File No. 70-9145
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.
AEP RESOURCES, INC.
AEP RESOURCES SERVICE COMPANY
AEP ENERGY SERVICES, 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)
* * *
Susan Tomasky, General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza Columbus, Ohio 43215
Jeffrey D. Cross, General Counsel
AEP RESOURCES, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Names and addresses of agents for service)
American Electric Power Company, Inc., a holding company
registered under the Public Utility Holding Company Act of 1935, as
amended, and AEP Resources, Inc., a wholly-owned non-utility
subsidiary of American, hereby amend and restate their Application
or Declaration on Form U-1 in File No. 70-9145:
"ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
American Electric Power Company, Inc. ('American'), a holding
company registered under the Public Utility Holding Company Act of
1935, as amended ('1935 Act'), and AEP Resources, Inc.
('Resources'), a wholly-owned non-utility subsidiary of
American,FN1
FN1 Resources invests in exempt wholesale generators and foreign
utility companies and other independent energy projects.
request authority (i) for Resources, or a wholly-owned subsidiary,
to form a subsidiary ('Management Company') that will provide
energy services to industrial, commercial and institutional
customers; (ii) for Resources, or a wholly-owned subsidiary, to
form a subsidiary ('Capital Company') that will provide financing
for energy-related assets to customers of Management Company; (iii)
for American to guarantee the obligations of Resources; (iv) for
American or Resources to provide Management and Capital Company and
their subsidiaries with up to $250 million in guarantees through
December 31, 2002; (v) for Resources to form, and for American and
Resources to guarantee the obligations of, special purpose
subsidiaries; (vi) for Capital Company or Management Company to
form, and guarantee the obligations of, one or more subsidiaries;
(vii) for Capital Company, Management Company and their
subsidiaries to issue membership or partnership interests; and
(viii) for Capital Company and Management Company and their
subsidiaries to pay dividends out of capital or unearned surplus to
the extent permitted by applicable law.
A. Introduction.
American owns and holds all of the outstanding securities of
its subsidiary companies, including seven electric utility
companies, FN2
FN2 The seven electric utility subsidiaries in the AEP System are
Appalachian Power Company, Columbus Southern Power Company,
Indiana Michigan Power Company, Kentucky Power Company,
Kingsport Power Company, Ohio Power Company and Wheeling Power
Company (collectively, the 'Utility Subsidiaries'). American
also owns all of the common stock of AEP Generating Company,
which sells power at wholesale to various AEP System companies
and others, and minority interests in Ohio Valley Electric
Corporation and its subsidiary, Indiana Kentucky Electric
Corporation, which supply power to certain government
facilities.
a service company (American Electric Power Service Corporation
('AEPSC')), AEP Resources Service Company ('RESCo')FN3
FN3 RESCo, formerly known as AEP Energy Services, Inc., provides
a variety of services primarily to non-affiliated entities,
but also to its affiliates, in the United States and abroad.
Among the services provided by RESCo are engineering,
designing, construction and construction management,
operating, fuel management, maintenance and power plant
overhaul, and other similar kinds of managerial and technical
services.
and AEP Energy Services, Inc. ('AEPES').FN4
FN4 AEPES, formerly known as AEP Energy Solutions, Inc., initially
was formed to market power and natural gas. It is now an
energy-related company under Rule 58.
The subsidiary companies are principally engaged in the generation,
transmission, and distribution of electric power. American and all
of its subsidiaries are referred to herein as the 'AEP System'.
B. Proposed Transactions.
(1) General
Many industrial, commercial and institutional entities
have energy functions which produce (or procure) and distribute
thermal energy, electricity, fuels and other similar products to
the entity's facilities. These products then are used, among other
things, to heat or cool products, machinery and buildings, to power
machinery and lighting and for other functions in the entity's
business. The facilities used for these functions often have a
distinct physical location on the site and their staffs often are
organized separately from the rest of the site staffs.
Industrial entities have boilers to produce steam and
related fuel handling and waste disposal facilities, air
compressors, electric generators, chillers, electric substations,
tanks to store industrial gases and facilities to distribute these
products throughout the industrial facility. Commercial and
institutional entities sometimes have similar energy functions.
For example, a hospital or university complex may have a steam
plant to heat buildings, an electric generator or a central air
conditioning or chilled water facility. Sometimes these energy
facilities may serve two or more neighboring entities.
Generally, these 'Energy Facilities' include facilities
and equipment that are used by industrial, commercial and
institutional entities to produce, convert, store and distribute
(i) thermal energy products, such as process steam, heat, hot
water, chilled water, and air conditioning; (ii) electricity; (iii)
compressed air; (iv) process and potable water; (v) industrial
gases, such as nitrogen; and (vi) other similar products. Energy
Facilities also include related facilities that transport, handle
and store fuel, such as coal handling and oil storage tanks, and
facilities that treat waste for these entities, such as scrubbers,
precipitators, cooling towers and water treatment facilities.
Some Energy Facilities were placed in service in the
1950's or even earlier and are in need of significant investment to
maintain their reliability. Improvements to maintain reliability
may include replacement of key components, such as air compressors,
cooling towers, boiler sidewall or piping, pumps and turbines.
Other improvements, such as computer and control systems, can
improve operating efficiencies and provide better operating
information.
As the energy industry is changing, industrial,
commercial and institutional entities are considering how to manage
their energy functions more efficiently. Since energy management
is not their core business, many seek innovative assistance with
their energy facilities from companies whose core business is
energy. Likewise, energy companies seek to assist these
industrial, commercial and institutional companies. Duke Energy
for example has formed an industrial asset development subsidiary
which is considering acquiring, developing and operating industrial
energy assets in the United States and Canada.FN5
FN5 Electric Power Daily, August 27, 1997, p. 2.
Cinergy Corp., New Century Energies and Florida Progress Corp. have
formed a partnership to supply energy to commercial customers with
national operations.FN6
FN6 Energy Daily, September 9, 1997.
In transactions that have come before this Commission,
Scott Paper Company sold its energy complex at Scott's Mobile,
Alabama pulp, paper and tissue mill to Mobile Energy Services,
Inc., a subsidiary of Southern Company.FN7
FN7 Southern Company, HCAR No. 26185 (December 13, 1994).
The Mobile energy complex includes turbine generators, power
boilers, recovery boilers, evaporator sets, waste treatment
facilities, fuel and 'liquor' storage and station control
facilities. H. J. Heinz Company also recently outsourced its
inside the fence energy facility that provides steam, electricity
and compressed air to its manufacturing facility in Pittsburgh,
Pennsylvania to an affiliate of Duquesne Light Company.FN8
FN8 DQE, Inc., HCAR No. 26728 (June 10, 1997).
(2) The Ventures
Resources intends, through Capital Company and Management
Company (collectively, 'Ventures'), to develop a new business that
will provide energy management and capital for Energy Facilities.
Their goal is to allow a customer to focus its management and
capital on its core businesses and allow the Ventures to manage and
finance the energy requirements of the customer. As permitted by
applicable law, Management Company intends to provide Energy
Facilities Management Services, Energy Conservation Services,
Procurement Services, Other Energy Services and Incidental Services
as described below. Capital Company intends to provide lease and
other financing for the Energy Facilities of Management Company's
customers.
American will not seek recovery through higher rates to
the Utility Subsidiaries' customers in order to compensate American
for any possible losses that it may sustain on investment in
Ventures or for any inadequate returns on such investments.
Neither Management Company nor Capital Company will be a public
utility company as defined in the 1935 Act, and without further
Commission approval, neither company will undertake any activity
if, as a result, it would become a public utility company as
defined in the 1935 Act. Without further authorization of this
Commission, the Ventures will not provide their services outside
the United States.
(3) Management Company
Management Company will provide the following services:
(a) 'Energy Facility Management Services' include
the day-to-day operations, maintenance, and management, and other
technical and administrative services required to operate, maintain
and manage the Energy Facilities, as well as long-term planning and
budgeting for and evaluation of improvements to Energy Facilities.
(b) 'Energy Conservation Services' include (1)
identification (through energy audits or otherwise) of energy and
other resource (water, labor, maintenance, materials, etc.) cost
reduction or efficiency opportunities; (2) design of facility or
process modifications or enhancements to realize such
opportunities; (3) management, or direct construction or
installation, of energy conservation or efficiency equipment; (4)
training of customer personnel in the operation of equipment; (5)
maintenance of energy systems; (6) design, management or direct
construction and installation of new and retrofit heating,
ventilating, and air conditioning ('HVAC'), electrical and power
systems, motors, pumps, lighting, water and plumbing systems, and
related structures, to realize energy and other resource efficiency
goals or to otherwise meet a customer's energy-related needs; (7)
system commissioning (i.e., monitoring the operation of an
installed system to ensure that it meets design specifications);
(8) reporting of system results; (9) design of energy conservation
programs; (10) implementation of energy conservation programs; (11)
provision of conditioned power services (i.e., services designed to
prevent, control or mitigate adverse effects of power disturbances
on a customer's electrical system to ensure the level of power
quality required by the customer, particularly with respect to
sensitive electronic equipment); and (12) other similar or related
activities.
(c) 'Procurement Services' include arranging as
agent or broker for a customer to purchase electricity, natural
gas, oil, propane, and industrial gases ('Energy Commodities') and
to purchase other commodities and supplies used by or distributed
through Energy Facilities on behalf of customers of Energy
Facilities Management or Energy Conservation Services. Procurement
Services also include the purchase and sale, as principal, of
electricity and natural gas, to the extent permitted by state law
and state commission orders, and other Energy Commodities.
(d) 'Other Energy Services' include development,
design, construction, ownership, and sale of Energy Facilities and
equipment used in and improvements to Energy Facilities.
(e) 'Incidental Services' include products and
services that are incidental to Energy Facilities Management
Services, Energy Conservation Services, Procurement Services and
Other Energy Services. These incidental products and services will
not involve the manufacture of energy-consuming equipment, but be
closely related to the consumption of energy and/or the maintenance
of Energy Facilities.
All services rendered by Management Company to companies
that are not affiliates of American will be based upon the fair
market value thereof and will be subject to such other terms,
conditions and standards of performance as are negotiated on a
case-by-case basis, taking into account the kind and scope of
services involved, the duration of the contract, the levels of
warranties and indemnities that may be negotiated, and other
factors that are unique to each transaction. Payment for services
will vary by project and may include fee-for-service, fixed price,
time and materials, progress payments, turnkey payment, Capital
Company or third-party financing arrangements, performance
contracts with a savings guarantee or payment based on the energy
or other resource savings achieved, the output of equipment (for
example, steam, water, chilled water, air or heat), commissions,
and other payment structures.
Similarly, Management Company will provide such services
to any associate company in the American Electric Power System that
is an EWG, FUCO or QF at fair market prices, and requests an
exemption under Section 13(b) from the requirements of Rules 90 and
91 as applicable to such transaction in any case in which any one
or more of the following circumstances shall apply:
(1) Such entity is a FUCO, or is 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
(2) 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 within the American
Electric Power System;
(3) Such entity is a QF that 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/or (ii) to an electric
utility company not an associate company within the American
Electric Power System at the purchaser's 'avoided cost' as
determined in accordance with the regulations under the Public
Utility Regulatory Policies Act of 1978; or
(4) Such entity is an EWG or QF that 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 within the American Electric Power System.
Management Company will provide services to associate
non-utility subsidiaries in the American Electric Power System that
do not satisfy any of the above circumstances at 'cost' in
accordance with Section 13(b) of the 1935 Act and Rules 90 and 91
thereunder. The Commission previously authorized such cost and
fair market value pricing for AEP Energy Services, Inc., a wholly-
owned subsidiary of American, in American Electric Power Company,
Inc., et al., HCAR No. 26267 (April 5, 1995).
Resources will contribute equity capital to Management
Company for the purpose of providing working capital for Management
Company. Management Company may also obtain debt financing from
American, Resources or unaffiliated third parties such as
commercial banks. Loans from American or Resources to Management
Company will be made at the cost of funds incurred by American or
Resources in accordance with Rule 52.
Management Company will be staffed primarily by current
employees at the facilities managed. It is expected that initially
not more than 25 employees of AEPSC and the Utility Subsidiaries
will be transferred to Management Company. In addition, AEPSC, the
Utility Subsidiaries, RESCo, AEPES and its affiliates may provide
services or sell goods to Management Company.FN9
FN9 In accordance with Rules 87(a) and 90, services and goods
provided by AEPSC or the Utility Subsidiaries to Management
and Capital Company will be at cost. Exception is requested
from Section 13(b) of the 1935 Act for services and goods to
be provided by RESCo and AEPES at other than cost.
It is anticipated that AEPSC will provide services, such as
development, engineering, procurement, human resources, and
energy services, to Management and Capital Company.
Initially, it is not anticipated that the Utility
Subsidiaries, RESCo or AEPES will provide services to
Management and Capital Company. RESCo and AEPES will only
provide to Management or Capital Company services in which
RESCo or AEPES themselves provide substance.
If Management or Capital Company sells or licenses any
intellectual property developed by AEPSC or the Utility
Subsidiaries for their own use, Management or Capital Company
will pay the following amounts to such company: (1) 70% of the
revenues from the intellectual property until the developing
company recovers its programming and development costs; and
(2) 20% of the revenues thereafter. Intellectual property
developed by Management or Capital Company will be made
available to AEPSC and the Utility Subsidiaries without
charge, except for actual expenses incurred in connection with
making such intellectual property available. In no event will
more than 2% of the total employees of AEPSC and the Utility
Subsidiaries render services to Management Company at any one
time.
(4) Capital Company
Capital Company will offer financing for existing Energy
Facilities and improvements and provide new capital for customers
of Management Company through sale and leaseback, project financing
or other creative financing facilities. Assets financed by Capital
Company generally will be managed by Management Company. In
addition, Capital Company will make its financing services
available to customers of Management Company to assist Management
Company in connection with its program to provide energy management
and related services to its customers.
Resources will contribute the equity capital required by
Capital Company. Capital Company will obtain debt financing from
unaffiliated third parties such as commercial banks and insurance
companies and from American and Resources. Loans from American or
Resources will be made at the cost of funds incurred by American or
Resources in accordance with Rule 52.
Capital Company may have a small staff, initially less
than ten employees; Management Company will most likely provide it
with many services. In addition, AEPSC, the Utility Subsidiaries,
RESCo, AEPES and its affiliates may provide services to Capital
Company.
(5) Guarantees
American may guarantee the obligations of Resources to
invest up to $250 million in the Capital Company and up to $50
million in the Management Company.
American or Resources may also guarantee the debt and
other obligations of Capital and Management Company. Debt
financing of Capital and Management Company which is guaranteed by
American will not (i) exceed a term of 15 years or (ii) (a) bear a
floating interest rate in excess of 2% over the prime rate, London
Interbank Offered Rate or other appropriate index in effect from
time to time or (b) bear a fixed interest rate in excess of 2.5%
above the yield at the time of issuance of United States Treasury
obligations of a comparable maturity. Nondebt obligations of
Capital and Management Company which may be guaranteed by American
may take the form of bid bonds or performance or other direct or
indirect guarantees of contractual or other obligations.
American and Resources request authority to have through
December 31, 2002, up to $250 million of these guaranties
outstanding, provided that any guaranty outstanding on December 31,
2002 would expire or terminate in accordance with its terms.FN10
FN10 Authorization is not requested in this Section and the next
Section to the extent that guaranties of securities by
Resources, Capital Company or Management Company are permitted
under Rules 45(b)(7) and 52, as amended in HCAR No. 26826.
These guarantees are in addition to those authorized in the Orders
dated May 2, 1997 (HCAR No. 26713) and May 10, 1996 (HCAR No.
26516).
(6) Additional Subsidiaries
Resources may form special purpose subsidiaries to hold
its interests in Management Company and Capital Company. American
and Resources may guarantee the obligations of these subsidiaries
to the extent that Resources is authorized to participate in the
transactions described in this proceeding and American is
authorized to guarantee the these obligations of Resources.
From time to time it may be advantageous for Capital
Company or Management Company to form subsidiaries to undertake one
or more of the activities described herein. These subsidiaries may
be organized (i) in order to facilitate the making of proposals to
a prospective customer; or (ii) after the award of a bid proposal,
in order to facilitate closing on the purchase or financing of the
underlying assets; or (iii) at any time after the consummation of
a transaction in order, among other things, to comply with
applicable federal or state laws; or (iv) as part of tax planning,
to limit exposure to U.S. and state taxes; or (v) for other lawful
business purposes. American, Resources, Capital Company and
Management Company may guarantee the debt and other obligations of
these subsidiaries. In addition, Management Company, Capital
Company, AEPSC, the Utility Subsidiaries, RESCo, AEPES and its
affiliates may provide services to their special purpose
subsidiaries.
(7) Issuance of Membership Interests
It is anticipated that Capital Company and Management
Company will be limited liability companies which will issue
membership interests to Resources. In addition, subsidiaries of
Capital Company or Management Company may be limited liability
companies or partnerships which will issue membership or
partnership interests. Capital Company, Management Company and
their subsidiaries request authority to issue membership or
partnership interests, as the case may be.
The Management Company Operating Agreement will provide
for initial contributions by the members to the Management Company
of $1,000 and such additional amounts as may determined by the
Management Committee. The Capital Company Operating Agreement will
provide for initial contributions by the members to the Capital
Company of $1,000 and such additional amounts as may determined by
the Management Committee. Membership interests may be issued to
third parties by Management or Capital Company on terms to be
agreed by the members. Membership or partnership interests may be
issued by subsidiaries of Management or Capital Company on terms to
be decided.
(8) Dividends Out of Capital
Rule 46 under the 1935 Act prohibits subsidiaries of
registered holding companies, including Management Company, Capital
Company and their subsidiaries, from declaring or paying dividends
out of capital or unearned surplus. It is requested that
Management Company, Capital Company and their subsidiaries be
authorized to declare and pay dividends to their parent companies
from time to time out of capital or unearned surplus to the extent
permitted by applicable law.FN11
FN11 This authorization will not apply if any company becomes a
'public utility' as defined in the 1935 Act.
It is expected that situations will arise where
Management Company, Capital Company or one or more of their
subsidiaries will have unrestricted cash available for distribution
in excess of current and retained earnings. Consequently, in these
situations the declaration and payment of a dividend would have to
be charged, in whole or in part, to capital or unearned surplus.
One such situation could result if Management Company or
Capital Company were to sell a portion of its equity in a
subsidiary to a third party for cash. It then would have
substantial unrestricted cash available for upstream distribution,
but (assuming no profit on the sale) would not have available
current earnings and therefore could not, without prior Commission
approval, declare and pay a dividend to the Parties out of such
cash proceeds.
Any dividend actually declared and paid by Management
Company, Capital Company or a subsidiary out of capital or unearned
surplus pursuant to the authority requested herein will conform to
applicable law of the respective company's jurisdiction of
organization and applicable covenant restrictions in loan or other
financing agreements.
The ability of these companies to use distributable cash
to pay dividends ultimately to Resources will benefit the American
System by enabling Resources to dividend the cash to AmericanFN12
FN12 Resources has authority to declare and pay dividends out of
capital or unearned surplus. HCAR No. 26760 (September 18,
1997).
or to apply such amounts to the reduction or refinancing of
outstanding bank borrowings and to fund operations of other
American subsidiaries. In addition, since Management Company,
Capital Company and their subsidiaries will be engaged in
activities described in this Application, the payment of dividends
out of capital or unearned surplus by these American direct and
indirect subsidiaries will not adversely affect the financial
integrity of the American System or jeopardize the working capital
of American's Utility Subsidiaries within the contemplation of
Section 12(c) of the 1935 Act.
C. Compliance with Rule 54.
Rule 54 provides that in determining whether to approve
certain transactions other than those involving an exempt wholesale
generator ('EWG') or a foreign utility company ('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. As set forth below,
all applicable conditions of Rule 53(a) are currently satisfied and
none of the conditions set forth in Rule 53(b) exist or will exist
as a result of the transactions proposed herein, thereby satisfying
such provision and making Rule 53(c) inapplicable.
Rule 53(a)(1). As of March 31, 1998, American, through
its subsidiary, Resources, had aggregate investment in FUCOs of
$435,146,000. This investment represents approximately 27.0% of
$1,613,592,000, the average of the consolidated retained earnings
of American reported on Forms 10-Q and 10-K for the four
consecutive quarters ended March 31, 1998.
Rule 53(a)(2). Each FUCO in which American invests 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
Utility Subsidiaries of American will, at any one time, directly or
indirectly, render services to any FUCO.
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 Utility 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 ($1,613,592,000)
represented an increase of approximately $73,152,000 (or 4.7%) in
the average consolidated retained earnings from the previous four
quarterly periods ($1,540,440,000); and (iii) for the fiscal year
ended December 31, 1997, American did not report operating losses
attributable to American's direct or indirect investments in EWGs
and FUCOs.
American was authorized to invest up to 100% of its
consolidated retained earnings in EWGs and FUCOs (HCAR No. 26864,
April 27, 1998) (the '100% Order') in File No. 70-9021. In
connection with its consideration of American's application for the
100% Order, the Commission reviewed American's procedures for
evaluating EWG or FUCO investments. Based on projected financial
ratios and on procedures and conditions established to limit the
risks to American involved with investments in EWGs and FUCOs, the
Commission determined that permitting American to invest up to 100%
of its consolidated retained earnings in EWGs and FUCOs would not
have a substantial adverse impact upon the financial integrity of
the AEP System, nor would it have an adverse impact on any of the
Utility Subsidiaries or their customers, or on the ability of state
commissions to protect the Utility Subsidiaries or their customers.
Since similar considerations are involved hereunder with respect to
Rule 54, Applicants should not be required to make subsequent Rule
54 filings once American's aggregate investment in EWGs and FUCOs
exceeds 50% of its consolidated retained earnings.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
(a) Sections 9(a) and 10 may apply to the acquisition by
Resources of Capital Company's and Management Company's securities
and to the proposed businesses of Capital Company and Management
Company as discussed below.
(b) Sections 6, 7 and 12(b) and Rule 45 thereunder may apply
to the proposed guarantee by American of the obligations of
Resources and by American or Resources of the debt and other
obligations of Capital and Management Company.
(c) Sections 9(a) and 10 may apply to the formation by
Resources, Capital Company and Management Company of subsidiaries.
Sections 6, 7 and 12(b) and Rule 45 thereunder may apply to the
proposed guarantee by Resources, Capital Company and Management
Company of the debt and other obligations of their subsidiaries.
(d) Sections 6(a) and 7 and Rule 52 may apply to the sale of
securities by Resources, Capital Company, Management Company and
their subsidiaries. Under Rule 52(b), the issuance of common
stock, preferred stock and indebtedness by Resources, Capital
Company and Management Company and their subsidiaries as well as
their acquisition by Resources, Capital Company or Management
Company is exempt from prior Commission approval under the 1935
Act. Rule 45(b)(4) exempts the making of cash capital
contributions from prior Commission approval. Resources does not
expect to invest more than $250 million in Capital Company or more
than $50 million in Management Company, either by acquisition of
securities or making capital contributions, both of which are
exempt from Commission approval under Rules 45(b)(4) and 52.
(e) Section 12(c) and Rule 46 may apply to dividends out of
capital or unearned surplus. The Commission has recently issued
orders authorizing the payment of dividends out of capital or
unearned surplus under circumstances substantially similar to those
proposed herein. See GPU International, Inc., et al., HCAR No.
26678, February 28, 1997; The Southern Company, et al., HCAR No.
26543, July 17, 1996; Cinergy Corp., et al., HCAR No. 26719, May
22, 1997.
To the extent that the proposed transactions are considered by
the Commission to require authorization, approval or exemption
under any section of the 1935 Act or provision of the rules or
regulations other than those specifically referred to herein,
request for such authorization, approval or exemption is hereby
made.
LEGAL ANALYSIS UNDER SECTIONS 9 AND 10
Unless approved by the Commission under Section 10 of the 1935
Act, it is unlawful under Section 9(a)(1) '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.' Resource's proposed initial
investment in Management Company and in Capital Company constitutes
an acquisition by American of 'any securities' or 'any other
interest in any business' within the meaning of Section 9(a)(1) of
the 1935 Act, and therefore Commission approval is required.
Under Section 10(a) of the 1935 Act, a company may apply to
the Commission for approval of such an acquisition. Section 10(b)
provides, in part, that the Commission shall approve the
acquisition unless it finds that the acquisition will be
detrimental to the public interest or the interest of investors or
consumers or the proper functioning of the holding company system.
Notwithstanding Section 10(b), Section 10(c)(1) directs the
Commission not to approve 'an acquisition of securities or utility
assets, or of any other interest, which is...detrimental to the
carrying out of the provisions of Section 11.' Section 11(b)(1) in
turn, directs the Commission:
To require...that each registered holding company, and
each subsidiary company thereof, shall take such action
as the Commission shall find necessary to limit the
operations of the holding-company system of which such
company is a part to a single integrated public-utility
system, and to such other businesses as are reasonably
incidental, or economically necessary or appropriate to
the operations of such integrated public-utility system.
Section 11(b)(1) further provides:
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 [non-utility] 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....
These two sentences are known as the 'other business' clauses of
Section 11(b)(1). The Commission has long interpreted Section
11(b)(1) to permit the retention of non-utility interests upon an
affirmative showing of an 'operating or functional relationship'
between the non-utility business and the operations of the
integrated utility business of the holding company system.FN13
FN13 See generally Michigan Consolidated Gas Co., 44 SEC 361
(1970), aff'd, 444 F.2d 913 (D.C. Cir. 1971).
The Commission consistently has held the promotion and sale of
various energy management and financing services like those
proposed by Management Company and Capital Company are functionally
related to the operations of utility holding company systems under
the standards of Section 11 of the 1935 Act.FN14
FN14 AEP Energy Services, Inc., HCAR No. 26267 (April 5, 1995);
Cinergy Solutions, HCAR No. 26662 (February 7, 1997);
Northeast Utilities, HCAR No. 25114-A (July 27, 1990), HCAR
No. 25900 (September 30, 1993) and HCAR No. 26564 (August 28,
1996); General Public Utilities Corporation, HCAR No. 26556
(August 16, 1996); and American Electric Power Company, HCAR
Nos. 26572 (September 13, 1996) and 26583 (September 27,
1996).
These activities benefit the holding company system by tending to
increase sales of its energy and energy-related services. Such
activities are closely related to the core utility businessFN15
FN15 See Eastern Utilities Associates, HCAR No. 26232 (February 15,
1995).
and support national policies to promote efficient and competitive
energy markets.FN16
FN16 Consolidated Natural Gas Company, HCAR No. 26512 (April 30,
1996). See also Eastern Utilities Associates, HCAR No. 26232
(February 15, 1995) (strong national interest in promoting
energy conservation and efficiency).
A. Management Company.
As described under Item 1 of this Application, Management
Company expects to provide Energy Facility Management Services,
Energy Conservation Services, Procurement Services, and Other
Energy Services.
(1) Energy Facilities Management
It has been clearly established that operation,
maintenance, management, procurement and other services required to
operate and maintain electric generation, transmission or
distribution facilities are functionally related to a registered
electric holding company's core business. See e.g. AEP Energy
Services, Inc. (now known as RESCo), HCAR No. 26267 (April 5,
1995), in which RESCo was authorized to provide project
development, engineering, design, construction and construction
management, operating, fuel management, maintenance and power plant
overhaul, and other similar kinds of managerial and technical
services to Power Projects which included projects relating to the
generation, transmission and distribution of electric power. See
also Entergy Corporation, HCAR No. 26322 (June 30, 1995) and
Southern Company, HCAR No. 26212 (December 30, 1994).
In Cinergy Solutions, HCAR No. 26662 (February 7, 1997),
the Commission authorized asset management of non-electric energy
facilities, such as steam, chillers, i.e., refrigeration and
coolant equipment, HVAC and lighting systems.FN17
FN17 In a separate proceeding, subsidiaries of Cinergy also were
permitted to engage in the district heating and cooling
business in the Cincinnati metropolitan area, noting among
other things that heating and cooling systems use skills and
expertise developed by Cinergy in its core business. Cinergy
Corp., HCAR No. 26474 (February 20, 1996). In Northeast
Utilities, HCAR No. 25900 (September 30, 1993), energy
management services were expanded to include the
identification of energy and other resource cost reduction
opportunities and the design and installation of facilities or
systems for such purposes, including heating, cooling, water
and plumbing systems.
The Commission has recognized these decisions by including in
activities permitted by an energy-related company under Rule 58
'the production, conversion, sale and distribution of thermal
energy products, such as process steam, heat, hot water, chilled
water, air conditioning, compressed air and similar products'.
The Commission also has recognized that some companies
wish to utilize the expertise of energy companies, including
registered holding company systems, in managing their existing
energy complexes. In Southern Company, HCAR No. 26185 (December
13, 1994), the Commission authorized a subsidiary of Southern
Company to purchase the interest of Scott Paper Company in an
energy and recovery complex at Scott's Mobile Alabama pulp, paper
and tissue mill. The principal components of the complex were
turbine generators, power boilers, recovery boilers, evaporator
sets, waste treatment facilities, fuel and 'liquor' storage and
station control facilities. The Southern Company subsidiary then
supplied steam and electric power to the mills.
The proposed Energy Facility Management Services are the
same types of services as authorized in the Orders described above,
i.e., those required to operate, maintain and manage Energy
Facilities. Similar to these Orders, Energy Facilities include
those that not only produce, convert, store and distribute thermal
energy products, electricity and water, but also include compressed
air, industrial gases and other similar products which are not
explicitly mentioned in the above Orders. The predominant focus of
Energy Facility Management Services is not only management of
thermal energy and electricity, but also includes compressed air,
water, industrial gases and other similar products. Customers
often manage these products together with their thermal energy and
electricity. Unless Management Company is permitted to manage all
of a customer's commonly managed products and services, it will be
disadvantaged in competition. Customers will look to other energy
services providers which are willing and able to manage all of
these functions. As a result, Management Company should be
authorized to provide Energy Facilities Management Services.
(2) Energy Conservation Services
The scope of Energy Conservation Services, as described
in detail above, is based on the well-established formulation under
which the Commission authorized HEC Inc., a nonutility subsidiary
of Northeast Utilities, to engage in energy management services.
See Northeast Utilities, HCAR No. 25114-A (July 27, 1990), HCAR No.
25900 (September 30, 1993) and HCAR No. 26564 (August 28,
1996).FN18
FN18 The Commission initially limited the revenues from energy
management services from outside New England and New York to
less than the revenues from inside the area. In 1995, the
Commission removed this limitation. Northeast Utilities, HCAR
No. 26335 (July 19, 1995). See also Eastern Utilities
Associates, HCAR No. 26232 (February 15, 1995).
The Commission recently authorized nonutility subsidiaries of
Cinergy Corp. and General Public Utilities Corporation to engage in
these precise activities. Cinergy Corp., HCAR No. 26662 (February
7, 1997) and General Public Utilities Corporation, HCAR No. 26556
(August 16, 1996). The Commission has also authorized nonutility
subsidiaries of Eastern Utilities Associates and Entergy
Corporation to engage broadly in energy management services.
Eastern Utilities Associates, HCAR Nos. 24273 (December 19, 1986)
and 26546 (July 25, 1996) and Entergy Corp., HCAR No. 25718
(December 28, 1992).
(3) Procurement Services
In Consolidated Natural Gas Company, HCAR No. 26512
(April 30, 1996), the Commission determined a nonutility subsidiary
of a registered gas holding company could be authorized to broker
and market electric power and other fuels. Subsequently, the
Commission authorized the nonutility subsidiaries of registered
electric holding companies to broker and market electric power,
natural gas and other fuels. See e.g. American Electric Power
Company, HCAR Nos. 26572 (September 13, 1996) and 26583 (September
27, 1996). See also Rule 58 (b)(v). Procurement of these
commodities on behalf of customers forms the focus of the
Procurement Services. As in the case of Energy Facilities
Management Services, however, the scope of procurement activities
must include all those that a customer views as reasonable to
procure through its energy function. Consequently, the procured
commodities include industrial gases, water and other commodities
and supplies used by or distributed through Energy Facilities.
(4) Other Energy Services
Other Energy Services include various services for Energy
Facilities that are not included in Energy Facilities Management
Services. The Commission has repeatedly authorized nonutility
subsidiaries of registered electric companies to engage in these
types of services. See e.g. AEP Energy Services, Inc. (now known
as RESCo), HCAR No. 26267 (April 5, 1995), Entergy Corporation,
HCAR No. 26322 (June 30, 1995) and Southern Company, HCAR No. 26212
(December 30, 1994).
(5) Incidental Services
Incidental Services are identical to those recently
authorized by the Commission. See Consolidated Natural Gas
Company, HCAR No. 26757 (August 27, 1997).
B. Capital Company.
Capital Company will provide financing, including the purchase
and leasing, of Energy Facilities to customers of Management
Company. The Commission has authorized several financing or
leasing subsidiaries of registered holding companies.
In 1985, the Commission authorized Central and South West
Corporation to acquire CSW Leasing in order to invest up to $250
million in the equity of leveraged leases of equipment other than
utility assets. The Commission found that CSW's attempt to reduce
its tax liability was in the ordinary course of business for a
registered holding company and so permitted the investment under
Section 9(A)(3). Central and South West Corp., HCAR No. 23578
(January 22, 1985).FN19
FN19 In 1985, the Commission also authorized CSW to acquire CSW
Credit which would engage in factoring accounts receivable for
associate and nonassociate companies. Central and South West
Corp., HCAR No. 23767 (July 19, 1985). The Commission limited
CSW Credit's acquisition of nonassociate utility receivables
so that the outstanding amount of nonassociate receivables was
less than the outstanding amount of associate utility
receivables. Central and South West Corp., HCAR No. 25995
(March 2, 1994). In 1995, the Commission determined that this
type of limitation was not relevant to the provision of energy
management services, because the latter were closely related
to the core business of the utility. Eastern Utility
Associates, HCAR No. 26232 (February 15, 1995). Similarly,
this limitation is not needed for Capital Company because its
financing will support the provision of Energy Facilities
Management Services which are closely related to American's
core utility business.
More recently, registered companies have sought Commission
approval to finance the sales of goods or services to customers and
to more broadly finance customers' businesses. Cinergy Solutions
was authorized to finance, subject to an investment limit of $100
million, (1) goods and services provided by Cinergy Solutions to
customers and (2) energy-related equipment for Cinergy's electric
and gas customers. Its customer financing may take the form of
loans, installment purchases, operating or finance lease
arrangements and loan guarantees. Cinergy Corp., HCAR No. 26662
(February 7, 1997).FN20
FN20 Cinergy Solutions was also authorized to own qualifying
facilities and facilities used for the production, conversion
and distribution of thermal energy products. Although they
are not owners, Management Company and Capital Company will
provide two key functions of ownership - managing and
financing the facilities. See also The Southern Company, HCAR
No. 26185 (December 13, 1994) (approval to acquire energy
island inside integrated paper mill).
See also Consolidated Natural Gas Company, HCAR No. 26234 (February
23, 1995), authorizing CNG Financial Services to finance the sales
of standard appliances, equipment to promote new technologies, and
equipment that enables the use of gas or electricity as an
alternate fuel to customers of its gas utility affiliates in an
aggregate amount up to $25 million.FN21
FN21 The Commission said that the total dollar value of loans in
the states not served by CNG local distribution companies
could not exceed the total dollar value of loans in the four
states served by the local distribution companies. This
geographic restriction is not relevant to Capital Company
because CNG Financial Services was authorized to provide loans
even to those customers which purchased gas indirectly from
its gas pipeline subsidiary. Capital Company seeks to finance
only direct customers of Management Company.
* * *
In addition to satisfying Commission precedent, the Ventures
provide an important opportunity for American in the rapidly
changing energy markets in the United States. It allows American
to assist significant customers in meeting important objectives
with respect to their energy assets. Offering energy management
services, including the financing, will also attract new customers
and increase loyalty from existing customers. Finally, the
proposed activities will offer an opportunity for additional
earnings in what will be a highly competitive deregulated power
market.
The proposed investment in the Ventures will not have an
adverse impact on any of American's Utility Subsidiaries or their
respective customers. No Utility Subsidiary will owe indebtedness
or extend credit or sell or pledge its assets directly or
indirectly to the Ventures and any losses that may be incurred by
the Ventures will have no effect on domestic rates of any Utility
Subsidiary (because of American's and Resources' undertaking not to
seek recovery in rates).
The Ventures clearly fall within Commission precedent, will
further important business objectives of American and will not harm
the Utility Subsidiaries. Therefore, the Commission should approve
this Application.
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 January 31, 1998. American
waives any recommended decision by a hearing officer of or by any
other responsible officer of the Commission and waives the 30-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, becomes effective forthwith.
American consents 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 A-1 Operating Agreement of Capital Company
Exhibit A-2 Operating Agreement of Management Company
Exhibit F Opinion of Counsel
Exhibit G-1 Proposed form of Notice (previously filed)
It is believed that financial statements are not necessary or
relevant to the disposition of this proceeding."
2. By adding AEP Resources Service Company and AEP Energy
Services, Inc. as signatories to the Application or Declaration on
Form U-1 in this file.
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.
AEP RESOURCES, INC.
AEP RESOURCES SERVICE COMPANY
AEP ENERGY SERVICES, INC.
By_/s/ A. A. Pena___________________
Treasurer
Dated: August 20, 1998
Exhibit A-1
OPERATING AGREEMENT
OF
AEP ENERGY CAPITAL, L.L.C.
THIS OPERATING AGREEMENT (this "Agreement") of AEP Energy
Capital, L.L.C., (the "Company") dated as of the ______ day of
__________, 1998, has been entered into by AEP Resources, Inc. (the
"Member", which term shall include, as the context may require,
additional or substituted members of this limited liability
company).
ARTICLE I
FORMATION AND PURPOSES OF THE COMPANY
1.1 Formation. (a) The Members hereby organize the
Company as a limited liability company pursuant to the provisions
of the Delaware Limited Liability Company Act, 6 Delaware Code
Sections 18-101 et seq., as the same may be amended from time to
time (the "Act"). Except as expressly provided herein to the
contrary, the rights and obligations of the Members and the
administration and termination of the Company shall be governed by
the Act.
(b) The name of the company shall be "AEP Energy
Capital, L.L.C." or such other name as may determined by the Board
of Managers from time to time in compliance with applicable law;
provided that the name shall always contain the words "Limited
Liability Company" or the letters "LLC".
1.2 Purpose and Powers of the Company. The purpose of the
Company shall be to engage in any lawful business permitted by the
Act or the laws of any jurisdiction in which the Company may do
business.
1.3 Offices; Registered Agent. (a) The principal place of
business and office of the Company shall be located at, and the
Company's business shall be conducted from, Columbus, Ohio or such
other place as the Board of Managers may designate from time to
time. The Company may have other offices, either within or outside
of the State of Delaware, at such place or places as the Board of
Directors may designate from time to time.
(b) The registered office of the Company in the State of
Delaware shall be located at the following address: c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801. The name and address of the
registered agent of the Company for service of process on the
Company in the State of Delaware shall be The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801. The Members may from time to time change the
registered agent or office by an amendment to the certificate of
formation of the Company.
1.4 Fiscal Year. The "Fiscal Year" of the Company shall end
on December 31 of each year and shall include any partial fiscal
year at the beginning and at the end of the Company's life.
1.5 Members; Filings. (a) The name and business address of
the Member of the Company is set forth in Schedule A attached
hereto.
(b) Subject to the provisions and limitations set forth
in this Agreement, the Member is hereby designated as an authorized
person, within the meaning of the Act, to execute, deliver and
file, or to cause the execution, delivery and filing of, the
certificate of formation of the Company (and any amendments and/or
restatements thereof) and any other certificates, notices,
statements or other instruments (and any amendments and/or
restatements thereof) necessary or advisable for the formation,
qualification or continuation of existence of the Company in all
jurisdictions where such filings are necessary or appropriate for
the Company's conduct of its business. The Member promptly shall
execute and deliver such documents and perform such acts consistent
with the terms of this Agreement as may be reasonably necessary to
comply with the requirements of law for the formation,
qualification and continuation of existence of a limited liability
company under the laws of each jurisdiction in which the Company
shall conduct business.
1.6 Term. The term of the Company shall commence on the date
of filing of the certificate of formation of the Company in
accordance with the Act and shall terminate or dissolve in
accordance with the Act.
ARTICLE II
CAPITAL CONTRIBUTION
2.1 Capital Contribution. The Member has contributed
$__________ cash to the capital of the Company. No additional
capital contributions shall be required, but the Member may make
one or more additional capital contributions as the Member in its
sole discretion may determine. No creditor or other third party
having dealings with the Company shall have the right to enforce
the right or obligation of any Member to make capital contributions
or loans or to pursue any other right or remedy hereunder or at law
or in equity, it being understood and agreed that the provisions of
this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective
successors and permitted assigns. None of the rights or
obligations of any Member herein set forth to make capital
contributions or loans to the Company shall be deemed an asset of
the Company for any purpose by any creditor or other third party,
nor may such rights or obligations be sold, transferred or assigned
by the Company or pledged or encumbered by the Company to secure
any debt or other obligation of the Company or of any Member.
ARTICLE III
MANAGERS
3.1 General Powers. The property, affairs and business of
the Company shall be managed by the Board of Managers, and, except
as otherwise expressly provided by law, the Articles of
Organization or this Operating Agreement, all of the powers of the
Company shall be vested in such Board of Managers.
3.2 Number of Managers. The number of Managers constituting
the Board of Managers shall be at least one and no more than ten as
determined from time to time by the Board of Managers. The initial
Managers of the Company are set forth on Schedule B attached
hereto.
3.3 Election and Removal of Managers; Quorum.
(a) Managers shall be elected by the Member.
(b) Managers shall hold their offices until their
successors are elected. Any Manager may be removed from office at
any time, with or without cause, by the Member.
(c) A majority of the number of Managers elected and
serving at the time of any meeting shall constitute a quorum for
the transaction of business. The act of a majority of Managers
present at a meeting at which a quorum is present shall be the act
of the Board of Managers. Less than a quorum may adjourn any
meeting.
3.4 Meetings of Managers. Meetings of the Board of Managers
shall be held at places within or without the State of Delaware and
at times fixed by resolution of the Board of Managers, or upon call
of the Chairman of the Board of Managers or the President. The
Secretary or officer performing the Secretary's duties shall give
not less than 24 hours' notice by letter, telecopy, electronic
mail, telegraph or telephone (or in person) of all meetings of the
Board of Managers, provided that notice need not be given of
regular meetings held at times and places fixed by resolution of
the Board of Managers. Meetings may be held at any time without
notice if all of the Managers are present, or if those not present
waive notice in writing either before or after the meeting. The
notice of meetings of the Board of Managers need not state the
purpose of the meeting.
ARTICLE IV
OFFICERS
4.1 Election of Officers; Terms. The officers of the Company
shall consist of a President, one or more Vice Presidents, a
Treasurer and a Secretary. Other officers, including a Chairman of
the Board of Managers, and any assistant or subordinate officers,
may from time to time be elected by the Board of Managers. All
officers shall hold office until their successors are elected by
the Board of Managers. Any two or more offices may be combined in
the same person as the Board of Managers may determine. No officer
may act in more than one capacity where the action of two or more
officers is required. The initial officers of the Company are set
forth on Schedule B attached hereto.
4.2 Removal of Officers; Vacancies. Any officer of the
Company may be removed summarily with or without cause, at any
time, by the Board of Managers. Vacancies may be filled by the
Board of Managers.
4.3 Duties. The officers of the Company shall have such
duties as generally pertain to their offices, respectively, as well
as such powers and duties as are prescribed by law or as from time
to time shall be conferred by the Board of Managers. The Board of
Managers shall determine the compensation of all officers of the
Company.
4.4 President. The President shall be primarily responsible
for the implementation of policies of the Board of Managers. He or
she shall have authority over the general management and direction
of the business and operations of the Company, if any, subject only
to the ultimate authority of the Board of Managers. He or she may
sign and execute in the name of the Company, deeds, mortgages,
bonds, contracts or other instruments except in cases where the
signing and the execution thereof shall be expressly delegated by
the Board of Managers or by this Agreement to some other officer or
agent of the Company or shall be required by law otherwise to be
signed or executed. In addition, he or she shall perform all
duties incident to the office of the President and such other
duties as from time to time may be assigned to him or her by the
Board of Managers.
4.5 Vice Presidents. Each Vice President, if any, shall have
such powers and duties as may from time to time be assigned to him
or her by the President or the Board of Managers. Any Vice
President may sign and execute in the name of the Company deeds,
mortgages, bonds, contracts or other instruments authorized by the
Board of Managers, except where the signing and execution of such
documents shall be expressly delegated by the Board of Managers or
the President to some other officer or agent of the Company or
shall be required by law or otherwise to be signed or executed.
4.6 Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements
of the Company, and shall deposit all monies and securities of the
Company in such banks and depositories as shall be designated by
the Board of Managers. He or she shall be responsible (I) for
maintaining adequate financial accounts and records in accordance
with generally accepted accounting practices; (ii) for the
preparation of appropriate operating budgets and financial
statements; (iii) for the preparation and filing of all tax returns
required by law; and (iv) for the performance of all duties
incident to the office of Treasurer and such other duties as from
time to time may be assigned to him or her by the Board of Managers
or the President. The Treasurer may sign and execute in the name
of the Company deeds, mortgages, bonds, contracts or other
instruments, except in cases where the signing and the execution
thereof shall be expressly delegated by the Board of Managers or by
this Agreement to some other officer or agent of the Company or
shall be required by law or otherwise to be signed or executed.
4.7 Secretary. The Secretary shall act as secretary of all
meetings of the Board of Managers and the Member. He or she shall
keep and preserve the minutes of all such meetings in permanent
books. He or she shall see that all notices required to be given
by the Company are duly given and served; shall have custody of all
deeds, leases, contracts and other important documents; shall have
charge of the books, records and papers of the Company relating to
its organization and management as a Company; shall see that all
reports, statements and other documents required by law (except tax
returns) are properly filed; and shall in general perform all the
duties incident to the office of Secretary and such other duties as
from time to time may be assigned to the Secretary by the Board of
Managers or the President.
ARTICLE V
TAXATION
5.1 Treatment for Federal Tax Purposes. The Company intends
to be disregarded as an entity for federal tax purposes and will
elect not to be taxed as a corporation for federal income tax
purposes.
ARTICLE VI
BANK ACCOUNTS
6.1 Bank Accounts. The President and Treasurer of the
Company are authorized to open commercial banking accounts for and
in the name of the Company throughout the United States, at any
time and from time to time, and to deposit to the credit of the
Company in such banking accounts any monies, checks, drafts, orders
or other commercial paper payable to the Company, and from time to
time to withdraw all or any part of the funds on deposit in the
name of the Company by check drawn in the name of the Company and
signed by the President or Treasurer. The President and Treasurer
are authorized to designate in writing any other officers or
employees of the Company as persons authorized to endorse and
deposit to the credit of the Company in any such banking accounts
any monies, checks, drafts, orders, or other commercial paper
payable to it, and to sign checks drawn on any such banking
accounts in the name of the Company (including, in the discretion
of such officers, the authority to employ facsimile signatures in
such connection), and that such officers, or any of them are hereby
authorized to rescind any such designation so made.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification. Unless otherwise prohibited by law, the
Company shall indemnify and hold harmless the Managers, Members and
officers of the Company and the officers, directors, and employees
of the Members, and their respective successors from any claim,
loss, expense, liability, action or damage resulting from any act
or omission performed by or on behalf of or omitted by such person
in their capacity as a Manager, Member or officer of the Company,
including, without limitation, reasonable costs and expenses of
their attorneys engaged in defense of any such act or omission;
provided, however, that such persons shall not be indemnified or
held harmless for any act or omission that is in violation of any
of the provisions of this Agreement or that constitutes fraud,
gross negligence or willful misconduct. Any indemnification
pursuant to this Section VII shall be made only out of the assets
of the Company.
7.2 Expenses. To the fullest extent permitted by law,
expenses (including legal fees) incurred by any person in defending
any claim, demand, action, suit or proceeding with respect to which
such person is entitled to indemnification under this Section VII
shall, from time to time, be advanced by the Company prior to the
final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Company of an undertaking by or on behalf of
such person, secured by adequate collateral, to repay such amount
if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section VII.
<PAGE>
7.3 Insurance. The Company may purchase and maintain
insurance to indemnify it against the whole or any portion of the
liability assumed by it in accordance this Section VII and may also
procure insurance, in such amounts as the Board of Managers may
determine, on behalf of any person who is or was a Manager,
officer, employee, or agent of the Company, or is or was serving at
the request of the Company as a manager, director, officer,
employee, or agent of another company, corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise,
against any liability asserted against or incurred by him or her in
any such capacity or arising from his or her status as such,
whether or not the Company would have power to indemnify him or her
against such liability under the provisions of this Section VII.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first set forth above.
AEP RESOURCES, INC.
By:_______________________
Name:
Title:
Schedule A
List of Members
AEP Resources, Inc.
1 Riverside Plaza
Columbus, Ohio 43215
Schedule B
Board of Managers
[To be completed]
Officers
[To be completed]
Exhibit A-2
OPERATING AGREEMENT
OF
AEP ENERGY MANAGEMENT, L.L.C.
THIS OPERATING AGREEMENT (this "Agreement") of AEP Energy
Management, L.L.C., (the "Company") dated as of the ______ day of
__________, 1998, has been entered into by AEP Resources, Inc. (the
"Member", which term shall include, as the context may require,
additional or substituted members of this limited liability
company).
ARTICLE I
FORMATION AND PURPOSES OF THE COMPANY
1.1 Formation. (a) The Members hereby organize the
Company as a limited liability company pursuant to the provisions
of the Delaware Limited Liability Company Act, 6 Delaware Code
Sections 18-101 et seq., as the same may be amended from time to
time (the "Act"). Except as expressly provided herein to the
contrary, the rights and obligations of the Members and the
administration and termination of the Company shall be governed by
the Act.
(b) The name of the company shall be "AEP Energy
Management, L.L.C." or such other name as may determined by the
Board of Managers from time to time in compliance with applicable
law; provided that the name shall always contain the words "Limited
Liability Company" or the letters "LLC".
1.2 Purpose and Powers of the Company. The purpose of the
Company shall be to engage in any lawful business permitted by the
Act or the laws of any jurisdiction in which the Company may do
business.
1.3 Offices; Registered Agent. (a) The principal place of
business and office of the Company shall be located at, and the
Company's business shall be conducted from, Columbus, Ohio or such
other place as the Board of Managers may designate from time to
time. The Company may have other offices, either within or outside
of the State of Delaware, at such place or places as the Board of
Directors may designate from time to time.
(b) The registered office of the Company in the State of
Delaware shall be located at the following address: c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801. The name and address of the
registered agent of the Company for service of process on the
Company in the State of Delaware shall be The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801. The Members may from time to time change the
registered agent or office by an amendment to the certificate of
formation of the Company.
1.4 Fiscal Year. The "Fiscal Year" of the Company shall end
on December 31 of each year and shall include any partial fiscal
year at the beginning and at the end of the Company's life.
1.5 Members; Filings. (a) The name and business address of
the Member of the Company is set forth in Schedule A attached
hereto.
(b) Subject to the provisions and limitations set forth
in this Agreement, the Member is hereby designated as an authorized
person, within the meaning of the Act, to execute, deliver and
file, or to cause the execution, delivery and filing of, the
certificate of formation of the Company (and any amendments and/or
restatements thereof) and any other certificates, notices,
statements or other instruments (and any amendments and/or
restatements thereof) necessary or advisable for the formation,
qualification or continuation of existence of the Company in all
jurisdictions where such filings are necessary or appropriate for
the Company's conduct of its business. The Member promptly shall
execute and deliver such documents and perform such acts consistent
with the terms of this Agreement as may be reasonably necessary to
comply with the requirements of law for the formation,
qualification and continuation of existence of a limited liability
company under the laws of each jurisdiction in which the Company
shall conduct business.
1.6 Term. The term of the Company shall commence on the date
of filing of the certificate of formation of the Company in
accordance with the Act and shall terminate or dissolve in
accordance with the Act.
ARTICLE II
CAPITAL CONTRIBUTION
2.1 Capital Contribution. The Member has contributed
$__________ cash to the capital of the Company. No additional
capital contributions shall be required, but the Member may make
one or more additional capital contributions as the Member in its
sole discretion may determine. No creditor or other third party
having dealings with the Company shall have the right to enforce
the right or obligation of any Member to make capital contributions
or loans or to pursue any other right or remedy hereunder or at law
or in equity, it being understood and agreed that the provisions of
this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective
successors and permitted assigns. None of the rights or
obligations of any Member herein set forth to make capital
contributions or loans to the Company shall be deemed an asset of
the Company for any purpose by any creditor or other third party,
nor may such rights or obligations be sold, transferred or assigned
by the Company or pledged or encumbered by the Company to secure
any debt or other obligation of the Company or of any Member.
ARTICLE III
MANAGERS
3.1 General Powers. The property, affairs and business of
the Company shall be managed by the Board of Managers, and, except
as otherwise expressly provided by law, the Articles of
Organization or this Operating Agreement, all of the powers of the
Company shall be vested in such Board of Managers.
3.2 Number of Managers. The number of Managers constituting
the Board of Managers shall be at least one and no more than ten as
determined from time to time by the Board of Managers. The initial
Managers of the Company are set forth on Schedule B attached
hereto.
3.3 Election and Removal of Managers; Quorum.
(a) Managers shall be elected by the Member.
(b) Managers shall hold their offices until their
successors are elected. Any Manager may be removed from office at
any time, with or without cause, by the Member.
(c) A majority of the number of Managers elected and
serving at the time of any meeting shall constitute a quorum for
the transaction of business. The act of a majority of Managers
present at a meeting at which a quorum is present shall be the act
of the Board of Managers. Less than a quorum may adjourn any
meeting.
3.4 Meetings of Managers. Meetings of the Board of Managers
shall be held at places within or without the State of Delaware and
at times fixed by resolution of the Board of Managers, or upon call
of the Chairman of the Board of Managers or the President. The
Secretary or officer performing the Secretary's duties shall give
not less than 24 hours' notice by letter, telecopy, electronic
mail, telegraph or telephone (or in person) of all meetings of the
Board of Managers, provided that notice need not be given of
regular meetings held at times and places fixed by resolution of
the Board of Managers. Meetings may be held at any time without
notice if all of the Managers are present, or if those not present
waive notice in writing either before or after the meeting. The
notice of meetings of the Board of Managers need not state the
purpose of the meeting.
ARTICLE IV
OFFICERS
4.1 Election of Officers; Terms. The officers of the Company
shall consist of a President, one or more Vice Presidents, a
Treasurer and a Secretary. Other officers, including a Chairman of
the Board of Managers, and any assistant or subordinate officers,
may from time to time be elected by the Board of Managers. All
officers shall hold office until their successors are elected by
the Board of Managers. Any two or more offices may be combined in
the same person as the Board of Managers may determine. No officer
may act in more than one capacity where the action of two or more
officers is required. The initial officers of the Company are set
forth on Schedule B attached hereto.
4.2 Removal of Officers; Vacancies. Any officer of the
Company may be removed summarily with or without cause, at any
time, by the Board of Managers. Vacancies may be filled by the
Board of Managers.
4.3 Duties. The officers of the Company shall have such
duties as generally pertain to their offices, respectively, as well
as such powers and duties as are prescribed by law or as from time
to time shall be conferred by the Board of Managers. The Board of
Managers shall determine the compensation of all officers of the
Company.
4.4 President. The President shall be primarily responsible
for the implementation of policies of the Board of Managers. He or
she shall have authority over the general management and direction
of the business and operations of the Company, if any, subject only
to the ultimate authority of the Board of Managers. He or she may
sign and execute in the name of the Company, deeds, mortgages,
bonds, contracts or other instruments except in cases where the
signing and the execution thereof shall be expressly delegated by
the Board of Managers or by this Agreement to some other officer or
agent of the Company or shall be required by law otherwise to be
signed or executed. In addition, he or she shall perform all
duties incident to the office of the President and such other
duties as from time to time may be assigned to him or her by the
Board of Managers.
4.5 Vice Presidents. Each Vice President, if any, shall have
such powers and duties as may from time to time be assigned to him
or her by the President or the Board of Managers. Any Vice
President may sign and execute in the name of the Company deeds,
mortgages, bonds, contracts or other instruments authorized by the
Board of Managers, except where the signing and execution of such
documents shall be expressly delegated by the Board of Managers or
the President to some other officer or agent of the Company or
shall be required by law or otherwise to be signed or executed.
4.6 Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements
of the Company, and shall deposit all monies and securities of the
Company in such banks and depositories as shall be designated by
the Board of Managers. He or she shall be responsible (I) for
maintaining adequate financial accounts and records in accordance
with generally accepted accounting practices; (ii) for the
preparation of appropriate operating budgets and financial
statements; (iii) for the preparation and filing of all tax returns
required by law; and (iv) for the performance of all duties
incident to the office of Treasurer and such other duties as from
time to time may be assigned to him or her by the Board of Managers
or the President. The Treasurer may sign and execute in the name
of the Company deeds, mortgages, bonds, contracts or other
instruments, except in cases where the signing and the execution
thereof shall be expressly delegated by the Board of Managers or by
this Agreement to some other officer or agent of the Company or
shall be required by law or otherwise to be signed or executed.
4.7 Secretary. The Secretary shall act as secretary of all
meetings of the Board of Managers and the Member. He or she shall
keep and preserve the minutes of all such meetings in permanent
books. He or she shall see that all notices required to be given
by the Company are duly given and served; shall have custody of all
deeds, leases, contracts and other important documents; shall have
charge of the books, records and papers of the Company relating to
its organization and management as a Company; shall see that all
reports, statements and other documents required by law (except tax
returns) are properly filed; and shall in general perform all the
duties incident to the office of Secretary and such other duties as
from time to time may be assigned to the Secretary by the Board of
Managers or the President.
ARTICLE V
TAXATION
5.1 Treatment for Federal Tax Purposes. The Company intends
to be disregarded as an entity for federal tax purposes and will
elect not to be taxed as a corporation for federal income tax
purposes.
ARTICLE VI
BANK ACCOUNTS
6.1 Bank Accounts. The President and Treasurer of the
Company are authorized to open commercial banking accounts for and
in the name of the Company throughout the United States, at any
time and from time to time, and to deposit to the credit of the
Company in such banking accounts any monies, checks, drafts, orders
or other commercial paper payable to the Company, and from time to
time to withdraw all or any part of the funds on deposit in the
name of the Company by check drawn in the name of the Company and
signed by the President or Treasurer. The President and Treasurer
are authorized to designate in writing any other officers or
employees of the Company as persons authorized to endorse and
deposit to the credit of the Company in any such banking accounts
any monies, checks, drafts, orders, or other commercial paper
payable to it, and to sign checks drawn on any such banking
accounts in the name of the Company (including, in the discretion
of such officers, the authority to employ facsimile signatures in
such connection), and that such officers, or any of them are hereby
authorized to rescind any such designation so made.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification. Unless otherwise prohibited by law, the
Company shall indemnify and hold harmless the Managers, Members and
officers of the Company and the officers, directors, and employees
of the Members, and their respective successors from any claim,
loss, expense, liability, action or damage resulting from any act
or omission performed by or on behalf of or omitted by such person
in their capacity as a Manager, Member or officer of the Company,
including, without limitation, reasonable costs and expenses of
their attorneys engaged in defense of any such act or omission;
provided, however, that such persons shall not be indemnified or
held harmless for any act or omission that is in violation of any
of the provisions of this Agreement or that constitutes fraud,
gross negligence or willful misconduct. Any indemnification
pursuant to this Section VII shall be made only out of the assets
of the Company.
7.2 Expenses. To the fullest extent permitted by law,
expenses (including legal fees) incurred by any person in defending
any claim, demand, action, suit or proceeding with respect to which
such person is entitled to indemnification under this Section VII
shall, from time to time, be advanced by the Company prior to the
final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Company of an undertaking by or on behalf of
such person, secured by adequate collateral, to repay such amount
if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section VII.
<PAGE>
7.3 Insurance. The Company may purchase and maintain
insurance to indemnify it against the whole or any portion of the
liability assumed by it in accordance this Section VII and may also
procure insurance, in such amounts as the Board of Managers may
determine, on behalf of any person who is or was a Manager,
officer, employee, or agent of the Company, or is or was serving at
the request of the Company as a manager, director, officer,
employee, or agent of another company, corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise,
against any liability asserted against or incurred by him or her in
any such capacity or arising from his or her status as such,
whether or not the Company would have power to indemnify him or her
against such liability under the provisions of this Section VII.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first set forth above.
AEP RESOURCES, INC.
By:_______________________
Name:
Title:
Schedule A
List of Members
AEP Resources, Inc.
1 Riverside Plaza
Columbus, Ohio 43215
Schedule B
Board of Managers
[To be completed]
Officers
[To be completed]
Exhibit F
614/223-1632
Securities and Exchange Commission
Office of Public Utility Regulation
450 Fifth Street, N.W.
Washington, D.C. 20549
August 20, 1998
Re: American Electric Power Company, Inc. ("AEP")
SEC File No. 70-9145
Gentlemen:
In connection with the transactions proposed and described in the
Application or Declaration on Form U-1 filed with this Commission
by AEP, AEP Resources, Inc., AEP Resources Service Company and
AEP Energy Services, Inc. (collectively, the "Companies") in the
captioned proceeding, to which this opinion is an exhibit, I wish
to advise you as follows:
I am of the opinion that the Companies are corporations validly
organized and duly existing under the laws of the states in which
they were incorporated.
I am further of the opinion that, in the event that the proposed
transactions are consummated in accordance with said Application
or Declaration:
(a) all state laws applicable to the proposed transactions
will have been complied with; and
(b) consummation of the proposed transactions will not
violate the legal rights of the holders of any
securities issued by the Companies or any associate
company thereof.
I hereby consent to the filing of this opinion as an exhibit to
the above-mentioned Application or Declaration, as amended.
Very truly yours,
/s/ John M. Adams, Jr.
John M. Adams, Jr.
