<PAGE> File No. 70-8779
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
AMENDMENT NO. 3
TO
FORM U-1
__________________________________
APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
APPALACHIAN POWER COMPANY
40 Franklin Road, Roanoke, Virginia 24022
COLUMBUS SOUTHERN POWER COMPANY
215 North Front Street, Columbus, Ohio 43215
INDIANA MICHIGAN POWER COMPANY
One Summit Square, Fort Wayne, Indiana 46801
KENTUCKY POWER COMPANY
1701 Central Avenue, Ashland, Kentucky 41101
KINGSPORT POWER COMPANY
422 Broad Street, Kingsport, Tennessee 37660
OHIO POWER COMPANY
339 Cleveland Avenue, S.W., Canton, Ohio 44702
WHEELING POWER COMPANY
51 - 16th Street, Wheeling, West Virginia 26003
(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
John F. Di Lorenzo, Jr., Associate General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
(Names and addresses of agents for service)
American Electric Power Company, Inc. ("American"), a holding
company registered under the Public Utility Holding Company Act of
1935 ("1935 Act"), and American Electric Power Service Corporation
("AEPSC"), Appalachian Power Company ("APCo"), Columbus Southern
Power Company ("CSPCo"), Kentucky Power Company ("KPCo"), Kingsport
Power Company ("KgpCo"), Indiana Michigan Power Company ("I&M"),
Ohio Power Company ("OPCo") and Wheeling Power Company ("WPCo")
(sometimes collectively referred to herein as "Applicants") hereby
amend their Application or Declaration on Form U-1 in File No. 70-
8779, as follows:
1. By amending and restating Sections A, B and C of Item 1.
Description of Proposed Transaction to read as follows:
"A. New Business
The New Subsidiaries propose to engage in the businesses of
brokering and marketing Energy Commodities. Energy Commodities
include natural and manufactured gas, electric power, emission
allowances, coal, oil, refined petroleum, refined petroleum
products and natural gas liquids. Their brokering business will
involve arranging the sale and purchase, transportation,
transmission and storage of Energy Commodities for a commission.
Their marketing business will involve entering into contracts to
sell, purchase, exchange, pool, transport, transmit, distribute,
store and otherwise deal in Energy Commodities. The New
Subsidiaries may from time to time have an inventory of Energy
Commodities; however, they will not own or operate facilities used
for the production, generation, processing, storage, transmission,
transportation, or distribution of Energy Commodities.
The New Subsidiaries propose to broker and market Energy
Commodities to retail and wholesale customers. Under applicable
state law, retail sales of electric power by marketers is not
generally permitted and retail sales of natural gas by marketers is
permitted only in limited circumstances. Therefore, Applicants
request that jurisdiction be reserved over the brokering and
marketing of electric power and natural gas at retail pending
completion of the file with respect to the permissibility of such
sales.
In order to manage the risk associated with brokering and
marketing Energy Commodities, the New Subsidiaries may enter into
futures, forwards, swaps and options contracts relating to Energy
Commodities. See the discussion under Section E. Risk Management
below. No New Subsidiary will be a public utility company under
the 1935 Act.
B. Service Agreements with New Subsidiaries
The New Subsidiaries propose to enter into Service Agreements
with American Electric Power Service Corporation ('AEPSC') and the
operating company subsidiaries of American ('Operating
Subsidiaries'), pursuant to which personnel and other resources of
AEPSC and the Operating Subsidiaries may be made available to the
New Subsidiaries, upon request, to support the New Subsidiaries in
connection with their authorized activities. The Service
Agreements will require that AEPSC and the Operating Subsidiaries
provide, account for and bill their services to the New
Subsidiaries, utilizing a work order system, on a full cost
reimbursement basis in accordance with Rules 90 and 91 under the
1935 Act. The reimbursed cost of services identified through the
work order system will include all direct charges and a prorated
share of other related costs.
The Service Agreements also will provide that AEPSC and the
Operating Subsidiaries make warranties of due care and compliance
with applicable laws to the New Subsidiaries concerning the
performance of the services requested, but failure to meet these
obligations will not subject them to any claim or liability, other
than to reperform the work at cost in accordance with the work
order. Likewise, AEPSC and the Operating Subsidiaries will be
indemnified by the New Subsidiaries against liabilities to or
claims of third parties arising out of the performance of work on
behalf of the New Subsidiaries.
Under the Service Agreements, AEPSC and each Operating
Subsidiary will make available personnel or resources requested by
the New Subsidiaries, if it has or can have available such
personnel or resources. AEPSC and each Operating Subsidiary will
determine the availability of its personnel and resources.
Initially, the New Subsidiaries are not expected to have
employees. They will use the personnel and resources of AEPSC and
of the Operating Subsidiaries to broker and market Energy
Commodities on their behalf and to administer their businesses. No
more than 2% of the total employees of AEPSC and the Operating
Subsidiaries will, at any one time, directly or indirectly render
services to the New Subsidiaries.
C. Initial Capitalization of New Subsidiaries and Guaranties
by American
As the initial capitalization, a New Subsidiary is expected to
issue and sell up to 100 shares of Common Stock for approximately
$100 to American, or if the New Subsidiary is an indirect
subsidiary of American, to a subsidiary of American. Under Rule
52, the issuance of additional securities by the New Subsidiaries
as well as their acquisition is exempt from prior Commission
approval under the 1935 Act. Rule 45(b)(4) exempts the making of
cash capital contributions to New Subsidiaries from prior
Commission approval. American does not expect to invest more than
$100 million in the New Subsidiaries prior to December 31, 2000,
either by acquisition of securities or making capital
contributions, both of which are exempt from Commission approval
under Rules 45(b)(4) and 52.
American requests authority through December 31, 2000 to
guarantee the debt and other obligations of the New Subsidiaries.
The maximum amount of debt that American proposes to guarantee is
$50 million. The maximum amount of other obligations that American
proposes to guarantee is $200 million.
Debt financing of the New Subsidiaries which is guaranteed by
American will not (i) exceed a term of 15 years or (ii)(a) bear a
rate equivalent to a floating interest rate in excess of 2.0% over
the prime rate, London Interbank Offered Rate or other appropriate
index, in effect from time to time or (b) bear a fixed rate in
excess of 2.50% above the yield at the time of issuance of United
State Treasury obligations of a comparable maturity. Any
commitment and other fees on the debt will not exceed 50 basis
points per annum on the total amount of debt financing.
Obligations of the New Subsidiaries (other than debt
guaranteed by American) may take the form of bid bonds or
performance or other direct or indirect guarantees of contractual
or other obligations. Such arrangements may be necessary in order
for the New Subsidiaries to satisfy a customer that they have the
support for their contractual obligations.
American will not seek recovery through higher rates to
customers of its utility subsidiaries in order to compensate
American for any possible losses that it may sustain on its
investment in the New Subsidiaries."
2. By adding Section E at the end of Item 1. Description of
Proposed Transaction:
"E. Risk Management
Generally, the New Subsidiaries will strive to match their
portfolio of contracts for sales of Energy Commodities with a
portfolio of contracts for purchases with similar terms. For
instance, long-term firm sales contracts with variable or indexed
prices will be matched with long-term supply contracts with
variable or indexed prices. Financial instruments, such as
futures, forwards, swaps and option contracts, will be needed only
to reduce risk with respect to that small portion of their total
sales contract portfolio which is not matched with appropriate
supply contracts. For example, a one year, fixed price sales
contract might not be matched; protection against price risk in
such a short-term contract could be provided by proper hedging
tools.
In its use of hedging tools, the New Subsidiaries will not
engage in speculative trading. Hedging activity will be limited to
no more than the total volume of the New Subsidiaries' commodities
that are subject to market price fluctuation."
3. By amending and restating Item 3. Applicable Statutory
Provisions to read as follows:
"ITEM 3. APPLICABLE STATUTORY PROVISIONS
American considers that: (i) Sections 9(a), 9(c)(3) and 10 of
the 1935 Act are applicable to the proposed initial acquisition of
securities of the New Subsidiaries by American; (ii) Sections 6, 7
and 12(b) of the 1935 Act and Rule 45 thereunder are applicable to
the proposed guarantee by American of the debt and other
obligations of the New Subsidiaries; (iii) Rule 52 is applicable to
the issuance of debt by the New Subsidiaries; and (iv) Section
13(b) is applicable to the services proposed to be provided by
AEPSC and the Operating Subsidiaries to the New Subsidiaries.
LEGAL ANALYSIS UNDER SECTIONS 9 AND 10
Section 9(a) of the 1935 Act provides that without prior
approval from the Commission under Section 10, 'it shall be
unlawful -- for any registered holding company or any subsidiary
company thereof...to acquire, directly or indirectly, any
securities or utility assets or any other interest in any
business.' Section 10 requires among other things that the
acquisition not be detrimental to the carrying out of the
provisions of Section 11. Finally, Section 11(b)(1) limits
American to a single integrated public-utility system and such
other businesses as are reasonably incidental, or economically
necessary or appropriate to the operations of such integrated
public-utility system. The last sentence of Section 11(b)(1)
states that the Commission may permit as reasonably incidental, or
economically necessary or appropriate to the operations of one or
more integrated public-utility systems the retention of an interest
in any business which the Commission shall find necessary or
appropriate in the public interest or for the protection of
investors or consumers and not detrimental to the proper
functioning of such system or systems.
In view of the rapidly changing nature of the energy markets
in North America, brokering and marketing of electric power,
natural gas and other Energy Commodities is incidental and
appropriate to the operations of the American Electric Power
System. A substantial portion of the business of the New
Subsidiaries will consist of power marketing. The portions of the
business which do not involve electric power directly will involve
forms of energy which can be converted into power and will
accordingly involve power indirectly. Energy markets are
converging due to the interchangeability of energy forms and the
desire of customers to have a single energy supplier. These
markets are making the classification of companies as solely gas or
electric obsolete. It is for these reasons that the businesses of
the New Subsidiaries are incidental and appropriate to the existing
operations of the American Electric Power System.
In its Memorandum Opinion and Order dated April 30, 1996 with
respect to Consolidated Natural Gas Company, the Commission
acknowledged these changes, stating, 'It appears that the
restructuring of the electric industry now underway will
dramatically affect all United States energy markets as a result of
the growing interdependence of natural gas transmission and
electric generation, and the interchangeability of different forms
of energy, particularly gas and electricity.'(1) In its background
discussion concerning proposed Rule 58, the Commission noted that
'the utility industry is evolving toward a broadly based energy-
related business that is no longer focused solely on the
traditional, regulated, production and distribution functions of a
utility.'(2)
The Commission has acknowledged that a national policy to
promote competitive energy markets has developed and that this
policy should satisfy the public interest standard of Section
11(b)(1). Again in the CNG Order, the Commission said:
The Commission has recognized the national policy to
promote efficient and competitive energy markets. The
proposed partnership among CNG, Noverco and Hydro-Quebec
represents an alliance among gas and electric companies
in this regard. A number of subsidiary companies of
various exempt holding companies, as well as unregulated
companies, are currently engaged in marketing and
brokering gas and electric energy. The participation of
registered system companies in these activities should
promote greater competition and thus further the public
interest in a sound electric and gas utility industry.(3)
[Footnotes omitted]
This national policy to promote competitive natural gas and
electric power markets is shown by the recent history of federal
legislative and regulatory activities, demonstrating that the
proposed activities of the New Subsidiaries are appropriate in the
public interest.
1. Natural Gas
In 1938, Congress enacted the Natural Gas Act ('NGA') to
regulate the sale for resale in interstate commerce of natural
gas.(4) Under the NGA, the producers would sell their natural gas
to the interstate pipelines at regulated rates. The pipelines
would transport their purchased gas and their own production to the
city gate for sale to the local distribution company at regulated
rates, which recovered both the pipelines' cost of gas and cost of
transmission. In addition, the pipelines would sell gas to end-
users in nonjurisdictional sales. Producer sales to local
distribution companies or end-users with the pipeline providing
only the transportation were rare.
In 1978, Congress responded to the natural gas shortages of
the 1970's by enacting the Natural Gas Policy Act of 1978 ('NGPA')
to increase the flow of gas into the interstate market. The NGPA
created new statutory rates for the wholesale gas market, for so-
called 'first sales' of natural gas. As part of the new rate
structure, the NGPA initiated the process of decontrolling wellhead
prices of natural gas. The NGPA's aim was to develop a competitive
wellhead market where market forces play a more significant role.
Congress and the Federal Energy Regulatory Commission ('FERC')
have continued to encourage competition in the sale of natural gas.
In 1985, the FERC issued Order No. 436, which instituted open-
access, non-discriminatory transportation.(5) The Order was
intended to facilitate direct sales between gas producers and local
distribution companies. Competition in sale of natural gas
proceeded further under the Natural Gas Wellhead Decontrol Act of
1989, pursuant to which the FERC implemented full producer
deregulation, effective January 1, 1993. In 1990, Congress enacted
the Gas Related Activities Act ('GRAA'), which permitted registered
holding companies owning gas utilities to acquire significant
production and transportation assets that do not directly serve the
needs of their retail distribution systems.
In 1992, the FERC issued Order No. 636, which required
pipelines to offer a variety of transportation services to their
shippers under a system that treats all gas equally, whether sold
or merely transported by the pipeline companies.(6) FERC also
issued Order No. 547, which issued blanket certificates of public
convenience and necessity allowing certificate holders to make gas
sales for resale at negotiated market rates.(7) In tandem with
Order 636, this Order was intended to 'foster a truly competitive
market for natural gas sales for resale, giving purchasers of
natural gas access to multiple sources of natural gas and the
opportunity to make gas purchasing decisions in accord with market
conditions.'(8)
These legislative and regulatory actions demonstrate a clear
federal policy promoting competition among sellers and marketers of
natural gas. As a result, the sale and purchase of natural gas has
developed into an active, competitive commodity market.
2. Electric Power
Electric power has traditionally been provided by mostly
vertically integrated electric utilities, in which generation,
transmission and distribution facilities were owned by a single
entity and sold as a bundled service to wholesale and retail
customers.(9) The price of electric power was regulated by state
commissions in the case of retail sales and by the FERC in the case
of wholesale sales and transmission services.
In 1978, Congress enacted the Public Utility Regulatory
Policies Act of 1978 ('PURPA'), which established qualifying
cogeneration or small power production facilities ('QF'). These
facilities had to satisfy certain efficiency standards and received
certain benefits, such as the obligation of the local electric
utility to purchase power and sell backup power. QFs were subject
to reduced regulation, including exemption from being electric
utility companies under Section 2(a)(3) of the 1935 Act.(10) In
1985 and 1986, Congress allowed registered holding companies to
invest in qualifying cogeneration facilities without having to
satisfy the integration and other requirements of Section 11(b)(1)
of the 1935 Act.(11) PURPA was Congress' initial action to provide
for greater efficiencies in energy markets through reducing
regulation of electric generation by the 1935 Act.
Competition in the wholesale electric markets in the United
States was enhanced by enactment of the Energy Policy Act of 1992
('EPA'). The EPA was designed, among other things, to foster
competition in the wholesale market (a) through amendments to the
1935 Act, facilitating the ownership and operation of generating
facilities by exempt wholesale generators and (b) through
amendments to the Federal Power Act, enabling the FERC under
certain conditions to order utilities which own transmission
facilities to provide wholesale transmission services for other
utilities and entities generating electric power.
On April 24, 1996, the FERC issued Orders 888 and 889
requiring all utilities subject to its regulation to file open-
access tariffs.(12) The Orders also require establishment of an
Open Access Same-time Information System ('OASIS'), an electronic
bulletin board-type system in which the transmission provider must
post information in connection with available transmission
capacity, prices and other pertinent transmission information. The
Orders further require a separation of a transmitting utility's
employees involved in transmission functions from its merchant
employees (those involved in selling power). The goal of the FERC
in issuing these Orders is to ensure that customers have the
benefit of competitively priced generation, again evidencing a
federal policy favoring competition in electric power generation.
3. Previous SEC Orders
Based upon this national policy to promote competitive energy
markets, the Commission authorized (i) Consolidated Natural Gas
Company to invest in a partnership which will buy and sell electric
power, natural gas and other fuels(13); (ii) Eastern Utilities
Associates to acquire a 30% ownership interest in a limited
liability company which will among other things buy, sell and
broker electric power(14); and (iii) Northeast Utilities' operating
utility subsidiaries and Northeast Utilities Service Company to
expand their business activities to include the marketing and
brokering of power to non-affiliates both within and outside the
operating companies' service territory.(15) The Commission also
has authorized registered gas holding companies to engage in a wide
range of gas power marketing activities in the past.(16) Finally,
a number of other registered holding companies have entered into
the power marketing business through their subsidiary exempt
wholesale generators.(17)
4. Conclusion
Overall, authorization for the New Subsidiaries to engage in
marketing of Energy Commodities will aid in the development of a
more competitive energy marketplace. Participation by power and
other energy marketers such as the New Subsidiaries will increase
the likelihood that new products and services will develop as
market needs are identified and that, as a result, customer choice
will increase. Accordingly, American should be permitted to engage
in competitive energy marketing activities through the New
Subsidiaries, which will then allow the New Subsidiaries to compete
on the same basis as other companies."
NOTES
(1) Consolidated Natural Gas Company, HCAR No. 26512 (April 30,
1995), pp. 11-12 (the 'CNG Order').
(2) HCAR No. 26313 (June 20, 1995), 60 Fed. Reg. 33642 (the
'Release'), at p. 33643.
(3) CNG Order, at p. 12.
(4) For background on the natural gas industry, see The Regulation
of Public-Utility Holding Companies, Report of the Division of
Investment Management, Securities and Exchange Commission
(June 1995), pp. 25-31 (the 'Report') and FERC Order 636
(April 8, 1992), 57 Fed. Reg. 13267, pp. 13270-13272.
(5) 50 Fed. Reg. 42408 (October 18, 1985).
(6) 57 Fed. Reg. 13267 (April 8, 1992).
(7) 57 Fed. Reg. 57952 (November 30, 1992).
(8) Id., at 57953.
(9) For background on the electric power industry, see the Report,
pp. 12-25, and FERC Order 888, 61 Fed. Reg. 21540 (April 24,
1996), pp. 21543-21550.
(10) 18 C.F.R., Pt. 292.602.
(11) P.L. 99-186 (December 18, 1985) and P.L. 99-553 (October 27,
1986).
(12) 61 Fed. Reg. 21540 and 61 Fed Reg. 21737.
(13) CNG Order.
(14) Eastern Utilities Associates, HCAR No. 26493 (March 14, 1996).
(15) Northeast Utilities Service Company, HCAR No. 26359 (August
18, 1995).
(16) Consolidated Natural Gas Co., HCAR No. 24329 (February 27,
1987); The Columbia Gas System, Inc., HCAR No. 25802 (April
22, 1993).
(17) See, e.g., CNG Power Services Corporation, 71 FERC para.
61,378 (June 21, 1995); Southern Energy Marketing, Inc., 71
FERC para. 61,376 (June 21, 1995); and Entergy Power Marketing
Corporation, 73 FERC para. 61,063 (October 12, 1995).
3. By amending and restating Item 4. Regulatory Approval:
"ITEM 4. REGULATORY APPROVAL
In addition to the Securities and Exchange Commission, the
following commissions have jurisdiction over aspects of the
proposed businesses of the New Subsidiaries:
(1) Marketing, but not brokering, of electric power at
wholesale is subject to the jurisdiction of the FERC under the
Federal Power Act;
(2) Marketing, but not brokering, of natural gas at
wholesale is subject to the jurisdiction of the FERC under the
Natural Gas Act; and
(3) Marketing and brokering of electric power at retail
is subject to the jurisdiction of the state commissions.
Transactions between APCo and the New Subsidiaries are subject
to the jurisdiction of the West Virginia Public Service Commission
('WVPSC') and State Corporation Commission of Virginia ('VSCC') and
transactions between WPCo and the New Subsidiaries are subject to
the jurisdiction of the WVPSC.
No other commissions have jurisdiction over the proposed
transactions.
An application to market electric power at wholesale will be
filed with the FERC together with a request for the waiver of
certain provisions of the Federal Power Act and the rules
thereunder. A copy will be filed by amendment as Exhibit D-1.
In 18 C.F.R. Pt. 284.402, FERC has granted to any person who
is not an interstate pipeline a blanket certificate of public
convenience and necessity authorizing the holder to make sales for
resale at negotiated rates in interstate commerce of any category
of gas that is subject to the FERC's Natural Gas Act jurisdiction.
Applications for approval of affiliate transactions will be
filed with the WVPSC and VSCC. Copies will be filed by amendment
as Exhibits D-2, D-3 and D-4, respectively."
4. By amending and restating the second paragraph of Item 5.
Procedure:
"American agrees to file the following:
(1) Quarterly, within 60 days after the end of each quarter:
(a) charter and bylaws of each New Subsidiary formed
during the quarter;
(b) a quarter-end balance sheet and three-month and
twelve-month income and cash flow statements for
each New Subsidiary;
(c) a listing of any guarantees or assumption of
liabilities by American on behalf of the New
Subsidiaries; and
(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.
5. By amending and restating Item 6. Exhibits and Financial
Statements:
"ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
Exhibit B-1 Proposed form of Service Agreement
between New Subsidiaries and AEPSC
Exhibit B-2 Proposed form of Service Agreement
between New Subsidiaries and Operating
Subsidiaries
Exhibit D-1 Application to the FERC relating to power
marketing (to be filed by amendment)
Exhibit D-2 Application of APCo to the State
Corporation Commission of Virginia (to be
filed by amendment)
Exhibit D-3 Application of APCo to the West Virginia
Public Service Commission (to be filed by
amendment)
Exhibit D-4 Application of WPCo to the West Virginia
Public Service Commission (to be filed by
amendment)
Exhibit D-5 Order of FERC relating to power marketing
(to be filed by amendment)
Exhibit D-6 Order of State Corporation Commission of
Virginia (to be filed by amendment)
Exhibit D-7 Order of West Virginia Public Service
Commission as to APCo (to be filed by
amendment)
Exhibit D-8 Order of West Virginia Public Service
Commission as to WPCo (to be filed by
amendment)
Exhibit F Opinion of Counsel
Exhibit G Proposed Form of Notice (previously
filed)
It is believed that financial statements are not necessary or
relevant to the disposition of this proceeding."
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 their behalf by the undersigned
thereunto duly authorized.
AMERICAN ELECTRIC POWER COMPANY, INC.
AMERICAN ELECTRIC POWER SERVICE CORPORATION
APPALACHIAN POWER COMPANY
COLUMBUS SOUTHERN POWER COMPANY
KENTUCKY POWER COMPANY
KINGSPORT POWER COMPANY
INDIANA MICHIGAN POWER COMPANY
OHIO POWER COMPANY
WHEELING POWER COMPANY
By /s/ A. A. Pena
Treasurer
Dated: May 15, 1996
Exhibit B-1
AGREEMENT BETWEEN
AMERICAN ELECTRIC POWER SERVICE CORPORATION
and
____________________________
THIS AGREEMENT, made and entered into as of ________________,
by and between AMERICAN ELECTRIC POWER SERVICE CORPORATION, a
corporation organized under the laws of the State of New York
(hereinafter sometimes referred to as "Service Company") and
____________________, a corporation organized under the laws of
the State of __________ (hereinafter sometimes referred to as
"Client Company").
W I T N E S S E T H :
WHEREAS, both the Service Company and the Client Company are
associate companies in the American Electric Power System
(hereinafter called the "System"), which is comprised of American
Electric Power Company, Inc. (hereinafter called "American") and
its subsidiary companies; and the Service Company, which is a
wholly-owned subsidiary of American, is approved by the Securities
and Exchange Commission (hereinafter called the "Commission") as a
subsidiary service company pursuant to the provisions of Section 13
of the Public Utility Holding Company Act of 1935, as amended
(hereinafter called the "1935 Act"), and maintains an organization
of employees who are experienced in the problems and operations of
public utilities and related businesses, together with appropriate
facilities and equipment, through which it is prepared to furnish
services, as hereinafter provided to the Client Company and to
other member companies in the System (the Client together with such
other member companies are hereinafter referred to collectively as
"Client Companies"); and
WHEREAS, in the performance of past and future services for
the Client Companies, Service Company has acquired and will acquire
certain properties and other resources; and
WHEREAS, Client Company is authorized under the 1935 Act by
order of the Commission dated ____________________ to broker and
market energy commodities; and
WHEREAS, economies and increased efficiencies will result from
the performance by Service Company of services for Client Company
and the provision of certain property and resources to Client
Company as herein provided; and
WHEREAS, subject to the terms and conditions herein described,
Service Company is willing, upon request by Client Company, to
render such services to Client Company at cost, determined in
accordance with applicable rules, regulations and orders of the
Commission under the 1935 Act;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein, the parties hereto hereby agree as
follows:
ARTICLE I. AGREEMENT TO FURNISH SERVICES
A. Upon its receipt of Client Company's work order or other
request therefor, Service Company will, if it has or can have
available the personnel and resources needed to fill the work order
or request, furnish to Client Company upon the terms and conditions
hereinafter set forth services, for such periods and in such manner
as Client Company may from time to time request (the "Services");
provided, however, that the determination of whether Service
Company has the available personnel and resources to perform in
accordance with the work order or request will be entirely within
the discretion of Service Company, and Service Company may at its
option elect not to perform any requested Services, except that,
once having agreed to perform pursuant to a work order or request,
Service Company cannot withdraw or depart from such performance
without the consent of Client Company.
B. The provision of Services by Service Company pursuant to
this Agreement shall in all cases and notwithstanding anything
herein contained to the contrary be subject to any limitations
contained in authorizations, rules or regulations of those
governmental agencies, if any, having jurisdiction over Service
Company, Client Company, or such provision of Services.
ARTICLE II. PROVISION OF PERSONNEL
When specifically requested by Client Company, Service Company
may loan its employees to Client Company. In that event, such
loaned employees will be under the sole supervision and control of
Client Company for such period or periods of time as are necessary
to complete the work to be performed by such employees. Such
employees may be withdrawn by Service Company from tasks assigned
by Client Company only with the consent of Client Company, which
consent will not be unreasonably withheld in the event of a
demonstrable emergency requiring the use of such employees in
another capacity for Service Company. Client Company will be
responsible for the actions and activities of such employees while
engaged in the performance of the work to the same degree as though
such persons were employees of Client Company; provided that such
persons shall remain the employees of Service Company and nothing
herein shall be construed as creating the employer-employee
relationship between Client Company and such persons. Accordingly,
as part of Services, Service Company, during periods when such
employees are loaned to Client Company, will continue to provide to
such employees those same payroll, pension, savings, tax
withholding, unemployment, bookkeeping and other personnel support
services then being utilized by Service Company in connection with
compensating and benefiting such employees.
ARTICLE III. COMPENSATION OF SERVICE COMPANY
As compensation for Services actually requested by Client
Company and rendered to it by Service Company, Client Company
hereby agrees to pay to Service Company the cost of such services
computed in accordance with applicable rules and regulations
(including Rules 90 and 91 under the 1935 Act) and accounting
standards. As soon as practicable after the close of each month,
Service Company will issue to Client Company an invoice and detail
of charges, and all amounts so billed shall be paid by Client
Company within thirty days after receipt thereof. The cost of
Services to be paid by Client Company shall include direct charges
and Client Company's pro rata share of certain of Service Company's
costs, determined as set forth below:
A. Direct Charges. To the extent that the costs incurred by
Service Company in connection with Services rendered by it to
Client Company can be identified and related to a particular
transaction, direct charges will be made by Service Company to
Client Company.
B. Prorated Charges. Such costs incurred by Service Company
in connection with rendering Services to Client Company as cannot
be identified and related to a particular transaction will be
charged to Client Company in a fair and equitable manner in
accordance with the Service Company's then effective applicable
methods of allocation filed with the Commission.
ARTICLE IV. WORK ORDERS
The Services will be performed in accordance with work orders
or requests issued or made by or on behalf of Client Company and
accepted by Service Company, and all services will be assigned an
applicable work order number to enable specific work to be properly
allocated by project or other appropriate basis. Work orders shall
be as specific as practicable in defining the Services requested to
be performed. Client Company shall have the right from time to
time to amend, alter or rescind any work order, provided that (i)
any such amendment or alteration which results in a material change
in the scope of the work to be performed or equipment to be
provided is agreed to by Service Company; (ii) the costs for the
Services covered by the work order will include any expense
incurred by Service Company as a direct result of such amendment,
alteration or rescission of the work order, and (iii) no amendment,
alteration or rescission of a work order will release Client
Company from liability for all costs already incurred or contracted
for by Service Company pursuant to the work order, regardless of
whether the work associated with such costs has been completed.
ARTICLE V. LIMITATION OF LIABILITY AND INDEMNIFICATION
A. In performing the Services hereunder (except to the
extent such services are being performed by employees loaned to and
under the supervision of Client Company), Service Company will
exercise due care to assure that the Services are performed in a
workmanlike manner, meet the standards and specifications set forth
in the applicable work order or request with respect to such
services, and comply with applicable standards of law and
regulation. However, failure to meet these obligations shall in no
event subject Service Company to any claims or liabilities other
than to reperform this Service at cost so that it fully complies
with the work order, request or standard, as the case may be.
Service Company makes no other warranty with respect to its
performance of the Services, and Client Company agrees to accept
such Services without further warranty of any nature. The Client
Company shall indemnify and agree to save harmless and defend
Service Company from the payment of any sum or sums of money on
account of, or resulting from, claims or suits growing out of (i)
injuries to or the death of any person; (ii) damage to or loss of
any property; and/or (iii) other damages in any way attributable to
or arising out of the performance of any Service, whether or not
the same results or allegedly results from the claimed or actual
negligence or breach of warranty of, or willful conduct by, Client
Company or of its employees, agents or subcontractors or any
combination thereof. Further, Client Company shall indemnify and
agree to save harmless and defend Service Company (a) from any and
all liens, garnishments, attachments, claims, suits, costs,
attorneys' fees, cost of investigation and of defense resulting
from, incurred in connection with, or relating to any such claims;
(b) from the payment of any such sum or sums of money; and (c) from
the payment of any penalties, fines, damages, suits or claims (and
any liens or attachments asserted in connection therewith) arising
out of (i) any alleged or actual violation of law, court order, or
governmental agency rule or regulation committed by or existing
with respect to Client Company or its employees, agents or
subcontractors (except Service Company when not performing Services
hereunder); (ii) any alleged or actual breaches of contract by
Client Company; (iii) any claims made by or on account of any
employee, agent or subcontractor (except Service Company when not
performing Services hereunder or an employee or agent of Service
Company where such claim does not arise specifically in connection
with the performance of Services hereunder) of Client Company; or
for (iv) services or labor performed, materials, provisions or
supplies furnished or board of men which have been purchased or
allegedly contracted for by or on behalf of the Client Company, its
employees, agents or sub-contractors (except Service Company when
not performing services hereunder).
B. The Service Company shall within five business days after
it receives notice of any claims, action, damages or liability
against which it will expect to be indemnified pursuant to Article
V(A), notify Client Company of such claims, actions, damages or
liabilities. Thereafter, Client Company may at its own expense,
upon notice to Service Company, defend or participate in the
defense of such action or claim or any negotiation for settlement
of such action or claim, provided that unless Client Company
proceeds promptly and in good faith to pay or defend such action or
claim, then Service Company shall have the right (but not the
obligation), in good faith, upon ten days' notice to Client
Company, to pay, settle, compromise or proceed to defend any such
action or claim without the further participation by Client
Company. Client Company will immediately pay (or reimburse Service
Company, as the case may be) any payments, settlements,
compromises, judgments, costs or expenses made or incurred by
Service Company in or resulting from the pursuit by Service Company
of such right. If any judgment is rendered against Service Company
in any action defended by Client Company or from which Service
Company is otherwise entitled to indemnification under Article
V(A), or any lien attached to the assets of Service Company in
connection therewith, Client Company immediately upon such entry or
attachment shall pay the judgment in full or discharge any such
lien unless, at its expense and direction, appeal shall be taken
under which the execution of the judgment or satisfaction of the
lien is stayed. If and when a final and unappealable judgment is
rendered against Service Company in any such action, Client Company
shall forthwith pay such judgment or discharge such lien prior to
the time that Service Company would be legally held to do so.
C. Client Company shall maintain at all times adequate
levels of insurance to discharge financially its obligations under
this Article V.
ARTICLE VI. MISCELLANEOUS
This Agreement shall be binding upon the successors and
assigns of the parties hereto, provided that Service Company shall
not be entitled to assign or subcontract out any of its obligations
under this Agreement or under any purchase order or work order
issued hereunder without the prior written approval of Client
Company. This Agreement may not be modified or amended in any
respect except in writing executed by the parties hereto. This
Agreement shall be construed and enforced under and in accordance
with the laws of the State of Ohio. This Agreement may be executed
in counterparts, each one of which when fully executed shall be
deemed to have the same dignity, force and effect as if the
original. No provision of this Agreement shall be deemed waived
nor breach of this Agreement consented to unless waiver or consent
is set forth in writing and executed by the party hereto making
such waiver or consent.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above
written.
AMERICAN ELECTRIC POWER
SERVICE CORPORATION
By:
By:
Exhibit B-2
AGREEMENT BETWEEN
APPALACHIAN POWER COMPANY
and
__________________________
THIS AGREEMENT, made and entered into as of _________________,
by and between APPALACHIAN POWER COMPANY, a corporation organized
under the laws of the Commonwealth of Virginia (hereinafter
sometimes referred to as "Operating Company") and
_____________________, a corporation organized under the laws of
the State of __________ (hereinafter sometimes referred to as
"Client Company").
W I T N E S S E T H :
WHEREAS, both the Operating Company and the Client Company are
associate companies in the American Electric Power System
(hereinafter called the "System"), which is comprised of American
Electric Power Company, Inc. (hereinafter called "American") and
its subsidiary companies; and the Operating Company, which is a
wholly-owned subsidiary of American, is an electric utility company
within the meaning of Section 2(a)(3) of the Public Utility Holding
Company Act of 1935 (hereinafter called the "1935 Act"), and
maintains an organization of employees who are experienced in the
problems and operations of public utilities and related businesses,
together with appropriate facilities and equipment, and, in the
course of its operations as an electric utility company, has
acquired and will acquire certain properties and other resources;
and
WHEREAS, Client Company is authorized under the 1935 Act by
order of the Securities and Exchange Commission dated
_______________, to utilize those services, properties and
resources of Operating Company, as well as those provided by other
members of the American System, to sell to broker and market energy
commodities; and
WHEREAS, economies and increased efficiencies will result from
the performance by Operating Company of services for Client Company
and the provision of certain property and resources to Client
Company as herein provided; and
WHEREAS, subject to the terms and conditions herein described,
Operating Company is willing, upon request by Client Company, to
render such services and provide such property and resources to
Client Company at cost, determined in accordance with applicable
rules, regulations and orders of the Commission under the 1935 Act;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein, the parties hereto hereby agree as
follows:
ARTICLE I. AGREEMENT TO FURNISH SERVICES
A. Upon its receipt of Client Company's work order or other
request therefor, Operating Company will, if it has or can have
available the personnel and resources needed to fill the work order
or request, furnish to Client Company upon the terms and conditions
hereinafter set forth services, for such periods and in such manner
as Client Company may from time to time request (the "Services");
provided, however, that the determination of whether Operating
Company has the available personnel and resources to perform in
accordance with the work order or request will be entirely within
the discretion of Operating Company, and Operating Company may at
its option elect not to perform any requested Services, except
that, once having agreed to perform pursuant to a work order or
request, Operating Company cannot withdraw or depart from such
performance without the consent of Client Company.
B. The provision of Services by Operating Company pursuant
to this Agreement shall in all cases and notwithstanding anything
herein contained to the contrary be subject to any limitations
contained in authorizations, rules or regulations of those
governmental agencies, if any, having jurisdiction over Operating
Company, Client Company, or such provision of Services.
ARTICLE II. PROVISION OF PERSONNEL
When specifically requested by Client Company, Operating
Company may loan its employees to Client Company. In that event,
such loaned employees will be under the sole supervision and
control of Client Company for such period or periods of time as are
necessary to complete the work to be performed by such employees.
Such employees may be withdrawn by Operating Company from tasks
assigned by Client Company only with the consent of Client Company,
which consent will not be unreasonably withheld in the event of a
demonstrable emergency requiring the use of such employees in
another capacity for Operating Company. Client Company will be
responsible for the actions and activities of such employees while
engaged in the performance of the work to the same degree as though
such persons were employees of Client Company; provided that such
persons shall remain the employees of the Operating Company and
nothing herein shall be construed as creating the employer-employee
relationship between Client Company and such persons. Accordingly,
as part of Services, Operating Company, during periods when such
employees are loaned to Client Company, will continue to provide to
such employees those same payroll, pension, savings, tax
withholding, unemployment, bookkeeping and other personnel support
services then being utilized by Operating Company in connection
with compensating and benefiting such employees.
ARTICLE III. COMPENSATION OF OPERATING COMPANY
As compensation for services actually requested by Client
Company and rendered to it by Operating Company, Client Company
hereby agrees to pay to Operating Company the cost of such services
computed in accordance with applicable rules and regulations
(including Rules 90 and 91 under the 1935 Act) and accounting
standards. As soon as practicable after the close of each month,
Operating Company will issue to Client Company an invoice and
detail of charges, and all amounts so billed shall be paid by
Client Company within thirty days after receipt thereof. The cost
of Services to be paid by Client Company shall include direct
charges and Client Company's pro rata share of certain of Operating
Company's costs, determined as set forth below:
A. Direct Charges. To the extent that the costs incurred by
Operating Company in connection with Services rendered by it to
Client Company can be identified and related to a particular
transaction, direct charges will be made by Operating Company to
Client Company.
B. Prorated Charges. Such costs incurred by Operating
Company in connection with rendering Services to Client Company as
cannot be identified and related to a particular transaction will
be charged to Client Company in a fair and equitable manner.
ARTICLE IV. WORK ORDERS
The Services will be performed in accordance with work orders
or requests issued or made by or on behalf of Client Company and
accepted by Operating Company, and all services will be assigned an
applicable work order number to enable specific work to be properly
allocated by project or other appropriate basis. Work orders shall
be as specific as practicable in defining the Services requested to
be performed. Client Company shall have the right from time to
time to amend, alter or rescind any work order, provided that (i)
any such amendment or alteration which results in a material change
in the scope of the work to be performed or equipment to be
provided is agreed to by Operating Company; (ii) the costs for the
Services covered by the work order will include any expense
incurred by Operating Company as a direct result of such amendment,
alteration or rescission of the work order; and (iii) no amendment,
alteration or rescission of a work order will release Client
Company from liability for all costs already incurred or contracted
for by Operating Company pursuant to the work order, regardless of
whether the work associated with such costs has been completed.
ARTICLE V. LIMITATION OF LIABILITY AND INDEMNIFICATION
A. In performing the Services hereunder (except to the
extent such services are being performed by employees loaned to and
under the supervision of Client Company), Operating Company will
exercise due care to assure that the Services are performed in a
workmanlike manner, meet the standards and specifications set forth
in the applicable work order or request with respect to such
services, and comply with applicable standards of law and
regulation. However, failure to meet these obligations shall in no
event subject Operating Company to any claims or liabilities other
than to reperform the Services at cost so that they fully comply
with the work order, request or standard, as the case may be.
Operating Company makes no other warranty with respect to its
performance of the Services, and Client Company agrees to accept
such Services without further warranty of any nature. The Client
Company shall indemnify and agree to save harmless and defend
Operating Company from the payment of any sum or sums of money on
account of, or resulting from, claims or suits growing out of (i)
injuries to or the death of any person, (ii) damage to or loss of
any property, and/or (iii) other damages in any way attributable to
or arising out of the performance of any Service, whether or not
the same results or allegedly results from the claimed or actual
negligence or breach of warranty of, or wilful conduct by, Client
Company or of its employees, agents or subcontractors or any
combination thereof. Further, Client Company shall indemnify and
agree to save harmless and defend Operating Company (a) from any
and all liens, garnishments, attachments, claims, suits, costs,
attorneys' fees, cost of investigation and of defense resulting
from, incurred in connection with, or relating to any such claims;
(b) from the payment of any such sum or sums of money; and (c) from
the payment of any penalties, fines, damages, suits or claims (and
any liens or attachments asserted in connection therewith) arising
out of (i) any alleged or actual violation of law, court order, or
governmental agency rule or regulation committed by or existing
with respect to Client Company or its employees, agents or
subcontractors (except Operating Company when not performing
Services hereunder); (ii) any alleged or actual breaches of
contract by Client Company; (iii) any claims made by or on account
of any employee, agent or subcontractor (except Operating Company
when not performing Services hereunder or an employee or agent of
Operating Company where such claim does not arise specifically in
connection with the performance of Services hereunder) of Client
Company; or for (iv) services or labor performed, materials,
provisions or supplies furnished or board of men which have been
purchased or allegedly contracted for by or on behalf of the Client
Company, its employees, agents or sub-contractors (except Operating
Company when not performing services hereunder).
B. The Operating Company shall within five business days
after it receives notice of any claims, action, damages or
liability against which it will expect to be indemnified pursuant
to Article V(A), notify Client Company of such claims, actions,
damages or liabilities. Thereafter, Client Company may at its own
expense, upon notice to Operating Company, defend or participate in
the defense of such action or claim or any negotiation for
settlement of such action or claim, provided that unless Client
Company proceeds promptly and in good faith to pay or defend such
action or claim, then Operating Company shall have the right (but
not the obligation), in good faith, upon ten days' notice to Client
Company, to pay, settle, compromise or proceed to defend any such
action or claim without the further participation by Client
Company. Client Company will immediately pay (or reimburse
Operating Company, as the case may be) any payments, settlements,
compromises, judgments, costs or expenses made or incurred by
Operating Company in or resulting from the pursuit by Operating
Company of such right. If any judgment is rendered against
Operating Company in any action defended by Client Company or from
which Operating Company is otherwise entitled to indemnification
under Article V(A), or any lien attached to the assets of Operating
Company in connection therewith, Client Company immediately upon
such entry or attachment shall pay the judgment in full or
discharge any such lien unless, at its expense and direction,
appeal shall be taken under which the execution of the judgment or
satisfaction of the lien is stayed. If and when a final and
unappealable judgment is rendered against Operating Company in any
such action, Client Company shall forthwith pay such judgment or
discharge such lien prior to the time that Operating Company would
be legally held to do so.
C. Client Company shall maintain at all times adequate
levels of insurance to discharge financially its obligations under
this Article V.
ARTICLE VI. MISCELLANEOUS
This Agreement shall be binding upon the successors and
assigns of the parties hereto, provided that Operating Company
shall not be entitled to assign or subcontract out any of its
obligations under this Agreement or under any purchase order or
work order issued hereunder without the prior written approval of
Client Company. This Agreement may not be modified or amended in
any respect except in writing executed by the parties hereto. This
Agreement shall be construed and enforced under and in accordance
with the laws of the State of Ohio. This Agreement may be executed
in counterparts, each one of which when fully executed shall be
deemed to have the same dignity, force and effect as if the
original. No provision of this Agreement shall be deemed waived
nor breach of this Agreement consented to unless waiver or consent
is set forth in writing and executed by the party hereto making
such waiver or consent.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above
written.
APPALACHIAN POWER COMPANY
By: ____________________
_________________________
By: _____________________
Exhibit F
614/223-1632
Securities and Exchange Commission
Office of Public Utility Regulation
450 Fifth Street, N.W.
Washington, D.C. 20549
May 15, 1996
Re: American Electric Power Company, Inc. ("AEP")
SEC File No. 70-8779
Gentlemen:
Regarding the transactions proposed and described in the
Application or Declaration on Form U-1 filed by AEP with this
Commission in the captioned proceeding in connection with the
formation of one or more direct or indirect subsidiaries (the
"New Subsidiaries") to engage in the business of brokering and
marketing energy commodities, and subject to the assumptions in
the following paragraph, I am of the opinion that:
(a) all state laws applicable to the proposed formation of
the New Subsidiaries will have been complied with;
(b) the New Subsidiaries, when incorporated and organized,
will be validly organized and duly existing;
(c) stock issued by the New Subsidiaries to AEP will be
validly issued, fully paid and nonassessable, and AEP
will be entitled to the rights and privileges
appertaining thereto set forth in the charter or other
document defining such rights and privileges;
(d) AEP will legally acquire the stock issued by the New
Subsidiaries; and
(e) formation of the New Subsidiaries will not violate the
legal rights of the holders of any securities issued by
AEP or any associate company thereof.
In rendering my opinion above, I have assumed that the following
will take place:
1. due incorporation and organization of the New
Subsidiaries and appropriate action by the Board of
Directors of AEP and the New Subsidiaries with respect
to the transactions described in said Application or
Declaration;
2. appropriate action by the Securities and Exchange
Commission with respect to the formation of the New
Subsidiaries as described in said Application or Decla-
ration;
3. execution and delivery of any agreement pursuant to
which the stock will be issued; and
4. issuance of the stock of the New Subsidiaries to AEP in
accordance with the governmental and corporate
authorizations aforesaid.
I hereby consent to the filing of this opinion as an exhibit to
the above-mentioned Application or Declaration.
Very truly yours,
/s/ John M. Adams, Jr.
John M. Adams, Jr.
Counsel for
American Electric Power Company, Inc.
