percent of such trades.
Entergy-Koch L.P. will be headed by Kyle Vann, currently senior vice president, Koch Industries, Inc. Kyle has a broad range of leadership experience in the energy industry, including leadership roles as diverse as refinery management, products trading, oil field services, and economic and acquisitions management. Mr. Vann joined Koch in 1979 and currently leads the company's power, gas and gas liquids businesses, including management of these highly successful marketing and trading businesses and related assets.
An eight-member Board of Directors – four each from Koch and Entergy, will govern Entergy-Koch L.P. Entergy Corporation's board chairman, Robert v.d. Luft, would also be the chairman of the board of Entergy-Koch L.P. In addition to Luft, Entergy's board members would include Wayne Leonard, Entergy's CEO, Don Hintz, Entergy's president, and John Wilder, Entergy's CFO. Koch's board members would include Charles Koch, Koch Industries' chairman and CEO, Joe Moeller, Koch Industries' president and COO, Bill Hanna, Koch Industries' vice chairman, and Sam Soliman, Koch Industries' incoming CFO.
The venture will be headquartered in Houston.