<PAGE> File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM U-1
__________________________________
APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
(Name of companies filing this statement and
addresses of principal executive offices)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Name of top registered holding company
parent of each applicant or declarant)
* * *
G. P. Maloney, Executive Vice President
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
John F. Di Lorenzo, Jr., Associate General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
(Names and addresses of agents for service)
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
A. Introduction
American Electric Power Service Corporation ("Service
Corporation"), a subsidiary service corporation of American
Electric Power Company, Inc. ("American"), a holding company
registered under the Public Utility Holding Company Act of 1935
("1935 Act"), proposes to amend Schedule A ("Proposed Amendment")
to its Service Agreements ("Service Agreements") with American and
the direct and indirect subsidiaries of American. The Service
Corporation currently provides services under the Service
Agreements to American, eight electric utility companies (AEP
Generating Company ("AEGCo"), Appalachian Power Company ("APCo"),
Columbus Southern Power Company ("CSPCo"), Indiana Michigan Power
Company ("I&M"), Kentucky Power Company ("KPCo"), Kingsport Power
Company ("KgPCo"), Ohio Power Company ("OPCo") and Wheeling Power
Company ("WPCo") (collectively, the "Electric Utility Companies"),
and various active and inactive non-utility companies, including
coal subsidiaries of certain Electric Utility Companies and AEP
Energy Services, Inc., AEP Resources, Inc., AEP Resources
International, Limited and AEP Investments, Inc. The Proposed
Amendment will reflect changes in the services provided by the
Service Corporation and the related cost allocations that began
January 1, 1996.
B. Realignment
In order to better position American and its subsidiaries for
increasing competition among suppliers of electricity, on January
1, 1996, the Service Corporation and Electric Utility Companies
began to realign their organizations to create distinct power
generation and energy transmission and distribution groups.
Although they will not change their corporate names, the Service
Corporation and Electric Utility Companies also began to do
business as American Electric Power on January 1, 1996.
The realignment establishes four functional business units:
Power Generation; Energy Transmission and Distribution; Nuclear
Generation; and Corporate Development. Various administrative and
other support services will be provided to these business units.
The business units and support services are functional
organizations placed over existing corporate structures. In the
realignment, no new entities will be formed and no utility assets
will be transferred.
1. Power Generation
Power Generation is responsible for fossil and hydro
generating stations owned and operated by APCo, CSPCo, I&M, KPCo
and OPCo. It has four groups: Fossil and Hydro Production; Power
Generation Engineering; Environmental Services; and Fuel Supply and
Business Support.
(a) Fossil and Hydro Production is responsible for operating
and maintaining the fossil and hydro generating stations.
Management and administrative and support services are being
centralized in Columbus. Outage and other maintenance and
technical support is provided by two regional service
organizations. Operating and running maintenance continues to be
located at each generating station. These changes are expected to
result in a net reduction of approximately 780 positions: 1,200
positions eliminated at the generating stations and 420 positions
created in the regional service organizations.
(b) Power Generation Engineering includes civil, mechanical,
electrical, controls and other engineering generally relating to
the fossil and hydro generating stations and is located in
Columbus.
(c) Environmental Services provides permitting and other
regulatory services relating to environmental laws for Power
Generation and for the other business units.
(d) Fuel Supply and Business Support continues to be
responsible for fuel supply and procurement and provides business
unit planning and financial management.
2. Energy Transmission and Distribution
Energy Transmission and Distribution is responsible for the
transmission and distribution system owned by APCo, CSPCo, I&M,
KPCo, KgPCo, OPCo and WPCo. It has three primary groups: Energy
Transmission; Energy Distribution; and Energy Delivery Support. It
also has business unit planning and associated business development
groups.
(a) Energy Transmission is responsible for engineering,
construction, operation and maintenance of the transmission system.
Construction, operation and maintenance is divided into three
regions, headquartered in Columbus, Fort Wayne and Roanoke. (See
Exhibit 4.) Existing operations centers in Columbus, Fort Wayne
and Roanoke continue to operate the transmission system.
Transmission System Engineering is performed at four
offices, located in Columbus, Ashland, Fort Wayne and Roanoke. The
Columbus office is responsible for general systemwide transmission
engineering as well as all transmission engineering in central,
eastern and southern Ohio, northern Kentucky and northern West
Virginia. The Ashland, Fort Wayne and Roanoke offices are
responsible for regional transmission engineering.
(b) Energy Distribution is organized into twelve regions
responsible for systemwide distribution networks as well as
customer services. (See Exhibit 3.) Distribution Engineering and
Operations is headquartered in Columbus with regional offices
located in Columbus, Fort Wayne and Roanoke. Customer Services is
located in Columbus, Fort Wayne and Roanoke with a call center in
Columbus. Additional call centers are expected to be established
in Ashland, Fort Wayne and one additional location.
(c) Energy Delivery Support provides technical support for
Energy Transmission and Distribution. It also includes
Telecommunications, which provides services to other business units
as well.
3. Nuclear Generation
Nuclear Generation is responsible for the Donald C. Cook
Nuclear Plant ("Cook Plant") owned by I&M and located in
southwestern Michigan. During 1996, Nuclear Generation will
relocate its Columbus personnel to the Cook Plant in Michigan. In
connection with the realignment, 120 positions will be eliminated:
70 positions in Michigan and 50 positions from the combination of
the Columbus and Michigan organizations.
4. Corporate Development
Corporate Development is responsible for developing new
business opportunities, including non-utility activities.
5. Support Services and State Officers
Management of the services supporting these business units and
the support services themselves are being centralized. Accounting
functions will be consolidated in Columbus and Canton over the next
five years, Human Resources is being organized into four service
delivery centers, Marketing is being expanded and other services
will be reorganized and renamed. As a result of the consolidation
of Accounting and implementation of new accounting systems,
approximately 180 staff positions are expected to be eliminated by
2000.
These consolidated support services will replace the executive
and administrative offices of the five major Electric Utility
Companies. Five State Officers have been appointed to lead state-
level relations with regulators, legislators, media, community
leaders and customers in the seven states in which the Electric
Utility Companies operate.
C. Reasons for the Realignment
The Service Corporation and Electric Utility Companies are
realigning their organizations in order to (i) unbundle electric
services consistent with customer desires and the evolving
regulatory structure of the industry and (ii) operate more
efficiently.
Customers no longer want "one-size-fits-all" universal
electric service; they want customized services at competitive
prices. In order to achieve this, bundled electric services must
be unbundled. Electric companies have traditionally provided
generation and energy delivery services as a single package.
Unbundling will enable electric companies to generate and sell
electricity in the competitive marketplace while separately
providing delivery services to its customers.
The Federal Energy Regulatory Commission ("FERC") has
acknowledged the need to separate generation and transmission in
the wholesale market. (See the Notice of Proposed Rulemaking
(RM95-8-000), dated March 29, 1995.) In that Release, FERC stated:
The Commission's preliminary view is that functional
unbundling of wholesale services is necessary to implement
non-discriminatory open access. Accordingly, the proposed
rule requires that a public utility's uses of its own
transmission system for the purpose of engaging in wholesale
sales and purchases of electric energy must be separated from
other activities, and that transmission services (including
ancillary services) must be taken under the filed transmission
tariff of general applicability. The proposed rule does not
require corporate unbundling (selling off assets to a non-
affiliate, or establishing a separate corporate affiliate to
manage a utility's transmission assets) in any form, although
some utilities may ultimately choose such a course of action.
The proposed rule accommodates corporate unbundling, but does
not require it.
Although the proposed rules would not require a corporate
restructuring, they would require functional separation of
generation and transmission.
In the retail market, separation of the generation and
delivery functions, although not yet required by regulators, is
good public policy. (See the Position Statement, "Seeking Equity
and Freedom of Choice in Transition to Retail Competition" attached
as Exhibit 6.) The realignment will enable American and its
subsidiaries to provide the separate electrical services that
customers desire in a manner that is consistent with evolving
regulatory requirements.
As a result of the realignment, the Service Corporation and
Electric Utility Companies expect to provide improved services more
efficiently. Power Generation, Nuclear Generation and Accounting
are expected to perform their functions with a total of
approximately 1,080 fewer staff. (Savings from staff reductions
are expected to be invested in information systems, employee
training and development, and other areas which will facilitate
efficient operations.) Initial staff reductions are not expected
in Energy Transmission and Distribution. Staff increases are
expected in Corporate Development and Marketing.
In addition, the business and support units are emphasizing
improvements in service, whether to external or internal customers.
For example, the generating stations are being operated by shift
teams composed of people with various skills. Moreover, a group in
Energy Delivery Support is being established to improve Energy
Transmission and Distribution operations. As a result of
organizing by business units, improvements will be implemented
efficiently and consistently across the entire Power Generation or
Energy Transmission and Distribution organization rather than on a
company-by-company basis.
D. Services Affected by the Realignment
Some management, engineering, maintenance and a variety of
administrative and support functions previously performed by the
Electric Utility Companies are being rendered after the realignment
by the Service Corporation. These services are being provided by
the Service Corporation, because the group that performs the
services renders them to units of two or more Electric Utility
Companies. (When services are primarily performed for one Electric
Utility Company and incidentally for another, the personnel
performing such services are on the payroll of the first company.
The cost of these services will be determined in accordance with
Rules 90 and 91 under the 1935 Act and billed to the second company
in accordance with a cost sharing agreement.) As compared to
December 31, 1994, the realignment is expected to result in a net
addition of approximately 1,135 employees to the Service
Corporation. (See Exhibit 5.)
1. Power Generation
In Power Generation, the Service Corporation provides
management services for all the fossil and hydro generating
stations, the Central Machine Shop and generating station training
simulator. All generating station managers as well as the Central
Machine Shop and simulator manager, who continue to be employees of
the Electric Utility Company operating the station, report directly
to Service Corporation personnel located in Columbus. The Service
Corporation also provides business support and financial management
for the generating stations.
Outage and other maintenance for all fossil and hydro
generating stations as well as some administrative and technical
support is provided by two regional service centers. Personnel in
these regional centers, including some union employees, are
employees of the Service Corporation. Each regional service
organization has approximately 330 employees.
2. Energy Transmission and Distribution
The Service Corporation provides overall management of Energy
Transmission and the management of each of the three transmission
regions. Employees in local construction, operations, and
maintenance offices are expected to remain employees of the
Electric Utility Companies. The Service Corporation also manages
and provides transmission system engineering.
In Energy Distribution, the Service Corporation manages the 12
energy distribution regions, manages and coordinates customer
services, and manages and provides engineering, operations and data
systems support to the regions. Employees in the 12 regions are
expected to remain employees of the Electric Utility Companies.
In addition, the Service Corporation provides business unit
planning and associated business development for Energy
Transmission and Distribution.
3. Executive Services
The Service Corporation provides additional executive officers
for the Electric Utility Companies. Previously, the Chairman of
the Board and several vice presidents were employees of the Service
Corporation. As a result of the realignment, an executive vice
president of the Service Corporation also became president of all
the Electric Utility Companies and other executive officers of the
Service Corporation became vice presidents. The only vice
president of the Electric Utility Companies who is not an employee
of the Service Corporation is the state officer.
4. Accounting, Human Resources, Marketing, and Other Services
Prior to the realignment, the administrative offices of APCo,
CSPCo/OPCo (in 1993, the administrative offices of CSPCo and OPCo
were combined), I&M and KPCo provided some accounting,
administrative services, governmental affairs, human resources,
marketing, public affairs, purchasing, tax, rates and legal
functions. The Electric Utility Companies will continue to provide
some marketing, rates, environmental affairs, governmental affairs
and public affairs (now called corporate communications) functions.
Over the next several years, the Service Corporation will begin to
provide all Accounting and Human Resources services as well as some
other additional services.
With respect to Accounting, the Service Corporation will begin
to provide payroll services in 1996, accounts payable services in
1997 and other accounting services between 1998 and 2000 to the
Electric Utility Companies. It is expected that approximately 370
employees will be transferred to the payroll of the Service
Corporation during this period.
On January 1, 1996, the Service Corporation began to supervise
and administer the human resource policies for the Electric Utility
Companies. Approximately 210 employees will be transferred to the
payroll of the Service Corporation to perform these services.
E. Changes to Schedule A
The realignment of the Service Corporation and the Electric
Utility Companies requires numerous changes to Schedule A. These
changes will revise the structure of the groups set forth in the
Schedule as well as the allocation ratios. With the centralization
of management of the Electric Utility Companies, the review and
approval of new work orders and monthly billings is changing.
1. Groups and Allocation Ratios
Of the 31 groups identified in the current Schedule A, the
following 17 groups will be removed: Automotive Services, Civil
Engineering, Construction, Customer Services, Design, Electrical
Engineering, Electrical Research and Development, Engineering
Education Programs, Insurance and Pension, Land Management,
Materials Handling, Mechanical Engineering, Nuclear Engineering,
Operations, Quality Assurance, T&D Operations, and Technical
Education. Administrative Services, Computer Applications,
Controllership, Environmental Engineering, Fuel Supply, Personnel,
Public Affairs, Purchasing, and Treasury will change their titles
to Corporate Services, Information Services, Corporate Planning and
Budgeting, Environmental Services, Fuel Supply and Business
Support, Human Resources, Corporate Communications, Procurement and
Supply Chain Services, and Accounting, respectively. Finally, new
groups will be established for Energy Distribution, Energy
Transmission, Fossil and Hydro Production, Internal Audits,
Marketing Services, Nuclear Generation, Power Generation
Engineering, System Power Markets, Tax, and Energy Delivery
Support. A general description of the services provided by each
group is set forth in the form of Amended Schedule A filed as
Exhibit B.
In order to accommodate the new groups, the following seven
new allocation ratios for functional services identified in
Schedule A will be added (the terms "Client" and "Clients" as used
in each ratio are described in the Service Agreements):
(a) Level of Construction - Production Ratio
A ratio the numerator of which is the "defined
construction expenditures" of each Client generating company
during the last twelve months and the denominator of which is
the sum of "defined construction expenditures" of all such
Clients during the same twelve months. "Defined construction
expenditures" for this Ratio are all construction expenditures
in all "production" plant accounts except land and land rights
and nuclear accounts, and exclusive of construction
expenditures accumulated on work orders of a Client to which
charges by the Service Corporation are being separately made.
This ratio will be revised semi-annually, based on figures as
of June 30 and December 31.
(b) Level of Construction - Transmission Ratio
A ratio the numerator of which is the "defined
construction expenditures" of each Client operating company
during the last twelve months and the denominator of which is
the sum of "defined construction expenditures" of all such
Clients during the same twelve months. "Defined construction
expenditures" for this Ratio are all construction expenditures
in all "transmission" plant accounts except land and land
rights, and exclusive of construction expenditures accumulated
on work orders of a Client to which charges by the Company are
being separately made. This ratio will be revised semi-
annually, based on figures as of June 30 and December 31.
(c) Level of Construction - Distribution Ratio
A ratio the numerator of which is the "defined
construction expenditures" of each Client operating company
during the last twelve months and the denominator of which is
the sum of "defined construction expenditures" of all such
Clients during the same twelve months. "Defined construction
expenditures" for this Ratio are all construction expenditures
in all "distribution" plant accounts except land and land
rights, line transformers, services, meters and leased
property on customers' premises, and exclusive of construction
expenditures accumulated on work orders of a Client to which
charges by the Company are being separately made. This ratio
will be revised semi-annually, based on figures as of June 30
and December 31.
(d) Coal-Fired Kilowatt Hours Generation Ratio
A ratio the numerator of which is the coal-fired kilowatt
hours generation of each Client generating company for the
last twelve months and the denominator of which is the sum of
the coal-fired kilowatt hours generation of all Client
generating companies for the same twelve months. This ratio
will be revised semi-annually, based on figures as of June 30
and December 31.
(e) Transmission and Sub-Transmission Pole Miles Ratio
A ratio the numerator of which is the transmission and
sub-transmission pole miles of each Client operating company
and the denominator of which is the sum of the transmission
and sub-transmission pole miles of all such Clients. This
ratio will be revised annually, based on figures at December
31.
(f) Plant Megawatt Capability Ratio
A ratio the numerator of which is the total megawatt
capability of all fossil and hydro generating plants of each
Client generating company and the denominator of which is the
total megawatt capability of all fossil and hydro generating
plants of all Client generating companies. This ratio will be
revised annually, based on figures at December 31.
(g) Fossil Plant Combination Ratio
A ratio the numerator of which is the sum of (1) the
percentage derived by dividing the total megawatt capability
of all fossil generating plants of each Client generating
company by the total megawatt capability of all fossil
generating plants of all Client generating companies and (2)
the percentage derived by dividing the total scheduled
maintenance outages at all fossil generating plants of each
Client generating company for the last three years by the
total scheduled maintenance outages at all fossil generating
plants at all Client generating companies during the same
three years and the denominator of which is the factor 2.
This ratio will be revised annually, based on figures at and
as of December 31 respectively.
Allocation ratios assigned to functional work orders
established for the new groups are: Energy Distribution - Level of
Construction - Distribution Ratio or Number of Electric Customers
Ratio; Energy Transmission - Level of Construction - Transmission
Ratio or Transmission and Sub-Transmission Pole Miles Ratio; Fossil
and Hydro Production - Level of Construction - Production Ratio,
Fossil Plant Combination Ratio or Plant Megawatt Capability Ratio;
Internal Audits - Kwh Sales Ratio or Coal Company Combination
Ratio; Marketing Services - Number of Electric Customers Ratio;
Nuclear Generation - directly to I&M; Power Generation Engineering
- - Level of Construction - Production Ratio or Plant Megawatt
Capability Ratio; System Power Markets - Client Load Ratio; Tax -
Kwh Sales Ratio or Coal Company Combination Ratio; and Energy
Delivery Support - Number of Client Employees Ratio or Kwh Sales
Ratio.
Continuing groups with new ratios include: Corporate Services
- - Kwh Sales Ratio and Coal Company Combination Ratio; Environmental
Services - Plant Megawatt Capability Ratio, Coal-Fired Kilowatt
Hours Generation Ratio and Kwh Sales Ratio; and Fuel Supply and
Business Support - Plant Megawatt Capability Ratio. The portion of
Accounting's costs which relate specifically to the internal
affairs of the Service Corporation are included in the overheads of
the Service Corporation and allocated to the other groups based on
the Number of Employees by Group Ratio.
It is also proposed that Schedule A be amended to allow costs
accumulated on a job or project work order performed for two or
more companies to be allocated among client companies on a Specific
Identification Ratio, Equal Share Ratio, Hydro Kilowatt Hours
Generation Ratio, Number of Purchase Orders Written Ratio, or
Number of Invoices Processed Ratio, if appropriate. The existing
Level of Construction Ratio is revised to change the basis of the
calculation from "monthly" expenditures to expenditures "for the
last twelve months" and the frequency of calculation from monthly
to semi-annually.
2. Work Order and Billing Control
As a result of the centralization in the Service Corporation
of these services and management activities, controls and
responsibilities previously assigned to the officers of the
Electric Utility Companies will be performed by an employee in the
Corporate Planning and Budgeting Group of the Service Corporation.
This individual will be independent of the Service Corporation work
order billing process, which is maintained by the Service
Corporation Accounting Department.
The individual's responsibilities will include approving work
order requests and related cost allocation methods, and approving
and monitoring work order billings for reasonableness. The
Corporate Planning and Budgeting Department also is responsible for
evaluating activities and programs on a continuous basis to
consider alternatives such as outsourcing and to ensure that work
is being performed efficiently. These evaluations are not made on
a work order basis, but as part of the budgeting process.
Additional review by the business unit, as described below, as well
as by project managers provide a second review on the value and
propriety of work order charges.
In addition to review by the Corporate Planning and Budgeting
Department, each new business unit will have planning and budgeting
responsibilities. This includes measuring and monitoring the
monthly Service Corporation work order billings for applicability
to its unit. Any disputes are communicated to either the
responsible manager creating the charge or the Corporate Planning
and Budgeting Department. Unresolved disputes are referred to
executive management.
As before the realignment, accounting controls continue to
require that all work orders be approved before costs are
accumulated and billed and time charges to work orders be based
upon employee-completed and approved time records. The Internal
Audits Department of the Service Corporation will continue to
conduct periodic audits of the work order accounting system, time
reporting system and related controls to ensure that the work order
activities are properly authorized, documented and accurately
recorded and billed. The audits include assessing controls to
ensure that the process for allocating and billing costs to the
operating companies produces reliable calculations that comply with
the methodologies approved by the Commission. The Internal Audits
Department continues to report to the Audit Committee of the Board
of Directors of American.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
No fees, commissions or expenses, other than the Commission's
filing fee of $2,000 and fees and expenses of the Service
Corporation estimated not to exceed $25,000, are to be paid in
connection with the proposed transaction.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
The Service Corporation considers that Section 13(b) of the
1935 Act and Rules 80 through 94 thereunder may be applicable to
the proposed transactions described herein.
ITEM 4. REGULATORY APPROVAL
The amendment to Schedule A will be expressly authorized by
the State Corporation Commission of Virginia as to APCo and the
West Virginia Public Service Commission as to APCo and WPCo.
Copies of applications to such commissions will be filed by
amendment hereto as Exhibits D-1, D-2 and D-3, respectively, and
copies of the orders of such commissions will be filed by amendment
hereto as Exhibits D-4, D-5 and D-6, respectively. No commission
other than the Securities and Exchange Commission and these
commissions has jurisdiction over the proposed transaction.
ITEM 5. PROCEDURE
It is requested, pursuant to Rule 23(c) of the Rules and
Regulations of the Commission, that the Commission's Order
permitting this Application or Declaration to become effective be
issued on or before April 30, 1996. The Service Corporation and
American waive any recommended decision by a hearing officer or by
any other responsible officer of the Commission and waive the 30-
day waiting period between the issuance of the Commission's Order
and the date it is to become effective since it is desired that the
Commission's Order, when issued, become effective forthwith. The
Service Corporation and American consent to the Office of Public
Utility Regulation assisting in the preparation of the Commission's
decision and/or Order in this matter, unless the Office opposes the
matter covered by this Application or Declaration.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits:
1 Service Corporation Organizational Chart Before the
Realignment
2 Service Corporation Organizational Chart After the
Realignment
3 Map Showing Distribution Regions (filed in paper)
4 Map Showing Transmission Regions (filed in paper)
5 Service Corporation Staffing Changes As a Result of
the Realignment
6 American Electric Power Position Statement,"Seeking
Equity and Freedom of Choice in Transition to
Retail Competition"
B Proposed Schedule A to Service Agreements
D-1 Application of APCo to the State Corporation
Commission of Virginia (to be filed by amendment)
D-2 Application of APCo to the West Virginia Public
Service Commission (to be filed by amendment)
D-3 Application of WPCo to the West Virginia Public
Service Commission (to be filed by amendment)
D-4 Order of State Corporation Commission of Virginia
(to be filed by amendment)
D-5 Order of West Virginia Public Service Commission as
to APCo (to be filed by amendment)
D-6 Order of West Virginia Public Service Commission as
to WPCo (to be filed by amendment)
F Legal Opinion (to be filed by amendment)
G Proposed Notice
(b) Financial Statements:
Financial Statements will be filed by amendment.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
It is believed that permitting this Application or Declaration
to become effective will not constitute a major Federal action
significantly affecting the quality of the human environment. No
other Federal agency has prepared or is preparing an environmental
impact statement with respect to the proposed transactions.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
statement to be signed on its behalf by the undersigned thereunto
duly authorized.
AMERICAN ELECTRIC POWER SERVICE CORPORATION
By:_/s/ G. P. Maloney____________
G. P. Maloney
Executive Vice President
January 16, 1996
Exhibit 1
AMERICAN ELECTRIC POWER SERVICE CORPORATION
ORGANIZATION CHART
Before Realignment
Chairman, President and Chief Executive Officer
Fuel Supply
Legal
Nuclear Generation
EVP - Administration and Chief Accounting Officer
Administrative Services
Controller
Information Services
Tax
Treasury
Human Resources
Purchasing and Materials Management
EVP and Chief Financial Officer
Finance
System Planning
System Power Markets
Internal Audits
EVP
Rates
Customer and Marketing Services
Public Affairs
EVP - Engineering and Construction
Fossil and Hydro Generation
Transmission and Distribution Services
Exhibit 2
AMERICAN ELECTRIC POWER SERVICE CORPORATION
ORGANIZATION CHART
After Realignment
Chairman, President and Chief Executive Officer
Legal
Nuclear Generation
EVP - Administration and Chief Accounting Officer
Accounting
Corporate Planning and Budgeting
Corporate Services
Human Resources
Information Services
Procurement and Supply Chain Services
Tax
EVP and Chief Financial Officer
Finance
Internal Audits
System Planning
System Power Markets
EVP
Corporate Communications
Marketing
Rates
EVP - Energy Delivery
Energy Distribution
Energy Transmission
Energy Delivery Support
EVP - Power Generation
Environmental Services
Fossil and Hydro Production
Northern Region Plant Services
Southern Region Plant Services
Fuel Supply and Business Support
Power Generation Engineering
Exhibit 5
AMERICAN ELECTRIC POWER SERVICE CORPORATION
PRELIMINARY STAFFING CHANGES
As a Result of the Realignment
Employees
--------------------------
December 31, After
Department 1994 Realignment
- ------------------------------------- ------------ -----------
Chairman, President and
Chief Executive Officer 6 20
Legal 37 41
Nuclear Generation 269 6*
EVP - Admin. & Chief Acctg. Officer 14 13
Corporate Planning & Budgeting 22 32
Accounting 53 423*
Information Services 245 289
Tax 12 16
Corporate Services 59 71
Procurement & Supply Chain Services 32 42
Human Resources 52 263
Executive Vice President 21 13
Marketing 48 67
Corporate Communications 23 46
Rates 18 22
EVP - Energy Delivery 8
Energy Transmission 146
Energy Distribution 57
Energy Delivery Support 212 175
EVP - Chief Financial Officer 14 14
Finance 18 17
System Power Markets 51 53
System Planning 82 80
Internal Audits 55 45
EVP - Power Generation 111 3
Fossil & Hydro Production 418 98
Power Generation Engineering 305
Environmental Services 74
Fuel Supply & Business Support 192 101
Northern Regional Service Organization 333
Southern Regional Service Organization 326
----- -----
Total Employees 2,064 3,199
* Transfer of Nuclear Generation staff from Service Corporation is
expected to occur later in 1996. Transfer of 370 Accounting
staff to the Service Corporation is expected to occur no later
than 2000.
October 26, 1995
POSITION STATEMENT
SEEKING EQUITY AND FREEDOM OF CHOICE
IN TRANSITION TO RETAIL COMPETITION
SUMMARY POSITION
AEP believes that all customers, not just a select few, should
receive the benefits of competition. We also believe that
customers should be free to buy electricity from anyone they
choose. With these fundamental principles in mind, AEP supports
the creation of a competitive electricity market. A competitive
electricity market will give customers more choice, more
satisfaction, and competitive prices.
In our view, the generation of electricity is a competitive
business, but the transmission and distribution of it are not.
Therefore, we believe that appropriate legislative and regulatory
actions should be taken to create a competitive market in the
generation and sale of electricity while maintaining regulation of
the transmission and distribution of electricity.
We believe that the competitive marketplace will ultimately be
comprised of several regional power exchanges throughout the
nation. The regional power exchanges will assure the continued
safety and reliability of the electrical network and will
facilitate the development of a generation market. Through that
market, generators will be able to competitively bid to supply the
requirements of buyers. In addition, bilateral transactions
between individual buyers and sellers can be developed. In our
view, the development of both regional power exchanges and
bilateral transactions is critical for an effective and efficient
market. The regional power exchanges will provide the essential
infrastructure to permit bilateral transactions directly between
buyers and sellers. Regional power exchanges must be large enough
to assure effective competition.
Energy, particularly electricity, is the foundation of our economy.
It fuels our industry, it lights our businesses, and it heats our
homes. The time has come to begin the restructuring of the
electric industry, but it must be done right. It must be done
fairly. It must take into account the legitimate interests of
customers, investors and employees alike. Above all, it must work.
The stakes are too high to make a mistake.
We believe our proposal is fair and that it will work. Of course,
we recognize that we do not have all the answers. Therefore, we
invite comments on our proposal and welcome a public dialogue.
BACKGROUND
The world is changing. Initially, electrical systems were small
and isolated from one another. Construction of competitive systems
to serve the same set of customers did not make sense. Against
this backdrop, regulation, rather than competition, did make sense.
As electrical systems grew, customers and regulators alike pushed
for "universal service" - uniform, consistent levels of service and
price that were available to all customers. Technological
innovation served this goal. AEP was a pioneer in the development
of the high voltage electrical network, or grid. The grid improved
service reliability by allowing distant generators to be linked
together to serve widely scattered customers. It also reduced
prices by permitting the construction of larger, lower-cost
generators.
Technological innovation, coupled with regulation that made sense,
has allowed the United States to create the world's largest, most
efficient and reliable electrical system, which gives us a
tremendous, national advantage in the global marketplace.
But the marketplace and technology continue to evolve; regulation
must evolve with them. Customers now want more than "one-size-
fits-all," universal service. They want customized services at
competitive prices. The grid, coupled with modern communications
and data processing capabilities, can make it happen. It is now
possible to manage the grid in a way that permits generators of
electricity to compete while maintaining the safety and reliability
of the electrical system. In turn, customers will get what they
want - more services at competitive prices.
FUNDAMENTAL PRINCIPLES
AEP believes that all customers should benefit from competition at
the same time. No group of customers should receive the benefits
of competition before other customers do, and no group of customers
should receive price breaks at the expense of other customers.
We also believe that in a competitive environment all customers
should be free to buy electricity directly from anyone they choose.
To achieve these twin goals, today's bundled electricity services
must be unbundled. Electric companies now provide generation and
delivery services as a single package. The electricity is produced
at a generating plant and delivered over transmission and
distribution lines. Unbundling would require electric companies
to generate and sell electricity in the competitive marketplace
while separately providing delivery services to its customers.
Ancillary services, such as load following, backup and emergency
services, may be supplied by the generating company or the delivery
company, but must be properly defined and priced. This would allow
buyers to obtain competitively priced electricity with separately
priced and regulated delivery.
In our view, transmission and distribution services are natural
monopolies because a single supplier can provide those services at
the lowest total costs to all customers.
Distribution services should continue to be regulated by the
appropriate state agencies. Regulators would assure that these
services are openly available to all users without undue
discrimination. They would also regulate the rates and other terms
and conditions for these services.
Transmission services should continue to be regulated by the
Federal Energy Regulatory Commission. AEP strongly believes that
buyers and sellers should ultimately have access to transmission
services in a wide, multi-state region which contains many
generators. In a small, single-state market with a limited number
of generators, adequate competition for the generation of
electricity may not develop. Therefore, states should anticipate
a multi-state regional market to realize the full benefits of
competition.
Today, it's not practical or economical for small customers to buy
electricity individually in a competitive marketplace. It is
possible, however, for some large customers to do so. But this
difference should not be used as a convenient excuse to create a
partially competitive marketplace. In a partially competitive
marketplace, where small customers do not have a practical way of
accessing the market, prices may fall for large customers while
they rise for small customers.
AEP believes it is possible to create a regulatory and market
system that will bring the benefits of competition to all
customers, small and large alike, while allowing any customer to
enter into a direct bilateral transaction with a seller of
electricity. Without such a system, the marketplace will be only
partially competitive, which is not in the public interest.
THE INDEPENDENT SYSTEM OPERATOR
AND THE REGIONAL POWER EXCHANGE
To facilitate reliable, safe and efficient services, AEP supports
the immediate creation of an Independent System Operator to operate
the multi-state transmission grid. Each electric company, while
retaining ownership, would place its portion of the transmission
grid under the management of the Independent System Operator. The
Independent System Operator would be responsive to the needs of all
parties using the transmission grid.
In conjunction with the Independent System Operator, and in order
to bring the benefits of competition to all customers, AEP supports
the evolution of a Regional Power Exchange, which would establish
a competitive marketplace for generation. To guarantee a fair
marketplace, the Regional Power Exchange would be independent of
all buyers and sellers.
All electricity sellers, including generators and resellers,
would be permitted to sell power into a spot market operated by
the Regional Power Exchange. The Regional Power Exchange would
accept offers to buy and sell power for every half hour of the
day. Offers would be made for specific quantities, prices, and
points of delivery or receipt. The Regional Power Exchange would
settle all transactions for each half hour based on the market
price, or in other words, the price where supply and demand are
balanced. Generating plants participating in the spot market
would be dispatched by the Regional Power Exchange based upon
their bid price, unless limited by reliability and other
constraints of the transmission grid.
The Regional Power Exchange would operate in conjunction with the
Independent System Operator, which would control the transmission
grid and assure that all users have open access to it. It would
also provide services to facilitate direct bilateral transactions
between customers and sellers. However, access for direct
bilateral transactions would be denied to any generator who did
not provide reciprocal access to its own customers. The
Independent System Operator would determine rules for system
performance and reliability, as well as procure ancillary
services required to maintain the performance and reliability of
the grid. It would have the principal responsibility for
planning additions to the grid.
The rates and terms of the regional transmission service provided
by the Independent System Operator would be regulated by the
Federal Energy Regulatory Commission.
DELIVERY OF ELECTRICITY
The delivery of electricity to ultimate users would remain the
responsibility of existing electric companies. They would be
required to deliver electricity from the competitive market to
their customers. State regulators would determine the terms and
prices for the delivery service.
Many customers will lack the ability or desire to buy electricity
directly in the spot market or from specific suppliers in the
competitive market. So state regulators would require the
electric companies to purchase electricity for them in the
competitive spot market operated by the Regional Power Exchange.
The market price of electricity would be automatically passed on
to customers through a monthly adjustment mechanism. Thus, these
customers should end up paying a delivery charge plus the market
price for power. This would assure that all customers, including
the smallest customer, have the benefit of competitive market
pricing.
Other customers who buy their electricity directly from sellers
in bilateral transactions will pay a negotiated price for
electricity plus the delivery charge. These customers or their
suppliers would be responsible for providing the metering and
communications needed for bilateral transactions. A system of
aggregators or energy merchants may develop to provide groups of
customers the ability to enter into bilateral transactions.
When new generation is needed, it would be built by competitors
in the marketplace. Electric companies could build new
generating plants but would not be required to do so, since the
competitive market will be open to anyone. Competition will
assure that new generation is built when it is needed and that it
is built at the lowest possible cost.
COMPETITIVE ACCESS CHARGES
Electric companies and their investors have made substantial
investments in generating plants expecting recovery of those
investments through regulated rates. Some of those investments
may not be recoverable in a competitive market.
Some electric companies, after explicit regulatory approval, have
accumulated expenses for future recovery in rates. These, too,
may not be recoverable and, according to generally accepted
accounting principles, must be written off if regulation does not
provide for their recovery.
Also, many regulators have imposed special programs on electric
companies. The costs of these programs may not be recoverable in
a competitive market.
State regulators should be authorized to establish competitive
access charges to provide, as appropriate, for the recovery of
these items. The charges, if any, would be established
separately for each electric company. The charges would be
collected by electric companies along with delivery charges.
They would be collected from all new and existing customers,
including those taking service directly from transmission lines,
within the company's service territory. They could not be
bypassed by any customer.
IMPLEMENTATION
The changes being suggested by AEP, while not new, would be
nothing short of revolutionary if implemented for the electric
industry.
We recognize that many of these proposals are controversial and
will engender more debate. AEP encourages a vigorous public
examination of our proposals. After adequate public debate, we
will work with others to pursue the legislative and regulatory
changes needed to implement our proposals.
Exhibit B
SCHEDULE A
(As Amended, effective January 1, 1996)
to
Service Agreement, dated as of January 1, 1980
ARTICLE I
DEFINITIONS
As used in this Schedule, the following terms have the meanings
indicated:
"generating companies" - those System operating companies
which own facilities for the production of electricity by means of
steam generation.
"coal companies" - those active System companies engaged in
the mining, preparation, and sale of coal to the System generating
companies.
Except as defined above, whenever any term defined in Instruction
01-8 of the Uniform System of Accounts for Mutual Service Companies
and Subsidiary Service Companies prescribed by the Securities and
Exchange Commission is used herein, such term shall have the
meaning assigned thereto in such Uniform System of Accounts.
ARTICLE II
DETERMINATION AND ALLOCATION OF COSTS
A. All disbursements and expenses of the Company for
services performed for Clients shall be billed to such Clients.
The Company will maintain a work order system for accumulating all
costs on a job, project or functional basis, as appropriate. All
employees, including officers, of the Company shall keep, within
reasonable cost benefit standards, time records which permit ready
identification of hours worked, account numbers charged and work
order numbers charged. Charges for salaries will be determined
from the time records of employees and will be computed on the
basis of each employee's hourly rate. Records of employee related
expenses, overheads and other indirect expenses will be maintained
for each functional service group of the Company (hereinafter
referred to as a "Group") by the Company and such expenses shall be
allocated to work orders in the same manner as the salaries of the
Group are allocated.
B. Each work order request shall be initiated by the Company
either upon the request of a particular Group or upon the request
of a Client. Each work order request must be approved in the
following manner:
1. A work order request must be approved by a manager
of the Group that sponsors the work.
2. A work order request must be reviewed and approved
by the Company's Accounting Department.
3. The terms of a work order must be agreed upon by
the Client. Acceptance will be denoted by approval
of the person appointed by the Client to approve
work orders.
C. Each work order will specify the Client to be charged
and, where more than one Client is to be charged, the method of
allocation of such charges determined in accordance with paragraph
D. of this Article II.
D. Costs accumulated on Company work orders shall be billed
to Clients as follows:
1. Costs accumulated on job, project or functional
work orders for services performed for a single
Client will be billed to that Client.
2. Costs accumulated on job or project work orders for
services performed for two or more Clients will be
allocated among and billed to such Clients. The
appropriate method of allocation will be determined
by the Company at the time each such work order is
initiated and notice of such allocation method will
be given to the Clients affected.
3. Costs accumulated on functional work orders for
services of a general nature which are applicable
to all Clients or to a class or classes of Clients
will be allocated among and billed to such Clients
by application of one or more of the allocation
ratios described in paragraph E. of this Article
II. Article III specifies the method or methods of
allocation which shall be used by each Group to
allocate costs accumulated on such functional work
orders for services of a general nature.
E. The following ratios shall be applied, as specified in
Article III, to allocate costs accumulated on functional work
orders for services of a general nature, unless another method of
allocation previously approved by the Securities and Exchange
Commission is specified in the particular work order:
1. Kwh Sales Ratio
A ratio the numerator of which is the total Kwh
sales of each Client operating company, both billed
and unbilled, during the last twelve months and the
denominator of which is the sum of the Kwh sales,
both billed and unbilled, of all such Clients
during the same twelve months. Firm intra-System
sales, exclusive of the Interchange Power Pool,
between the Clients shall be eliminated from a
Client's Kwh sales. This ratio will be revised
semi-annually, based on figures as of June 30 and
December 31.
2. Client Load Ratio
A ratio the numerator of which is the "maximum
demand" in effect for a calendar month for each
Client generating company and the denominator of
which is the "maximum demand" in effect for a
calendar month for all Client generating companies.
The "maximum demand" in effect for a calendar month
for a particular Client shall be equal to the
maximum "load obligation", determined on a
clock-hour integrated kilowatt basis, experienced
by said Client during the twelve consecutive
calendar months next preceding such calendar month.
"Load obligation" is a Client's internal load plus
any firm power sales to non-affiliated companies
and to affiliated companies other than Clients.
3. Number of Electric Customers Ratio
A ratio the numerator of which is the number of
firm electric customers of each Client operating
company and the denominator of which is the sum of
the number of firm electric customers of all such
Clients. This ratio will be revised semi-annually,
based on figures at June 30 and December 31.
4. Number of Client Employees Ratio
A ratio the numerator of which is the number of
employees (exclusive of certain union employees,
where applicable) of each Client and the
denominator of which is the sum of the number of
employees (exclusive of certain union employees,
where applicable) of all Clients. This ratio will
be revised semi-annually, based on figures at June
30 and December 31.
5. Number of Company Employees By Group Ratio
A ratio the numerator of which is the number of
employees of each Group and the denominator of
which is the sum of the number of employees of all
Groups. This ratio will be revised semi-annually,
based on figures at June 30 and December 31.
6. Plant Investment Ratio
A ratio the numerator of which is the investment in
utility plant of each Client (including capital
leases and coal mining assets), net of accumulated
provisions for depreciation, depletion and
amortization, and the denominator of which is the
sum of such net investments of all Clients. This
ratio will be revised semi-annually, based on
figures at June 30 and December 31.
7. Level of Construction Ratio
A ratio the numerator of which is the "defined
construction expenditures" of each Client operating
company during the last twelve months and the
denominator of which is the sum of "defined
construction expenditures" of all such Clients
during the same twelve months. "Defined
construction expenditures" for this Ratio are all
construction expenditures in the following
construction classifications: all production plant
accounts except land and land rights; all
transmission plant accounts except land and land
rights; all distribution plant accounts except land
and land rights, line transformers, services,
meters and leased property on customers' premises;
and the following general plant accounts:
Structures and Improvements, Shop Equipment,
Laboratory Equipment and Communication Equipment;
all exclusive of construction expenditures
accumulated on work orders of a Client to which
charges by the Company are being made. This ratio
will be revised semi-annually, based on figures as
of June 30 and December 31.
8. Level of Construction - Production Ratio
A ratio the numerator of which is the "defined
construction expenditures" of each Client
generating company during the last twelve months
and the denominator of which is the sum of "defined
construction expenditures" of all such Clients
during the same twelve months. "Defined
construction expenditures" for this Ratio are all
construction expenditures in all "production" plant
accounts except land and land rights and nuclear
accounts, and exclusive of construction
expenditures accumulated on work orders of a Client
to which charges by the Company are being
separately made. This ratio will be revised semi-
annually, based on figures as of June 30 and
December 31.
9. Level of Construction - Transmission Ratio
A ratio the numerator of which is the "defined
construction expenditures" of each Client operating
company during the last twelve months and the
denominator of which is the sum of "defined
construction expenditures" of all such Clients
during the same twelve months. "Defined
construction expenditures" for this Ratio are all
construction expenditures in all "transmission"
plant accounts except land and land rights, and
exclusive of construction expenditures accumulated
on work orders of a Client to which charges by the
Company are being separately made. This ratio will
be revised semi-annually, based on figures as of
June 30 and December 31.
10. Level of Construction - Distribution Ratio
A ratio the numerator of which is the "defined
construction expenditures" of each Client operating
company during the last twelve months and the
denominator of which is the sum of "defined
construction expenditures" of all such Clients
during the same twelve months. "Defined
construction expenditures" for this Ratio are all
construction expenditures in all "distribution"
plant accounts except land and land rights, line
transformers, services, meters and leased property
on customers' premises, and exclusive of
construction expenditures accumulated on work
orders of a Client to which charges by the Company
are being separately made. This ratio will be
revised semi-annually, based on figures at June 30
and December 31.
11. Tons of Fuel Acquired Ratio
A ratio the numerator of which is the number of
tons of coal acquired for or on behalf of each
Client generating company by the Company during the
last twelve months and the denominator of which is
the sum of the number of tons of coal acquired for
or on behalf of all Client generating companies by
the Company during the same twelve months. This
ratio will be revised semi-annually, based on
figures at June 30 and December 31.
12. Computer Resource Unit Ratio
A ratio the numerator of which is the number of
computer resource units (these units measure the
demands made by computer jobs on the total computer
facility by first measuring the demands made on
individual components of the facility and then
converting each of these measurements to a common
base) associated with each work order for the last
month and the denominator of which is the sum of
all the computer resource units associated with all
work orders for the same month. This ratio will be
revised monthly.
13. Coal Company Combination Ratio
A ratio the numerator of which is the sum of each
Client coal company's gross payroll for the last
twelve months, original cost of fixed assets,
original cost of leased assets, and gross revenues
for the last twelve months and the denominator of
which is the sum of the same factors of all Client
coal companies. This ratio will be revised
semi-annually, based on figures at and as of June
30 and December 31.
14. Coal-Fired Kilowatt Hours Generation Ratio
A ratio the numerator of which is the coal-fired
kilowatt hours generation of each Client generating
company for the last twelve months and the
denominator of which is the sum of the coal-fired
kilowatt hours generation of all Client generating
companies for the same twelve months. This ratio
will be revised semi-annually, based on figures as
of June 30 and December 31.
15. Transmission and Sub-Transmission Pole Miles Ratio
A ratio the numerator of which is the transmission
and sub-transmission pole miles of each Client
operating company and the denominator of which is
the sum of the transmission and sub-transmission
pole miles of all such Clients. This ratio will be
revised annually, based on figures at December 31.
16. Plant Megawatt Capability Ratio
A ratio the numerator of which is the total
megawatt capability of all fossil and hydro
generating plants of each Client generating company
and the denominator of which is the total megawatt
capability of all fossil and hydro generating
plants of all Client generating companies. This
ratio will be revised annually, based on figures at
December 31.
17. Fossil Plant Combination Ratio
A ratio the numerator of which is the sum of (1)
the percentage derived by dividing the total
megawatt capability of all fossil generating plants
of each Client generating company by the total
megawatt capability of all fossil generating plants
of all Client generating companies and (2) the
percentage derived by dividing the total scheduled
maintenance outages at all fossil generating plants
of each Client generating company for the last
three years by the total scheduled maintenance
outages at all fossil generating plants at all
Client generating companies during the same three
years and the denominator of which is the factor 2.
This ratio will be revised annually, based on
figures at and as of December 31 respectively.
F. The following ratios, in addition those listed in E.
above, shall be applied to allocate costs accumulated on job or
project work orders for services performed for two or more Clients:
1. Specific Identification Ratio
A ratio the numerator of which is a known,
pertinent and measurable factor applicable to the
specific job or project (e.g., number of units
delivered, ownership percentages, number of
electric customers to be affected, etc.) for a
Client and the denominator of which is the sum of
the same factor for all participating Clients.
This ratio will be revised for each factor at least
once annually, based on figures as of the
measurement dates.
2. Equal Share Ratio
A ratio the numerator of which is one (representing
each participating Client) and the denominator of
which is the sum of all participating Clients.
This ratio will be revised monthly.
3. Hydro Kilowatt Hours Generation Ratio
A ratio the numerator of which is the gross
kilowatt hours generated by a Client generating
company at its hydro and pumped-storage facilities
during the last twelve months and the denominator
of which is the gross kilowatt hours generated by
all Client generating companies at their hydro and
pumped-storage facilities during the same twelve
months. This ratio will be revised semi-annually,
based on figures as of June 30 and December 31.
4. Number of Purchase Orders Written Ratio
A ratio the numerator of which is the number of
purchase orders written for a Client during the
last twelve months and the denominator of which is
the sum of the number of purchase orders written
for all Client's during the same twelve months.
This ratio will be revised semi-annually, based on
figures as of June 30 and December 31.
5. Number of Invoices Processed Ratio
A ratio the numerator of which is the number of
invoices processed for a Client during the last
twelve months and the denominator of which is the
sum of the number of invoices processed for all
Clients during the same twelve months. This ratio
will be revised semi-annually, based on figures as
of June 30 and December 31.
Nothing contained in this Article shall preclude the Company from
revising the ratios more frequently than stated herein in response
to changed circumstances. Nor shall anything contained in this
Article preclude the Company from including or excluding Clients
from the ratios based on the known scope of a particular work order
for any month, or relative to the Clients within any particular
Region or Division.
ARTICLE III
DESCRIPTION OF GROUPS AND DESIGNATION OF METHODS OF ALLOCATION
A general description of each Group's activities, which may be
modified from time to time by the Company without notice, is set
forth in paragraph a. under the name of each Group. The method or
methods of allocation to be used by a Group for costs accumulated
on functional work orders for services of a general nature are set
forth in paragraph b. under the name of each Group. No
substitution or change will be made in the methods of allocation
hereinafter specified unless a new method of allocation has been
approved by the Securities and Exchange Commission. Notice of any
change in the method of allocation applicable to a work order shall
be given to the Clients affected.
1. Accounting
a. Description of Group's Activity
This Group performs the following activities:
(1) Accounting Policy and Research
Prepares various reports used by
management, reviews financial reports,
administers financially related special
projects and formulates overall System
accounting policy.
(2) Accounting Services
Performs payroll, accounts payable, and
other accounting services for the Company
and other AEP companies.
(3) General Accounting
Maintains the general and subsidiary
ledgers along with other related records
for the Company, American and associate
companies.
(4) Financial and Regulatory Reporting
Prepares, reviews and consolidates
financial reports. Other duties include
the compilation of statistical
information of a non-financial nature.
b. Method of Allocation
(1) Services benefitting other Company Groups
- allocated to other Groups based on
Number of Employees by Group Ratio and
then to Clients on the same basis as the
work orders of the other Company Groups.
(2) Services related to operations -
allocated to the operating companies
based on the Kwh Sales Ratio.
(3) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
2. Corporate Communications
a. Description of Group's Activity
Prepares and disseminates information on all
phases of the business of a Client, including
company goals, plant expansion, fuel
consumption, financing activities, rates,
energy management and technological advances.
Also provides assistance with media relations,
news releases, advertising, news letters and
answers to inquiries from the public.
b. Method of Allocation
Allocated to the operating companies based on
the Kwh Sales Ratio and to the coal companies
based on the Coal Company Combination Ratio.
3. Corporate Planning and Budgeting
a. Description of Group's Activity
Renders services relating to operational
forecasting, the operating companies'
construction budgets, and rates proceedings.
b. Method of Allocation
(1) Services related to construction
budgeting - allocated to the operating
companies based on the Level of
Construction Ratio.
(2) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(3) Other services related to operations -
allocated to the operating companies
based on the Kwh Sales Ratio.
4. Corporate Services
a. Description of Group's Activity
Provides office space and communication
facilities and such services as mail room,
general supplies, general files and office
services, which services will generally
benefit other Groups within the Company. In
addition, has administrative responsibility
for security at all AEP locations and for the
planning and administration related to the
construction of office and service buildings.
Acquires vehicles and certain mining
equipment. Analyzes the vehicle and equipment
proposed for acquisition and monitors
performance after acquisition from an
engineering standpoint. Administers vehicle
and equipment leasing.
b. Method of Allocation
(1) Services benefitting other Company Groups
- allocated to other Groups based on the
Number of Employees by Group Ratio and
then to Clients on the same basis as the
work orders of the other Company Groups.
(2) Services related to operations -
allocated to operating companies based on
the Kwh Sales Ratio.
(3) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
5. Energy Delivery Support
a. Description of Group's Activity
Manages transmission and distribution
research, electrical laboratories, operations
improvements, telecommunications, measurements
and customer support systems, and extra
high-voltage engineering and technology
development.
b. Method of Allocation
(1) Services related to telecommunications -
allocated to all companies with employees
based on the Number of Client Employees
Ratio.
(2) All other general services - allocated to
the operating companies based on the Kwh
Sales Ratio.
6. Energy Distribution
a. Description of Group's Activity
Manages customer services activities and
provides engineering, operations and data
systems support to Clients' regional
distribution organizations.
b. Method of Allocation
(1) Services related to construction -
allocated to the operating companies
based on the Level of Construction -
Distribution Ratio.
(2) Services related to customer services and
other general activities - allocated to
the operating companies based on the
Number of Electric Customers Ratio.
7. Energy Transmission
a. Description of Group's Activity
Manages and provides transmission system
engineering, and manages transmission system
construction, operations and maintenance.
b. Method of Allocation
(1) Services related to construction -
allocated to the operating companies
based on the Level of Construction -
Transmission Ratio.
(2) Services related to operations and
maintenance - allocated to the operating
companies based on the Transmission and
Sub-Transmission Pole Miles Ratio.
8. Environmental Services
a. Description of Group's Activity
Provides engineering, technical and scientific
assistance to the generating, operating, and
coal companies to assure that those companies
comply with local, state, and federal
environmental requirements. Also determines
the need, the content required, and the
engineering input necessary for environmental
permits and assists in the acquisition of
those permits from the appropriate agencies.
Also provides technical assistance and
guidance in the audit of environmental
protection performance and in specialized
environmental training.
b. Method of Allocation
(1) Services of related to coal mining -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(2) Services related to generating plants -
allocated to the generating companies
based on the Plant Megawatt Capability
Ratio or the Coal-Fired Kilowatt Hours
Generation Ratio.
(3) Services related to operations and
maintenance - allocated to the operating
companies based on the Kwh Sales Ratio.
9. Executive Group
a. Description of Group's Activity
This Group, consisting of the Chairman of the
Board, the Executive Vice Presidents of the
Company and their immediate staffs, provides
executive management, corporate development
and strategic planning services to the
Clients.
b. Method of Allocation
Allocated to the operating companies based on
the Kwh Sales Ratio and to the coal companies
based on the Coal Company Combination Ratio.
10. Finance
a. Description of Group's Activity
Renders services in the areas of financings,
cash management, investor relations, rates
proceedings, and leasing activities.
Responsible for the maintenance and renewal of
all types of insurance coverage for all System
companies and oversight of pension plan and
trust investments.
b. Method of Allocation
(1) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(2) Services related to insurance activities
- allocated to all companies based on the
Plant Investment Ratio.
(3) Services related to pensions and other
employee benefits - allocated to all
companies with employees based on the
Number of Client Employees Ratio.
(4) Other general services related to
operating companies - allocated to the
operating companies based on the Kwh
Sales Ratio.
11. Fossil and Hydro Production
a. Description of Group's Activity
Manages all Client fossil and hydro generating
stations, including operations and
performance. Also provides project, outage
maintenance and other support services.
b. Method of Allocation
(1) Services related to construction -
allocated to the generating companies
based on the Level of Construction -
Production Ratio.
(2) Services related to scheduled maintenance
outages - allocated to the generating
companies based on the Fossil Plant
Combination Ratio.
(3) Services related to production -
allocated to the generating companies
based on the Plant Megawatt Capability
Ratio.
12. Fuel Supply and Business Support
a. Description of Group's Activity
Renders services to the coal companies in
their mining and preparation of coal and to
the generating companies in their procurement
and transportation of coal. Also performs
business planning and financial management for
the coal companies and generating companies.
b. Method of Allocation
(1) Services related to coal procurement -
allocated to the generating companies
based on the Tons of Fuel Acquired Ratio.
(2) Services related to coal mining -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(3) Services related to planning - allocated
to the generating companies based on the
Plant Megawatt Capability Ratio and to
the coal companies based on the Coal
Company Combination Ratio.
13. Human Resources
a. Description of Group's Activity
Initiates, maintains, supervises and
administers the human resources policies of
all Clients as well as the Company.
The responsibilities of the Group include:
(1) Establishment of policies regarding
compensation and benefits.
(2) Supervision of compliance with legal
requirements in the areas of equal
employment practices, safety and health,
among others.
(3) Establishment of management and employee
development programs.
(4) Providing legal counsel to the operating
companies regarding lawsuits, providing
interpretations of labor laws, and
supervising the activities of outside
legal counsel.
(5) Supervision of labor negotiations and
establishment of policies with labor
unions.
b. Method of Allocation
(1) Services benefitting other Company Groups
- allocated to other Groups within the
Company based on the Number of Company
Employees By Group Ratio and then to
Clients on the same basis as the work
orders of the other Company Groups.
(2) Services related to Client Human
Resources and pensions and other employee
benefits - allocated to all companies
with employees based on the Number of
Client Employees Ratio.
14. Information Services
a. Description of Group's Activity
Provides electronic data processing services
to Clients and to other Groups of the Company.
The activities of the Group include:
(1) Machine related computer activity -
services such as data processing for
customer accounting, payroll and general
accounting, engineering planning,
purchasing and stores studies, forecasts
and various other administrative and
engineering applications.
(2) Computer applications activity - services
such as feasibility studies for new
applications, development of new
applications, enhancement of existing
applications and other related activity.
b. Method of Allocation
(1) Machine related computer activities:
(a) Capacity used by other Company
Groups - allocated to work orders
based on the Computer Resource Unit
Ratio and then to Client's on the
same basis as the work orders of the
other Company Groups.
(b) Capacity used by Information
Services - allocated to work orders
based on the distribution of direct
charges for capacity used by other
Company Groups and then to Clients
on the same basis as the work orders
of the other Company Groups.
(2) Services related to data administration -
allocated to the operating companies
based on the Kwh Sales Ratio.
15. Internal Audits
a. Description of Group's Activity
Performs independent appraisals of significant
activities carried out within AEP through
application of financial, operational and
compliance audit techniques.
b. Method of Allocation
Allocated to the operating companies based on
the Kwh Sales Ratio and to the coal companies
based on the Coal Company Combination Ratio.
16. Legal
a. Description of Group's Activity
Renders services relating to financings,
financial reporting, shareholders' meetings,
rates proceedings, environmental matters,
contracts, real estate, leasing and other
legal matters.
b. Method of Allocation
Allocated to the operating companies based on
the Kwh Sales Ratio and to the coal companies
based on the Coal Company Combination Ratio.
17. Marketing Services
a. Description of Group's Activity
Advises the operating companies in their
relations with electric customers and oversees
marketing of the products and services of
those Clients. Also performs economic and
community development within the areas served
by the Operating Companies.
b. Method of Allocation
Allocated to the operating companies based on
the Number of Electric Customers Ratio.
18. Nuclear Generation
a. Description of Group's Activity
Manages and oversees the operations of the
Donald C. Cook Nuclear Generating Plant.
b. Method of Allocation
Allocated directly to Indiana Michigan Power
Company, operator of the Donald C. Cook
Nuclear Generating Plant.
19. Power Generation Engineering
a. Description of Group's Activity
Provides integrated engineering and design
services to all AEP fossil and hydro plants
and to the plant regional support
organizations.
b. Method of Allocation
(1) Services related to construction -
allocated to the generating companies
based on the Level of Construction -
Production Ratio.
(2) Services related to operations and
maintenance - allocated to the generating
companies based on the Plant Megawatt
Capability Ratio.
20. Procurement and Supply Chain Services
a. Description of Group's Activity
Provides services in connection with the
procurement of equipment and stores items,
including market research, preparation of
commitments, requests for quotations,
preparation of bid summaries, and materials
management.
b. Method of Allocation
Allocated to the operating companies based on
the Kwh Sales Ratio and to the coal companies
based on the Coal Company Combination Ratio.
21. Rates
a. Description of Group's Activity
Monitors and participates in rates activities
for the operating companies. Performs
services related to rates research and design.
b. Method of Allocation
Allocated to the operating companies based on
the Kwh Sales Ratio.
22. System Planning
a. Description of Group's Activity
Forecasts electric demand and energy
requirements for Client operating companies;
identifies cost-effective demand side measures
to be pursued and the resultant level of
customer load modification that can be
achieved; and develops plans to provide and
integrate the production and transmission
facilities needed to service the electricity
requirements of customers of the operating
companies.
b. Method of Allocation
(1) Services related to operations -
allocated to the operating companies
based on the Kwh Sales Ratio.
(2) Services related to generating activities
- allocated to the generating companies
based on the Client Load Ratio.
23. System Power Markets
a. Description of Group's Activity
Operates the AEP electrical system in an
efficient and reliable manner, negotiates the
terms, conditions and rates for
interconnection services; and markets
wholesale power and transmission services.
b. Method of Allocation
Allocated to the generating companies based on
the Client Load Ratio.
24. Tax
a. Description of Group's Activity
Ensures compliance with all federal, state and
local tax laws. Prepares and files applicable
returns and coordinates the issuance of tax
accounting instructions to AEP companies.
b. Method of Allocation
Allocated to the operating companies based on
the Kwh Sales Ratio and to the coal companies
based on the Coal Company Combination Ratio.
ARTICLE IV
ACCOUNTS AND RECORDS
All accounts and records of the Company shall be kept in accordance
with the General Rules and Regulations promulgated by the
Securities and Exchange Commission pursuant to the 1935 Act, in
particular, the Uniform System of Accounts for Mutual Service
Companies and Subsidiary Service Companies in effect from and after
the date hereof.
ARTICLE V
BILLING
A. Information To Be Furnished To Clients
The Company will furnish each Client with a work order
describing the work to be performed, the method of allocation, and
the accounts to be charged as a result of cost incurred within each
work order. The Company will also furnish each Client at the end
of each calendar year a statement showing the calculation of the
amount of interest on borrowed capital billed to each Client for
the previous twelve months.
B. Monthly Bills and Detailed Statement of Charges
As soon as practicable after the close of each month the
Company will issue to each Client an invoice and detail of charges
which will itemize by work order number the amounts due from the
Client for services, overhead and expenses for such month. All
amounts so billed shall be paid by the Client within thirty (30)
days after receipt of the bill.
Subject to Rule 91 of the Rules and Regulations of the
Securities and Exchange Commission, interest cost on borrowed
capital shall be allocated to Clients based on a ratio the
numerator of which is the total annual costs, exclusive of such
interest cost, charged by the Company to a Client and the
denominator of which is the sum of the total annual costs,
exclusive of such interest cost, charged by the Company to all
Clients. This ratio will be revised annually, based on figures as
of December 31.
C. Information To Be Furnished By Clients
The Client will forward to the Company from time to time, as
requested, such financial and statistical information as the
Company may need to compute the charges payable by such Client.
D. Estimated Costs
Charges to the work orders may be made upon the basis of
estimated costs to the Client which shall conform as nearly as may
be practicable to actual costs, provided that at stated intervals
adjustments of the estimated costs to actual costs shall be made.
Invoices to the Client shall clearly indicate any adjustments to
estimated costs previously billed. Such adjustments may be made at
intervals during the fiscal year, but final adjustments shall be
made at the end of such year. Overbillings or underbillings
arising from these adjustments shall be cleared through the
appropriate work order and offset by adjustments to other work
orders involved.
ARTICLE VI
INSPECTION OF RECORDS
The Company agrees to keep its books and records available for
inspection at all reasonable times by representatives of the Client
in order that the correctness of the charges made by the Company
for services to the Client may be verified by the Client.
Exhibit G
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No. /January , 1996
_____________________________________________
:
In the Matter of :
:
AMERICAN ELECTRIC POWER SERVICE CORPORATION :
1 Riverside Plaza :
Columbus, OH 43215 :
:
(70- ) :
_____________________________________________:
American Electric Power Service Corporation ("Service
Corporation"), a service company subsidiary of American Electric
Power Company, Inc. ("American"), a registered holding company,
have filed an Application or Declaration with this Commission
pursuant to Section 13(b) of the Public Utility Holding Company Act
of 1935 (the "Act") and Rules 80 through 94 thereunder.
Under its Service Agreements, the Service Corporation provides
services to American, eight electric utility companies (AEP
Generating Company, Appalachian Power Company, Columbus Southern
Power Company, Indiana Michigan Power Company, Kentucky Power
Company, Kingsport Power Company, Ohio Power Company and Wheeling
Power Company (collectively, the "Electric Utility Companies"), and
various active and inactive non-utility companies, including coal
subsidiaries of certain utility companies and AEP Energy Services,
Inc., AEP Resources, Inc. and AEP Investments, Inc.
In order to better position American and its subsidiaries for
increasing competition among suppliers of electricity, on January
1, 1996 the Service Corporation and Electric Utility Companies
began to realign their organizations to create distinct power
generation and energy transmission and distribution groups. No new
entities will be formed and no utility assets will be transferred.
Some management, engineering, maintenance and a variety of
administrative and support services previously performed by the
Electric Utility Companies are being rendered by the Service
Corporation after the realignment. The realignment will result in
a net addition of approximately 1,135 employees to the Service
Corporation.
The Service Corporation proposes to amend Schedule A to its
Service Agreements. The Proposed Amendment will reflect changes in
the services provided by the Service Corporation and the related
cost allocations that began at January 1, 1996.
The Application or Declaration and any amendments thereto are
available for public inspection through the Commission's Office of
Public Reference. Interested persons wishing to comment or request
a hearing should submit their views in writing by March , 1996 to
the Secretary, Securities and Exchange Commission, Washington, D.C.
20549, and serve a copy on the applicants at the addresses
specified above. Proof of service (by affidavit or, in case of any
attorney at law, by certificate) should be filed with the request.
Any request for a hearing shall identify specifically the issues of
fact or law that are disputed. A person who so requests will be
notified of any hearing, if ordered, and will receive a copy of any
notice or order issued in this matter. After said date, the
Application, as filed or as it may be amended, may be permitted to
become effective.
For the Commission, by the Office of Public Utility Regulation,
pursuant to delegated authority.
Jonathan G. Katz
Secretary
