File No. 70-8779
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 14
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
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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
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(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
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(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:
1. By amending and restating Item 1., Sections A-D, as follows:
A. New Business
American is authorized to form one or more direct or indirect nonutility
subsidiaries (the 'New Subsidiaries') to engage in the businesses of brokering
and marketing natural and manufactured gas, electric power, emission allowances,
coal, oil, refined petroleum, refined petroleum products and natural gas liquids
('Energy Commodities'). HCAR No. 26572 (September 13, 1996). The brokering
business involves arranging the sale and purchase, transportation, transmission
and storage of Energy Commodities for a commission. The marketing business
involves entering into contracts to sell, purchase, exchange, pool, transport,
transmit, distribute, store and otherwise deal in Energy Commodities. The New
Subsidiaries from time to time have an inventory of Energy Commodities; however,
they do not own or operate facilities used for the production, generation,
processing, storage, transmission, transportation, or distribution of Energy
Commodities.
The New Subsidiaries broker and market Energy Commodities to retail and
wholesale customers throughout the United States. Pursuant to HCAR No. 27062
(August 19, 1999), this Commission extended the New Subsidiaries' authority to
broker and market Energy Commodities to include Canada.
In order to manage the risk associated with brokering and marketing Energy
Commodities, the New Subsidiaries may enter into futures, forwards, swaps and
options contracts relating to Energy Commodities. See the discussion under
Section C. below. No New Subsidiary is or will be a public utility company under
the 1935 Act.
B. Service Agreements with New Subsidiaries
The New Subsidiaries have entered into Service Agreements with American
Electric Power Service Corporation ('AEPSC') and the operating company
subsidiaries of American ('Operating Subsidiaries'), pursuant to which personnel
and other resources of AEPSC and the Operating Subsidiaries are made available
to the New Subsidiaries, upon request, to support the New Subsidiaries in
connection with their authorized activities. The Service Agreements require that
AEPSC and the Operating Subsidiaries provide, account for and bill their
services to the New Subsidiaries, utilizing a work order system, on a full cost
reimbursement basis in accordance with Rules 90 and 91 under the 1935 Act. The
reimbursed cost of services identified through the work order system includes
all direct charges and a prorated share of other related costs.
The Service Agreements also provide that AEPSC and the Operating
Subsidiaries make warranties of due care and compliance with applicable laws to
the New Subsidiaries concerning the performance of the services requested, but
failure to meet these obligations does not subject them to any claim or
liability, other than to reperform the work at cost in accordance with the work
order. Likewise, AEPSC and the Operating Subsidiaries are indemnified by the New
Subsidiaries against liabilities to or claims of third parties arising out of
the performance of work on behalf of the New Subsidiaries.
Under the Service Agreements, AEPSC and each Operating Subsidiary make
available personnel or resources requested by the New Subsidiaries, if it has or
can have available such personnel or resources. AEPSC and each Operating
Subsidiary determine the availability of its personnel and resources.
The New Subsidiaries principally use the personnel and resources of AEPSC
and of the Operating Subsidiaries to broker and market Energy Commodities on
their behalf and to administer their businesses. No more than 2% of the total
employees of AEPSC and the Operating Subsidiaries have or will, at any one time,
directly or indirectly rendered or render services to the New Subsidiaries.
C. Initial Capitalization of New Subsidiaries and Guaranties by
American
As the initial capitalization, a New Subsidiary issued and sold 100 shares
of Common Stock for $100 to American. Under Rule 52, the issuance of additional
securities by the New Subsidiaries as well as their acquisition is exempt from
prior Commission approval under the 1935 Act. Rule 45(b)(4) exempts the making
of cash capital contributions to New Subsidiaries from prior Commission
approval.
By orders dated September 13, 1996 (HCAR No. 26572), September 27, 1996
(HCAR No. 26583), May 2, 1997 (HCAR No. 26713), November 30, 1998 (HCAR No.
26947) and April 7, 1999 (HCAR No. 26998), American was authorized to guarantee
through December 31, 2002 up to $200,000,000 of debt and up to $200,000,000 of
other obligations of the New Subsidiaries (collectively, the 'Guarantee
Authority'). The Guarantee Authority was expanded to permit American to
guarantee the debt and other obligations of any subsidiary, including New
Subsidiaries, acquired or established under Rule 58 or performing the
energy-related services permitted under Rule 58. Any guarantee issued by
American on behalf of the New Subsidiaries will count towards the 'aggregate
investment' permitted by Rule 58.
Debt financing of the New Subsidiaries which is guaranteed by American
will not (i) exceed a term of 15 years or (ii)(a) bear a rate equivalent to a
floating interest rate in excess of 2.0% over the prime rate, London Interbank
Offered Rate or other appropriate index, in effect from time to time or (b) bear
a fixed rate in excess of 2.50% above the yield at the time of issuance of
United State Treasury obligations of a comparable maturity. Any commitment and
other fees on the debt will not exceed 50 basis points per annum on the total
amount of debt financing.
Obligations of the New Subsidiaries (other than debt guaranteed by
American) may take the form of bid bonds or performance or other direct or
indirect guarantees of contractual or other obligations. Such arrangements may
be necessary in order for the New Subsidiaries to satisfy a customer that they
have the support for their contractual obligations.
American undertakes that it will not seek recovery through higher rates to
customers of its utility subsidiaries in order to compensate American for any
possible losses that it may sustain by its guarantee of any debt or other
obligations of the New Subsidiaries.
American now requests to increase the Guarantee Authority to (i) guarantee
debt of such subsidiaries to third parties in an amount not to exceed
$600,000,000 through June 30, 2004 and (ii) guarantee other obligations of such
subsidiaries to third parties in an amount not to exceed $600,000,000 through
June 30, 2004. Guaranties may take the form of an agreement by American to
guarantee, undertake reimbursement obligations, assume liabilities or other
obligations with respect to, or act as surety on, bonds, letters of credit,
equity commitments, performance and other obligations. The additional Guarantee
Authority sought herein is necessary because Applicants are presently
investigating several opportunities to develop and construct 'qualifying
facilities' as defined under PURPA and other similar facilities. The costs of
these projects under consideration approach $400,000,000. Applicants wish to
pursue such projects, and therefore American requests authorization to guarantee
debt and other obligations of such subsidiaries. The terms of such guarantees
will be in accordance with the terms of those previously approved in this File.
Regarding its marketing and trading of Energy Commodities, the New
Subsidiaries generally strive to match the majority of their portfolio of
contracts for sales of Energy Commodities with a portfolio of contracts for
purchases with similar terms. For instance, long-term firm sales contracts with
variable or indexed prices will be matched with long-term supply contracts with
variable or indexed prices. Financial instruments, such as futures, forwards,
swaps and option contracts, are used to reduce risk with respect to the portion
of their total sales contract portfolio which is not matched with appropriate
supply contracts.
A successful marketer of Energy Commodities must be able to manage a
'book' of contracts involving purchases, sales and trades of Energy Commodities.
The marketer seeks to hedge the risk associated with these contracts through a
combination of balanced physical purchases and sales, purchases and sales on
futures markets, or other derivative risk management tools. A successful
marketer needs a strong presence in the market for physical delivery of Energy
Commodities, as well as the capability to participate in the growing financial
market for energy-related products. In this connection, the value added by the
marketer, from the perspective of its customer, is the superior ability of the
marketer to aggregate risks so as to manage them as efficiently as possible. In
order to do this, the marketer needs to have the ability to participate in all
the energy markets, both physically and financially.
Regarding its marketing and trading of Energy Commodities, American, at
times, guarantees 'other obligations' of the New Subsidiaries. Historically,
'other obligations' have consisted of agreements with counterparties for
purchases and sales of Energy Commodities. To date, no New Subsidiary has
defaulted in any obligation and, thus, no counterparty has sought to enforce an
American guarantee resulting from a default of a New Subsidiary.
Applicants represent that the requested additional Guarantee Authority is
limited to any subsidiary acquired or established under Rule 58. Rule 58 permits
aggregate investments in Rule 58 companies to equal up to 15% of the
consolidated capitalization of the registered holding company. Pursuant to HCAR
No. 27186 (June 14, 2000), American acquired Central and South West Corporation
('CSW') (the 'Merger Order'). As of December 31, 1999, 15% of the consolidated
capitalization of American and CSW would have been $2,902,050,000, well in
excess of the $1,200,000,000 Guarantee Authority requested in this File. As of
December 31, 1999, American's and CSW's pro forma aggregate investment in Rule
58 companies was $337 million for approximately 1.7% consolidated pro forma
capitalization. If American's investment increased to $1.2 billion of guarantee
authority sought in this File, American's investments in Rule 58 companies would
be approximately 7.9% of Americans' pro forma consolidated pro forma
capitalization.1
D. 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. All applicable
conditions of Rule 53(a) are currently satisfied except for clause (1). As of
December 31, 1999, American and CSW would have had aggregate investments in EWGs
and FUCOs, on a pro forma basis, of $1,853,000,000. This investment represents
approximately 51% of $3,630,000,000, the pro forma consolidated retained
earnings of American and CSW as of December 31, 1999. However, 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. The Merger Order further authorized American to invest up to 100% of
the consolidated retained earnings of American and CSW. Although American's
aggregate investment exceeds the 50% 'safe harbor' limitation contained in Rule
53, American's aggregate investment is below the 100% limitation authorized
under the Merger Order.
As of September 30, 1997, the most recent period for which financial
statement information was evaluated in the 100% Order, American's consolidated
capitalization consisted of 47.4% common and preferred equity and 52.6% debt. As
of December 31, 1999, American's and CSW's pro forma consolidated capitalization
would have consisted of 36.6% common and 0.8% preferred equity and 62.6% debt.
The requested authorization will have no impact on American's consolidated
capitalization ratios on a pro forma basis. American believes this ratio remains
within acceptable ranges and limits. As of September 30, 1997, Standard & Poor's
rating of secured debt for American's Operating Subsidiaries was as follows:
APCo, A-; CSP, A-; I&M, BBB+; KPCo, BBB+; and OPCo, A-. As of December 31, 1999,
Standard & Poor's rating of secured debt for American's Operating Subsidiaries
was as follows: APCo, A; CSP, A-; I&M, A-; KPCo, A and OPCo, A-. As of December
31, 1999, Standard & Poor's rating of secured debt for CSW's Operating
Subsidiaries was as follows: Central Power and Light Company, A; Public Service
Company of Oklahoma, AA-; Southwestern Electric Power Company, AA-; and West
Texas Utilities Company, A. Further, American's interests in EWGs and FUCOs have
contributed positively to its consolidated earnings.
American will continue to maintain in conformity with United States
generally accepted accounting principles and make available the books and
records required by Rule 53(a)(2). American does, and will continue to, comply
with the requirement that no more than 2% of the employees of American's
operating utility subsidiaries shall, at any one time, directly or indirectly,
render services to an EWG or FUCO in which American directly or indirectly owns
an interest, satisfying Rule 53(a)(3). And lastly, American will continue to
submit a copy of Item 9 and Exhibits G and H of American's Form U5S to each of
the public service commissions having jurisdiction over the retail rates of
American's operating utility subsidiaries, satisfying Rule 53(a)(4). Rule 53(c)
is inapplicable by its terms because the proposals contained herein do not
involve the issue and sale of securities (including any guarantees) to finance
an acquisition of an EWG or FUCO.
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
($1,725,274,000) represented an increase of approximately $51,053,000 (or 3.0%)
in the average consolidated retained earnings from the previous four quarterly
periods ($1,674,221,000); and (iii) for the fiscal year ended December 31, 1999,
American did not report operating losses attributable to American's direct or
indirect investments in EWGs and FUCOs.
As noted, American was authorized to invest up to 100% of its consolidated
retained earnings in EWGs and FUCOs. 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 American, 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.
2. By adding the following statement to the end of ITEM 2.
FEES, COMMISSIONS AND EXPENSES:
"No additional expenses are expected to be incurred in connection with
this Post-Effective Amendment No. 14."
3. By filing Exhibit F-1, Opinion of Counsel herewith.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned companies have duly caused this statement to be signed on
their behalf by the undersigned thereunto duly authorized.
AMERICAN ELECTRIC POWER COMPANY, INC.
AMERICAN ELECTRIC POWER SERVICE CORPORATION
APPALACHIAN POWER COMPANY
COLUMBUS SOUTHERN POWER COMPANY
INDIANA MICHIGAN POWER COMPANY
KENTUCKY POWER COMPANY
KINGSPORT POWER COMPANY
OHIO POWER COMPANY
WHEELING POWER COMPANY
By /s/ H. W. Fayne
Vice President
Dated: August 28, 2000
Exhibit F-1
614/223-1648
Securities and Exchange Commission
Office of Public Utility Regulation
450 Fifth Street, N.W.
Washington, D.C. 20549
August 28, 2000
Re: American Electric Power Company, Inc. ("AEP")
SEC File No. 70-8779
Gentlemen:
Regarding the transactions proposed and described in the Application or
Declaration on Form U-1 filed by AEP with this Commission in the captioned
proceeding in connection with the proposed guarantees of indebtedness or other
obligations of one or more direct or indirect subsidiaries (the "New
Subsidiaries"), and subject to the assumptions in the following paragraph, I am
of the opinion that:
(a) all state laws applicable to the proposed guarantees by AEP of the
New Subsidiaries will have been complied with;
(b) AEP is validly organized and duly existing;
(c) any guarantees issued by AEP will be valid and binding obligations
of AEP enforceable in accordance with its terms;
(d) Guarantees by AEP of the New Subsidiaries will not violate the legal
rights of the holders of any securities issued by AEP or any
associate company thereof.
In rendering my opinion above, I have assumed that the following will take
place:
1. execution and delivery of any agreement pursuant to which the
guarantees will be issued; and
2. issuance of the guarantees in accordance with the governmental and
corporate authorizations aforesaid.
I hereby consent to the filing of this opinion as an exhibit to the
above-mentioned Application or Declaration.
Very truly yours,
/s/ Thomas G. Berkemeyer
Thomas G. Berkemeyer
Counsel for
American Electric Power Company, Inc.
1 Total consolidated pro forma capitalization of American and CSW (calculated
from Form 10-Ks as of December 31, 1999, excluding short-term debt and that
portion of long-term debt due within one year and after conforming adjustments)
equals $19,347,000,000.
