File No. 70-8777
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
AMENDMENT NO. 5
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)
* * *
Susan Tomasky, 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. ("AEP") hereby amends its Application
or Declaration on Form U-1 in File No. 70-8777 by adding the
following paragraphs to Item 1E.6:
(a) Effect of Realignment on Allocation Methods.
The new structure of the Power Generation Group led to the use
of new allocation methods which, in certain instances, led to
higher costs being charged to Cardinal. The Power Generation Group
provides general management, administrative and support services
which relate to all the generating units operated by the AEP
System. Considering the scope of the general services performed by
the various groups within the Power Generation Group, a change in
allocation methodology was adopted effective with AEP's
realignment. The prior allocation method, Client Load Ratio, is
based on peak demand and allocates costs only to AEP's five utility
operating companies with generating capacity. Cardinal does not
get billed under the Client Load Ratio. The change in allocation
method to the Plant Megawatt Capability Ratio allows Service
Corporation charges to be attributed to the generating units,
including those at Cardinal Plant, which are supported by those
charges, thus providing for better cost management. Considering
the scope of the activities performed, AEP believes the Plant
Megawatt Capability Ratio is a superior allocation method. Neither
the realignment of the Energy Transmission Group and the Energy
Distribution Group, nor any changes in allocation methods related
to those groups, has had an impact on the level of costs billed to
Cardinal.
(b) The Northern Region Service Organization.
In 1995, 1996 and 1997, the Northern Region Service
Organization provided support for fossil plant outages and other
plant-related administrative and technical support. Specifically,
the Northern Region Service Organization provided services such as
planning and scheduling both unit outage work and non-outage
projects, providing and supervising craft labor for both outage and
non-outage projects, engineering small capital projects, budget
preparation, purchasing, stores record keeping, quality control and
assurance, welding program oversight, human resource support, labor
relations, salary and benefits, and providing equipment
specialists. In 1996 the Northern Region Support Organization
provided support for the scheduled outages on Cardinal Units 1 and
2, and in 1997 on Cardinal Unit 3. The following amounts were
billed to Cardinal for services performed by the Northern Region
Service Organization during the years indicated: 1995, $-0-; 1996,
$6,366,896; and 1997, $3,406,551.
(c) Functional Work Order Billing System.
Functional work order billings are for services of a general
nature that cannot be readily identified with a specific plant or
unit. Services of a general nature provided by the Northern Region
Service Organization are billed using the Fossil Plant Combination
Ratio. The types of services that are billed using this method
include budget preparation, purchasing, stores record keeping,
quality control and assurance, welding program oversight, human
resource support, labor relations and salary and benefits
administration. Training costs are also billed using the Fossil
Plant Combination Ratio. The Fossil Plant Combination ratio is
used only when direct billing to a specific plant or unit is
impractical.
Support services performed by Power Generation Group personnel
other than those in the Northern Region Service Organization are
billed using the Megawatt Capability Ratio. Services that are
billed by this method include general management and administrative
functions in the Power Generation Group, development of the Power
Generation Group budget, development of a system outage schedule,
system training programs, labor relations, engineering and
technical studies of a general nature, management of engineering
and technical personnel, clerical support, and Power Generation
Group information technology support. The Megawatt Capability
Ratio is used only when direct billing to a specific plant or unit
is impractical.
Services that were billed by direct charge to Cardinal
included providing and supervising craft labor for the 1996
Cardinal Unit 1 and Unit 2 outages; providing and supervising craft
labor for non-outage projects; and planning, estimating, scheduling
and providing engineering and technical support for Cardinal Plant
outages and projects.
(d) Service Corporation Billings to Cardinal for 1996.
Of the $10.7 million billed by Service Corporation to Cardinal
in 1996, $8.2 million was specifically identifiable with Cardinal
and was billed directly to Cardinal by Service Corporation as
required under the Uniform System of Accounts prescribed by the
Commission. The $8.2 million principally was for the outages at
Cardinal Plant Unit 1 and Unit 2 and other maintenance work
performed by Service Corporation's Northern Region Service
Organization specifically for Cardinal.
Of the remaining charges billed to Cardinal in 1996,
approximately $500,000 was for other services performed by the
Northern Region Service Organization which could not be
specifically identified with any particular generating unit or
company. The other services performed by the Northern Region
Service Organization and other support groups which fall into this
category include administrative and technical support related to
general supervision, safety and health, planning and scheduling,
budget preparation and quality control and assurance. The total
such charges attributable to the AEP System generating companies
were allocated to all generating companies, including Cardinal,
based on the Fossil Plant Combination Ratio, as defined in Item
1.E.1(g) and as further discussed below. Since these costs were
for new services performed by Service Corporation as a result of
AEP's realignment, there was no precedent for allocating them.
The Fossil Plant Combination Ratio was specifically adopted
for the general services performed by the Northern Region Service
Organization. The Regional Service Organizations serve all of
AEP's fossil and hydro generating units, including the AEP and
Buckeye units at the Cardinal Plant. The Fossil Plant Combination
Ratio is built on two factors, plant megawatt capability and
scheduled maintenance outages. These two factors have a high
correlation with the administrative and technical support
activities performed by the Regional Service Organizations and, as
such, result in a fair and equitable allocation of costs not only
among the several AEP generating companies, but also among the
various generating units operated by AEP. As previously stated,
AEP, through Cardinal, operates the units owned by Buckeye at
Cardinal Plant.
Of the $10.7 million billed to Cardinal in 1996, approximately
$1.5 million resulted from adopting the Megawatt Capability Ratio
and applying it in lieu of the previously employed Client Load
Ratio for general management, administrative, and support services
performed by the various groups in the Power Generation Group
(other than the Regional Service Organizations, as discussed
above). Such general services, because of their nature, cannot be
specifically identified with any particular generating company or
unit and, in fact, relate to all the generating units operated by
AEP. Service Corporation's Client Load Ratio, which is based on
peak demand, only allocates costs to AEP's five utility operating
companies with generating capacity. As previously stated, Cardinal
does not get billed under the Client Load Ratio. However,
considering the scope of the general services performed by the
various groups within the Power Generation Group, which includes
Cardinal, a change in allocation methodology was adopted effective
with AEP's realignment. The change in allocation methods allows
Service Corporation charges to be attributed to the generating
units which are supported by those charges for better cost
management. Considering the scope of the activities performed, AEP
believes the Plant Megawatt Capability Ratio is a superior
allocation method.
(e) Benefits Provided to Cardinal by Service Corporation in
1996.
Cardinal received benefits in the form of administrative and
technical support and a supervised craft labor group. The
administrative and technical support included engineering support,
outage planning, scheduling support, estimating support and the
development of training programs. In 1996, the Northern Region
Service Organization provided supervised craft labor for two unit
outages and for non-outage projects. Excluding the new services
rendered by the Northern Region Service Organization, the general
services provided by Service Corporation in 1996 were similar to
those performed by Service Corporation in the past; however
Cardinal was not billed prior to the restructuring (see Item
1.E.6(d) above). All services, both direct and allocated,
currently provided by the Northern Region Service Organization
were, to some extent, provided by Cardinal personnel prior to the
restructuring. This Form U-1 seeks approval to amend Schedule A to
the Service Agreements. As discussed above, the amended Schedule
A reflects changes in the services provided by Service Corporation,
such as those conducted by the Northern Region Service
Organization, as well as changes in allocation methods.
Creation of the Northern Region Service Organization pursuant
to the restructuring did increase the amount of services rendered
by Service Corporation to Cardinal and thus increased the absolute
amount of Service Corporation billings to Cardinal. However, any
such increase was offset by savings from staff reductions at
Cardinal such that overall operating costs are lower than they
would have been absent the restructuring.
(f) Reservation of Jurisdiction over Cardinal.
AEP has asked this Commission to reserve jurisdiction over
applying the restructuring changes to Cardinal. To date, Buckeye
has not agreed in writing to the one year reservation of
jurisdiction. However, Buckeye will in no way be prejudiced if the
Commission approves this Form U-1 and reserves jurisdiction over
Cardinal.
(g) Buckeye's Share of Service Corporation Billings to
Cardinal.
Buckeye has paid its share of Service Corporation billings to
Cardinal for the period January 1996 through May 1998 in accordance
with the Station Agreement, dated January 1, 1968 between Ohio
Power Company, Buckeye, and Cardinal, as amended. In accordance
with the terms of the Station Agreement, maintenance costs and
capacity costs are shared differently. For example, for the
Station Agreement billing covering the month of May 1998, Buckeye
paid 51.5406% of Cardinal Station Monthly Maintenance Cost and
74.672% of Cardinal Station Monthly Prorated Capacity Cost.
Effective June 1, 1998, Service Corporation suspended billing
Service Corporation indirect charges to Buckeye through Cardinal in
connection with all work orders/charges affected by the changes in
allocation methods adopted on January 1, 1996. This suspension in
billings will continue as long as the parties negotiate in good
faith over the proper interpretation of the Service Agreement dated
January 1, 1968 between Ohio Power Company, Buckeye and Service
Corporation. No refunds have been made to Buckeye for any billings
made prior to June 1998 in connection with this dispute.
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/ A. A. Pena_____________
A. A. Pena
Treasurer
Dated: September 28, 1998
