File No. 70-8779
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 9
TO
FORM U-1
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APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
AEP ENERGY SERVICES, INC.
1 Riverside Plaza, Columbus, Ohio 43215
APPALACHIAN POWER COMPANY
40 Franklin Road, Roanoke, Virginia 24022
COLUMBUS SOUTHERN POWER COMPANY
215 North Front Street, Columbus, Ohio 43215
INDIANA MICHIGAN POWER COMPANY
One Summit Square, Fort Wayne, Indiana 46801
KENTUCKY POWER COMPANY
1701 Central Avenue, Ashland, Kentucky 41101
KINGSPORT POWER COMPANY
422 Broad Street, Kingsport, Tennessee 37660
OHIO POWER COMPANY
339 Cleveland Avenue, S.W., Canton, Ohio 44702
WHEELING POWER COMPANY
51 - 16th Street, Wheeling, West Virginia 26003
(Name of company or companies filing this statement
and addresses of principal executive offices)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Name of top registered holding company
parent of each applicant or declarant)
* * *
Susan Tomasky, General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
(Name and address of agent for service)
American Electric Power Company, Inc. ("American"), a holding company
registered under the Public Utility Holding Company Act of 1935 ("1935 Act"),
and American Electric Power Service Corporation, Appalachian Power Company,
Columbus Southern Power Company, Kentucky Power Company, Kingsport Power
Company, Indiana Michigan Power Company, Ohio Power Company and Wheeling Power
Company (sometimes collectively referred to herein as "Applicants") hereby amend
their Application or Declaration on Form U-1 in File No. 70- 8779 by adding the
following paragraphs under Item 1C:
1. "AEP Energy Services, Inc. ('AEPES'), an Energy-Related Company, was
incorporated and is doing business pursuant to the authority granted by
HCAR No. 26572 (September 13, 1996), HCAR No. 26583 (September 27,
1996) and HCAR No. 26713 (May 2, 1997) (collectively, the 'Orders').
Applicants now request that the Commission authorize AEPES and the New
Subsidiaries formed in accordance with the authority granted in the
Orders to broker and market Energy Commodities at wholesale and retail
in Canada.
Applicants submit that approval of this request is appropriate
in that (i) the North American energy market has already evolved into
an integrated market in terms of both physical interconnection and the
volume of cross-border electricity and gas sales; (ii) such approval
would enable AEPES and the New Subsidiaries to compete with other large
independent power and gas marketers that have already established a
presence in the Canadian market with resulting benefits for both
consumers and investors; (iii) such approval would enable Applicants to
establish a presence in the Canadian markets without the need to invest
significant sums in sources of production or supply in Canada; and (iv)
legislative and administrative actions by Congress and other U.S.
regulatory bodies, including the Energy Policy Act of 1992 ('EPAct'),
the North American Free Trade Agreement ('NAFTA'), the sharp increase
in export licenses granted by the Department of Energy ('DOE'), and
recent rulings by the Federal Energy Regulatory Commission ('FERC')
which (a) authorize Powerex and H.Q. Energy Services, Inc., affiliates
of Canadian utilities,1 to sell power at market-based rates in
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1 Federal Energy Regulatory Commission Docket Nos. ER97-
4024 and EL95-62, 80 F.E.R.C. P. 91,343 (September 24, 1997) and
ER97-851, 81 F.E.R.C. P. 61,184 (November 12, 1997). Powerex is a
subsidiary of British Columbia Hydro and Power Authority ('BC
Hydro') and H.Q. Energy Services, Inc. is a subsidiary of Hydro-
Quebec.
the U.S. and (b) condition market rate orders granted to power
marketing affiliates of Canadian utilities upon the existence of open
access to the transmission systems of such Canadian utilities. All of
these factors underscore the importance of promoting free and
unfettered competition in the North American energy market as a
national goal. Finally, Applicants believe that considerations
underlying the recent orders of the Commission authorizing subsidiaries
of registered holding companies to engage in demand-side management and
energy efficiency activities in Canada are equally applicable to the
proposal contained herein.
A. The North American Energy Market Constitutes a Single
Market.
There are few if any remaining physical barriers to
electricity and gas transactions across the U.S.-Canada
border. The electricity transmission grids in Canada and the
U.S. are interconnected at many points. Certain U.S. and
Canadian utility systems have been operated synchronously for
decades and coordinate operations and planning through
membership in regional reliability councils.2 Likewise, there
are several large natural gas pipelines between the U.S. and
Canada.3
The Western Systems Power Pool ('WSPP') is one of the best
examples of the increasingly integrated, international nature of the
North American electricity market. The WSPP functions as a marketplace
where members can trade electricity under favorable regulatory
conditions. The organization began in 1987 as an experiment involving
15 utilities in or near California. Since then, it has grown to include
over 140 members located throughout the U.S. and including Canadian
entities such as Edmonton Power, Powerex, TransAlta Utilities Corp.,
TransCanada Power Corp. and West Kootenay Power.4
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2 For example, Consumers Energy Company, Detroit Edison and
Ontario Hydro are parties to an interconnection agreement governing
the transmission of power between Canada and the U.S. In addition,
the AEP System currently delivers power to Detroit Edison for
resale to Ontario Hydro.
3 See 'International Energy Outlook 1998', Dept. of Energy,
Energy Information Admin. (April 1998), pp. 50-52.
4 See Western System Power Pool Transmission and Ancillary
Services Tariff and Revisions to WSPP Agreement to Unbundle
Transmission from Sales Prices Filed with the Federal Energy
Regulatory Commission, Dec. 30, 1996, F.E.R.C. Docket No. OA97-220-
000.
In recent years, the volume of cross-border gas and
electricity sales has grown dramatically and is projected to grow well
into the future. In 1996, the U.S. imported (mostly from Canada) 12.4%
of its total gas consumption, which is expected to increase to 15.2% by
2020 as additional pipeline capacity is constructed.5 Canadian exports
of gas to the U.S. in 1994 amounted to approximately 50% of Canada's
total domestic production, up from 28% a decade ago.6 In 1997, the U.S.
imported 46.3 billion kwhs of electricity (again, mostly from Canada)
and exported 8.8 billion kwhs. While imports are not projected to grow,
exports are expected to more than double to 21 billion kwhs by 2020.7
B. Other Energy Marketers With Which Applicants Compete Have
Already Established a Presence in Canadian and Mexican
Markets.
Many U.S. power producers and marketers have already sought
and obtained export authorizations from the DOE under Section 202(e) of
the Federal Power Act. For example, North American Energy Conservation,
Inc., USGen Power Services, L.P., CNG Energy Services Corporation,
Destec Power Services, Inc., NorAm Energy Services, Inc., Enron Power
Marketing, Inc., Calpine Power Services Company, Electric
Clearinghouse, Inc., Sonat Power Marketing L.P., Engage Energy US,
L.P., Arizona Public Service Company, Global Energy Services LLC,
Public Service of New Mexico, Inland Pacific Energy, The Utility-Trade
Corporation, Aquila Power Corporation and Tractebel Energy Marketing,
Inc. have all sought and obtained licenses to export power at specified
interconnection points. DOE also granted, with conditions, Enron Power
Marketing, Inc.'s ('Enron') request for 'blanket' authority to export
power across all interconnection points into Canada.8
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5 In 1996, the U.S. imported 2.76 trillion cubic feet (tcf)
of natural gas from Canada, which is expected to increase to 4.48
tcf by 2020. See 'Annual Energy Outlook 1998', Dept. of Energy,
Energy Information Admin. (December 1997), p. 61 and Appendix A,
Table 13.
6 See 'International Energy Outlook 1996', Dept. of Energy,
Energy Information Admin. (May 1996), p. 40.
7 'Annual Energy Outlook 1998', supra, n. 5, Appendix A,
Table 10.
8 See Enron Power Marketing, Inc., Order No. EA-115
(September 26, 1996).
Of course, power marketing does not simply involve exporting
U.S. produced power into Canada. Marketers also need the flexibility to
purchase sources of supply within Canada, either for import into the
U.S. or for resale to customers in Canada. Although AEPES and the New
Subsidiaries may, consistent with the terms of the Orders, purchase
energy supplies Canada for resale in the U.S., and may sell U.S.
produced power and gas at the Canadian border, they are restricted
under the Orders from making wholesale and retail sales in Canada. This
restriction will place AEPES and the New Subsidiaries at a competitive
disadvantage vis-a-vis other marketers, especially as deregulation of
energy markets in Canada evolves. For example, the restriction in the
Orders would presumably prevent AEPES and the New Subsidiaries from
selling U.S. produced power to a customer in Canada if the delivery
point (viz., the point where title typically passes) is on the Canadian
side of the border, and would preclude AEPES and the New Subsidiaries
from agreeing to supply all of the facilities of a 'national account'
customer (e.g., a supermarket chain) if some of those facilities are
located outside the U.S.
C. Energy Marketing Would Enable Applicants to Participate
in the North American Energy Markets Without Having to
Make any Significant Foreign Investment in Facilities.
American may, even without the need for further approval by
this Commission (except for any financing approval that may be required
by Applicants), make sales of electricity and gas in Canada at retail
through a 'foreign utility company' ('FUCO'). In fact, Applicants have
in the past investigated investment opportunities in Canada. A
significant consideration to Applicants in being able to engage in
retail energy marketing in Canada is that it may obviate the need to
make any capital investment in facilities in Canada solely for the
purpose of establishing a 'presence'.
D. Actions to Promote Energy Competition in the North
American Energy Market.
Several Canadian provinces have taken deregulation actions
that will open provincial electric markets to competition by U.S. and
other suppliers and enable Canadian producers and marketers to sell
directly to industrial customers in the U.S.9 In turn, marketers
affiliated with
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9 BC Hydro, Canada's third largest utility, has already granted open
access to its transmission network and BC Hydro and the Bonneville
Power Administration are using each other's transmission network in
pursuing large direct sales accounts. See Energy Economist, November
1996 (The Financial Times Limited).
Canadian utilities have sought approval from the FERC to charge
market-based rates in connection with their wholesale sales of
electricity in the U.S. In Energy Alliance Partnership, 73 F.E.R.C. P.
61,019 (1995), FERC, in its review of a market-based rate application
filed by a power marketer affiliated with Hydro-Quebec, determined that
it was appropriate to apply the same general standards that are applied
in similar cases to a marketer affiliated with a U.S. utility. These
standards include proof that the applicant does not have, or has
adequately mitigated, market power in generation and transmission and
may not impose other barriers to market entry. In Energy Alliance, the
applicant argued that its affiliation with a Canadian utility with an
extensive transmission network located exclusively in Canada should be
ignored for purposes of this analysis since FERC would have no
jurisdiction over the affiliate in any event. FERC rejected this
argument, although acknowledging that it would be powerless to order
open access to the Canadian utility's transmission grid. The policy
objective, as FERC stated, is not to open Canadian transmission in
order to serve Canadian load; rather, it is to ensure that other
potential suppliers to the U.S. market would have non-discriminatory
access to the Canadian affiliate's transmission. 73 F.E.R.C. at
61,030-31. On the facts of the case, FERC was not satisfied that such
non-discriminatory access to Hydro-Quebec's transmission grid
existed.10
Subsequently, FERC granted a similar market-based rate request
to a marketer affiliated with another Canadian utility (TransAlta
Utilities Corporation, located in Alberta) upon finding that
transmission grid access arrangements existing in Alberta were
sufficient to enable all potential competitors to use that transmission
system subject to the same rates, terms and conditions in order to
reach loads in the U.S. See TransAlta Enterprises Corporation, 75
F.E.R.C. P. 61,268 (1996). In addition, FERC indicated that a further
consideration in its analysis of such foreign marketer cases is whether
the affiliate's transmission arrangements in Canada would allow power
sellers in the U.S. to use the transmission system in order to reach
potential markets in Canada on a reciprocal basis.11
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10 As noted in n.1, supra, FERC subsequently has granted market-based
rate authority to another affiliate of Hydro-Quebec. 11 In Powerex,
supra, n. 1, FERC granted the market-based rate application filed by
Powerex because it was satisfied that the utility affiliate's tariffs
met FERC's non-discriminatory transmission access requirements. FERC
reiterated that, in its review of these filings, it will also seek to
assure reciprocal service into and out of Canada.
The clear implication of these market-based rate orders is
that FERC strongly favors competition on a reciprocal basis in
cross-border transactions, and that it does not believe that relevant
power markets in North America are defined by the international
boundaries.12
In another case, Enron Power Marketing, Inc. v. El Paso
Electric Company, 77 F.E.R.C. P. 61,013 (1996), FERC ordered El Paso
Electric Company to comply with its open access tariff by agreeing to
provide transmission service to Enron for two substations on the U.S.
side of the U.S.-Mexico border in order to accommodate sales of
electricity by Enron to CFE. El Paso had refused service for several
reasons, including its contention that FERC lacks authority under
Sections 205 and 206 of the Federal Power Act to order transmission of
electricity intended for consumption in a foreign country. Although
FERC rejected El Paso's argument on the narrow ground that all of the
El Paso facilities involved were on the U.S. side of the border and
hence were in 'interstate commerce', it also indicated that it did not
regard the fact that the power transmitted was intended for sale
outside the U.S. to be controlling. On the latter question, FERC
stated:
This Commission firmly believes that the cross-border electric
trade ought to be subject to the same principles of comparable
open access and non-discrimination that apply to the
interstate electric industry. Even if we do not have
jurisdiction over transmission facilities used solely for the
export of power across the international border, it would be
inconsistent with Order No. 888 and contrary to the principles
of non-discrimination contained in the Federal Power Act if
the owners of these facilities are able to block access for
competitors to the cross-border trade. 77 F.E.R.C. P.61,013 at
61,049.
As these actions demonstrate, FERC has taken a strong stand
(within the limits of its jurisdiction) to promote wholesale electric
competition in cross-border transactions. The underlying premise in all
of these actions, of course, is that the U.S. and Canadian markets
cannot be divorced from each other and that the public interest will be
served by actions designed to promote competition on both sides of the
two borders. As stated in International Energy Outlook 1998,
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12 The marketing affiliate of Ontario Hydro (Docket No. ER97-852) has a
pending application for market-based rate authority and has apparently
determined to open its transmission systems to third-party access in
order to obtain such market rate approvals.
these and similar restructuring actions 'should also serve to
integrate the U.S. and Canadian electricity markets more
closely.'13
E. The Relevance of other Legal Developments Promoting
Competition in the North American Energy Markets.
EPAct, which amended the 1935 Act by adding new Sections 32
(regarding investments in EWGs) and 33 (regarding investments in
FUCOs), expresses a clear Congressional intent to eliminate the 1935
Act as an artificial restraint in the development of international
energy markets in the name of promoting competition in the U.S.
wholesale electric market and facilitating export of U.S. expertise in
the electric and gas utility industries. Thus, a foreign corporation
can now acquire and own a wholesale electric generating subsidiary in
the U.S. without being subject to unnecessary regulation as a holding
company under the 1935 Act, and U.S. companies (including registered
holding companies) may acquire and hold electric and gas utility
subsidiaries which operate outside the U.S.14
The action requested herein would also be consistent with the
goals of increased trade between the U.S. and Canada as expressed in
NAFTA. The public policy enunciated in NAFTA encourages the reduction
of barriers to trade and the enhancement of investment opportunities
between the U.S. and Canada, to the betterment of consumers in all both
countries.15
F. The Rationale Articulated in the Commission's Orders on
D.S.M./Energy Efficiency Activities in Canada Is Equally
Applicable to Applicants' Request.
The Commission itself has previously recognized the
appropriateness of permitting a registered holding company to engage in
certain energy-related activities outside the U.S. Specifically, by
orders dated September 30, 1994 (HCAR No. 26135) and February 15, 1995
(HCAR No. 26232), the Commission
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13 'International Energy Outlook 1998', supra n. 3, p. 123.
14 Private ownership of electric generation facilities is
permitted under certain circumstances in Canada.
15 Interestingly, little consideration was given to whether
NAFTA would have a significant direct impact on electricity
transfers between the U.S. and Canada for the simple reason that
electricity transfers were already largely free of trade
impediments. See A. Gandara, 'United States-Mexico Electricity
Transfers', supra, n. 13, at 29-31.
authorized EUA Cogenex Corporation, a subsidiary of Eastern Utilities
Associates, to engage in demand-side management activities in Canada.
Similar approval was granted to HEC, Inc., a subsidiary of Northeast
Utilities (HCAR Nos. 26108 and 26335, dated August 19, 1994 and July
19, 1995, respectively). In the second EUA order, which eliminated a
revenues-based restriction on the amount of such activities that EUA
could engage in outside its sales area, the Commission held that the
provision of energy management services in Canada, including
conservation and demand-side management services, is 'closely related'
to EUA's core utility business, and that Congress, through EPAct and
other legislation, had stated that there is a 'strong national interest
in promoting energy conservation and efficiency.' Such benefits, which
the Commission concluded should not be denied to registered holding
companies, would include reduced emissions of pollutants, improved
balance of payments, and expanded jobs. (HCAR No. 26232, n. 13).
Further, the Commission found that such activities would not require
significant investment or expose EUA to greater risks.
A similar analysis would lead to the conclusion that retail
energy marketing activities of affiliates of a registered holding
company should also be allowed in Canada (subject to complying with
applicable laws of those jurisdictions). First, the Commission has
already determined in the Orders that power and energy marketing and
brokering activities of a registered holding company are
closely-related to its core utility business, even when conducted
outside its service territory, and that the risks of the business can
be managed through appropriate hedging mechanisms. See also,
Consolidated Natural Gas Co., HCAR No. 26512 (April 30, 1995). Second,
important national goals expressed in EPAct and NAFTA would be served
by allowing retail marketing activities in Canada, including the
promotion of competition in electric markets, and the expansion of
markets for U.S. produced electricity, some of which may be excess to
the needs of the U.S., which will contribute towards the positive
balance of payments. And third, marketers outside of registered holding
company systems are largely free from U.S. imposed regulatory
constraints on energy transactions in Canada. No public interest would
be served by an interpretation of the 1935 Act that would create or
impose an artificial barrier on the full participation in the North
American energy market solely by registered holding companies."
2. By adding AEP Energy Services, Inc. as a signatory 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.
AMERICAN ELECTRIC POWER SERVICE CORPORATION
AEP ENERGY SERVICES, INC.
APPALACHIAN POWER COMPANY
COLUMBUS SOUTHERN POWER COMPANY
INDIANA MICHIGAN POWER COMPANY
KENTUCKY POWER COMPANY
KINGSPORT POWER COMPANY
OHIO POWER COMPANY
WHEELING POWER COMPANY
By /s/ A. A. Pena
Treasurer
Dated: September 23, 1998
