File No. 70-8777
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
AMENDMENT NO. 4
TO
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)
American Electric Power Service Corporation ("Service
Corporation"), a subsidiary service corporation of American
Electric Power Company, Inc. ("American") hereby amends its
Application or Declaration on Form U-1 in File No. 70-8777, as
follows:
1. By amending and restating ITEM 1. DESCRIPTION OF PROPOSED
TRANSACTIONS:
"A. Introduction
The Service Corporation 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 with the realignment on 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.FN1
FN1 Because the realignment increases the amount of services
rendered by the Service Corporation, it is expected that the
absolute amount of the Service Corporation billings to the
Electric Utility Companies will increase. But this increase
will be more than offset by savings from staff reductions so
that the Electric Utility Companies overall costs will be
lower. Annual labor savings related to staff reductions will
exceed the one-time costs of the realignment within a year.
Thereafter, these staff reductions are expected to reduce
annual salary and benefit expenses by $50,000,000 beginning in
1997, and by an additional $9,000,000 phased-in from 1997 to
2000, and continuing for the foreseeable future. (See Exhibit
7.)
These savings from staff reductions will be offset by
additional expenses for contractors and for other improvements
in operations of those business units, neither of which can be
quantified at this time. The resultant net savings are then
expected to be invested in information systems, employee
training and development, customer call centers, and other
areas which will facilitate efficient operations. The overall
operating and maintenance budget of the Electric Utility
Companies, including savings from staff reductions and
additional expenses to improve operations, for the years 1996
through 1999 is expected to remain level; the operating and
maintenance budgets of each Electric Utility Company, however,
may vary from year to year. As a result of the more efficient
operations and proposed new investments, consumers will
benefit from the realignment.
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.FN2
FN2 When services are primarily performed for one Electric Utility
Company and incidentally for another Electric Utility Company,
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 an
Affiliated Transactions Agreement, a copy of which is filed as
Exhibit H-1 hereto. These transactions will be reported under
Item 8 of Form U5S in the form set forth in Exhibit H-2
hereto.
As compared to December 31, 1994, the realignment is expected to
result in net transfer of approximately 1,135 employees to the
Service Corporation from the Electric Utility Companies. (See
Exhibit 5.) This transfer will not increase overall employment of
the Service Corporation and the Electric Utility Subsidiaries which
is expected to decrease as described in Section C. Reasons for the
Realignment above.
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.
Two regional service organizations will provide support for
fossil plant outages and other maintenance in addition to
administrative and technical support. Specifically, each regional
service organization will include the following: (1) a safety and
health group responsible for the safety of the regional personnel;
(2) a production services group responsible for planning,
scheduling and scheduled unit outage work and project work during
non-outage periods; and (3) an administrative and technical
services group responsible for human resources, labor relations,
salary and benefits, training, budget preparation, purchasing,
stores record keeping, quality control and assurance, welding
programs, engineering small capital projects, and providing
equipment specialists. Personnel in these regional service
organizations, 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, FN3
FN3 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.
5. Functions Remaining at Electric Utility Companies
After the realignment, the principal functions of personnel at
the Electric Utility Companies are operation and running
maintenance of the fossil and hydro generating stations, nuclear
generation, local construction, operation and maintenance of the
transmission system, the 12 distribution regions, including
customer service and the call centers, and the state offices.
The personnel at the fossil and hydro generating stations
include the plant manager, the energy production teams (responsible
for operations and running maintenance) and the administrative and
technical services group (responsible for human resources, stores,
environmental program, laboratory work, and long-range planning).
The fossil and hydro generating stations have approximately 3,500
personnel, all of whom will be employed by the Electric Utility
Companies. Personnel of APCo also will continue to operate the
generating station simulator and the Central Machine Shop.
I&M personnel will be responsible for operation, engineering,
business performance, regulatory affairs and quality assurance at
the Cook Plant. After the realignment, approximately 1,180 I&M
personnel will be in the nuclear organization.
Personnel at the three regional operations centers in
Columbus, Fort Wayne and Roanoke are employees of the Electric
Utility Companies. In addition, personnel at the local
construction, operation and maintenance offices for Energy
Transmission are personnel of the Electric Utility Companies.
Approximately 1,100 personnel in Energy Transmission are employees
of the Electric Utility Companies.
In Energy Distribution, all personnel in the 12 distribution
regions are on the payroll of the Electric Utility Companies.
These employees are responsible for customer service and
construction, operation and maintenance of the distribution system.
Personnel at the call centers also are expected to be employees of
the Electric Utility Companies. Approximately 5,000 personnel in
Energy Distribution are expected to be employees of the Electric
Utility Companies.
Employees in the five state offices are personnel of the
Electric Utility Companies. They include the state officer, the
rate director and environmental affairs director. In addition,
some employees in support organizations, such as corporate
communications and rates, may remain on the payroll of the Electric
Utility Companies.
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. The
Proposed Amendment will be executed by authorized officers of the
Service Corporation and the other subsidiaries of American and will
substitute the Schedule A filed as Exhibit B-1 hereto for Schedule
A to the Service Agreements.
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, Rates 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, Energy Pricing and
Regulatory Services, and Accounting, respectively. Finally, new
groups will be established for Corporate Development, Energy
Distribution, Energy Transmission, Fossil and Hydro Production,
Internal Audits, Marketing - Energy Services and Power Marketing,
Marketing Services (now known as Consumer Services), Nuclear
Generation, Power Generation Engineering, 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-1.
In order to accommodate the new groups, the following 12 new
allocation ratios for functional services identified in Schedule A
will be added:FN4
FN4 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.
(h) Number of Stores Transactions Ratio
A ratio the numerator of which is the number of stores
transactions processed for a Client during the last twelve
months and the denominator of which is the sum of the number
of stores transactions 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.
(i) Data Processing Staff Job Hours Ratio
A ratio the numerator of which is the job hours demanded
from the data processing staff by each Client Company during
the last twelve months and the denominator of which is the job
hours demanded from the data processing staff by all Clients
during the same twelve months. Job hours are first measured
for each Group, and then by Client using the allocation ratios
applicable to each Group. This ratio will be revised semi-
annually, based on figures as of June 30 and December 31.
(j) 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.
(k) Total Annual Cost Ratio
A ratio the numerator of which is the total annual costs
charged by the Company to a Client and the denominator of
which is the sum of the total annual costs charged by the
Company to all Clients. This ratio will be revised annually
based on figures as of December 31.
(l) Number of Energy Trading Transactions Ratio
A ratio the numerator of which is the number of energy
trading transactions attributable to a Client (including
options) during the last twelve months and the denominator of
which is the sum of the number of energy trading transactions
(including options) attributable to all Clients during the
same twelve months. This ratio will be revised semi-annually,
based on figures as of June 30 and December 31.
The title for the Tons of Fuel Acquired Ratio changes to Tons of
Coal Acquired Ratio and the Coal Company Combination Ratio will be
revised quarterly rather than semi-annually. The definition of
'generating company' is changed to include companies that operate
facilities for the production of electricity other than exempt
wholesale generators, foreign utility companies and qualifying
facilities.
Allocation ratios assigned to functional work orders
established for the new groups are:
Consumer Services - Number of Electric Customers Ratio or
Total Annual Cost Ratio;
Corporate Development - Total Annual Cost Ratio or Kwh
Sales Ratio;
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, Coal Company
Combination Ratio or Total Annual Cost Ratio;
Marketing - Energy Services and Power Marketing - Client
Load Ratio or Number of Energy Trading Transactions
Ratio;
Nuclear Generation - directly to I&M;
Power Generation Engineering - Level of Construction -
Production Ratio, Plant Megawatt Capability Ratio or Tons
of Coal Acquired Ratio;
Tax - Kwh Sales Ratio, Coal Company Combination Ratio or
Total Annual Cost Ratio; and
Energy Delivery Support - Number of Client Employees
Ratio, Level of Construction - Transmission Ratio, Level
of Construction - Distribution Ratio, Transmission and
Sub-Transmission Pole Miles Ratio, Number of Electric
Customers Ratio, or Kwh Sales Ratio.
Continuing groups with new ratios include:
Accounting - Number of Invoices Processed Ratio, Number
of Electric Customers Ratio, Data Processing Staff Job
Hours Ratio, Plant Investment Ratio, Tons of Coal
Acquired Ratio, Number of Stores Transactions Ratio,
Number of Client Employees Ratio or Total Annual Cost
Ratio;
Corporate Communications - Total Annual Cost Ratio;
Corporate Planning and Budgeting - Total Annual Cost
Ratio;
Corporate Services - Kwh Sales Ratio, Coal Company
Combination Ratio or Total Annual Cost Ratio;
Environmental Services - Plant Megawatt Capability Ratio,
Coal-Fired Kilowatt Hours Generation Ratio and Kwh Sales
Ratio;
Executive - Total Annual Cost Ratio;
Finance - Total Annual Cost Ratio;
Fuel Supply and Business Support - Coal-Fired Kilowatt
Hours Generation Ratio;
Information Services - Total Annual Cost Ratio;
Legal - Total Annual Cost Ratio; and
Procurement and Supply Chain Services - Total Annual Cost
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.
The Service Corporation also proposes to allocate office and
building costs (i.e., depreciation or lease expense, building
maintenance expense, property taxes, property insurance, etc.) to
its internal groups based on the following Useable Square Footage
Group Ratio:
Useable Square Footage Group Ratio
A ratio the numerator of which is the square footage of
useable space occupied by each Group and the denominator of
which is the square footage of useable space occupied by all
Groups. This ratio will be revised annually for each building
based on figures at December 31.
The Service Corporation will continue to account for office and
building costs, including the intercompany billings received from
the Electric Utility Companies, as overhead expense.
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, in addition
to ratios used for functional work orders, on a Specific
Identification Ratio, Equal Share Ratio, Hydro Kilowatt Hours
Generation Ratio, or Number of Purchase Orders Written Ratio, if
appropriate. The existing Level of Construction Ratio is revised
to change the basis of the calculation from 'monthly' expenditures
to expenditures 'during the last twelve months' and the frequency
of calculation from monthly to semi-annually.
Schedule A, as amended, will supersede existing Schedule A and
the letters of the Commission staff authorizing changes in the
allocation ratios from Schedule A. The letter from the Commission
staff, dated June 28, 1988, covering methods of allocation for
convenience payments, will remain in effect.
2. Reasons for New Ratios
Level of Construction-Production; Level of Construction-
Transmission; Level of Construction-Distribution
These three new ratios have been established to capture and
allocate general construction overheads on a business unit basis
(i.e., production, transmission, and distribution). This is a
refinement of the approved Level of Construction Ratio which allows
the costs to be associated in a more direct manner with the
construction activities performed at the Electric Utility
Companies, thereby benefitting the individual companies which
perform the construction.
Transmission and Sub-Transmission Pole Miles Ratio, Plant
Megawatt Capacity Ratio and Fossil Plant Combination Ratio
These three new allocation ratios detail costs based on the
specific assets being managed and, in the case of the Fossil Plant
Combination Ratio, the level of effort involved in maintaining the
various fossil plant generating units. The Plant Megawatt Capacity
Ratio relates to both fossil and hydro generation. The Fossil
Plant Combination Ratio, on the other hand, is limited to fossil
generation. These ratios result in a fairer and more equitable
allocation of costs because they link the allocation methods to
assets managed.
With respect to Environmental Services, the Plant Megawatt
Capability Ratio has been adopted to allocate the cost of
functional services performed for fossil and hydro units only. The
Coal-Fired Kilowatt Hours Generation Ratio is used in a similar
manner to charge the fossil plants only, usually as related to
research and development activities, and the Kwh Sales Ratio is
used for functional services related to non-plant related
operations and maintenance. Exhibit 8-A hereto provides a
comparison of the old ratio (Client Load) used by this group to the
new ratios (Plant Megawatt Capability, Coal-Fired Kilowatt Hours
Generation, and Kwh Sales).
The scope of the services now performed by the Fuel Supply &
Business Support Department has been expanded from that which was
performed by the former Fuel Supply Department. The Coal-Fired
Kilowatt Hours Generation Ratio is used by the new group to
allocate costs applicable to their new generation business support
activities.
Coal-Fired Kilowatt Hours Generation Ratio
This is not a 'new' allocation method. The use of the Coal-
Fired Kilowatt Hours Generation Ratio was approved for use for
certain research and development projects by the Commission staff
in April 1985 following the 60-day letter procedure. This ratio is
used when the applicable work order activities, either R&D or
other, do not relate to hydro and nuclear generation.
Number of Store Transactions Ratio and Data Processing Staff
Job Hours Ratio and Number of Invoices Processed Ratio
These three new allocation ratios allocate costs based on the
amount of work provided for the Client Company by these new
Accounting Services. Existing allocation ratios now applicable to
new Accounting Services are based on general allocators which
reflect the level of effort required to perform the services. The
functions were previously performed by the Electric Utility
Companies for themselves so no ratios were necessary.
Total Annual Cost Ratio and Number of Energy Trading
Transactions Ratio
The Total Annual Cost Ratio provides a ratio to allocate costs
among all Client companies. It will be used by the Accounting,
Consumer Services, Corporate Communications, Corporate Development,
Corporate Planning and Budgeting, Corporate Services, Executive
Group, Finance, Information Services, Internal Audits, Legal,
Procurement and Supply Chain Services and Tax to allocate costs
among all Client companies when appropriate.
The Number of Energy Trading Transactions Ratio allocates
costs among the generating companies and other Client companies
that market or trade electricity, gas and other energy commodities.
It will be used by Marketing - Energy Services and Power Marketing.
Useable Square Footage Group Ratio
The proposed Useable Square Footage Group Ratio assigns office
and building costs to the Service Corporation's internal groups as
an allocated overhead expense. In the overall billing/allocation
process, assigning costs to the Service Corporation's internal
groups is the first step in a three-step process. The three steps
are:
1. Allocate the subject office and building costs to each
group's overhead work order using the Useable Square
Footage Group Ratio,
2. Allocate the expenses in each group's overhead work order
to billable work orders based on each group's direct
salary dollars, and
3. Bill the costs allocated to the work orders that relate
to a single company to those companies. Bill the costs
allocated to the work orders that relate to classes of
companies to the companies in each class based on the
allocation ratios approved by this Commission.
Exhibit 8-B hereto provides a comparison of the percentages
that would have been used in January 1997 for Step 1 above using
the Useable Square Footage Group Ratio for each building operated
by the Service Corporation. A comparison to the number of
employees in each department is also provided for each building.
Our objective in changing from number of employees to useable
square footage is to achieve uniformity in the way office and
building costs are billed to the Service Corporation and shared
among the various groups within the Service Corporation. The
Electric Utility Companies are using square footage while the
Service Corporation has used number of employees in the past. Any
differences in the amounts to be billed by the Service Corporation
to the various companies will be based on the actual use of floor
space in each building which provides a better allocation of costs.
New Groups Using Existing Ratios
Functional work orders for some new groups will be the same as
existing work orders for those services. Some changes for existing
groups are based on the new services performed by the groups.
In the past, Internal Audits and Tax were part of the Treasury
Department. The work orders established for the functional
activities performed by the Treasury Department for the Electric
Utility Companies and the coal companies used the KWH Sales Ratio
and the Coal Company Combination Ratio, respectively. The same
ratios will now be used by the separate Internal Audits and Tax
Departments for the functional services they perform for the
Electric Utility Companies and the coal companies.
Consumer Services is the name for the Customer Services
Department as expanded to include additional marketing activities.
Since the functional services performed for the Electric Utility
Companies will continue to be based on number of customers, there
will be no change in cost allocation.
Marketing - Energy Services and Power Marketing includes
sections of the old System Planning Department and the old Rates
Department. The functional services performed by this group for
the Electric Utility Companies will be allocated based on the
Client Load Ratio. The Client Load Ratio was used by the other
groups in the past for the types of services now performed by this
Marketing group.
In the past, the activities performed by Corporate Services
were limited to Service Corporation. Since the group's activities
have been expanded to include functional services performed for the
Electric Utility Companies and coal companies as separate classes,
new work orders have been opened to allocate costs to the Electric
Utility Companies based on the Kwh Sales Ratio and the coal
companies based on the Coal Company Combination Ratio.
To the extent Internal Audits, Tax, Consumer Services,
Corporate Services and other administrative groups perform services
that benefit both the Electric Utility Companies and American's
non-utility subsidiaries, the cost of such services will be
partially allocated to the non-utility subsidiaries using the Total
Annual Cost Ratio.
3. Work Order and Billing Control
A work order may be initiated by the Service Corporation or by
an Electric Utility Company. Any work order, whether for a single
company or multiple companies, including the proposed cost
allocation method, must be reviewed and approved by the Service
Corporation Accounting Department and then by a person appointed by
the Electric Utility Company. As a result of the centralization in
the Service Corporation of the responsibilities previously assigned
to the officers of the Electric Utility Companies, the Corporate
Planning and Budgeting Group of the Service Corporation initially
has been appointed by the Electric Utility Companies to approve
work orders. Corporate Planning and Budgeting is independent of
the Service Corporation work order billing process, which is
maintained by the Service Corporation Accounting Department.
Time records are completed by or for each employee in the
Service Corporation and approved by work group supervisors.
Charges are accumulated by the Service Corporation Accounting
Department and billed to each Electric Utility Company at the end
of each month. These bills are reviewed for reasonableness and
approved on behalf of the Electric Utility Company by Corporate
Planning and Budgeting.
4. Planning and Budgeting
Management has developed strategic performance measures for
American and its subsidiaries as a business enterprise. These
measures include earnings per share, total shareholder return,
competitive cost comparison, market share, customer satisfaction
and loyalty, employee development, safety and productivity, and
environmental performance. Management is developing targets
against which to measure the performance of American and its
subsidiaries on a consolidated basis. In addition, based upon
these strategic performance measures and targets, management is
developing performance measures and targets for each business
group. These measures and targets will focus on the business
group, not on the corporate entity; however, the expected impact of
proposed plans and budgets on expenses of the Electric Utility
Companies will be determined.
Efficiency in business operations will be important in order
to achieve targets in some of the strategic performance measures,
such as earnings per share and competitive cost comparison. A new
planning and budgeting system, including activity based management,
has been developed and is being implemented. This system focuses
on the business process - a network of related and interdependent
activities performed to achieve a specific purpose. It will
provide cost information quickly and will allow managers to
evaluate the efficiency and value of processes, including trends
and internal benchmarks.
Using this planning and budgeting system, an annual budget is
prepared by each business unit and support organization and
submitted to the Office of the Chairman for approval. The Office
of the Chairman consists of the Chairman of the Board, President
and Chief Executive Officer of American and the Service Corporation
and the four executive vice presidents of the Service Corporation
that report to him. These five officers are also directors and
executive officers of each of the Electric Utility Companies. The
Corporate Planning and Budgeting Group assists the business units
and support organizations in the planning and budgeting process and
monitors expenses. It also determines and reports the expected
impact of proposed plans and budgets on the expenses of the
Electric Utility Companies.
The planning and budgeting process for the Service Corporation
is part of the overall process for the business units and support
organizations and subject to approval by the Office of the
Chairman. There is no separate budgeting, outsourcing or other
review for the Service Corporation.
5. Internal Audits
The Service Corporation Internal Audits Department
continuously conducts audits of the functions of American and its
subsidiaries, including those of the Service Corporation, to ensure
that proper internal controls exist and to determine if they are
functioning as intended and are efficient and effective. As a part
of the audit plan, the Internal Audits Department has performed an
audit of the Service Corporation work order system and related
billings to the Electric Utility Companies once every three years.
The purpose of that audit is to render an opinion on the internal
controls over the work order billing process and compliance with
Commission-approved methodologies. The Internal Audits Department
completed the latest review in 1995 and expressed an opinion that
the internal controls are functioning properly and that the costs
are being allocated to the Electric Utility Companies in accordance
with the Commission-approved methodologies. The Department will
perform its next audit of the work order system and related
billings in 1997 and then every two years.
The Director of Internal Audits and Corporate Compliance (the
'Director') reports to the Chairman of the Audit Committee of the
Board of Directors of American (the 'Audit Committee').
Administratively, the Director reports to the Executive Vice
President and Chief Financial Officer of the Service Corporation.
The Director attends each meeting of the Audit Committee. In
accordance with New York Stock Exchange listing requirements, the
Audit Committee is comprised solely of outside directors.
In December of each year, the results of the year's audit
activities are reviewed with the Audit Committee and the following
year's audit plan is reviewed and approved by the Audit Committee.
The Audit Committee annually reviews and approves the Internal
Audits Department Charter to ensure that it sufficiently allows the
Director to carry out his duties. The Director meets privately
with the Audit Committee several times during the year and has the
addresses and telephone numbers of the Audit Committee members and
is free to contact them at any time. The Director is reminded in
these private meeting sessions that he has such freedom. During
the private sessions, audit committee members inquire as to any
matters in which the Director has had disagreements with senior
management that could not be resolved or matters where senior
management may have attempted to limit the Director's audit scope.
6. Reservation of Jurisdiction Over Charges to Cardinal
Operating Company
Cardinal Operating Company ('Cardinal'), which is equally
owned by OPCo and Buckeye Power, Inc. ('Buckeye'), which is not
affiliated with American, operates the Cardinal Station, a coal-
fired generating station located near Brilliant, Ohio. See HCAR
No. 35-15763 (June 12, 1967). On June 14, 1997, over a year after
comments in this proceeding were due to be filed with the
Commission, Buckeye filed Comments, Objection and Request for
Hearing objecting to the charges allocated by the Service
Corporation to Cardinal. Service Corporation is currently
discussing these charges with Buckeye and requests that the
Commission reserve jurisdiction over the proposed transaction as
applied to Cardinal for one year from the date of the Order.
F. 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. The requirements of
Rule 53(a), (b) and (c) are satisfied.
Rule 53(a)(1). As of June 30, 1997, American, through
its subsidiary, Resources, had aggregate investment in FUCOs of
$380,493,000. This investment represents approximately 23.6% of
$1,615,039,000, the average of the consolidated retained earnings
of American reported on Form 10-Q for the four consecutive quarters
ended June 30, 1997.
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 ($1,615,039,000)
represented an increase of approximately $176,114,000 (or 12.2%) in
the average consolidated retained earnings from the previous four
quarterly periods ($1,438,925,000); and (iii) for the fiscal year
ended December 31, 1996, American did not report operating losses
attributable to American's direct or indirect investments in EWGs
and FUCOs.
Rule 53(c). Rule 53(c) is inapplicable because the
requirements of Rule 53(a) and (b) have been satisfied.
2. ITEM 3. APPLICABLE STATUTORY PROVISIONS is amended and
restated as follows:
"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. Transactions under the
Affiliated Transactions Agreement are permitted under Rule
87(a)(3)."
3. ITEM 4. REGULATORY APPROVAL is amended and restated as
follows:
"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 are filed as Exhibits D-
1 and D-2, respectively, and copies of the orders of such
commissions are filed as Exhibits D-3 and D-4, respectively.
Copies of supplemental applications are filed as Exhibits D-5 and
D-6 and copies of the orders of such commissions will be filed by
amendment. In addition, the amendment to Schedule A must be filed
with the Indiana Utility Regulatory Commission. No commission
other than the Securities and Exchange Commission and these
commissions has jurisdiction over the proposed transaction."
4. By amending and restating ITEM 6. EXHIBITS AND FINANCIAL
STATEMENTS:
(a) Exhibits:
1-A Service Corporation Organizational Chart before the
Realignment (previously filed)
1-B Service Corporation Organizational Chart after the
Realignment (previously filed)
2-A Post-restructuring lines of authority from Service
Corporation to AEGCo (previously filed)
2-B Post-restructuring lines of authority from Service
Corporation to APCo (previously filed)
2-C Post-restructuring lines of authority from Service
Corporation to CSPCo (previously filed)
2-D Post-restructuring lines of authority from Service
Corporation to I&M (previously filed)
2-E Post-restructuring lines of authority from Service
Corporation to KPCo (previously filed)
2-F Post-restructuring lines of authority from Service
Corporation to KgPCo (previously filed)
2-G Post-restructuring lines of authority from Service
Corporation to OPCo (previously filed)
2-H Post-restructuring lines of authority from Service
Corporation to WPCo (previously filed)
2-I Organization of the officers and key personnel of
APCo after the realignment (previously filed)
2-J Organization of the officers and key personnel of
I&M after the realignment (previously filed)
2-K Organization of the officers and key personnel of
CSPCo/OPCo after the realignment (previously filed)
3 Map Showing Distribution Regions (previously filed)
4 Map Showing Transmission Regions (previously filed)
5 Service Corporation Staffing Changes As a Result of
the Realignment (previously filed)
6 American Electric Power Position Statement,
"Seeking Equity and Freedom of Choice in Transition
to Retail Competition" (previously filed)
7 Chart showing Net Impact of Restructuring
7-A Chart showing Annual Labor Savings
8-A Comparison of Environmental Services Allocation
8-B Comparison of Building Allocation
B-1 Proposed Schedule A to Service Agreements
B-2 Form of Amendment to Service Agreement (previously
filed)
D-1 Application of APCo to the State Corporation
Commission of Virginia
D-2 Joint Application of APCo and WPCo to the West
Virginia Public Service Commission
D-3 Order of State Corporation Commission of Virginia
D-4 Order of West Virginia Public Service Commission
D-5 Supplemental Application of APCo to the State
Corporation Commission of Virginia (to be filed by
amendment)
D-6 Supplemental Joint Application of APCo and WPCo to
the West Virginia Public Service Commission (to be
filed by amendment)
D-7 Order of State Corporation Commission of Virginia
(to be filed by amendment)
D-8 Order of West Virginia Public Service Commission
(to be filed by amendment)
F Legal Opinion (previously filed)
G Proposed Notice (previously filed)
H-1 Affiliated Transactions Agreement
H-2 Form of Item 8 of Form U5S to report transactions
under Affiliated Transactions Agreement
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
November 6, 1997
Exhibit 7
REALIGNMENT - NET IMPACT
<TABLE>
<CAPTION>
Estimated
Labor Had Estimated
Employees Labor After Billing
Electric Not Been Transfer of Impact
Utility No. of Transferred Employees Increase No. of Annual Labor Net Increase
Company Employees to AEPSC to AEPSC (Decrease) Terminations Reduction (Decrease)
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C> <C> <C> <C>
APCo 467 $25,706,441 22,760,234 (2,946,207) 231 12,189,583 ( 15,135,790)
CSPCo 264 19,526,952 10,768,574 (8,758,378) 89 4,969,217 ( 13,727,595)
I&M 224 12,170,411 13,079,099 908,688 281(f) 17,431,846(f) ( 16,523,158)
KPCo 51 2,646,814 3,590,203 943,389 83 4,370,513 ( 3,427,124)
KgPCo 4 341,387 605,885 264,498 264,498
OPCo(g) 526 24,425,702 33,836,577 9,410,875 386 20,418,110 ( 11,007,235)
WPCo 5 357,183 534,318 177,135 177,135
TOTAL 1,541 $85,174,890 $85,174,890 $ 0 1,070 $59,379,269 ($59,379,269)
</TABLE>
(a) Employees transferred to Service Corporation from Electric Utility Companies
after 12/15/96.
Includes estimated 370 accounting personnel expected to be transferred by
2000.
SERVICE CORPORATION EMPLOYEES
12/31/94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,064
Transfers to Service Corporation from Electric Utility Companies . . 1,541
Net change due to nuclear transfers, expected
and actual layoffs, terminations, retirements, etc. . . . . . . . . (406)
After Realignment 3,199
(b) Estimated average 12 month wage.
(c) Based on March and April Service Corporation wage bills except for Northern
and Southern Regional Service Organizations. Since these Organizations are
traveling maintenance groups, their charges will vary, depending on the
maintenance work performance. This schedule used the 1996 O&M budget for
these groups to estimate 1996 billings. Billings will fluctuate between
companies from year to year based on the maintenance work performed. For
1996, OPCo's O&M budget is expected to be higher than for some other years
due to expected maintenance work to be performed by the Regional Service
Organizations.
(d) Estimated Accounting, Power Generation and Nuclear Generation personnel
terminations. Accounting terminations of approximately 180 personnel are
expected to occur through 2000. Because all of their time was charged to
I&M, 50 personnel employed by Service Corporation in Nuclear Generation
are included with I&M terminations. No other terminations were Service
Corporation staff.
(e) Twelve months of wages and medical and dental benefits based on the salary
used to determine the severance accruals.
(f) 46 terminations and $2,379,398 of annual labor reduction are associated
with AEGCo's share of Rockport Generating Station.
(g) Includes OPCo's share of Cardinal Operating Company employees and billings.
REALIGNMENT
PAYBACK PERIOD FOR SEVERANCE COSTS
<TABLE>
<CAPTION>
Electric
Utility Severance Annual Labor Payback Period
Company Costs Savings (Years)
(a) (b)
<S> <C> <C> <C>
APCo 7,130,354 15,135,790 .47
CSPCo 3,167,930 13,727,595 .23
I&M 9,048,080 16,523,158 .55
KPCo 1,757,165 3,427,124 .51
KgPCo 0 (264,498) --
OPCo(d) 11,049,847 11,007,235(c) 1.00
WPCo 0 (177,135) --
TOTAL $32,153,376 $59,379,269 0.54
</TABLE>
(a) Based on the recorded severance accruals for steam and
nuclear generation personnel and estimated severance for the
accounting personnel.
(b) Based on estimated 12 months of wages that were used to
calculate severance accruals.
(c) For 1996, OPCo's O&M budget is expected to be higher than
for some other years due to expected outage maintenance; as
a result, its annual labor savings may exceed this amount in
some future years.
(d) Includes OPCo's share of Cardinal Operating Company's costs
and savings.
Although production maintenance for Cardinal Operating Company
increased from $18.2 million in 1995 to $25.4 million in 1996,
approximately $8.3 million of the increase was due to additional
expenses of unit outages. Thus, nonoutage production
maintenance, even with the increased Service Corporation
billings, decreased from $15.1 million to $14.9 million from 1995
to 1996.
Exhibit 7-A
REALIGNMENT - ANNUAL LABOR SAVINGS DUE TO JOB ELIMINATIONS AND JOB REDUCTIONS
(Determined based on actual number of terminations and job reductions
from July 1, 1995 through July 15, 1997)
<TABLE>
<CAPTION>
Total
Actual Annual Actual No. Annual Estimated No. Annual Annual
No. of Labor of Job Labor of Future Labor Total Job Labor
Company Terminations Reduction Reductions Reduction Job Reductions Reduction Reductions Reduction
(a) (b) (c)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AEPSC 143 $11,294,193 48 $ 2,683,223 191 $ 13,977,416
APCo 376 21,078,743 157 8,089,290 47 $1,902,000 580 31,070,033
CSPCo 103 5,816,548 25 1,501,942 128 7,318,490
I&M 286 15,562,831 74 4,636,338 35 1,645,000 395 21,844,170
KPCo 24 1,365,259 15 878,103 39 2,243,362
KGPCo 5 324,699 8 583,700 13 908,399
OPCo 352 19,071,591(d) 58 3,051,931 410 22,123,521
WPCo 11 647,429 25 1,432,219 36 2,079,648
TOTAL 1,300 $75,161,294 410 $22,856,746 82 $3,547,000 1,792 $101,565,040
</TABLE>
(a) The annual labor reduction is based on actual salary at time employees were
terminated.
(b) Represents jobs that were eliminated. Employees were not terminated because
they were transferred elsewhere. The annual labor reduction is based on the
employees' actual salary at the time the jobs were eliminated.
(c) Represents estimated future reduction of employees in the accounting
function which will result from additional consolidation. It is expected
that there will also be reductions in other functions but those reductions
cannot be quantified at this time.
(d) Includes 29 employees and $1,748,612 in annual labor reduction applicable
to Cardinal Operating Company.
NOTE:
1. The above annual labor reduction numbers include estimates of fringe
benefits.
2. The annual labor reduction amounts shown on this schedule will be offset
by additional expenses for contractors and for other improvements in
operations of the business units, neither of which can be quantified at
this time. Any net savings then are expected to be invested in information
systems, employee training and development, customer call centers, and
other areas which will facilitate efficient operations.
Exhibit 8-A
AMERICAN ELECTRIC POWER SERVICE CORPORATION
COMPARISON OF ALLOCATION RATIOS
ENVIRONMENTAL SERVICES
<TABLE>
<CAPTION>
PLANT COAL-FIRED
CLIENT MEGAWATT KWH KWH
COMPANY LOAD CAPABILITY GENERATION SALES
<S> <C> <C> <C> <C>
Appalachian Power Company 32.8% 15.7% 12.8% 28.8%
Columbus Southern Power Company 15.8% 9.2% 11.4% 15.0%
Indiana Michigan Power Company 18.4% 4.6% 4.1% 17.5%
Kentucky Power Company 6.7% 4.8% 5.0% 4.2%
Kingsport Power Company 1.6%
Ohio Power Company 26.3% 28.2% 31.8% 31.4%
Wheeling Power Company 1.5%
Amos Joint 13.0% 12.9%
Cardinal Operating Company 8.2% 3.0%
Rockport Operations 11.6% 14.1%
Sporn Joint 4.7% 4.9%
Total 100.0% 100.0% 100.0% 100.0%
</TABLE>
Exhibit 8-B
Page 1 of 4
AMERICAN ELECTRIC POWER SERVICE CORPORATION
Comparison of "Useable Square Footage by Group Ratio" to
"Number of Employees by Group Ratio", by Building
Office and Building Costs
1 Riverside Plaza
Columbus, OH
<TABLE>
<CAPTION>
Dept. % %
No. Department Name Sq. Ft. Allocated Employees Allocated
<S> <C> <C> <C> <C> <C>
20 Chairman, CEO & President . . . . . 12,901 3.139 38 2.111
26 Legal . . . . . . . . . . . . . . . 10,988 2.673 37 2.056
27 Nuclear Generation . . . . . . . . 3,700 0.900 5 0.278
30 EVP - Administration & CAO . . . . 2,509 0.610 8 0.444
31 Corporate Planning & Budgeting . . 5,946 1.447 25 1.389
32 Accounting . . . . . . . . . . . . 9,789 2.382 38 2.111
32 Accounting - Overhead . . . . . . . 3,091 0.752 18 1.000
35 Information Services . . . . . . . 50,012 12.167 200 11.111
35 Information Services - Overhead . . 32,155 7.822 103 5.722
36 Tax . . . . . . . . . . . . . . . . 4,815 1.172 15 0.833
37 Corporate Services . . . . . . . . 5,706 1.388 19 1.056
37 Corporate Services - Overhead . . . 8,615 2.096 56 3.111
38 Procurement & Supply Chain Service 9,862 2.399 49 2.722
39 Human Resources . . . . . . . . . . 16,078 3.912 84 4.667
39 Human Resources - Overhead . . . . 8,282 2.015 43 2.389
40 EVP . . . . . . . . . . . . . . . . 3,097 0.754 6 0.333
44 Marketing Services . . . . . . . . 13,733 3.341 68 3.778
45 Corporate Communications . . . . . 6,577 1.600 45 2.500
46 Rates . . . . . . . . . . . . . . . 4,983 1.212 29 1.611
50 EVP & CFO . . . . . . . . . . . . . 4,055 0.987 14 0.778
51 Finance . . . . . . . . . . . . . . 3,958 0.963 18 1.000
52 System Power Markets . . . . . . . 16,280 3.961 61 3.389
53 System Planning . . . . . . . . . . 17,034 4.144 76 4.222
54 Internal Audits . . . . . . . . . . 7,312 1.779 44 2.444
64 Energy Transmission . . . . . . . . 21,852 5.317 136 7.556
66 Energy Delivery Support . . . . . . 31,834 7.745 132 7.333
80 EVP - Power Generation . . . . . . 1,889 0.460 3 0.167
81 Fossil & Hydro Production . . . . . 20,960 5.100 98 5.444
83 Power Generation Engineering . . . 55,236 13.438 263 14.611
84 Environmental Services . . . . . . 9,203 2.239 50 2.778
85 Fuel Supply & Business Support . . 2,453 0.597 10 0.556
ES AEP Energy Services . . . . . . . . 3,075 0.748 9 0.500
CS Columbus Southern Power* . . . . . 3,044 0.741 0 0.000
Total 411,024 100.000% 1,800 100.000%
</TABLE>
* Space is occupied by Columbus Southern Power employees.
Page 2 of 4
AMERICAN ELECTRIC POWER SERVICE CORPORATION
Comparison of "Useable Square Footage by Group Ratio" to
"Number of Employees by Group Ratio", by Building
Office and Building Costs
1 Memorial Drive
Lancaster, OH
<TABLE>
<CAPTION>
Dept. % %
No. Department Name Sq. Ft. Allocated Employees Allocated
<S> <C> <C> <C> <C> <C>
26 Legal . . . . . . . . . . . . . . . 591 1.526 1 0.592
37 Corporate Services - Overhead . . . 1,298 3.352 8 4.733
38 Procurement & Supply Chain Service 3,433 8.864 18 10.651
39 Human Resources . . . . . . . . . . 5,808 14.997 22 13.018
45 Corporate Communications . . . . . 1,241 3.204 3 1.775
54 Internal Audits . . . . . . . . . . 871 2.249 5 2.959
83 Power Generation . . . . . . . . . 6,673 17.230 9 5.325
85 Fuel Supply & Business Support . . 12,348 31.883 65 38.462
88 NRSO Support . . . . . . . . . . . 6,466 16.695 38 22.485
Total 38,729 100.000% 169 100.000%
</TABLE>
Page 3 of 4
AMERICAN ELECTRIC POWER SERVICE CORPORATION
Comparison of "Useable Square Footage by Group Ratio" to
"Number of Employees by Group Ratio", by Building
Office and Building Costs
John E. Dolan Laboratory
Groveport, OH
<TABLE>
<CAPTION>
Dept. % %
No. Department Name Sq. Ft. Allocated Employees Allocated
<S> <C> <C> <C> <C> <C>
66 Energy Delivery Support . . . . . . 27,508 38.437 16 26.230
83 Power Generation Engineering . . . 19,428 27.147 21 34.426
84 Environmental Services . . . . . . 24,630 34.416 24 39.344
Total 71,566 100.000% 61 100.000%
</TABLE>
Page 4 of 4
AMERICAN ELECTRIC POWER SERVICE CORPORATION
Comparison of "Useable Square Footage by Group Ratio" to
"Number of Employees by Group Ratio", by Building
Office and Building Costs
230 North Columbus Street
Lancaster, OH
<TABLE>
<CAPTION>
Dept. % %
No. Department Name Sq. Ft. Allocated Employees Allocated
<S> <C> <C> <C> <C> <C>
37 Corporate Services - Overhead* . . 4,778 37.771 0 0.000
39 Human Resources . . . . . . . . . . 1,631 12.893 1 20.000
45 Corporate Communications* . . . . . 134 1.059 0 0.000
86 NRSO Support . . . . . . . . . . . 6,107 48.277 4 80.000
Total 12,650 100.000% 5 100.000%
</TABLE>
* Space is related to storage.
Exhibit B-1
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 companies which
operate facilities for the production of electricity, other than
exempt wholesale generators, foreign utility companies and
qualifying facilities.
"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 Coal 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
quarterly, based on figures at and as of March 31,
June 30, September 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. Number of Stores Transactions Ratio
A ratio the numerator of which is the number of
stores transactions processed for a Client during
the last twelve months and the denominator of
which is the sum of the number of stores
transactions 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.
18. Data Processing Staff Job Hours Ratio
A ratio the numerator of which is the job hours
demanded from the data processing staff by each
Client company during the last twelve months and
the denominator of which is the job hours demanded
from the data processing staff by all Clients
during the same twelve months. Job hours are
first measured for each Group, and then by Client
using the allocation ratios applicable to each
Group. This ratio will be revised semi-annually,
based on figures as of June 30 and December 31.
19. 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.
20. 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.
21. Useable Square Footage Group Ratio
A ratio the numerator of which is the square
footage of useable space occupied by each Group
and the denominator of which is the square footage
of useable space occupied by all Groups. This
ratio will be revised annually for each building
based on figures at December 31.
22. Total Annual Cost Ratio
A ratio the numerator of which is the total annual
costs charged by the Company to a Client and the
denominator of which is the sum of the total
annual costs charged by the Company to all
Clients. This ratio will be revised annually
based on figures as of December 31.
23. Number of Energy Trading Transactions Ratio
A ratio the numerator of which is the number of
energy trading transactions attributable to a
Client (including options) during the last twelve
months and the denominator of which is the sum of
the number of energy trading transactions
(including options) attributable to all Clients
during the same twelve months. This ratio will be
revised semi-annually, based on figures as of June
30 and December 31.
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.
G. 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 Client companies.
(3) Ledger 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 Company Groups -
allocated to Groups based on Number of
Employees by Group Ratio and then to
Clients on the same basis as the work
orders of the Company Groups.
(2) Services related to accounts payable -
allocated to Client companies based on
Number of Invoices Processed Ratio.
(3) Services related to customer accounting
and remittance processing - allocated to
operating companies based on Number of
Electric Customers Ratio.
(4) Services related to data processing
operations - allocated to Client
companies based on Data Processing Staff
Job Hours Ratio.
(5) Services related to owned assets -
allocated to operating companies based
on Plant Investment Ratio.
(6) Services related to fuel - allocated to
operating companies based on Tons of
Coal Acquired Ratio.
(7) Services related to stores - allocated
to operating companies and coal
companies based on Number of Stores
Transactions Ratio.
(8) Services related to payroll - allocated
to Client companies based on Number of
Client Employees Ratio.
(9) Services related to benefits accounting
- allocated to Client companies based on
the Number of Client Employees Ratio.
(10) Other services related to operations -
allocated to the operating companies
based on the Kwh Sales Ratio.
(11) Other services related to coal companies
- allocated to the coal companies based
on the Coal Company Combination Ratio.
(12) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
2. Consumer 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 and
provides services to non-utility Client
companies.
b. Method of Allocation
(1) Services related to operating companies
- allocated to the operating companies
based on the Number of Electric
Customers Ratio.
(2) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
3. 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
(1) Services related to operating companies
- allocated to the operating companies
based on the Kwh Sales Ratio.
(2) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(3) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
4. Corporate Development
a. Description of Group's Activity
Evaluates and develops new business
opportunities, including non-utility
investments, products and services.
b. Method of Allocation
(1) Services related to non-utility
companies or to both utility and non-
utility Client companies - allocated to
such Client companies based on the Total
Annual Cost Ratio.
(2) Services related to utility companies -
allocated to the operating companies
based on the Kwh Sales Ratio.
5. 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) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
6. 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 Client company 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) Office building costs, including
interest on mortgage notes and building
loans - allocated to Groups based on
Useable Square Footage Group Ratio and
then to Clients on the same basis as the
work orders of the Company Groups.
(2) Services benefitting Company Groups -
allocated to Groups based on the Number
of Employees by Group Ratio and then to
Clients on the same basis as the work
orders of the Company Groups.
(3) Services related to operations -
allocated to operating companies based
on the Kwh Sales Ratio.
(4) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(5) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
7. Energy Delivery Support
a. Description of Group's Activity
Manages transmission and distribution
research, electrical laboratories, land,
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
construction and operation - allocated
to all companies based on the Number of
Client Employees Ratio.
(2) Services related to construction (except
telecommunications) - allocated to the
operating companies based on the Level
of Construction - Transmission Ratio or
the Level of Construction - Distribution
Ratio.
(3) Services related to operations and
maintenance for transmission - allocated
to the operating companies based on the
Transmission and Sub-Transmission Pole
Miles Ratio.
(4) Services related to operations and
maintenance for distribution - allocated
to the operating companies based on the
Number of Electric Customers Ratio.
(5) Services related to Land Management -
allocated to the operating companies
based on the Kwh Sales Ratio.
8. 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.
9. Energy Pricing and Regulatory Services
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.
10. 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.
11. 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 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.
12. 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 and strategic planning
services to the Clients.
b. Method of Allocation
(1) Services related to operating companies
- allocated to the operating companies
based on the Kwh Sales Ratio.
(2) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(3) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
13. 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 the operating companies
and the coal companies based on the
Plant Investment Ratio.
(3) General services related to operating
companies - allocated to the operating
companies based on the Kwh Sales Ratio.
(4) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
14. 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.
15. 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 Coal 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
Coal-Fired Kilowatt Hours Generation
Ratio and to the coal companies based on
the Coal Company Combination Ratio.
16. 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 Company Groups -
allocated to 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
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.
17. 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 Clients 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, to the
coal companies based on the Coal Company
Combination Ratio, and to both utility
and non-utility companies based on the
Total Annual Cost Ratio.
18. Internal Audits
a. Description of Group's Activity
Performs independent appraisals of
significant activities carried out within
Client companies through application of
financial, operational and compliance audit
techniques.
b. Method of Allocation
(1) Services related to operating companies
- allocated to the operating companies
based on the Kwh Sales Ratio.
(2) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(3) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
19. 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
(1) Services related to operating companies
- allocated to the operating companies
based on the Kwh Sales Ratio.
(2) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(3) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
20. Marketing-Energy Services and Power Marketing
a. Description of Group's Activity
Markets electric power, natural gas, other
energy commodities and related services.
Performs energy trading, including options,
for Client companies.
b. Methods of Allocation
(1) Services related to the marketing of
wholesale electric power-allocated to
the generating companies based on the
Client Load Ratio.
(2) Services related to energy trading
(including options) - allocated to the
generating companies and/or other
affiliates, as applicable, based on the
Number of Energy Trading Transactions
Ratio.
21. 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.
22. Power Generation Engineering
a. Description of Group's Activity
Provides integrated engineering and design
services to all fossil and hydro plants and
to the plant regional service 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.
(3) Services related specifically to ash
management and marketing - allocated to
the generating companies based on the
Tons of Coal Acquired Ratio.
23. 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
(1) Services related to operating companies
- allocated to the operating companies
based on the Kwh Sales Ratio.
(2) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(3) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost Ratio.
24. 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.
25. 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
Client companies.
b. Method of Allocation
(1) Services related to operating companies
- allocated to the operating companies
based on the Kwh Sales Ratio.
(2) Services related to coal companies -
allocated to the coal companies based on
the Coal Company Combination Ratio.
(3) Other services related to both utility
and non-utility Client companies -
allocated to such companies based on the
Total Annual Cost 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 (exclusive of interest on mortgage notes or other
building loans) and income taxes shall be allocated to Clients
based on the Total Annual Cost Ratio.
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 work orders to which they apply.
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 D-1
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
APPLICATION OF
APPALACHIAN POWER COMPANY, CASE NO. PUA _______
Applicant
and
AMERICAN ELECTRIC POWER
SERVICE CORPORATION,
Affiliate
For Authority to Enter Into an
Affiliate Transaction Under
Title 56, Chapter 4 of the
Code of Virginia
APPALACHIAN POWER COMPANY ("Appalachian," "APCo" or
"Company"), a corporation duly organized and existing under the
laws of the Commonwealth of Virginia, represents as follows:
1. Applicant. Appalachian is a Virginia public service
corporation having a post office address of P.O. Box 2021, Roanoke,
Virginia 20422. Appalachian is subject to regulation as to rates
and service by this Commission. All of Appalachian's common stock
is owned by American Electric Power Company, Inc. ("American"), a
holding company registered under the Public Utility Holding Company
Act of 1935 (the "1935 Act").
2. Affiliate. American Electric Power Service Corporation
("Service Corporation") is a New York corporation having a post
office address of 1 Riverside Plaza, Columbus, Ohio 43215. Service
Corporation is a wholly owned subsidiary of American. Accordingly,
Service Corporation is an "affiliated interest" of Appalachian
within the meaning of Sections 56-76 of the Code of Virginia
("Code").
3. Introduction. On May 13, 1980, this Commission issued an
Order in Case No. PUA800020, approving a service agreement
(including Schedule A thereto), dated January 1, 1980 (the
"Existing Service Agreement", copy attached as Exhibit A), between
the Company and the Service Corporation. The Company and the
Service Corporation propose to amend Schedule A ("Proposed
Amendment") to the Existing Service Agreement and therefore seek
the approval by this Commission of the Proposed Amendment in
accordance with Title 56, Chapter 4 of the Code and all other
applicable law. The Proposed Amendment is attached as Exhibit B.
Subject to receipt of all necessary regulatory approvals, the
Service Corporation intends to make similar amendments to its
service agreements with American and the other direct and indirect
subsidiaries of American (such agreements together with the
Existing Service Agreement collectively, the "Service Agreements").
The Service Corporation currently provides services under the
Service Agreements to American, eight electric utility companies
(AEP Generating Company ("AEGCo"), 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, 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, and
which resulted from the recent realignment of the Service
Corporation and the Electric Utility Companies.
4. 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. Organizational charts for the Service
Corporation before and after the reorganization are attached as
Exhibits C and D respectively. Charts showing the post-
restructuring lines of authority from the Service Corporation and
APCo and the organization of officers and key personnel of APCo
after the restructuring are attached as Exhibits E and F
respectively. 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. The four functional business units, together
with the various administrative and other support services, are
described as follows:
(a) 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.
1) 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.
2) 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.
3) Environmental Services provides permitting and
other regulatory services relating to environmental laws
for Power Generation and for the other business units.
4) Fuel Supply and Business Support continues to
be responsible for fuel supply and procurement and
provides business unit planning and financial management.
(b) 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, described further below. It also has business unit
planning and associated business development groups.
1) 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 G).
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.
2) Energy Distribution is organized into twelve
regions responsible for systemwide distribution networks
as well as customer services. (See Exhibit H.)
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 call centers in
Ashland, Columbus and Fort Wayne. At least one
additional call center is expected to be established in
Virginia or West Virginia.
3) Energy Delivery Support provides technical
support for Energy Transmission and Distribution. It
also includes Telecommunications, which provides services
to other business units as well.
(c) 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.
(d) Corporate Development. Corporate Development is
responsible for developing new business opportunities,
including non-utility activities.
(e) 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.
5. Reasons for the Realignment. The Service Corporation and
Electric Utility Companies are realigning their organizations in
order to (a) unbundle electric services consistent with customer
desires and the evolving regulatory structure of the industry and
(b) 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.
Final rules were issued on April 24, 1996 (Order Nos. 888 and
889). The rules do not require corporate restructuring, but do
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. 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. Any savings from staff reductions
will be offset by additional expenses for contractors and for other
improvements in operations of those business units, neither of
which can be quantified at this time. The resultant net savings
are then expected to be invested in information systems, employee
training and development, customer call centers, and other areas
which will facilitate efficient operations. The overall operating
and maintenance budget of the Electric Utility Companies, including
savings from staff reductions and additional expenses to improve
operations, for the years 1996 through 1999 is expected to remain
level; the operating and maintenance budgets of each Electric
Utility Company, however, may vary from year to year.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.
6. Services Affected by the Realignment. Some management,
engineering, maintenance and a variety of administrative and sup-
port 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. As
compared to December 31, 1994, the realignment is expected to
result in a net transfer of approximately 1,135 employees to the
Service Corporation from the Electric Utility Companies. (See
Exhibit I.) The following discussion describes these changes in
general terms:
(a) Power Generation. In Power Generation, the Service
Corporation provides management services for all the fossil
and hydro generating stations, the Central Machine Shop and
the 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.
Two regional service organizations provide support for
fossil plant outages and other maintenance in addition to
administrative and technical support. Specifically, each
regional service organization includes the following: (1) a
safety and health group responsible for the safety of the
regional personnel; (2) a production services group
responsible for planning, scheduling and scheduled unit outage
work and project work during non-outage periods; and (3) an
administrative and technical services group responsible for
human resources, labor relations, salary and benefits,
training, budget preparation, purchasing, stores record
keeping, quality control and assurance, welding programs,
engineering small capital projects, and providing equipment
specialists. Personnel in these regional centers, including
some union employees, are employees of the Service
Corporation. Each regional service organization has approx-
imately 330 employees.
(b) 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.
(c) 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.
(d) 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) Functions Remaining at Electric Utility Companies.
After the realignment, the principal functions of personnel at
the Electric Utility Companies are (1) operation and running
maintenance of the fossil and hydro generating stations; (2)
nuclear generation; (3) local construction, operation and
maintenance of the transmission system; (4) operation and
management of the 12 distribution regions, including customer
service and the call centers, and (5) the state officers.
The personnel at the fossil and hydro generating stations
include the plant manager, the energy production teams
(responsible for operations and running maintenance) and the
administrative and technical services group (responsible for
human resources, stores, environmental program, laboratory
work, and long-range planning). The fossil and hydro
generating stations have approximately 3,500 personnel, all of
whom will be employed by the Electric Utility Companies.
Personnel of APCo also will continue to operate the generating
station simulator and the central machine shop.
I&M personnel will be responsible for operation,
engineering, business performance, regulatory affairs and
quality assurance at the Cook Plant. After the realignment,
approximately 1,180 I&M personnel will be in the nuclear
organization.
Personnel at the three regional operations centers in
Columbus, Fort Wayne and Roanoke are employees of the Electric
Utility Companies. In addition, personnel at the local
construction, operation and maintenance offices for Energy
Transmission are personnel of the Electric Utility Companies.
Approximately 1,100 personnel in Energy Transmission are
employees of the Electric Utility Company.
In Energy Distribution, all personnel in the 12
distribution regions are on the payroll of the Electric
Utility Companies. These employees are responsible for
customer service and construction, operation and maintenance
of the distribution system. Personnel at the call centers
also are expected to the employees of the Electric Utility
Companies. Approximately 5,000 personnel in Energy
Distribution are expected to be employees of the Electric
Utility Companies.
Employees in the five state offices are personnel of the
Electric Utility Companies. They include the state officers,
the rate director and the environmental affairs director. In
addition, some employees in support organizations, such as
corporate communications and rates, may remain on the payroll
of the Electric Utility Companies.
7. 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 employed to bill their costs to the Electric Utility
Companies. With the centralization of management of the Electric
Utility Companies, the review and approval of new work orders and
monthly billings is changing (see Exhibit J, Item 4). The changes
to groups and allocation ratios are summarized as follows:
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 the Proposed Amendment attached
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.)
i) 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.
ii) 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.
iii) 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.
iv) 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.
v) 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.
vi) 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.
vii) 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.
The title for the Tons of Fuel Acquired Ratio changes to Tons
of Coal Acquired Ratio and the Coal Company Combination Ratio will
be revised quarterly rather than semi-annually. The definition of
"generating company" changed to include companies that own and
operate facilities for the production of electricity. Finally, the
total annual cost ratio is clarified for allocation of interest
other than mortgage interest and income taxes.
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, Plant Megawatt Capability Ratio or Tons of
Coal Acquired 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,
Level of Construction - Transmission Ratio, Level of
Construction - Distribution Ratio, Transmission and Sub-
Transmission Pole Miles Ratio, Number of Electric Customers
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: Coal-fired Kilowatt Hours
Generation 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, in addition
to ratios used for functional work orders, 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.
8. Future Amendments. The staff of the Securities and
Exchange Commission ("SEC") in its most recent audit of the Service
Corporation requested that Schedule A be reviewed and revised each
year. The review and revision would update the allocation ratios
and group structure of the Service Corporation. Unless significant
changes are made to Schedule A or the Service Corporation, the
filing of an Application and formal approval by the SEC under the
1935 Act is not required. Changes in and new allocation ratios
require notice to the SEC staff at least 60 days prior to the
effective date, copies of which notices will be provided to this
Commission. It is proposed that this Commission authorize further
changes to Schedule A as long as the changes do not require the
filing of an Application under the 1935 Act.
9. Transaction Summary. In accordance with the "Guidelines
for Filing Applications Under Title 56, Chapter 4 (Public Utilities
Affiliates Law) and Chapter 5 (Utility Transfers Act) of the Code
of Virginia," issued by the Commission's Division of Public Utility
Accounting on October 21, 1994 (the "Guidelines"), a Transaction
Summary - Chapter 4 is attached as Exhibit J.
10. Other Regulatory Approvals. In addition to the approval
of this Commission under Title 56, Chapter 4 of the Code, the
proposed amendments to Schedule A must also be approved by the SEC
and the West Virginia Public Service Commission ("PSC"). The
Service Corporation's application to the SEC for approval of the
changes to Schedule A (the "SEC Application") was filed on January
16, 1996, and a copy has been delivered to this Commission. The
Service Corporation filed Amendment No. 1, Amendment No. 2 and
Amendment No. 3 (the "Amendments") to the SEC Application on May 6,
1996, May 21, 1996 and July 24, 1996, respectively. Copies of the
Amendments are being delivered to this Commission herewith.
Appalachian's application to the PSC for approval of the Proposed
Amendment will be filed in the near future.
ACCORDINGLY, the Company requests the Commission to approve
the Proposed Amendment and further amendments to Schedule A and to
grant all other approvals as may be necessary under Title 56,
Chapter 4 of the Code and all other applicable law. The Service
Corporation joins in this Application in accordance with the
requirements of Sections 56-84 of the Code and the Guidelines.
APPALACHIAN POWER COMPANY
By: /s/ A. A. Pena
Treasurer
AMERICAN ELECTRIC POWER SERVICE
CORPORATION
By: /s/ A. A. Pena
Treasurer
H. Allen Glover, Jr., Esq.
George J. A. Clemo, Esq.
Michael J. Quinan, Esq.
WOODS, ROGERS & HAZLEGROVE, P.L.C.
Dominion Tower, Suite 1400
10 South Jefferson Street
P. O. Box 14125
Roanoke, VA 24038-4125
(540) 983-7600
John M. Adams, Jr., Esq.
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, 29th Floor
Columbus, OH 43215
(614) 223-1000
Counsel for Appalachian Power Company
STATE OF OHIO )
) To-wit:
COUNTY OF FRANKLIN )
Before me, a Notary Public in and for the aforesaid juris-
diction, personally appeared Armando A. Pena, who, being by me
first duly sworn, did depose and say that he is Treasurer of
Appalachian Power Company, that he has read the foregoing
Application and knows the contents thereof and that the facts
therein stated are true to the best of his knowledge and belief.
Subscribed and sworn to before me this 15th day of August, 1996.
/s/ Ann B. Graf
Notary Public
My Commission has no expiration date
STATE OF OHIO )
) To-wit:
COUNTY OF FRANKLIN )
Before me, a Notary Public in and for the aforesaid juris-
diction, personally appeared Armando A. Pena, who, being by me
first duly sworn, did depose and say that he is Treasurer of
American Electric Power Service Corporation, that he has read the
foregoing Application and knows the contents thereof and that the
facts therein stated are true to the best of his knowledge and
belief. Subscribed and sworn to before me this 15th day of August,
1996.
/s/ Ann B. Graf
Notary Public
My Commission has no expiration date
EXHIBITS
A. Existing Agreement (including existing Schedule A)
B. Proposed Amended Schedule A
C. Service Corporation Organizational Chart Before the
Realignment
D. Service Corporation Organizational Chart After the Realignment
E. Post-Restructuring Lines of Authority From Service Corporation
to APCo
F. Organization of the Officers and Key Personnel of APCo after
the Realignment
G. Map Showing Transmission Regions
H. Map Showing Distribution Regions
I. Service Corporation Staffing Changes As a Result of the
Realignment
J. Transaction Summary - Chapter 4
Exhibit D-2
PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON
CASE NO. _________________
APPALACHIAN POWER COMPANY,
a corporation, and
WHEELING POWER COMPANY,
a corporation,
Petition for the Commission's consent and
approval of Appalachian Power Company and
Wheeling Power Company amending their
Service Agreements with American Electric
Power Service Corporation, an affiliate, for
the provision of certain services and entering
into Affiliated Transactions Agreements with
certain of their affiliates pursuant to the
provisions of W. Va. Code, Sec. 24-2-12.
PETITION
Come now the above-named Appalachian Power Company
("Appalachian" or "APCo") and Wheeling Power Company ("Wheeling"
or "WPCo") (together, the "Companies"), the petitioners herein,
and respectfully make the following representations to the
Commission:
1. The names and addresses of the petitioners are as
follows:
Appalachian Power Company
40 Franklin Road
Roanoke, Virginia 24011
Wheeling Power Company
51 Sixteenth Street
Wheeling, West Virginia 26003
Appalachian is incorporated under the laws of the
Commonwealth of Virginia and is authorized to do business as a
public utility in the State of West Virginia. Wheeling is
incorporated under the laws of the State of West Virginia.
2. The names and addresses of the affiliates with which
Appalachian and Wheeling propose to enter into arrangements for
the provision of certain services are:
American Electric Power Service Corporation
1 Riverside Plaza
Columbus, Ohio 43215
Columbus Southern Power Company
215 North Front Street
Columbus, Ohio 43215
Indiana Michigan Power Company
One Summit Square
P. O. Box 60
Fort Wayne, Indiana 46801
Kentucky Power Company
1701 Central Avenue
Ashland, Kentucky 41101
Kingsport Power Company
422 Broad Street
Kingsport, Tennessee 37660
Ohio Power Company
301 Cleveland Avenue, S.W.
Canton, Ohio 44702
American Electric Power Service Corporation ("Service
Corporation") is incorporated under the laws of New York. The
Companies seek exemption from the requirement of providing copies
of their affiliates' articles of incorporation.
3. Service Agreement. On May 28, 1980, this Commission
issued an Order in Case No. 80-138-E-PC, approving a service
agreement (including Schedule A thereto), dated January 1, 1980
(the "Existing Service Agreement", copy attached as Exhibit A-1),
between Appalachian and the Service Corporation. On May 28,
1980, this Commission issued an Order in Case No. 80-139-E-PC,
approving a service agreement (including Schedule A thereto)
dated January 1, 1980 (the Existing Agreement, copy attached as
Exhibit A-2), between Wheeling and the Service Corporation. The
Companies and the Service Corporation propose to amend Schedule A
("Proposed Amendment") to the Existing Service Agreements and
therefore seek the approval by this Commission of the Proposed
Amendment in accordance with Chapter 24 of the West Virginia Code
("Code") and all other applicable law. The Proposed Amendment is
attached as Exhibit B. Subject to receipt of all necessary
regulatory approvals, the Service Corporation intends to make
similar amendments to its service agreements with American and
the other direct and indirect subsidiaries of American (such
agreements together with the Existing Service Agreement
collectively, the "Service Agreements").
The Service Corporation currently provides services under
the Service Agreements to American, eight electric utility
companies (AEP Generating Company ("AEGCo"), 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 WPCo (collectively,
the "Electric Utility Companies")) and various active and
inactive non-utility companies, including coal subsidiaries of
certain Electric Utility Companies, 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, and which resulted
from the recent realignment of the Service Corporation and the
Electric Utility Companies.
4. 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. Organizational charts for the Service
Corporation before and after the reorganization are attached as
Exhibits C and D, respectively. Charts showing the post-
restructuring lines of authority from the Service Corporation and
the Companies and the organization of officers and key personnel
of the Companies after the restructuring are attached as Exhibits
E and F, respectively. 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 legal entities will be formed and no utility
assets will be transferred. The four functional business units,
together with the various administrative and other support
services, are described as follows:
(a) 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.
1) 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.
2) 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.
3) Environmental Services provides permitting and
other regulatory services relating to environmental
laws for Power Generation and for the other business
units.
4) Fuel Supply and Business Support continues to
be responsible for fuel supply and procurement and
provides business unit planning and financial
management.
(b) 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, described further below. It also
has business unit planning and associated business
development groups.
1) 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 G). 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.
2) Energy Distribution is organized into twelve
regions responsible for systemwide distribution
networks as well as customer services. (See Exhibit
H.) 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
call centers in Ashland, Columbus and Fort Wayne. At
least one additional call center is expected to be
established in Virginia or West Virginia.
3) Energy Delivery Support provides technical
support for Energy Transmission and Distribution. It
also includes Telecommunications, which provides
services to other business units as well.
(c) 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.
(d) Corporate Development. Corporate Development is
responsible for developing new business opportunities,
including non-utility activities.
(e) 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.
5. Reasons for the Realignment. The Service Corporation
and Electric Utility Companies are realigning their organizations
in order to (a) unbundle electric services consistent with
customer desires and the evolving regulatory structure of the
industry and (b) 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 trans-
mission 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.
Final rules were issued on April 24, 1996 (Order Nos. 888 and
889). As proposed, they do not require corporate restructuring,
but do 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. 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. 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.
6. 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. As
compared to December 31, 1994, the realignment is expected to
result in a net transfer of approximately 1,135 employees to the
Service Corporation from the Electric Utility Companies. (See
Exhibit I.) The following discussion describes these changes in
general terms:
(a) 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.
Two regional service organizations provide support for
fossil plant outages and other maintenance in addition to
administrative and technical support. Specifically, each
regional service organization include the following: (1) a
safety and health group responsible for the safety of the
regional personnel; (2) a production services group
responsible for planning, scheduling and scheduled unit
outage work and project work during non-outage periods; and
(3) an administrative and technical services group
responsible for human resources, labor relations, salary and
benefits, training, budget preparation, purchasing, stores
record keeping, quality control and assurance, welding
programs, engineering small capital projects, and providing
equipment specialists. Personnel in these regional centers,
including some union employees, are employees of the Service
Corporation. Each regional service organization has
approximately 330 employees.
(b) 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.
(c) 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.
(d) Accounting, Human Resources, Marketing, and Other
Services. Prior to the realignment, the administrative
offices of APCo, CSPCo/OPCo, 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, environ-
mental 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) Functions Remaining at Electric Utility Companies.
After the realignment, the principal functions of personnel
at the Electric Utility Companies are operation and running
maintenance of the fossil and hydro generating stations,
nuclear generation, local construction, operation and
maintenance of the transmission system, the 12 distribution
regions, including customer service and the call centers,
and the state officers.
The personnel at the fossil and hydro generating
stations include the plant manager, the energy production
teams (responsible for operations and running maintenance)
and the administrative and technical services group
(responsible for human resources, stores, environmental
program, laboratory work, and long-range planning). The
fossil and hydro generating stations have approximately
3,500 personnel, all of whom will be employed by the
Electric Utility Companies. Personnel of APCo also will
continue to operate the generating station simulator and the
central machine shop.
I&M personnel will be responsible for operation,
engineering, business performance, regulatory affairs and
quality assurance at the Cook Plant. After the realignment,
approximately 1,180 I&M personnel will be in the nuclear
organization.
Personnel at the three regional operations centers in
Columbus, Fort Wayne and Roanoke are employees of the
Electric Utility Companies. In addition, personnel at the
local construction, operation and maintenance offices for
Energy Transmission are personnel of the Electric Utility
Companies. Approximately 1,100 personnel in Energy
Transmission are employees of the Electric Utility Company.
In Energy Distribution, all personnel in the 12
distribution regions are on the payroll of the Electric
Utility Companies. These employees are responsible for
customer service and construction, operation and maintenance
of the distribution system. Personnel at the call centers
also are expected to the employees of the Electric Utility
Companies. Approximately 5,000 personnel in Energy
Distribution are expected to be employees of the Electric
Utility Companies.
Employees in the five state offices are personnel of
the Electric Utility Companies. They include the state
officers, the rate director and the environmental affairs
director. In addition, some employees in support
organizations, such as corporate communications and rates,
may remain on the payroll of the Electric Utility Companies.
7. 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. The changes to Schedule A are
summarized as follows:
(a) 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. In addition,
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
attached 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:
i) 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.
ii) 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 expendi-
tures" 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.
iii) 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 expendi-
tures" 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.
iv) 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.
v) 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.
vi) 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.
vii) 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.
The title for the Tons of Fuel Acquired Ratio changes
to Tons of Coal Acquired Ratio and the Coal Company
Combination Ratio will be revised quarterly rather than
semi-annually. The definition of "generating company"
changes to include companies that own and operate facilities
for the production of electricity. Finally, the total
annual cost ratio is clarified for allocation of interest
other than mortgage interest and income taxes.
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, Plant Megawatt Capability Ratio or Tons of
Coal Acquired 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,
Level of Construction - Transmission Ratio, Level of
Construction - Distribution Ratio, Transmission and Sub-
Transmission Pole Miles Ratio, Number of Electric Customers
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: Coal-fired Kilowatt Hours
Generation 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, in
addition to ratios used for functional work orders, 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.
8. Future Amendments. The staff of the SEC in its most
recent audit of the Service Corporation requested that Schedule A
be reviewed and revised each year. The review and revision would
update the allocation ratios and group structure of the Service
Corporation. Unless significant changes are made to Schedule A
or the Service Corporation, the filing of an Application and
formal approval by the SEC under the 1935 Act is not required.
Changes in and new allocation ratios for functional work orders
require notice to the SEC staff at least 60 days prior to the
effective date. It is proposed that this Commission authorize
further changes to Schedule A as long as the changes do not
require the filing of an Application under the 1935 Act.
9. Other Regulatory Approvals Relating to Service
Agreement. In addition to the approval of this Commission under
West Virginia Code, Section 24-2-12, the amendments to Schedule A
must also be approved by the SEC and the Virginia State
Corporation Commission ("VSCC"). The Service Corporation's
application to the SEC for approval of the changes to Schedule A
(the "SEC Application") was filed on January 16, 1996, and a copy
has been delivered to this Commission. The Service Corporation
filed Amendment No. 1, Amendment No. 2 and Amendment No. 3 (the
"Amendments") to the SEC Application on May 6, 1996, May 21, 1996
and July 24, 1996, respectively. Copies of the Amendments are
being delivered to this Commission herewith. Appalachian's
application to the VSCC for approval of the changes to Schedule A
has been filed recently.
10. Affiliated Transactions Agreement. The AEP System
companies have determined that significant operational
efficiencies can be achieved by realigning their operations on a
regional basis. Therefore, the Service Corporation, APCo, CSPCo,
I&M, KPCo, KGPCo, OPCo and WPCo intend to enter into an
Affiliated Transactions Agreement to provide, where appropriate
in certain limited situations, services, sell goods and make
facilities and vehicles available to each other. The cost of
services, goods, facilities or vehicles would be calculated in
accordance with Rules 90 and 91 of the SEC under the 35 Act.
Allocation of costs relating to services, goods and vehicles
are set forth in the Affiliated Transactions Agreement, a copy of
which is attached as Exhibit J to this Petition.
11. The terms and conditions of the arrangements proposed
herein are fair and reasonable. The arrangements do not confer
upon any party thereto an undue advantage over any other party
thereto, and do not adversely affect the public in West Virginia.
ACCORDINGLY, the Companies respectfully request the
Commission to enter an order granting its consent and approval
for the Companies to enter into, participate in, and effect
individual transactions pursuant to the arrangements which are
proposed herein.
APPALACHIAN POWER COMPANY
By: /s/ G. P. Maloney
Vice President
WHEELING POWER COMPANY
By: /s/ G. P. Maloney
Vice President
William C. Porth, Esq.
ROBINSON & MCELWEE
600 United Center
500 Virginia Street East
Charleston, WV 25301
(304) 344-5800
Ann B. Graf, Esq.
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza
Columbus, OH 43215
(614) 223-1000
Counsel for Appalachian Power Company
and Wheeling Power Company
EXHIBITS
A-1 Existing Agreement (including existing Schedule A) -
APCo
A-2 Existing Agreement (including existing Schedule A) -
WPCo
B Proposed Amended Schedule A
C Service Corporation Organizational Chart Before the
Realignment
D Service Corporation Organizational Chart After the
Realignment
E Post-Restructuring Lines of Authority From Service
Corporation to APCo and WPCo
F Organization of the Officers and Key Personnel of APCo
and WPCo after the Realignment
G Map Showing Transmission Regions
H Map Showing Distribution Regions
I Service Corporation Staffing Changes As a Result of the
Realignment
J Affiliated Transactions Agreement
VERIFICATION
STATE OF OHIO
COUNTY OF FRANKLIN, to-wit:
Ann B. Graf, counsel for Appalachian Power Company and
Wheeling Power Company, the Petitioners in the foregoing Petition
of Appalachian Power Company and Wheeling Power Company, being
duly sworn, states upon her information and belief that the facts
and allegations therein contained are true.
/s/ Ann B. Graf
Ann B. Graf
Taken, sworn to and subscribed before me this 29th day of
August, 1996.
/s/ Jana Lee Brown
Notary Public
My Commission expires 3-15-2000
Exhibit D-3
PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON
Entered: October 29, 1996
CASE NO. 96-1101-E-PC
APPALACHIAN POWER COMPANY, a corporation,
and WHEELING POWER COMPANY, a corporation,
both dba AMERICAN ELECTRIC POWER.
Petition for consent and approval of
amendments to Service Agreements with
American Electric Power Service Corporation,
an affiliate, for the provision of certain
services and entering into Affiliated
Transactions Agreements with certain of their
affiliates pursuant to W. Va. Code, Sec. 24-2-12.
RECOMMENDED DECISION
On September 4, 1996, Appalachian Power Company (APCo) and
Wheeling Power Company (Wheeling), both dba American Electric Power
(AEP), filed a joint petition, pursuant to the provisions of West
Virginia Code Sec. 24-2-12, seeking Commission consent and approval
to amend their existing Service Agreements [in addition to approval
of the Public Service Commission of West Virginia, the amendments
to the existing Service Agreement must also be approved by the
Securities and Exchange Commission and the Virginia State
Corporation Commission] with American Electric Power Service
Corporation (Service Corporation), an affiliate, for the provision
of certain services [on May 28, 1980, the Commission issued an
Order in Case No. 80-138-E-PC, approving the existing service
agreements, dated January 1, 1980, between APCo, Wheeling and the
Service Corporation] and, where appropriate, to enter into an
Affiliated Transactions Agreement with certain affiliates [Columbus
Southern Power Company, Indiana Michigan Power Company, Kentucky
Power Company, Kingsport Power Company and Ohio Power Company] to
provide services, sell goods and make facilities and vehicles
available to each other. AEP states that the amendments are
necessary because of organizational realignments necessary to: (a)
unbundle electric services consistent with customer desires and the
evolving regulatory structures of the industry and (b) achieve
significant operational efficiency. It is further alleged that the
organizational realignment will create no new legal entities, no
utility assets will be transferred and the arrangements will not
confer upon any party thereto an undue advantage over any other
party thereto, and do not adversely affect the public in West
Virginia.
On October 10, 1996, Staff Attorney Caryn Watson Short filed
an Initial and Final Joint Staff Memorandum. A Utilities Division
Final Staff Memorandum dated October 8, 1996, from Thomas D.
Sprinkle, Senior Utilities Analyst, Energy Section, Utilities
Division, was attached thereto. Both of these Memoranda
recommended approval of the amendments, without approving the terms
and conditions of the agreements for ratemaking purposes.
By Order dated October 21, 1996, the Commission referred this
matter to the Division of Administrative Law Judges for disposition
and ordered that an Administrative Law Judge's decision be rendered
on or before April 3, 1997.
FINDINGS OF FACT
1. On September 4, 1996, Appalachian Power Company and
Wheeling Power Company, both dba American Electric Power, filed a
joint petition seeking Commission consent and approval to amend
their existing Service Agreements with American Electric Power
Service Corporation, an affiliate, and, where appropriate, to enter
into an Affiliated Transactions Agreement with certain affiliates.
(See September 4, 1996 filing).
2. Commission Staff recommended approval of the proposed
amendments. (See October 9, 1996 Initial and Final Joint Staff
Memorandum and attachment).
CONCLUSION OF LAW
Upon consideration of the above, the undersigned
Administrative Law Judge is of the opinion that it is reasonable
and appropriate to approve APCo and Wheeling's request to amend
their existing Service Agreements with American Electric Power
Service Corporation and to enter into an Affiliated Transactions
Agreement with certain affiliates, without specifically approving
the terms and conditions thereof.
ORDER
IT IS, THEREFORE, ORDERED that the joint petition filed on
September 4, 1996, by Appalachian Power Company and Wheeling Power
Company, seeking Commission consent and approval to amend their
existing Service Agreements with American Electric Power Service
Corporation and, where appropriate, to enter into an Affiliated
Transactions Agreement with certain affiliates, be, and hereby is,
granted, without specifically approving the terms and conditions of
said amendments and agreements.
IT IS FURTHER ORDERED that this matter be, and hereby is,
removed from the Commission's docket of open cases.
The Acting Executive Secretary is hereby ordered to serve a
copy of this order upon the Commission by hand delivery, and upon
all parties of record by United States Certified Mail, return
receipt requested.
Leave is hereby granted to the parties to file written
exceptions supported by a brief with the Acting Executive Secretary
of the Commission within fifteen (15) days of the date this order
is mailed. If exceptions are filed, the parties filing exceptions
shall certify to the Acting Executive Secretary that all parties of
record have been served said exceptions.
If no exceptions are so filed this order shall become the
order of the Commission, without further action or order, five (5)
days following the expiration of the aforesaid fifteen (15) day
time period, unless it is ordered stayed or postponed by the
Commission.
Any party may request waiver of the right to file exceptions
to an Administrative Law Judge's order by filing an appropriate
petition in writing with the Secretary. No such waiver will be
effective until approved by order of the Commission, nor shall any
such waiver operate to make any Administrative Law Judge's Order or
Decision the order of the Commission sooner than five (5) days
after approval of such waiver by the Commission.
/s/ Melissa K. Marland
Chief Administrative Law Judge
Exhibit D-4
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND, February 19, 1997
APPLICATION OF
APPALACHIAN POWER COMPANY
CASE NO. PUA960054
For Approval to amend Schedule "A" to an existing
service agreement with an affiliate
ORDER GRANTING AUTHORITY
Appalachian Power Company ("Appalachian", "Company",
"Applicant") has filed an application with the Commission under the
Public Utilities Affiliates Act for authority to amend Schedule A
("Proposed Amendment") to the Existing Service Agreement with
American Electric Power Service Corporation ("Service
Corporation"), both of which are wholly owned subsidiaries of
American Electric Power Company, Inc. ("American"), a holding
company registered under the Public Utility Holding Company Act of
1935 (the "1935 Act").
Appalachian states in the application that this Commission
approved in an Order entered on May 13, 1980, in Case No.
PUA800020, a service agreement including Schedule A thereto (the
"Existing Service Agreement") which was dated January 1, 1980,
between the Company and the Service Corporation. The Service
Corporation currently provides services under the Service
Agreements (such agreements together with the Existing Service
Agreement collectively, the "Service Agreements") to American,
eight electric utility companies (AEP Generating Company, APCo,
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 Electric Utility Companies,
AEP Energy Services, Inc., AEP Resources, Inc., AEP Resources
International, Limited and AEP Investments, Inc.
Appalachian also states in the application that, in order to
better position American and its subsidiaries for increasing
competition among electric suppliers, the Service Corporation and
Electric Utility Companies began to realign their organizations to
create distinct power generation and energy transmission and
distribution groups on January 1, 1996. The realignment
establishes four (4) functional business units: Power Generation;
Energy Transmission and Distribution; Nuclear Generation; and
Corporate Development. The business units and support services are
functional organizations placed over existing corporate structures.
As a result of the realignment, no new entities will be formed and
no assets will be transferred. Also, as a result of the
realignment, the Company expects the Service Corporation and
Electric Utility Companies to provide improved services more
efficiently.
Accordingly, Appalachian states that, as a result of the
realignment of the Service Corporation and the Electric Utility
Companies, numerous changes to Schedule A are required. The
Proposed Amendment will revise the structure of the groups set
forth in the Schedule as well as the allocation ratios employed to
bill costs to the Electric Utility Companies. Also, with the
centralization of management of the Electric Utility Companies, the
review and approval of new work orders and monthly billings will
change. Appalachian also proposes 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 the companies, in
addition to the ratios used for functional work orders, on specific
ratios as identified in the application, where appropriate.
The Existing Service Agreement may be terminated upon not less
than one year's written notice by either the Company or the Service
Corporation. The Service Agreement may be terminated without
notice if performance under the Service Agreement conflicts with
(i) any rule, regulation or order of the Securities and Exchange
Commission issued pursuant to the provisions of the 1935 Act, or
(ii) any rule, regulation or order of any state commission or other
state body having jurisdiction.
THE COMMISSION, upon consideration of the application and
representations of Applicant and having been advised by its Staff,
is of the opinion and finds that the above described Proposed
Amendment to the Existing Service Agreement between Appalachian and
the Service Corporation would be in the public interest and should
be approved. Accordingly,
IT IS ORDERED:
1) That, pursuant to Sec. 56-77 of the Code of Virginia,
Appalachian Power Company is hereby authorized to amend Schedule A
to the Existing Service Agreement with American Electric Power
Service Corporation under the terms and conditions described
herein;
2) That should any terms and conditions of the Service
Agreement and/or Schedule A change from those described herein,
Commission approval shall be required for such changes;
3) That the authority granted herein shall have no
ratemaking implications;
4) That the authority granted herein shall not preclude the
Commission from exercising the provisions of Sec. 56-78 and Sec.
56-80 of the Code of Virginia hereafter;
5) That the Commission reserves the right to examine the
books and records of any affiliate in connection with the authority
granted herein whether or not such affiliate is regulated by this
Commission, pursuant to Sec. 56-79 of the Code of Virginia;
6) That Applicant shall file an affiliated transaction
report with the Director of Public Utility Accounting of the
Commission on an annual basis, such report to include, by month the
following: 1) a description of transactions provided by the Service
Corporation, and 2) component costs of each transaction (i.e.,
labor (direct/indirect), fringe benefits, materials, supplies,
overheads, etc.);
7) That such report shall be filed with the Director of
Public Utility Accounting by no later than May 1 of each year, for
the preceding calendar year, the first of such reports due on or
before August 29, 1997, for the calendar year 1996; and
8) That there appearing nothing further to be done in this
matter, the same be, and it hereby is, dismissed.
AN ATTESTED COPY hereof shall be sent to Applicant, care of H.
Allen Glover, Jr., Esquire, Woods, Rogers & Hazlegrove P.L.C., P.O.
Box 14125, Roanoke, Virginia 24038-4125; and delivered to the
Director of Public Utility Accounting of the Commission.
/s/ William J. Bridge
Clerk of the State Corporation Commission
AFFILIATED TRANSACTIONS AGREEMENT
This AGREEMENT is made and entered into as of the 31st day of
December, 1996, by and among American Electric Power Service
Corporation, a New York corporation; Appalachian Power Company, a
Virginia corporation; Columbus Southern Power Company, an Ohio
corporation; Indiana Michigan Power Company, an Indiana
corporation; Kentucky Power Company, a Kentucky corporation;
Kingsport Power Company, a Virginia corporation; Ohio Power
Company, an Ohio corporation; and Wheeling Power Company, a West
Virginia corporation (each, a "Company" and collectively, the
"Companies").
W I T N E S S E T H :
WHEREAS, the Companies are associate companies in the American
Electric Power Company System which comprises American Electric
Power Company, Inc. and its subsidiary companies; and
WHEREAS, the Companies have determined that significant
operational efficiencies can be achieved by realigning their
operations on a regional basis; and
WHEREAS, the Companies desire, where appropriate in certain
limited situations, to provide services, sell goods and make
facilities and vehicles available to each other;
NOW, THEREFORE, in consideration of such premises, the
Companies hereby agree as follows:
ARTICLE I
AGREEMENT TO PROVIDE SERVICES, SELL GOODS AND
MAKE FACILITIES AND VEHICLES AVAILABLE AND TO SHARE COSTS
Each Company (a "Delivering Company") agrees to provide
services, sell goods and make facilities and vehicles available to
the other Companies (a "Receiving Company"), if available, at the
Receiving Company's request, upon the terms and conditions set
forth in this Agreement. Each Receiving Company agrees to pay to
the Delivering Company the cost of services, goods, facilities or
vehicles received in accordance with Rules 90 and 91 of the Rules
and Regulations of the Securities and Exchange Commission
promulgated pursuant to the Public Utility Holding Company Act of
1935, upon the terms and conditions set forth in this Agreement.
ARTICLE II
ALLOCATION OF COSTS RELATING TO SERVICES
A. Costs relating to services which are provided by a
Delivering Company to a Receiving Company shall be accumulated and
allocated to the Receiving Company using accounts, work orders or
other billing indicators. Labor costs, to the extent practicable,
shall be allocated to the Receiving Company or Companies on the
basis of time records. Other costs which can be directly
identified with services for a Receiving Company shall be allocated
to that Company. Labor costs and other costs that cannot be
directly identified with a Receiving Company but which benefit two
or more Receiving Companies shall be allocated to the Receiving
Companies based upon the ratios set forth in Schedule A to this
Agreement or otherwise agreed to in writing between the Companies.
The costs of outside services shall be charged directly by the
vendor or supplier to the Receiving Company to the extent
practicable.
B. Labor costs include (i) the costs of salaries, computed
on the basis of each employee's hourly rate, and (ii) payroll-
related expenses, overheads and other indirect expenses, allocated
in the same proportion as the salaries are allocated.
ARTICLE III
ALLOCATION OF COSTS RELATING TO GOODS
A. Costs related to materials and supplies sold by a
Delivering Company to a Receiving Company shall include their book
value plus a stores overhead charge for direct and indirect costs
associated with purchasing and maintaining the inventory of
materials and supplies. The overhead charge will not include
investment carrying charges allocated as set forth in Paragraph B
of this Article.
B. If a Delivering Company maintains inventory for a
Receiving Company, costs associated with the Delivering Company's
investment carrying charges for the stores facilities and the
inventory will be allocated to the Receiving Company based on a
ratio the numerator of which is the total dollar value of inventory
issued from the facility to Receiving Company during the last
twelve months and the denominator of which is the sum of the total
dollar value of the inventory issued to all applicable Companies
during the same twelve months. This ratio will be revised semi-
annually. The costs also shall include an amount to compensate the
Delivering Company for income taxes and other taxes to the extent
applicable to such payments for such costs. Inventories at stores
facilities will be owned by the Delivering Company.
C. Costs related to capitalized spare parts sold by a
Delivering Company to a Receiving Company shall be their book
value, net of accumulated depreciation.
ARTICLE IV
ALLOCATION OF COST OF FACILITIES AND VEHICLES
Costs related to a facility of a Delivering Company used
directly by a Receiving Company, including depreciation, property
taxes, and investment carrying charges (or lease expense, if
applicable) will be allocated to the benefitting Company as rent
expense based on square footage occupied. Costs relating to a
vehicle of the Delivering Company used directly by a Receiving
Company will be allocated to the Receiving Company based on the
amount of time that it is used. These cost allocations also shall
include an amount to compensate for income taxes and other taxes to
the extent applicable.
ARTICLE V
INVESTMENT CARRYING CHARGES
"Investment carrying charges," as used for purposes of
Articles III and IV, shall employ the Delivering Company's
weighted cost of capital, based on capital structure ratios and
embedded costs of long-term debt and preferred stock as of the end
of the prior year and the allowed return on common equity capital
most recently authorized by a state commission having jurisdiction
over the Company's retail rates.
ARTICLE VI
TRANSFER OF EMPLOYEES
When an employee of one Company is transferred to another
Company, the Company that receives the employee shall pay directly
or indirectly all of the relocation expenses of the transferring
employee. The Receiving Company shall assume the liability for
accrued compensation owed to the transferring employee at the time
of transfer and the sending Company shall reimburse the receiving
Company for the payment of such liability.
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND REMEDIES,
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
A. Unless otherwise disclosed, any Company selling goods to
another Company warrants that, at the time of transfer, the good,
if new or unused, shall be free from defects in material and
workmanship, and, if used, shall be capable of performing its
intended function. If any good fails to meet the standards set
forth above and if the manufacturer's warranty does not cover the
defect, the Delivering Company shall, at its expense, repair or
replace the good.
B. Any Company performing services for another Company
warrants that it will exercise due care to assure that the services
are performed in a workmanlike manner and comply with applicable
standards of law and regulations. However, failure to meet these
obligations shall in no event subject the Delivering Company to any
claims or liabilities other than to reperform the work.
C. Except as expressly provided in this Article, each
Receiving Company acknowledges and agrees that the Delivering
Companies have not made and do not make any representation,
warranty or covenant with respect to merchantability, condition,
quality or durability of the goods or services in any respect or in
connection with, or for the purpose or use of the Receiving
Company, or any other representation, warranty or covenant or any
kind or character expressed or implied with respect thereto.
ARTICLE VIII
BILLING OF COSTS AND PAYMENTS
Costs allocated to a Receiving Company as described in this
Agreement shall be billed to the Company within 30 days of the end
of each month. Costs may be billed based upon estimates, if (a)
such costs are reasonable estimates of expected actual costs, (b)
the estimated costs are adjusted at least once annually to the
level of actual costs, unless the difference between the estimated
and actual costs is insignificant, and (c) both the estimated costs
and actual costs are allocated as provided in this Agreement. All
amounts billed under this Agreement shall be paid by the Receiving
Companies within 15 days after the receipt of each invoice.
ARTICLE IX
EXCLUDED SERVICES, GOODS, AND FACILITIES;
TERMINATION OF AGREEMENTS
This Agreement shall not apply to: (1) services performed by
American Electric Power Service Corporation for the Companies; (2)
sales of electric power, provision of transmission services and
operation of generating facilities; (3) services, goods, or
facilities in connection with the transportation or sale of coal;
(4) services provided under the Central Machine Shop Agreement
dated January 1, 1979; (5) services, goods or facilities provided
under the Mutual Assistance Agreement dated as of July 30, 1987;
and (6) services, goods or other matters governed by the Services
Agreement between the Cincinnati Gas & Electric Company, Columbus
Southern Power Company, The Dayton Power and Light Company and
American Electric Power Service Corporation for the Wm. H. Zimmer
Generating Station. The Cost Sharing Agreement, dated as of July
1, 1993, between Columbus Southern Power Company and Ohio Power
Company and the Lease Agreement, dated May 1, 1995, between
American Electric Power Service Corporation and Ohio Power Company
are terminated and superseded.
ARTICLE X
AMENDMENTS
This Agreement may be amended from time to time by agreement
of the parties hereto.
ARTICLE XI
WITHDRAWAL AND TERMINATION
Any Company may withdraw from this Agreement upon not less
than 180 days' written notice to the other Companies; this
Agreement shall continue in effect after such withdrawal with
respect to all Companies that do not withdraw. This Agreement may
be terminated without notice if performance hereunder conflicts
with any rule, regulation or order of the Securities and Exchange
Commission issued pursuant to the provisions of the 1935 Act.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date and year first above
written.
AMERICAN ELECTRIC POWER SERVICE CORPORATION
By:/s/ G. P. Maloney
G. P. Maloney, Executive Vice President
APPALACHIAN POWER COMPANY
By:/s/ G. P. Maloney
G. P. Maloney, Vice President
COLUMBUS SOUTHERN POWER COMPANY
By:/s/ G. P. Maloney
G. P. Maloney, Vice President
INDIANA MICHIGAN POWER COMPANY
By:/s/ G. P. Maloney
G. P. Maloney, Vice President
KENTUCKY POWER COMPANY
By:/s/ G. P. Maloney
G. P. Maloney, Vice President
KINGSPORT POWER COMPANY
By:/s/ G. P. Maloney
G. P. Maloney, Vice President
OHIO POWER COMPANY
By:/s/ G. P. Maloney
G. P. Maloney, Vice President
WHEELING POWER COMPANY
By:/s/ G. P. Maloney
G. P. Maloney, Vice President
<PAGE>
SCHEDULE A
DESCRIPTION OF SERVICES AND DESIGNATION OF METHODS OF ALLOCATION
A general description of the services which may be performed
from time to time by one Company and the method of allocation to be
used for costs of services that benefit other Companies, but cannot
be specifically identified to a Company, are set forth below:
SERVICES COST SHARING METHOD*
Marketing
Consumer Marketing . . . . . . . . . . Number of Electric Customers
Key Accounts . . . . . . . . . . . . . Number of Electric Customers
Economic Development . . . . . . . . . Number of Electric Customers
Business Services. . . . . . . . . . . Number of Electric Customers
Marketing Support Services . . . . . . Number of Electric Customers
Distribution Regions
Managerial . . . . . . . . . . . . . . Number of Electric Customers
Customer Services. . . . . . . . . . . Number of Electric Customers
Eng. - Engineering & Planning. . . . . Number of Electric Customers
Eng. - Information & Drafting. . . . . Number of Electric Customers
Operations - Administrative. . . . . . Number of Electric Customers
Operations - Meter . . . . . . . . . . Number of Electric Customers
Operations - Line. . . . . . . . . . . Number of Electric Customers
Energy Distribution Support
Distribution Operations
Distribution Operations. . . . . . . Number of Electric Customers
Right of Way Maintenance . . . . . . Number of Electric Customers
Distribution Engineering
Engineering & Planning . . . . . . . Number of Electric Customers
Distribution Data Systems
Database Applications. . . . . . . . Number of Electric Customers
Joint Use. . . . . . . . . . . . . . Number of Electric Customers
Customer Services
Customer Call Centers. . . . . . . . Number of Electric Customers
Energy Transmission
Transmission Regions
Transmission Line. . . . . . . . . . Tran. & Sub-Tran. Pole Miles
Protection & Control . . . . . . . . Tran. & Sub-Tran. Pole Miles
Station. . . . . . . . . . . . . . . Tran. & Sub-Tran. Pole Miles
Transmission System Engineering
Line Engineering . . . . . . . . . . Tran. & Sub-Tran. Pole Miles
Line Engineering/Right of Way. . . . Tran. & Sub-Tran. Pole Miles
Line Engineering/Survey. . . . . . . Tran. & Sub-Tran. Pole Miles
Protection & Control Eng.. . . . . . Tran. & Sub-Tran. Pole Miles
Station Engineering. . . . . . . . . Tran. & Sub-Tran. Pole Miles
Station Construction, O&M Admin.
System Maint., Tools & Equip.. . . . Tran. & Sub-Tran. Pole Miles
Operations Center. . . . . . . . . . . Kwh Sales
Energy Delivery Support
Measurements & Customer Support
Measurements Eng. & Support. . . . . Kwh Sales
Meter Operations . . . . . . . . . . Kwh Sales
Telecommunications
Telecommunications Engineering . . . Number of Employees
Telecommunications Operations. . . . Number of Employees
Operations Improvement
Land Management - Forestry . . . . . Kwh Sales
Land Management - Real Estate. . . . Kwh Sales
Operations Analysis. . . . . . . . . Kwh Sales
Administrative Support
Administrative
State Pres./Envir. & Gov't. Aff. . . Kwh Sales
Corporate Communications . . . . . . Kwh Sales
Rates. . . . . . . . . . . . . . . . Kwh Sales
Accounting
Administrative . . . . . . . . . . . Kwh Sales
Accounts Payable . . . . . . . . . . Number of Invoices Processed
Cash Management. . . . . . . . . . . Kwh Sales
Centralized Cash . . . . . . . . . . Number of Electric Customers
Customer Accounting. . . . . . . . . Number of Electric Customers
Data Processing. . . . . . . . . . . Kwh Sales
Electric Plant . . . . . . . . . . . Net Plant Investment
General Records. . . . . . . . . . . Kwh Sales
Reports. . . . . . . . . . . . . . . Kwh Sales
Systems and Procedures . . . . . . . Kwh Sales
Corporate Services
Corporate Services-Admin . . . . . . Kwh Sales
State Taxes. . . . . . . . . . . . . Kwh Sales
*1.Kwh Sales Ratio
A ratio the numerator of which is the total Kwh sales of the
benefitting 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 applicable Companies
during the same twelve months. Firm intra-System sales,
exclusive of the Interchange Power Pool, between the Companies
shall be eliminated from a Company's Kwh sales. This ratio will
be revised semi-annually, based on figures as of March 31 and
September 30.
2. Number of Electric Customers Ratio
A ratio the numerator of which is the number of firm electric
customers of the benefitting Company and the denominator of which
is the sum of the number of firm electric customers of all
applicable Companies. This ratio will be revised semi-annually,
based on figures at March 31 and September 30.
3. Number of Employees Ratio
A ratio the numerator of which is the number of employees
(exclusive of certain union employees, where applicable) of the
benefitting Company and the denominator of which is the sum of
the number of employees (exclusive of certain union employees,
where applicable) of all applicable Companies. This ratio will
be revised semi-annually, based on figures at March 31 and
September 30.
4. Net Plant Investment Ratio
A ratio the numerator of which is the investment in utility plant
of the benefitting Company (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 applicable Companies. This
ratio will be revised semi-annually, based on figures at March 31
and September 30.
5. Transmission and Sub-Transmission Pole Miles Ratio
A ratio the numerator of which is the transmission and
sub-transmission pole miles of the benefitting Company and the
denominator of which is the sum of the transmission and
sub-transmission pole miles of all applicable Companies. This
ratio will be revised annually, based on figures at September 30.
6. Number of Invoices Processed Ratio
A ratio the numerator of which is the number of invoices
processed for a benefitting Company during the last twelve months
and the denominator of which is the sum of the number of invoices
processed for all applicable Companies during the same twelve
months. This ratio will be revised semi-annually, based on
figures as of March 31 and September 30.
<PAGE>
<TABLE>
APPALACHIAN POWER COMPANY
SCHEDULE OF INTER-COMPANY BILLING ACTIVITY
for the 12 months ended DECEMBER 31, 1997
<CAPTION>
ORGANIZATION PROVIDING SERVICE TOTAL KGPCO KPCO I/M CSP OPCO WPCO AEPSC
<S> <C>
O&M COSTS
MARKETING
CONSUMER MARKETING
KEY ACCOUNTS
ECONOMIC DEVELOPMENT
BUSINESS SERVICES
MARKETING SUPPORT SERVICES
DISTRIBUTION REGIONS
MANAGERIAL
CUSTOMER SERVICES
ENG - ENGINEERING & PLANNING
ENG - INFORMATION & DRAFTING
OPERATIONS - ADMINISTRATIVE
OPERATIONS - METER
OPERATIONS - LINE
ENERGY DISTRIBUTION SUPPORT
DISTRIBUTION OPERATIONS
DISTRIBUTION OPERATIONS
RIGHT OF WAY MAINTENANCE
DISTRIBUTION ENGINEERING
ENGINEERING & PLANNING
DISTRIBUTION DATA SYSTEMS
DATABASE APPLICATIONS
JOINT USE
CUSTOMER SERVICES
CUSTOMER CALL CENTERS
ENERGY TRANSMISSION
TRANSMISSION REGIONS
TRANSMISSION LINE
PROTECTION & CONTROL
STATION
TRANSMISSION SYSTEM ENGINEERING
LINE ENGINEERING
LINE ENGINEERING/RIGHT OF WAY
LINE ENGINEERING/SURVEY
PROTECTION & CONTROL ENG.
STATION ENGINEERING
STATION CONSTRUCTION, O&M ADMIN
SYSTEM MAINT., TOOLS & EQUIP.
OPERATIONS CENTER
ENERGY DELIVERY SUPPORT
MEASUREMENTS & CUSTOMER SUPPORT
MEASUREMENTS ENG. & SUPPORT
METER OPERATIONS
TELECOMMUNICATIONS
TELECOMMUNICATIONS ENGINEERING
TELECOMMUNICATIONS OPERATIONS
OPERATIONS IMPROVEMENT
LAND MANAGEMENT-FORESTRY
LAND MANAGEMENT-REAL ESTATE
OPERATIONS ANALYSIS
ADMINISTRATIVE SUPPORT
ADMINISTRATIVE
STATE PRES/ENVIR & GOV'T AFF
CORPORATE COMMUNICATIONS
RATES
OTHER ADMINISTRATIVE GROUPS
ACCOUNTING
ADMINISTRATIVE
ACCOUNTS PAYABLE
CASH MANAGEMENT
CENTRALIZED CASH
CUSTOMER ACCOUNTING
DATA PROCESSING
ELECTRIC PLANT
GENERAL RECORDS
REPORTS
SYSTEMS AND PROCEDURES
CORPORATE SERVICES
CORPORATE SERVICES-ADMIN
FLEET MANAGEMENT
BUILDING SERVICES
OFFICE SERVICES
LABOR FRINGES ON 0&M LABOR
CONSTRUCTION, RETIREMENTS AND OTHER WORK IN PROGRESS
MATERIAL & SUPPLIES (not included in above)
FACILITY COSTS
INVESTMENT CARRYING CHARGES
TOTAL INTER-COMPANY BILLING
</TABLE>
<PAGE>
<TABLE>
COLUMBUS SOUTHERN POWER COMPANY
SCHEDULE OF INTER-COMPANY BILLING ACTIVITY
for the 12 months ended DECEMBER 31, 1997
<CAPTION>
ORGANIZATION PROVIDING SERVICE TOTAL KGPCO APCO KPCO I/M OPCO WPCO AEPSC
<S> <C>
O&M COSTS
MARKETING
CONSUMER MARKETING
KEY ACCOUNTS
ECONOMIC DEVELOPMENT
BUSINESS SERVICES
MARKETING SUPPORT SERVICES
DISTRIBUTION REGIONS
MANAGERIAL
CUSTOMER SERVICES
ENG - ENGINEERING & PLANNING
ENG - INFORMATION & DRAFTING
OPERATIONS - ADMINISTRATIVE
OPERATIONS - METER
OPERATIONS - LINE
ENERGY DISTRIBUTION SUPPORT
DISTRIBUTION OPERATIONS
DISTRIBUTION OPERATIONS
RIGHT OF WAY MAINTENANCE
DISTRIBUTION ENGINEERING
ENGINEERING & PLANNING
DISTRIBUTION DATA SYSTEMS
DATABASE APPLICATIONS
JOINT USE
CUSTOMER SERVICES
CUSTOMER CALL CENTERS
ENERGY TRANSMISSION
TRANSMISSION REGIONS
TRANSMISSION LINE
PROTECTION & CONTROL
STATION
TRANSMISSION SYSTEM ENGINEERING
LINE ENGINEERING
LINE ENGINEERING/RIGHT OF WAY
LINE ENGINEERING/SURVEY
PROTECTION & CONTROL ENG.
STATION ENGINEERING
STATION CONSTRUCTION, O&M ADMIN
SYSTEM MAINT., TOOLS & EQUIP.
OPERATIONS CENTER
ENERGY DELIVERY SUPPORT
MEASUREMENTS & CUSTOMER SUPPORT
MEASUREMENTS ENG. & SUPPORT
METER OPERATIONS
TELECOMMUNICATIONS
TELECOMMUNICATIONS ENGINEERING
TELECOMMUNICATIONS OPERATIONS
OPERATIONS IMPROVEMENT
LAND MANAGEMENT-FORESTRY
LAND MANAGEMENT-REAL ESTATE
OPERATIONS ANALYSIS
ADMINISTRATIVE SUPPORT
ADMINISTRATIVE
STATE PRES/ENVIR & GOV'T AFF
CORPORATE COMMUNICATIONS
RATES
OTHER ADMINISTRATIVE GROUPS
ACCOUNTING
ADMINISTRATIVE
ACCOUNTS PAYABLE
CASH MANAGEMENT
CENTRALIZED CASH
CUSTOMER ACCOUNTING
DATA PROCESSING
ELECTRIC PLANT
GENERAL RECORDS
REPORTS
SYSTEMS AND PROCEDURES
CORPORATE SERVICES
CORPORATE SERVICES-ADMIN
FLEET MANAGEMENT
BUILDING SERVICES
OFFICE SERVICES
LABOR FRINGES ON 0&M LABOR
CONSTRUCTION, RETIREMENTS AND OTHER WORK IN PROGRESS
MATERIAL & SUPPLIES (not included in above)
FACILITY COSTS
INVESTMENT CARRYING CHARGES
TOTAL INTER-COMPANY BILLING
<PAGE>
</TABLE>
<TABLE>
INDIANA MICHIGAN POWER COMPANY
SCHEDULE OF INTER-COMPANY BILLING ACTIVITY
for the 12 months ended DECEMBER 31, 1997
<CAPTION>
ORGANIZATION PROVIDING SERVICE TOTAL KGPCO APCO KPCO CSP OPCO WPCO AEPSC
<S> <C>
O&M COSTS
MARKETING
CONSUMER MARKETING
KEY ACCOUNTS
ECONOMIC DEVELOPMENT
BUSINESS SERVICES
MARKETING SUPPORT SERVICES
DISTRIBUTION REGIONS
MANAGERIAL
CUSTOMER SERVICES
ENG - ENGINEERING & PLANNING
ENG - INFORMATION & DRAFTING
OPERATIONS - ADMINISTRATIVE
OPERATIONS - METER
OPERATIONS - LINE
ENERGY DISTRIBUTION SUPPORT
DISTRIBUTION OPERATIONS
DISTRIBUTION OPERATIONS
RIGHT OF WAY MAINTENANCE
DISTRIBUTION ENGINEERING
ENGINEERING & PLANNING
DISTRIBUTION DATA SYSTEMS
DATABASE APPLICATIONS
JOINT USE
CUSTOMER SERVICES
CUSTOMER CALL CENTERS
ENERGY TRANSMISSION
TRANSMISSION REGIONS
TRANSMISSION LINE
PROTECTION & CONTROL
STATION
TRANSMISSION SYSTEM ENGINEERING
LINE ENGINEERING
LINE ENGINEERING/RIGHT OF WAY
LINE ENGINEERING/SURVEY
PROTECTION & CONTROL ENG.
STATION ENGINEERING
STATION CONSTRUCTION, O&M ADMIN
SYSTEM MAINT., TOOLS & EQUIP.
OPERATIONS CENTER
ENERGY DELIVERY SUPPORT
MEASUREMENTS & CUSTOMER SUPPORT
MEASUREMENTS ENG. & SUPPORT
METER OPERATIONS
TELECOMMUNICATIONS
TELECOMMUNICATIONS ENGINEERING
TELECOMMUNICATIONS OPERATIONS
OPERATIONS IMPROVEMENT
LAND MANAGEMENT-FORESTRY
LAND MANAGEMENT-REAL ESTATE
OPERATIONS ANALYSIS
ADMINISTRATIVE SUPPORT
ADMINISTRATIVE
STATE PRES/ENVIR & GOV'T AFF
CORPORATE COMMUNICATIONS
RATES
OTHER ADMINISTRATIVE GROUPS
ACCOUNTING
ADMINISTRATIVE
ACCOUNTS PAYABLE
CASH MANAGEMENT
CENTRALIZED CASH
CUSTOMER ACCOUNTING
DATA PROCESSING
ELECTRIC PLANT
GENERAL RECORDS
REPORTS
SYSTEMS AND PROCEDURES
CORPORATE SERVICES
CORPORATE SERVICES-ADMIN
FLEET MANAGEMENT
BUILDING SERVICES
OFFICE SERVICES
LABOR FRINGES ON 0&M LABOR
CONSTRUCTION, RETIREMENTS AND OTHER WORK IN PROGRESS
MATERIAL & SUPPLIES (not included in above)
FACILITY COSTS
INVESTMENT CARRYING CHARGES
TOTAL INTER-COMPANY BILLING
<PAGE>
</TABLE>
<TABLE>
KENTUCKY POWER COMPANY
SCHEDULE OF INTER-COMPANY BILLING ACTIVITY
for the 12 months ended DECEMBER 31, 1997
<CAPTION>
ORGANIZATION PROVIDING SERVICE TOTAL KGPCO APCO I/M CSP OPCO WPCO AEPSC
<S> <C>
O&M COSTS
MARKETING
CONSUMER MARKETING
KEY ACCOUNTS
ECONOMIC DEVELOPMENT
BUSINESS SERVICES
MARKETING SUPPORT SERVICES
DISTRIBUTION REGIONS
MANAGERIAL
CUSTOMER SERVICES
ENG - ENGINEERING & PLANNING
ENG - INFORMATION & DRAFTING
OPERATIONS - ADMINISTRATIVE
OPERATIONS - METER
OPERATIONS - LINE
ENERGY DISTRIBUTION SUPPORT
DISTRIBUTION OPERATIONS
DISTRIBUTION OPERATIONS
RIGHT OF WAY MAINTENANCE
DISTRIBUTION ENGINEERING
ENGINEERING & PLANNING
DISTRIBUTION DATA SYSTEMS
DATABASE APPLICATIONS
JOINT USE
CUSTOMER SERVICES
CUSTOMER CALL CENTERS
ENERGY TRANSMISSION
TRANSMISSION REGIONS
TRANSMISSION LINE
PROTECTION & CONTROL
STATION
TRANSMISSION SYSTEM ENGINEERING
LINE ENGINEERING
LINE ENGINEERING/RIGHT OF WAY
LINE ENGINEERING/SURVEY
PROTECTION & CONTROL ENG.
STATION ENGINEERING
STATION CONSTRUCTION, O&M ADMIN
SYSTEM MAINT., TOOLS & EQUIP.
OPERATIONS CENTER
ENERGY DELIVERY SUPPORT
MEASUREMENTS & CUSTOMER SUPPORT
MEASUREMENTS ENG. & SUPPORT
METER OPERATIONS
TELECOMMUNICATIONS
TELECOMMUNICATIONS ENGINEERING
TELECOMMUNICATIONS OPERATIONS
OPERATIONS IMPROVEMENT
LAND MANAGEMENT-FORESTRY
LAND MANAGEMENT-REAL ESTATE
OPERATIONS ANALYSIS
ADMINISTRATIVE SUPPORT
ADMINISTRATIVE
STATE PRES/ENVIR & GOV'T AFF
CORPORATE COMMUNICATIONS
RATES
OTHER ADMINISTRATIVE GROUPS
ACCOUNTING
ADMINISTRATIVE
ACCOUNTS PAYABLE
CASH MANAGEMENT
CENTRALIZED CASH
CUSTOMER ACCOUNTING
DATA PROCESSING
ELECTRIC PLANT
GENERAL RECORDS
REPORTS
SYSTEMS AND PROCEDURES
CORPORATE SERVICES
CORPORATE SERVICES-ADMIN
FLEET MANAGEMENT
BUILDING SERVICES
OFFICE SERVICES
LABOR FRINGES ON 0&M LABOR
CONSTRUCTION, RETIREMENTS AND OTHER WORK IN PROGRESS
MATERIAL & SUPPLIES (not included in above)
FACILITY COSTS
INVESTMENT CARRYING CHARGES
TOTAL INTER-COMPANY BILLING
<PAGE>
</TABLE>
<TABLE>
KINGSPORT POWER COMPANY
SCHEDULE OF INTER-COMPANY BILLING ACTIVITY
for the 12 months ended DECEMBER 31, 1997
<CAPTION>
ORGANIZATION PROVIDING SERVICE TOTAL APCO KPCO I/M CSP OPCO WPCO AEPSC
<S> <C>
O&M COSTS
MARKETING
CONSUMER MARKETING
KEY ACCOUNTS
ECONOMIC DEVELOPMENT
BUSINESS SERVICES
MARKETING SUPPORT SERVICES
DISTRIBUTION REGIONS
MANAGERIAL
CUSTOMER SERVICES
ENG - ENGINEERING & PLANNING
ENG - INFORMATION & DRAFTING
OPERATIONS - ADMINISTRATIVE
OPERATIONS - METER
OPERATIONS - LINE
ENERGY DISTRIBUTION SUPPORT
DISTRIBUTION OPERATIONS
DISTRIBUTION OPERATIONS
RIGHT OF WAY MAINTENANCE
DISTRIBUTION ENGINEERING
ENGINEERING & PLANNING
DISTRIBUTION DATA SYSTEMS
DATABASE APPLICATIONS
JOINT USE
CUSTOMER SERVICES
CUSTOMER CALL CENTERS
ENERGY TRANSMISSION
TRANSMISSION REGIONS
TRANSMISSION LINE
PROTECTION & CONTROL
STATION
TRANSMISSION SYSTEM ENGINEERING
LINE ENGINEERING
LINE ENGINEERING/RIGHT OF WAY
LINE ENGINEERING/SURVEY
PROTECTION & CONTROL ENG.
STATION ENGINEERING
STATION CONSTRUCTION, O&M ADMIN
SYSTEM MAINT., TOOLS & EQUIP.
OPERATIONS CENTER
ENERGY DELIVERY SUPPORT
MEASUREMENTS & CUSTOMER SUPPORT
MEASUREMENTS ENG. & SUPPORT
METER OPERATIONS
TELECOMMUNICATIONS
TELECOMMUNICATIONS ENGINEERING
TELECOMMUNICATIONS OPERATIONS
OPERATIONS IMPROVEMENT
LAND MANAGEMENT-FORESTRY
LAND MANAGEMENT-REAL ESTATE
OPERATIONS ANALYSIS
ADMINISTRATIVE SUPPORT
ADMINISTRATIVE
STATE PRES/ENVIR & GOV'T AFF
CORPORATE COMMUNICATIONS
RATES
OTHER ADMINISTRATIVE GROUPS
ACCOUNTING
ADMINISTRATIVE
ACCOUNTS PAYABLE
CASH MANAGEMENT
CENTRALIZED CASH
CUSTOMER ACCOUNTING
DATA PROCESSING
ELECTRIC PLANT
GENERAL RECORDS
REPORTS
SYSTEMS AND PROCEDURES
CORPORATE SERVICES
CORPORATE SERVICES-ADMIN
FLEET MANAGEMENT
BUILDING SERVICES
OFFICE SERVICES
LABOR FRINGES ON 0&M LABOR
CONSTRUCTION, RETIREMENTS AND OTHER WORK IN PROGRESS
MATERIAL & SUPPLIES (not included in above)
FACILITY COSTS
INVESTMENT CARRYING CHARGES
TOTAL INTER-COMPANY BILLING
<PAGE>
</TABLE>
<TABLE>
OHIO POWER COMPANY
SCHEDULE OF INTER-COMPANY BILLING ACTIVITY
for the 12 months ended DECEMBER 31, 1997
<CAPTION>
ORGANIZATION PROVIDING SERVICE TOTAL KGPCO APCO KPCO I/M CSP WPCO AEPSC
<S> <C>
O&M COSTS
MARKETING
CONSUMER MARKETING
KEY ACCOUNTS
ECONOMIC DEVELOPMENT
BUSINESS SERVICES
MARKETING SUPPORT SERVICES
DISTRIBUTION REGIONS
MANAGERIAL
CUSTOMER SERVICES
ENG - ENGINEERING & PLANNING
ENG - INFORMATION & DRAFTING
OPERATIONS - ADMINISTRATIVE
OPERATIONS - METER
OPERATIONS - LINE
ENERGY DISTRIBUTION SUPPORT
DISTRIBUTION OPERATIONS
DISTRIBUTION OPERATIONS
RIGHT OF WAY MAINTENANCE
DISTRIBUTION ENGINEERING
ENGINEERING & PLANNING
DISTRIBUTION DATA SYSTEMS
DATABASE APPLICATIONS
JOINT USE
CUSTOMER SERVICES
CUSTOMER CALL CENTERS
ENERGY TRANSMISSION
TRANSMISSION REGIONS
TRANSMISSION LINE
PROTECTION & CONTROL
STATION
TRANSMISSION SYSTEM ENGINEERING
LINE ENGINEERING
LINE ENGINEERING/RIGHT OF WAY
LINE ENGINEERING/SURVEY
PROTECTION & CONTROL ENG.
STATION ENGINEERING
STATION CONSTRUCTION, O&M ADMIN
SYSTEM MAINT., TOOLS & EQUIP.
OPERATIONS CENTER
ENERGY DELIVERY SUPPORT
MEASUREMENTS & CUSTOMER SUPPORT
MEASUREMENTS ENG. & SUPPORT
METER OPERATIONS
TELECOMMUNICATIONS
TELECOMMUNICATIONS ENGINEERING
TELECOMMUNICATIONS OPERATIONS
OPERATIONS IMPROVEMENT
LAND MANAGEMENT-FORESTRY
LAND MANAGEMENT-REAL ESTATE
OPERATIONS ANALYSIS
ADMINISTRATIVE SUPPORT
ADMINISTRATIVE
STATE PRES/ENVIR & GOV'T AFF
CORPORATE COMMUNICATIONS
RATES
OTHER ADMINISTRATIVE GROUPS
ACCOUNTING
ADMINISTRATIVE
ACCOUNTS PAYABLE
CASH MANAGEMENT
CENTRALIZED CASH
CUSTOMER ACCOUNTING
DATA PROCESSING
ELECTRIC PLANT
GENERAL RECORDS
REPORTS
SYSTEMS AND PROCEDURES
CORPORATE SERVICES
CORPORATE SERVICES-ADMIN
FLEET MANAGEMENT
BUILDING SERVICES
OFFICE SERVICES
LABOR FRINGES ON 0&M LABOR
CONSTRUCTION, RETIREMENTS AND OTHER WORK IN PROGRESS
MATERIAL & SUPPLIES (not included in above)
FACILITY COSTS
INVESTMENT CARRYING CHARGES
TOTAL INTER-COMPANY BILLING
<PAGE>
</TABLE>
<TABLE>
WHEELING POWER COMPANY
SCHEDULE OF INTER-COMPANY BILLING ACTIVITY
for the 12 months ended DECEMBER 31, 1997
<CAPTION>
ORGANIZATION PROVIDING SERVICE TOTAL KGPCO APCO KPCO I/M CSP OPCO AEPSC
<S> <C>
O&M COSTS
MARKETING
CONSUMER MARKETING
KEY ACCOUNTS
ECONOMIC DEVELOPMENT
BUSINESS SERVICES
MARKETING SUPPORT SERVICES
DISTRIBUTION REGIONS
MANAGERIAL
CUSTOMER SERVICES
ENG - ENGINEERING & PLANNING
ENG - INFORMATION & DRAFTING
OPERATIONS - ADMINISTRATIVE
OPERATIONS - METER
OPERATIONS - LINE
ENERGY DISTRIBUTION SUPPORT
DISTRIBUTION OPERATIONS
DISTRIBUTION OPERATIONS
RIGHT OF WAY MAINTENANCE
DISTRIBUTION ENGINEERING
ENGINEERING & PLANNING
DISTRIBUTION DATA SYSTEMS
DATABASE APPLICATIONS
JOINT USE
CUSTOMER SERVICES
CUSTOMER CALL CENTERS
ENERGY TRANSMISSION
TRANSMISSION REGIONS
TRANSMISSION LINE
PROTECTION & CONTROL
STATION
TRANSMISSION SYSTEM ENGINEERING
LINE ENGINEERING
LINE ENGINEERING/RIGHT OF WAY
LINE ENGINEERING/SURVEY
PROTECTION & CONTROL ENG.
STATION ENGINEERING
STATION CONSTRUCTION, O&M ADMIN
SYSTEM MAINT., TOOLS & EQUIP.
OPERATIONS CENTER
ENERGY DELIVERY SUPPORT
MEASUREMENTS & CUSTOMER SUPPORT
MEASUREMENTS ENG. & SUPPORT
METER OPERATIONS
TELECOMMUNICATIONS
TELECOMMUNICATIONS ENGINEERING
TELECOMMUNICATIONS OPERATIONS
OPERATIONS IMPROVEMENT
LAND MANAGEMENT-FORESTRY
LAND MANAGEMENT-REAL ESTATE
OPERATIONS ANALYSIS
ADMINISTRATIVE SUPPORT
ADMINISTRATIVE
STATE PRES/ENVIR & GOV'T AFF
CORPORATE COMMUNICATIONS
RATES
OTHER ADMINISTRATIVE GROUPS
ACCOUNTING
ADMINISTRATIVE
ACCOUNTS PAYABLE
CASH MANAGEMENT
CENTRALIZED CASH
CUSTOMER ACCOUNTING
DATA PROCESSING
ELECTRIC PLANT
GENERAL RECORDS
REPORTS
SYSTEMS AND PROCEDURES
CORPORATE SERVICES
CORPORATE SERVICES-ADMIN
FLEET MANAGEMENT
BUILDING SERVICES
OFFICE SERVICES
LABOR FRINGES ON 0&M LABOR
CONSTRUCTION, RETIREMENTS AND OTHER WORK IN PROGRESS
MATERIAL & SUPPLIES (not included in above)
FACILITY COSTS
INVESTMENT CARRYING CHARGES
TOTAL INTER-COMPANY BILLING
</TABLE>