File No. 70-9515
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM U-1
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APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
SOUTHERN OHIO COAL COMPANY
OHIO POWER COMPANY
1 Riverside Plaza, Columbus, Ohio 43215 (Name of company or
companies filing this statement
and address of principal executive office)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1Riverside Plaza, Columbus, Ohio 43215 (Name of top
registered holding company parent of each applicant or
declarant)
* * *
A. A. Pena, Senior Vice President and Treasurer
American Electric Power Service Corporation
1 Riverside Plaza, Columbus, Ohio 43215
Susan Tomasky, General Counsel
American Electric Power Service Corporation
1 Riverside Plaza, Columbus, Ohio 43215 (Names and addresses
of agents for service)
Ohio Power Company ("Ohio Power"), an electric utility subsidiary of
American Electric Power Company, Inc. ("American"), a registered holding company
under the Public Utility Holding Company Act of 1935, as amended (the "1935
Act"), and Southern Ohio Coal Company ("SOCCo"), a West Virginia corporation, a
subsidiary of Ohio Power, hereby amend their Application or Declaration on Form
U-1 in File No. 70-9515 by amending and restating ITEM 1. DESCRIPTION OF
PROPOSED TRANSACTION as follows:
"A. Background
Southern Ohio Coal Company ('SOCCo'), a West Virginia corporation, is a
subsidiary of Ohio Power Company ('Ohio Power'), an electric utility subsidiary
of American Electric Power Company, Inc. ('American'), a registered holding
company under the Public Utility Holding Company Act of 1935, as amended (the
'1935 Act'). Pursuant to an order issued by the Commission on September 13, 1996
in File No. 70-8611 (HCAR No. 26573), SOCCo was authorized to return excess
capital to Ohio Power through declaration of dividends on SOCCo's common stock
out of capital surplus. Specifically, SOCCo was authorized to pay up to
$68,000,000 out of capital surplus to Ohio Power by December 31, 1998, as one or
more dividends on its common stock. Dividends in that amount have been paid to
Ohio Power and the authority under that order has expired.
In June of 1997, SOCCo received approximately $50,000,000 from an
institutional investor from the sale-leaseback of its Meigs Division coal
preparation plant, intermine coal conveyor and overland coal conveyor ('SOCCo
Plant'), as fully described in File No. 70-8611. The remaining sale-leaseback
proceeds and the cash generated from SOCCo's Meigs Division are in excess of
$15,800,000 and exceed the amount of its working capital requirements, which are
estimated to be $9,928,000. Therefore, SOCCo desires, pending the Commission's
authorization, to pay out of capital surplus dividends in the amount up to
$15,807,000 through December 31, 2001.
B. Current Transaction
SOCCo proposes herein that its Board of Directors declare a dividend out
of its capital surplus of an amount up to $15,807,000 when the cash is
available, but in no event later than December 31, 2001.
Pursuant to Section 31-1-100 of the West Virginia Corporation Act, a West
Virginia corporation is permitted to make a distribution to its shareholders out
of capital surplus if the Articles of Incorporation so provide or if such
distribution is authorized by the affirmative vote of the holders of a majority
of the outstanding shares of each class. Since the Articles of Incorporation of
SOCCo contain no such provision, it is proposed that the distribution will be
authorized by the affirmative vote of Ohio Power, which is the sole holder of
the issued and outstanding shares of common stock of SOCCo. Copies of the
proposed form of action by Ohio Power and the proposed form of resolutions to be
adopted by the Board of Directors of SOCCo are attached hereto as Exhibits B-1
and B-2, respectively.
Surplus is defined as the excess of a corporation's assets over its
liabilities plus stated capital. As shown on the attached financial statements,
at December 31, 1998, SOCCo had a surplus of $68,027,000.1 SOCCo's capital
structure at December 31, 1998 consisted of long-term debt including capital
lease obligations in the amount of $81,880,000 and common equity in the amount
of $68,032,000; stated differently, SOCCo's debt ratio was 27.3% and its equity
ratio was 22.7%. The attached financial statements indicate SOCCo's capital
structure after paying such dividends.
In accordance with this Commission's orders dated December 10, 1982 (HCAR
No. 22770; File No. 70-6447) and September 13, 1996 (HCAR 26573; File No.
70-8611), Ohio Power is entitled to earn up to a specified rate of return on its
capital contributions to SOCCo.2 The terms of the Indenture dated as of October
1, 1972, as amended, between SOCCo and Ohio Power, include such return as a
component of the compensation payable to SOCCo for supplying coal to Ohio Power.
The equity investment has a current 10.43% annual rate of return, which is paid
by the customers of Ohio Power. If the Commission authorizes SOCCo to pay the
requested dividend, Ohio Power's total capital investment in SOCCo will be
reduced by the amount of such dividend. The effect of this reduction in Ohio
Power's capital investment will be to remove from SOCCo's cost of coal the
return associated with the portion of Ohio Power's capital investment
represented by the amount of the dividend. The reduction would be passed on to
SOCCo's customer, Ohio Power, by means of a reduction in the cost of the coal,
thus reducing Ohio Power's fuel expense. Although payment of the dividend might
ordinarily affect the fuel clause rate, it cannot be stated exactly because of
the uncertainty created by the recent deregulation bill in the state of Ohio. In
any event, ratepayer costs will not increase as a result of the payment of this
dividend. If SOCCo dividends the full $15,807,000, Ohio Power's cost of coal
would be reduced by approximately $2,500,000 per year.
SOCCo is seeking authorization from the Commission to pay Ohio Power
dividends of an amount up to $15,807,000 on its common stock out of capital
surplus.
Compliance with Rule 54
Rule 54 provides that in determining whether to approve certain
transactions other than those involving an exempt wholesale generator ('EWG') or
a foreign utility company ('FUCO'), as defined in the 1935 Act, the Commission
will not consider the effect of the capitalization or earnings of any subsidiary
which is an EWG or FUCO if Rule 53(a), (b) and (c) are satisfied. As set forth
below, all applicable conditions of Rule 53(a) are currently satisfied and none
of the conditions set forth in Rule 53(b) exist or will exist as a result of the
transactions proposed herein, thereby satisfying such provision and making Rule
53(c) inapplicable.
Rule 53(a)(1). As of June 30, 1999, American, through its subsidiary, AEP
Resources, Inc., had aggregate investment in FUCOs of $826,236,000. This
investment represents approximately 48.5% of $1,705,250,000, the average of the
consolidated retained earnings of American reported on Forms 10-Q and 10-K for
the four consecutive quarters ended June 30, 1999.
Rule 53(a)(2). Each FUCO in which American invests will maintain books and
records and make available the books and records required by Rule 53(a)(2).
Rule 53(a)(3). No more than 2% of the employees of the operating company
subsidiaries of American will, at any one time, directly or indirectly, render
services to any FUCO.
Rule 53(a)(4). American has submitted and will submit a copy of Item 9 and
Exhibits G and H of American's Form U5S to each of the public service
commissions having jurisdiction over the retail rates of American's operating
company subsidiaries.
Rule 53(b). (i) Neither American nor any subsidiary of American is the
subject of any pending bankruptcy or similar proceeding; (ii) American's average
consolidated retained earnings for the four most recent quarterly periods
($1,705,250,000) represented an increase of approximately $84,051,000 (or 5%) in
the average consolidated retained earnings from the previous four quarterly
periods ($1,621,199,000); and (iii) for the fiscal year ended December 31, 1998,
American did not report operating losses attributable to American's direct or
indirect investments in EWGs and FUCOs.
American was authorized to invest up to 100% of its consolidated retained
earnings in EWGs and FUCOs (HCAR No. 26864, April 27, 1998) (the '100% Order')
in File No. 70-9021. In connection with its consideration of American's
application for the 100% Order, the Commission reviewed American's procedures
for evaluating EWG or FUCO investments. Based on projected financial ratios and
on procedures and conditions established to limit the risks to American involved
with investments in EWGs and FUCOs, the Commission determined that permitting
American to invest up to 100% of its consolidated retained earnings in EWGs and
FUCOs would not have a substantial adverse impact upon the financial integrity
of the AEP System, nor would it have an adverse impact on any of the operating
company subsidiaries or their customers, or on the ability of state commissions
to protect the operating company subsidiaries or their customers. Since similar
considerations are involved hereunder with respect to Rule 54, Applicant should
not be required to make subsequent Rule 54 filings once American's aggregate
investment in EWGs and FUCOs exceeds 50% of its consolidated retained earnings."
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned companies have duly caused this statement to be signed on
its behalf by their duly authorized officer.
SOUTHERN OHIO COAL COMPANY
OHIO POWER COMPANY
By: /s/ A. A. Pena
Treasurer
October 8, 1999
1Total assets as of December 31,1998 were $300,074,000; total liabilities
were $232,042,000; stated capital was $5,000. Since capital surplus is the
excess of assets over liabilities plus stated capital, SOCCo had surplus of
$68,027,000 ($300,074,000 minus $232,042,000 minus $5,000 equals $68,027,000).
The capital surplus as of December 31, 1998, was comprised of retained earnings
in the amount of $23,338,000, of which $138,000 is allocable to Meigs and
$23,200,000 is allocable to SOCCo's currently inactive Martinka Division, and
other paid-in capital in the amount of $44,689,000.
2As of December 31, 1998, Ohio Power's common equity in SOCCo totals
$68,032,000 comprised of $5,000 in common stock, $23,338,000 of retained
earnings and $44,689,000 of paid-in capital. The retained earnings balance does
not generate a return. The equity investment has a current 10.43% annual rate of
return.
SOCCo sold its Martinka Division and most of the Martinka-related coal
reserves to an unaffiliated company. No return on equity investment associated
with that operation has been billed since the Division ceased mining coal
effective July 1, 1992. All costs associated with the Martinka Division since
then are billed to Ohio Power, thereby eliminating any earnings effect to SOCCo.
Since July 1, 1992, SOCCo's billable equity layers have been distributed to the
Meigs and Martinka Divisions based on a frozen net book value formula method,
with 74.37% allocable to the Meigs Division.
