File No. 70-8411
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2
TO
APPLICATION OR DECLARATION
ON
FORM U-1
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
ALLEGHENY POWER SYSTEM, INC.
12 EAST 49TH STREET
NEW YORK, NY 10017
(Name of company or companies filing this statement and addresses of
principal executive offices)
Allegheny Power System, Inc.
(Name of top registered holding company parent of each applicant or
declarant)
Nancy H. Gormley, Esq.
Vice President
Allegheny Power System, Inc.
Tower Forty-Nine
12 East 49th Street
New York, NY 10017
(Name and address of agent for service)
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1. Applicant hereby amends Item 1. Description of Proposed Transaction by
deleting in its entirety and substituting the following therefor:
Allegheny Power System, Inc. ("APS"), a registered holding company
under the Public Utility Holding Company Act of 1935 (the "Act"), requests
authority through December 31, 1996 to organize and finance a new wholly-
owned, non-utility subsidiary corporation to be named AYP Capital, Inc. ("AYP
Capital"). The activities of AYP Capital would be primarily limited to
investment directly or indirectly in (1) companies in the area of emerging
technologies closely related to APS's core utility business, which are in the
public interest by promoting efficient and environmentally friendly means of
generating and using electricity, and (2) companies for the acquisition and
ownership of exempt wholesale generators ("EWGs"), as defined in Section 32 of
the Act, as amended by the Energy Policy Act of 1992. APS requests authority
through December 31, 1996 to invest up to $500,000 in AYP Capital.
Request for Authority to Form AYP Capital, Inc.
APS requests authority to incorporate and operate AYP Capital
under the laws of the State of Delaware, with an initial authorized capital of
up to 1,000 shares of common stock with no par value. APS also requests
authority to subscribe to 100 shares of AYP Capital common stock at a price of
$10.00 per share. APS further requests authority to fund AYP Capital from
time-to-time through December 31, 1996, by means of purchases of additional
AYP Capital stock or capital contributions, in an aggregate amount not to
exceed $500,000 (including formation costs and the subscription cost of the
common stock), without further Securities and Exchange Commission
("Commission") approval. APS will obtain funds for this purpose from the sale
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of APS common stock pursuant to its Dividend Reinvestment and Stock Purchase
and Employee Stock Ownership and Savings Plans, from its regular bank lines of
credit or from internal sources. APS will not guarantee any indebtedness of
AYP Capital. AYP Capital will use such funds to pursue appropriate investment
opportunities in the area of emerging technologies or in EWGs and to engage in
preliminary development and administrative activities. The preliminary
development activities in which AYP Capital may engage include, but are not
limited to, analyzing potential investment opportunities, conducting site
investigations, preparing feasibility studies, developing proposed financing
programs and other necessary activities associated with identifying and
analyzing feasible investment opportunities. Administrative activities would
include, among other things, accounting, tax, engineering, financial and other
similar activities associated with the preliminary development activities.
Initially, APS does not anticipate that AYP Capital will have any
paid employees. Instead, personnel employed by Allegheny Power Service
Corporation ("APSC"), a wholly-owned subsidiary of APS, will provide a wide
range of services on an as-needed basis to AYP Capital pursuant to a service
agreement to be entered into between AYP Capital and APSC ("Service
Agreement"). The form of Service Agreement is attached hereto as Exhibit B.
AYP Capital will engage in preliminary development activities in
large part with services directly provided by APSC. Pursuant to the Service
Agreement, APSC will provide technical support and general and administrative
services for AYP Capital, such as engineering, management and/or operating
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activities associated with analyzing the feasibility of bulk power supply
opportunities, in addition to information services, legal, personnel,
financial, accounting services and other support activities. APSC will
account for, allocate and charge its costs of providing these services on a
full cost reimbursement basis utilizing a work order system, modified as
appropriate, in accordance with the Uniform System of Accounts for Mutual and
Subsidiary Service Companies. The work order system maintained by APSC
requires differing levels of approvals by APSC personnel depending upon the
dollar amount and type of request. Regardless of the amount, all work orders
must also be approved by an officer of the requesting company. At this time,
the officers of AYP Capital have yet to be determined.
The reimbursed cost of services identified through the work order
system shall include all direct charges and a prorated share of APSC's other
costs, including overhead, determined through methods of allocation previously
filed with the Commission by APSC as part of Form U-13-60. As filed, this
document includes methods for allocating direct charges, such as salaries,
employee welfare expenses, and training expenses, as well as indirect charges,
including the costs of maintaining the corporate existence of APSC, rents,
dues and memberships and all other expenses attributable to, or necessary to
the operation of, a department. Whenever the charges to individual companies
for services rendered are based upon estimates of APSC's costs, at the end of
each year such service charges are adjusted to actual cost, as required by
Rule 90(a)(2) under the Public Utility Holding Company Act of 1935.
<PAGE>
All of the time APSC employees spend working for AYP Capital will
be billed to and paid by AYP Capital on a monthly basis, based upon time
records. Time sheets reflect the daily time of each APSC employee, and
completed time reports are approved by each employee's supervisor.
AYP Capital will maintain separate financial records and detailed
supporting records, including profit/loss statements. These records will be
available to any proper federal regulatory agency or state regulatory agency
for review. The accounting staff of APSC, pursuant to the service agreement
with AYP Capital, will be responsible for record keeping and maintaining audit
procedures which are in compliance with generally accepted accounting
principles.
If AYP Capital acquires an interest in an EWG, it will use APSC
employees or other system employees within a de minimis limit to render
services to any affiliated EWGs. AYP Capital will not use more than 2% of the
total employees of all of the other system domestic public utility companies
at any one time for rendering services to any affiliated EWGs.
Significant opportunities exist for investment by AYP Capital in
companies that are developing new technologies closely related to APS's core
utility business, which are in the public interest by promoting efficient and
environmentally friendly means of generating and using electricity. In
addition, many opportunities exist for AYP Capital to make investments in or
to finance the acquisition of EWGs which may be located within or without the
areas served by System Operating Companies.
<PAGE>
The new technologies in which AYP Capital may invest would have
the capability of improving or augmenting the operations of APS' operating
subsidiaries currently or in the future. The areas in which AYP Capital
investment activity would be focused include:
* Energy conversion, storage and delivery technology;
* Conservation, load management, and demand side management
technologies, systems and services;
* Environmental and waste treatment technologies and services
related to electricity generation, transmission and
distribution (e.g. technologies for scrubbing of stack
emissions or disposal of fly ash wastes), or environmental
technologies which use electric power as a key component in
their waste treatment process;
* Advanced computer hardware and software for use in the
generation, transmission and distribution (or planning
therefor) of electricity (including artificial
intelligence/neural net systems and components);
* Power-related electronic systems, control systems and
components; and
* Electronic automation systems and components, including
instrumentation, sensors, robotics and inspection
techniques.
AYP Capital may invest directly in EWGs or in companies which are
developing emerging technologies relevant to APS's core utility business, or
AYP Capital may seek experienced investment partners and may structure
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investment vehicles with those partners to invest in EWGs or in such
companies. Although the exact form of any particular investment may vary,
each one will be structured in such a manner as to limit AYP Capital's
exposure to excessive liabilities. If AYP Capital or an investment vehicle
chosen by AYP Capital makes a direct investment in an EWG or in such company,
then AYP Capital may have a role in the business as though in the latter case
it invested directly in it. At this time, APS does not propose any specific
investment or investment vehicles for AYP Capital and no investments shall be
made by AYP Capital without asking for and receiving prior Commission
approval. APS and AYP Capital will not, without such further Commission
approval as may be required, engage in any financing for the future
acquisition by AYP Capital of an EWG or any interest in an EWG.
Except as described herein, no associate company or affiliate of
the Applicant or any affiliate of any such associate company has any material
interest, directly or indirectly, in the proposed transactions.
AYP Capital will file, on or before May 1 of each year, an annual
report of its activities for the preceding year using the Form U-13-60 reporting
format, as defined in Rule 94. In addition, AYP Capital hereby requests
authority to file Certificates under Rule 24 on a quarterly basis.
AYP Capital will notify the Commission within sixty (60) days after the
end of each calendar quarter pursuant to a Certificate under Rule 24
specifying what preliminary development activities have been carried
out in the previous quarter.
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2. Applicant hereby amends Item 6. Exhibits and Financial Statements by
filing the following:
B Form of Service Agreement to be
entered into by AYP Capital, Inc.
and Allegheny Power Service
Corporation
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.
ALLEGHENY POWER SYSTEM, INC.
By: NANCY H. GORMLEY
Nancy H. Gormley
Counsel
Dated: July 12, 1994
U:\DUMP\AYP\AMEND2
Exhibit B
July 12, 1994
SERVICE AGREEMENT
BETWEEN THE
ALLEGHENY POWER SERVICE CORPORATION
AND
AYP CAPITAL, INC.
THE SERVICE AGREEMENT, effective July 12, 1994, between Allegheny
Power Service Corporation, a corporation formed under the laws of the State of
Maryland, (the "Service Company") and AYP Capital, Inc., a corporation formed
under the laws of the State of Delaware, ("AYP Capital").
WITNESSETH:
WHEREAS, the Service Company was created to perform certain
management duties on behalf of Allegheny Power System, Inc. (the "System"),
its utility subsidiary companies (the "Subsidiaries") and its non-utility
subsidiary company; and
WHEREAS, the Service Company offers to provide a central
organization to furnish to the System, the Subsidiaries and AYP Capital
certain advisory, supervisory and other services in accordance with current
practices and procedures; and
WHEREAS, AYP Capital wishes to accept the offer proposed by the
Service Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto, intending to
be reasonably bound, hereby agree as follows:
<PAGE>
1. The Service Company hereby offers to furnish to AYP Capital the
services detailed on Exhibit I attached hereto and made a part hereof.
2. For all services rendered for AYP Capital by the Service
Company, AYP Capital agrees to pay the cost thereof. For services rendered to
one or more Subsidiaries and/or the System and/or AYP Capital, the allocation
will be based on the average of the prior three years' direct costs charged by
the Service Company to each Subsidiary and AYP Capital. Until a three-year
history for AYP Capital is developed, AYP Capital's costs will be deemed to be
the same as the average of the System's prior three years' direct costs,
thereby reducing each Subsidiary's share proportionately. Once a three-year
history for AYP Capital is available, APSC will calculate an allocation
percentage for AYP Capital. If the difference between that allocation
percentage and the one used for any of AYP Capital's first three years is
material, then APSC will recalculate all allocation percentages for those
years in which the difference was material and AYP Capital, the Subsidiaries
or the System will each either pay an additional amount or receive a refund of
a particular amount for that year.
3. The payment for services rendered by the Service Company to the
System, the Subsidiaries and AYP Capital shall cover all the costs and
expenses of its doing business, excluding only a return for the use of equity
capital, and that each Subsidiary, the System and AYP Capital shall pay its
direct or fair proportionate share.
4. Payment shall be made by AYP Capital to the Service Company on a
monthly basis on or before the 20th day of the succeeding month, upon receipt
of a statement showing the amount due. Certain charges billed by the Service
Company to AYP Capital may not be due immediately and will be so indicated on
the statement of billing. Monthly charges may be made on an estimated basis,
but adjustments will be made at the end of each calendar year so that all
charges for the calendar year will be in accordance with the foregoing.
5. Nothing herein shall be construed to release the officers and
directors of AYP Capital from the performance of their respective duties or
limit the exercise of their powers as prescribed by law or otherwise.
6. The offer set forth herein shall become a contract effective
July 12, 1994. Such Service Agreement shall continue in full force and effect
from year to year but may be terminated by either party upon 60 days' prior
notice, and AYP Capital may terminate such contract at any time with or
without notice for any cause deemed by it to be sufficient.
7. The Service Agreement will be subject to termination or
modification at any time to the extent its performance may conflict with the
provisions of the Public Utility Holding Company Act of 1935, as amended, or
with any rule, regulation or order of the Securities and Exchange Commission
adopted before or after the making of this Service Agreement and shall be
subject to the approval of any state commission or other regulatory body whose
approval is a legal prerequisite to its execution and delivery or performance.
<PAGE>
If AYP Capital desires to accept this offer, please cause it to be
executed in the space provided below by your duly authorized officers.
Very truly yours,
ALLEGHENY POWER SERVICE CORPORATION
By
President
Attest:
Secretary
Pursuant to authorization of the Board of Directors of AYP Capital, Inc., we
hereby accept the above offer this 12th day of July, 1994.
AYP CAPITAL, INC.
By
President
Secretary
<PAGE>
Page 1 of 2
Exhibit I
Allegheny Power Service Corporation Principal Functions
In accordance with the terms and conditions of the Service Agreement
dated July 12, 1994, the Service Company shall perform for AYP Capital the
following services:
1. Provide technical support as needed to evaluate, implement, and
develop unregulated opportunities related to the System's
electric business (including, but not limited to, any
engineering, construction, management and/or operating
activities associated with the development of bulk power supply
opportunities).
2. Planning and implementation of financial programs to raise the
funds required for AYP Capital, including handling arrangements
for bank borrowings and sales of securities and relationships
with investors and analysts.
3. Counsel on corporate, legal and regulatory matters and on
important contractual relationships.
4. Provide general and administrative services including, but not
limited to, the following:
a) Purchasing.
b) Customer billing and accounting.
c) Information services, including computer applications and
programming and electronic data processing.
d) Preparation of consolidated financial statements and cost,
statistical, and financial data, as required.
e) Assistance with respect to certain personnel matters,
including, but not limited to, employee benefit matters.
f) Preparation and filing of consolidated income tax returns
and following developments in federal and state taxation
regulations.
g) Administration of insurance.
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Exhibit I
Page 2 of 2
h) Internal auditing.
i) Corporate security.
5. Certain other services in addition to the above as the Service
Company may be able to provide and/or AYP Capital may require
or request.
