File No. 70-8411
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE AMENDMENT NO. 6
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
AYP CAPITAL, 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)
<PAGE>
1. Applicants hereby amend Item 6.Exhibits and Financial Statements by
adding the following thereto:
(a) Exhibits
H Form of Notice.
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
Vice President
AYP CAPITAL, INC.
By: NANCY H. GORMLEY
Nancy H. Gormley
Counsel
Dated: June 28, 1995
U:\DUMP\AYP\POSTEFF6
EXHIBIT H
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- : )
Allegheny Power System, Inc.
Notice Requesting Authority to Increase Capital Contribution; Enter into
Guarantees; Indebtedness; Loans; FUCOs; Project NEWCOs; Energy Management
Services; Factoring Services; Power Marketing and Power Brokering; Real Estate
Services; Power Quality Devices; Telecommunications; Environmental Services;
and Laboratory Services.
Allegheny Power System, Inc. ("APS"), 12 E. 49th Street, New York,
New York, 10017, a registered holding company and AYP Capital, Inc. ("AYP
Capital") 12 E. 49th Street, New York, New York, 10017, a nonutility
subsidiary of APS have filed a post-effective amendment to their application-
declaration under Sections 6(a), 7, 9(a), 10, 11(b), 12, 13(b), 32 and 33 of
the Public Utility Holding Company Act of 1935 (the "Act") and Rules 23, 45,
53, 81, 87(b), 90 and 91 thereunder.
APS proposes to invest up to $100 million in AYP Capital from time
to time in order to fund the following activities, as discussed in more detail
below:
(1) to allow AYP Capital to engage in activities directly or
indirectly related to the development, acquisition, ownership,
construction and operation of foreign utility companies as defined in
Section 33(a) of the Act ("FUCOs");
(2) to allow AYP Capital to engage in activities directly or
indirectly related to the development, acquisition, ownership,
construction and operation of qualifying cogeneration facilities and
small power production facilities ("SPPs") located throughout the United
States;
(3) to allow APS and AYP Capital to acquire in one or more
transactions, the securities of one or more companies ("Project NEWCOs")
engaged directly or indirectly, and exclusively, in the business of
owning and holding the securities of FUCOs and/or exempt wholesale
generators ("EWGs");
(4) to allow AYP Capital or one or more special purpose
subsidiaries ("EMS NEWCOs") to provide energy management services and
demand side management services to nonassociates, and to associate
companies;
(5) to allow AYP Capital or one or more special purpose
subsidiaries ("Factoring NEWCOs") to factor the accounts receivable of
<PAGE>
associate and nonassociate utility and similar companies, or effect
securitizations of accounts receivable of such companies;
(6) to allow AYP Capital to enter into one or more investment
limited partnership agreements;
(7) to allow AYP Capital or one or more special purpose
subsidiaries ("Brokering NEWCOs") to engage in brokering of energy-
related commodities and financial instruments to nonassociates, and to
associate companies;
(8) to allow AYP Capital or one or more Brokering NEWCOs to engage
in power brokering, power marketing and related activities;
(9) to allow AYP Capital or one or more special purpose
subsidiaries ("Real Estate NEWCOs") to engage in activities directly or
indirectly related to the real estate portfolio of APS and its associate
companies;
(10) to allow AYP Capital or one or more special purpose
subsidiaries ("Technology NEWCOs") to engage in the marketing, sale and
installation of power quality devices to customers of associate and
nonassociate utility companies;
(11) to allow AYP Capital or one or more special purpose
subsidiaries ("Telecommunications NEWCOs") to provide telecommunications
services to nonassociates, and to associate companies;
(12) to allow AYP Capital or one or more special purpose
subsidiaries ("Environmental NEWCOs") to provide environmental services
to nonassociates; and
(13) to allow AYP Capital or one or more special purpose
subsidiaries ("Laboratory NEWCOs") to sell chemical laboratory services
to nonassociates, and to associate companies.
APS proposes to increase its investment in AYP Capital or for AYP
Capital to incur debt which may be guaranteed by APS, in each case to enable
AYP Capital to engage in the foregoing activities as well as previously
approved activities and to enable AYP Capital to organize Project NEWCOs, EMS
NEWCOs, Factoring NEWCOs, Brokering NEWCOs, Real Estate NEWCOs, Technology
NEWCOs, Telecommunications NEWCOs, Environmental NEWCOs and Laboratory NEWCOs
(each a "NEWCO" and, collectively, "NEWCOs") and make investments in NEWCOs to
enable them to engage in such activities; to allow Project NEWCOs to finance
their activities by issuing securities to parties other than APS and AYP
Capital; and to allow APS and AYP Capital to issue guarantees of AYP Capital's
and such NEWCOs' securities.
By prior Commission order in this matter dated July 14, 1994 (HCAR
No. 26085), APS was authorized to organize and finance AYP Capital for the
purpose of investing directly or indirectly in (i) companies in the area of
emerging technologies related to APS's core utility business and
<PAGE>
(ii) companies for the acquisition and ownership of EWGs within the definition
of Section 32 of the Act.
By order dated February 3, 1995 (HCAR No. 26229) the Commission
authorized AYP Capital to expand the scope of those previously approved
activities to include activities related to the development, acquisition,
construction, ownership and operation of EWGs. In addition, AYP Capital was
authorized to engage in preliminary development activities in respect of
(i) qualifying cogeneration facilities and SPPs, located throughout the United
States, in accordance with the Public Utility Regulatory Policies Act of 1978
and regulations thereunder; (ii) nonqualifying cogeneration facilities,
nonqualifying SPPs and independent power production facilities ("IPPs")
located within the service territories of APS public utility subsidiary
companies (the "Operating Subsidiaries"); (iii) EWGs; (iv) companies involved
in new technologies related to the core business of APS; and (v) FUCOs. AYP
Capital was also authorized to provide consulting services to nonaffiliate
companies and APS was authorized to increase its investment in AYP Capital
from $500,000 to $3 million.
(1) FUCOs
Based on its experience and skills in electricity generation,
transmission and distribution and related fields, APS believes that it is well
positioned to identify, evaluate, select and operate FUCOs which present
attractive investment opportunities, and AYP Capital has been granted
authority to engage in preliminary development activities in respect thereof.
APS and AYP Capital now seek authorization to expand the scope of such
previously approved activities to allow AYP Capital to engage in activities
directly or indirectly related to the development, acquisition of and
ownership of interests in, construction and/or operation of FUCOs, including
any necessary authority for AYP Capital to make such investments in FUCOs
through any type of investment vehicles, including limited partnerships or
other types of funds, the sole objective of which is to make investments in
one or more FUCOs.
(2) Qualifying cogeneration facilities and SPPs
APS similarly believes that it is well positioned to identify,
evaluate, select and operate qualifying cogeneration facilities and SPPs, and
AYP Capital has been granted authority to engage in preliminary development
activities in respect thereof. APS and AYP Capital now seek authorization to
expand the scope of such previously approved activities to allow AYP Capital
to engage in activities directly or indirectly related to the development,
acquisition of and ownership of interests in, construction and/or operation of
qualifying cogeneration facilities and SPPs located throughout the United
States.
(3) PROJECT NEWCOs
AYP Capital has previously received authority to acquire interests
in EWGs, and is currently requesting authority to invest in FUCOs. APS and
AYP Capital seek authorization to permit them to effect such investments in
<PAGE>
EWGs and FUCOs, (collectively "Exempt Subsidiaries") through special purpose
subsidiaries to be organized from time to time for such purposes.
APS and AYP Capital request authorization to acquire in one or
more transactions, the securities of one or more companies ("Project NEWCOs")
engaged directly or indirectly, and exclusively, in the business of owning and
holding the securities of Exempt Subsidiaries. The Applicants propose that
the authorization requested remain effective until the earlier of: (i)
December 31, 1999; and (ii) the effective date of any rule of general
applicability adopted by the Commission that would exempt the acquisition of
any securities of any Project NEWCOs from the requirements of Sections 9(a)
and 10 of the Act.
A Project NEWCO may be organized at the time of, and in order to
facilitate, the making of bids or proposals to acquire an interest in any
Exempt Subsidiary, or after the award of a bid proposal, in order to
facilitate closing on the purchase or financing of any such Exempt Subsidiary.
A Project NEWCO also may be organized subsequent to the consummation of an
acquisition of an interest in an Exempt Subsidiary for a number of different
reasons, including to effect an adjustment in the respective ownership
interests in any Exempt Subsidiary held by APS or AYP Capital and unaffiliated
co-investors; facilitate a partial sale of an interest in any such Exempt
Subsidiary; comply with applicable laws of foreign jurisdictions limiting or
otherwise relating to the ownership of domestic companies by foreign
nationals; or limit exposure to U.S. and foreign taxes as part of tax
planning.
APS and AYP Capital request authority to make direct or indirect
investments in Project NEWCOs. Any such direct or indirect investment in any
Project NEWCO would be consummated only if, at the time thereof, and giving
effect thereto, APS' "aggregate investment," determined in accordance with
Rule 53(a)(1)(i), in all FUCOs, EWGs and Project NEWCOs would not exceed 50%
of APS' "consolidated retained earnings," as defined in Rule 53(a)(1)(ii).
Under this limitation, APS' present investment limitation in FUCOs, EWGs and
Project NEWCOs is approximately $487 million. In addition, any such
investment in any particular Project NEWCO would be limited to an amount no
greater than the amount reasonably required in connection with making the
underlying investment in any Exempt Subsidiary (or Exempt Subsidiaries) with
respect to which such Project NEWCO was organized or formed, taking into
account development expenditures, working capital needs and cash reserves
required to be maintained in accordance with financing documents.
The Applicants propose that a Project NEWCO be permitted to
acquire and hold direct or indirect interests in both FUCOs and EWGs. The
ability to combine ownership of both FUCOs and EWGs under a single company
will enable APS, where appropriate and consistent with other objectives, to
minimize the number of separate intermediate subsidiaries needed in connection
with its investments in EWGs and FUCOs.
<PAGE>
(4) Energy management services and
demand side management services
APS and AYP Capital request authority to allow AYP Capital or EMS
NEWCOs to provide a wide range of energy management services and demand side
services to associate companies and nonassociates. AYP Capital also requests
authority for it or EMS NEWCOs to invest in energy management equipment and/or
provide customer financing for the purchase of energy management and demand
side management services and the purchase of equipment (including equipment
purchased from third party vendors and suppliers).
Energy management and demand side management services have a clear
relationship to the core business of APS and present an area for APS to
provide additional services to its customers and potential customers as well
as other consumers of energy while utilizing APS' expertise and technical
resources. AYP Capital expects to offer (directly or through EMS NEWCOs)
energy management services and demand side management services to customers in
and around the service territory of the Operating Subsidiaries, but does not
intend to limit activities in this business to such area.
APS and AYP Capital request authority to allow AYP Capital or EMS
NEWCOs to provide the following types of energy management and demand side
management services to nonassociates and associate companies:
A. Energy management services including: (1) the
identification of energy and other resource (water, labor, maintenance,
materials, etc.) cost reduction and/or efficiency opportunities; (2) the
design of facility and process modification and/or enhancement to
realize such opportunities; (3) the management of or the direct
construction or installation of energy conservation or energy efficiency
equipment; (4) the training of client personnel in the operation of
equipment; (5) the maintenance of energy systems; (6) the design and/or
management of and/or the direct construction or installation of new and
retrofit heating, ventilating and air conditioning, electrical and power
systems, motors, pumps, lighting, water and plumbing systems, and
related structures, to realize energy and other resource efficiency or
to otherwise meet a consumer's energy needs; (7) performance contracts,
i.e., contracts under which the service provider is paid for its
services and/or the equipment it installs based on the energy savings or
other identified factors that result from such services and equipment;
(8) assistance in identifying and arranging financing for energy
conservation or efficiency programs or for the purchase of equipment to
meet consumer's energy needs; (9) system commissioning, i.e., observing
the operation of the installed system to insure that it meets the design
specifications; (10) the reporting of system results; and (11) other
similar or related energy management activities.
B. Demand side management services including: (1) design of
energy conservation programs; (2) implementation of energy conservation
programs; (3) performance contracts for demand side management work;
(4) monitoring and/or evaluating demand side management programs,
<PAGE>
including metering and site inspection; and (5) other similar or related
demand side management activities.
Any energy management and demand side management services provided
by AYP Capital or EMS NEWCOs to associate companies will be at cost in
compliance with Rules 90 and 91.
In addition, APS and AYP Capital request authority to allow AYP
Capital or EMS NEWCOs to make (i) investments in energy efficiency and
conservation assets and/or other industrial or commercial equipment utilizing
or involved in the utilization of electric power (collectively, "energy
assets") and/or (ii) loans to energy services and demand side management
customers or customers who purchase or may be expected to purchase
electricity, directly or indirectly, from an Operating Subsidiary to enable
such customers to finance the purchase of such energy assets. The energy
assets so acquired may be leased or sold to customers at prices to be
negotiated based upon the fair market value thereof. Such energy assets would
also be used by AYP Capital or EMS NEWCOs in providing energy conservation and
efficiency services to associate companies in accordance with Rules 90 and 91,
or in providing services to nonassociates, including industrial and retail
customers of associate companies, at prices based on the fair market value
thereof. AYP Capital or EMS NEWCOs may retain title to the facilities and
equipment used to provide these services. Customer financing will enable AYP
Capital's or an EMS NEWCO's customers to purchase goods and services from
third party vendors and suppliers of their own choosing on terms and
conditions negotiated directly by them. Loans to customers for this purpose
will be evidenced by the customers' promissory notes.
(5) Factoring of accounts receivable
APS and AYP Capital request authority to allow AYP Capital or
Factoring NEWCOs to purchase accounts receivable (i) of the Operating
Subsidiaries, (ii) of nonassociate companies whose primary revenues are
derived from the sale of electricity, and (iii) of other nonassociate
companies, including utility companies, that generate receivables from large
numbers of customers.
APS and AYP Capital believe that factoring accounts receivable of
the Operating Subsidiaries will reduce the capitalization requirements of the
Operating Subsidiaries, thus lowering the revenue required from rate payers,
and will benefit APS shareholders through the earnings generated by the
factoring operation. APS and AYP Capital also believe that, for the same
reasons factoring would benefit the Operating Subsidiaries, it will be able to
find opportunities profitably to factor accounts receivable of nonassociate
companies. APS and AYP Capital are familiar with the patterns of billing and
collection in the electric utility industry and understand and can manage the
business risks involved in factoring accounts receivable of non-associate
electric utilities. APS and AYP Capital believe the same knowledge and skills
can usefully be applied to factoring receivables of other businesses that
generate receivables from large numbers of customers. Accordingly, after an
introductory period of conducting factoring activities solely with the
Operating Subsidiaries, it is expected that factoring services will be
<PAGE>
expanded to nonassociate electric utilities and other nonassociate companies
subject to the parameters described below.
AYP Capital and all Factoring NEWCOs will limit the acquisition of
receivables from nonassociate companies so that the trailing twelve-month
average amount of nonassociate company receivables held as of the end of any
calendar month (i.e., the average of the month-end amounts for such month and
the preceding 11 months) will be less than the trailing twelve-month average
amount of receivables acquired from APS associate companies and held as of the
end of such calendar month.
AYP Capital or the Factoring NEWCO will purchase the accounts
receivable from the associate or nonassociate company on the day that such
company prepares the bill. Purchases from Operating Subsidiaries will be made
at discounts which are competitive to those of other entities providing
comparable factoring services. Accounts receivable will be assigned to AYP
Capital or the Factoring NEWCO on a nonrecourse basis, except to the extent
that such receivable is invalid, and AYP Capital or the Factoring NEWCO will
bear the risk of the uncollectability of the account. Each company from which
accounts receivable are purchased is expected to be appointed to act as
collection agent in respect of such account receivables.
The factoring activities of AYP Capital and Factoring NEWCOs will
be conducted so that the risks associated with factoring operations for
nonassociate companies will be borne by the APS shareholders and not the
Operating Subsidiaries or their ratepayers. Separate audited accounting
records will be maintained for the factoring activities in respect of each
nonassociate customer.
The Applicants believe that at times it may be economically
advantageous, to AYP Capital and the companies generating the account
receivable, for AYP Capital to structure the foregoing transactions as
securitizations of accounts receivables -- i.e., the offering in the capital
markets of securities backed by the accounts receivable -- rather than as
factoring transactions. The Applicants therefore request authority to
provide, on a fee basis, structuring and related advice regarding the
securitization of accounts receivable generated by companies of the sort
described above. Any offerings of the securities thus created would be made
only by one or more broker-dealers registered under the Securities Exchange
Act of 1934.
(6) Participation in Investment Limited Partnerships
Significant opportunities exist for investment by AYP Capital in
companies that are developing new technologies related to APS' core business
operations. Such new technologies would have the capability of improving or
augmenting the Operating Subsidiaries' operations currently or in the future,
and AYP Capital has received general authority to make investments in such
companies and to engage in preliminary development activities in connection
therewith. AYP Capital believes that in addition to its direct investments of
this sort, it may be advantageous from time to time to identify experienced
investment participants in the venture capital business and to form investment
<PAGE>
limited partnerships to achieve AYP Capital's business objectives in this
area. AYP Capital requests authority to enter into investment limited
partnerships. Investing with an experienced investment partner would assist
AYP Capital in accessing opportunities for direct investments, strategic
partnering agreements, joint ventures, licensing agreements, and/or
acquisitions.
(7) Brokering of energy related commodities
The Applicants believe that APS' expertise and experience in
managing the resources necessary to conduct its utility business present it
with an opportunity to profitably assist others in managing and executing
their resource strategies. Accordingly, APS and AYP Capital request authority
for AYP Capital or Brokering NEWCOs to engage in brokering of energy related
commodities including, but not limited to, oil, gas, coal, SO2 allowances and
NOx credits, and financial instruments related thereto to nonassociates and
associate companies. Brokering services to associate companies will be
provided at cost in compliance with Rules 90 and 91.
(8) Power brokering, power marketing and related activities
The Applicants believe that they are well positioned to assist
others as a broker in meeting their wholesale electric power needs when such
needs cannot, for whatever reason, be fulfilled by one of the Operating
Subsidiaries. Accordingly, APS and AYP Capital request authority for AYP
Capital or Brokering NEWCOs to engage in power brokering services with respect
to electric generation and transmission resources, whereby, for negotiated
fees, a Brokering NEWCO would match willing buyers and sellers of wholesale
power or otherwise assist buyers of wholesale power in meeting their power
needs or sellers of wholesale power in selling their power.
In addition, the Applicants believe that in some cases it may be
desirable, for economic or other reasons, for AYP Capital or Brokering Newcos
to effect such transactions in electric generation and transmission resources
on a principal basis. Accordingly, the Applicants request authority for APS
Capital and Brokering Newcos to carry out power marketing activities, whereby
a Brokering Newco would directly purchase and take ownership of electric
generation and transmission resources and resell those resources at profitable
prices to willing buyers of wholesale power. The Applicants also request
authority for APS Capital and Brokering Newcos to carry out such activities
ancillary to the foregoing -- such as maintaining an electronic bulletin board
or other information service relating to electric generation and transmission
resources -- as may from time to time appear to afford attractive
opportunities to AYP Capital.
(9) Real Estate activities
From time to time various associate companies of AYP Capital may
determine that real estate which they own is not being used or could be used
more profitably. In order to derive further value from such real estate that
associate companies of AYP Capital may own from time to time, and to
centralize real estate related activities for the holding company system, APS
<PAGE>
and AYP Capital request authority to allow AYP Capital and Real Estate NEWCOs
to engage in the following real estate related activities: (i) managing the
system's real estate portfolio; (ii) marketing excess or unwanted system real
estate, (iii) developing system real estate; and (iv) marketing, brokering or
otherwise facilitating the exploitation of resources contained in or on system
real estate. Real estate services to associate companies will be provided at
cost in compliance with Rules 90 and 91.
(10) Commercialization of Power Quality Devices
The quality of incoming power is vital to the proper operation and
reliability of sensitive electronic equipment. Customers increasingly rely on
electronic equipment in business and home use and desire protection for
erratic operation and failure due to power quality. Power quality solutions
are available from several manufacturers who offer state-of-the-art products
to protect for power spikes and transients from customer equipment and the
local utility, lightning, voltage sags or surges, and short or long power
interruptions. Power quality devices range in size from small single purpose
power conditioning units which simply plug between an AC wall outlet and the
electronic equipment to large uninterruptable power supplies designed for
large power applications such as a mainframe computer.
APS and AYP Capital see power quality service as a logical
extension of the traditional delivery of reliable power at the customer meter
and would propose to offer power quality services to customers of associate
and nonassociate utility companies for small to medium size power applications
up to about 25 kVA. APS and AYP Capital would anticipate entering into supply
arrangements with vendors of power quality devices. AYP Capital and
Technology NEWCOs would then assess the power requirements of customers,
market and sell cost-effective power quality solutions and, where economically
attractive to do so, install the power quality devices.
APS and AYP Capital request authority to allow AYP Capital and
Technology NEWCOs to engage in the marketing and sale of power quality devices
to, and the installation of power quality devices at the premises of,
customers of associate and nonassociate utility companies.
(11) Telecommunications services
APS and AYP Capital request authority to allow AYP Capital and
Telecommunications NEWCOs to develop telecommunications systems and provide
telecommunications services to nonassociates and associate companies.
Although APS and AYP Capital have not yet determined the precise scope of such
telecommunications activities, because of the rapidly evolving nature of the
telecommunications industry and the increasing competitive pressures being
placed on the electric utility industry, APS and AYP Capital wish to be
positioned to take advantage of opportunities as they develop.
As technology develops, telecommunications systems are
increasingly becoming an essential component of the efficient, economic and
competitive provision of electric power and related services. APS and AYP
Capital believe that it may be advantageous for the holding company system to
<PAGE>
develop telecommunications systems or services because they may allow APS to
further exploit and leverage off of the resources of its transmission and
distribution system. APS and AYP Capital expect that any such system or
services would be more cost-effective if services could be provided to
nonassociates as well as to associate companies. Telecommunications services
to associate companies will be provided at cost in compliance with Rules 90
and 91.
(12) Environmental Services
The Applicants believe that APS' expertise and experience in
managing the Operating Subsidiaries' environmental compliance and regulatory
issues presents it with an opportunity to profitably assist actual or
potential customers in connection with similar matters. AYP Capital
previously has been granted authority to enter into contracts to provide
consulting services to nonassociates pursuant to which AYP Capital can consult
on environmental issues. APS and AYP Capital now seek authorization to allow
AYP Capital or Environmental NEWCOs to provide services to nonassociates to
assist them in managing their environmental compliance requirements. Such
environmental services would include (i) environmental consulting and audits;
(ii) planning and designing of equipment or facilities, or modifications
thereto, to meet environmental requirements; (iii) planning and designing of
environmental controls or compliance systems, or modifications thereto; (iv)
management of or the direct construction or installation of such equipment,
facilities, systems and modifications; and (v) other similar or related
environmental management activities. The Applicants expect that environmental
services will initially be provided to customers who purchase or may be
expected to purchase, directly or indirectly, electricity from an Operating
Subsidiary, but would expect to expand to customers of nonassociate utilities
after the business has become established.
(13) Chemical Laboratory Services
APS currently operates a chemical analysis laboratory for its core
utility business. The laboratory capabilities currently include:
(1) water testing of process, effluent, surface and groundwater for
heavy metals, anions, and inorganic contaminants,
(2) PCBs in oil and soil and dissolved gases in oil,
(3) coal for moisture, ash, sulphur, BTU, volatile matter and
grindability,
(4) lime for total and magnesium oxides,
(5) oils and solvents for toxic metals and flash points, and
(6) lubricating oils for wear testing and contaminant particle counts.
<PAGE>
The Applicants believe that APS' chemical laboratory resources
present an opportunity to profitably perform these existing services and
expand services to include full chemical analysis capability. APS and
AYP Capital request authority to allow AYP Capital and Laboratory NEWCOs to
sell the foregoing chemical laboratory services, and similar services that APS
may develop in connection with its core utility business, to nonassociates and
associate companies. Chemical laboratory services to associate companies will
be provided at cost in compliance with Rules 90 and 91.
(14) Investment and Financing
APS seeks authorization to increase its investment in AYP Capital,
or to permit AYP Capital to incur debt which may be guaranteed by APS, to
enable AYP Capital to (i) engage in the activities described herein as well as
the activities previously approved by the Commission, and (ii) make
investments in NEWCOs to engage in such activities. APS and AYP Capital also
seek authorization to allow Project NEWCOs to issue securities to parties
other than APS and AYP Capital, and to allow APS and AYP Capital to guarantee
such securities.
(a) Investment in, and Financing of, AYP Capital
APS proposes to invest in AYP Capital up to an aggregate of
$100 million outstanding at any one time (as calculated as provided herein)
through December 31, 1999 through any combination of (1) purchases of AYP
Capital's common stock, (2) cash capital contributions to AYP Capital and
(3) loans to AYP Capital. In addition, AYP Capital proposes to obtain loans
from banks or other lenders or issue other recourse obligations which may or
may not be guaranteed by APS. Any such borrowings by AYP Capital from third
parties that are guaranteed by APS would be included in and subject to the
$100 million investment authority requested by APS.
To the extent such investments involve loans to AYP Capital, such
loans will be made from time to time prior to December 31, 1999, with
maturities no later than December 31, 2004. Such loans will bear a fixed
interest rate equal to a rate not exceeding the prime rate in effect on the
date of the loan at a bank designated by APS. In the case of loans from
lenders other than APS, the loans will be made with maturities of no later
than December 31, 2004 and with a fixed interest rate not to exceed, on the
date of the loan, 3% over the prime rate at a U.S. money center bank to be
designated by APS. Any notes sold to a lender other than APS may be
guaranteed by APS as to principal, premium, if any, and interest. In
connection with any such sale, lender fees such as underwriting and commitment
fees may be paid in an amount not greater than 3% of the principal amount of
any note. It is further proposed that any notes issued to APS hereunder may,
at the option of APS, be converted to capital contributions to AYP Capital
through APS's forgiveness of the debt represented thereby.
(b) Investment in, and Financing of, NEWCOs
APS and AYP Capital also request authorization through
December 31, 1999 for AYP Capital to organize, from time to time, NEWCOs and
<PAGE>
to invest in and provide funding to such NEWCOs through (1) purchases of
capital stock (or, in the case of Project NEWCOs, partnership interests, trust
certificates or the equivalent of any of the foregoing under the laws of
foreign jurisdictions, if applicable), (2) capital contributions, and
(3) loans and the conversion of any such loans to capital contributions. APS
and AYP Capital propose that any amount permitted to be invested by APS in AYP
Capital shall be permitted to be reinvested by AYP Capital in NEWCOs. In
addition, the Applicants propose that NEWCOs be granted the authority to
obtain loans from banks or other lenders which may or may not be guaranteed by
APS or AYP Capital. Any such borrowings by NEWCOs, other than Project NEWCOs
which are dealt with in subsection (d) below, from third parties would be
included in and subject to the $100 million investment authority requested by
APS. All of the parameters with respect to loans to AYP Capital described
above in subsection (a) would also apply to loans to NEWCOs, except that
guarantees of loans may also be made by AYP Capital.
(c) Guarantees
APS and AYP Capital also propose, from time to time, to guarantee
or to act as surety on bonds, indebtedness and performance and other
obligations issued or undertaken by AYP Capital or NEWCOs in connection with
their businesses. It is anticipated that, in the ordinary course of business,
AYP Capital and NEWCOs may be required to furnish various types of bonds
including bid bonds, performance bonds, and material and payment bonds, and
provide commercial sureties for obligations under certain of such bonds. The
proposed indemnification by APS or AYP Capital of such sureties will
facilitate obtaining the necessary bonds when needed and at more favorable
rates than if such obligations were not guaranteed and will enhance the
competitiveness of AYP Capital and NEWCOs in the marketplace.
APS and AYP Capital seek the authority to provide such guarantees
of and similar provisions and arrangements concerning AYP Capital's and
NEWCOs' indebtedness to third parties, performance and undertaking of other
obligations through December 31, 1999; provided, that any guarantees or
indemnifications outstanding at December 31, 1999 shall continue until
expiration or termination in accordance with their terms. To the extent that
the amount of any underlying obligation being guaranteed by APS or AYP Capital
is not included in and subject to the $100 million investment authority
requested by APS pursuant to subsections (a) and (b) above, any such
guarantees, indemnifications and sureties will be included in and subject to
such $100 million investment authority. For purposes of computing the above
limitations, neither agreements to provide guarantees or indemnifications of
sureties of AYP Capital or NEWCOs which have not actually been issued, nor the
respective shares of any such obligations or indemnification of sureties held
by any joint venture partner of AYP Capital or any NEWCO, will be counted. It
is further proposed that, because the need for such guarantees and
indemnifications cover a range of contracts too broad to describe all of their
natures at this time, APS, AYP Capital and NEWCOs have the flexibility to
negotiate specific guarantees and similar provisions and arrangements with
third parties, and indemnifications of sureties, as the need to do so arises,
without further Commission authorization.
<PAGE>
(d) Financing by Project NEWCOs
In addition to the foregoing, APS and AYP Capital also request
approval for any Project NEWCOs to issue equity securities and debt securities
to persons other than APS or AYP Capital (and with respect to which there is
no recourse to AYP Capital)(1), including banks, insurance companies and other
financial institutions, exclusively for the purpose of financing (including
any refinancing of) investments in Exempt Subsidiaries. Such securities may
be issued in one or more transactions from time to time through the earlier to
occur of (i) December 31, 1999, and (ii) the effective date of any rule of
general applicability adopted by the Commission exempting such transactions
from the application requirements under the Act. It is proposed that the
aggregate principal amount of nonrecourse debt securities issued by Project
NEWCOs to persons other than APS and AYP Capital will not exceed $200 million
at any one time outstanding (or the equivalent in currencies other than U.S.
dollars). Non-U.S. dollar-denominated debt would be incurred only to finance
non-U.S. dollar investments or would be fully hedged into U.S. dollars. In
any case in which APS or AYP Capital directly or indirectly own less than all
of the equity interests in a Project NEWCO, only that portion of the
nonrecourse indebtedness of such Project NEWCO equal to APS' equity ownership
percentage shall be included for purposes of the foregoing limitation.
Equity securities issued by any Project NEWCOs to any party other
than APS or AYP Capital may include shares of capital stock, partnership
interests, trust certificates or the equivalent of any of the foregoing under
applicable foreign law. Nonrecourse debt securities issued to parties other
than APS or AYP Capital may include secured and unsecured promissory notes,
subordinated notes, bonds or other evidences of indebtedness. Securities
issued by Project NEWCOs may be denominated in either U.S. dollars or foreign
currencies.
The amount and type of such securities, and the terms thereof,
including interest rate, maturity, prepayment or redemption privileges, and
the terms of any collateral security granted with respect thereto, would be
negotiated on a case-by-case basis, taking into account differences from
project to project in optimum debt-equity ratios, projections of earnings and
cash flow, depreciation lives, and other similar financial and performance
characteristics of each project. Accordingly, APS and AYP Capital request the
authority to negotiate the terms and conditions of such securities without
further approval by the Commission. APS and AYP Capital also request
authority for Project NEWCOs to redeem any securities issued under this
section in accordance with the terms thereof.
Notwithstanding the foregoing, no equity security having a stated
par value would be issued or sold by a Project NEWCO for a consideration that
(1) Any indebtedness of a Project NEWCO as to which there is recourse
to either APS or AYP Capital would be included in the $100 million
investment authority requested by APS and would be subject to the
same terms and conditions as indebtedness of APS and AYP Capital
described in this section.
<PAGE>
is less than such par value. No note, bond or other evidence of indebtedness
issued or sold by any Project NEWCOs will mature later than 30 years from the
date of issuance thereof or will bear interest at a rate not to exceed the
following: (i) if such note, bond or other indebtedness is U.S. dollar
denominated, at a fixed rate not to exceed, on the date of issuance, 6.5% over
the yield to maturity on an actively traded, non-callable, U.S. Treasury note
having a maturity equal to the average life of such note, bond or other
indebtedness (the "Applicable Treasury Rate")(2), or at a floating rate not to
exceed, on the date of issuance, 6.5% over the then applicable prime rate at a
U.S. money center bank to be designated by APS (the "Applicable Prime Rate");
and (ii) if such note, bond or other indebtedness is denominated in the
currency of a country other than the United States, at a fixed or floating
rate which, when adjusted (i.e., reduced) for the prevailing rate of inflation
in such country, as reported in official indices published by such country,
would be equivalent to a rate on a U.S. dollar denominated borrowing of
identical average life that does not exceed, on the date of issuance, 10% over
the Applicable Treasury Rate (interpolated if necessary) or Applicable Prime
Rate, as the case may be.
In connection with the issuance of any nonrecourse debt securities
by any Project NEWCO, it is anticipated that such Project NEWCO may grant
security in its assets. Such security interest may take the form of a pledge
of the shares or other equity securities of an Exempt Subsidiary that it owns,
including a security interest in any distributions from any such Exempt
Subsidiary, or a collateral assignment of its rights under and interests in
other property, including rights under contracts.
AYP Capital also requests authority for any Project NEWCO to agree
to pay placement or commitment fees, and other similar fees, to placement
agents or others in connection with any sale of its non-recourse debt
securities or equity securities.
In connection with investments in Exempt Subsidiaries, it is
typical that a portion of the capital requirements of any such Exempt
Subsidiary would be obtained through nonrecourse financing involving
borrowings from banks and other financial institutions. In some cases,
however, it may be necessary or desirable to structure an investment in an
Exempt Subsidiary such that the obligations created are not those of the
Exempt Subsidiary, but instead those of its parent companies. For example, in
a consortium of nonaffiliated companies bidding to purchase the securities or
assets of an EWG or FUCO, each of the consortium members would be obligated to
fund its respective share of the proposed purchase price. If external sources
of funds are needed for this purpose, a participant in the consortium may
(2) If there is no actively traded Treasury note with a maturity equal
to the average life of such note, bond or other evidence of indebtedness,
then the Applicable Treasury Rate would be determined by interpolating
linearly with reference to the yields to maturity on actively traded,
non-callable, Treasury notes having maturities near (i.e., both shorter
and longer than) such average life.
<PAGE>
choose to engage in nonrecourse financing through one or more single-purpose
subsidiaries -- such as the Project NEWCOs -- that would then utilize the
proceeds of the financing to acquire an ownership interest in the Exempt
Subsidiary (3).
APS and AYP Capital believe that external financing by any Project
NEWCO involves the same issues that are involved when the financing is carried
out by an Exempt Subsidiary in terms of the potential adverse impacts upon the
financial integrity of a registered holding company system. Accordingly,
where the proceeds of any such financing (including any refinancing) are
utilized to make an investment in any Exempt Subsidiary, and there is no
recourse directly or indirectly to APS with respect to the securities issued
or sold, there is no basis for any adverse findings under Sections 6, 7 and 12
of the 1935 Act, provided that, at the time of the issuance thereof, APS is in
compliance with Rule 53.
(16) NEWCOs
Initially, AYP Capital anticipates that each NEWCO may or may not
have paid employees. If not, 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 such NEWCO pursuant to a service
agreement to be entered into between the NEWCO and APSC. Under this service
agreement, the NEWCO will reimburse APSC for the cost of services provided,
computed in compliance with Rules 90 and 91 of the Act, as well as applicable
rules and regulations. All time spent by APSC employees working for such
NEWCO will be billed to and paid by such NEWCO on a monthly basis.
Subject to Commission approval, AYP Capital or NEWCOs may at some
future date enter into similar agreements for the performance of services with
other APS companies.
Each NEWCO 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 each NEWCO, will be responsible for record keeping and maintaining audit
procedures which are in compliance with generally accepted accounting
principles.
Within 45 days after AYP Capital determines that the purpose for
owning any NEWCO no longer exists, it shall liquidate or dissolve any such
NEWCO unless, within that time, AYP Capital determines that any such NEWCO may
be used in conjunction with another proposal or plan as described herein in a
different Exempt Subsidiary. To the extent needed, APS and AYP Capital
request authority to liquidate or dissolve any NEWCO under such circumstances.
(3) Typically, the shares of capital stock or other equity interests in the
Exempt Subsidiary would be pledged to secure the securities issued by the
Project NEWCO.
<PAGE>
(17) Reporting
APS will provide, not later than 120 days after the end of each
calendar year, a certificate ("Certificate") of notification pursuant to Rule
24 under the Act notifying the Commission of each investment made by APS,
directly or indirectly, in AYP Capital and any NEWCO in the previous year,
indicating the amount and type of such investment.
In connection with its factoring activities, AYP Capital and each
Factoring NEWCO will file annual reports pursuant to Rule 24, within 120 days
after the end of each calendar year, concerning: (1) a balance sheet as of
the end of the year, statement of income for the twelve months then ended and
notes to the financial statements; (2) a listing of AYP Capital's and each
Factoring NEWCO's principal amount of borrowings outstanding at the end of
each year, which will contain the terms of each obligation, name of lending
institution and effective cost of borrowing; (3) outstanding accounts
receivable as of the end of each month, separated by associate and
nonassociate companies with each nonassociate company listed separately and a
detailed calculation of the annual discount for associate companies; and
(4) calculation by month of AYP Capital's consolidated earnings coverage.
Except as described herein, no associate company or affiliate of
the Applicants or any affiliate of any such associate company has any material
interest, directly or indirectly, in the proposed transactions.
The application and any amendments thereto are available for
public inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing should submit their
views in writing by , 1995, to the Secretary, Securities and
Exchange Commission, Washington, DC 20549, and serve a copy on the Applicants
at the addresses specified above. Proof of service (by affidavit or, in case
of an attorney at law, by certificate) should be filed with the request. Any
request for a hearing shall identify specifically the issues of fact or law
that are disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in this
matter. After said date, the application, as filed or as it may be amended,
may be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
