<PAGE> File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM U-1
__________________________________
APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
AEP ENERGY SERVICES, INC.
AEP RESOURCES, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Name of company or companies filing this statement
and addresses of principal executive offices)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Name of top registered holding company
parent of each applicant or declarant)
* * *
G. P. Maloney, Executive Vice President
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
Jeffrey D. Cross, General Counsel
AEP ENERGY SERVICES, INC.
AEP RESOURCES, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Names and addresses of agents for service)
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS
American Electric Power Company, Inc. ("American"), a
registered holding company under the Public Utility Holding Company
Act of 1935, as amended ("1935 Act"), owns all of the common stock
of the non-utility subsidiaries, AEP Resources, Inc. ("Resources")
and AEP Energy Services, Inc. ("AEPES") (American, Resources and
AEPES collectively referred to herein as "Applicants").
A. Background:
(1) Resources:
Pursuant to Orders dated October 8, 1993, February 4,
1994, December 22, 1994 and May 10, 1996 (HCAR Nos. 25905, 25984,
26200 and 26516, respectively), Resources is involved in
preliminary development activities related to exempt wholesale
generators ("EWG") and foreign utility companies ("FUCO") as
defined under Sections 32 and 33 of the 1935 Act, and qualifying
cogeneration facilities and small power production facilities as
defined under the Public Utility Regulatory Policies Act of 1978,
as amended ("PURPA") and the rules thereunder ("QF") and other
independent power projects when such facility constitutes a part of
American's integrated electric utility system, unless such facility
is a QF, EWG or FUCO. American is authorized to invest up to 50%
of American's consolidated retained earnings in EWGs and FUCOs.
American and Resources are also authorized to acquire the
securities of one or more companies ("Project Parents") which
directly or indirectly hold the securities of one or more EWGs and
FUCOs.
(2) AEPES:
Pursuant to Orders dated March 30, 1994, April 5, 1995,
December 28, 1995 and February 20, 1996 (HCAR Nos. 26014, 26267,
26442 and 26473, respectively) ("AEPES Orders"), AEPES provides a
variety of services to both non-affiliated and affiliated entities
in the United States and abroad. The April 5, 1995 Order
authorizes AEPES to render engineering, design, construction and
construction management, operating, fuel management, maintenance
and power plant overhaul, and other similar kinds of managerial and
technical services, to both affiliated and non-affiliated EWGs,
FUCOs, QFs, and all other projects relating to the generation,
transmission and distribution of electric power (collectively,
"Power Projects"). All services rendered by AEPES to non-
affiliates are based upon the fair market value thereof. The April
5, 1995 Order prohibited any associate company of AEPES from
providing such services to an EWG or FUCO, which prohibition the
Applicants seek to remove such that any of AEPES, Resources, the
New Subsidiaries (as hereinafter defined), and the Intermediate
Subsidiaries (as hereinafter defined) be permitted to provide such
services.
AEPES is also authorized to provide services and sell
goods at fair market prices to any associate entity which is an
EWG, FUCO or QF in any case in which any one or more of the
following circumstances (hereinafter referred to as "fair market
value circumstances") apply:
(a) Such entity is a FUCO or an EWG which derives
no part of its income, directly or indirectly, from the
generation, transmission or distribution of electric energy
for sale within the United States; or
(b) Such entity is an EWG which sells electricity
at market-based rates which have been approved by the Federal
Energy Regulatory Commission ("FERC") or the appropriate state
public utility commission, provided that the purchaser of such
electricity is not an associate company of AEPES within the
American Electric Power System; or
(c) Such entity is a QF which sells electricity
exclusively (i) at rates negotiated at arms'-length to one or
more industrial or commercial customers purchasing such
electricity for their own use and not for resale, and/or (ii)
to an electric utility company, other than any associate
company of AEPES within the American Electric Power System, at
the purchaser's 'avoided cost' as determined in accordance
with the regulations under PURPA; or
(d) Such Power Project entity is an EWG or QF which
sells electricity at rates based upon its cost of service, as
approved by FERC or any state public utility commission having
jurisdiction, provided that the purchaser of such electricity
is not an associate company of AEPES within the American
Electric Power System.
AEPES was authorized to provide services and goods to associate
Power Projects which do not satisfy the above-referenced
circumstances at cost.
The April 5, 1995 Order also authorizes AEPES to provide
energy management and demand-side management services, including
marketing, development, engineering, construction and construction
management, installation, ownership, operation, sale, service,
financing and leasing of energy management or demand-side
management equipment to both affiliated and non-affiliated
entities. AEPES' offering of these services was limited to the
states in which the American Electric Power System sells
electricity at retail and limited areas outside those states, which
consist of the service territories of utilities to which the
American Electric Power System expects to sell, and from which it
expects to purchase, large amounts of economy and emergency power
(the "Region"). The Order also permitted limited services outside
the Region, as long as the revenues attributable to customers
outside the Region did not exceed revenues attributable to
customers inside the Region (the "Geographic Limitation"). The
Applicants request that such Geographic Limitation be removed.
AEPES is also authorized to provide at fair market value
management, technical, operating and training expertise, as well as
technical and procedural resources, to non-affiliated entities
which are not Power Projects. AEPES can also provide services at
cost to Resources. All of the services that AEPES is authorized to
provide are hereinafter referred to as "Energy Services".
Currently, American is authorized to guarantee an amount
of debt of AEPES up to a total of $51,000,000 and can issue
guarantees and assumptions of liability on behalf of AEPES to third
parties in an amount not to exceed $200,000,000 through December
31, 1998.
AEPES has also been authorized to form a subsidiary
company under the laws of the Cayman Islands for the purpose of
rendering approved services in foreign countries ("AEPES
International"); AEPES and AEPES International have been authorized
to form wholly-owned domestic or foreign subsidiary companies to
perform approved services in their respective jurisdictions.
In the February 20, 1996 Order, the Commission authorized
AEPES to broker or provide financing to non-associates in
connection with the sale of certain goods and services. Currently
pending is a request by AEPES for authorization to (a) make
financial and/or technical contributions to non-affiliates to
support the development of intellectual property and (b) amend the
terms upon which AEPES pays an affiliate for intellectual property
developed by that affiliate.
(3) Marketing Companies:
American has an Application pending in File No. 70-8779
requesting approval to form one or more direct or indirect new
subsidiaries ("New Subsidiaries") to engage in the business of
brokering and marketing energy commodities, including natural and
manufactured gas, electric power, emission allowances, coal, oil,
refined petroleum, refined petroleum products and natural gas
liquids ("Marketing Activities"). American agreed in that
Application to limit its investment in the New Subsidiaries to
$100,000,000 through December 31, 2000. American would also be
authorized to guarantee $50,000,000 of debt and $200,000,000 of
other obligations with respect to the New Subsidiaries. The New
Subsidiaries request authority herein to provide Marketing
Activities at fair market prices to any associate Power Project
entity which is an EWG, FUCO or QF in any case in which any one or
more of the fair market value circumstances as described in Item
1A(2) hereof apply. The New Subsidiaries further request authority
to provide Marketing Activities to associated companies which do
not satisfy the above-referenced circumstances at cost.
B. Authorization of Future Activities and Investments:
(1) Providing Energy Services and Marketing Activities:
AEPES will continue to provide Energy Services and the
New Subsidiaries will engage in Marketing Activities; however,
Resources, AEPES and the New Subsidiaries and their Intermediate
Subsidiaries (as defined below) request that each such entity be
authorized to render Energy Services and Marketing Activities,
subject to all of the terms, conditions and limitations set forth
in the AEPES Orders, modified as requested in Item 1A(2) hereof,
and in all orders to be granted in File No. 70-8779 as if the
terms, conditions and limitations expressly applied to Resources,
AEPES, the New Subsidiaries or the Intermediate Subsidiaries, as
the case may be.
(2) Certain 'Energy-Related' Businesses and Companies:
American, Resources, AEPES and the New Subsidiaries
request approval herein to acquire directly, or indirectly through
subsidiaries, in one or more transactions from time to time through
December 31, 2000, the securities of or other interests in any one
or more companies which derive or will derive substantially all of
their revenues from providing Energy Services and Marketing
Activities ("Energy Services & Marketing Companies") and from the
ownership and/or operation of any one or more of the following
categories of energy-related facilities or businesses: (i)
'qualifying facilities', as defined under PURPA and facilities
necessary or incidental thereto; (ii) the production, conversion
and distribution of steam; (iii) cooling and heating businesses;
and (iv) interests in other categories of 'energy-related'
businesses to the extent that any such acquisition may be exempted
under a rule of general applicability hereafter adopted by the
Commission. All of the above-referenced businesses and the Energy
Services & Marketing Companies are collectively referred to as
"Energy-Related Companies". In addition, AEPES and the New
Subsidiaries request that they and any of their subsidiaries and
the subsidiaries of Resources be authorized to enter into any of
these businesses, provided that substantially all of the income of
the subsidiary be derived from such businesses.
(3) Acquisition of Intermediate Subsidiaries:
American, Resources, AEPES and the New Subsidiaries
request approval to make investments from time to time through
December 31, 2000, in EWGs, FUCOs and Energy-Related Companies
indirectly through one or more subsidiaries (hereinafter referred
to as "Intermediate Subsidiaries") which are organized exclusively
for that purpose; provided that such subsidiaries may also provide
Energy Services and Marketing Activities to Resources, AEPES, the
New Subsidiaries, affiliated Power Projects or Energy-Related
Companies at cost or at fair market prices to any associate entity
which is an EWG, FUCO or QF in any case in which any one or more of
the fair market value circumstances as described in Item 1A(2)
hereof apply. Creating separate subsidiaries for such purposes
serves to isolate the risks of one activity from others, and may be
necessary to satisfy the requirements of applicable foreign and
U.S. laws.
(4) Financing and Guarantee Authority of American:
As provided in the May 10, 1996 Order (HCAR No. 26516),
(i) guarantees by American of the debt and other commitments of
Resources and Project Parents and Power Projects and (ii)
investments by American in Resources for purposes of acquiring
directly or indirectly the securities of or other interests in EWGs
and FUCOs is collectively limited to 50% of the consolidated
retained earnings of American determined in accordance with Rule 53
("Rule 53 Limitation"). In that Order, American also received
authority to issue debt and or equity securities to invest the
proceeds in EWGs and FUCOs. American does not seek in this
Application to amend or modify the Rule 53 Limitation.
In File No. 70-8779, American has agreed through December
31, 2000 that (i) it will not invest more than $100,000,000 in the
New Subsidiaries; (ii) the maximum amount of debt of the New
Subsidiaries it will guarantee is $50,000,000; and (iii) the
maximum amount of other obligations of the New Subsidiaries it will
guarantee is $200,000,000. In addition, American is currently
authorized to invest in AEPES and guarantee an amount of debt of
AEPES up to a total of $51,000,000 and is also authorized to
guarantee performance by or act as indemnitor or surety with
respect to contractual obligations of AEPES or any Power Project
entity in which American directly or indirectly holds an interest
in an amount not to exceed $200,000,000 through December 31, 1998.
American proposes to make additional investments, either
directly in Energy-Related Companies, or in Resources, AEPES and
the New Subsidiaries from time to time to permit direct or indirect
investments by Resources, AEPES and the New Subsidiaries in one or
more Energy-Related Companies or businesses. For such investments,
American would use the proceeds from (i) the sale of its
approximately 10 million shares of its authorized but unissued
stock under its Dividend Reinvestment and Stock Purchase Plan under
the Commission's Order dated August 13, 1996 (HCAR No. 26553); (ii)
approximately 1.2 million shares of its authorized but unissued
stock under the American Electric Power Employees Savings Plan
under the Commission's Orders dated December 6, 1993 and May 10,
1996 (HCAR Nos. 25939 and 26516, respectively); and (iii) the
issuance of approximately $150,000,000 of short-term debt under the
Commission's Order dated December 8, 1995 (HCAR No. 26424). Such
additional investments in Resources, AEPES and the New Subsidiaries
shall be made in accordance with Rules 52 and 45(b)(4), as
applicable, provided that the "aggregate investment" of American
and its subsidiaries directly or indirectly in Energy-Related
businesses shall not exceed $500,000,000 at any time outstanding or
such greater amount as may be permitted under any rule of general
applicability that the Commission may hereafter adopt (the "Energy-
Related Activity Limitation"). "Aggregate investment" means all
amounts invested or committed to be invested in Energy-Related
Companies or their subsidiaries for which there is recourse,
directly or indirectly, to American.
Resources, AEPES and the New Subsidiaries will use the
proceeds of any such additional investments by American (including
the proceeds of borrowings from lenders other than American which
are guaranteed by American, as described below), together with
other internally generated funds and the proceeds of the sale of
any securities issued to investors other than American or any
associate company, to make investments in Energy-Related Companies
and to finance the costs of any other authorized or permitted
Energy-Related activity.
American requests, and to the extent a modification of
the AEPES Orders and any Orders issued in File No. 70-8779 is
necessary, that it be authorized to (i) guarantee in one or more
transactions from time to time through December 31, 2000, the
securities of Resources (other than those related to an EWG or
FUCO, which shall be subject to the Rule 53 Limitation), AEPES, the
New Subsidiaries and Energy-Related Companies or any direct or
indirect subsidiary, including Intermediate Subsidiaries, and (ii)
provide performance guarantees in an aggregate principal amount at
any one time outstanding up to the Energy-Related Activity
Limitation. The financial guarantees may take the form of direct
guarantees of securities issued by Resources, AEPES and the New
Subsidiaries, including Intermediate Subsidiaries, stand-by equity
funding commitments, obligations under capital maintenance
agreements or under reimbursement agreements in respect of bank
letters of credit, or other similar financial instruments or
undertakings. Any financial guarantees issued by American with
respect to securities of an Intermediate Subsidiary organized to
acquire and hold the securities of any Energy-Related Company shall
be counted against the Energy-Related Activity Limitation. It is
proposed that any financial guarantee of an Energy-Related Company
or Intermediate Subsidiary outstanding on December 31, 2000, shall
remain in effect until it expires in accordance with its terms.
The performance guarantees would authorize American to guarantee
performance by or act as indemnitor or surety with respect to
contractual obligations of an Energy-Related Company.
Any performance guarantee provided to an Intermediate
Subsidiary shall be treated as if it is a performance guarantee
provided on behalf of such Energy-Related Company and be subject to
the Energy-Related Activity Limitation. It is proposed that such
performance guarantees would count against the Energy-Related
Activity Limitation if, and to the extent that, the same are
ultimately supported by an agreement or undertaking of American
itself.
(5) Guarantees by Resources, AEPES, the New
Subsidiaries and Intermediate Subsidiaries:
As provided in the May 10, 1996 Order (HCAR No. 26516),
Resources may guarantee the securities of one or more Project
Parents or Power Projects which is an EWG or FUCO, and Project
Parents were authorized to guarantee the securities of their Power
Projects in an aggregate amount up to the Rule 53 Limitation.
Resources and the Project Parents do not seek in this Application
to amend or modify the Rule 53 Limitation for such guarantees,
other than to change the term 'Project Parent' to 'Intermediate
Subsidiary' as provided in Item 1A(3) hereof.
In addition to that authority, Resources, AEPES and the
New Subsidiaries and any Intermediate Subsidiary also propose to
guarantee in one or more transactions from time to time through
December 31, 2000, the securities of any other direct or indirect
subsidiary thereof (other than for purposes of acquiring an EWG or
FUCO, which shall be subject to the Rule 53 Limitation) in an
aggregate principal amount at any time outstanding not to exceed
the Energy-Related Activity Limitation, provided that the issue and
sale of any such securities are exempt from the declaration
requirements of Section 6(a) of the 1935 Act, and provided further
that any guarantee outstanding on December 31, 2000, shall remain
in effect until it expires in accordance with its terms.
Guarantees of securities may take the form of direct guarantees of
securities issued by any such direct or indirect subsidiary, stand-
by equity funding commitments, obligations under capital
maintenance agreements or under reimbursement agreements in respect
of bank letters of credit, or other similar financial instruments
or undertakings. Resources, AEPES and the New Subsidiaries and any
Intermediate Subsidiary also propose to provide performance
guarantees on behalf of an Energy-Related Company or any subsidiary
and shall be subject to the Energy-Related Activity Limitation. It
is proposed that such performance guarantees would count against
the limitation on the amount of performance guarantees that
American may provide if, and to the extent that, the same are
ultimately supported by an agreement or undertaking of American
itself.
C. Relationship to Other Authorizations:
Upon issuance of the Commission's Order approving this
Application or Declaration, American will relinquish its
authorization in File No. 70-8429 (concerning 'Project Parents'),
but without prejudice to any transaction which has been consummated
in reliance upon the authority granted by the Commission in that
proceeding. The term 'Intermediate Subsidiary', as defined herein,
is broader than, i.e., it subsumes, the term, 'Project Parent', as
defined in File No. 70-8429. (All other approvals granted in File
No. 70-8429 shall remain unaffected).
Finally, American understands that the issuance and sale of
securities by a non-utility subsidiary of a registered holding
company (which would include Resources and any Intermediate
Subsidiary) in order to finance the authorized business of such
subsidiary is conditionally exempt from Sections 6(a) and 7 of the
1935 Act pursuant to Rule 52, as recently amended, and that cash
capital contributions and open account advances to such
subsidiaries are exempt from Section 12(b) and Rule 45(a)
thereunder pursuant to Rule 45(b), also as recently amended. (HCAR
No. 26311, dated June 20, 1995). American and such non-utility
subsidiaries state that they will rely upon the exemptions under
Rules 45(b) and 52, as in effect or as they may be further amended,
to the extent applicable.
D. Reporting Requirements:
Applicants propose that a single consolidated quarterly report
be filed by American pursuant to Rule 24 with respect to all
activities of AEPES, Resources, the New Subsidiaries and the
Intermediate Subsidiaries authorized in this Application. This
report would replace the reports currently required for AEPES by
HCAR Nos. 26014 and 26267, dated March 30, 1994 and April 5, 1995,
respectively, and for Resources by HCAR No. 26200 dated December
22, 1994.
Applicants would now file the following:
Quarterly, within 60 days after the end of each quarter:
(a) a balance sheet and income statement for AEPES,
each New Subsidiary and Energy-Related Company;
(b) a narrative description of the activities of AEPES
during the quarter just ended, organized by
business category (power project services, energy
management and demand-side management services,
other consulting services and services to Resources
and AEP Investments, Inc.) and within each
category, a description of new services by type;
(c) a listing of any guarantees or assumption of
liabilities by American on behalf of AEPES,
Resources, the New Subsidiaries and the Energy-
Related Companies;
(d) a description of services obtained from associate
companies, specifying the type of service, the
number of personnel from each associate company
providing services during the quarter and the total
dollar value of such services;
(e) a description of services provided to associate
companies which identifies the recipient company,
the service, the charge to the associate and
whether the charge was computed at cost, market or
pursuant to another method, which method shall be
specified;
(f) a chart showing, as of the end of such quarterly
period, all EWGs, FUCOs, QFs, Energy-Related
Companies, New Subsidiaries and Intermediate
Subsidiaries in which American has a direct or an
indirect investment; the amount of such investment
and the aggregate direct and indirect investment by
American in all such entities; and American's
percentage equity ownership in each such entity
together with a statement indicating by category
the type of entity or person (i.e., domestic
corporation, foreign corporation, foreign
government, or natural persons) owning the equity
interests in each such entity that are not held
directly or indirectly by American; and
(g) a description of any Intellectual Property provided
to AEPES by American Electric Power Service
Corporation, a subsidiary service corporation of
American ("Service Corporation"), or any associate
company of AEPES within the American Electric Power
System, or provided by AEPES to the Service
Corporation or any such associate company, the cost
thereof (including the cost of any enhancements) to
the company making such Intellectual Property
available, and if known, the fair market value
thereof;
(h) charter and bylaws of each new subsidiary formed
during the quarter (other than an EWG, FUCO or
Intermediate Subsidiary related to an EWG or FUCO),
and a description of the business of such entity;
(i) the amount, type and terms (including interest rate
and maturity and the basis for inflation adjustment
in the case of indebtedness denominated in any
currency other than U.S. dollars) of securities
issued by American or any subsidiary of American
(other than an EWG or FUCO) to third persons;
(j) for AEPES, annually, a Form U-13-60, as modified to
include information required by Account 923 of the
Uniform System of Accounts, 17 C.F.R. Pt. 256.923.
E. Compliance with Rule 54:
Rule 54 provides that in determining whether to approve
certain transactions other than those involving exempt wholesale
generators ("EWG") or foreign utility companies ("FUCO"), as
defined in the 1935 Act, the Commission will not consider the
effect of the capitalization or earnings of any subsidiary which is
an EWG or FUCO if Rule 53(a), (b) and (c) are satisfied. The
requirements of Rule 53(a), (b) and (c) are satisfied.
Rule 53(a)(1). AEP Resources International, Limited
("AEPRI"), an indirect subsidiary of American, is an EWG. As of
June 30, 1996, American, through its subsidiary, Resources, had
invested $3,265,000 in AEPRI. This investment represents less than
1% of $1,438,761,000, the average of the consolidated retained
earnings of American reported on Form 10-K or Form 10-Q, as
applicable, for the four consecutive quarters ended June 30, 1996.
Rule 53(a)(2). AEPRI will maintain books and records and make
available the books and records required by Rule 53(a)(2).
Rule 53(a)(3). No more than 2% of the employees of the
operating company subsidiaries of American will, at any one time,
directly or indirectly, render services to AEPRI.
Rule 53(a)(4). American has submitted and will submit a copy
of Item 9 and Exhibits G and H of American's Form U5S to each of
the public service commissions having jurisdiction over the retail
rates of American's operating company subsidiaries.
Rule 53(b). (i) Neither American nor any subsidiary of
American is the subject of any pending bankruptcy or similar
proceeding; (ii) American's average consolidated retained earnings
for the four most recent quarterly periods ($1,438,761,000)
represented an increase of approximately $38,153,000 (or 0.3%) in
the average consolidated retained earnings from the previous four
quarterly periods ($1,400,608,000); and (iii) for the year ended
December 31, 1995, there were no losses attributable to American's
investments in AEPRI other than $93,000 in preliminary development
and start-up costs.
Rule 53(c). Rule 53(c) is inapplicable because the
requirements of Rule 53(a) and (b) have been satisfied.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
No fees, commissions or expenses, other than the Commission's
filing fee of $2,000 and expenses estimated not to exceed $10,000
to be billed at cost by American Electric Power Service
Corporation, are to be paid by the Applicants or any associate
company in connection with the proposed transaction.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
The Applicants believe that Sections 6(a), 7, 9(a)(1), 10,
12(b), 13(b), 32 and 33 of the 1935 Act and Rules 45(a), 53, 54 and
90-92 thereunder may be applicable to the proposed transactions
described herein.
LEGAL DISCUSSION
FUNDAMENTAL CHANGES IN THE UTILITY INDUSTRY
The Commission, in its Concept Release issued last Fall,
recognized that the electric and gas utility industry is in
transition. The rapid growth that characterized the industry in
the early part of this century has diminished. In addition,
companies must adapt to an increasingly competitive environment.(1)
At a time when there is little growth in domestic markets, foreign
markets, which are experiencing rapid economic growth, offer
attractive investment opportunities.
American draws support for its proposal from the Energy Policy
Act of 1992 ("Energy Policy Act").(2) The Energy Policy Act is
intended to facilitate foreign investment and improve the
competitive position of U.S. companies in the worldwide energy
market. To that end, the Energy Policy Act creates two new classes
of exempt entities, exempt wholesale generators and foreign utility
companies, to enable U.S. companies to invest freely in foreign
utility operations.
Energy is increasingly being treated as a commodity. Electric
and gas markets must become efficient through the use of trading
systems, demand-side management programs, arbitrage and creative
service offerings. Power marketers and brokers play a strategic
role in these markets.
Power marketing is just one step in the evolution of utilities
from single service providers to total energy companies. The
Division of Investment Management in its recent Study of the
Regulation of Public-Utility Holding Companies, noted this movement
away from traditional, regulated utility functions and toward a
broader range of energy-related businesses:
Today, nearly all registered holding companies engage in
a variety of energy-related activities that involve
application of resources and capabilities developed in
the conduct of utility operations. Many involve new uses
of skills and experience gained in utility operations, or
new uses of utility infrastructure and technology to
provide services to utility as well as nonutility
customers.(3)
LEGAL BASIS FOR PROPOSED ACTIVITIES
Activities under the Energy Policy Act:
As discussed earlier, the Energy Policy Act created two
classes of entities, EWGs and FUCOs, that are exempt from all
provisions of the 1935 Act. Sections 32 and 33 of the 1935 Act, as
amended by the Energy Policy Act, generally permit a registered
holding company to acquire EWGs and FUCOs without the need to apply
for, or receive, prior Commission approval. Further, an
intermediate company that exclusively owns or operates EWGs may
itself be exempted as an EWG. In addition, the Commission has
proposed Rule 56 under which an intermediate company that
exclusively owns or operates FUCOs may be deemed to be a FUCO.(4)
Thus, authority is requested for the formation of Intermediate
Subsidiaries only to the extent that such entities are not
otherwise exempted by rule or statute. In this regard, the
Commission has previously approved the formation of intermediate
companies to hold interests in and finance the acquisition and hold
the securities of EWGs and FUCOs.(5)
Activities under Section 11(b)(1) of the 1935 Act:
To the extent that the activities are not within the purview
of the Energy Policy Act or are not otherwise exempted, they are
permissible under Section 11(b)(1), in that they are closely
related to the system's core utility business.
Section 11 of the 1935 Act directs the Commission to limit the
nonutility activities of a registered holding company to those that
are "reasonably incidental or economically necessary or
appropriate" to the operations of the system's utility business.
The Commission and the courts have interpreted these provisions to
require a functional relationship between a nonutility interest and
the system's core utility operations. In its Concept Release, the
Commission questioned the continuing validity of this model:
The present model of regulation under the [1935] Act,
which strictly limits the size of a system's utility
operations and the scope of its nonutility businesses,
was intended to focus the attention of the registered
holding company on the needs of its operating utilities,
and thereby protect consumers and investors from the
risks that might be associated with unrelated businesses.
Some have suggested that this model is no longer
appropriate and that market conditions require a broader
focus on energy services and other nonutility activities.
The [1935] Act, as currently administered, does not
afford the degree of flexibility that many believe will
be necessary to meet these changes.
The SEC staff, in its June 1995 Study, recommended that the
Commission adopt a more flexible approach to diversification,
concluding that:
The SEC's review evaluates a transaction under the
standards of the [1935] Act - it does not guarantee the
financial success of a nonutility venture....it may make
more sense to focus on transactions between regulated
utilities and their diverse unregulated affiliates, so
that these transactions are economically fair to the
regulated utility.
In other contexts, the Commission has begun to move away from
a static interpretation of Section 11(b)(1), and towards a more
flexible approach to diversification. At the end of 1994, the
Commission approved a proposal by a registered holding company to
develop a wireless communications system to provide services to
system companies and to regional nonassociates. The Commission
approved the transactions under a traditional functional
relationship analysis but suggested, among other things, that the
proposed activities could also be authorized under the plain
meaning of Section 11(b)(1), as "reasonably incidental, or
economically necessary or appropriate" to the system's core utility
operations, finding also that they were "necessary or appropriate
in the public interest or for the protection of investors or
consumers and not detrimental" to the proper functioning of the
integrated public-utility system.(6)
The Commission has recently removed the percentage limitation
on the energy management services business of another registered
holding company, which is similar to the Applicants' request herein
to remove the Geographic Limitation. Among other things, the
Commission noted that the provision of such services is closely
related to the core utility business. The Commission also noted
the strong national interest in promoting energy conservation and
efficiency.(7) The Commission also has proposed for comment Rule
58, which would facilitate investments in a wide range of energy-
related and gas-related companies. This rule would obviate the
need for Commission approval with respect to many of the proposed
activities. In particular, the Commission has granted subsidiaries
of a registered holding company broad authority to acquire the
securities of and interests in "energy-related"(8) companies and
permitted the registered holding companies to provide financial
guarantees on behalf of Intermediate Subsidiaries and Energy-
Related Companies. The acquisition of Intermediate Subsidiaries
described in Item 1B(3) regarding investments in EWGs and FUCOs has
been approved by the Commission(9) and the acquisition of
Intermediate Subsidiaries for investments in Energy-Related
Companies has likewise been recently approved.(5) The Applicants'
proposed guarantees and financing described in Item 1B(4) and 1B(5)
have been approved by the Commission in recent orders.(5,9) The
Commission has also recently approved a registered holding
company's request to provide both gas and electric marketing and
brokering.(10)
Consulting and Other Services:
The Commission has recently granted subsidiaries of a
registered holding company broad authority to provide services to
foreign associate companies. In a recent matter, the Commission
authorized the intermediate subsidiaries of CINergy Corporation to
provide their wholly foreign subsidiaries, and other wholly foreign
intermediate subsidiaries and their subsidiaries, with all services
"necessary or desirable for their operation, including, without
limitation, management, administrative, employment, tax,
accounting, engineering, consulting, utility performance, and
electronic data processing services, and software development and
support services in connection therewith."(11) The intermediate
subsidiaries in that matter were to be organized for the purpose of
engaging, directly or indirectly, and exclusively, in the business
of acquiring, owning and holding the securities of, and/or
providing services to FUCOs and EWGs. The Applicants' request to
provide Marketing Activities at fair market value to certain
associate Power Project entities which are EWGs, FUCOs and QFs is
similar to that recently approved by the Commission on behalf of
another registered holding company.(5) Similarly, Applicants'
requests in Items 1B(1) and 1B(2) were approved by the Commission
in that same file.(5)
The Commission has also authorized subsidiaries of a
registered holding to offer operation and management services, as
well as consulting services, to developers, owners and operators of
domestic and foreign power projects, both associate and non-
associate.(12)
NOTES
1. Modernization of the Regulation of Public-Utility Holding
Companies, HCAR No. 26153 (November 2, 1994) ("Concept
Release").
2. Pub. L. 102-486. 106 Stat. 2776 (1992).
3. Study of the Regulation of Public-Utility Holding Companies
(June 1995) ("June 1995 Study").
4. HCAR No. 25757 (March 8, 1993).
5. Southern Company HCAR No. 26468 (February 2, 1996).
6. Southern Company HCAR No. 26211 (December 30, 1994).
7. Eastern Utilities Associates HCAR No. 26232 (February 15,
1995).
8. Southern Company HCAR No. 26468 (February 2, 1996) and CINergy
Corporation HCAR No. 26474 (February 20, 1996).
9. Allegheny Power System, Inc. HCAR No. 26401 (October 27,
1995); Consolidated Natural Gas Company HCAR No. 26523 (May
30, 1996).
10. Consolidated Natural Gas Company HCAR No. 26512 (April 30,
1996).
11. CINergy Corporation HCAR No. 26376 (September 21, 1995).
12. Entergy Corporation HCAR No. 26322 (June 30, 1995).
ITEM 4. REGULATORY APPROVAL
No commission other than the Securities and Exchange
Commission has jurisdiction over the proposed transaction.
ITEM 5. PROCEDURE
It is requested, pursuant to Rule 23(c) of the Rules and
Regulations of the Commission, that the Commission's order granting
and permitting to become effective this Application or Declaration
be issued on or before October 15, 1996. Applicants waive any
recommended decision by a hearing officer or by any other
responsible officer of the Commission and waive the 10-day waiting
period between the issuance of the Commission's order and the date
it is to become effective, since it is desired that the
Commission's order, when issued, become effective forthwith.
Applicants consent to the Office of Public Utility Regulation
assisting in the preparation of the Commission's decision and/or
order in this matter, unless the Office opposes the matter covered
by this Application or Declaration.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
The following exhibits and financial statements are filed as
part of this statement:
Exhibits:
Exhibit F Opinion of Counsel (to be filed by amendment).
Exhibit G Proposed form of Notice
It is believed that financial statements are not necessary or
relevant to the disposition of this proceeding.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
It is believed that the granting and permitting to become
effective of this Application or Declaration will not constitute a
major federal action significantly affecting the quality of the
human environment. No other federal agency has prepared or is
preparing an environmental impact statement with respect to the
proposed transaction.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused
this statement to be signed on its behalf by its duly authorized
officer.
AMERICAN ELECTRIC POWER COMPANY, INC.
By_/s/ G. P. Maloney________________
Vice President
AEP ENERGY SERVICES, INC.
AEP RESOURCES, INC.
By_/s/ G. P. Maloney________________
Vice Chairman
Dated: September 6, 1996
Exhibit G
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No. / , 1996
__________________________________________
:
In the Matter of :
:
AMERICAN ELECTRIC POWER COMPANY, INC. :
AEP ENERGY SERVICES, INC. :
AEP RESOURCES, INC. :
1 Riverside Plaza :
Columbus, Ohio 43215 :
:
(70- ) :
__________________________________________:
American Electric Power Company, Inc. ("American"), a
registered holding company, AEP Energy Services, Inc. ("AEPES") and
AEP Resources, Inc. ("Resources"), collectively, ("Applicants"),
subsidiaries of American, have filed with the Commission an
Application or Declaration pursuant to the Public Utility Holding
Company Act of 1935 (the "1935 Act"), designating Sections 6(a), 7,
9(a)(1), 10, 12(b), 13(b), 32 and 33 of the 1935 Act and Rules
45(a), 53, 54 and 90-92 promulgated thereunder as applicable to the
proposed transactions.
Pursuant to Orders dated October 8, 1993, February 4, 1994,
December 22, 1994 and May 10, 1996 (HCAR Nos. 25905, 25984, 26200
and 26516, respectively), Resources is involved in preliminary
development activities related to exempt wholesale generators
("EWG") and foreign utility companies ("FUCO") as defined under
Sections 32 and 33 of the 1935 Act, and qualifying cogeneration
facilities and small power production facilities as defined under
the Public Utility Regulatory Policies Act of 1978, as amended
("PURPA") and the rules thereunder ("QF") and other independent
power projects when such facility constitutes a part of American's
integrated electric utility system.
Pursuant to Orders dated March 30, 1994, April 5, 1995,
December 28, 1995 and February 20, 1996 (HCAR Nos. 26014, 26267,
26442 and 26473, respectively) ("AEPES Orders"), AEPES provides a
variety of services such as engineering, design, construction and
construction management, operating, fuel management, maintenance
and power plant overhaul, and other similar kinds of managerial and
technical services, to both affiliated and non-affiliated EWGs,
FUCOs and QFs; however, any associate company of AEPES is
prohibited from providing such services to an EWG or FUCO, which
prohibition the Applicants seek to remove such that any of AEPES,
Resources, the New Subsidiaries (as defined in the Application),
and the Intermediate Subsidiaries (as defined in the Application)
be permitted to provide such services.
The April 5, 1995 Order also authorizes AEPES to provide
energy management and demand-side management services, including
marketing, development, engineering, construction and construction
management, installation, ownership, operation, sale, service,
financing and leasing of energy management or demand-side
management equipment to both affiliated and non-affiliated
entities. AEPES' offering of these services was limited to the
states in which the American Electric Power System sells
electricity at retail and limited areas outside those states, which
consist of the service territories of utilities to which the
American Electric Power System expects to sell, and from which it
expects to purchase, large amounts of economy and emergency power
(the "Region"). AEPES is also permitted to offer limited services
outside the Region, as long as the revenues attributable to
customers outside the Region do not exceed revenues attributable to
customers inside the Region. Applicants request that such
geographic limitation be removed.
American has an Application pending in File No. 70-8779
requesting approval to form one or more direct or indirect new
subsidiaries ("New Subsidiaries") to engage in the business of
brokering and marketing energy commodities, including natural and
manufactured gas, electric power, emission allowances, coal, oil,
refined petroleum, refined petroleum products and natural gas
liquids ("Marketing Activities"). The New Subsidiaries request
authority herein to provide Marketing Activities at fair market
prices to any associate Power Project entity which is an EWG, FUCO
or QF in any case in which the conditions specified in the April 5,
1995 Order with respect to AEPES would apply. The New Subsidiaries
further request authority to provide Marketing Activities to
associated companies which do not satisfy the above-referenced
circumstances at cost.
AEPES will continue to provide Energy Services and the New
Subsidiaries will engage in Marketing Activities; however,
Resources, AEPES and the New Subsidiaries and their Intermediate
Subsidiaries (as defined below) request that each such entity be
authorized to render Energy Services and Marketing Activities,
subject to all of the terms, conditions and limitations set forth
in the AEPES Orders, as modified, and in all Orders to be granted
in File No. 70-8779 as if the terms, conditions and limitations
expressly applied to Resources, AEPES, the New Subsidiaries or the
Intermediate Subsidiaries, as the case may be.
Applicants also request authority to acquire, directly or
indirectly through subsidiaries, in one or more transactions from
time to time through December 31, 2000, the securities of or other
interests in one or more companies that derive or will derive
substantially all of their revenues from providing Energy Services
and Marketing Activities and from the ownership and/or operation of
one or more of the following categories of energy-related
businesses: (a) QFs, and ownership and operation of incidental
facilities; (b) production, conversion and distribution of steam;
(c) cooling and heating businesses; and (d) other energy-related
businesses to the extent that acquisition of interests in such
businesses are exempt under a rule subsequently adopted by the
Commission.
The Commission has proposed a rule that would exempt from the
requirement of prior Commission approval under the 1935 Act
acquisitions of securities of companies that derive all or
substantially all of their revenues from specified activities
closely related to the core utility business of a registered
holding company system. (See HCAR No. 26313 (June 20, 1995), 60 FR
33642 (June 28, 1995).
The Applicants and the New Subsidiaries propose to organize
one or more intermediate subsidiaries to make investments in EWGs,
FUCOs and energy-related companies and to provide Energy Services
and Marketing Activities to projects and companies held by them
("Intermediate Subsidiaries").
American has existing authorization with respect to
investments in and guaranties of subsidiary obligations which limit
the investment and guaranty of securities of any of its direct or
indirect subsidiaries, from time to time through December 31, 2000,
provided that the aggregate outstanding principal amount of such
guaranties, when added to American's "aggregate investment", as
defined in Rule 53(a), in EWGs and FUCOs, shall not exceed 50% of
American's 'consolidated retained earnings', as so defined (the
"50% Limit").
Resources and any Intermediate Subsidiary also have existing
authorization to guaranty the securities issued by any of their
direct or indirect subsidiaries (provided that the issue and sale
of such securities are exempt from the requirement of prior
Commission approval under Section 6(a) of the 1935 Act), from time
to time through December 31, 2000, in an aggregate amount not to
exceed the 50% Limit at any one time outstanding.
American now proposes to make additional investments, either
directly in Energy-Related Companies, or in Resources, AEPES and
the New Subsidiaries from time to time to permit direct or indirect
investments by Resources, AEPES and the New Subsidiaries in one or
more Energy-Related Companies or businesses, provided that the
"aggregate investment" of American and its subsidiaries directly or
indirectly in Energy-Related businesses shall not exceed
$500,000,000 at any time outstanding or such greater amount as may
be permitted under any rule of general applicability that the
Commission may hereafter adopt (the "Energy-Related Activity
Limitation"). "Aggregate investment" means all amounts invested or
committed to be invested in Energy-Related Companies or their
subsidiaries for which there is recourse, directly or indirectly,
to American.
American requests, and to the extent a modification of the
AEPES Orders and any Orders issued in File No. 70-8779 is
necessary, that it be authorized to (i) guarantee in one or more
transactions from time to time through December 31, 2000, the
securities of Resources (other than those related to an EWG or
FUCO, which shall be subject to the Rule 53 Limitation), AEPES, the
New Subsidiaries and Energy-Related Companies or any direct or
indirect subsidiary, including Intermediate Subsidiaries, and (ii)
provide performance guarantees in an aggregate principal amount at
any one time outstanding up to the Energy-Related Activity
Limitation. The financial guarantees may take the form of direct
guarantees of securities issued by Resources, AEPES and the New
Subsidiaries, including Intermediate Subsidiaries, stand-by equity
funding commitments, obligations under capital maintenance
agreements or under reimbursement agreements in respect of bank
letters of credit, or other similar financial instruments or
undertakings. Any financial guarantees issued by American with
respect to securities of an Intermediate Subsidiary organized to
acquire and hold the securities of any Energy-Related Company shall
be counted against the Energy-Related Activity Limitation. It is
proposed that any financial guarantee of an Energy-Related Company
or Intermediate Subsidiary outstanding on December 31, 2000, shall
remain in effect until it expires in accordance with its terms.
The performance guarantees would authorize American to guarantee
performance by or act as indemnitor or surety with respect to
contractual obligations of an Energy-Related Company.
Any performance guarantee provided to an Intermediate
Subsidiary shall be treated as if it is a performance guarantee
provided on behalf of such Energy-Related Company and be subject to
the Energy-Related Activity Limitation. It is proposed that such
performance guarantees would count against the Energy-Related
Activity Limitation if, and to the extent that, the same are
ultimately supported by an agreement or undertaking of American
itself.
Resources, AEPES and the New Subsidiaries and any Intermediate
Subsidiary also propose to guarantee in one or more transactions
from time to time through December 31, 2000, the securities of any
other direct or indirect subsidiary thereof (other than for
purposes of acquiring an EWG or FUCO, which shall be subject to the
Rule 53 Limitation) in an aggregate principal amount at any time
outstanding not to exceed the Energy-Related Activity Limitation,
provided that the issue and sale of any such securities are exempt
from the declaration requirements of Section 6(a) of the 1935 Act,
and provided further that any guarantee outstanding on December 31,
2000, shall remain in effect until it expires in accordance with
its terms. Resources, AEPES and the New Subsidiaries and any
Intermediate Subsidiary also propose to provide performance
guarantees on behalf of an Energy-Related Company or any subsidiary
and shall be subject to the Energy-Related Activity Limitation.
Applicants propose that a single consolidated quarterly report
be filed by American pursuant to Rule 24 with respect to all
activities of AEPES, Resources, the New Subsidiaries and the
Intermediate Subsidiaries authorized in this Application. This
report would replace the reports currently required for AEPES by
HCAR Nos. 26014 and 26267, dated March 30, 1994 and April 5, 1995,
respectively, and for Resources by HCAR No. 26200 dated December
22, 1994.
The Application or Declaration 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 October , 1996
to the Secretary, Securities and Exchange Commission, Washington,
D.C. 20549, and serve a copy on the applicants at the addresses
specified above. Proof of service (by affidavit or, in case of any
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 permitted to
become effective.
For the Commission, by the Office of Public Utility
Regulation, pursuant to delegated authority.
Jonathan G. Katz
Secretary
