File No. 70-9353
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
__________________________________
AMENDMENT NO. 1
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 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)
Applicants in File No. 70-9353 hereby amend and restate their
Application or Declaration on Form U-1 as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
American Electric Power Company, Inc. ("AEP"), is a holding
company registered under the Public Utility Holding Company Act of
1935, as amended ("1935 Act"). AEP Energy Services, Inc. ("AEPES")
and AEP Resources, Inc. ("Resources") are wholly-owned non-utility
subsidiaries of AEP. AEP, AEPES and Resources are hereinafter
sometimes collectively referred to as "Applicants".
A. Background
By orders dated September 13, 1996 (HCAR No. 26572) and
September 27, 1996 (HCAR No. 26583), AEP was authorized to form one
or more direct or indirect nonutility subsidiaries to broker and
market electric power, natural and manufactured gas, emission
allowances, coal, oil, refined petroleum products and natural gas
liquids. AEPES was incorporated as a subsidiary of AEP on
September 24, 1996 to engage in energy-related activities,
including marketing, brokering and trading of electricity, gas and
other energy commodities.
Pursuant to an order of the Commission dated June 6, 1989
(HCAR No. 24898) and supplemental orders dated October 8, 1993
(HCAR No. 25905) and February 4, 1994 (HCAR No. 25984), AEP
obtained authorization to invest in Resources, whose primary
business is development of, and investments in, exempt wholesale
generators, foreign utility companies, qualifying cogeneration
facilities and other energy-related domestic and international
investment opportunities and projects.
B. Summary of Proposed Transaction
Applicants are now seeking approval to acquire in one or more
transactions from time to time through December 31, 2003 (the
"Authorization Period"), non-utility energy assets in the United
States, including, without limitation, natural gas production,
gathering, processing, storage and transportation facilities and
equipment, liquid oil reserves and storage facilities, and
associated facilities (collectively, "Energy Assets"), that would
be incidental to and would assist Applicants and their subsidiaries
(or any other energy trading, marketing or brokering subsidiary
hereafter acquired by Applicants) in connection with energy
marketing, brokering and trading. Applicants request approval to
invest up to $800 million (the "Investment Limitation") during the
Authorization Period in such Energy Assets or in the equity
securities of companies substantially all of whose physical
properties consist of such Energy Assets.FN1
FN1 Companies whose physical properties consist of Energy Assets
may also be currently engaged in energy (gas or electric or
both) marketing or trading activities. To the extent
necessary, Applicants request authorization to continue such
activities in the event they acquire such companies.
Such Energy Assets (or equity securities of companies owning Energy
Assets) may be acquired for cash or in exchange for common stock of
AEP or other securities of Applicants or may include the assumption
of debt of the seller of such Energy Assets, or any combination of
the foregoing. If common stock of AEP is used as consideration in
connection with any such acquisition, the market value thereof on
the date of issuance will be counted against the proposed
Investment Limitation. Under no circumstances will Applicants
acquire, directly or indirectly, any assets or properties the
ownership or operation of which would cause such companies to be
considered an "electric utility company" or "gas utility company"
as defined under the 1935 Act.
As this Commission has recognized in SEI Holdings, Inc., HCAR
No. 26581 (September 26, 1996) and other decisions, a successful
marketer of energy commodities must be able to control some level
of physical assets that are incidental and reasonably necessary in
its day-to-day operations. Gas marketers today must be able to
offer their customers a variety of value-added, or "bundled"
services, such as gas storage and processing, which the interstate
pipelines offered prior to FERC Order 636.
FN2 See FERC Order 636, "Pipeline Service Obligations and
Revisions to Regulations Governing Self-Implementing
Transportation; and Regulation of Natural Gas Pipelines After
Partial Wellhead Decontrol," 57 Fed. Reg. 13270 (April 16,
1992).
In order to provide such value-added services, many of the leading
gas marketers have invested in production, gathering, processing,
and storage capacity at or near the principal gas producing areas
and hubs and market centers in the United States. Similarly, in
order to compete with both pipelines and local distribution
companies for industrial and electric utility sales, marketers must
have the flexibility to acquire or construct such supply
facilities. In fact, most of the large marketers with which AEP's
non-utility subsidiaries compete own substantial physical assets of
the type described herein.
Production, gathering, processing, and storage capacity would
support Applicants' marketing activities by providing the
opportunity to hedge the prices of future supplies of natural gas
against market fluctuations. Price volatility occurs due to
fluctuations in supply and demand over periods as short as one day
or seasonally. Storage and pipeline assets allow energy marketers
to "bank" lower cost supplies for use during periods of high
volatility or take advantage of differential price spreads between
different markets. Energy marketers with strong and balanced
physical asset portfolios are able to originate tolling or reverse
tolling of gas and electric commodities. The integration of
production, gathering, and storage assets offers energy marketers
the opportunity to provide either gas or electric products and
services to energy users, at their discretion, depending on user
requirements and needs. Finally, the physical assets underlying an
energy marketer's balance sheet may provide substantial credit
support for the financial transactions undertaken by the marketer.
It is the intention of Applicants to add non-utility,
marketing-related assets as and when market conditions warrant,
whether through acquisitions of specific assets or groups of assets
that are offered for sale, or by acquiring existing companies (for
example, other gas marketing companies which own significant
physical assets in the areas of gas production, processing,
storage, and transportation). At the current time, Applicants are
investigating several opportunities to acquire midstream and
upstream assets that are being offered for sale by integrated gas
companies and other marketers. Ultimately, it is the objective of
Applicants to control a portfolio of Energy Assets that would
provide Applicants with the flexibility and capacity to compete for
sales in all major markets in the United States and, in the future,
possibly Canada.
C. Summary of Financing Proposals
As indicated, Applicants wish to have the flexibility to
acquire Energy Assets in cash transactions or in transactions in
which the seller may wish to receive common stock or other
securities of Applicants or may include the assumption of debt of
the seller of such Energy Assets, or any combination of the
foregoing. A seller of Energy Assets may, for example, wish to
arrange a tax-free transaction in which it receives common stock of
AEP. From the Applicants' perspective, having the flexibility to
arrange a tax-free transaction may lower the seller's overall sales
price. Accordingly, in order to provide the maximum flexibility,
Applicants request authorization to issue securities in order to
finance the purchase of Energy Assets, or the purchase of the
securities of companies owning Energy Assets, by Resources, AEPES
and subsidiaries of either company, in an aggregate amount not to
exceed $800 million, such securities to consist of any combination
of (i) shares of common stock of AEP; (ii) borrowings by AEP from
banks or other financial institutions under credit lines or
otherwise; (iii) guarantees of indebtedness issued by Applicants or
any existing or new subsidiary of any Applicant; or (iv) guarantees
of securities issued by any special purpose financing subsidiary of
AEP organized specifically for the purpose of financing any such
acquisition. Borrowing would be evidenced by notes having
maturities of not greater than fifteen years from the date of issue
and an average life of not greater than ten years from the date of
issue, and bear interest at either a fixed rate not greater than
300 basis points over the yield to maturity on a U.S. Treasury note
having a remaining term approximately equal to the average life of
such note, or at a floating rate not greater than 100 basis points
over the reference rate (e.g., prime commercial lending rate,
LIBOR, etc.) used as the basis for determining such rate. Such
notes may include terms that would require the payment of a premium
upon prepayment.
In turn, to the extent not exempt under Rule 52 and/or Rule
45(b), Resources, AEPES and subsidiaries of either company, or any
special purpose financing subsidiary, also propose to issue debt or
equity securities of any type, including guarantees as appropriate,
from time to time during the Authorization Period to finance
acquisitions of Energy Assets.
Such financings in aggregate with any AEP financings for which
approval is requested above and any financings performed on an
exempt basis under Rule 52 will not exceed the Investment
Limitation; i.e., $800 million. Any debt security issued to AEP to
evidence loans by AEP will comply with the requirements of Rule
52(b)(2).
The financing authorization sought herein is in addition to
the financing authority of AEP and its subsidiaries as set forth in
the orders of the Commission dated May 4, 1998 (HCAR No. 26867) and
May 10, 1996 (HCAR No. 26516) as modified by April 27, 1998 (HCAR
No. 26864).
D. Other Matters
Pursuant to Rule 24, Applicants propose to report on a
quarterly basis the amount of Energy Assets purchased or
constructed in the preceding period and a brief description
thereof. It is also proposed that the amount, type, and, if a debt
security, the maturity and interest rate, of securities issued by
AEP, Resources, AEPES and subsidiaries of either company, or any
special purpose financing subsidiary in connection with the
acquisition of Energy Assets be made a part of such quarterly
report filed pursuant to Rule 24, and that such reporting also be
in lieu of any separate report on Form U-6B-2 for those financings
that are performed on an exempt basis under Rule 52.
E. 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 June 30, 1998, AEP, through its
subsidiary, Resources, had aggregate investment in FUCOs of
$450,133,000. This investment represents approximately 27.8% of
$1,621,199,000, the average of the consolidated retained earnings
of AEP reported on Forms 10-Q and 10-K for the four consecutive
quarters ended June 30, 1998.
Rule 53(a)(2). Each FUCO in which AEP 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 AEP will, at any one time, directly or
indirectly, render services to any FUCO.
Rule 53(a)(4). AEP has submitted and will submit a copy
of Item 9 and Exhibits G and H of AEP's Form U5S to each of the
public service commissions having jurisdiction over the retail
rates of AEP's Utility Subsidiaries.
Rule 53(b). (i) Neither AEP nor any subsidiary of AEP is
the subject of any pending bankruptcy or similar proceeding; (ii)
AEP's average consolidated retained earnings for the four most
recent quarterly periods ($1,621,199,000) represented an increase
of approximately $46,547,000 (or 3.0%) in the average consolidated
retained earnings from the previous four quarterly periods
($1,574,652,000); and (iii) for the fiscal year ended December 31,
1997, AEP did not report operating losses attributable to its
direct or indirect investments in EWGs and FUCOs.
AEP 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 AEP's application for the 100% Order, the
Commission reviewed AEP's procedures for evaluating EWG or FUCO
investments. Based on projected financial ratios and on procedures
and conditions established to limit the risks to AEP involved with
investments in EWGs and FUCOs, the Commission determined that
permitting AEP 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 AEP, nor would it have an
adverse impact on any of its utility subsidiaries or their
customers, or on the ability of state commissions to protect such
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 AEP's aggregate investment in EWGs and FUCOs exceeds
50% of its consolidated retained earnings.
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 ENERGY SERVICES, INC.
AEP RESOURCES, INC.
By_/s/ A. A. Pena______________
Treasurer
Dated: September 4, 1998
