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File No. 70-9483
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
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
Allegheny Energy Service
Corporation
800 Cabin Hill Drive
Greensburg, PA 15601
West Penn Power Company
800 Cabin Hill Drive
Greensburg, Pennsylvania 15601
AYP Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
(Name of companies filing this statement
and addresses of principal executive offices)
_____________________
Allegheny Energy, Inc.
(Name of top registered holding company parent of applicants)
Thomas K. Henderson, Esq.
Vice President
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
(Name and address of agent for service)
The Commission is requested to send copies of all notices, orders
and communications in connection with this Application-
Declaration to:
Thomas K. Henderson, Esq.
Vice President
Allegheny Energy, Inc
10435 Downsville Pike
Hagerstown, Maryland 21740-1766
1. Applicants hereby amend Item No. 1 Description of
Proposed Transaction by adding the following to the end of
Section E. Transfer of Generating Assets by West Penn and
Acquisition of the Generating Assets by Energy Subsidiary:
Upon the closing date and for so long as any of West
Penn's first mortgage bonds remain outstanding, West Penn's
transmission and distribution assets will remain subject to
West Penn's First Mortgage Bond Indenture dated as of March
1, 1916 (the "First Mortgage"). West Penn will remain
responsible for the payment of all principal and interest
due on the outstanding bonds under the First Mortgage Bond
Indenture. As of November 8, 1999, West Penn has
approximately $156,791,000 of outstanding First Mortgage
Bonds.
Upon the closing date, all of West Penn's generation
assets being sold to Energy Sub (the "Generation Assets")
will be released from the lien of the First Mortgage through
compliance with provisions of the First Mortgage. Upon
receipt by the bond trustee of a combination of cash
(approximately $160 million) and a promissory note
(approximately $812 million) in the aggregate equal to or
greater than the fair value of the Generation Assets, along
with a purchase money mortgage on such property, and other
certificates, opinions and documents required under the
First Mortgage, the Generation Assets will be released. The
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release provisions of the First Mortgage do not require
Energy Sub to become an obligor under West Penn's
outstanding first mortgage bonds. However, the Generation
Assets will be encumbered by a new purchase money mortgage
that will secure the purchase money note that West Penn will
receive from Energy Sub and deposit with the First Mortgage
Bond Trustee. The purchase money note will continue to
secure West Penn's payment obligations under the First
Mortgage.
2. Applicants hereby amend Item No. 6, Exhibits and
Financial Statements by filing herewith the following
exhibits and financial statements:
Item 6. EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
B-11 Form of Service Agreement to be entered into
between Allegheny Energy Service Corporation and
Energy Subsidiary and AESC and GENCO.
D-3 Acceptance by the FERC of Market Rate Tariff
for GENCO.
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D-5 Approval by FERC regarding Transfer of Shares
of AGC from West Penn to Energy Subsidiary.
D-7 Approval by FERC of transfer of West Penn's rights
under the OVEC Agreement to Energy Sub and from
Energy Sub to GENCO (see approval filed as Exhibit D-5).
B. Financial Statements
FS-4 West Penn Power Company
Pro Forma Capitalization Ratios Reflecting
Recapitalization and Formation of Generation
Company (filed pursuant to Confidential Request).
FS-5 Allegheny Energy, Inc.
Pro Forma Capitalization Ratios (filed pursuant to
Confidential Request).
FS-6 Genco cash forecast through December 31,
2000 (filed pursuant to Confidential Request)
FS-7 Asset Transfer Book Values
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3. Applicants hereby amend Item No. 1. Description of
Proposed Transaction by deleting the paragraph under
subsection 1. Contributions to Energy Subsidiary and
Transfer of Associated Liabilities under Section D.
Formation of Energy Subsidiary and substituting the
following therefor:
Contributions by Allegheny or West Penn to Energy
Subsidiary may take the form of any combination
of: (1) purchases of capital shares, partnership
interests, member interests in limited liability
companies, trust certificates or other forms of
equity interests (collectively, "Capital Stock");
(2) open account advances without interest; (3)
loans; and (4) Guarantees, (as defined below),
issued in support of securities or other
obligations of Energy Subsidiary. West Penn will
transfer the Associated Liabilities with the other
generation-related assets to Energy Subsidiary.
West Penn will contribute two notes payable to,
and retire a note receivable from, Energy
Subsidiary in this transaction. All three notes
involved in this transaction are described in the
following paragraphs. One promissory note is from
Energy Sub to West Penn in payment for West Penn's
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assets, the other two promissory notes are capital
contributions from West Penn to Energy Sub.
Purchase Money Note
The Purchase Money Note is an interest-bearing note
issued by Energy Sub to West Penn as part of the purchase
price for the acquisition of the Generating Assets. It will
be recourse to Energy Sub and will be secured by the
Generating Assets. West Penn will deposit the Purchase
Money Note with the bond trustee for its First Mortgage
Indenture as security until such time as a special
redemption is called on the outstanding First Mortgage Bonds
covered by the First Mortgage Indenture. After the special
redemption, the trustee will return the Purchase Money Note
to West Penn. This note plus accrued interest is the
obligation of Energy Sub.
Balancing Note
The purpose of this note is to capitalize the business
of Energy Sub and to ensure that initially it has a positive
net worth. In addition to selling its Generating Assets to
Energy Sub, West Penn will transfer "other generating assets
and liabilities" to Energy Sub which are listed on Exhibit
FS-7 attached hereto. West Penn anticipates that on the
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closing date, the amount of liabilities to be transferred
will exceed the amount of assets under the category "other
generating assets and liabilities" by approximately $605
million. These Other Assets and Liabilities, along with the
Generating Assets, will subsequently be distributed by
Energy Sub to GENCO. In order to maintain Energy Sub's
liquidity after this transfer, West Penn will contribute a
non-interest-bearing note payable to Energy Sub equal to the
amount of the excess of the Other Liabilities over the Other
Assets. But for the contribution of this Note, there could
be adverse tax consequences to West Penn and Energy Sub.
Liquidation Note
In order for Energy Sub to be deemed as the recourse
obligor for tax purposes on the Purchase Money Note, it must
have assets in excess of its liabilities. Accordingly, West
Penn will capitalize Energy Sub with cash equivalent to the
amount needed to make the special redemption, plus this
Liquidation Note. The purpose of the Liquidation Note is to
ensure that Energy Sub is solvent once it issues the
Purchase Money Note in connection with the acquisition of
the Generating Assets from West Penn. Energy Sub will be
liable to West Penn for the face value of the Purchase Money
Note, plus accrued interest. In order for Energy Sub to
have sufficient assets to satisfy this face value plus
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accrued interest, the Liquidation Note must have an
aggregate principal value in excess of this sum. The
Liquidation Note will be non-interest bearing and have a
term of three months. Estimates are that the Liquidation
Note must have a principal amount of $20 million dollars in
excess of the principal amount of the Purchase Money Note in
order to achieve this desired liquidity.
After West Penn receives the Purchase Money Note back
from the First Mortgage Indenture, Energy Sub can return
this note to West Penn and satisfy its liability under the
Purchase Money Note, plus accrued interest.
Distribution from Energy Sub to West Penn
The Liquidation Note will be substantially extinguished
in payment of the Purchase Money Note and interest accrued
thereon. Energy Sub will distribute the remaining amounts
of both the Liquidation Note and the Balancing Note to West
Penn either at the same time, or shortly after, the
distribution of GENCO limited liability interests (i.e.
stock) to West Penn. Both of these notes are necessary in
order to achieve the transfer of the Generating Assets and
associated other assets and liabilities to GENCO in a tax
efficient manner, while also satisfying West Penn's
obligations under the First Mortgage Bond Indenture. None
of these three notes will be transferred to GENCO. Nor will
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they survive past the transfer of assets and liabilities to
GENCO (except for the time required for administrative
purposes).
The source of funds for direct or indirect
contributions by Allegheny to Energy Subsidiary will
include: (1) dividends received from operating companies
that are derived from proceeds of sales of energy to
customers; and (2) other available cash resources. Loans by
Allegheny or West Penn to Energy Subsidiary will not exceed
$100 million in the aggregate outstanding at any one time.
Each loan will have a maturity of less than one year and
will have an interest rate that is designed to provide a
return to Allegheny or West Penn equal to Allegheny's or
West Penn's, as the case may be, effective cost of capital.
4. Applicants hereby amend Item No. 1. Description of
Proposed Transaction by adding the following paragraph after
the first paragraph under Section E. Transfer of Generating
Assets by West Penn and Acquisition of the Generating Assets
by Energy Subsidiary as follows:
The promissory note will bear interest from the
closing date at a market rate, which rate will not
exceed 7.49%. The term of the note will be three
months.
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5. Applicants hereby amend Item No. 1. Description of
Proposed Transaction by deleting subsection t. under Section
1. Transactions Related to the Formation and Capitalization
of Energy Subsidiary under Section C. Overview of Requested
Approvals and substituting the following therefor:
t. that Allegheny Energy, Inc. may make loans,
guarantees and support agreements to and for GENCO
as deemed necessary, through July 31, 2005, up to
an aggregate of $900 million (in addition to the
$500 million referred to in (o) above and in
addition to the promissory note referred to in (c)
above);
6. Applicants hereby amend Item No. 1. Description of
Proposed Transaction by deleting subsection d. under Section
1. Transactions Related to the Formation and Capitalization
of Energy Subsidiary under Section C. Overview of Requested
Approvals and substituting the following therefor:
d. the transfer by West Penn of its generation
related assets, including AGC stock and accounts
receivable, and net liabilities and debt,
including outstanding pollution control and solid
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waste disposal obligations, deferred income taxes,
adverse purchase contracts and accounts payable
(collectively referred to as the "Associated
Liabilities") to Energy Subsidiary (see Exhibit FS-
7 for a description of those items and their book
values); capital contributions by West Penn of
notes payable to Energy Subsidiary; and the
acquisition by Energy Subsidiary of the Associated
Liabilities and such notes from West Penn;
7. Applicants hereby amend Item No. 1. Description of
Proposed Transaction by deleting subsection c. under Section
1. Transactions Related to the Formation and Capitalization
of Energy Subsidiary under Section C. Overview of Requested
Approvals and substituting the following therefor:
c. the issuance by Energy Subsidiary to West
Penn of a promissory note in partial consideration
for the Generating Assets in a principal amount of
approximately $812 million, secured by a purchase
money mortgage on the Generating Assets;
8. Applicants hereby amend Item No. 1. Description of
Proposed Transaction by adding three paragraphs to the end
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of subsection 1. Guarantee Authority under Section K
Financing Authority as follows:
Allegheny has requested authority to provide parent-
supported financing or parent guarantees up to an aggregate
of $900 million to support the growth of GENCO's business.
Guarantees may be utilized as credit support for GENCO.
GENCO requires the flexibility to issue indebtedness in many
fashions, some of which may require parent support and/or a
parent guarantee because it is a newly created company.
Moreover, the growth of its trading, marketing and brokering
activities will require significant parent guarantees.
Allegheny proposes to engage in these activities through
July 31, 2005. The terms and conditions of the Guarantees
will be established through arms' length negotiations based
upon current market conditions and any Guarantee will be non-
recourse to the system operating companies unless otherwise
authorized.
A portion of the guarantee authority sought herein will
be used by Allegheny to guarantee the outstanding debt that
will be transferred to GENCO as part of the AYP Energy, Inc.
asset move. The asset will be transferred to GENCO in
exchange for GENCO assuming the outstanding debt of AYP
Energy, Inc. Currently, the outstanding balance of the AYP
Energy indebtedness is $130 million. Allegheny requests
authority to continue its guarantee of that indebtedness
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when the asset and indebtedness transfer to GENCO. Another
portion of the guarantee authority will be used for
Allegheny to provide credit support for GENCO's $200 million
commercial paper program, if necessary. Another portion of
the guarantee authority would be used to provide guarantees
for counterparty agreements that are entered into in the
ordinary course of business.
Allegheny also seeks authority to issue loans to GENCO
up to $100 million in order to provide liquidity to GENCO on
a short-term basis and to facilitate cash management. GENCO
needs the flexibility to be able to obtain parent company
loans if the need arises in its business operations. Each
loan from Allegheny will have less than a one year term and
will have an interest rate that is designed to provide a
return to Allegheny equal to Allegheny's effective cost of
capital. The aggregate amount of loans will not exceed $100
million outstanding at any one time.
9. Applicants hereby amend Item No. 1. Description of
Proposed Transaction by adding the following to the end of
subsection 2. GENCO Independent Financing under Section K.
Financing Authority as follows:
GENCO has requested authority to issue up to $500
million in general financing through July 31, 2005. GENCO
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proposes to use up to $200 million of that amount to support
short-term operating needs by establishing a commercial
paper/bank note program which will be rated by credit rating
agencies. GENCO will issue commercial paper on an as-needed
basis. The commercial paper will be issued in denominations
of $100,000 or greater, with maturities not to exceed 270
days. The rate on the commercial paper will be a spread
over the LIBOR rate. Assuming a low rating of GENCO's
commercial paper program from the rating agencies and a
three-month maturity, the interest rate on the commercial
paper would be LIBOR plus 100 basis points. The LIBOR rate
on November 10, 1999 was 6%. Therefore, an assumed rate on
November 10, 1999 would be 7%.
Additionally, GENCO proposes to issue or obtain other
general financing for long-term investments in capital
improvements of existing generating facilities, acquisition
of new generation equipment (combustion turbines, etc.) and
Clean Air Act compliance, which when combined with the then
outstanding commercial paper / bank note program, will not
exceed $500 million. Such other general financing will
include, but not be limited to, bank financing and/or bank
credit support, project financing, sales of secured or
unsecured debt, notes, debentures and issuance of equity.
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10. Applicants hereby amend Item No. 1. Description of
Proposed Transaction by adding the following to the end of
Section J. Brokering, Trading and Marketing in the U.S. as
follows:
Energy Sub (for a short period of time, prior to
completion of the transfer of assets to GENCO) and
GENCO propose to engage in brokering, marketing
and trading activities around its own assets.
These activities include meeting contractual
obligations, hedging risk, purchasing supplemental
or economic replacement power and engaging in fuel
supply management of oil, gas, coal and emission
allowances. In support thereof, Applicants state
the following:
Imperative for efficient and effective asset management
Access to a wide range of energy markets and products
through marketing and brokering will be absolutely essential
for Genco to successfully manage its business risks and
optimize the overall performance of its portfolio of low-
cost generating assets and physical load obligations.
Specific examples of the ways in which Genco would engage in
brokering and marketing activities include, but are not
limited to, the following:
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a) Sell excess generation to optimize performance. For
example, during certain conditions in which the generating
resources exceed the load obligations, Genco may sell its
excess generation on a short-term basis (e.g., hourly,
daily) to neighboring utilities.
b) Displace higher-cost generation with less expensive
purchases. For example, when market conditions warrant,
Genco may purchase lower-cost energy from regional power
markets such as the Pennsylvania-New Jersey-Maryland (PJM)
power pool on a short-term basis (e.g., hourly, daily) and
reduce available output from higher-cost generation.
c) Replace generation suddenly unavailable due to forced
outages. For example, Genco may purchase power on a short-
term basis (e.g., hourly, daily) from neighboring utilities
to replace the amount of generation lost due to a forced
generator outage. These emergency purchases would be made
as necessary to cover firm energy commitments previously
made by Genco. Without the authority to perform this
activity, Genco could suffer severe financial damages due to
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its failure to deliver firm power to a customer(s).
d) Purchase energy to cover unforeseen increases in firm
load obligations. For example, during severe weather
conditions such as a major heat wave, Genco may purchase
power on a short-term basis (e.g., hourly, daily, weekly)
from regional power markets to ensure that the overall
resources are sufficient to supply its increasing firm load
obligations.
e) Purchase energy to manage operational risks. For
example, Genco may elect to purchase energy on a long-term
basis (e.g., monthly, quarterly, annually) from regional
markets such as CINERGY to replace the amount of generation
to be lost due to a planned maintenance outage(s).
f) Purchase and resell energy to optimize performance.
For example, when market conditions warrant, Genco may
purchase energy on a short-term and/or long-term basis from
a neighboring utility, and subsequently resell this energy
to another neighboring utility. This type of marketing
activity would be used to reduce the costs of the
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Genco portfolio of resources for any given point in time.
In summary, access to short-term and long-term markets
through marketing and brokering efforts will ensure that
Genco is able to manage the operational risks associated
with its generating assets and physical load obligations,
while taking advantage of increased market opportunities as
they arise. Without access to marketing and brokering
activities, Genco will not be able to effectively
participate in the energy market place.
No different from other traditional generation owners
The authority sought by Genco to engage in marketing
and brokering activity is no different from that already
employed by other traditional owners of generation. Such
activity provides increased market liquidity, enhanced
market intelligence, and a greater array of risk management
tools and products. Without such activity, any generation
owner (whether a traditional utility or a non-traditional
entity such as Genco) must face the almost impossible task
of attempting to manage its fleet of assets without the
flexibility to access all potential markets and products
(such as those described above).
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Federal safeguards already exist to protect against
affiliate abuses
Federal safeguards protect the Operating Companies'
regulated customers against potential affiliate abuses. All
transactions between AE Supply and its affiliates will be
made pursuant to FERC-approved tariffs, which expressly
protect against such affiliate abuses. As required by FERC,
Genco will file quarterly reports identifying all contracts
(including those with affiliates) executed by Genco during
the prior quarter. These publicly available filings will
provide a routine and ongoing check against potential
affiliate abuses in the future.
State safeguards are also in place to keep regulated
customers unharmed
West Penn is transferring its generating assets to
Genco. Genco will sell the power produced by these assets
on the wholesale and retail market. The stated concern is
that Genco might collude with its utility affiliates in the
AE system to sell them wholesale power at inflated (higher
than market) rates that somehow can be passed on to and
recovered from retail customers of the regulated affiliates.
Such a scheme could not and would not occur. First, those
who intend to compete with Genco (other suppliers) and those
who expect to buy from Genco (both wholesale and retail),
for some time now, have been working with each state's
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utility regulators to ensure that any cross-subsidies will
be exposed and prohibited. As states have moved to
deregulating generation markets, regulators have imposed
safeguards (Codes of Conduct) to prevent collusion between
affiliates. Pennsylvania requires both that no sales occur
between Genco and West Penn without the sale first being
posted on the web and made available to others, and that all
transactions be reported to the Pa PUC monthly. When
Maryland's generation markets open next year, the State's
Code of Conduct requires that Genco must supply power to non-
affiliated suppliers on the same terms as it offers to
Allegheny Power, and further requires that affiliate
transactions be electronically posted at the time of
execution. To the extent customers or prospective
competitors are dissatisfied with the posted transactions,
each state has a complaint procedure, an auditing procedure
and the ability to obtain redress.
In Virginia, West Virginia and Ohio, states that for
now continue traditional regulation, power purchases are
passed through to ratepayers pursuant to a fuel purchase
proceeding. These proceedings are litigated cases in which
regulatory staff, consumer advocates and intervenors all
have the opportunity to obtain discovery and to advocate
their positions. In each case, all power purchase
transactions must be disclosed to the states' utility
regulators. Sales between affiliates at out-of-the-market
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prices would be easily traceable, and the state's mechanism
of redress will remain, as it is currently, regulatory
jurisdiction over the purchaser. To assume that affiliates
could collude in power transactions is to assume the
inefficacy of state regulation. It also assumes that the
sophisticated supplier competitors (who in fact were much
more concerned that affiliates would sell below market and
hence deprive them of a commercial opportunity) would not be
diligent in protecting their rights.
Second, there is no economic incentive to act in such a
manner. The retail rates of all of Allegheny Energy's T & D
subsidiaries will remain regulated and/or subject to caps
for a number of years. To the extent these utility
subsidiaries pay more than wholesale market price to Genco,
they would be unable to pass it on to their customers thus
reducing their own profits. Genco's profit would be offset
by correspondingly lower earnings from regulated sales.
Overall, Allegheny Energy would be no better off.
In addition, in Pennsylvania1, the Public Utility
Commission mandated that Allegheny Energy Inc.'s regulated
affiliate (West Penn) be required to serve, at a fixed
price, those retail customers of West Penn that do not
select an alternative generation supplier. This mandatory
_______________________________
1 Pennsylvania implemented partial retail customer choice
effective January 1, 1999. Full retail customer choice will
be implemented effective January 1, 2000.
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obligation to serve customers at a fixed price (which will
remain in effect through December 31, 2008), guarantees that
Allegheny Energy, Inc.'s existing regulated customers in
Pennsylvania will be unharmed by potential affiliate abuse.
When market prices are above the fixed "regulated" price,
the retail customers would presumably remain with the
regulated affiliate rather than purchasing power at higher
prices from an alternative supplier. Conversely, when
prices are below the fixed "regulated" price, the retail
customers would most likely opt to buy power from an
alternative supplier rather than paying a higher price to
the regulated affiliate. In either case, the customer is
unharmed. In Maryland, a similar plan was recently approved
for full retail customer choice beginning on July 1, 2000.
In Allegheny Energy, Inc.'s remaining state jurisdictions in
which plans for retail competition are currently being
considered, the FERC-approved existing power supply
agreement governs all affiliate transactions and serves to
protect against abuses from unregulated affiliates.
In short, there is no market incentive for the type of
collusion, which is the subject of SEC concern. Further,
there are existing regulatory prohibitions, required
regulatory filings, and regulatory commissions and
sophisticated consumer advocates and supply competitors that
will maintain a watchful eye to make certain such abuses do
not occur.
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11. Applicants hereby request permission to reserve
jurisdiction over the transactions not specifically
authorized in the order, as necessary.
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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 ENERGY, INC.
By /s/ Thomas K. Henderson
Thomas K. Henderson, Esq.
Vice President
WEST PENN POWER COMPANY
By /s/ Thomas K. Henderson
Thomas K. Henderson, Esq.
Vice President
ALLEGHENY ENERGY
SERVICE CORPORATION
By /s/ Thomas K. Henderson
Thomas K. Henderson, Esq.
Vice President
AYP ENERGY, INC.
By /s/ Thomas K. Henderson
Thomas K. Henderson, Esq.
Vice President
Dated: November 17, 1999
EXHIBIT B-11
PROPOSED
SERVICE AGREEMENT
BETWEEN THE
ALLEGHENY ENERGY SERVICE CORPORATION
AND
______________________________
THE SERVICE AGREEMENT, between Allegheny Energy
Service Corporation, a corporation formed under the laws of
the State of Maryland (the "Service Company") and
__________________________, a corporation formed under the
laws of _______________________ (the "Company").
WITNESSETH:
WHEREAS, pursuant to a service agreement dated
November 22, 1963, the Service Company was created to
perform certain management duties on behalf of Allegheny
Power System, Inc. (currently known as Allegheny Energy,
Inc. and sometimes hereinafter referred to as the "System")
and its utility subsidiary companies and nonutility
subsidiary companies (the "Subsidiaries");
and
WHEREAS, the Service Company offers to provide a
central organization to furnish to the System and the
Subsidiaries, including Company, certain advisory,
supervisory and other services in accordance with said
current practices and procedures; and
WHEREAS, the Company 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:
1. The Service Company hereby offers to furnish
to the Company the services detailed on Exhibit I attached
hereto and made a part hereof.
2. For all services rendered for the Company by
the Service Company, the Company agrees to pay the cost
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thereof. For services rendered to one or of the companies
in the System, the applicable approved factor will be used.
3. The payment for services rendered by the
Service Company to the System and Subsidiaries 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 and the System shall pay its direct or fair
proportionate share.
4. Payment shall be made by the Company 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 the Company 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 the Company from the
performance of their respective duties or limit the exercise
of their powers as prescribed by law or otherwise.
6. This 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 the Company 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.
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If your Company 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 ENERGY SERVICE CORPORATION
By _________________________________
President
Attest:
__________________________
Secretary
Pursuant to authorization of the Board of Directors of this
Company, we hereby accept the above offer this _____ day of
_____,1997.
_______________________________________
By _________________________________
President
___________________________
Assistant Secretary
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EXHIBIT I
Allegheny Energy Service Corporation Principal Functions
The following is a description of the principal
functions of Allegheny Energy Service Corporation ("AESC").
In accordance with the terms and conditions of the Service
Agreement dated ___________________, AESC may perform the
services described herein for ___________________.
1. Corporate Services
1. Accounting
(a) Payroll - Processes and verifies
timesheets and paychecks for ______________________
employees. Ensures compliance with payroll tax laws and
regulations.
(b) Asset Accounting - Maintains corporate
accounting records for Company's fixed assets in accordance
with regulatory requirements, corporate capital budget
management, and fixed asset return objectives.
(c) Taxes - Ensures compliance with all
federal, state and local tax laws (except payroll and
benefits matters). Prepares and files applicable returns,
gives instructions for timely payment of tax liabilities,
and coordinates the issuance of tax accounting instructions
to Company. Also provides tax planning services.
(d) Corporate Accounting - Gathers, reports,
and analyzes accounting and management information. Reviews
and corrects accounting data.
(e) Payment Processing - Processes invoices
from, and issues payment to, vendors for goods and services
provided to Company.
(f) Fuel Accounting - Initiates payment for
fuel receipts and compiles fuel data for report preparation
on fuel purchases and generation statistics to meet various
regulatory requirements.
2. Information Services
Provides electronic data processing services:
(a) Machine related computer activity -
services such as data processing for customer accounting,
payroll and general accounting, engineering planning,
<PAGE>
purchasing and stores studies, forecasts and various other
administrative and engineering applications.
(b) Computer applications activity -
services such as feasibility studies for new applications,
development and/or acquisition of new applications,
enhancement of existing applications and other related
activity.
3. Financial Management
Oversees annual budgeting and capital management,
long-term forecasting, and financial planning.
4. Treasury
(a) Cash Processing - Maintains relationship
with banking institutions for lines of credit. Handles
customer bill processing, money pool (internal funding among
certain Allegheny Energy, Inc. companies, external short-
term borrowing and investing), and long-term financing and
cash forecasting.
(b) Risk Management - provides risk
financing through insurance purchases and other funding
mechanisms. Provides transfer of risk via contracts and
insurance certification for all contractors, lessees,
cogenerators, and PURPA projects. Provides risk control to
protect Company's properties from loss, and provides advice
to Legal, Claims, and Human Resources relative to liability
and worker's compensation issues, including litigation.
(c) Electronic Commerce - Provides guidance,
implementation, and oversight of Electronic Commerce (EC)
activities. EC is defined as any binding business
transaction conducted or consummated over an electronic
network between Company and its customers, suppliers,
financial institutions, or other entities.
5. Audit Services
Performs independent appraisals of significant
activities carried out within, and/or related to, Company
through application of financial, contract, operational and
compliance audit techniques. Provide consulting services
upon management request.
6. Legal
(a) Legal Services - Renders services
relating to financings, financial reporting, shareholders'
meetings, rates and other regulatory proceedings,
environmental matters, litigation, marketing, human
<PAGE>
resources, contracts, real estate, leasing, corporate and
other legal matters.
(b) Corporate Secretary - Responsible for
creation, maintenance, and retention of corporate records;
liaison with Board of Directors; administration of
indentures (performed by Assistant Secretaries); support for
long-term financing, regulatory filings; handles
shareholder/bondholder relations and relationship with stock
transfer agent and bond trustee (records kept, checks sent,
etc., by outside agents.)
(c) Claims - Responsible for investigating
and taking other appropriate actions concerning claims made
against Company by third parties. Also responsible for
activities involved with collecting monies owed to Company
by third parties for property damage.
7. Regulation & Pricing
(a) Costing & Pricing - Provides cost of
service analysis. Identifies usage pattern trends to assist
marketing effort. Performs special studies requesting
internally or by regulatory agencies. Provides analyses
such as separation, cost of service and loss studies.
(b) Financial Analysis - Assembles and
provides primary support for regulatory filings. Maintains
contacts with state commission staff members. Performs
special financial studies.
(c) Fuel & Capital Recovery - Assembles and
provides primary support for fuel and depreciation
regulatory filings.
8. Human Resources
Initiates, maintains, supervises and administers
the human resources policies of Company. Assists Company's
management in maximizing the results from their employees.
This is accomplished by developing and administering
programs and policies, and consulting in five primary
functions. They are:
(a) Employee Relations - labor relations,
litigation/regulatory compliance, employee communications,
and employee policies.
< (b) Employee Development - training program
development and delivery, performance evaluation and
management development.
(c) Medical Services - workers'
compensation, employee assistance program, and employee
<PAGE>
wellness/awareness programs.
(d) Rewards - design and administration of
compensation, benefits, and recognition programs.
(e) Staffing - employment/placement,
succession planning and EEO/affirmative action.
In addition, Business Practices is a group within
HR which coordinates and participates in the development
and/or documentation of new and revised policies, business
practices, procedures, references and forms.
9. Governmental Affairs
Analyzes and provides views and recommendations on
state and federal legislation to assure fair and equitable
treatment of Company. Provides information to assist
management decision-making on company strategy and policy.
10. System Security
Originates, establishes, and administers security
standards, procedures and policies. Provides investigative
and loss prevention services in reference to the protection
of assets and its employees. Acts as liaison with federal,
state and local law enforcement agencies.
11. Procurement
Provides services and gives functional direction
in connection with the procurement of goods and services,
including market research, preparation of commitments,
requests for quotations, preparation of bid summaries, and
materials management.
12. Corporate Communications
Responsible for media relations, including the
financial and trade press, production of stockholder
publications, advertising, and numerous internal and
customer communications.
13. Allegheny Ventures, Inc.
Oversees the business development and operations
of and investments in products, services and ventures that
are not regulated as public utility services. Included are
unregulated power generators, power marketing and related
activities.
<PAGE>
2. Business Units
1. Operating Business Unit (OBU)
(a) Customer Service Center - Answers all
incoming calls to Company via one toll-free number, responds
to customer inquiries, initiates new service, dispatches
service and line crews in response to power outages, handles
credit and collection activities, responds to customer and
public service/utility commission complaints, and manages
the meter reading and billing activities.
(b) Operations Services - Operations
Services provides the following services in the indicated
areas: Stores - Centralizes materials supply and
distribution; Technical Services - Provides electrical
equipment repair and testing; Transportation - Handles fleet
management and repair services; Safety, Quality and
Training - Develops safety and training programs; Building
Services - provides building maintenance and management, and
offices services; Substations - Builds, operates, and
maintains substations and equipment; T & D Operation -
Performs switching functions for all facilities above
distribution voltage; Forestry - Provides maintenance
services for electrical facilities rights-of-way; Planning -
Provides planning services for all non-network electrical
facilities; Lines Services - Provides lines support for
lines teams in service centers; and Telecommunications -
Provides support and maintenance for the telecommunications
systems.
(c) Various Regions - Each region supports
the processes for responding to electric service requests,
ensuring reliable service, and restoration of service.
2. Retail Marketing
Executes the marketing and sales of the products
and services of Company. Also performs economic development
activities which affect areas served by the Company.
3. Corporate Affairs
Maintains relationships with state regulatory
commissions, municipal and county governments and is
responsible for identifying state-level regulatory issues.
4. Transmission Business Unit (TBU)
Responsible for ensuring that adequate high-
voltage network facilities are available and on-line to
convey power produced from the power production operations
<PAGE>
run by, or procured by, the Generation Business Unit (GBU)
to serve native load and to engage in wholesale transmission
sales to nonaffiliates. Will engage in marketing efforts
for sales of bundled and unbundled transmission services to
nonaffiliates and will be responsible for accommodating
requests for transmission service submitted by nonaffiliates
who qualify as customers for that service under federal
regulations. Finally, is responsible for maintaining the
optimal economic balance on a real-time basis between native
customer load and the output of the generation resources
supplied by the GBU.
5. Generation Business Unit (GBU)
Responsible for ensuring that adequate generation
is available to serve the native load customers of Company
by using its own generating facilities and the third-party
generation obtained through its marketing efforts. Primary
responsibilities include ensuring the cost-effective
operation and maintenance of our generating units, and
providing the most economic mix of generation by available
generating units and off-system purchases and sales. It
also provides advisory and supervisory services as needed.
The GBU will also broker energy services.
6. Planning and Compliance Business Unit (P&CBU)
Forecasts electric demand and energy requirements
for Company and develops plans to provide and integrate the
production and transmission facilities needed to serve the
electricity requirements of customers of the Company.
Oversees compliance with state and federal regulatory and
legal requirements.
3. Additional Services
Certain other services in addition to the above as
AESC may be able to provide to the Company.
EXHIBIT D-3
88 FERC PARAGRAPH 61,303
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: James J. Hoecker, Chairman;
Vicky A. Bailey, William L. Massey,
Linda Breathitt, and Curt Hebert Jr.
Allegheny Energy Supply Company Docket No. ER99-4020-000
ORDER ACCEPTING FOR FILING
PROPOSED MARKET-BASED RATES
(Issued September 30, 1999)
In this order, we accept for filing, without
hearing or suspension, the proposed market-based power
sales rates filed by Allegheny Energy Supply Company
(AE Supply).
Background
AE Supply is a subsidiary of Allegheny Energy,
Inc. (Allegheny), the registered holding company
for Monongahela Power Company, Potomac Edison
Company and West Penn Power Company (West Penn)
(collectively, APS Operating Companies). Allegheny
is planning to transfer all of West Penn's
generating units to AE Supply. On August 6, 1999,
AE Supply filed an application seeking
authorization to sell electric energy and capacity
to the APS Operating Companies and others for
resale at market-based rates. Among other things,
AE Supply requests the same waivers and authorizations as
those afforded to other power marketers with market-
based rate authorization.
Notice of AE Supply's filing was published in the
Federal Register, 64 Fed. Reg.
45,527 (1999), with comments, protests and interventions
due on or before August 26, 1999.
<PAGE>
Docket No. ER99-4020-000 -2-
Discussion
Market-Based Rates
The Commission allows power sales at market-based
rates if the seller and its affiliates do not have,
or have adequately mitigated, market power in
generation and transmission and cannot erect other
barriers to entry. In order for an affiliate of a
transmission-owning public utility to demonstrate the
absence or mitigation of market power, the public
utility must have on file with the Commission an open
access transmission tariff for the provision of
comparable services. The Commission also considers
whether there is evidence of affiliate abuse or
reciprocal dealing.1
As we explain below, we find that with the APS
Operating Companies' filing of an open access pro
forma compliance transmission tariff,2 AE Supply's
market-based rate application meets these
standards. Accordingly, we will accept the
proposed market-based rates for filing, to become
effective on August 15, 1999, as requested, without
suspension or hearing.
1. Generation Market Power
AE Supply currently owns no generating units.
However, as mentioned earlier, it will eventually
acquire all of West Penn's generating units. In
support of its market-based rate application, AE
Supply submitted a generation dominance analysis. Our
review indicates that the APS Operating Companies'
market share of installed and
______________________
[FN]<1>E.g,. Progress Power Marketing, Inc., 76 FERC
61,155 at 61,919 (1996); Northwest Power
Marketing Company, L.L.C., 75 FERC 61,281 at
61,889 (1996); accord Heartland Energy Services,
Inc., et al., 68 FERC 61,223 at 62,062-63 (1994)
(Heartland).
[FN]<2> See Promoting Wholesale Competition Through
Open Access Nondiscriminatory Transmission Services
by Public Utilities and Recovery of Stranded Costs by
Public Utilities and Transmitting Utilities, Order
No. 888, 61 Fed. Reg. 21,540 (1996), FERC Stats. &
Regs. 31,036 at 31,656-57 (1996), order on reh'g,
Order No. 888-A, 62 Fed
Reg. 12,274 (1997), FERC Stats. & Regs. 31,048
(1997), order on reh'g, Order No.
888-B, 81 FERC 61,248 (1997), order on reh'g, Order
No. 888-C, 82 FERC 61,046 (1998) (Open Access
Rule).
</FN>
<PAGE>
Docket No. ER99-4020-000 -3-
uncommitted capacity will not exceed levels the Commission
previously has found to be acceptable.3
Accordingly, we find that AE Supply meets the
Commission's generation market power standard for
approval of market-based rates.
2. Transmission Market Power
When an affiliate of a transmission-owning public
utility seeks authorization to charge market-based
rates, the Commission has required the public utility
to have an open access transmission tariff on file
before granting such authorization.4 The APS
Operating Companies filed an open access pro forma
compliance tariff in Docket No. OA96-18-000.
Accordingly, we find that AE Supply meets the
Commission's transmission market power standard for
approval of market-based rates.
3. Other Barriers to Entry/Reciprocal Dealing
We are satisfied with AE Supply's explanation
that there are no other barriers to entry or
reciprocal dealing considerations of concern here.
4. Affiliate Abuse
AE Supply's proposed market-based rate tariff
provides for the sale of energy and capacity to the
APS Operating Companies at a price not to exceed the
hourly market
price index posted at the Allegheny Power-PJM
interface. AE Supply states that capping the sales
price at a regional index price provides adequate
protection against affiliate abuse.
____________________
[FN]<3>See e.g., Louisville Gas & Electric Company, 62 FERC
61,016 at 61,146
(1993)
[FN]<4>See e.g., Open Access Rule, FERC Stats. & Regs. at
31,656-57; accord Southern Company Services, Inc.,
et al., 71 FERC 61,392 at 62,536 (1995);
Heartland, 68 FERC at 62,059-60.
</FN>
<PAGE>
Docket No. ER99-4020-000 -4-
In FirstEnergy Trading Services, Inc.
(FirstEnergy),5 the Commission reiterated that
tying the price of an affiliate transaction, where
a power marketer sells to an
affiliated franchised utility, to an established, relevant
market price adequately mitigates
any affiliate abuse concerns.6 AE Supply's use of the
price at the Allegheny Power-PJM
interface meets this condition.
In addition, AE Supply has submitted a code of
conduct governing affiliate transactions that
satisfies the Commissions affiliate abuse requirements
for market-based rate authorization, including those
concerning the pricing of affiliate sales or purchases
of non-power goods and services.
With these safeguards, we are satisfied with AE
Supply's explanation that there are no affiliate
abuse considerations of concern here.
Waivers, Authorizations and Reporting Requirements
AE Supply requests the following waivers and
authorizations consistent with those granted to other
power marketers with market-based rate authorization:
(1) waiver of the filing requirements of Subparts B
and C of Part 35, except sections 35.12(a), 35.13(b),
35.15 and 35.16; (2) waiver of the accounting and
other requirements of Parts 41, 101
and 141; (3) abbreviated filings with respect to
interlocking directorates under Parts 45
and 46; and (4) blanket authorization for issuances of
securities or assumptions of
liabilities pursuant to section 204 of the FPA, 16
U.S.C. 824c (1994), and Part 34 of the Commission's
regulations. We will grant AE Supply the requested
waivers and authorizations to the extent granted to
other power marketers.
Consistent with the procedures we have adopted
in other cases, AE Supply may file umbrella service
agreements for short-term power sales (one year or
less) within 30
_______________________
[FN]<5>88 FERC 61,067 (1999). FirstEnergy Trading
purchases power in the Pennsylvania-New Jersey-
Maryland (PJM) market for FirstEnergy's retail
suppliers under the Pennsylvania retail access
program. As these retail suppliers may not need all
of the supply FirstEnergy Trading acquired,
FirstEnergy Trading received approval of a power
sales contract which would allow FirstEnergy Trading
to sell power and energy at
market-based rates to FirstEnergy's operating
companies from time to time for periods of
no longer than 30 days. The sales would be at a
price not to exceed the prevailing hourly locational
price of electricity at the FirstEnergy-PJM
interface, as determined by PJM, for the hours of the
particular transaction.
[FN]<6>See, e. g., GPU Advanced Resources, Inc., 81 FERC
61,335 at 62,539 (1997).
</FN>
<PAGE>
Docket No. ER99-4020-000 -5-
days or less of the date of commencement of
short-term service, to be followed by quarterly
transaction summaries of specific sales. For long-
term transactions (longer than one year), AE Supply
must submit the actual individual service agreement
for each transaction within 30 days of the date of
commencement of service. 7
To ensure clear identification of filings, and in
order to facilitate the orderly maintenance of the
Commission's files and public access to documents,
long term transaction service agreements should not be
filed together with short-term transaction summaries.
In addition, we will direct AE Supply to inform
the Commission promptly of any change in status that
would reflect a departure from the characteristics
the Commission
has relied upon in approving market-based pricing.
These include, but are not limited to: (1) ownership
of generation or transmission facilities or inputs to
electric power production other than fuel supplies;
or (2) affiliation with any entity not disclosed in
the filing that owns generation or transmission
facilities or inputs to electric power
production, or affiliation with any entity that has a
franchised service area.8
Alternatively, AE Supply may elect to report such
changes with the updated market analysis it will be
required to file every three years.9
We find good cause to grant AE Supply's request
for waiver of the Commission's 60-day prior notice
requirement, 10 and we will allow the market-based
rate filing to become effective on August 15, 1999,
as requested.
The Commission orders:
(A) AE Supply's market-based power sales tariff is
hereby accepted for filing, to become effective on
August 15, 1999.
______________________
[FN]<7>See e. g. Southern Company Services, Inc., 75 FERC
61,130 at 61,444-45
(1996), clarified, 75 FERC 61,353 (1996); Plum Street
Energy Marketing, Inc., et al.,
76 FERC 61,319 at 62,556 (1996).
[FN]<8>See e g., Morgan Stanley Capital Group, Inc., 69
FERC 61,175 at 61,695 (1994), order on reh'g, 72 FERC
61,082 (1995); InterCoast Power Marketing Company,
68 FERC 61,248 at 62,134, clarified, 68 FERC 61,324
(1994).
[FN]<9>We reserve the right to require such an analysis at
any time.
[FN]<10>See Central Hudson Gas & Electric Corporation, 60
FERC 61,106, order on reh'g, 61 FERC 61,089 (1992).
</FN>
<PAGE>
Docket No. ER99-4020-000 -6-
(B) AE Supply's request for waiver of Parts 41, 101
and 141 of the Commission's regulations, with the
exception of 18 C.F.R. 141.14, .15 (1999), is hereby
granted.
Licensees remain obligated to file the Form No. 80 and the
Annual Conveyance Report.
(C) Within 30 days of the date of issuance of Us
order, any person desiring to be heard or to protest
the Commission's blanket approval of issuances of
securities or
assumptions of liabilities by AE Supply should file a
motion to intervene or protest with the Federal
Energy Regulatory Commission, 888 First Street, N.E.,
Washington, D.C.
20426, in accordance with Rules 211 and 214 of the
Commission's Rules of Practice and Procedure, 18 C.F.R.
385.211 and 385.214 (1996).
(D) Absent a request to be heard within the
period set forth in Ordering Paragraph (C) above, AE
Supply is hereby authorized to issue securities and
assume obligations and liabilities as guarantor,
endorser, surety, or otherwise in respect of any
security of another person; provided that such issue
or assumption is for some lawful object within the
corporate purposes of AE Supply, compatible with the
public interest and reasonably necessary or appropriate
for such purposes.
(E) Until further order of this Commission, the
full requirements of Part 45 of the Commission's
regulations, except as noted, are hereby waived with
respect to any person now holding or who may hold an
otherwise proscribed interlocking directorate
involving AE Supply. Any such person instead shall
file a sworn application providing the
following information:
(1) full name and business address; and
(2) all jurisdictional interlocks, identifying
the affected companies and the positions held by
that person.
(F) The Commission reserves the right to modify
this order to require a further showing that neither
public nor private interests will be adversely
affected by continued Commission approval of AE
Supply's issuances of securities or assumptions of
liabilities, or by the continued holding of any
affected interlocks.
(G) AE Supply's request for waiver of the
provisions of Subparts B and C of Part 35 of the
Commission's regulations, with the exception of
sections 35.12(a), 35.13(b),
35.15 and 35.16, is hereby granted.
(H) AE Supply is hereby directed to conform with
the filing and reporting requirements specified in
this order. The first quarterly report of
transactions undertaken
<PAGE>
Docket No. ER99-4020-000 -7-
by AE Supply under its market-based power sales tariff
will be due within 30 days of the calendar quarter
ending September 30, 1999.
(1) AE Supply is hereby directed to file an
updated market analysis within three years of the
date of this order, and every three years thereafter.
(J) AE Supply is hereby directed to inform the
Commission promptly of any change in status that
would reflect a departure from the characteristics
that the Commission has relied upon in approving
market-based pricing. Alternatively, as discussed
in the body of this order, AE Supply may elect to
report any such changes every three years with the
updated market analysis filed pursuant to Ordering
Paragraph (1) above. AE Supply is hereby directed
to notify the Commission of which option it elects
in its first quarterly report filed pursuant to
Ordering Paragraph (H) above.
(K) AE Supply is hereby informed of the
following rate schedule designation: Allegheny
Energy Supply Company, FERC Electric Tariff,
Original Volume No. 1, (Original Sheet Nos. 1-7),
Market-Based Rate Tariff and Code of Conduct.
By the Commission.
( S E A L )
Linwood A. Watson, Jr.
Acting Secretary.
<PAGE>
EXHIBIT D-5
89 FERC PARAGRAPH 62,063
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Allegheny Energy Supply Company
West Penn Power Company Docket No. EC99-112-000
AYP Energy, Inc.
ORDER AUTHORIZING DISPOSITION
OF JURISDICTIONAL FACILITIES
(Issued October 25, 1999)
On September 2, 1999, as supplemented on September 16,
1999 and October 13, 1999, Allegheny Energy Supply Company
(Allegheny Supply), West Penn Power Company (West Penn) and
AYP Energy, Inc. (AYP Energy) (collectively, Applicants)
filed a joint application pursuant to section 203 of the
Federal Power Act (FPA)l requesting Commission
authorization of related intra-corporate transactions by
and among affiliates of Allegheny Energy, Inc. (Allegheny
Energy). The transactions include: the transfer of
jurisdictional step-up transformers from West Penn and AYP
Energy to Allegheny Supply; the transfer of West Penn's
ownership interest in
Allegheny Generating Company (Allegheny Gen) to Allegheny
Supply; the transfer of two wholesale power supply
agreements from West Penn to Allegheny Supply; and the
transfer of certain securities, including pollution control
notes and securities evidencing West Penn's ownership share
of Allegheny Gen from West Penn to Allegheny Supply.
West Penn is a wholly-owned public utility subsidiary
of Allegheny Energy, a registered holding company under the
Public Utility Holding Company Act of 1935. West Penn
provides generation, transmission and distribution service
to customers in portions of central and western
Pennsylvania. West Penn has, among other interests, a
45 percent ownership interest in Allegheny Gen.2 Allegheny
Gen's sole asset is a 40 percent undivided interest (850 MW)
in a pumped storage hydroelectric generating station and
associated 500 kV transmission line located in Bath County,
Virginia (Bath County facility).3
__________________________
[FN]<1>16 U.S.C. 824b (1994).
[FN]<2>The remaining 55 percent interest in Allegheny Gen is
owned by West Penn's affiliates, Monongahela Power Company
(27 percent) and the Potomac Edison Company (28 percent).
[FN]<3> The remaining interest in the Bath County facility is
owned by the Virginia
</FN>
(continued...)
<PAGE>
Docket No. EC99-112-000 -2-
AYP Energy is a wholly-owned subsidiary of AYP Capital,
Inc., which in turn is a wholly-owned subsidiary of Allegheny
Energy. AYP Energy owns a 50 percent interest
in Unit No. 1 of the Fort Martin Power Station (Fort Martin
1) and associated step-up transformers, which are located in
Maidsville, West Virginia. AYP Energy is authorized to sell
power at market-based rates. 4
According to the application, Allegheny Supply is a to-
be-formed generating company affiliate of West Penn to which
West Penn proposes to transfer its generating resources and
wholesale power supply agreements. The Commission recently
granted Allegheny Supply authority to sell power at market-
based rates.5
According to the application, the proposed transfers
are the result of recent electric restructuring legislation
in Pennsylvania and also represent a comprehensive
settlement between West Penn and the Pennsylvania Public
Utilities Commission (Pennsylvania Commission). The
transfer of jurisdictional facilities will be accomplished
in stages. Initially, West Penn will form a wholly-owned
subsidiary (Energy Sub), to which it will transfer the step-
up transformers associated with the generating assets that
are being transferred to Allegheny Supply. West Penn also
will transfer to Energy Sub two power supply contracts to
which it is a party. 6 In addition, West Penn will
transfer to Energy Sub its 450 shares of Allegheny Gen
common stock and its liabilities under pollution control
notes that are associated with the transferred generating
facilities. In exchange for the transferred assets, West
Penn will obtain all of the limited liability shares of
Energy Sub. Subsequently, Energy Sub will form
_____________________
[FN]<3> (.continued)
Electric and Power Company. Allegheny Gen sells its 850 MW share
of the Bath County
facility to its parent owners in accordance with their respective
ownership interest in
Allegheny Gen.
[FN]<4> AYP Energy, Inc., 77 FERC 61,019 (1996).
[FN]<5> Allegheny Energy Supply Company, 88 FERC 61,303 (1999).
[FN]<6> The two agreements are: the August 4, 1981 ABS
Agreement, which governs West Penn's purchases of capacity
and energy from the Bath County facility as a result of its
ownership interest in Allegheny Gen; and the July 10, 1953,
as amended, Inter-Company Power Agreement, which provides
for participating companies, which include West Penn, to
provide supplemental power to, or purchase supplemental
power from, Ohio Valley Electric Cooperative to meet its
requirements to the United States Atomic Energy Commission
under a separate agreement.
</FN>
<PAGE>
Docket No. EC99-112-000 -3-
Allegheny Supply as a wholly-owned subsidiary and transfer
to Allegheny Supply all of the assets acquired from West
Penn. 7 In exchange, Energy Sub will acquire all of the
limited liability shares of Allegheny Supply. Finally,
Energy Sub will dividend its acquired shares to West Penn
and West Penn will dividend its shares to Allegheny Energy.
Energy Sub will then be dissolved. Also as part of the
transactions, AYP Energy will transfer all of its ownership
interest in Fort Martin 1 and related step-up transformers
to Allegheny Supply in exchange for the assumption of the
outstanding debt of AYP Energy by Allegheny Supply.
Applicants claim that the proposed transactions are in
the public interest and will not have an adverse effect on
competition, rates or regulation. With respect to
competition, Applicants state that competition will not be
adversely affected because the transactions are nothing more
than an intra-corporate transfer of generating resources and
contracts as part of a structural reorganization in response
to retail competition. Furthermore, Allegheny Supply
currently owns no generating assets and has no rights to
energy or capacity under any power supply agreements. With
respect to rates, Applicants state that wholesale
requirement customers are served under rates that are fixed
through November 30, 2001 and November 30, 2003, and cannot
be changed unless the Commission accepts a rate change
request by West Penn under section 205 of the FPA. With
respect to regulation, Applicants will continue to be
subject to the Commission's regulations for all wholesale
power sales and transmission provided, and retail sales by
West Penn and Allegheny Supply will be subject to the
jurisdiction of the Pennsylvania Commission.
Notice of the application was published in the
Federal Register with comments due on or before October 4,
1999. On October 4, 1999, CNG Retail Services Corporation
(CNG Retail) filed a timely motion to intervene. Pursuant
to Rule 214 of the Commission's Rules of Practice and
Procedure,8 CNG Retail's timely unopposed motion to
intervene serves to make it a party to this proceeding.
______________________
[FN]<7> Under a proposed lease agreement, West Penn will
have the right to lease back approximately one-third of
the transferred resources from Allegheny Supply (including
the rights to the output from the Bath County facility)
through January 2, 2000. According to the application,
West Penn will not lease any facilities booked to
transmission or distribution from Allegheny Supply.
Furthermore, West Penn will exercise operating control
over any leased assets.
[FN]<8>18 C.F.R. 385.214(c)(1) (1999).
</FN>
<PAGE>
Docket No. EC99-112-000 -4-
After consideration, it is concluded that the proposed
transactions are in the public interest and are authorized,
subject to the following conditions:
(1) The proposed transactions are authorized upon the
terms and conditions and for the purposes set
forth in the application;
(2) The Commission retains authority under sections
203 (b) and 309 of the
Federal Power Act to issue supplemental orders
as appropriate;
(3) The foregoing authorization is without prejudice to
the authority of the Commission or any other
regulatory body with respect to rates, service,
accounts, valuation, estimates or determinations of
cost or any other matter whatsoever now pending or
which may come before the Commission;
(4) Nothing in this order shall be construed to imply
acquiescence in any estimate or determination of
cost or any valuation of property claimed or
asserted;
(5) West Penn is hereby directed to account for the
sale in accordance with Electric Plant
Instruction No. 5 and the instructions to Account
102 of the Uniform System of Accounts, and file
proposed accounting entries within six months of
the date the transfers are consummated;
(6) Applicants shall make appropriate filings under
section 205 of the FPA, as necessary, to implement
the transactions; and
(7) Applicants shall promptly notify the Commission of
the date the disposition of the jurisdictional
facilities is consummated.
Authority to act on this matter is delegated to the
Director, Division of Opinions and Corporate Applications,
pursuant to 18 C.F.R. 375.308. This order constitutes
final agency action. Requests for rehearing by the
Commission may be filed within thirty (30) days of the date
of issuance of this order, pursuant to 18 C.F.R. 385.713.
Michael A. Coleman
Director
Division of Opinions and
Corporate Applications
Asset Transfer from West Penn Power to Allegheny Energy Supply Company
using October 31, 1999 Book Values
<TABLE>
<CAPTION>
Sale and Other Assets Net
Purchase and Liabilitie Asset
Agreement Contribution Transfer
Property, Plant & Equip:
<S> <C> <C> <C>
At original cost 1,837,381,901.43 1,837,381,901.43
Accumulated deprecation (916,608,655.39 (916,608,655.39
Total Property, Plant & Equip 920,773,246.04 920,773,246.04
Investments and Other Assets:
Allegheny Generating Co. 71,534,038.80 71,534,038.80
Total Investments and Other Assets 71,534,038.80 71,534,038.80
Current Assets:
Cash & temp cash investment 10,000.00 10,000.00
Accounts receivable:
Electric Service AR 34,557,672.93 34,557,672.93
Other AR 7,923.46 7,923.46
Allowance for uncollectible accounts (807,205.38) (807,205.38
Accounts receivable - affiliated 25,953,645.28 25,953,645.28
Materials and supplies:
Operating & construction materials and supp 25,808,325.62 25,808,325.62
Fuel materials and supplies 26,085,668.19 26,085,668.19
Prepaid taxes 9,168,189.00 9,168,189.00
Other current assets 2,550,354.80 2,550,354.80
Total Current Assets 51,893,993.81 71,440,580.09 123,334,573.90
Deferred Charges:
Deferred income taxes-deferred charge 16,553,992.49 16,553,992.49
Total Deferred Charges 16,553,992.49 16,553,992.49
Capitalization
Long-term debt (pollution control notes) (230,815,000.00) (230,815,000.00)
Funds on deposit with trustees 6,673,828.00 6,673,828.00
Total Capitalization (224,141,172.00) (224,141,172.00)
Current Liabilities:
Accounts payable - affiliated (6,161,977.15) (6,161,977.15)
Accounts payable - other (66,150,500.10) (66,150,500.10)
Taxes accrued:
Other tax accrued (8,236,898.63) (8,236,898.63)
Interest accrued
Adverse purchase commitment - short-term (24,289,250.00) (24,289,250.00)
Other current liabilities (8,829,407.31) (8,829,407.31)
Total current liabilities (113,668,033.19) (113,668,033.19)
Deferred Credits & Other Liabilities
Unamortized investment credit (18,352,175.47) (18,352,175.47)
Deferred income taxes (214,671,893.29) (214,671,893.29)
Adverse purchase commitment - long-term (189,717,583.30) (189,717,583.30)
Other deferred credit & liabilities (3,390,187.55) (3,390,187.55)
Total Deferred Credits & Other Liabilities (426,131,839.62) (426,131,839.62)
Net asset transfer 972,667,239.85 (604,412,433.43) 368,254,806.42
Payment:
Cash consideration 159,919,521.27 159,919,521.27
Notes 812,747,718.58 (604,412,433.43 208,335,285.15
Net asset transfer 972,667,239.85 (604,412,433.43) 368,254,806.42
</TABLE>
Asset Transfer from AYP Energy to Allegheny Energy Supply Company
using October 31, 1999 Book Values
Net
Asset
Transfer
Property, Plant & Equip:
At original cost 168,915,809.54
Accumulated deprecation (15,761,209.38
Total Property, Plant & Equip 153,154,600.16
Current Assets:
Materials and supplies:
Operating & construction materials and supplies 2,197,759.72
Fuel materials and supplies 2,003,417.37
Deferred income taxes - current
Prepaid taxes 1,064,820.93
Other current assets 25,843.40
Total Current Assets 5,291,841.42
Deferred Charges:
Other deferred charges 3,314,539.31
Total Deferred Charges 3,314,539.31
Capitalization
Long-term debt (130,000,000.00
Total Capitalization (130,000,000.00
Deferred Credits & Other Liabilities
Deferred income taxes (7,256,448.00
Total Deferred Credits & Other Liabilities (7,256,448.00
Net asset transfer 24,504,532.89