<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------
FORM 10-K
----------------------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
<TABLE>
<CAPTION>
COMMISSION REGISTRANT; STATE OF INCORPORATION; I.R.S. EMPLOYER
FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
- ----------- ---------------------------- ------------------
<S> <C> <C>
1-3525 AMERICAN ELECTRIC POWER COMPANY, INC. 13-4922640
(A New York Corporation)
1 Riverside Plaza
Columbus, Ohio 43215
Telephone (614) 223-1000
0-18135 AEP GENERATING COMPANY 31-1033833
(An Ohio Corporation)
1 Riverside Plaza
Columbus, Ohio 43215
Telephone (614) 223-1000
1-3457 APPALACHIAN POWER COMPANY 54-0124790
(A Virginia Corporation)
40 Franklin Road, S.W.
Roanoke, Virginia 24011
Telephone (540) 985-2300
1-2680 COLUMBUS SOUTHERN POWER COMPANY 31-4154203
(An Ohio Corporation)
1 Riverside Plaza
Columbus, Ohio 43215
Telephone (614) 223-1000
1-3570 INDIANA MICHIGAN POWER COMPANY 35-0410455
(An Indiana Corporation)
One Summit Square
P. O. Box 60
Fort Wayne, Indiana 46801
Telephone (219) 425-2111
1-6858 KENTUCKY POWER COMPANY 61-0247775
(A Kentucky Corporation)
1701 Central Avenue
Ashland, Kentucky 41101
Telephone (800) 572-1141
1-6543 OHIO POWER COMPANY 31-4271000
(An Ohio Corporation)
301 Cleveland Avenue, S.W.
Canton, Ohio 44702
Telephone (330) 456-8173
</TABLE>
AEP Generating Company, Columbus Southern Power Company and Kentucky Power
Company meet the conditions set forth in General Instruction I(1)(a) and (b) of
Form 10-K and are therefore filing this Form 10-K with the reduced disclosure
format specified in General Instruction I(2) to such Form 10-K.
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X}. No.
<PAGE> 2
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
REGISTRANT TITLE OF EACH CLASS ON WHICH REGISTERED
---------- ------------------- -------------------
<S> <C> <C>
AEP Generating Company None
American Electric Power Common Stock,
Company, Inc. $6.50 par value................................... New York Stock Exchange
Appalachian Power Cumulative Preferred Stock,
Company Voting, no par value:
4-1/2%........................................... Philadelphia Stock Exchange
8-1/4% Junior Subordinated Deferrable
Interest Debentures, Series A,
Due 2026........................................ New York Stock Exchange
8% Junior Subordinated Deferrable
Interest Debentures, Series B,
Due 2027........................................ New York Stock Exchange
7.20% Senior Notes, Series A,
Due 2038......................................... New York Stock Exchange
7.30% Senior Notes, Series B,
Due 2038...........................................New.York.Stock.Exchange
Columbus Southern 8-3/8% Junior Subordinated Deferrable
Power Company Interest Debentures, Series A,
Due 2025......................................... New York Stock Exchange
7.92% Junior Subordinated Deferrable
Interest Debentures, Series B,
Due 2027......................................... New York Stock Exchange
Indiana Michigan 8% Junior Subordinated Deferrable
Power Company Interest Debentures, Series A,
Due 2026......................................... New York Stock Exchange
7.60% Junior Subordinated Deferrable
Interest Debentures, Series B,
Due 2038...........................................New.York.Stock.Exchange
Kentucky Power 8.72% Junior Subordinated Deferrable
Company Interest Debentures, Series A,
Due 2025......................................... New York Stock Exchange
Ohio Power Company 8.16% Junior Subordinated Deferrable
Interest Debentures, Series A,
Due 2025......................................... New York Stock Exchange
7.92% Junior Subordinated Deferrable
Interest Debentures Series B,
Due 2027...........................................New.York.Stock.Exchange
7 3/8% Senior Notes, Series A,
Due 2038......................................... New York Stock Exchange
</TABLE>
Indicate by check mark if disclosure of delinquent filers with respect to
American Electric Power Company, Inc. pursuant to Item 405 of Regulation S-K
(229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in the definitive proxy statement of
American Electric Power Company, Inc. incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. __
Indicate by check mark if disclosure of delinquent filers with respect to
Appalachian Power Company, Indiana Michigan Power Company or Ohio Power Company
pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in the definitive information statements of Appalachian Power Company
or Ohio Power Company incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [X]
<PAGE> 3
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
<TABLE>
<CAPTION>
REGISTRANT TITLE OF EACH CLASS
---------- -------------------
<S> <C>
AEP Generating Company None
American Electric Power Company, Inc None
Appalachian Power Company None
Columbus Southern Power Company None
Indiana Michigan Power Company 4-1/8% Cumulative Preferred Stock, Non-Voting, $100 par value
Kentucky Power Company None
Ohio Power Company 4-1/2% Cumulative Preferred Stock, Voting, $100 par value
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE MARKET VALUE
OF VOTING AND NON-VOTING NUMBER OF SHARES
COMMON EQUITY HELD OF COMMON STOCK
BY NON-AFFILIATES OF OUTSTANDING OF
THE REGISTRANTS AT THE REGISTRANTS AT
FEBRUARY 1, 1999 FEBRUARY 1, 1999
------------------------ ------------------
<S> <C> <C>
AEP Generating Company None 1,000
($1,000 par value)
American Electric Power Company, Inc $8,177,004,087 191,835,873
($6.50 par value)
Appalachian Power Company None 13,499,500
(no par value)
Columbus Southern Power Company None 16,410,426
(no par value)
Indiana Michigan Power Company None 1,400,000
(no par value)
Kentucky Power Company None 1,009,000
($50 par value)
Ohio Power Company None 27,952,473
(no par value)
</TABLE>
NOTE ON MARKET VALUE OF COMMON EQUITY HELD BY NON-AFFILIATES
All of the common stock of AEP Generating Company, Appalachian Power
Company, Columbus Southern Power Company, Indiana Michigan Power Company,
Kentucky Power Company and Ohio Power Company is owned by American Electric
Power Company, Inc. (see Item 12 herein).
<PAGE> 4
<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K
INTO WHICH DOCUMENT
DESCRIPTION IS INCORPORATED
- ----------- ---------------
<S> <C>
Portions of Annual Reports of the following companies for the fiscal year Part II
ended December 31, 1998:
AEP Generating Company
American Electric Power Company, Inc.
Appalachian Power Company
Columbus Southern Power Company
Indiana Michigan Power Company
Kentucky Power Company
Ohio Power Company
Portions of Proxy Statement of American Electric Power Company, Inc. for Part III
1999 Annual Meeting of Shareholders, to be filed within 120 days after
December 31, 1998
Portions of Information Statements of the following companies for 1999 Part III
Annual Meeting of Shareholders, to be filed within 120 days after December 31,
1998
Appalachian Power Company
Ohio Power Company
</TABLE>
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THIS COMBINED FORM 10-K IS SEPARATELY FILED BY AEP GENERATING COMPANY,
AMERICAN ELECTRIC POWER COMPANY, INC., APPALACHIAN POWER COMPANY, COLUMBUS
SOUTHERN POWER COMPANY, INDIANA MICHIGAN POWER COMPANY, KENTUCKY POWER COMPANY
AND OHIO POWER COMPANY. INFORMATION CONTAINED HEREIN RELATING TO ANY INDIVIDUAL
REGISTRANT IS FILED BY SUCH REGISTRANT ON ITS OWN BEHALF. EXCEPT FOR AMERICAN
ELECTRIC POWER COMPANY, INC., EACH REGISTRANT MAKES NO REPRESENTATION AS TO
INFORMATION RELATING TO THE OTHER REGISTRANTS.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
NUMBER
------
<S> <C>
Glossary of Terms........................................................................ i
Forward-Looking Information.............................................................. 1
PART I
Item 1. Business............................................................. 2
Item 2. Properties........................................................... 36
Item 3. Legal Proceedings.................................................... 42
Item 4. Submission of Matters to a Vote of Security Holders.................. 43
Executive Officers of the Registrants.............................................. 43
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................. 45
Item 6. Selected Financial Data.............................................. 46
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition............................... 46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .......... 47
Item 8. Financial Statements and Supplementary Data.......................... 47
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................... 47
PART III
Item 10. Directors and Executive Officers of the Registrants.................. 48
Item 11. Executive Compensation............................................... 50
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................. 54
Item 13. Certain Relationships and Related Transactions....................... 55
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K..................................................... 55
Signatures............................................................................... 57
Index to Financial Statement Schedules................................................... S-1
Independent Auditors' Report............................................................. S-2
Exhibit Index............................................................................ E-1
</TABLE>
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GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this
report, they have the meanings indicated below.
<TABLE>
<CAPTION>
TERM MEANING
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<S> <C>
AEGCo................................ AEP Generating Company, an electric utility subsidiary of AEP.
AEP ................................. American Electric Power Company, Inc.
AEP System or the System............. The American Electric Power System, an integrated electric utility system,
owned and operated by AEP's electric utility subsidiaries.
AFUDC................................ Allowance for funds used during construction. Defined in regulatory systems
of accounts as the net cost of borrowed funds used for construction and a
reasonable rate of return on other funds when so used.
APCo................................. Appalachian Power Company, an electric utility subsidiary of AEP.
Buckeye.............................. Buckeye Power, Inc., an unaffiliated corporation.
CCD Group............................ CSPCo, CG&E and DP&L.
CG&E................................. The Cincinnati Gas & Electric Company, an unaffiliated utility company.
Cook Plant........................... The Donald C. Cook Nuclear Plant, owned by I&M.
CSPCo................................ Columbus Southern Power Company, an electric utility subsidiary of AEP.
CSW................................. Central and South West Corporation.
DOE.................................. United States Department of Energy.
DP&L................................. The Dayton Power and Light Company, an unaffiliated utility company.
Federal EPA.......................... United States Environmental Protection Agency.
FERC................................. Federal Energy Regulatory Commission (an independent commission within
the DOE).
I&M.................................. Indiana Michigan Power Company, an electric utility subsidiary of AEP.
IURC................................. Indiana Utility Regulatory Commission.
KEPCo................................ Kentucky Power Company, an electric utility subsidiary of AEP.
KPSC................................. Kentucky Public Service Commission.
MPSC................................. Michigan Public Service Commission.
NEIL................................. Nuclear Electric Insurance Limited.
NPDES................................ National Pollutant Discharge Elimination System.
NRC.................................. Nuclear Regulatory Commission.
OPCo................................ Ohio Power Company, an electric utility subsidiary of AEP.
OVEC................................. Ohio Valley Electric Corporation, an electric utility company in which AEP
and CSPCo own a 44.2% equity interest.
PCBs................................. Polychlorinated biphenyls.
PUCO................................. The Public Utilities Commission of Ohio.
PUHCA................................ Public Utility Holding Company Act of 1935, as amended.
RCRA................................. Resource Conservation and Recovery Act of 1976, as amended.
Rockport Plant....................... A generating plant, consisting of two 1,300,000-kilowatt coal-fired
generating units, near Rockport, Indiana.
SEC.................................. Securities and Exchange Commission.
Service Corporation.................. American Electric Power Service Corporation, a service subsidiary of AEP.
SO2 Allowance........................ An allowance to emit one ton of sulfur dioxide granted under the Clean Air
Act Amendments of 1990.
TVA ................................. Tennessee Valley Authority.
VEPCo................................ Virginia Electric and Power Company, an unaffiliated utility company.
Virginia SCC......................... State Corporation Commission of Virginia.
West Virginia PSC.................... Public Service Commission of West Virginia.
Zimmer or Zimmer Plant............... Wm. H. Zimmer Generating Station, commonly owned by CSPCo, CG&E
and DP&L.
</TABLE>
i
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 8
FORWARD-LOOKING INFORMATION
- --------------------------------------------------------------------------------
This report made by AEP and certain of its subsidiaries includes
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements reflect assumptions and
involve a number of risks and uncertainties. Among the factors that could cause
actual results to differ materially from forward-looking statements are:
o Electric load and customer growth.
o Abnormal weather conditions.
o Available sources and costs of fuels.
o Availability of generating capacity.
o The impact of the proposed merger with CSW including any regulatory
conditions imposed on the merger or the inability to consummate the merger
with CSW.
o The speed and degree to which competition is introduced to our power
generation business.
o The structure and timing of a competitive market and its impact on energy
prices or fixed rates.
o The ability to recover stranded costs in connection with possible
deregulation of generation.
o New legislation and government regulations.
o The ability of AEP to successfully control its costs.
o The success of new business ventures.
o International developments affecting AEP's foreign investments.
o The economic climate and growth in AEP's service territory.
o Unforeseen events affecting AEP's nuclear plant which is on an extended
safety related shutdown.
o Problems or failures related to Year 2000 readiness of computer software
and hardware.
o Inflationary trends.
o Electricity and gas market prices.
o Interest rates
o Other risks and unforeseen events.
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PART I ------------------------------------------------------------------------
Item 1. BUSINESS
- --------------------------------------------------------------------------------
General
AEP was incorporated under the laws of the State of New York in 1906
and reorganized in 1925. It is a public utility holding company which owns,
directly or indirectly, all of the outstanding common stock of its domestic
electric utility subsidiaries and varying percentages of other subsidiaries.
Substantially all of the operating revenues of AEP and its subsidiaries are
derived from the furnishing of electric service. In addition, in recent years
AEP has been pursuing various unregulated business opportunities worldwide as
discussed in New Business Development.
The service area of AEP's electric utility subsidiaries covers portions
of the states of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West
Virginia. The generating and transmission facilities of AEP's subsidiaries are
physically interconnected, and their operations are coordinated, as a single
integrated electric utility system. Transmission networks are interconnected
with extensive distribution facilities in the territories served. The electric
utility subsidiaries of AEP have traditionally provided electric service,
consisting of generation, transmission and distribution, on an integrated basis
to their retail customers. As a result of the changing nature of the electric
business (see Competition and Business Change), effective January 1, 1996, AEP's
subsidiaries realigned into four functional business units: Power Generation;
Nuclear Generation; Energy Delivery; and Corporate Development. In addition, the
electric utility subsidiaries began to do business as "American Electric Power."
The legal and financial structure of AEP and its subsidiaries, however, did not
change.
At December 31, 1998, the subsidiaries of AEP had a total of 17,943
employees. AEP, as such, has no employees. The operating subsidiaries of AEP
are:
APCo (organized in Virginia in 1926) is engaged in the generation, sale,
purchase, transmission and distribution of electric power to approximately
888,000 retail customers in the southwestern portion of Virginia and
southern West Virginia, and in supplying electric power at wholesale to
other electric utility companies and municipalities in those states and in
Tennessee. At December 31, 1998, APCo and its wholly owned subsidiaries had
3,577 employees. Among the principal industries served by APCo are coal
mining, primary metals, chemicals and textile mill products. In addition to
its AEP System interconnections, APCo also is interconnected with the
following unaffiliated utility companies: Carolina Power & Light Company,
Duke Energy Corporation and VEPCo. A comparatively small part of the
properties and business of APCo is located in the northeastern end of the
Tennessee Valley. APCo has several points of interconnection with TVA and
has entered into agreements with TVA under which APCo and TVA interchange
and transfer electric power over portions of their respective systems.
CSPCo (organized in Ohio in 1937, the earliest direct predecessor
company having been organized in 1883) is engaged in the generation, sale,
purchase, transmission and distribution of electric power to approximately
640,000 customers in Ohio, and in supplying electric power at wholesale to
other electric utilities and to municipally owned distribution systems
within its service area. At December 31, 1998, CSPCo had 1,528 employees.
CSPCo's service area is comprised of two areas in Ohio, which include
portions of twenty-five counties. One area includes the City of Columbus and
the other is a predominantly rural area in south central Ohio. Approximately
80% of CSPCo's retail revenues are derived from the Columbus area. Among the
principal industries served are food processing, chemicals, primary metals,
electronic machinery and paper products. In addition to its AEP System
interconnections, CSPCo also is interconnected with the following
unaffiliated utility companies: CG&E, DP&L and Ohio Edison Company.
I&M (organized in Indiana in 1925) is engaged in the generation, sale,
purchase, transmission and distribution of electric power to approximately
554,000 customers in northern and eastern Indiana and southwestern Michigan,
and in supplying electric power at wholesale to other electric utility
2
<PAGE> 10
companies, rural electric cooperatives and municipalities. At December 31,
1998, I&M had 3,074 employees. Among the principal industries served are
primary metals, transportation equipment, electrical and electronic
machinery, fabricated metal products, rubber and miscellaneous plastic
products and chemicals and allied products. Since 1975, I&M has leased and
operated the assets of the municipal system of the City of Fort Wayne,
Indiana. In addition to its AEP System interconnections, I&M also is
interconnected with the following unaffiliated utility companies: Central
Illinois Public Service Company, CG&E, Commonwealth Edison Company,
Consumers Energy Company, Illinois Power Company, Indianapolis Power & Light
Company, Louisville Gas and Electric Company, Northern Indiana Public
Service Company, PSI Energy Inc. and Richmond Power & Light Company.
KEPCo (organized in Kentucky in 1919) is engaged in the generation,
sale, purchase, transmission and distribution of electric power to
approximately 170,000 customers in an area in eastern Kentucky, and in
supplying electric power at wholesale to other utilities and municipalities
in Kentucky. At December 31, 1998, KEPCo had 541 employees. In addition to
its AEP System interconnections, KEPCo also is interconnected with the
following unaffiliated utility companies: Kentucky Utilities Company and
East Kentucky Power Cooperative Inc. KEPCo is also interconnected with TVA.
Kingsport Power Company (organized in Virginia in 1917) provides
electric service to approximately 44,000 customers in Kingsport and eight
neighboring communities in northeastern Tennessee. Kingsport Power Company
has no generating facilities of its own. It purchases electric power
distributed to its customers from APCo. At December 31, 1998, Kingsport
Power Company had 65 employees.
OPCo (organized in Ohio in 1907 and re-incorporated in 1924) is engaged
in the generation, sale, purchase, transmission and distribution of electric
power to approximately 685,000 customers in the northwestern, east central,
eastern and southern sections of Ohio, and in supplying electric power at
wholesale to other electric utility companies and municipalities. At
December 31, 1998, OPCo and its wholly owned subsidiaries had 4,170
employees. Among the principal industries served by OPCo are primary metals,
rubber and plastic products, stone, clay, glass and concrete products,
petroleum refining and chemicals. In addition to its AEP System
interconnections, OPCo also is interconnected with the following
unaffiliated utility companies: CG&E, The Cleveland Electric Illuminating
Company, DP&L, Duquesne Light Company, Kentucky Utilities Company,
Monongahela Power Company, Ohio Edison Company, The Toledo Edison Company
and West Penn Power Company.
Wheeling Power Company (organized in West Virginia in 1883 and
reincorporated in 1911) provides electric service to approximately 42,000
customers in northern West Virginia. Wheeling Power Company has no
generating facilities of its own. It purchases electric power distributed to
its customers from OPCo. At December 31, 1998, Wheeling Power Company had 80
employees.
Another principal electric utility subsidiary of AEP is AEGCo, which was
organized in Ohio in 1982 as an electric generating company. AEGCo sells power
at wholesale to I&M, KEPCo and VEPCo. AEGCo has no employees.
See Item 2 for information concerning the properties of the subsidiaries
of AEP.
The Service Corporation provides accounting, administrative, information
systems, engineering, financial, legal, maintenance and other services at cost
to the AEP System companies. The executive officers of AEP and its public
utility subsidiaries are all employees of the Service Corporation.
REGULATION
General
AEP and its subsidiaries are subject to the broad regulatory provisions of
PUHCA administered by the SEC. The public utility subsidiaries' retail rates and
certain other matters are subject to regulation by the public utility
commissions of the states in which they operate. Such subsidiaries are also
subject to regulation by
3
<PAGE> 11
the FERC under the Federal Power Act in respect of rates for interstate sale at
wholesale and transmission of electric power, accounting and other matters and
construction and operation of hydroelectric projects. I&M is subject to
regulation by the NRC under the Atomic Energy Act of 1954, as amended, with
respect to the operation of the Cook Plant.
Possible Change to PUHCA
The provisions of PUHCA, administered by the SEC, regulate all aspects of
a registered holding company system, such as the AEP System. PUHCA requires that
the operations of a registered holding company system be limited to a single
integrated public utility system and such other businesses as are incidental or
necessary to the operations of the system. In addition, PUHCA governs, among
other things, financings, sales or acquisitions of assets and intra-system
transactions.
On June 20, 1995, the SEC released a report from its Division of
Investment Management recommending a conditional repeal of PUHCA, including its
limits on financing and on geographic and business diversification. Specific
federal authority, however, would be preserved over access to the books and
records of registered holding company systems, audit authority over registered
holding companies and their subsidiaries and oversight over affiliate
transactions. This authority would be transferred to the FERC. Legislation was
introduced in Congress in 1997 that would repeal PUHCA and transfer certain
federal authority to the FERC as recommended in the SEC report as part of
broader legislation regarding changes in the electric industry. Such legislation
has been reintroduced in 1999. It is expected that a number of bills
contemplating the restructuring of the electric utility industry will be
introduced in the current Congress. See Competition and Business Change. If
PUHCA is repealed, registered holding company systems, including the AEP System,
will be able to compete in the changing industry without the constraints of
PUHCA. Management of AEP believes that removal of these constraints would be
beneficial to the AEP System.
PUHCA and the rules and orders of the SEC currently require that
transactions between associated companies in a registered holding company system
be performed at cost with limited exceptions. Over the years, the AEP System has
developed numerous affiliated service, sales and construction relationships and,
in some cases, invested significant capital and developed significant operations
in reliance upon the ability to recover its full costs under these provisions.
Legislation has been introduced in Congress to repeal PUHCA or modify its
provisions governing intra-system transactions. The effect of repeal or
amendment of PUHCA on AEP's intra-system transactions depends on whether the
assurance of full cost recovery is eliminated immediately or phased-in and
whether it is eliminated for all intra-system transactions or only some. If the
cost recovery assurance is eliminated immediately for all intra-system
transactions, it could have a material adverse effect on results of operations
and financial condition of AEP and OPCo.
Conflict of Regulation
Public utility subsidiaries of AEP can be subject to regulation of the
same subject matter by two or more jurisdictions. In such situations, it is
possible that the decisions of such regulatory bodies may conflict or that the
decision of one such body may affect the cost of providing service and so the
rates in another jurisdiction. In a case involving OPCo, the U.S. Court of
Appeals for the District of Columbia held that the determination of costs to be
charged to associated companies by the SEC under PUHCA precluded the FERC from
determining that such costs were unreasonable for ratemaking purposes. The U.S.
Supreme Court also has held that a state commission may not conclude that a FERC
approved wholesale power agreement is unreasonable for state ratemaking
purposes. Certain actions that would overturn these decisions or otherwise
affect the jurisdiction of the SEC and FERC are under consideration by the U.S.
Congress and these regulatory bodies. Such conflicts of jurisdiction often
result in litigation and, if resolved adversely to a public utility subsidiary
of AEP, could have a material adverse effect on the results of operations or
financial condition of such subsidiary or AEP.
4
<PAGE> 12
CLASSES OF SERVICE
The principal classes of service from which the major electric utility
subsidiaries of AEP derive revenues and the amount of such revenues (from
kilowatt-hour sales) during the year ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
AEP
AEGCO APCO CSPCO I&M KEPCO OPCO SYSTEM (a)
-------- ---------- ---------- ---------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Retail
Residential
Without Electric Heating......... $ 0 $ 230,160 $ 335,270 $ 265,442 $ 40,190 $ 287,219 $ 1,179,792
With Electric Heating............ 0 328,623 104,905 108,950 64,516 139,052 781,659
-------- ---------- ---------- ---------- -------- ---------- ----------
Total Residential............ 0 558,783 440,175 374,392 104,706 426,271 1,961,451
Commercial.......................... 0 284,206 394,363 290,149 60,115 276,135 1,343,426
Industrial.......................... 0 381,733 148,463 370,329 94,186 670,757 1,727,109
Miscellaneous....................... 0 34,505 17,115 6,849 877 8,230 71,240
-------- ---------- ---------- ---------- -------- ---------- ----------
Total Retail.................. 0 1,259,227 1,000,116 1,041,719 259,884 1,381,393 5,103,226
Wholesale (sales for resale)........... 223,821 350,014 145,376 321,771 87,401 644,058 1,005,481
-------- ---------- ---------- ---------- -------- ---------- ----------
Total from KWH Sales.......... 223,821 1,609,241 1,145,492 1,363,490 347,285 2,025,451 6,108,707
Provision for Revenue Refunds.......... 0 (7,796) 0 0 0 0 (10,044)
-------- ---------- ---------- ---------- -------- ---------- ----------
Total Net of Provision for
Revenue Refunds........... 223,821 1,601,445 1,145,492 1,363,490 347,285 2,025,451 6,098,663
Other Operating Revenues............... 325 70,799 42,253 42,304 15,714 80,096 247,239
-------- ---------- ---------- ---------- -------- ---------- ----------
Total Electric Operating
Revenues............................... $224,146 $1,672,244 $1,187,745 $1,405,794 $362,999 $2,105,547 $6,345,902
======== ========== ========== ========== ======== ========== ==========
</TABLE>
- ----------------------------
(a) Includes revenues of other subsidiaries not shown and elimination of
intercompany transactions.
SALE OF POWER
AEP's electric utility subsidiaries own or lease generating stations
with total generating capacity of 23,759 megawatts. See Item 2 for more
information regarding the generating stations. They operate their generating
plants as a single interconnected and coordinated electric utility system and
share the costs and benefits in the AEP System Power Pool. Most of the electric
power generated at these stations is sold, in combination with transmission and
distribution services, to retail customers of AEP's utility subsidiaries in
their service territories. These sales are made at rates that are established by
the public utility commissions of the state in which they operate. See Rates and
Regulation. Some of the electric power is sold at wholesale to non-affiliated
companies.
AEP System Power Pool
APCo, CSPCo, I&M, KEPCo and OPCo are parties to the Interconnection
Agreement, dated July 6, 1951, as amended (the Interconnection Agreement),
defining how they share the costs and benefits associated with the System's
generating plants. This sharing is based upon each company's
"member-load-ratio," which is calculated monthly on the basis of each company's
maximum peak demand in relation to the sum of the maximum peak demands of all
five companies during the preceding 12 months. In addition, since 1995, APCo,
CSPCo, I&M, KEPCo and OPCo have been parties to the AEP System Interim Allowance
Agreement which provides, among other things, for the transfer of SO2 Allowances
associated with transactions under the Interconnection Agreement.
Power marketing and trading transactions (trading activities) are
conducted by the AEP Power Pool and shared among the parties under the
Interconnection Agreement. Trading activities involve the purchase and sale of
electricity under physical forward contracts at fixed and variable prices and
the trading of electricity contracts including exchange traded futures and
options and over-the-counter options and swaps. The majority of these
transactions represent physical forward contracts in the AEP System's
traditional marketing area and are typically settled by entering into offsetting
contracts. The regulated physical forward contracts are recorded on a net basis
in the month when the contract settles.
In addition, the AEP Power Pool enters into transactions for the purchase
and sale of electricity options, futures and swaps, and for the forward purchase
and sale of electricity outside of the AEP System's traditional marketing area.
These non-regulated trading activities are accounted for on a mark-to-market
basis.
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<PAGE> 13
The following table shows the net credits or (charges) allocated among the
parties under the Interconnection Agreement and Interim Allowance Agreement
during the years ended December 31, 1996, 1997 and 1998:
1996 1997 1998(a)
---- ---- -------
(IN THOUSANDS)
APCo.............. $(258,000) $(237,000) $(142,500)
CSPCo............. (145,000) (138,000) (146,800)
I&M............... 121,000 67,000 ( 86,100)
KEPCo............. 2,000 20,000 34,000
OPCo.............. 280,000 288,000 341,400
- -------------------------
(a) Includes credits and charges from allowance transfers related to the
transactions.
Wholesale Sales of Power to Non-Affiliates
AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo also sell electric power on a
wholesale basis to non-affiliated electric utilities and power marketers. Such
sales are either made by the AEP System Power Pool and then allocated among
APCo, CSPCo, I&M, KEPCo and OPCo based on member-load-ratios or made by
individual companies pursuant to various long-term power agreements. The
following table shows the net realization (revenue less operating, maintenance,
fuel and federal income tax expenses) of the various companies from such sales
during the years ended December 31, 1996, 1997 and 1998:
1996(a) 1997(a) 1998(a)
------- ------- -------
(IN THOUSANDS)
AEGCo(b)............ $ 26,300 $ 26,200 $ 23,500
APCo(c)............. 36,800 37,500 40,700
CSPCo(c)............ 18,100 18,300 23,000
I&M(c)(d)........... 43,000 42,400 47,800
KEPCo(c)............ 7,600 7,700 8,700
OPCo(c)............. 30,200 30,200 36,900
-------- ------- --------
Total System........ $162,000 $162,300 $180,600
======== ======== ========
- -----------------------
(a) Such sales do not include wholesale sales to full/partial requirement
customers of AEP System companies. See the discussion below.
(b) All amounts for AEGCo are from sales made pursuant to a long-term power
agreement. See AEGCo -- Unit Power Agreements.
(c) All amounts, except for I&M, are from System sales which are allocated
among APCo, CSPCo, I&M, KEPCo and OPCo based upon member-load-ratio. All
System sales made in 1996, 1997 and 1998 were made on a short-term basis,
except that $33,300,000, $25,900,000 and $38,300,000 respectively, of the
contribution to operating income for the total System were from long-term
System sales.
(d) In addition to its allocation of System sales, the 1996, 1997 and 1998
amounts for I&M include $20,900,000, $21,100,000 and $21,800,000 from a
long-term agreement to sell 250 megawatts of power scheduled to terminate
in 2009.
The AEP System has long-term system agreements to sell the following to
unaffiliated utilities: (1) 205 megawatts of electric power through August 2010;
and (2) 50 megawatts of electric power through August 2001.
In addition to long-term and short-term sales, APCo, CSPCo, I&M, KEPCo and
OPCo serve unaffiliated wholesale customers that are full/partial requirement
customers. The aggregate maximum demand for these customers in 1998 was 611,
109, 451, 18 and 140 megawatts for APCo, CSPCo, I&M, KEPCo and OPCo,
respectively. Although the terms of the contracts with these customers vary,
they generally can be terminated by the customer upon one to four years' notice.
Since 1996, customers have given notices of termination, effective in 1999 and
2000, for 405, 63 and 131 megawatts for APCo, I&M and OPCo, respectively.
Several wholesale customers, some of whom had previously given notice of
termination, have entered into long-term contracts, ranging from five to seven
years, with the AEP System. The expected demand under these contracts aggregates
approximately 245 megawatts.
In June 1993, certain municipal customers of APCo filed an application
with the FERC for transmission service in order to reduce by 50 megawatts the
power these customers then purchased under existing Electric Service Agreements
(ESAs) and to purchase power from a third party. APCo maintains that its
agreements with these customers were full-requirements contracts which precluded
the customers from purchasing power from third parties until 1998. On February
10, 1994, the FERC issued an order finding that the ESAs are not full
requirements contracts and that the ESAs give these municipal wholesale
customers the option of substituting alternative sources of power for energy
purchased from APCo. On May 24, 1994, APCo appealed the February 10, 1994 order
of the FERC to the U.S. Court of Appeals for the District of Columbia Circuit.
On July 1, 1994, the FERC ordered the requested transmission service and granted
a complaint filed by the municipal customers directing certain modifications to
the ESAs in order to accommodate their power purchases from the third party.
Following FERC's denial of APCo's requests for rehearing, on December 20, 1995,
APCo appealed the July 1, 1994 orders to the U.S. Court of Appeals for the
District of Columbia. Effective August 1994, these municipal customers reduced
their purchases by 40
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<PAGE> 14
megawatts. Certain of these customers further reduced their purchases by an
additional 21 megawatts effective February 1996. On December 17, 1996, the U.S.
Court of Appeals reversed the FERC's order directing APCo to provide
transmission service and remanded the case to the FERC, where it remains
pending. The customers terminated their contracts with APCo in 1998.
TRANSMISSION SERVICES
AEP's electric utility subsidiaries own and operate transmission and
distribution lines and other facilities to deliver electric power. See Item 2
for more information regarding the transmission and distribution lines. AEP's
electric utility subsidiaries operate their transmission lines as a single
interconnected and coordinated system and share the cost and benefits in the AEP
System Transmission Pool. Most of the transmission and distribution services is
sold, in combination with electric power, to retail customers of AEP's utility
subsidiaries in their service territories. These sales are made at rates that
are established by the public utility commissions of the state in which they
operate. See Rates and Regulation. As discussed below, some transmission
services also are separately sold to non-affiliated companies.
AEP System Transmission Pool
APCo, CSPCo, I&M, KEPCo and OPCo are parties to the Transmission
Agreement, dated April 1, 1984, as amended (the Transmission Agreement),
defining how they share the costs associated with their relative ownership of
the extra-high-voltage transmission system (facilities rated 345 kv and above)
and certain facilities operated at lower voltages (138 kv and above). Like the
Interconnection Agreement, this sharing is based upon each company's
"member-load-ratio." See Sale of Power.
The following table shows the net credits or (charges) allocated among the
parties to the Transmission Agreement during the years ended December 31, 1996,
1997 and 1998:
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
APCo.......... $( 6,500) $ ( 8,400) $ 2,400
CSPCo......... (30,600) (29,900) (35,600)
I&M........... 46,300 46,100 44,100
KEPCo......... 3,300 2,700 6,000
OPCo.......... (12,500) (10,500) (16,900)
Transmission Services for Non-Affiliates
APCo, CSPCo, I&M, KEPCo, OPCo and other System companies also provide
transmission services for non-affiliated companies. The following table shows
the revenues net of federal income tax expenses of the various companies from
such services during the years ended December 31, 1996, 1997 and 1998:
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
APCo.................... $ 13,800 $ 18,000 $30,600
CSPCo................... 8,000 10,200 18,100
I&M..................... 7,700 10,500 19,200
KEPCo................... 2,800 3,900 6,400
OPCo.................... 17,800 27,200 42,100
-------- -------- --------
Total System............ $ 50,100 $ 69,800 $116,400
======== ======== ========
The AEP System has contracts with non-affiliated companies for
transmission of approximately 5,000 megawatts of electric power on an annual or
longer basis.
On April 24, 1996, the FERC issued orders 888 and 889. These orders
require each public utility that owns or controls interstate transmission
facilities to file an open access network and point-to-point transmission tariff
that offers services comparable to the utility's own uses of its transmission
system. The orders also require utilities to functionally unbundle their
services, by requiring them to use their own tariffs in making off-system and
third-party sales. As part of the orders, the FERC issued a pro-forma tariff
which reflects the Commission's views on the minimum non-price terms and
conditions for non-discriminatory transmission service. In addition, the orders
require all transmitting utilities to establish an Open Access Same-time
Information System ("OASIS") which electronically posts transmission information
such as available capacity and prices, and require utilities to comply with
Standards of Conduct which prohibit utilities' system operators from providing
non-public transmission information to the utility's merchant employees. The
orders also allow a utility to seek recovery of certain prudently-incurred
stranded costs that result from unbundled transmission service.
On July 9, 1996, the AEP System companies filed a tariff conforming
with the FERC's pro-forma transmission tariff, subject to the resolution of
certain pricing issues, which are still pending before FERC.
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<PAGE> 15
During 1996 and 1997 AEP engaged in discussions with several utilities
regarding the creation of an independent system operator to operate the
transmission system in the Midwestern region of the United States. In January
1998, nine utilities or utility systems filed with the FERC a proposal to form
the Midwest Independent Transmission System Operator, Inc. ("Midwest ISO"). AEP
was not a participant in that filing and elected not to join the Midwest ISO as
a transmission owner member. AEP has since joined the Midwest ISO as a non-owner
member.
AEP is currently engaged in discussions with Consumers Energy Company,
FirstEnergy Corp. and VEPCo regarding the development of a Regional Transmission
Organization ("RTO") which may take the form of an independent system operator
("ISO") or an independent transmission company ("Transco"), depending upon the
occurrence of certain conditions. The parties envision that the Transco, if
formed, would operate transmission assets that it would own, and also would
operate other owners' transmission assets on a contractual basis. The
discussions are also open to interested stakeholders. The discussions are
expected to culminate in a FERC filing during the first part of 1999. See
Competition and Business Change -- AEP Position on Competition.
OVEC
AEP, CSPCo and several unaffiliated utility companies jointly own OVEC,
which supplies the power requirements of a uranium enrichment plant near
Portsmouth, Ohio owned by the DOE. The aggregate equity participation of AEP and
CSPCo in OVEC is 44.2%. The DOE demand under OVEC's power agreement, which is
subject to change from time to time, is 1,402,000 kilowatts. On April 1, 1999,
it is scheduled to increase to approximately 1,900,000 kilowatts. The proceeds
from the sale of power by OVEC are designed to be sufficient for OVEC to meet
its operating expenses and fixed costs and to provide a return on its equity
capital. APCo, CSPCo, I&M and OPCo, as sponsoring companies, are entitled to
receive from OVEC, and are obligated to pay for, the power not required by DOE
in proportion to their power participation ratios, which averaged 42.1% in 1998.
The power agreement with DOE terminates on December 31, 2005, subject to early
termination by DOE on not less than three years notice. The power agreement
among OVEC and the sponsoring companies expires by its terms on March 12, 2006.
BUCKEYE
Contractual arrangements among OPCo, Buckeye and other investor-owned
electric utility companies in Ohio provide for the transmission and delivery,
over facilities of OPCo and of other investor-owned utility companies, of power
generated by the two units at the Cardinal Station owned by Buckeye and back-up
power to which Buckeye is entitled from OPCo under such contractual
arrangements, to facilities owned by 26 of the rural electric cooperatives which
operate in the State of Ohio at 318 delivery points. Buckeye is entitled under
such arrangements to receive, and is obligated to pay for, the excess of its
maximum one-hour coincident peak demand plus a 15% reserve margin over the
1,226,500 kilowatts of capacity of the generating units which Buckeye currently
owns in the Cardinal Station. Such demand, which occurred on January 16, 1997,
was recorded at 1,178,460 kilowatts.
CERTAIN INDUSTRIAL CUSTOMERS
Century Aluminum of West Virginia, Inc. (formerly Ravenswood Aluminum
Corporation), and Ormet Corporation operate major aluminum reduction plants in
the Ohio River Valley at Ravenswood, West Virginia, and in the vicinity of
Hannibal, Ohio, respectively. The power requirements of such plants presently
are approximately 357,000 kilowatts for Century and 537,000 kilowatts for Ormet.
OPCo is providing electric service to Century pursuant to a contract approved by
the PUCO for the period July 1, 1996 through July 31, 2003.
On November 14, 1996, the PUCO approved (1) an interim agreement pursuant
to which OPCo will continue to provide electric service to Ormet for the period
December 1, 1997 through December 31, 1999 and (2) a joint petition with an
electric cooperative to transfer the right to serve Ormet to the electric
cooperative after December 31, 1999. As part of the territorial transfer, OPCo
and Ormet entered into an agreement which contains penalties and other
provisions designed to avoid having OPCo provide involuntary back-up power to
Ormet. See Legal Proceedings for a discussion of litigation involving Ormet.
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<PAGE> 16
AEGCO
Since its formation in 1982, AEGCo's business has consisted of the
ownership and financing of its 50% interest in the Rockport Plant and, since
1989, leasing of its 50% interest in Unit 2 of the Rockport Plant. The operating
revenues of AEGCo are derived from the sale of capacity and energy associated
with its interest in the Rockport Plant to I&M, KEPCo and VEPCo, pursuant to
unit power agreements. Pursuant to these unit power agreements, AEGCo is
entitled to recover its full cost of service from the purchasers and will be
entitled to recover future increases in such costs, including increases in fuel
and capital costs. See Unit Power Agreements. Pursuant to a capital funds
agreement, AEP has agreed to provide cash capital contributions, or in certain
circumstances subordinated loans, to AEGCo, to the extent necessary to enable
AEGCo, among other things, to provide its proportionate share of funds required
to permit continuation of the commercial operation of the Rockport Plant and to
perform all of its obligations, covenants and agreements under, among other
things, all loan agreements, leases and related documents to which AEGCo is or
becomes a party. See Capital Funds Agreement.
Unit Power Agreements
A unit power agreement between AEGCo and I&M (the I&M Power Agreement)
provides for the sale by AEGCo to I&M of all the power (and the energy
associated therewith) available to AEGCo at the Rockport Plant. I&M is
obligated, whether or not power is available from AEGCo, to pay as a demand
charge for the right to receive such power (and as an energy charge for any
associated energy taken by I&M) such amounts, as when added to amounts received
by AEGCo from any other sources, will be at least sufficient to enable AEGCo to
pay all its operating and other expenses, including a rate of return on the
common equity of AEGCo as approved by FERC, currently 12.16%. The I&M Power
Agreement will continue in effect until the date that the last of the lease
terms of Unit 2 of the Rockport Plant has expired unless extended in specified
circumstances.
Pursuant to an assignment between I&M and KEPCo, and a unit power
agreement between KEPCo and AEGCo, AEGCo sells KEPCo 30% of the power (and the
energy associated therewith) available to AEGCo from both units of the Rockport
Plant. KEPCo has agreed to pay to AEGCo in consideration for the right to
receive such power the same amounts which I&M would have paid AEGCo under the
terms of the I&M Power Agreement for such entitlement. The KEPCo unit power
agreement expires on December 31, 2004.
A unit power agreement among AEGCo, I&M, VEPCo, and APCo provides for,
among other things, the sale of 70% of the power and energy available to AEGCo
from Unit 1 of the Rockport Plant to VEPCo by AEGCo from January 1, 1987 through
December 31, 1999. VEPCo has agreed to pay to AEGCo in consideration for the
right to receive such power those amounts which I&M would have paid AEGCo under
the terms of the I&M Power Agreement for such entitlement. Approximately 32% of
AEGCo's operating revenue in 1998 was derived from its sales to VEPCo.
Capital Funds Agreement
AEGCo and AEP have entered into a capital funds agreement pursuant to
which, among other things, AEP has unconditionally agreed to make cash capital
contributions, or in certain circumstances subordinated loans, to AEGCo to the
extent necessary to enable AEGCo to (i) maintain such an equity component of
capitalization as required by governmental regulatory authorities, (ii) provide
its proportionate share of the funds required to permit commercial operation of
the Rockport Plant, (iii) enable AEGCo to perform all of its obligations,
covenants and agreements under, among other things, all loan agreements, leases
and related documents to which AEGCo is or becomes a party (AEGCo Agreements),
and (iv) pay all indebtedness, obligations and liabilities of AEGCo (AEGCo
Obligations) under the AEGCo Agreements, other than indebtedness, obligations or
liabilities owing to AEP. The Capital Funds Agreement will terminate after all
AEGCo Obligations have been paid in full.
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<PAGE> 17
INDUSTRY PROBLEMS
The electric utility industry, including the operating subsidiaries of
AEP, has encountered at various times in the last 15 years significant problems
in a number of areas, including: delays in and limitations on the recovery of
fuel costs from customers; proposed legislation, initiative measures and other
actions designed to prohibit construction and operation of certain types of
power plants and transmission lines under certain conditions and to eliminate or
reduce the extent of the coverage of fuel adjustment clauses; inadequate rate
increases and delays in obtaining rate increases; jurisdictional disputes with
state public utilities commissions regarding the interstate operations of
integrated electric systems; requirements for additional expenditures for
pollution control facilities; increased capital and operating costs;
construction delays due, among other factors, to pollution control and
environmental considerations and to material, equipment and fuel shortages; the
economic effects on net income (which when combined with other factors may be
immediate and adverse) associated with placing large generating units and
related facilities in commercial operation, including the commencement at that
time of substantial charges for depreciation, taxes, maintenance and other
operating expenses, and the cessation of AFUDC with respect to such units;
uncertainties as to conservation efforts by customers and the effects of such
efforts on load growth; depressed economic conditions in certain regions of the
United States; increasingly competitive conditions in the wholesale and retail
markets; availability of capacity; proposals to deregulate certain portions of
the industry and revise the rules and responsibilities under which new
generating capacity is supplied; and substantial increases in construction costs
and difficulties in financing due to high costs of capital, uncertain capital
markets, charter and indenture limitations restricting conventional financing,
and shortages of cash for construction and other purposes.
SEASONALITY
Sales of electricity by the AEP System tend to increase and decrease
because of the use of electricity by residential and commercial customers for
cooling and heating and relative changes in temperature.
FRANCHISES
The operating companies of the AEP System hold franchises to provide
electric service in various municipalities in their service areas. These
franchises have varying provisions and expiration dates. In general, the
operating companies consider their franchises to be adequate for the conduct of
their business.
COMPETITION AND BUSINESS CHANGE
General
The public utility subsidiaries of AEP, like other electric utilities,
have traditionally provided electric generation and energy delivery, consisting
of transmission and distribution services, as a single product to their retail
customers. Proposals are being made that would also require electric utilities
to sell distribution services separately. These proposals generally allow
competition in the generation and sale of electric power, but not in its
transmission and distribution.
Competition in the generation and sale of electric power will require
resolution of complex issues, including who will pay for the unused generating
plant of, and other stranded costs incurred by, the utility when a customer
stops buying power from the utility; will all customers have access to the
benefits of competition; how will the rules of competition be established; what
will happen to conservation and other regulatory-imposed programs; how will the
reliability of the transmission system be ensured; and how will the utility's
obligation to serve be changed. As a result, it is not clear how or when
competition in generation and sale of electric power will be instituted.
However, if competition in generation and sale of electric power is instituted,
the public utility subsidiaries of AEP believe that they have a favorable
competitive position because of their relatively low costs. If stranded costs
are not recovered from customers, however, the public utility subsidiaries of
AEP, like all electric utilities, will be required by existing accounting
standards to recognize any stranded investment losses.
AEP Position on Competition
In October 1995, AEP announced that it favored freedom for customers to
purchase electric power from anyone that they choose. Generation and sale of
electric power would be in the competitive marketplace. To facilitate reliable,
safe
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<PAGE> 18
and efficient service, AEP supports creation of independent system operators to
operate the transmission system in a region of the United States. In addition,
AEP supports the evolution of regional power exchanges which would establish a
competitive marketplace for the sale of electric power. Transmission and
distribution would remain monopolies and subject to regulation with respect to
terms and price. Regulators would be able to establish distribution service
charges which would provide, as appropriate, for recovery of stranded costs and
regulatory assets. AEP's working model for industry restructuring envisions a
progressive transition to full customer choice. Implementation of these measures
would require legislative changes and regulatory approvals.
Wholesale
The public utility subsidiaries of AEP, like the electric industry
generally, face increasing competition to sell available power on a wholesale
basis, primarily to other public utilities and also to power marketers. The
Energy Policy Act of 1992 was designed, among other things, to foster
competition in the wholesale market (a) through amendments to PUHCA,
facilitating the ownership and operation of generating facilities by "exempt
wholesale generators" (which may include independent power producers as well as
affiliates of electric utilities) and (b) through amendments to the Federal
Power Act, authorizing the FERC under certain conditions to order utilities
which own transmission facilities to provide wholesale transmission services for
other utilities and entities generating electric power. The principal factors in
competing for such sales are price (including fuel costs), availability of
capacity and reliability of service. The public utility subsidiaries of AEP
believe that they maintain a favorable competitive position on the basis of all
of these factors. However, because of the availability of capacity of other
utilities and the lower fuel prices in recent years, price competition has been,
and is expected for the next few years to be, particularly important.
FERC orders 888 and 889, issued in April 1996, provide that utilities must
functionally unbundle their transmission services, by requiring them to use
their own tariffs in making off-system and third-party sales. See Transmission
Services. The public utility subsidiaries of AEP have functionally separated
their wholesale power sales from their transmission functions, as required by
orders 888 and 889.
Retail
The public utility subsidiaries of AEP generally have the exclusive right
to sell electric power at retail within their service areas. However, they do
compete with self-generation and with distributors of other energy sources, such
as natural gas, fuel oil and coal, within their service areas. The primary
factors in such competition are price, reliability of service and the capability
of customers to utilize sources of energy other than electric power. With
respect to self-generation, the public utility subsidiaries of AEP believe that
they maintain a favorable competitive position on the basis of all of these
factors. With respect to alternative sources of energy, the public utility
subsidiaries of AEP believe that the reliability of their service and the
limited ability of customers to substitute other cost-effective sources for
electric power place them in a favorable competitive position, even though their
prices may be higher than the costs of some other sources of energy.
Significant changes in the global economy in recent years have led to
increased price competition for industrial companies in the United States,
including those served by the AEP System. Such industrial companies have
requested price reductions from their suppliers, including their suppliers of
electric power. In addition, industrial companies which are downsizing or
reorganizing often close a facility based upon its costs, which may include,
among other things, the cost of electric power. The public utility subsidiaries
of AEP cooperate with such customers to meet their business needs through, for
example, various off-peak or interruptible supply options and believe that, as
low cost suppliers of electric power, they should be less likely to be
materially adversely affected by this competition and may be benefited by
attracting new industrial customers to their service territories.
The legislatures and/or the regulatory commissions in many states are
considering or have adopted "retail customer choice" which, in general terms,
means the transmission by an electric utility of electric power generated by an
entity of the customer's choice over its transmission and distribution system to
a retail customer in such utility's
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<PAGE> 19
service territory. A requirement to transmit directly to retail customers would
have the result of permitting retail customers to purchase electric power, at
the election of such customers, not only from the electric utility in whose
service area they are located but from another electric utility, an independent
power producer or an intermediary, such as a power marketer. Although AEP's
power generation would have competitors under some of these proposals, its
transmission and distribution would not. If competition develops in retail power
generation, the public utility subsidiaries of AEP believe that they should have
a favorable competitive position because of their relatively low costs.
Federal: Legislation to provide for retail competition among electric
energy suppliers has been introduced in both the U.S. Senate and House of
Representatives.
Indiana: In January 1999, Senate Bill 648 was introduced in the Indiana
Senate on behalf of a group of industrial customers. The bill would allow retail
electric customers to choose their electricity supply companies after December
31, 2000. The bill would provide that the IURC would determine each utility's
net stranded costs, which would be recovered by a transition charge in effect
until no later than December 31, 2005. The bill was not reported out of
committee and attempts by the sponsors to amend the bill were unsuccessful. AEP
continues to work with other utilities in Indiana to develop a consensus on
customer-choice legislation that can be enacted into law in Indiana. The outcome
of this effort is uncertain.
Kentucky: During the 1998 Regular Session of the Kentucky legislature, the
Electric Utility Restructuring Task Force was established by resolution. The
20-member Task Force includes ten members of the General Assembly and ten
officials from the Governor's office. The Task Force began monthly meetings in
August 1998. At the January 1999 meeting, AEP, the other Kentucky investor-owned
public utilities and the Kentucky electric cooperatives were requested to file
with the Task Force a description of their non-traditional, unregulated
businesses. The final report of the Task Force is due in November 1999, prior to
the next regularly scheduled legislative session in 2000.
A second Task Force was also established to study the effects of utility
restructuring on taxes. This Task Force also has been meeting monthly and will
report its findings in November 1999. Several advisory committees have been
formed to assist this Task Force in gathering and studying information. The
Kentucky investor-owned utilities, including AEP, are represented on each of
those committees. At the January meeting, the Task Force voted to retain a
consulting firm with extensive experience in utility tax issues to facilitate
the proceedings.
The KPSC Chairwoman leads 23 state public utility commissions in a
coalition entitled Low Cost States Initiative. The coalition's stated purpose is
to ensure that the U.S. Congress gives equal consideration to the issues facing
low-cost states. The coalition is focusing on the following five issues:
o A National Voice.
o Low Rates.
o Rural Electricity Rates.
o Stranded Costs and Benefits.
o Economic Development.
Michigan: In June 1995, the MPSC issued an order approving an experimental
five-year retail wheeling program and ordered Consumers Energy Company
(Consumers) and Detroit Edison Company (Detroit Edison), unaffiliated utilities,
to make retail delivery services available to a group of industrial customers,
in the amount of 60 megawatts and 90 megawatts, respectively. The experiment,
which commences when each utility needs new capacity, seeks to determine whether
a retail wheeling program best serves the public interest. During the
experiment, the MPSC will collect information regarding the effects of retail
wheeling. Consumers, Detroit Edison and other parties have appealed the MPSC's
order to the Michigan Supreme Court.
In January 1996, the Governor of Michigan endorsed a proposal of the
Michigan Jobs Commission to promote competition and customer choice in energy
and requested that the MPSC review the existing statutory and regulatory
framework governing Michigan utilities in light of increasing competition in the
utility industry. In December 1996, the MPSC staff issued a report on electric
industry restructuring which recommended
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<PAGE> 20
a phase-in program from 1997 through 2004 of direct access to electricity
suppliers applicable to all customers. On June 5, 1997, the MPSC entered an
order requiring electric utilities (including I&M) to phase in retail open
access for customers, with full customer choice by 2002 (MPSC Order). Under the
MPSC Order, customer choice is phased in from 1997 through 2001, at the rate of
2.5% of each utility's customer load per year, with all customers becoming
eligible to choose their electric supplier effective January 1, 2002. The MPSC
Order essentially adopted the December 1996 MPSC staff report that recommended
full recovery of stranded costs of utilities, including nuclear generating
investment, through the use of a transition charge applicable to customers
exercising choice. While concluding that securitization of stranded costs would
be feasible, the MPSC Order stated that legislative authorization is required
prior to the implementation of any securitization program.
As required by the MPSC Order, in July 1997, I&M filed a proposed open
access distribution tariff phasing in customer choice for all customer classes.
However, the MPSC has closed the relevant docket and taken no action with regard
to AEP's filing. The MPSC has approved, by orders dated January 14, 1998,
February 11, 1998 and March 8, 1999, after contested proceedings and with
modifications, filings made by Consumers and Detroit Edison. Detroit Edison, the
Michigan Attorney General and other parties have appealed the MPSC's orders to
the Michigan Court of Appeals.
Ohio: In March 1998, twin proposals on electric industry restructuring
were introduced in the Ohio House and Senate. Among other provisions, the bills
proposed a fully competitive marketplace in the year 2000, with no phase-in
period. The bills were the subject of hearings in the Senate Ways and Means
Committee and the House Public Utilities Committee in April-May 1998. However,
no additional action was taken with respect to the bills by the end of the
legislative session on December 31, 1998.
In August 1998, four of Ohio's investor-owned electric utilities - AEP,
Cinergy Corp., FirstEnergy and DP&L - announced that they had reached a
consensus on a basic alternative framework to deregulate Ohio's electric
industry. The proposal called for:
o The introduction of customer choice on January 1, 2001.
o A freeze on rates during a five-year transition period.
o Changes in utility taxes to achieve, among other things, equalized
treatment of in-state and out-of-state electricity suppliers.
o An opportunity to recover stranded costs during a five-year transition
period.
In September 1998, the leaders of the House and Senate called for a series
of "working study group" meetings involving the various stakeholder groups. The
study group's members were encouraged to reconcile their differences and develop
a consensus position on industry restructuring. The working study group
continues to hold periodic meetings.
On January 20, 1999, two new "placeholder" bills were introduced in the
Ohio House and Senate declaring the legislature's public policy with respect to
electric industry restructuring. On March 8, 1999, a legislative working group
released a Summary of Proposed Major Provisions of Electric Restructuring
Legislation. It is expected that these provisions will be incorporated into more
extensive legislative proposals expected to supplant the placeholder bills.
Legislative leaders have publicly indicated their desire to pass restructuring
legislation during the current legislative session.
Virginia: On February 25, 1999, the legislature passed an electric utility
industry restructuring bill and tax reform bill. The restructuring bill requires
Virginia utilities to join or establish a regional transmission entity by
January 2001, to which such utilities shall transfer the management and control
of their transmission systems. The bill provides for a transition to retail
customer choice from January 1, 2002 through January 1, 2004. The Virginia SCC
can delay or accelerate the implementation of choice based on considerations of
reliability, safety, communications or market power, but in no event shall any
delay extend the implementation of customer choice beyond January 1, 2005. With
limited exceptions, the generation of electricity will no longer be subject to
regulation.
The bill provides for capped rates, effective January 1, 2001, for a
period of time ending as late as July 1, 2007. The capped rates may be
terminated
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<PAGE> 21
after January 1, 2004, upon petition of the Virginia SCC by the utility and a
finding by the Virginia SCC that an effective competitive market exists. If
capped rates continue beyond January 1, 2004, the bill provides for a one-time
change in the non-generation components of such rates upon approval by the
Virginia SCC. The Virginia SCC also may adjust the capped rates in connection
with the utility's recovery of fuel costs, changes in taxation by Virginia, and
any financial distress of the utility beyond the utility's control.
The restructuring bill provides for recovery of just and reasonable net
stranded costs to the extent that such costs exceed zero in total value for any
incumbent electric utility through either capped rates or the imposition of a
wires charge upon customers who may depart the incumbent in favor of an
alternative supplier prior to the termination of the rate cap.
A ten-member legislative task force, to serve from July 1, 1999 through
July 1, 2005, will monitor the work of the Virginia SCC, determine the
discontinuance of capped rates and review related matters. The task force will
report annually to the Governor and legislature.
The tax bill provides for replacement of gross receipts and certain other
taxes by (i) a consumption tax levied upon customers on the basis of
kilowatt-hour usage and (ii) a state corporate net income tax. The intention of
the tax bill is to achieve approximate revenue neutrality for Virginia.
West Virginia: In December 1996, the West Virginia PSC issued an order
initiating a general investigation into the restructuring of the regulated
electric industry. The Task Force established by the West Virginia PSC to study
electric industry restructuring issued its Initial Report in October 1997 and
Supplemental Report on Recommended Legislation in January 1998. On March 14,
1998, the West Virginia Legislature passed restructuring legislation authorizing
the West Virginia PSC to proceed with the development of a plan for electric
industry restructuring, if restructuring is determined by the West Virginia PSC
to be in the public interest. Any plan developed and proposed by the West
Virginia PSC must be approved by the West Virginia Legislature before such plan
can be made effective. Following the passage of the restructuring legislation,
the West Virginia PSC closed the 1996 general investigation and commenced a new
proceeding to carry out its obligations under the legislation.
On April 20, 1998, the West Virginia PSC initiated a general investigation
to determine whether West Virginia should adopt a restructuring plan. Workshops
were held throughout the summer of 1998 and on November 24, 1998, the West
Virginia PSC held a hearing at which the West Virginia PSC was advised that the
participants involved in the general investigation had been unable to reach a
consensus on a restructuring plan. The West Virginia PSC then issued a
procedural order on December 23, 1998, establishing dates beginning in June 1999
for pre-filed testimony, responsive testimony, hearing dates and briefs
regarding the issues of codes of conduct, universal service, class subsidies and
generation plant valuation.
Possible Strategic Responses
In response to the competitive forces and regulatory changes being faced
by AEP and its public utility subsidiaries, as discussed under this heading and
under Regulation, AEP and its public utility subsidiaries have from time to time
considered, and expect to continue to consider, various strategies designed to
enhance their competitive position and to increase their ability to adapt to and
anticipate changes in their utility business. These strategies may include
business combinations with other companies, internal restructurings involving
the complete or partial separation of their generation, transmission and
distribution businesses, acquisitions of related or unrelated businesses, and
additions to or dispositions of portions of their franchised service
territories. AEP and its public utility subsidiaries may from time to time be
engaged in preliminary discussions, either internally or with third parties,
regarding one or more of these potential strategies. No assurances can be given
as to whether any potential transaction of the type described above may actually
occur, or as to its ultimate effect on the financial condition or competitive
position of AEP and its public utility subsidiaries.
NEW BUSINESS DEVELOPMENT
AEP has expanded its business to non-regulated energy activities through
several subsidiaries, including AEP Energy Services, Inc. (AEPES), AEP
Resources, Inc. (Resources), AEP Resources Service Company (RESCo) and AEP
Communications, LLC (AEP Communications).
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<PAGE> 22
AEPES
AEPES markets and trades natural gas and provides gas storage and
transportation services.
Resources
Resources' primary business is development of, and investment in, exempt
wholesale generators, foreign utility companies, qualifying cogeneration
facilities and other energy-related domestic and international investment
opportunities and projects. Resources has business development offices in
London, Beijing, Singapore, Sydney, Toronto, Washington and Houston.
Resources has a 50% interest in Yorkshire Electric Group plc (Yorkshire
Electricity) with an indirect wholly-owned subsidiary of New Century Energies,
Inc. Yorkshire Electricity is a United Kingdom independent regional electricity
company. It is principally engaged in the distribution of electricity to 2.2
million customers in its authorized service territory which is comprised of
3,860 square miles and located centrally in the east coast of England.
Resources' indirect subsidiary, AEP Pushan Power LDC, has a 70% interest
in Nanyang General Light Electric Co., Ltd. (Nanyang Electric), a joint venture
organized to develop and build two 125 megawatt coal-fired generating units near
Nanyang City in the Henan Province of The Peoples Republic of China. Nanyang
Electric was established in 1996 by AEP Pushan Power LDC, Henan Electric Power
Development Co. (15% interest) and Nanyang City Hengsheng Energy Development
Company Limited (formerly Nanyang Municipal Finance Development Co.) (15%
interest). Funding for the construction of the generating units has commenced
and will continue through completion. Unit 1 went into service in February 1999
and Unit 2 is expected to go into service in the third quarter of 1999.
Resources' share of the total cost of the project of $190,000,000 is estimated
to be approximately $110,000,000.
In March 1998, Resources, through AEP Resources Australia Pty., Ltd., a
special purpose subsidiary of Resources, acquired a 20% interest in Pacific
Hydro Limited for $10,000,000. Pacific Hydro is principally engaged in the
development and operation of, and ownership of interests in, hydroelectric
facilities in the Asia Pacific region. Currently, Pacific Hydro has interests in
six hydroelectric units that operate or are under construction in Australia and
the Philippines. The hydroelectric facilities in which Pacific Hydro had
interests as of December 31, 1998 (including those under construction) had total
design capacity of approximately 178 megawatts.
In December 1998, Resources, through wholly-owned subsidiaries, acquired
CitiPower Pty., an electric distribution and retail sales company in Victoria,
Australia, for $1,100,000,000. CitiPower serves approximately 240,000 customers
in the city of Melbourne. With about 3,100 miles of distribution lines in a
service area that covers approximately 100 square miles, CitiPower distributes
about 4,800 gigawatt-hours annually.
In December 1998, Resources acquired from Equitable Resources, Inc.
midstream gas operations for approximately $340,000,000 including working
capital funds. The gas trading and marketing group included in this purchase was
acquired by AEPES. Assets acquired include:
o A 2,000-mile intrastate pipeline system in Louisiana.
o Four natural gas processing plants that straddle the pipeline.
o Jefferson Island storage facility, including an existing salt dome
storage cavern and a second cavern under construction, both directly
connected to the Henry Hub, the most active gas trading area in North
America.
The pipeline and storage facility are interconnected to 15 interstate and
23 intrastate pipelines.
RESCo
RESCo offers engineering, construction, project management and other
consulting services for projects involving transmission, distribution or
generation of electric power both domestically and internationally.
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<PAGE> 23
AEP Communications
AEP Communications markets energy information, wireless tower
infrastructure and fiber optic services. In 1998, AEP Communications launched
DatapultSM, a portfolio of energy information data and analysis tools designed
to help customers identify energy- and cost-saving opportunities. AEP
Communications also is expanding its fiber optic network and marketing dedicated
telecommunications bandwidth to other carriers.
AEP Power Marketing
In July 1996, AEP Power Marketing, Inc. (AEPPM), a wholly-owned subsidiary
of AEP, requested authority from FERC to market electric power at wholesale at
market-based rates. In September 1996, the FERC accepted the filing, conditioned
upon, among other things, the utility subsidiaries of AEP refraining from (1)
selling nonpower goods or services to any affiliate at a price below its cost or
market price, whichever is higher, and (2) purchasing nonpower goods or services
from any affiliate at a price above market price. AEPPM requested FERC to
clarify that the applicability of this condition relates only to transactions
between AEP utility subsidiaries and AEPPM. In 1998, FERC granted the requested
clarification. AEPPM has not entered into any transactions to date. However, the
AEP System is engaged in regulated power marketing and trading within its
traditional marketing area through its Power Pool and in non-regulated financial
derivative power trading activities conducted by the Power Pool but recorded in
non-operating income by the AEP Power Pool member companies.
SEC Limitations
AEP has received approval from the SEC under PUHCA to issue and sell
securities in an amount up to 100% of its average quarterly consolidated
retained earnings balance (such average balance was approximately $1,674,000,000
for the twelve months ended December 31, 1998) for investment in exempt
wholesale generators and foreign utility companies. Resources expects to
continue its pursuit of new and existing energy generation and delivery projects
worldwide.
SEC Rule 58 permits AEP and other registered holding companies to invest
up to 15% of consolidated capitalization in energy-related companies. AEPES, an
energy-related company under Rule 58, is authorized to engage in energy-related
activities, including marketing electricity, gas and other energy commodities.
Risk
These continuing efforts to invest in and develop new business
opportunities offer the potential of earning returns which may exceed those of
traditional AEP rate-regulated operations. However, they also involve a higher
degree of risk which must be carefully considered and assessed. AEP may make
additional substantial investments in these and other new businesses.
Reference is made to Market Risks under Item 7A herein for a discussion of
certain market risks inherent in AEP business activities.
PROPOSED AEP-CSW MERGER
AEP and CSW entered into an Agreement and Plan of Merger, dated as of
December 21, 1997, pursuant to which CSW would, on the closing date, merge with
and into a wholly owned merger subsidiary of AEP with CSW being the surviving
corporation. As a result of the merger, each outstanding share of common stock,
par value $3.50 per share, of CSW (other than shares owned by AEP or CSW) shall
be converted into the right to receive 0.6 of a share of common stock, par value
$6.50 per share, of AEP. Based on the price of AEP's common stock on December
19, 1997, the transaction would be valued at $6.6 billion. The combined company
will be named American Electric Power Company, Inc. and will be based in
Columbus, Ohio.
Consummation of the merger is subject to certain conditions, including the
receipt of required regulatory approvals. Assuming the receipt of all required
approvals, completion of the merger is anticipated to occur by the end of 1999.
CSW is a global, diversified public utility holding company based in
Dallas, Texas. CSW owns four domestic electric utility subsidiaries serving 1.7
million customers in portions of the
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<PAGE> 24
states of Texas, Oklahoma, Louisiana and Arkansas and a regional electricity
company in the United Kingdom. CSW also owns other international energy
operations and non-regulated subsidiaries involved in energy-related
investments, energy efficiency services and financial transactions.
CONSTRUCTION PROGRAM
New Generation
The AEP System is continuously involved in assessing the adequacy of its
generation, transmission, distribution and other facilities to plan and provide
for the reliable supply of electric power and energy to its customers. In this
assessment and planning process, assumptions are continually being reviewed as
new information becomes available, and assessments and plans are modified, as
appropriate. Thus, System reinforcement plans are subject to change,
particularly with the anticipated restructuring of the electric utility industry
and the move to increasing competition in the marketplace. See Competition and
Business Change.
Committed or anticipated capability changes to the AEP System's generation
resources include:
o Rerating of the Smith Mountain pumped storage hydroelectric plant
(36-megawatt increase).
o Purchase from an independent power producer's hydro project with an
expected capacity value of 28 megawatts.
o Expiration of the Rockport Unit 1 sale of 455 megawatts to VEPCo on
December 31, 1999 (see AEGCo).
Apart from these changes and temporary power purchases that can be
arranged, there are no specific commitments for additions of new generation
resources on the AEP System. In this regard, the most recent resource plan filed
by AEP's electric utility subsidiaries with various state commissions indicates
no need for new generation resources until beyond the year 2003. When the time
for commitment to additional generation resources approaches, all means for
adding such resources, including self-build and external resource options, will
be considered. However, given the restructuring that is expected to take place
in the industry, the extent of the need of AEP's operating companies for any
additional generation resources in the foreseeable future is highly uncertain.
Proposed Transmission Facilities
On September 30, 1997, APCo refiled applications in Virginia and West
Virginia for certificates to build the Wyoming-Cloverdale 765,000-volt line. The
preferred route for this line is approximately 132 miles in length, connecting
APCo's Wyoming Station in southern West Virginia to APCo's Cloverdale Station
near Roanoke, Virginia. APCo's estimated cost is $263,300,000.
APCo announced this project in 1990. Since then it has been in the process
of trying to obtain federal permits and state certificates. At the federal
level, the U.S. Forest Service (Forest Service) is directing the preparation of
an Environmental Impact Statement (EIS), which is required prior to granting
permits for crossing lands under federal jurisdiction. Permits are needed from
the (i) Forest Service to cross federal forests, (ii) Army Corps of Engineers to
cross the New River and a watershed near the Wyoming Station, and (iii) National
Park Service or Forest Service to cross the Appalachian National Scenic Trail.
In June 1996, the Forest Service released a Draft EIS and preliminarily
identified a "No Action Alternative" as its preferred alternative. If this
alternative were incorporated into the Final EIS, APCo would not be authorized
to cross federal forests administered by the Forest Service. The Forest Service
stated that it would not prepare the Final EIS until after Virginia and West
Virginia determined need and routing issues.
West Virginia: On May 27, 1998, the West Virginia PSC issued an order
granting APCo's application for a certificate with respect to the preferred
route for the Wyoming-Cloverdale 765,000-volt line.
Virginia: By Hearing Examiner's Ruling of June 9, 1998, the procedural
schedule for the certificate in Virginia was suspended for 90 days to allow APCo
to conduct additional studies. On August 21, 1998, APCo filed a report stating
that a two-phased alternative project could provide electrical transmission
reinforcement comparable to the Wyoming-Cloverdale line.
By Hearing Examiner's Ruling of September 22, 1998, the proceeding was
continued and APCo was directed to study the first phase of the alternative
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<PAGE> 25
project, involving a line running from Wyoming Station in West Virginia to
APCo's existing Jacksons Ferry Station in Virginia or any point on the Jacksons
Ferry-Cloverdale 765kV transmission line. APCo estimates that the
Wyoming-Jacksons Ferry line would be between 82-100 miles in length, including
32 miles in West Virginia previously certified. APCo must file its study by June
1, 1999. The Hearing Examiner also ordered APCo and the Virginia SCC Staff to
provide at the evidentiary hearing information on generation alternatives,
specifically natural gas generation, to APCo's proposed transmission line.
If the Virginia SCC grants a certificate for the Wyoming-Jacksons Ferry
line, APCo will have to amend its certificate from West Virginia.
Proposed Completion Schedule: If the Virginia SCC and West Virginia PSC
issue the required certificates, APCo will cooperate with the Forest Service to
complete the EIS process and obtain the federal permits. Management estimates
that neither project can be completed before the winter of 2003-2004. However,
given the findings in the Draft EIS, APCo cannot presently predict the schedule
for completion of the state and federal permitting process.
Construction Expenditures
The following table shows the construction expenditures by AEGCo, APCo,
CSPCo, I&M, KEPCo, OPCo and the AEP System and their respective consolidated
subsidiaries during 1996, 1997 and 1998 and their current estimate of 1999
construction expenditures, in each case including AFUDC but excluding nuclear
fuel and other assets acquired under leases. The construction expenditures for
the years 1996-1998 were, and it is anticipated that the estimated construction
expenditures for 1999 will be, approximately:
1996 1997 1998 1999
ACTUAL ACTUAL ACTUAL ESTIMATE
------ ------ ------ --------
(IN THOUSANDS)
AEP System (a).. $578,000 $762,000 $792,100 $820,100
AEGCo........ 2,200 3,900 6,600 6,300
APCo......... 192,900 218,100 204,900 254,600
CSPCo........ 93,600 108,900 115,300 94,500
I&M.......... 90,500 123,400 148,900 151,800
KEPCo........ 75,800 66,700 43,800 42,500
OPCo......... 113,800 172,700 185,200 201,000
- -----------------------
(a) Includes expenditures of other subsidiaries not shown.
Reference is made to the footnotes to the financial statements entitled
Commitments and Contingencies incorporated by reference in Item 8, for further
information with respect to the construction plans of AEP and its operating
subsidiaries for the next three years.
The System construction program is reviewed continuously and is revised
from time to time in response to changes in estimates of customer demand,
business and economic conditions, the cost and availability of capital,
environmental requirements and other factors. Changes in construction schedules
and costs, and in estimates and projections of needs for additional facilities,
as well as variations from currently anticipated levels of net earnings, Federal
income and other taxes, and other factors affecting cash requirements, may
increase or decrease the estimated capital requirements for the System's
construction program.
From time to time, as the System companies have encountered the industry
problems described above, such companies also have encountered limitations on
their ability to secure the capital necessary to finance construction
expenditures.
Environmental Expenditures: Expenditures related to compliance with air
and water quality standards, included in the gross additions to plant of the
System, during 1996, 1997 and 1998 and the current estimate for 1999 are shown
below. Substantial expenditures in addition to the amounts set forth below may
be required by the System in future years in connection with the modification
and addition of facilities at generating plants for environmental quality
controls in order to comply with air and water quality standards which have been
or may be adopted.
1996 1997 1998 1999
ACTUAL ACTUAL ACTUAL ESTIMATE
------ ------ ------ --------
(IN THOUSANDS)
AEGCo............. $ 0 $ 0 $ 800 $ 0
APCo.............. 10,500 9,100 25,000 36,100
CSPCo............. 1,800 1,300 5,300 3,600
I&M............... 0 100 13,000 6,700
KEPCo............. 100 1,300 4,600 400
OPCo.............. 1,600 11,800 27,100 32,100
AEP System..... $14,000 $23,600 $75,800 $78,900
======= ======= ======= =======
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FINANCING
It has been the practice of AEP's operating subsidiaries to finance
current construction expenditures in excess of available internally generated
funds by initially issuing unsecured short-term debt, principally commercial
paper and bank loans, at times up to levels authorized by regulatory agencies,
and then to reduce the short-term debt with the proceeds of subsequent sales by
such subsidiaries of long-term debt securities and cash capital contributions by
AEP. It has been the practice of AEP, in turn, to finance cash capital
contributions to the common stock equities of its subsidiaries by issuing
unsecured short-term debt, principally commercial paper, and then to sell
additional shares of Common Stock of AEP for the purpose of retiring the
short-term debt previously incurred. In 1998, AEP issued approximately 1,193,000
shares of Common Stock pursuant to its Dividend Reinvestment and Stock Purchase
Plan. Although prevailing interest costs of short-term bank debt and commercial
paper generally have been lower than prevailing interest costs of long-term debt
securities, whenever interest costs of short-term debt exceed costs of long-term
debt, the companies might be adversely affected by reliance on the use of
short-term debt to finance their construction and other capital requirements.
During the period 1996-1998, net external funds from financings and
capital contributions by AEP amounted, with respect to APCo and KEPCo, to
approximately 23% and 75%, respectively, of the aggregate construction
expenditures shown above. During this same period, the amount of funds used to
retire long-term and short-term debt and preferred stock of AEGCo, CSPCo and
OPCo exceeded the amount of funds from financings and capital contributions by
AEP.
The ability of AEP and its subsidiaries to issue short-term debt is
limited by regulatory restrictions and, in the case of most of the operating
subsidiaries, by provisions contained in certain debt and other instruments. The
approximate amounts of short-term debt which the companies estimate that they
were permitted to issue under the most restrictive such restriction, at January
1, 1999, and the respective amounts of short-term debt outstanding on that date,
on a corporate basis, are shown in the following tabulation:
<TABLE>
<CAPTION>
TOTAL AEP
SHORT-TERM DEBT AEP AEGCO APCO CSPCO I&M KEPCO OPCO SYSTEM(a)
--------------- --- ----- ---- ----- --- ----- ---- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount authorized........................... $500 $80 $325 $300 $300 $150 $400 $2,115
==== === ==== ==== ==== ==== ==== ======
Amount outstanding:
Notes payable......................... $ -- $24 $ 34 $ -- $ -- $ 5 $ -- $ 197
Commercial paper...................... 78 -- 42 52 109 15 123 419
---- --- ---- ---- ---- ---- ---- ------
$ 78 $24 $ 76 $ 52 $109 $ 20 $123 $ 616
==== === ==== ==== ==== ==== ==== ======
</TABLE>
- ------------------
(a) Includes short-term debt of other subsidiaries not shown.
Reference is made to the footnotes to the financial statements
incorporated by reference in Item 8 for further information with respect to
unused short-term bank lines of credit.
In order to issue additional first mortgage bonds, it is necessary for
APCo, CSPCo, I&M, KEPCo and OPCo to comply with earnings coverage requirements
contained in their respective mortgages. The most restrictive of these
provisions generally requires, for the issuance of first mortgage bonds for
purposes other than the refunding of outstanding first mortgage bonds, a
minimum, before income tax, earnings coverage of twice the pro forma annual
interest charges on first mortgage bonds for a period of twelve consecutive
calendar months within the fifteen calendar months immediately preceding the
proposed new issue. In computing such coverages, the companies include as a
component of earnings revenues collected subject to refund (where applicable)
and, to the extent not limited by the instrument under which the computation is
made, AFUDC, including amounts positioned and classified as an allowance for
borrowed funds used during construction. These coverage provisions have at
certain times restricted the ability of one or more of the above subsidiaries of
AEP to issue senior securities.
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<PAGE> 27
The respective mortgage coverages of APCo, CSPCo, I&M, KEPCo and OPCo
under their respective mortgage provisions, calculated on the foregoing basis
and in accordance with the respective amounts then recorded in the accounts of
the companies, were at least those stated in the following table:
DECEMBER 31,
------------
1996 1997 1998
---- ---- ----
APCo
Mortgage coverage............. 3.98 3.72 3.88
CSPCo
Mortgage coverage............. 4.44 4.95 6.36
I&M
Mortgage coverage............. 6.66 7.57 6.39
KEPCo
Mortgage coverage............. 3.22 4.23 4.40
OPCo
Mortgage coverage............. 8.27 9.74 9.40
Although certain other subsidiaries of AEP either are not subject to any
coverage restrictions or are not subject to restrictions as constraining as
those to which APCo, CSPCo, I&M, KEPCo and OPCo are subject, their ability to
finance substantial portions of their construction programs may be subject to
market limitations and other constraints unless other assurances are furnished.
AEP believes that the ability of some of its subsidiaries to issue short-
and long-term debt securities in the amounts required to finance their business
may depend upon the timely approval of rate increase applications. If one or
more of the subsidiaries are unable to continue the issuance and sale of
securities on an orderly basis, such company or companies will be required to
consider the curtailment of construction and other outlays or the use of
alternative financing arrangements, if available, which may be more costly.
AEP's subsidiaries have also utilized, and expect to continue to utilize,
additional financing arrangements, such as leasing arrangements, including the
leasing of utility assets, coal mining and transportation equipment and
facilities and nuclear fuel. Pollution control revenue bonds have been used in
the past and may be used in the future in connection with the construction of
pollution control facilities; however, Federal tax law has limited the
utilization of this type of financing except for purposes of certain financing
of solid waste disposal facilities and of certain refunding of outstanding
pollution control revenue bonds issued before August 16, 1986.
New projects undertaken by AEP Resources and its subsidiaries are
generally financed through equity funds provided by AEP, non-recourse debt
incurred on a project-specific basis, debt issued by AEP Resources or through a
combination thereof. See New Business Development and Item 7 for additional
information concerning AEP Resources and its subsidiaries.
RATES AND REGULATION
General
The rates charged by the electric utility subsidiaries of AEP are approved
by the FERC or one of the state utility commissions as applicable. The FERC
regulates wholesale rates and the state commissions regulate retail rates. In
recent years the number of rate increase applications filed by the operating
subsidiaries of AEP with their respective state commissions and the FERC has
decreased. Under current rate regulation, if increases in operating,
construction and capital costs exceed increases in revenues resulting from
previously granted rate increases and increased customer demand, then it may be
appropriate for certain of AEP's electric utility subsidiaries to file rate
increase applications in the future.
Generally the rates of AEP's operating subsidiaries are determined based
upon the cost of providing service including a reasonable return on investment.
Certain states served by the AEP System allow alternative forms of rate
regulation in addition to the traditional cost-of-service approach. However, the
rates of AEP's operating subsidiaries in those states continue to be cost-based.
The IURC may approve alternative regulatory plans which could include setting
customer rates based on market or average prices, price caps, index-based prices
and prices based on performance and efficiency. The Virginia SCC may approve (i)
special rates, contracts or incentives to individual customers or classes of
customers and (ii) alternative forms of regulation including, but not limited
to, the use of price regulation, ranges of authorized returns, categories of
services and price indexing.
All of the seven states served by the AEP System, as well as the FERC,
either permit the incorporation of fuel adjustment clauses in a utility
company's rates and tariffs, which are designed to
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<PAGE> 28
permit upward or downward adjustments in revenues to reflect increases or
decreases in fuel costs above or below the designated base cost of fuel set
forth in the particular rate or tariff, or permit the inclusion of specified
levels of fuel costs as part of such rate or tariff.
AEP cannot predict the timing or probability of approvals regarding
applications for additional rate changes, the outcome of action by regulatory
commissions or courts with respect to such matters, or the effect thereof on the
earnings and business of the AEP System. In addition, current rate regulation
may be subject to significant revision. See Competition and Business Change.
Investigations of June 1998 Pricing Abnormalities
During the week of June 22-26, 1998, wholesale electric power markets in
the Midwest exhibited unprecedented price volatility due to several market
factors, including an extended period of unseasonably hot weather, scheduled and
unplanned generating unit outages, transmission constraints, and defaults by
certain power marketers on their supply obligations. The simultaneous
culmination of these events resulted in temporary but extreme price spikes in
the hourly and daily markets.
As a result of this situation, the FERC, IURC and PUCO initiated separate
investigations into the price increase. After completing their reviews, these
commissions concluded that the pricing abnormalities were due to the unusual
conditions that occurred during that time. The FERC Staff report issued in
September 1998 did not find evidence that firm service to consumers was
compromised anywhere in the Midwest during the period of the pricing
abnormalities. The FERC reserved the right to conduct further investigations on
a company-specific basis. AEP is unable to predict what, if any, further action
may be taken by the FERC in respect of this matter. No assurance can be given
that the FERC will not take enforcement action in this connection.
APCo
FERC: On February 14, 1992, APCo filed with the FERC applications for an
increase in its wholesale rates to Kingsport Power Company and non-affiliated
customers in the amounts of approximately $3,933,000 and $4,759,000,
respectively. APCo began collecting the rate increases, subject to refund, on
September 15, 1992. In addition, the Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions (SFAS 106), which
requires employers, beginning in 1993, to accrue for the costs of retiree
benefits other than pensions. These rates include the higher level of SFAS 106
costs.
On November 9, 1993, the administrative law judge (ALJ) issued an initial
decision affirming the terms of APCo's filing except for APCo's requested return
on common equity of 12.75% which the ALJ found should be 10.1%. On June 29,
1998, the FERC issued its order affirming the ALJ's decision except the return
on common equity, which the FERC approved at 9.95%. On July 29, 1998, APCo filed
with the FERC a request for rehearing of the FERC's order.
At December 31, 1998, APCo had accrued a refund liability, including
interest, of $42,800,000.
Virginia: In June 1997, APCo filed an application with the Virginia SCC
for approval of an alternative regulatory plan (Plan) and proposed, among other
things, an increase of $30,500,000 in base rates on an annual basis to be
effective July 13, 1997. On July 10, 1997, the Virginia SCC issued an order
suspending implementation of the proposed rates until November 11, 1997 when
these rates were placed into effect subject to refund.
On February 18, 1999, the Virginia SCC approved a stipulation and
settlement agreement among APCo, the Virginia SCC Staff and consumer and major
industrial customer representatives that provides for the following:
o Elimination of the $30,500,000 annual increase in base rates that has
been collected subject to refund since mid-November 1997.
o During the period January 1, 1998 through December 31, 2000:
o Reduction in base rates of $6,000,000 from the level in effect
prior to the November 1997 increase, with the expectation that
rates would remain at the agreed-upon levels.
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<PAGE> 29
o APCo's commitment to invest at least $90,000,000 in Virginia
distribution facilities to maintain the overall quality and
reliability of electric service.
o Benchmark rate of return on equity of 10.85% with one-third of
earnings above that level to be retained by APCo and the
remaining two-thirds to be refunded to ratepayers.
o Refund with interest of all amounts collected above the approved
rates.
At December 31, 1998, APCo had accrued a refund liability, including
interest, of $51,600,000.
West Virginia: On December 27, 1996, the West Virginia PSC approved a
settlement agreement among APCo and other parties. In accordance with that
agreement, the West Virginia PSC reduced APCo's base rates and Expanded Net
Energy Cost (ENEC) rates by $5,000,000 and $28,000,000, respectively, on a
one-time annual basis, effective November 1, 1996. Under the terms of the
agreement, APCo's rates would not increase prior to January 1, 2000 and, through
this date, ENEC cost variances will be subject to deferred accounting and a
cumulative ENEC recovery balance will be maintained. Regardless of the actual
cumulative ENEC recovery balance at December 31, 1999, ratepayers will not be
responsible for any cumulative underrecovery and any cumulative overrecoveries
will be treated in a manner to be determined by the West Virginia PSC, except
that ENEC overrecoveries during each calendar year through December 31, 1999, in
excess of $10,000,000 per period, will be accumulated and shared equally between
APCo and its ratepayers.
CSPCo
Zimmer Plant: The Zimmer Plant was placed in commercial operation as a
1,300-megawatt coal-fired plant on March 30, 1991. CSPCo owns 25.4% of the
Zimmer Plant with the remainder owned by two unaffiliated companies, CG&E
(46.5%) and DP&L (28.1%).
From the in-service date of March 1991 until rates went into effect in May
1992, deferred carrying charges of $43,000,000 were recorded on the Zimmer Plant
investment. Recovery of the deferred carrying charges will be sought in the next
PUCO base rate proceeding in accordance with the PUCO accounting order that
authorized the deferral.
I&M
Reference is made to Cook Nuclear Plant --Cook Plant Shutdown under Item 2
herein for a discussion of recovery of fuel costs.
OPCo
Under the terms of a stipulation agreement approved by the PUCO in
November 1992, beginning December 1, 1994, the cost of coal burned at the Gavin
Plant is subject to a 15-year predetermined price of $1.575 per million Btus
with quarterly escalation adjustments. A 1995 PUCO-approved settlement agreement
fixed the electric fuel component factor at 1.465 cents per kwh for the period
June 1995 through November 1998. After the first to occur of either full
recovery of these costs or November 2009, the price that OPCo can recover for
coal from its affiliated Meigs mine which supplies the Gavin Plant will be
limited to the lower of cost or the then-current market price. The agreements
provide OPCo with the opportunity to recover any operating losses incurred under
the predetermined or fixed price, as well as its investment in, and liabilities
and closing costs associated with, its affiliated mining operations attributable
to its Ohio jurisdiction, to the extent the actual cost of coal burned at the
Gavin Plant is below the predetermined price.
Based on the estimated future cost of coal burned at Gavin Plant,
management believes that the Ohio jurisdictional portion of the investment in,
and liabilities and closing costs of, the affiliated mining operations,
including deferred amounts, will be recovered under the terms of the
predetermined price agreement following shutdown. Management intends to seek
from non-Ohio jurisdictional ratepayers recovery of the non-Ohio jurisdictional
portion of any remaining investment in, and the liabilities and closing costs
of, OPCo's Muskingum, Windsor and Meigs mines, but there can be no assurance
that such recovery will be approved. The non-Ohio jurisdictional portion of
shutdown costs for these mines, which includes the investment in the mines,
leased asset buy-outs, reclamation costs and employee benefits, is estimated to
be approximately $17,000,000 for Muskingum, $14,000,000 for Windsor and
$68,000,000 for Meigs, after tax at December 31, 1998.
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<PAGE> 30
Management anticipates closing the Muskingum mine in October 1999, Windsor
mine in December 2000 and Meigs mine in December 2001. The Muskingum mine
supplies coal to Muskingum River Plant and the Windsor mine supplies coal to
Cardinal Plant Unit 1. These mines are closing, in part, as a result of
compliance with the Phase II requirements of the Clean Air Act Amendments of
1990 (see Environmental and Other Matters -- Air Pollution Control -- Acid
Rain). The mines could close earlier depending on the economics of continued
operation under the terms of the 1995 settlement agreement. Unless future
shutdown costs and/or the cost of coal production of OPCo's Muskingum, Windsor
and Meigs mines, including amounts deferred, can be recovered, AEP's and OPCo's
results of operations would be adversely affected.
FUEL SUPPLY
The following table shows the sources of power generated by the AEP
System:
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Coal..................... 91% 88% 87% 92% 99%
Nuclear.................. 8% 11% 12% 7% 0%
Hydroelectric and other.. 1% 1% 1% 1% 1%
Variations in the generation of nuclear power are primarily related to
refueling outages and, in 1997 and 1998, the shutdown of the Cook Plant to
respond to issues raised by the NRC. See Cook Nuclear Plant -- Cook Plant
Shutdown.
Coal
The Clean Air Act Amendments of 1990 provide for the issuance of annual
allowance allocations covering sulfur dioxide emissions at levels below historic
emission levels for many coal-fired generating units of the AEP System. Phase I
of this program began in 1995 and Phase II begins in 2000, with both phases
requiring significant changes in coal supplies and suppliers. The full extent of
such changes, particularly in regard to Phase II, however, has not been
determined. See Environmental and Other Matters --Air Pollution Control -- Acid
Rain for the current compliance plan.
In order to meet emission standards for existing and new emission sources,
the AEP System companies will, in any event, have to obtain coal supplies, in
addition to coal reserves now owned by System companies, through the acquisition
of additional coal reserves and/or by entering into additional supply
agreements, either on a long-term or spot basis, at prices and upon terms which
cannot now be predicted.
No representation is made that any of the coal rights owned or controlled
by the System will, in future years, produce for the System any major portion of
the overall coal supply needed for consumption at the coal-fired generating
units of the System. Although AEP believes that in the long run it will be able
to secure coal of adequate quality and in adequate quantities to enable existing
and new units to comply with emission standards applicable to such sources, no
assurance can be given that coal of such quality and quantity will in fact be
available. No assurance can be given either that statutes or regulations
limiting emissions from existing and new sources will not be further revised in
future years to specify lower sulfur contents than now in effect or other
restrictions. See Environmental and Other Matters herein.
The FERC has adopted regulations relating, among other things, to the
circumstances under which, in the event of fuel emergencies or shortages, it
might order electric utilities to generate and transmit electric power to other
regions or systems experiencing fuel shortages, and to rate-making principles by
which such electric utilities would be compensated. In addition, the Federal
Government is authorized, under prescribed conditions, to allocate coal and to
require the transportation thereof, for the use of power plants or major
fuel-burning installations.
System companies have developed programs to conserve coal supplies at
System plants which involve, on a progressive basis, limitations on sales of
power and energy to neighboring utilities, appeals to customers for voluntary
limitations of electric usage to essential needs, curtailment of sales to
certain industrial customers, voltage reductions and, finally, mandatory
reductions in cases where current coal supplies fall below minimum levels. Such
programs have been filed and reviewed with officials of Federal and state
agencies and, in some cases, the state regulatory agency has prescribed actions
to be taken under specified circumstances by System companies, subject to the
jurisdiction of such agencies.
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<PAGE> 31
The mining of coal reserves is subject to Federal requirements with
respect to the development and operation of coal mines, and to state and Federal
regulations relating to land reclamation and environmental protection, including
Federal strip mining legislation enacted in August 1977. Continual evaluation
and study is given to possible closure of existing coal mines and divestiture or
acquisition of coal properties in light of Federal and state environmental and
mining laws and regulations which may affect the System's need for or ability to
mine such coal.
Western coal purchased by System companies is transported by rail to an
affiliated terminal on the Ohio River for transloading to barges for delivery to
generating stations on the river. Subsidiaries of AEP lease approximately 3,593
coal hopper cars to be used in unit train movements, as well as 14 towboats, 352
jumbo barges and 145 standard barges. Subsidiaries of AEP also own or lease coal
transfer facilities at various other locations.
The System generating companies procure coal from coal reserves which are
owned or mined by subsidiaries of AEP, and through purchases pursuant to
long-term contracts, or on a spot purchase basis, from unaffiliated producers.
The following table shows the amount of coal delivered to the AEP System during
the past five years, the proportion of such coal which was obtained either from
coal-mining subsidiaries, from unaffiliated suppliers under long-term contracts
or through spot or short-term purchases, and the average delivered price of spot
coal purchased by System companies:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total coal delivered to
AEP operated plants (thousands of tons)....................... 49,024 46,867 51,030 54,292 54,004
Sources (percentage):
Subsidiaries.................................................. 15% 14% 13% 14% 14%
Long-term contracts........................................... 65% 75% 71% 66% 66%
Spot or short-term purchases.................................. 20% 11% 16% 20% 20%
Average price per ton of spot-purchased coal..................... $23.00 $25.15 $23.85 $24.38 $25.05
</TABLE>
The average cost of coal consumed during the past five years by all AEP
System companies, AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo is shown in the
following tables:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
DOLLARS PER TON
---------------
<S> <C> <C> <C> <C> <C>
AEP System Companies........................................... $ 33.95 $ 32.52 $ 31.70 $ 31.77 $ 32.60
AEGCo....................................................... 18.59 18.80 18.22 19.30 19.37
APCo........................................................ 39.89 38.86 37.60 36.09 34.81
CSPCo....................................................... 32.80 33.23 31.70 31.69 31.63
I&M......................................................... 22.85 23.25 22.99 23.68 22.61
KEPCo....................................................... 26.83 26.91 27.25 26.76 27.42
OPCo........................................................ 41.10 37.58 35.96 36.00 38.94
<CAPTION>
CENTS PER MILLION BTU'S
-----------------------
<S> <C> <C> <C> <C> <C>
AEP System Companies........................................... 152.41 145.26 140.48 140.23 143.51
AEGCo....................................................... 112.06 112.87 109.25 115.21 112.63
APCo........................................................ 161.37 156.96 152.54 146.54 141.76
CSPCo....................................................... 140.45 140.79 134.60 134.44 134.15
I&M......................................................... 123.62 125.50 121.16 123.36 118.02
KEPCo....................................................... 113.40 114.77 114.42 110.37 112.15
</TABLE>
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<PAGE> 32
The coal supplies at AEP System plants vary from time to time depending on
various factors, including customers' usage of electric power, space
limitations, the rate of consumption at particular plants, labor unrest and
weather conditions which may interrupt deliveries. At December 31, 1998, the
System's coal inventory was approximately 38 days of normal System usage. This
estimate assumes that the total supply would be utilized by increasing or
decreasing generation at particular plants.
The following tabulation shows the total consumption during 1998 of the
coal-fired generating units of AEP's principal electric utility subsidiaries,
coal requirements of these units over the remainder of their useful lives and
the average sulfur content of coal delivered in 1998 to these units. Reference
is made to Environmental and Other Matters for information concerning current
emissions limitations in the AEP System's various jurisdictions and the effects
of the Clean Air Act Amendments.
<TABLE>
<CAPTION>
AVERAGE SULFUR CONTENT
ESTIMATED REQUIRE- OF DELIVERED COAL
TOTAL CONSUMPTION MENTS FOR REMAINDER -----------------------------
DURING 1998 OF USEFUL LIVES POUNDS OF SO2
(IN THOUSANDS OF TONS) (IN MILLIONS OF TONS) BY WEIGHT PER MILLION BTU'S
---------------------- --------------------- --------- -----------------
<S> <C> <C> <C> <C>
AEGCo (a).............. 4,966 253 0.3% 0.7
APCo................... 11,813 454 0.8% 1.3
CSPCo.................. 6,359(b) 249(b) 2.8% 4.7
I&M (c)................ 6,956 293 0.8% 1.5
KEPCo.................. 3,044 94 1.2% 1.9
OPCo................... 20,648 654 2.3% 3.9
</TABLE>
- ------------------------
(a) Reflects AEGCo's 50% interest in the Rockport Plant
(b) Includes coal requirements for CSPCo's interest in Beckjord, Stuart and
Zimmer Plants.
(c) Includes I&M's 50% interest in the Rockport Plant.
AEGCo: See Fuel Supply -- I&M for a discussion of the coal supply for the
Rockport Plant.
APCo: Substantially all of the coal consumed at APCo's generating plants is
obtained from unaffiliated suppliers under long-term contracts and/or on a spot
purchase basis.
The average sulfur content by weight of the coal received by APCo at its
generating stations approximated 0.8% during 1998, whereas the maximum sulfur
content permitted, for emission standard purposes, for existing plants in the
regions in which APCo's generating stations are located ranged between 0.78% and
2% by weight depending in some circumstances on the calorific value of the coal
which can be obtained for some generating stations.
CSPCo: CSPCo has coal supply agreements with unaffiliated suppliers for
the delivery of approximately 2,400,000 tons per year through 1999. Some of this
coal is washed to improve its quality and consistency for use principally at
Unit 4 of the Conesville Plant.
CSPCo has been informed by CG&E and DP&L that, with respect to the CCD
Group units partly owned but not operated by CSPCo, sufficient coal has been
contracted for or is believed to be available for the approximate lives of the
respective units operated by them. Under the terms of the operating agreements
with respect to CCD Group units, each operating company is contractually
responsible for obtaining the needed fuel.
I&M: I&M has two coal supply agreements with unaffiliated suppliers
pursuant to which the suppliers are delivering low sulfur coal from surface
mines in Wyoming, principally for consumption by the Rockport Plant. Under these
agreements, the suppliers will sell to I&M, for consumption by I&M at the
Rockport Plant or consignment to other System companies, coal with an average
sulfur content not exceeding 1.2 pounds of sulfur dioxide per million Btu's of
heat input. One contract with remaining deliveries of 48,685,543 tons expires on
December 31, 2014 and another contract with remaining deliveries of 37,785,000
tons expires on December 31, 2004.
25
<PAGE> 33
All of the coal consumed at I&M's Tanners Creek Plant is obtained from
unaffiliated suppliers under long-term contracts and/or on a spot purchase
basis.
KEPCo: Substantially all of the coal consumed at KEPCo's Big Sandy Plant
is obtained from unaffiliated suppliers under long-term contracts and/or on a
spot purchase basis. KEPCo has coal supply agreements with unaffiliated
suppliers pursuant to which KEPCo will receive approximately 2,300,000 tons of
coal in 1999. To the extent that KEPCo has additional coal requirements, it may
purchase coal from the spot market and/or suppliers under contract to supply
other System companies.
OPCo: The coal consumed at OPCo's generating plants is obtained from both
affiliated and unaffiliated suppliers. The coal obtained from unaffiliated
suppliers is purchased under long-term contracts and/or on a spot purchase
basis.
OPCo and certain of its coal-mining subsidiaries own or control coal
reserves in the State of Ohio containing approximately 190,000,000 tons of clean
recoverable coal and ranging in sulfur content between 3.4% and 4.5% sulfur by
weight (weighted average, 3.8%), which reserves are presently being mined. OPCo
and certain of its mining subsidiaries own an additional 113,000,000 tons of
clean recoverable coal in Ohio which ranges in sulfur content between 2.4% and
3.4% sulfur by weight (weighted average 2.7%).
Recovery of this coal would require substantial development.
OPCo and certain of its coal-mining subsidiaries also own or control coal
reserves in the State of West Virginia which contain approximately 101,000,000
tons of clean recoverable coal ranging in sulfur content between 1.4% and 4.0%
sulfur by weight (weighted average, 2.1%) of which approximately 24,000,000 tons
can be recovered based upon existing mining plans and projections and employing
current mining practices and techniques.
Nuclear
I&M has made commitments to meet certain of the nuclear fuel
requirements of the Cook Plant. The nuclear fuel cycle consists of:
o Mining and milling of uranium ore to uranium concentrates.
o Conversion of uranium concentrates to uranium hexafluoride.
o Enrichment of uranium hexafluoride.
o Fabrication of fuel assemblies.
o Utilization of nuclear fuel in the reactor.
o Reprocessing or other disposition of spent fuel.
Steps currently are being taken, based upon the planned fuel cycles for the
Cook Plant, to review and evaluate I&M's requirements for the supply of nuclear
fuel. I&M has made and will make purchases of uranium in various forms in the
spot, short-term, and mid-term markets until it decides that deliveries under
long-term supply contracts are warranted.
For purposes of the storage of high-level radioactive waste in the form of
spent nuclear fuel, I&M has completed modifications to its spent nuclear fuel
storage pool. AEP anticipates that the Cook Plant has storage capacity to permit
normal operations through 2012.
I&M's costs of nuclear fuel consumed do not assume any residual or salvage
value for residual plutonium and uranium.
Nuclear Waste and Decommissioning
The Nuclear Waste Policy Act of 1982, as amended, establishes Federal
responsibility for the permanent off-site disposal of spent nuclear fuel and
high-level radioactive waste. Disposal costs are paid by fees assessed against
owners of nuclear plants and deposited into the Nuclear Waste Fund created by
the Act. In 1983, I&M entered into a contract with DOE for the disposal of spent
nuclear fuel. Under terms of the contract, for the disposal of nuclear fuel
consumed after April 6, 1983 by I&M's Cook Plant, I&M is paying to the fund a
fee of one mill per kilowatt-hour, which I&M is currently recovering from
customers. For the disposal of nuclear fuel consumed prior to April 7, 1983, I&M
must pay the U.S. Treasury a fee estimated at approximately $72,000,000,
exclusive of interest of $118,000,000 at December 31, 1998. The aggregate amount
has been recorded as
26
<PAGE> 34
long-term debt. Because of the current uncertainties surrounding DOE's program
to provide for permanent disposal of spent nuclear fuel, I&M has not yet paid
any of the pre-April 1983 fee. At December 31, 1998, funds collected from
customers to pay the pre-April 1983 fee and accrued interest approximated the
long-term liability. In November 1996, the IURC and MPSC issued orders approving
flexible funding procedures in which any excess funds collected for pre-April 7,
1983 spent nuclear fuel disposal would be deposited into I&M's nuclear
decommissioning trust funds.
On May 30, 1995, I&M and a group of unaffiliated utilities owning and
operating nuclear plants filed a petition for review in the U.S. Court of
Appeals for the District of Columbia Circuit requesting that the court issue a
declaration that the Nuclear Waste Policy Act of 1982 (NWPA) imposes on DOE an
unconditional obligation to begin acceptance of spent nuclear fuel and high
level radioactive waste by January 31, 1998. On July 23, 1996, the court ruled
that the NWPA creates an obligation for DOE, reciprocal to the utilities'
obligation to pay, to start disposing of the spent nuclear fuel and high level
radioactive waste no later than January 31, 1998. The court remanded the case to
DOE, holding that determination of a remedy was premature, since DOE had not yet
defaulted on its obligations.
In December 1996, I&M received a letter from DOE advising that DOE
anticipates that it will be unable to begin acceptance of spent nuclear fuel and
high level radioactive waste for disposal in a repository or interim storage
facility by January 31, 1998. On January 31, 1997, in anticipation of DOE's
breach of their statutory and contractual obligations, I&M along with 35
unaffiliated utilities and 33 states filed joint petitions for review in the
U.S. Court of Appeals for the District of Columbia Circuit requesting that the
court permit the utilities to suspend further payments into the nuclear waste
fund, authorize escrow of the payments, and order further action on the part of
DOE to meet its obligations under the NWPA. On November 12, 1997, the Court of
Appeals issued a decision granting in part and denying in part the utilities'
request for relief. The court ordered DOE to proceed with contractual remedies
and to refrain from concluding that DOE's delay is unavoidable due to the lack
of a repository or the lack of interim storage authority. The court, however,
declined to order DOE to begin disposing of fuel. On January 31, 1998, the
deadline for DOE's performance, the DOE failed to begin disposing of the
utilities' spent nuclear fuel.
On June 8, 1998, I&M filed a complaint in the U.S. Court of Federal Claims
seeking damages in excess of $150,000,000 due to the U.S. Department of Energy's
partial material breach of its unconditional contractual deadline to begin
disposing of spent nuclear fuel and high level nuclear waste generated by the
Cook Nuclear Plant. Similar lawsuits have been filed by other utilities.
Studies completed in 1997 estimate decommissioning and low-level
radioactive waste disposal costs for the Cook Plant to range from $700,000,000
to $1.152 billion in 1997 nondiscounted dollars. The wide range is caused by
variables in assumptions, including the estimated length of time spent nuclear
fuel must be stored at the Cook Plant subsequent to ceasing operations, which
depends on future developments in the federal government's spent nuclear fuel
disposal program. Continued delays in the federal fuel disposal program can
result in increased decommissioning costs. I&M is recovering decommissioning
costs in its three rate-making jurisdictions based on at least the lower end of
the range in the most recent respective decommissioning study available at the
time of the rate proceeding (the study range utilized in the Indiana rate case,
I&M's primary jurisdiction, was $588,000,000 to $1.102 billion in 1991 dollars).
I&M records decommissioning costs in other operation expense and records a
noncurrent liability equal to the decommissioning cost recovered in rates which
was $29,000,000 in 1998, $28,000,000 in 1997, and $27,000,000 in 1995. At
December 31, 1998, I&M had recognized a decommissioning liability of
$446,000,000. I&M will continue to reevaluate periodically the cost of
decommissioning and to seek regulatory approval to revise its rates as
necessary.
Funds recovered through the rate-making process for disposal of spent
nuclear fuel consumed prior to April 7, 1983 and for nuclear decommissioning
have been segregated and deposited in external funds for the future payment of
such costs. Trust fund earnings decrease the amount to be recovered from
ratepayers.
27
<PAGE> 35
The ultimate cost of retiring I&M's Cook Plant may be materially different
from the estimates contained in the site-specific study and the funding targets
as a result of the:
o Type of decommissioning plan selected.
o Escalation of various cost elements (including, but not limited to,
general inflation).
o Further development of regulatory requirements governing
decommissioning.
o Limited availability to date of significant experience in
decommissioning such facilities.
o Technology available at the time of decommissioning differing
significantly from that assumed in these studies.
o Availability of nuclear waste disposal facilities.
Accordingly, management is unable to provide assurance that the ultimate cost of
decommissioning the Cook Plant will not be significantly greater than current
projections.
The Low-Level Waste Policy Act of 1980 (LLWPA) mandates that the
responsibility for the disposal of low-level waste rests with the individual
states. Low-level radioactive waste consists largely of ordinary refuse and
other items that have come in contact with radioactive materials. To facilitate
this approach, the LLWPA authorized states to enter into regional compacts for
low-level waste disposal subject to Congressional approval. The LLWPA also
specified that, beginning in 1986, approved compacts may prohibit the
importation of low-level waste from other regions, thereby providing a strong
incentive for states to enter into compacts. Michigan, the state where the Cook
Plant is located, was a member of the Midwest Compact, but its membership was
revoked in 1991. As a result, Michigan is responsible for developing a disposal
site for the low-level waste generated in Michigan.
Although Michigan amended its law regarding low-level waste site
development in 1994 to allow a volunteer to host a facility, little progress has
been made to date. A bill was introduced in 1996 to further address the issue
but no action was taken. Development of required legislation and progress with
the site selection process has been inhibited by many factors, and management is
unable to predict when a new disposal site for Michigan low-level waste will be
available.
On July 1, 1995, the disposal site in South Carolina reopened to accept
waste from most areas of the U.S., including Michigan. This was the first
opportunity for the Cook Plant to dispose of low-level waste since 1990. To the
extent practicable, the waste formerly placed in storage and the waste presently
generated are now being sent to the disposal site.
Energy Policy Act -- Nuclear Fees
The Energy Policy Act of 1992 (Energy Act), contains a provision to fund
the decontamination and decommissioning of uranium enrichment facilities
formerly owned by DOE. Funding is to be provided from a combination of sources
including assessments against electric utilities which purchased enrichment
services from DOE facilities. I&M's remaining estimated liability is
$35,521,000, subject to inflation adjustments, and is payable in annual
assessments over the next eight years. I&M recorded a regulatory asset
concurrent with the recording of the liability. The payments are being recorded
and recovered as fuel expense over a 15-year period ending in 2007.
I&M joined with 22 other utility plaintiffs in filing a complaint in the
U.S. District Court for the Southern District of New York seeking a declaratory
judgment that the annual decontamination and decommissioning assessments are
unconstitutional. I&M's claims for refund of previously paid assessments remain
pending in the U.S. Court of Federal Claims. I&M is seeking to stay the Court of
Federal Claims action pending the outcome of the District Court action.
ENVIRONMENTAL AND OTHER MATTERS
AEP's subsidiaries are subject to regulation by federal, state and local
authorities with regard to air and water-quality control and other environmental
matters, and are subject to zoning and other regulation by local authorities. In
addition to imposing continuing compliance obligations, these laws and
regulations authorize the imposition of substantial penalties for noncompliance,
including fines, injunctive relief and other sanctions.
28
<PAGE> 36
It is expected that costs related to environmental requirements will
eventually be reflected in the rates of AEP's electric utility subsidiaries and
that AEP's electric utility subsidiaries will be able to provide for required
environmental controls. However, some customers may curtail or cease operations
as a consequence of higher energy costs. There can be no assurance that all such
costs will be recovered. Moreover, legislation currently being proposed at the
state and federal levels governing restructuring of the electric utility
industry may also affect the recovery of certain costs. See Competition and
Business Change.
Except as noted herein, AEP's subsidiaries which own or operate
generating, transmission and distribution facilities are in substantial
compliance with pollution control laws and regulations.
Air Pollution Control
For the AEP System, compliance with the Clean Air Act (CAA) is requiring
substantial expenditures that generally are being recovered through increases in
the rates of AEP's operating subsidiaries. However, there can be no assurance
that all such costs will be recovered. See Construction Program -- Construction
Expenditures.
Acid Rain: The Acid Rain Program (Title IV) of the Clean Air Act
Amendments of 1990 (CAAA) created an emission allowance program pursuant to
which utilities are authorized to emit a designated quantity of sulfur dioxide
(SO2), measured in tons per year, on a system wide or aggregate basis. Emission
reductions are required by virtue of the establishment of annual allowance
allocations at levels substantially below historical emission levels for most
utility units. There are two phases of SO2 control under the Acid Rain Program.
Phase I, effective January 1, 1995, requires SO2 emission reductions from
certain units that emitted SO2 above a rate of 2.5 pounds per million Btu heat
input in 1985. Phase I unit allowance allocations were calculated based on 1985
utilization rates and an emission rate of 2.5 pounds of SO2 per million Btu heat
input. Phase I permits have been issued for all Phase I affected units in the
AEP System.
Phase II, which affects all fossil fuel-fired steam generating units with
capacity greater than 25 megawatts imposes more stringent SO2 emission control
requirements beginning January 1, 2000. If a unit emitted SO2 in 1985 at a rate
in excess of 1.2 pounds per million Btu heat input, the Phase II allowance
allocation is premised upon an emission rate of 1.2 pounds at 1985 utilization
levels. If actual SO2 emissions for a Phase II affected unit in 1985 were less
than 1.2 pounds per million Btu, the allowance allocation is, in most instances,
based on the actual 1985 emission rate.
In addition to regulating SO2 emissions, Title IV of the CAAA contains
provisions regulating emissions of nitrogen oxides (NOx). In April 1995, Federal
EPA promulgated NOx emission limitations for tangentially fired boilers and dry
bottom wall-fired boilers for Phase I and Phase II units. In addition, on
December 19, 1996, Federal EPA published final NOx emission limitations for wet
bottom wall-fired boilers, cyclone boilers, units applying cell burner
technology and all other types of boilers. The regulations also revised downward
the NOx limitations applicable to tangentially fired and wall-fired boilers in
Phase II. These emission limitations are to be achieved by January 1, 2000.
Title I National Ambient Air Quality Standards Attainment: The CAA
contains additional provisions, other than the Acid Rain Program, which could
require reductions in emissions of NOx and other pollutants from fossil
fuel-fired power plants. See NOx SIP Call below.
In July 1997, Federal EPA revised the ozone and particulate matter
National Ambient Air Quality Standards (NAAQS), creating a new eight-hour ozone
standard and establishing a new standard for particulate matter less than 2.5
microns in diameter (PM2.5). Both of these new standards have the potential to
affect adversely the operation of AEP System generating units. Substantial
reductions in NOx emissions from fossil fuel-fired power plants may be required
as part of a state's plan to attain the eight-hour ozone standard. The actual
implementation of the new PM2.5 NAAQS has been delayed for five years.
Substantial reductions in SO2 and/or other emissions from fossil fuel-fired
power plants may be required as part of a state's plan to attain the PM2.5
NAAQS. In August and September 1997 the AEP System operating companies joined
with certain other utilities to appeal the revised NAAQS by filing petitions for
review in the U.S. Court of Appeals for the District of Columbia Circuit. Oral
argument was held in December 1998.
29
<PAGE> 37
In September 1998, Federal EPA issued revisions to the New Source
Performance Standards applicable to new and modified fossil fuel-fired power
plants. Federal EPA characterized its proposal as "fuel neutral" since it would
impose the same stringent NOx emission limit (1.35lb. per megawatt-hour net
energy output) for coal-fired boilers as for gas-fired boilers. The emission
limit is set at a level which cannot currently be achieved by combustion
controls and will require the use of post combustion control equipment. The
final rule effectively requires selective catalytic reduction or comparable
technology to control NOx emissions from new or modified coal-fired boilers.
Imposition of this standard to existing sources which might become subject to
the rule based on an administrative finding that an existing source had been
modified or reconstructed could result in substantial capital and operating
expenditures. On October 30, 1998, the AEP System operating companies joined
with certain other utilities to appeal the revised regulations by filing
petitions for review in the U.S. Court of Appeals for the District of Columbia
Circuit.
NOx SIP Call: On October 27, 1998, Federal EPA published in the Federal
Register a final rule (NOx transport SIP call) concluding that certain State
Implementation Plans are deficient because they allow NOx emissions that
contribute excessively to ozone nonattainment in downwind states. Federal EPA's
NOx transport SIP call establishes state-by-state NOx emission budgets for the
five-month ozone season to be met by the year 2003. The NOx budgets apply to 22
eastern states and are premised mainly on the assumption of controlling power
plant NOx emissions to 0.15 lb. per million Btu (approximately 85% below 1990
levels). The NOx transport SIP call purports to implement both the new
eight-hour ozone standard and the one-hour ozone standard. The SIP call was
accompanied by a proposed Federal Implementation Plan which could be implemented
in any state which fails to submit an approvable SIP by September 1999. The NOx
reductions called for by Federal EPA are targeted at coal-fired electric
utilities and may adversely impact the ability of electric utilities to obtain
new and modified source permits or to operate affected facilities without making
significant capital expenditures. In October 1998, the AEP System operating
companies joined with certain other utilities to appeal the final NOx SIP Call
rule by filing a petition for review in the U.S. Court of Appeals for the
District of Columbia Circuit.
Preliminary estimates indicate that compliance costs could result in
required capital expenditures as follows:
(IN MILLIONS)
-------------
AEP System.......................... $1,200
APCo............................. 325
CSPCo............................ 140
I&M.............................. 169
KEPCo............................ 105
OPCo............................. 452
Compliance costs cannot be estimated with certainty and the actual costs
incurred to comply could be significantly different from this preliminary
estimate depending upon the compliance alternatives selected to achieve
reductions in NOx emissions. Unless such costs are recovered from customers,
they would have a material adverse effect on results of operations, cash flows
and possibly financial condition.
Section 126 Petitions: In August 1997, eight northeastern states (New
York, New Hampshire, Maine, Massachusetts, Rhode Island, Pennsylvania,
Connecticut, and Vermont) filed petitions with Federal EPA under Section 126 of
the Clean Air Act, claiming that NOx emissions from certain named sources in
midwestern states, including all the coal-fired plants of AEP's operating
subsidiaries, prevent those states from attaining the ozone NAAQS. Among other
things, the petitioners generally seek NOx emission reductions 85% below 1990
levels from the utility sources in midwestern states, as in the NOx SIP call. On
October 21, 1998, Federal EPA published in the Federal Register proposed
conditional remedial action requiring NOx emission reductions from named utility
sources.
Federal EPA is seeking comment on the effect on the Section 126 petitions
of a proposed determination by Federal EPA that the one-hour ozone standard no
longer applies to non-attainment areas in Maine, New Hampshire, Rhode Island and
a portion of Massachusetts. In a separate Notice of Proposed Rulemaking, Federal
EPA is seeking comment with respect to its proposed determination
30
<PAGE> 38
that eight-hour ozone non-attainment in New Hampshire and Maine is being
significantly affected by sources of NOx emissions in the northeastern U.S. as
well as certain sources in the midwestern and southern U.S.
In December 1997 Federal EPA entered into a Memorandum of Agreement (MOA)
with the petitioning states that establishes a schedule for taking final action
on the Section 126 petitions on approximately the same time frame as Federal
EPA's final action on the NOx transport SIP call. The MOA called for a proposed
rulemaking on the Section 126 petitions by September 30, 1998 and a technical
determination by April 30, 1999. Final action would be deferred pending
satisfaction of the NOx SIP call requirements. In October 1998, the U.S.
District Court for the Southern District of New York entered an order directing
Federal EPA to conform to the schedule set forth in the MOA.
Hazardous Air Pollutants: Hazardous air pollutant emissions from utility
boilers are potentially subject to control requirements under Title III of the
CAAA. The CAAA specifically directed Federal EPA to study potential public
health impacts of hazardous air pollutants emitted from electric utility steam
generating units. Federal EPA was required to report the results of this study
to Congress by November 1993 and to regulate emissions of these hazardous
pollutants if necessary. On February 25, 1998, Federal EPA issued a final report
to Congress citing as potential health and environmental threats, mercury and
three other hazardous air pollutants present in power plant emissions. Noting
uncertainty regarding health effects and the absence of control technology for
mercury, no immediate regulatory action was proposed regarding emission
reductions.
In addition, Federal EPA is required to study the deposition of hazardous
pollutants in the Great Lakes, the Chesapeake Bay, Lake Champlain, and other
coastal waters. As part of this assessment, Federal EPA is authorized to adopt
regulations to prevent serious adverse effects to public health and serious or
widespread environmental effects. It is possible that this assessment of water
body deposition may result in additional regulation of electric utility steam
generating units.
Federal EPA was also required to study mercury emissions and report its
findings to Congress by 1994. Federal EPA presented that report to Congress in
December 1997. The report identifies electric utilities as being the third
leading emitter of mercury. Presently, mercury emissions from electric utilities
are not regulated under the CAA. However, Federal EPA intends to engage in
further studies of mercury emissions, which may lead to additional regulation in
the future.
Permitting and Enforcement: The CAAA expanded the enforcement authority
of the federal government by increasing the range of civil and criminal
penalties for violations of the CAA and enhancing administrative civil
provisions, adding a citizen suit provision and imposing a national operating
permit system, emission fee program and enhanced monitoring, recordkeeping and
reporting requirements for existing and new sources. On February 13, 1997,
Federal EPA issued the Credible Evidence rule, which allows Federal EPA to use
any credible evidence or information in lieu of, or in addition to, the test
methods prescribed by the regulation for determining compliance with emission
limits. This rule has the potential to expand significantly Federal EPA's
ability to bring enforcement actions and to increase the stringency of the
emission limits to which AEP System plants are subject. In March 1997, a number
of industries, including AEP System operating companies, filed petitions for
review of the Credible Evidence Rule with the U.S. Court of Appeals for the
District of Columbia Circuit. In August 1998, the court held that the appeal was
not ripe for review. A petition for writ of certiori was filed with the U.S.
Supreme Court.
Global Climate Change: In December 1997, delegates from 167 nations,
including the United States, agreed to a treaty, known as the "Kyoto Protocol,"
establishing legally-binding emission reductions for gases suspected of causing
climate change. If the U.S. becomes a party to the treaty it will be bound to
reduce emissions of carbon dioxide (CO2), methane and nitrous oxides by 7% below
1990 levels and emissions of hydrofluorcarbons, perfluorocarbons and sulfur
hexafluoride 7% below 1995 levels in the years 2008-2012. The Protocol was
available for signature from March 16, 1998 to March 15, 1999 and requires
ratification by at least 55 nations that account for at least 55% of developed
countries' 1990 emissions of CO2 to enter into force.
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<PAGE> 39
Although the United States has agreed to the treaty and signed it on
November 12, 1998, President Clinton has indicated that he will not submit the
treaty to the Senate for ratification until it contains requirements for
"meaningful participation by key developing countries" and the rules,
procedures, methodology and guidelines of the treaty's market-based policy
instruments, joint implementation programs and compliance enforcement provisions
have been negotiated. At the Fourth Conference of the Parties, held in Buenos
Aires, Argentina, in November 1998, the parties agreed to a work plan to
complete negotiations on outstanding issues with a view toward approving them at
the Sixth Conference of the Parties to be held in December 2000.
Since the AEP System is a significant emitter of carbon dioxide, its
results of operations, cash flows and financial condition could be adversely
affected by the imposition of limitations on CO2 emissions if compliance costs
cannot be fully recovered from customers. In addition, any such severe program
to reduce CO2 emissions could impose substantial costs on industry and society
and erode the economic base that AEP's operations serve.
West Virginia SO2 Limits: West Virginia promulgated SO2 limitations which
Federal EPA approved in February 1978. The emission limitations for the Mitchell
Plant have been approved by Federal EPA for primary ambient air quality
(health-related) standards only. West Virginia is obligated to reanalyze SO2
emission limits for the Mitchell Plant with respect to secondary ambient air
quality (welfare-related) standards. Because the CAA provides no specific
deadline for approval of emission limits to achieve secondary ambient air
quality standards, it is not certain when Federal EPA will take dispositive
action regarding the Mitchell Plant.
West Virginia has had a request to increase the SO2 emission limitation
for Kammer pending before Federal EPA for many years, although the change has
not been acted upon by Federal EPA. On August 4, 1994, however, Federal EPA
issued a Notice of Violation to OPCo alleging that Kammer Plant was operating in
violation of the applicable federally enforceable SO2 emission limit. On May 20,
1996, the Notice of Violation and an enforcement action subsequently filed by
Federal EPA were resolved through the entry of a consent decree in the U.S.
District Court for the Northern District of West Virginia. The decree provides
for compliance with an interim emission limit of 6.5 pounds of SO2 per million
Btu actual heat input on a three-hour basis and 5.8 pounds of SO2 per million
Btu on an annual basis. West Virginia and industrial sources in the area of the
Kammer Plant are developing a revision to the State Implementation Plan with
respect to SO2 emission limitations which is to be submitted no later than
October 1, 1999. The interim emission limit for Kammer will remain in effect
until after that time.
Short Term SO2 Limits: On January 2, 1997, Federal EPA proposed a new
intervention level program under the authority of Section 303 of the CAA to
address five minute peak SO2 concentrations believed to pose a health risk to
certain segments of the population. The proposal establishes a "concern" level
and an "endangerment" level. States must investigate exceedances of the concern
level and decide whether to take corrective action. If the endangerment level is
exceeded, the state must take action to reduce SO2 levels. The effects of this
proposed intervention program on AEP operations cannot be predicted at this
time.
Regional Haze: On July 31, 1997, Federal EPA proposed new rules to
regulate regional haze attributable to anthropogenic emissions. The primary goal
of the new regional haze program is to address visibility impairment in and
around "Class I" protected areas, such as national parks and wilderness areas.
Because regional haze precursor emissions are believed by Federal EPA to travel
long distances, Federal EPA proposes to regulate such precursor emissions in
every state. Under the proposal, each state must develop a regional haze control
program that imposes controls necessary to steadily reduce visibility impairment
in Class I areas on the worst days and that ensures that visibility remains good
on the best days.
The AEP System is a significant emitter of fine particulate matter and its
precursors that could be linked to the creation of regional haze. The
finalization of Federal EPA's proposed rule to control regional haze may have an
adverse financial impact on AEP as it may trigger the requirement to install
costly new pollution control devices to control emissions of fine particulate
matter and its precursors (including SO2 and NOx). The actual impact of the
regional haze regulations cannot be determined at this time.
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<PAGE> 40
New Source Review: On July 21, 1992, Federal EPA published final
regulations in the Federal Register governing application of new source rules to
generating plant repairs and pollution control projects undertaken to comply
with the CAA. Generally, the rule provides that plants undertaking pollution
control projects will not trigger New Source Review requirements. The Natural
Resources Defense Council and a group of utilities, including five AEP System
companies, have filed petitions in the U.S. Court of Appeals for the District of
Columbia Circuit seeking a review of the regulations. In July 1998, Federal EPA
requested comment on proposed revisions to the New Source Review rules which
would change New Source Review applicability criteria by eliminating exemptions
contained in the current regulation.
On February 4, 1999, Federal EPA (Regions III and V) issued a request
under Section 114 of the Clean Air Act seeking documents and information
regarding capital and maintenance expenditures at AEP's Muskingum River, Gavin,
Cardinal, Sporn and Mitchell plants. Federal EPA conducted a review of the
accounting records of AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo in the summer of
1998 and made site visits to Sporn, Muskingum River and Mitchell plants in the
summer and fall of 1998. These activities are focused on assessing compliance
with the New Source Review and New Source Performance Standard provisions of the
Clean Air Act.
Water Pollution Control
The Clean Water Act prohibits the discharge of pollutants to waters of the
United States from point sources except pursuant to an NPDES permit issued by
Federal EPA or a state under a federally authorized state program.
Under the Clean Water Act, effluent limitations requiring application of
the best available technology economically achievable are to be applied, and
those limitations require that no pollutants be discharged if Federal EPA finds
elimination of such discharges is technologically and economically achievable.
The Clean Water Act provides citizens with a cause of action to enforce
compliance with its pollution control requirements. Since 1982, many such
actions against NPDES permit holders have been filed. To date, no AEP System
plants have been named in such actions.
All System Plants are operating with NPDES permits. Under EPA's
regulations, operation under an expired NPDES permit is authorized provided an
application is filed at least 180 days prior to expiration. Renewal applications
are being prepared or have been filed for renewal of NPDES permits which expire
in 1999.
The NPDES permits generally require that certain thermal impact study
programs be undertaken. These studies have been completed for all System plants.
Thermal variances are in effect for all plants with once-through cooling water.
The thermal variances for Conesville and Muskingum River plants impose thermal
management conditions that could result in load curtailment under certain
conditions, but the cost impacts are not expected to be significant. Based on
favorable results of in-stream biological studies, the thermal temperature
limits for both Conesville and Muskingum River plants were raised in the renewed
permits issued in 1996.
Consequently, the potential for load curtailment and adverse cost impacts is
further reduced.
Certain mining operations conducted by System companies as discussed under
Fuel Supply are also subject to Federal and state water pollution control
requirements, which may entail substantial expenditures for control facilities,
not included at present in the System's construction cost estimates set forth
herein.
The Federal Water Quality Act of 1987 requires states to adopt stringent
water quality standards for a large category of toxic pollutants and to identify
specialized control measures for dischargers to waters where it is shown through
the use of total maximum daily loads (TMDLs) that water quality standards are
not being met. Implementation of these provisions could result in significant
costs to the AEP System if biological monitoring requirements and water
quality-based effluent limits are placed in NPDES permits.
33
<PAGE> 41
In March 1995, Federal EPA finalized a set of rules which establish
minimum water quality standards, anti-degradation policies and implementation
procedures for more stringently controlling releases of toxic pollutants into
the Great Lakes system. This regulatory package is called the Great Lakes Water
Quality Initiative (GLWQI). The most direct compliance cost impact could be
related to I&M's Cook Plant. Based on Federal EPA's current policy on intake
credits and site specific variables and Michigan's implementation strategy,
management does not presently expect the GLWQI will have a significant adverse
impact on Cook Plant operations. If Indiana and Ohio eventually adopt the GLWQI
criteria for statewide application, AEP System plants located in those states
could be adversely affected, although the significance depends on the
implementation strategy of those states.
The Oil Pollution Act of 1990 (OPA) defines certain facilities that, due
to oil storage volume and location, could reasonably be expected to cause
significant and substantial harm to the environment by discharging oil. Such
facilities must operate under approved spill response plans and implement spill
response training and drill programs. OPA imposes substantial penalties for
failure to comply. AEP companies with oil handling and storage facilities
meeting the OPA criteria have in place required response plans, training and
drill programs.
Solid and Hazardous Waste
Section 311 of the Clean Water Act imposes substantial penalties for
spills of Federal EPA-listed hazardous substances into water and for failure to
report such spills. The Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) expanded the reporting requirements to cover the release
of hazardous substances generally into the environment, including water, land
and air. AEP's subsidiaries store and use some of these hazardous substances,
including PCBs contained in certain capacitors and transformers, but the
occurrence and ramifications of a spill or release of such substances cannot be
predicted.
CERCLA, RCRA and similar state law provide governmental agencies with the
authority to require clean-up of hazardous waste sites and releases of hazardous
substances into the environment and to seek compensation for damages to natural
resources. Since liability under CERCLA is strict, joint and several, and can be
applied retroactively, AEP System companies which previously disposed of
PCB-containing electrical equipment and other hazardous substances may be
required to participate in remedial activities at such disposal sites should
environmental problems result. AEP System companies are presently defendants in
three cases involving cost-recovery lawsuits at Federal EPA-identified CERCLA
sites. OPCo is involved at two of these sites and I&M at the other site. AEP
System companies are identified as Potentially Responsible Parties (PRPs) for
three additional federal sites, including CSPCo at one site and I&M at two
sites. Management's present estimates do not anticipate material cleanup costs
for identified sites for which AEP subsidiaries have been declared PRPs or are
defendants in CERCLA cost recovery litigation. However, if for reasons not
currently identified significant costs are incurred for cleanup, future results
of operations and possibly financial condition would be adversely affected
unless the costs can be recovered through rates.
Regulations issued by Federal EPA under the Toxic Substances Control Act
govern the use, distribution and disposal of PCBs, including PCBs in electrical
equipment. Deadlines for removing certain PCB-containing electrical equipment
from service have been met.
In addition to handling hazardous substances, the System companies
generate solid waste associated with the combustion of coal, the vast majority
of which is fly ash, bottom ash and flue gas desulfurization wastes. These
wastes presently are considered to be non-hazardous under RCRA and applicable
state law and the wastes are treated and disposed in surface impoundments or
landfills in accordance with state permits or authorization or beneficially
utilized. As required by RCRA, EPA evaluated whether high volume coal combustion
wastes (such as fly ash, bottom ash and flue gas desulfurization wastes) should
be regulated as hazardous waste. In August, 1993 EPA issued a regulatory
determination that such high volume coal combustion wastes should not be
regulated as hazardous waste. For low volume coal combustion wastes, such as
metal and boiler cleaning wastes, Federal EPA will gather additional information
and make a regulatory determination by April 1999. Until that time, these low
volume wastes are
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<PAGE> 42
provisionally excluded from regulation under the hazardous waste provisions of
RCRA. All presently generated hazardous waste is being disposed of at permitted
off-site facilities in compliance with applicable Federal and state laws and
regulations. For System facilities which generate such wastes, System companies
have filed the requisite notices and are complying with RCRA and applicable
state regulations for generators. Nuclear waste produced at the Cook Plant
regulated under the Atomic Energy Act is excluded from regulation under RCRA.
Federal EPA's technical requirements for underground storage tanks
containing petroleum will require retrofitting or replacement of an appreciable
number of tanks. Compliance costs for tank replacement and site remediation have
not been significant to date.
Electric and Magnetic Fields (EMF)
EMF is found everywhere there is electricity. Electric fields are created
by the presence of electric charges. Magnetic fields are produced by the flow of
those charges. This means that EMF is created by electricity flowing in
transmission and distribution lines, household wiring, and appliances.
A number of studies in the past several years have examined the
possibility of adverse health effects from EMF. While some of the
epidemiological studies have indicated some association between exposure to EMF
and health effects, the majority of studies have indicated no such association.
In 1996, the National Academy of Sciences (NAS) released a report, based on a
review of over 500 studies spanning 17 years of research, which contained the
following summary statement: "... the conclusion of the committee is that the
current body of evidence does not show that exposure to these fields presents a
human health hazard..."
In 1997, the results of a five-year study by the National Cancer Institute
(NCI) were released. The NCI researchers found no evidence that EMF in the home
increases the risk of childhood cancer.
The Energy Policy Act of 1992 established a coordinated Federal EMF
research program which ended in 1998. The program funding was $65,000,000, half
of which was provided by private parties including utilities. The National
Institute of Environmental Health Sciences will provide a report to Congress
this year, summarizing the results of this program. AEP contributed over
$400,000 to this program. AEP has also supported an extensive EMF research
program coordinated by the Electric Power Research Institute, working closely
with its staff and contributing more than $500,000 to this effort in 1998. See
Research and Development.
AEP's participation in these programs is a continuation of its efforts to
monitor and support further research and to communicate with its customers and
employees about this issue. Residential customers of AEP are provided
information and field measurements on request, although there is no scientific
basis for interpreting such measurements.
A number of lawsuits based on EMF-related grounds have been filed against
electric utilities. A suit was filed on May 23, 1990 against I&M involving
claims that EMF from a 345 KV transmission line caused adverse health effects.
No specific amount has been requested for damages in this case and no trial date
has been set.
Some states have enacted regulations to limit the strength of magnetic
fields at the edge of transmission line rights-of-way. No state which the AEP
System serves has done so. In March 1993, The Ohio Power Siting Board issued its
amended rules providing for additional consideration of the possible effects of
EMF in the certification of electric transmission facilities. Applicants are
required to address possible health effects and discuss the consideration of
design alternatives with respect to estimates of EMF levels. These rules were
reissued in 1998 with no change to EMF language.
Management cannot predict the ultimate impact of the question of EMF
exposure and adverse health effects. If further research shows that EMF exposure
contributes to increased risk of cancer or other health problems, or if the
courts conclude that EMF exposure harms individuals and that utilities are
liable for damages, or if states limit the strength of magnetic fields to such a
level that the current electricity delivery system must be significantly
changed, then the results of operations and financial condition of AEP and its
operating subsidiaries could be materially adversely affected unless these costs
can be recovered from ratepayers.
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<PAGE> 43
RESEARCH AND DEVELOPMENT
AEP and its subsidiaries are involved in over 100 research projects which
are directed toward:
o Developing more efficient methods of burning coal.
o Reducing the emissions resulting from the combustion of coal.
o Utilizing combustion by-products of coal.
o Exploring new methods of generating electricity.
o Exploring the application of new electrotechnologies.
o Improving the efficiency and reliability of power transmission,
distribution and utilization.
AEP System operating companies are members of the Electric Power Research
Institute (EPRI), an organization founded in 1973 that manages research and
development initiatives, primarily on behalf of the U.S. electric utility
industry. These initiatives include technical programs to improve power
production, delivery and use. EPRI's more than 700 members represent over 90% of
the kilowatt sales in the U.S., but also include competitive power producers,
international organizations and others. Total AEP dues to EPRI were $15,400,000
for 1998, $15,300,000 for 1997 and $9,900,000 for 1996.
Total research and development expenditures by AEP and its subsidiaries,
including EPRI dues, were approximately $24,100,000 for the year ended December
31, 1998, $23,600,000 for the year ended December 31, 1997 and $16,400,000 for
the year ended December 31, 1996. This includes expenditures of $3,300,000 for
1998, $4,600,000 for 1997 and $3,300,000 for 1996 related to pressurized
fluidized-bed combustion, a process in which sulfur is removed during coal
combustion and nitrogen oxide formation is minimized.
Item 2. PROPERTIES
- --------------------------------------------------------------------------------
At December 31, 1998, subsidiaries of AEP owned (or leased where
indicated) generating plants with the net power capabilities (winter rating)
shown in the following table:
<TABLE>
<CAPTION>
NET KILOWATT
OWNER, PLANT TYPE AND NAME LOCATION (NEAR) CAPABILITY
-------------------------- --------------- ----------
<S> <C> <C>
AEP GENERATING COMPANY:
Steam-- Coal-Fired:
Rockport Plant (AEGCo share) Rockport, Indiana 1,300,000(a)
---------
APPALACHIAN POWER COMPANY:
Steam -- Coal-Fired:
John E. Amos, Units 1 & 2 St. Albans, West Virginia 1,600,000
John E. Amos, Unit 3 (APCo share) St. Albans, West Virginia 433,000(b)
Clinch River Carbo, Virginia 705,000
Glen Lyn Glen Lyn, Virginia 335,000
Kanawha River Glasgow, West Virginia 400,000
Mountaineer New Haven, West Virginia 1,300,000
Philip Sporn, Units 1 & 3 New Haven, West Virginia 308,000
</TABLE>
36
<PAGE> 44
<TABLE>
<CAPTION>
NET KILOWATT
OWNER, PLANT TYPE AND NAME LOCATION (NEAR) CAPABILITY
-------------------------- --------------- ----------
<S> <C> <C>
APPALACHIAN POWER COMPANY, CONT.:
Hydroelectric -- Conventional:
Buck Ivanhoe, Virginia 10,000
Byllesby Byllesby, Virginia 20,000
Claytor Radford, Virginia 76,000
Leesville Leesville, Virginia 40,000
London Montgomery, West Virginia 16,000
Marmet Marmet, West Virginia 16,000
Niagara Roanoke, Virginia 3,000
Reusens Lynchburg, Virginia 12,000
Winfield Winfield, West Virginia 19,000
Hydroelectric -- Pumped Storage:
Smith Mountain Penhook, Virginia 565,000
----------
5,858,000
----------
COLUMBUS SOUTHERN POWER COMPANY:
Steam -- Coal-Fired:
Beckjord, Unit 6 New Richmond, Ohio 53,000(c)
Conesville, Units 1-3, 5 & 6 Coshocton, Ohio 1,165,000
Conesville, Unit 4 Coshocton, Ohio 339,000(c)
Picway, Unit 5 Columbus, Ohio 100,000
Stuart, Units 1-4 Aberdeen, Ohio 608,000(c)
Zimmer Moscow, Ohio 330,000(c)
----------
2,595,000
----------
INDIANA MICHIGAN POWER COMPANY:
Steam -- Coal-Fired:
Rockport Plant (I&M share) Rockport, Indiana 1,300,000(a)
Tanners Creek Lawrenceburg, Indiana 995,000
Steam -- Nuclear:
Donald C. Cook Bridgman, Michigan 2,110,000
Gas Turbine:
Fourth Street Fort Wayne, Indiana 18,000(d)
Hydroelectric -- Conventional
Berrien Springs Berrien Springs, Michigan 3,000
Buchanan Buchanan, Michigan 2,000
Constantine Constantine, Michigan 1,000
Elkhart Elkhart, Indiana 1,000
Mottville Mottville, Michigan 1,000
Twin Branch Mishawaka, Indiana 3,000
----------
4,434,000
----------
KENTUCKY POWER COMPANY:
Steam -- Coal-Fired:
Big Sandy Louisa, Kentucky 1,060,000
----------
</TABLE>
37
<PAGE> 45
<TABLE>
<CAPTION>
NET KILOWATT
OWNER, PLANT TYPE AND NAME LOCATION (NEAR) CAPABILITY
-------------------------- --------------- ----------
<S> <C> <C>
OHIO POWER COMPANY:
Steam -- Coal-Fired:
John E. Amos, Unit 3 (OPCo share) St. Albans, West Virginia 867,000(b)
Cardinal, Unit 1 Brilliant, Ohio 600,000
General James M. Gavin Cheshire, Ohio 2,600,000(e)
Kammer Captina, West Virginia 630,000
Mitchell Captina, West Virginia 1,600,000
Muskingum River Beverly, Ohio 1,425,000
Philip Sporn, Units 2, 4 & 5 New Haven, West Virginia 742,000
Hydroelectric -- Conventional:
Racine Racine, Ohio 48,000
----------
8,512,000
----------
Total Generating Capability.......... 23,759,000
==========
SUMMARY:
Total Steam --
Coal-Fired....................................................................................... 20,795,000
Nuclear.......................................................................................... 2,110,000
Total Hydroelectric --
Conventional..................................................................................... 271,000
Pumped Storage................................................................................... 565,000
Other............................................................................................ 18,000
----------
Total Generating Capability............................. 23,759,000
==========
</TABLE>
- --------------------
(a) Unit 1 of the Rockport Plant is owned one-half by AEGCo and one-half by
I&M. Unit 2 of the Rockport Plant is leased one-half by AEGCo and one-half
by I&M. The leases terminate in 2022 unless extended.
(b) Unit 3 of the John E. Amos Plant is owned one-third by APCo and two-thirds
by OPCo.
(c) Represents CSPCo's ownership interest in generating units owned in common
with CG&E and DP&L.
(d) Leased from the City of Fort Wayne, Indiana. Since 1975, I&M has leased and
operated the assets of the municipal system of the City of Fort Wayne,
Indiana under a 35-year lease with a provision for an additional 15-year
extension at the election of I&M.
(e) The scrubber facilities at the Gavin Plant are leased. The lease terminates
in 2010 unless extended.
See Item 1 under Fuel Supply, for information concerning coal reserves
owned or controlled by subsidiaries of AEP.
The following table sets forth the total overhead circuit miles of
transmission and distribution lines of the AEP System, APCo, CSPCo, I&M, KEPCo
and OPCo and that portion of the total representing 765,000-volt lines:
TOTAL OVERHEAD
CIRCUIT MILES OF
TRANSMISSION CIRCUIT MILES
AND OF
DISTRIBUTION 765,000-VOLT
LINES LINES
----- -----
AEP System (a).............. 128,983(b) 2,022
APCo..................... 49,793 641
CSPCo (a)................ 15,578 --
I&M...................... 20,899 614
KEPCo.................... 10,223 258
OPCo .................... 29,406 509
- ----------------------
(a) Includes 766 miles of 345,000-volt jointly owned lines.
(b) Includes lines of other AEP System companies not shown.
TITLES
The AEP System's electric generating stations are generally located on
lands owned in fee simple. The greater portion of the transmission and
distribution lines of the System has been constructed over lands of private
owners pursuant to easements or along public highways and streets pursuant to
appropriate statutory authority. The rights of the System in the realty on which
its facilities are located are considered by it to be adequate for its use in
the conduct of its business. Minor defects and irregularities customarily found
in title to properties of like size and character may exist, but such defects
and irregularities do not materially impair the use of the properties affected
thereby. System companies generally have the right of eminent domain whereby
they may, if necessary, acquire, perfect or secure titles to or easements on
privately-held lands used or to be used in their utility operations.
38
<PAGE> 46
Substantially all the physical properties of APCo, CSPCo, I&M, KEPCo and
OPCo are subject to the lien of the mortgage and deed of trust securing the
first mortgage bonds of each such company.
SYSTEM TRANSMISSION LINES AND FACILITY SITING
Legislation in the states of Indiana, Kentucky, Michigan, Ohio, Virginia,
and West Virginia requires prior approval of sites of generating facilities
and/or routes of high-voltage transmission lines. Delays and additional costs in
constructing facilities have been experienced as a result of proceedings
conducted pursuant to such statutes, as well as in proceedings in which
operating companies have sought to acquire rights-of-way through condemnation,
and such proceedings may result in additional delays and costs in future years.
PEAK DEMAND
The AEP System is interconnected through 121 high-voltage transmission
interconnections with 25 neighboring electric utility systems. The all-time and
1998 one-hour peak System demands were 25,940,000 and 23,192,000 kilowatts,
respectively (which included 7,314,000 and 3,732,000 kilowatts, respectively, of
scheduled deliveries to unaffiliated systems which the System might, on
appropriate notice, have elected not to schedule for delivery) and occurred on
June 17, 1994 and June 22, 1998, respectively. The net dependable capacity to
serve the System load on such date, including power available under contractual
obligations, was 23,457,000 and 23,761,000 kilowatts, respectively. The all-time
and 1998 one-hour internal peak demands were 19,557,000 and 19,414,000
kilowatts, respectively, and occurred on February 5, 1996 and July 21, 1998,
respectively. The net dependable capacity to serve the System load on such date,
including power dedicated under contractual arrangements, was 23,765,000 and
23,749,000 kilowatts, respectively. The all-time one-hour integrated and
internal net system peak demands and 1998 peak demands for AEP's generating
subsidiaries are shown in the following tabulation:
ALL-TIME ONE-HOUR INTEGRATED 1998 ONE-HOUR INTEGRATED
NET SYSTEM PEAK DEMAND NET SYSTEM PEAK DEMAND
- ------------------------------ --------------------------
(IN THOUSANDS)
NUMBER OF NUMBER OF
KILOWATTS DATE KILOWATTS DATE
----------- ------ ----------- -------
APCo....... 8,303 January 17, 1997 6,739 March 12, 1998
CSPCo...... 4,172 June 17, 1994 4,027 July 21, 1998
I&M........ 5,027 June 17, 1994 4,778 July 14, 1998
KEPCo...... 1,711 January 17, 1997 1,444 August 25, 1998
OPCo....... 7,291 June 17, 1994 6,642 August 28, 1998
ALL-TIME ONE-HOUR INTEGRATED 1998 ONE-HOUR INTEGRATED
NET INTERNAL PEAK DEMAND NET INTERNAL PEAK DEMAND
- ------------------------------ --------------------------
(IN THOUSANDS)
NUMBER OF NUMBER OF
KILOWATTS DATE KILOWATTS DATE
----------- ------ ----------- -------
APCo ...... 6,908 February 5, 1996 6,135 March 13, 1998
CSPCo...... 3,551 July 21, 1998 3,551 July 21, 1998
I&M........ 3,926 July 14, 1997 3,870 July 21, 1998
KEPCo..... 1,418 February 5, 1996 1,299 March 13, 1998
OPCo....... 5,641 August 14, 1995 5,588 June 25, 1998
HYDROELECTRIC PLANTS
AEP has 17 facilities, of which 16 are licensed through FERC. The license
for the hydroelectric plant at Elkhart, Indiana expires in 2000. In 1995, a
notice of intent to relicense the Elkhart project was filed. The application was
filed in 1998. The license for the Mottville hydroelectric plant in Michigan
expires in 2003. A notice of intent to relicense was filed in 1998.
COOK NUCLEAR PLANT
Unit 1 of the Cook Plant, which was placed in commercial operation in
1975, has a nominal net electric rating of 1,020,000 kilowatts. Unit 1's
availability factor was -0-% during 1998 and 52.6% during 1997. Unit 2, of
slightly different design, has a nominal net electrical rating of 1,090,000
kilowatts and was placed in commercial operation in 1978. Unit 2's availability
factor was -0-% during 1998 and 65.1% during 1997. The Cook Plant was shut down
in September 1997 to respond to issues raised regarding the operability of
certain safety systems. See Cook Plant Shutdown.
Units 1 and 2 are licensed by the NRC to operate at 100% of rated thermal
power to October 25, 2014 and December 23, 2017, respectively.
Costs associated with the operation, maintenance and retirement of nuclear
plants continue to be of greater significance and less predictable than costs
associated with other sources of generation, in large part due to changing
39
<PAGE> 47
regulatory requirements and safety standards, availability of nuclear waste
disposal facilities and experience gained in the construction and operation of
nuclear facilities. I&M may also incur costs and experience reduced output at
its Cook Plant because of the design criteria prevailing at the time of
construction and the age of the plant's systems and equipment. Nuclear
industry-wide and Cook Plant initiatives have contributed to slowing the growth
of operating and maintenance costs. However, the ability of I&M to obtain
adequate and timely recovery of costs associated with the Cook Plant, including
replacement power, any unamortized investment at the end of the Cook Plant's
useful life (whether scheduled or premature), the carrying costs of that
investment and retirement costs, is not assured.
Cook Plant Shutdown
On September 9 and 10, 1997, during a NRC architect engineer design
inspection, questions regarding the operability of certain safety systems caused
AEP operations personnel to shut down Units 1 and 2 of the Cook Plant. On
September 19, 1997, the NRC issued a Confirmatory Action Letter requiring AEP to
address the issues identified in the letter. AEP is working with the NRC to
resolve the remaining open issue in the letter.
In April 1998 the NRC notified I&M that it had convened a Restart Panel
for Cook Plant. In July 1998 the NRC provided a list of the required restart
activities and in October the NRC expanded the list. In order to identify and
resolve the issues necessary to restart the Cook units, AEP is meeting with the
Panel on a regular basis until the units are returned to service.
In January 1999 AEP announced that it will conduct additional engineering
reviews at the Cook Plant that will delay restart of the units. Previously, the
units were scheduled to return to service at the end of the first and second
quarters of 1999. The decision to delay restart resulted from internal
assessments that indicated a need to conduct expanded system readiness reviews.
A new restart schedule will be developed based on the results of the expanded
reviews and should be available in June 1999. When maintenance and other
activities required for restart are complete, AEP will seek concurrence from the
NRC to return the Cook Plant to service. Until these additional reviews are
completed, management is unable to determine when the units will be returned to
service. Unless the costs of the extended outage and restart efforts are
recovered from customers, there would be a material adverse effect on results of
operations, cash flows and possibly financial condition.
In July 1998 AEP received an "adverse trend letter" from the NRC
indicating that NRC senior managers determined that there had been a slow
decline in performance at the Cook Plant during the 18-month period preceding
the letter. The letter indicated that the NRC will closely monitor efforts to
address issues at Cook Plant through additional inspection activities.
In October 1998 the NRC issued AEP a Notice of Violation and proposed a
$500,000 civil penalty for alleged violations at the Cook Plant discovered
during five inspections conducted between August 1997 and April 1998. AEP paid
the penalty.
The cost of electricity supplied to certain retail customers rose due to
the outage of the Cook Plant because higher cost coal-fired generation and
coal-based purchased power were substituted for lower cost nuclear generation.
AEP's Indiana and Michigan retail jurisdictional fuel cost recovery mechanisms
permit the recovery, subject to regulatory commission review and approval, of
changes in fuel costs. This includes the fuel component of purchased power in
the Indiana jurisdiction and changes in replacement power in the Michigan
jurisdiction. Under these fuel cost recovery mechanisms, retail rates contain a
fuel cost adjustment factor that reflects estimated fuel costs for the period
during which the factor will be in effect subject to reconciliation to actual
fuel costs in a future proceeding. When actual fuel costs exceed the estimated
costs reflected in the billing factor a regulatory asset is recorded and
revenues are accrued. Consequently, AEP has recorded a regulatory asset and
accrued revenues in anticipation of the future reconciliation and billing, under
the fuel cost recovery mechanisms, of the higher fuel costs to replace Cook
energy during the extended outage. At December 31, 1998, the regulatory asset
was $65,000,000.
The IURC approved, subject to future reconciliation or refund, agreements
authorizing AEP, during the billing months of July 1998 through March 1999, to
include in rates a fuel cost adjustment factor less than that requested by AEP.
40
<PAGE> 48
On March 16, 1999, a settlement agreement was filed with the IURC
resolving all matters related to the recovery of replacement energy costs due to
the extended Cook Plant outage. The settlement agreement, which is subject to
IURC approval, provides for, among other things:
o A credit of $55,000,000 to Indiana retail customers to be refunded
through customer bills during the months of July, August and September
1999. The credit returns to customers Cook replacement fuel costs
previously recovered.
o Authorization to defer any unrecovered fuel revenues accrued between
September 9, 1997 and December 31, 1999, including the $55,000,000
credited to customers.
o Authorization to defer up to $150,000,000 in incremental operation and
maintenance restart costs for the Cook Plant above the base rate level
incurred during 1999.
o Amortization of the fuel recoveries and restart cost deferrals over a
five-year period ending December 31, 2003.
o Subject to certain force majeure provisions, a freeze in base rates
through December 31, 2003 and a cap on fuel recovery charges through
March 1, 2004.
o Incremental nuclear decommissioning trust fund deposits of $2,500,000
annually over a five-year period ending December 31, 2003.
If the IURC does not approve this settlement, the recovery of Cook Plant
replacement energy costs would then become subject to regulatory hearings.
Nuclear Incident Liability
The Price-Anderson Act limits public liability for a nuclear incident at
any licensed reactor in the United States to $9 billion. I&M has insurance
coverage for liability from a nuclear incident at its Cook Plant. Such coverage
is provided through a combination of private liability insurance, with the
maximum amount available of $200,000,000, and mandatory participation for the
remainder of the $9 billion liability, in an industry retrospective deferred
premium plan which would, in case of a nuclear incident, assess all licensees of
nuclear plants in the U.S. Under the deferred premium plan, I&M could be
assessed up to $176,000,000 payable in annual installments of $20,000,000 in the
event of a nuclear incident at Cook or any other nuclear plant in the U.S. There
is no limit on the number of incidents for which I&M could be assessed these
sums.
I&M also has property damage, decontamination and decommissioning
insurance for loss resulting from damage to the Cook Plant facilities in the
amount of $3.0 billion. Coverage is provided by Energy Insurance Bermuda (EIB)
and Nuclear Electric Insurance Limited (NEIL). If EIB's and NEIL's losses exceed
their available resources, I&M would be subject to a total retrospective premium
assessment of up to $16,792,035. NRC regulations require that, in the event of
an accident, whenever the estimated costs of reactor stabilization and site
decontamination exceed $100,000,000, the insurance proceeds must be used, first,
to return the reactor to, and maintain it in, a safe and stable condition and,
second, to decontaminate the reactor and reactor station site in accordance with
a plan approved by the NRC. The insurers then would indemnify I&M for
decommissioning costs in excess of funds already collected for decommissioning
and for property damage up to $3.0 billion less any amounts used for
stabilization and decontamination. See Fuel Supply -- Nuclear Waste.
The NEIL extra-expense programs provide insurance to cover extra costs
resulting from a prolonged accidental outage of a nuclear unit. I&M's policy
insures against such increased costs up to approximately $3,500,000 per week
(starting 17 weeks after the outage) for one year, $2,800,000 per week for the
second and third years, or 80% of those amounts per unit if both units are down
for the same reason. If NEIL's losses exceed its available resources, I&M would
be subject to a total retrospective premium assessment of up to $6,405,535.
POTENTIAL UNINSURED LOSSES
Some potential losses or liabilities may not be insurable or the amount of
insurance carried may not be sufficient to meet potential losses and
liabilities, including liabilities relating to damage to
41
<PAGE> 49
the Cook Plant and costs of replacement power in the event of a nuclear incident
at the Cook Plant. Future losses or liabilities which are not completely
insured, unless allowed to be recovered through rates, could have a material
adverse effect on results of operations and the financial condition of AEP, I&M
and other AEP System companies.
Item 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
On February 28, 1994, Ormet Corporation filed a complaint in the U.S.
District Court, Northern District of West Virginia, against AEP, OPCo, the
Service Corporation and two of its employees, Federal EPA and the Administrator
of Federal EPA. Ormet is the operator of a major aluminum reduction plant in
Ohio and is a customer of OPCo. See Certain Industrial Customers. Pursuant to
the Clean Air Act Amendments of 1990, OPCo received SO2 Allowances for its
Kammer Plant. See Environmental and Other Matters. Ormet's complaint sought a
declaration that it is the owner of approximately 89% of the Phase I and Phase
II SO2 allowances issued for use by the Kammer Plant. On March 31, 1995, the
District Court issued an opinion and order dismissing Ormet's claims based on a
lack of jurisdiction. On April 11, 1995, Ormet appealed the District Court's
decision to the U.S. Court of Appeals for the Fourth Circuit with respect to the
Service Corporation and OPCo only. On October 23, 1996, the Court of Appeals
issued an opinion reversing the District Court. In January 1997 OPCo and the
Service Corporation filed an answer and counterclaims in the District Court and
in February 1998 they filed a motion for summary judgment. On March 1, 1999, the
District Court issued an opinion and order granting OPCo and the Service
Corporation's motion for summary judgment and dismissing the case.
----------------------
The Internal Revenue Service (IRS) agents auditing the AEP System's consolidated
federal income tax returns requested a ruling from their National Office that
certain interest deductions claimed by AEP relating to its corporate owned life
insurance (COLI) program should not be allowed. As a result of a suit filed in
U.S. District Court (discussed below) this request for ruling was withdrawn by
the IRS agents. Adjustments have been or will be proposed by the IRS disallowing
COLI interest deductions for taxable years 1991-96. A disallowance of the COLI
interest deductions through December 31, 1998 would reduce earnings (including
interest) as follows:
(in millions)
-------------
AEP System..................................... $316
APCo........................................ 79
CSPCo....................................... 43
I&M......................................... 66
KEPCo....................................... 8
OPCo........................................ 117
AEP System companies have made no provision for any possible adverse earnings
impact from this matter.
In 1998 AEP made payments of taxes and interest attributable to COLI
interest deductions for taxable years 1991-97 to avoid the potential assessment
by the IRS of any additional above- market rate interest on the contested
amount. The payments to the IRS are included on the balance sheet in other
property and investments pending the resolution of this matter. AEP will seek
refund, either administratively or through litigation, of all amounts paid plus
interest. In order to resolve this issue without further delay, on March 24,
1998, AEP filed suit against the U.S. in the U.S. District Court for the
Southern District of Ohio. Management believes that it has a meritorious
position and will vigorously pursue this lawsuit. In the event the resolution of
this matter is unfavorable, it will have a material adverse impact on results of
operations and cash flows.
----------------------
See Item 1 for a discussion of certain environmental and rate matters.
42
<PAGE> 50
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
AEP, APCO, I&M AND OPCO. None.
AEGCO, CSPCO AND KEPCO. Omitted pursuant to Instruction I(2)(c).
----------------------
EXECUTIVE OFFICERS OF THE REGISTRANTS
AEP. The following persons are, or may be deemed, executive officers of
AEP. Their ages are given as of March 1, 1999.
<TABLE>
<CAPTION>
NAME AGE OFFICE (a)
- ---- --- ----------
<S> <C> <C>
E. Linn Draper, Jr............ 57 Chairman of the Board, President and Chief Executive Officer of AEP and of the
Service Corporation
Donald M. Clements, Jr........ 49 Executive Vice President-Corporate Development of the Service
Corporation
Henry W. Fayne................ 52 Executive Vice President-Financial Services of the Service Corporation
William J. Lhota.............. 59 Executive Vice President of the Service Corporation
James J. Markowsky............ 54 Executive Vice President-Power Generation of the Service Corporation
J. H. Vipperman............... 58 Executive Vice President-Corporate Services of the Service Corporation
</TABLE>
- -------------------------
(a) All of the executive officers listed above have been employed by the
Service Corporation or System companies in various capacities (AEP, as
such, has no employees) during the past five years, except for Mr.
Clements. Prior to joining the Service Corporation in 1994 as Senior Vice
President-Corporate Development, Mr. Clements was Senior Vice President of
External Affairs of Gulf States Utilities Company (1993-1994). All of the
above officers are appointed annually for a one-year term by the board of
directors of AEP, the board of directors of the Service Corporation, or
both, as the case may be.
APCO. The names of the executive officers of APCo, the positions they hold
with APCo, their ages as of March 1, 1999, and a brief account of their business
experience during the past five years appears below. The directors and executive
officers of APCo are elected annually to serve a one-year term.
<TABLE>
<CAPTION>
NAME AGE POSITION (a) PERIOD
- ---- --- ------------ ------
<S> <C> <C> <C>
E. Linn Draper, Jr............ 57 Director 1992-Present
Chairman of the Board and Chief Executive Officer 1993-Present
Vice President 1992-1993
Chairman of the Board, President and Chief Executive
Officer of AEP and the Service Corporation 1993-Present
President of AEP 1992-1993
President and Chief Operating Officer of the
Service Corporation 1992-1993
Henry W. Fayne................ 52 Director 1995-Present
Vice President 1998-Present
Vice President and Chief Financial Officer of AEP 1998-Present
Executive Vice President-Financial Services of the
Service Corporation 1998-Present
Senior Vice President-Corporate Planning & Budgeting
of the Service Corporation 1995-1998
Senior Vice President-Controller of the
Service Corporation 1993-1995
</TABLE>
43
<PAGE> 51
<TABLE>
<CAPTION>
NAME AGE POSITION (a) PERIOD
- ---- --- ------------ ------
<S> <C> <C> <C>
William J. Lhota.............. 59 Director 1990-Present
President and Chief Operating Officer 1996-Present
Vice President 1989-1995
Executive Vice President of the Service Corporation 1993-Present
Executive Vice President-Operations of the
Service Corporation 1989-1993
James J. Markowsky............ 54 Director 1993-Present
Vice President 1995-Present
Executive Vice President-Power Generation of the
Service Corporation 1996-Present
Executive Vice President-Engineering and Construction
of the Service Corporation 1993-1996
Senior Vice President and Chief Engineer of the
Service Corporation 1988-1993
J. H. Vipperman............... 58 Director 1985-Present
Vice President 1996-Present
President and Chief Operating Officer 1990-1995
Executive Vice President-Corporate Services of the
Service Corporation 1998-Present
Executive Vice President-Energy Delivery of the
Service Corporation 1996-1997
</TABLE>
- ----------------------
(a) Positions are with APCo unless otherwise indicated.
OPCO. The names of the executive officers of OPCo, the positions they hold
with OPCo, their ages as of March 1, 1999, and a brief account of their business
experience during the past five years appear below. The directors and executive
officers of OPCo are elected annually to serve a one-year term.
<TABLE>
<CAPTION>
NAME AGE POSITION (a) PERIOD
- ---- --- ------------ ------
<S> <C> <C> <C>
E. Linn Draper, Jr.......... 57 Director 1992-Present
Chairman of the Board and Chief Executive Officer 1993-Present
Vice President 1992-1993
Chairman of the Board, President and Chief Executive
Officer of AEP and the Service Corporation 1993-Present
President of AEP 1992-1993
President and Chief Operating Officer of the
Service Corporation 1992-1993
Henry W. Fayne.............. 52 Director 1993-Present
Vice President 1998-Present
Vice President and Chief Financial Officer of AEP 1998-Present
Executive Vice President-Financial Services of the
Service Corporation 1998-Present
Senior Vice President-Corporate Planning & Budgeting
of the Service Corporation 1995-1998
Senior Vice President-Controller of the
Service Corporation 1993-1995
</TABLE>
44
<PAGE> 52
<TABLE>
<CAPTION>
NAME AGE POSITION (a) PERIOD
- ---- --- ------------ ------
<S> <C> <C> <C>
William J. Lhota............ 59 Director 1989-Present
President and Chief Operating Officer 1996-Present
Vice President 1989-1995
Executive Vice President of the Service Corporation 1993-Present
Executive Vice President-Operations of the
Service Corporation 1989-1993
James J. Markowsky............ 54 Director 1989-Present
Vice President 1995-Present
Executive Vice President-Power Generation of the Service
Corporation 1996-Present
Executive Vice President-Engineering and Construction of
the Service Corporation 1993-1996
Senior Vice President and Chief Engineer of the Service
Corporation 1988-1993
J. H. Vipperman............. 58 Director and Vice President 1996-Present
Executive Vice President-Corporate Services of the
Service Corporation 1998-Present
Executive Vice President-Energy Delivery of the
Service Corporation 1996-1997
President and Chief Operating Officer of APCo 1990-1995
</TABLE>
- --------------------
(a) Positions are with OPCo unless otherwise indicated.
PART II ------------------------------------------------------------------------
Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
AEP. AEP Common Stock is traded principally on the New York Stock
Exchange. The following table sets forth for the calendar periods indicated the
high and low sales prices for the Common Stock as reported on the New York Stock
Exchange Composite Tape and the amount of cash dividends paid per share of
Common Stock.
PER SHARE
MARKET PRICE
------------------------
QUARTER ENDED HIGH LOW DIVIDEND
- ------------- ---- --- --------
March 1997........................... 43-3/16 40 .60
June 1997............................ 42-1/2 39-1/8 .60
September 1997....................... 46-5/8 41-1/2 .60
December 1997........................ 52 45-1/4 .60
March 1998........................... 51-11/16 47-13/16 .60
June 1998............................ 50-3/4 44-11/16 .60
September 1998....................... 48 13/16 42 1/16 .60
December 1998........................ 53 5/16 45 5/16 .60
At December 31, 1998, AEP had approximately 134,000 shareholders of
record.
AEGCO, APCO, CSPCO, I&M, KEPCO AND OPCO. The information required by this
item is not applicable as the common stock of all these companies is held solely
by AEP.
45
<PAGE> 53
Item 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
AEGCO. Omitted pursuant to Instruction I(2)(a).
AEP. The information required by this item is incorporated herein by
reference to the material under Selected Consolidated Financial Data in the AEP
1998 Annual Report (for the fiscal year ended December 31, 1998).
APCO. The information required by this item is incorporated herein by
reference to the material under Selected Consolidated Financial Data in the APCo
1998 Annual Report (for the fiscal year ended December 31, 1998).
CSPCO. Omitted pursuant to Instruction I(2)(a).
I&M. The information required by this item is incorporated herein by
reference to the material under Selected Consolidated Financial Data in the I&M
1998 Annual Report (for the fiscal year ended December 31, 1998).
KEPCO. Omitted pursuant to Instruction I(2)(a).
OPCO. The information required by this item is incorporated herein by
reference to the material under Selected Consolidated Financial Data in the OPCo
1998 Annual Report (for the fiscal year ended December 31, 1998).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
AEGCO. Omitted pursuant to Instruction I(2)(a). Management's narrative
analysis of the results of operations and other information required by
Instruction I(2)(a) is incorporated herein by reference to the material under
Management's Narrative Analysis of Results of Operations in the AEGCo 1998
Annual Report (for the fiscal year ended December 31, 1998).
AEP. The information required by this item is incorporated herein by
reference to the material under Management's Discussion and Analysis of Results
of Operations and Financial Condition in the AEP 1998 Annual Report (for the
fiscal year ended December 31, 1998).
APCO. The information required by this item is incorporated herein by
reference to the material under Management's Discussion and Analysis of Results
of Operations and Financial Condition in the APCo 1998 Annual Report (for the
fiscal year ended December 31, 1998).
CSPCO. Omitted pursuant to Instruction I(2)(a). Management's narrative
analysis of the results of operations and other information required by
Instruction I(2)(a) is incorporated herein by reference to the material under
Management's Narrative Analysis of Results of Operations in the CSPCo 1998
Annual Report (for the fiscal year ended December 31, 1998).
I&M. The information required by this item is incorporated herein by
reference to the material under Management's Discussion and Analysis of Results
of Operations and Financial Condition in the I&M 1998 Annual Report (for the
fiscal year ended December 31, 1998).
KEPCO. Omitted pursuant to Instruction I(2)(a). Management's narrative
analysis of the results of operations and other information required by
Instruction I(2)(a) is incorporated herein by reference to the material under
Management's Narrative Analysis of Results of Operations in the KEPCo 1998
Annual Report (for the fiscal year ended December 31, 1998).
OPCO. The information required by this item is incorporated herein by
reference to the material under Management's Discussion and Analysis of Results
of Operations and Financial Condition in the OPCo 1998 Annual Report (for the
fiscal year ended December 31, 1998).
46
<PAGE> 54
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
AEGCO. The information required by this item is incorporated herein by
reference to the material under Management's Narrative Analysis of Results of
Operations in the AEGCo 1998 Annual Report (for the fiscal year ended December
31, 1998).
AEP. The information required by this item is incorporated herein by
reference to the material under Management's Discussion and Analysis of Results
of Operations and Financial Condition in the AEP 1998 Annual Report (for the
fiscal year ended December 31, 1998).
APCO. The information required by this item is incorporated herein by
reference to the material under Management's Discussion and Analysis of Results
of Operations and Financial Condition in the APCo 1998 Annual Report (for the
fiscal year ended December 31, 1998).
CSPCO. The information required by this item is incorporated herein by
reference to the material under Management's Narrative Analysis of Results of
Operations in the CSPCo 1998 Annual Report (for the fiscal year ended December
31, 1998).
I&M. The information required by this item is incorporated herein by
reference to the material under Management's Discussion and Analysis of Results
of Operations and Financial Condition in the I&M 1998 Annual Report (for the
fiscal year ended December 31, 1998).
KEPCO. The information required by this item is incorporated herein by
reference to the material under Management's Narrative Analysis of Results of
Operations in the KEPCo 1998 Annual Report (for the fiscal year ended December
31, 1998).
OPCO. The information required by this item is incorporated herein by
reference to the material under Management's Discussion and Analysis of Results
of Operations and Financial Condition in the OPCo 1998 Annual Report (for the
fiscal year ended December 31, 1998).
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
AEGCO, AEP, APCO, CSPCO, I&M, KEPCO, AND OPCO. The information required by
this item is incorporated herein by reference to the financial statements and
supplementary data described under Item 14 herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
AEGCO, AEP, APCO, CSPCO, I&M, KEPCO AND OPCO. None.
47
<PAGE> 55
PART III -----------------------------------------------------------------------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
- --------------------------------------------------------------------------------
AEGCO. Omitted pursuant to Instruction I(2)(c).
AEP. The information required by this item is incorporated herein by
reference to the material under Nominees for Director and Section 16(a)
Beneficial Ownership Reporting Compliance of the definitive proxy statement of
AEP for the 1999 annual meeting of shareholders, to be filed within 120 days
after December 31, 1998. Reference also is made to the information under the
caption Executive Officers of the Registrants in Part I of this report.
APCO. The information required by this item is incorporated herein by
reference to the material under Election of Directors of the definitive
information statement of APCo for the 1999 annual meeting of stockholders, to be
filed within 120 days after December 31, 1998. Reference also is made to the
information under the caption Executive Officers of the Registrants in Part I of
this report.
CSPCO. Omitted pursuant to Instruction I(2)(c).
I&M. The names of the directors and executive officers of I&M, the
positions they hold with I&M, their ages as of March 1, 1999, and a brief
account of their business experience during the past five years appear below.
The directors and executive officers of I&M are elected annually to serve a
one-year term.
<TABLE>
<CAPTION>
NAME AGE POSITION (a)(b)(c) PERIOD
- ---- --- ------------------ ------
<S> <C> <C> <C>
E. Linn Draper, Jr............ 57 Director 1992-Present
Chairman of the Board and Chief Executive Officer 1993-Present
Vice President 1992-1993
Chairman of the Board, President and Chief Executive
Officer of AEP and of the Service Corporation 1993-Present
President of AEP 1992-1993
President and Chief Operating Officer of the Service
Corporation 1992-1993
Henry W. Fayne................ 52 Director and Vice President 1998-Present
Vice President and Chief Financial Officer of AEP 1998-Present
Executive Vice President-Financial Services of the
Service Corporation 1998-Present
Senior Vice President-Corporate Planning &
Budgeting of the Service Corporation 1995-1998
Senior Vice President-Controller of the
Service Corporation 1993-1995
William J. Lhota.............. 59 Director 1989-Present
President and Chief Operating Officer 1996-Present
Vice President 1989-1995
Executive Vice President of the Service Corporation 1993-Present
</TABLE>
48
<PAGE> 56
<TABLE>
<CAPTION>
NAME AGE POSITION (a)(b)(c) PERIOD
- ---- --- ------------------ ------
<S> <C> <C> <C>
James J. Markowsky............ 54 Director 1995-Present
Vice President 1993-Present
Executive Vice President-Power Generation of the
Service Corporation 1996-Present
Executive Vice President-Engineering & Construction
of the Service Corporation 1993-1996
Senior Vice President and Chief Engineer of the
Service Corporation 1988-1993
Armando A. Pena............... 54 Director, Vice President and Chief Financial Officer 1998-Present
Treasurer 1995-Present
Chief Financial Officer of the Service Corporation 1998-Present
Senior Vice President-Finance of the Service
Corporation 1996-Present
Treasurer of AEP and the Service Corporation 1995-Present
J. H. Vipperman............... 58 Director and Vice President 1996-Present
Executive Vice President-Corporate Services of the
Service Corporation 1998-Present
Executive Vice President-Energy Delivery of the 1996-1997
Service Corporation
President and Chief Operating Officer of APCo 1990-1995
K. G. Boyd.................... 47 Director 1997-Present
Indiana Region Manager 1997-Present
Fort Wayne District Manager 1994-1997
C. R. Boyle, III.............. 50 Director 1996-Present
Vice President 1996-1999
Vice President-Regulatory Services of the
Service Corporation 1999-Present
President and Chief Operating Officer of KEPCo 1990-1995
G. A. Clark.................. 47 Director 1995-Present
Governmental Affairs Manager 1996-Present
General Counsel 1994-1995
General Attorney 1991-1993
J. A. Kobyra.................. 46 Director 1998-Present
Cook Plant Steam Generator Project Manager 1998-Present
Cook Plant Chief Nuclear Engineer 1994-1998
D. B. Synowiec................ 55 Director 1995-Present
Plant Manager 1990-Present
W. E. Walters................. 51 Director 1991-Present
Michiana Region Manager 1994-Present
Executive Assistant to President 1987-1994
E. H. Wittkamper.............. 60 Director 1996-Present
Director of System Operations (Fort Wayne) 1996
System Operations Manager (Fort Wayne) 1990-1996
</TABLE>
- -----------------
(a) Positions are with I&M unless otherwise indicated.
(b) Dr. Draper is a director of BCP Management, Inc., which is the general
partner of Borden Chemicals and Plastics L.P., and CellNet Data Systems,
Inc. and Mr. Lhota is a director of Huntington Bancshares Incorporated and
State Auto Financial Corporation.
(c) Drs. Draper and Markowsky and Messrs. Fayne, Lhota and Pena are directors
of AEGCo, APCo, CSPCo, KEPCo and OPCo. Dr. Draper is also a director of
AEP. Mr. Vipperman is a director of APCo, CSPCo, KEPCo and OPCo.
49
<PAGE> 57
KEPCO. Omitted pursuant to Instruction I(2)(c).
OPCO. The information required by this item is incorporated herein by
reference to the material under the heading Election of Directors of the
definitive information statement of OPCo for the 1999 annual meeting of
shareholders, to be filed within 120 days after December 31, 1998. Reference
also is made to the information under the caption Executive Officers of the
Registrants in Part I of this report.
Item 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
AEGCO. Omitted pursuant to Instruction I(2)(c).
AEP. The information required by this item is incorporated herein by
reference to the material under Directors Compensation and Stock Ownership
Guidelines, Executive Compensation and the performance graph of the definitive
proxy statement of AEP for the 1999 annual meeting of shareholders to be filed
within 120 days after December 31, 1998.
APCO. The information required by this item is incorporated herein by
reference to the material under Executive Compensation of the definitive
information statement of APCo for the 1999 annual meeting of stockholders, to be
filed within 120 days after December 31, 1998.
CSPCO. Omitted pursuant to Instruction I(2)(c).
KEPCO. Omitted pursuant to Instruction I(2)(c).
OPCO. The information required by this item is incorporated herein by
reference to the material under Executive Compensation of the definitive
information statement of OPCo for the 1999 annual meeting of shareholders, to be
filed within 120 days after December 31, 1998.
I&M. Certain executive officers of I&M are employees of the Service
Corporation. The salaries of these executive officers are paid by the Service
Corporation and a portion of their salaries has been allocated and charged to
I&M. The following table shows for 1998, 1997 and 1996 the compensation earned
from all AEP System companies by the chief executive officer and four other most
highly compensated executive officers (as defined by regulations of the SEC) of
I&M at December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION ---------------------
------------------- PAYOUTS ALL OTHERN
SALARY BONUS --------------------- COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) LTIP PAYOUTS ($)(1) ($)(2)
---------------------------------- ------- ------ --------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
E. LINN DRAPER, JR. - Chairman of the board, 1998 780,000 194,376 345,906 104,941
president and chief executive officer of the 1997 720,000 327,744 951,132 31,620
Company and the Service Corporation; chairman 1996 720,000 281,664 675,903 31,990
and chief executive officer of other
subsidiaries
WILLIAM J. LHOTA - Executive vice president and 1998 380,000 82,859 134,266 56,493
director of the Service Corporation; 1997 355,000 141,396 364,436 20,570
president, chief operating officer and 1996 320,000 125,184 263,114 19,690
director of other subsidiaries
JAMES J. MARKOWSKY - Executive vice president - 1998 350,000 76,317 127,115 51,859
power generation and director of the Service 1997 325,000 129,447 338,382 18,020
Corporation; vice president and director of 1996 303,000 118,534 254,535 19,480
other subsidiaries
</TABLE>
50
<PAGE> 58
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION ---------------------
------------------- PAYOUTS ALL OTHERN
SALARY BONUS --------------------- COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) LTIP PAYOUTS ($)(1) ($)(2)
---------------------------------- ------- ------ --------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
JOSEPH H.VIPPERMAN - Executive vice president 1998 310,000 67,595 82,859 58,435
-corporate services and director of the
Service Corporation; vice president and
director of other subsidiaries (3)
HENRY W. FAYNE - Executive vice president - 1998 290,000 63,234 61,555 34,124
financial services and director of the Service
Corporation; vice president and director of
other subsidiaries (3)
</TABLE>
- ------------------------
(1) Amounts in the Bonus column reflect awards under the Senior Officer Annual
Incentive Compensation Plan (and predecessor Management Incentive
Compensation Plan). Payments were made in March of the succeeding fiscal
year for performance in the year indicated. Amounts for 1998 are estimates
but should not change significantly.
Amounts in the Long Term Compensation column reflect performance share unit
targets earned under the Performance Share Incentive Plan for three-year
performance periods.
See below under Long Term Incentive Plans - Awards in 1998 for additional
information.
(2) Amounts in the All Other Compensation column include (i) AEP's matching
contributions under the AEP Employees Savings Plan and the AEP Supplemental
Savings Plan, a non-qualified plan designed to supplement the AEP Savings
Plan, and (ii) subsidiary companies director fees. For 1998, the amounts
also include split-dollar insurance. Split-dollar insurance represents the
present value of the interest projected to accrue for the employee's
benefit on the current year's insurance premium paid by AEP. Cumulative net
life insurance premiums paid are recovered by AEP at the later of
retirement or 15 years. Detail of the 1998 amounts in the All Other
Compensation column is shown below.
<TABLE>
<CAPTION>
Item Dr. Draper Mr. Lhota Dr. Markowsky Mr. Vipperman Mr. Fayne
---- ---------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Savings Plan Matching Contributions $ 3,200 $ 4,800 $ 4,800 $ 4,800 $ 4,800
Supplemental Savings Plan Matching Contributions 20,200 6,600 5,700 4,500 3,900
Split-Dollar Insurance 71,621 35,173 31,439 43,135 17,399
Subsidiaries Directors Fees 9,920 9,920 9,920 6,000 8,025
-------- ------- ------- ------- -------
Total All Other Compensation $104,941 $56,493 $51,859 $58,435 $34,124
======== ======= ======= ======= =======
</TABLE>
(3) No 1996 or 1997 compensation information is reported for Messrs. Vipperman
and Fayne because they were not executive officers in these years.
Long-Term Incentive Plans -- Awards In 1998
Each of the awards set forth below establishes performance share unit
targets, which represent units equivalent to shares of Common Stock, pursuant to
the Company's Performance Share Incentive Plan. Since it is not possible to
predict future dividends and the price of AEP Common Stock, credits of
performance share units in amounts equal to the dividends that would have been
paid if the performance share unit targets were established in the form of
shares of Common Stock are not included in the table.
The ability to earn performance share unit targets is tied to achieving
specified levels of total shareholder return ("TSR") relative to the S&P
Electric Utility Index. Notwithstanding AEP's TSR ranking, no performance share
unit targets are earned unless AEP shareholders realize a positive TSR over the
relevant three performance period. The Human Resources Committee may, at its
discretion, reduce the number of performance share unit targets otherwise
earned. In accordance with the performance goals established for the periods set
forth below, the threshold, target and maximum awards are equal to 25%, 100% and
200%, respectively, of the performance share unit targets. No payment will be
made for performance below the threshold.
Payments of earned awards are deferred in the form of restricted stock
units (equivalent to shares of AEP Common Stock) until the officer has met the
equivalent stock ownership target discussed in the Human Resources Committee
Report. Once officers meet and maintain their respective targets, they may elect
either to continue to defer or to receive further earned awards in cash and/or
Common Stock.
51
<PAGE> 59
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS OF
PERFORMANCE SHARE UNITS UNDER
PERFORMANCE NON-STOCK PRICE-BASED PLAN
NUMBER OF PERIOD UNTIL -----------------------------
PERFORMANCE MATURATION THRESHOLD TARGET MAXIMUM
NAME SHARE UNITS OR PAYOUT (#) (#) (#)
---- ----------- --------- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
E. L. Draper, Jr................... 7,730 1998-2000 1,932 7,730 15,460
W. J. Lhota........................ 2,636 1998-2000 659 2,636 5,272
J. J. Markowsky.................... 2,428 1998-2000 607 2,428 4,856
J. H. Vipperman.................... 2,150 1998-2000 537 2,150 4,300
H. W. Fayne........................ 2,012 1998-2000 503 2,012 4,024
</TABLE>
Retirement Benefits
The American Electric Power System Retirement Plan provides pensions for
all employees of AEP System companies (except for employees covered by certain
collective bargaining agreements), including the executive officers of the
Company. The Retirement Plan is a noncontributory defined benefit plan.
The following table shows the approximate annual annuities under the
Retirement Plan that would be payable to employees in certain higher salary
classifications, assuming retirement at age 65 after various periods of service.
Pension Plan Table
<TABLE>
<CAPTION>
YEARS OF ACCREDITED SERVICE
HIGHEST AVERAGE --------------------------------------------------------------------------------------------
ANNUAL EARNINGS 15 20 25 30 35 40
--------------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 $ 69,525 $ 92,700 $115,875 $139,050 $162,225 $182,175
400,000 93,525 124,700 155,875 187,050 218,225 244,825
500,000 117,525 156,700 195,875 235,050 274,225 307,475
700,000 165,525 220,700 275,875 331,050 386,225 432,775
900,000 213,525 284,700 355,875 427,050 498,225 558,075
1,200,000 285,525 380,700 475,875 571,050 666,225 746,025
</TABLE>
The amounts shown in the table are the straight life annuities payable
under the Retirement Plan without reduction for the joint and survivor annuity.
Retirement benefits listed in the table are not subject to any deduction for
Social Security or other offset amounts. The retirement annuity is reduced 3%
per year in the case of retirement between ages 55 and 62. If an employee
retires after age 62, there is no reduction in the retirement annuity.
The Company maintains a supplemental retirement plan which provides for
the payment of benefits that are not payable under the Retirement Plan due
primarily to limitations imposed by Federal tax law on benefits paid by
qualified plans. The table includes supplemental retirement benefits.
Compensation upon which retirement benefits are based, for the executive
officers named in the Summary Compensation Table above, consists of the average
of the 36 consecutive months of the officer's highest aggregate salary and
Senior Officer Annual Incentive Compensation Plan (and predecessor Management
Incentive Compensation Plan) awards, shown in the "Salary" and "Bonus" columns,
respectively, of the Summary Compensation Table, out of the officer's most
recent 10 years of service. As of December 31, 1998, the number of full years of
service applicable for retirement benefit calculation purposes for such officers
were as follows: Dr. Draper, six years; Mr. Lhota, 34 years; Dr. Markowsky, 27
years; Mr. Vipperman, 35 years; and Mr. Fayne, 23 years.
Dr. Draper has a contract with the Company and AEP Service Corporation
which provides him with a supplemental retirement annuity that credits him with
24 years of service in addition to his years of service credited under the
Retirement Plan less his actual pension entitlement under the Retirement Plan
and any pension entitlement from the Gulf States Utilities Company Trusteed
Retirement Plan, a plan sponsored by his prior employer.
52
<PAGE> 60
Ten AEP System employees (including Messrs. Fayne, Lhota and Vipperman and
Dr. Markowsky) whose pensions may be adversely affected by amendments to the
Retirement Plan made as a result of the Tax Reform Act of 1986 are eligible for
certain supplemental retirement benefits. Such payments, if any, will be equal
to any reduction occurring because of such amendments. Assuming retirement in
1999 of the executive officers named in the Summary Compensation Table, none of
them would receive any supplemental benefits.
AEP made available a voluntary deferred-compensation program in 1982 and
1986, which permitted certain members of AEP System management to defer receipt
of a portion of their salaries. Under this program, a participant was able to
defer up to 10% or 15% annually (depending on the terms of the program offered),
over a four-year period, of his or her salary, and receive supplemental
retirement or survivor benefit payments over a 15-year period. The amount of
supplemental retirement payments received is dependent upon the amount deferred,
age at the time the deferral election was made, and number of years until the
participant retires. The following table sets forth, for the executive officers
named in the Summary Compensation Table, the amounts of annual deferrals and,
assuming retirement at age 65, annual supplemental retirement payments under the
1982 and 1986 programs.
<TABLE>
<CAPTION>
1982 PROGRAM 1986 PROGRAM
------------------------------------------- -------------------------------------------
ANNUAL AMOUNT OF ANNUAL AMOUNT OF
ANNUAL SUPPLEMENTAL ANNUAL SUPPLEMENTAL
AMOUNT RETIREMENT AMOUNT DEFERRED RETIREMENT
DEFERRED PAYMENT (4-YEAR PERIOD) PAYMENT
NAME (4-YEAR PERIOD) (15-YEAR PERIOD) (15-YEAR PERIOD)
-------- ------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
J. H. Vipperman............... $11,000 $90,750 $10,000 $67,500
H. W. Fayne................... $ 0 $ 0 $ 9,000 $95,400
</TABLE>
Severance Plan
In connection with the proposed merger with Central and South West
Corporation, AEP's Board of Directors adopted a severance plan on February 24,
1999, effective March 1, 1999, that includes Dr. Markowsky and Messrs. Lhota,
Vipperman and Fayne. The severance plan provides for payments and other benefits
if, within two years after the merger is completed, the officer's employment is
terminated by AEP without "cause" or by the officer because of a detrimental
change in responsibilities or a reduction in salary or benefits. Under the
severance plan, the officer will receive:
o A lump sum payment equal to three times the officer's annual base
salary plus target annual incentive under the Senior Officer Annual
Incentive Compensation Plan.
o Maintenance for a period of three additional years of all medical and
dental insurance benefits substantially similar to those benefits to
which the officer was entitled immediately prior to termination,
reduced to the extent comparable benefits are otherwise received.
o Outplacement services not to exceed a cost of $30,000 or use of an
office and secretarial services for up to one year.
AEP's obligation for the payments and benefits under the severance plan is
subject to the waiver by the officer of any other severance benefits that may be
provided by AEP. In addition, the officer agrees to refrain from the disclosure
of confidential information relating to AEP.
-----------------------------
Directors of I&M receive a fee of $100 for each meeting of the Board of
Directors attended in addition to their salaries.
---------------------------
The AEP System is an integrated electric utility system and, as a result,
the member companies of the AEP System have contractual, financial and other
business relationships with the other member companies, such as participation in
the AEP System savings and retirement plans and tax returns, sales of
electricity, transportation and handling of fuel, sales or rentals of property
and interest or dividend payments on the securities held by the companies'
respective parents.
53
<PAGE> 61
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
AEGCO. Omitted pursuant to Instruction I(2)(c).
AEP. The information required by this item is incorporated herein by
reference to the material under Share Ownership of Directors and Executive
Officers of the definitive proxy statement of AEP for the 1999 annual meeting of
shareholders to be filed within 120 days after December 31, 1998.
APCO. The information required by this item is incorporated herein by
reference to the material under Share Ownership of Directors and Executive
Officers in the definitive information statement of APCo for the 1999 annual
meeting of stockholders, to be filed within 120 days after December 31, 1998.
CSPCO. Omitted pursuant to Instruction I(2)(c).
I&M. All 1,400,000 outstanding shares of Common Stock, no par value, of
I&M are directly and beneficially held by AEP. Holders of the Cumulative
Preferred Stock of I&M generally have no voting rights, except with respect to
certain corporate actions and in the event of certain defaults in the payment of
dividends on such shares.
The table below shows the number of shares of AEP Common Stock and
stock-based units that were beneficially owned, directly or indirectly, as of
January 1, 1999, by each director and nominee of I&M and each of the executive
officers of I&M named in the summary compensation table, and by all directors
and executive officers of I&M as a group. It is based on information provided to
I&M by such persons. No such person owns any shares of any series of the
Cumulative Preferred Stock of I&M. Unless otherwise noted, each person has sole
voting power and investment power over the number of shares of AEP Common Stock
and stock-based units set forth opposite his name. Fractions of shares and units
have been rounded to the nearest whole number.
STOCK
NAME SHARES(a) UNITS(b) TOTAL
- ---- --------- -------- -----
Karl G. Boyd ......................... 1,679 158 1,837
Coulter R. Boyle, III ................ 4,000 662 4,662
Gregory A. Clark ..................... 16 -- 16
E. Linn Draper, Jr ................... 7,934(c) 77,612 85,546
Henry W. Fayne ....................... 4,649 10,135 14,784
James A. Kobyra ...................... 3,454(c) 415 3,869
William J. Lhota ..................... 16,042(c)(d) 14,902 30,944
James J. Markowsky ................... 3,942(e) 13,062 17,004
Armando A. Pena ...................... 4,886 5,213 10,099
David B. Synowiec .................... 74 366 440
Joseph H. Vipperman .................. 10,734(c)(d) 4,718 15,452
William E. Walters ................... 6,118 316 6,434
Earl H. Wittkamper ................... 3,231(c) 307 3,538
All Directors and Executive Officers.. 151,990(d)(f) 127,866 279,856
(a) Includes share equivalents held in the AEP Employees Savings Plan in the
amounts listed below:
<TABLE>
<CAPTION>
AEP EMPLOYEES SAVINGS AEP EMPLOYEES SAVINGS
NAME PLAN (SHARE EQUIVALENTS) NAME PLAN (SHARE EQUIVALENTS)
---- ------------------------ ---- ------------------------
<S> <C> <C> <C>
Mr. Boyd............................. 1,675 Dr. Markowsky.............................. 3,888
Mr. Boyle............................ 4,000 Mr. Pena................................... 3,464
Mr. Clark............................ 16 Mr. Synowiec............................... 74
Dr. Draper........................... 3,033 Mr. Vipperman.............................. 10,002
Mr. Fayne............................ 4,144 Mr. Walters................................ 6,118
Mr. Kobyra........................... 2,604 Mr. Wittkamper............................. 1,809
Mr. Lhota............................ 13,862 All Directors and Executive Officers............ 54,689
</TABLE>
With respect to the share equivalents held in the AEP Employees
Savings Plan, such persons have sole voting power, but the
investment/disposition power is subject to the terms of the Plan.
(b) This column includes amounts deferred in stock units and held under AEP's
officer benefit plans.
(c) Includes the following numbers of shares held in joint tenancy with a
family member: Dr. Draper, 4,901; Mr. Kobyra, 850; Mr. Lhota, 2,180; Mr.
Vipperman, 67; and Mr. Wittkamper, 1,422.
(d) Does not include, for Messrs. Lhota and Vipperman, 85,231 shares in the
American Electric Power System Educational Trust Fund over which Messrs.
Lhota and Vipperman share voting and investment power as trustees (they
disclaim beneficial ownership). The amount of shares shown for all
directors and executive officers as a group includes these shares.
(e) Includes 20 shares held by family members of Dr. Markowsky over which
beneficial ownership is disclaimed.
(f) Represents less than 1% of the total number of shares outstanding
54
<PAGE> 62
KEPCO. Omitted pursuant to Instruction I(2)(c).
OPCO. The information required by this item is incorporated herein by
reference to the material under Share Ownership of Directors and Executive
Officers in the definitive information statement of OPCo for the 1999 annual
meeting of shareholders, to be filed within 120 days after December 31, 1998.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
AEP, APCO, I&M AND OPCO. None.
AEGCO, CSPCO, AND KEPCO. Omitted pursuant to Instruction I(2)(c).
PART IV ------------------------------------------------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. FINANCIAL STATEMENTS:
The following financial statements have been incorporated herein by
reference pursuant to Item 8.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AEGCo:
Independent Auditors' Report; Statements of Income for the years
ended December 31, 1998, 1997 and 1996; Statements of Retained
Earnings for the years ended December 31, 1998, 1997 and 1996;
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996; Balance Sheets as of December 31, 1998 and 1997; Notes to
Financial Statements
AEP and its subsidiaries consolidated:
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996; Consolidated Statements of Retained Earnings for
the years ended December 31, 1998, 1997 and 1996; Consolidated
Balance Sheets as of December 31, 1998 and 1997; Consolidated
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996; Notes to Consolidated Financial Statements; Schedule of
Consolidated Cumulative Preferred Stocks of Subsidiaries at December
31, 1998 and 1997; Schedule of Consolidated Long-term Debt of
Subsidiaries at December 31, 1998 and 1997; Independent Auditors'
Report.
APCo:
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996; Consolidated Balance Sheets as of December 31,
1998 and 1997; Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996; Consolidated Statements of
Retained Earnings for the years ended December 31, 1998, 1997 and
1996; Notes to Consolidated Financial Statements; Independent
Auditors' Report.
CSPCo:
Independent Auditors' Report; Consolidated Statements of Income for
the years ended December 31, 1998, 1997 and 1996; Consolidated
Balance Sheets as of December 31, 1998 and 1997; Consolidated
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996; Consolidated Statements of Retained Earnings for the years
ended December 31, 1998, 1997 and 1996; Notes to Consolidated
Financial Statements.
</TABLE>
55
<PAGE> 63
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I&M:
Independent Auditors' Report; Consolidated Statements of Income for
the years ended December 31, 1998, 1997 and 1996; Consolidated
Balance Sheets as of December 31, 1998 and 1997; Consolidated
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996; Consolidated Statements of Retained Earnings for the years
ended December 31, 1998, 1997 and 1996; Notes to Consolidated
Financial Statements.
KEPCo:
Independent Auditors' Report; Statements of Income for the years
ended December 31, 1998, 1997 and 1996; Statements of Retained
Earnings for the years ended December 31, 1998, 1997 and 1996;
Balance Sheets as of December 31, 1998 and 1997; Statements of Cash
Flows for the years ended December 31, 1998, 1997 and 1996; Notes to
Financial Statements.
OPCo:
Independent Auditors' Report; Consolidated Statements of Income for
the years ended December 31, 1998, 1997 and 1996; Consolidated
Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996; Consolidated Balance Sheets as of December 31, 1998 and
1997; Consolidated Statements of Retained Earnings for the years
ended December 31, 1998, 1997 and 1996; Notes to Consolidated
Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES:
Financial Statement Schedules are listed in the Index to Financial
Statement Schedules (Certain schedules have been omitted because the
required information is contained in the notes to financial
statements or because such schedules are not required or are not
applicable.) S-1
Independent Auditors' Report S-2
3. EXHIBITS:
Exhibits for AEGCo, AEP, APCo, CSPCo, I&M, KEPCo and OPCo are listed
in the Exhibit Index and are incorporated herein by reference E-1
</TABLE>
(b) No Reports on Form 8-K were filed during the quarter ended December 31,
1998.
56
<PAGE> 64
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE
UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE
TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.
AEP GENERATING COMPANY
BY: /s/ A. A. PENA
--------------------------------------
(A. A. PENA, VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER)
Date: March 19, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF
EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(I) PRINCIPAL EXECUTIVE OFFICER:
*E. LINN DRAPER, JR. President,
Chief Executive Officer
and Director
(II) PRINCIPAL FINANCIAL OFFICER:
/s/ A. A. PENA Vice President, Treasurer, March 19, 1999
- ------------------------------------ Chief Financial Officer
(A. A. PENA) and Director
(III) PRINCIPAL ACCOUNTING OFFICER:
/s/ L. V. ASSANTE Controller and March 19, 1999
- ------------------------------------ Chief Accounting Officer
(L. V. ASSANTE)
(IV) A MAJORITY OF THE DIRECTORS:
*HENRY W. FAYNE
*JOHN R. JONES, III
*WM. J. LHOTA
*JAMES J. MARKOWSKY
*By: /s/ A. A. PENA March 19, 1999
-----------------------------------
(A. A. PENA, ATTORNEY-IN-FACT)
</TABLE>
57
<PAGE> 65
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
AMERICAN ELECTRIC POWER COMPANY, INC.
BY: /s/ H. W. FAYNE
--------------------------------
(H. W. FAYNE, VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER)
Date: March 19, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(I) PRINCIPAL EXECUTIVE OFFICER:
*E. LINN DRAPER, JR. Chairman of the Board,
President,
Chief Executive Officer
and Director
(II) PRINCIPAL FINANCIAL OFFICER:
/s/ H. W. FAYNE Vice President and March 19, 1999
- ------------------------------------ Chief Financial Officer
(H. W. FAYNE)
(III) PRINCIPAL ACCOUNTING OFFICER:
/s/ L. V. ASSANTE Controller and March 19, 1999
- ------------------------------------ Chief Accounting Officer
(L. V. ASSANTE)
(IV) A MAJORITY OF THE DIRECTORS:
*JOHN P. DESBARRES
*ROBERT M. DUNCAN
*ROBERT W. FRI
*LESTER A. HUDSON, JR.
*LEONARD J. KUJAWA
*ANGUS E. PEYTON
*DONALD G. SMITH
*LINDA GILLESPIE STUNTZ
*KATHRYN D. SULLIVAN
*MORRIS TANENBAUM
*By: /s/ H. W. FAYNE March 19, 1999
-----------------------------------
(H. W. FAYNE, ATTORNEY-IN-FACT)
</TABLE>
58
<PAGE> 66
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE
UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE
TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.
APPALACHIAN POWER COMPANY
BY: /s/ A. A. PENA
--------------------------------------
(A. A. PENA, VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER)
Date: March 19, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF
EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(I) PRINCIPAL EXECUTIVE OFFICER:
*E. LINN DRAPER, JR. Chairman of the Board,
Chief Executive Officer
and Director
(II) PRINCIPAL FINANCIAL OFFICER:
/s/ A. A. PENA Vice President, Treasurer, Chief March 19, 1999
- -------------------------------------- Financial Officer
(A. A. PENA) and Director
(III) PRINCIPAL ACCOUNTING OFFICER:
/s/ L. V. ASSANTE Controller and March 19, 1999
- -------------------------------------- Chief Accounting Officer
(L. V. ASSANTE)
(IV) A MAJORITY OF THE DIRECTORS:
*HENRY W. FAYNE
*WM. J. LHOTA
*JAMES J. MARKOWSKY
*J. H. VIPPERMAN
*By: /s/ A. A. PENA March 19, 1999
---------------------------------
(A. A. PENA, ATTORNEY-IN-FACT)
</TABLE>
59
<PAGE> 67
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE
UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE
TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.
COLUMBUS SOUTHERN POWER COMPANY
BY: /s/ A. A. PENA
--------------------------------------
(A. A. PENA, VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER)
Date: March 19, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF
EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(I) PRINCIPAL EXECUTIVE OFFICER:
*E. LINN DRAPER, JR. Chairman of the Board,
Chief Executive Officer
and Director
(II) PRINCIPAL FINANCIAL OFFICER:
/s/ A. A. PENA Vice President, Treasurer, March 19, 1999
- ---------------------------------------- Chief Financial Officer
(A. A. PENA) and Director
(III) PRINCIPAL ACCOUNTING OFFICER:
/s/ L. V. ASSANTE Controller and March 19, 1999
- ---------------------------------------- Chief Accounting Officer
(L. V. ASSANTE)
(IV) A MAJORITY OF THE DIRECTORS:
*HENRY W. FAYNE
*WM. J. LHOTA
*JAMES J. MARKOWSKY
*J. H. VIPPERMAN
*By: /s/ A. A. PENA March 19, 1999
----------------------------------
(A. A. PENA, ATTORNEY-IN-FACT)
</TABLE>
60
<PAGE> 68
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE
UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE
TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.
INDIANA MICHIGAN POWER COMPANY
BY: /s/ A. A. PENA
--------------------------------------
(A. A. PENA, VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER)
Date: March 19, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF
EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(I) PRINCIPAL EXECUTIVE OFFICER:
*E. LINN DRAPER, JR. Chairman of the Board,
Chief Executive Officer
and Director
(II) PRINCIPAL FINANCIAL OFFICER:
/s/ A. A. PENA Vice President, Treasurer, March 19, 1999
- ---------------------------------------- Chief Financial Officer
(A. A. PENA) and Director
(III) PRINCIPAL ACCOUNTING OFFICER:
/s/ L. V. ASSANTE Controller and March 19, 1999
- ---------------------------------------- Chief Accounting Officer
(L. V. ASSANTE)
(IV) A MAJORITY OF THE DIRECTORS:
*K. G. BOYD
*C. R. BOYLE, III
*G. A. CLARK
*HENRY W. FAYNE
*JAMES A. KOBYRA
*WM. J. LHOTA
*JAMES J. MARKOWSKY
*D. B. SYNOWIEC
*J. H. VIPPERMAN
*W. E. WALTERS
*E. H. WITTKAMPER
*By: /s/ A. A. Pena. March 19, 1999
------------------------------
(A. A. PENA, ATTORNEY-IN-FACT)
</TABLE>
61
<PAGE> 69
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE
UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE
TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.
KENTUCKY POWER COMPANY
BY: /s/ A. A. PENA
--------------------------------------
(A. A. PENA, VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER)
Date: March 19, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF
EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(V) PRINCIPAL EXECUTIVE OFFICER:
*E. LINN DRAPER, JR. Chairman of the Board,
Chief Executive Officer
and Director
(VI) PRINCIPAL FINANCIAL OFFICER:
/s/ A. A. PENNA Vice President, Treasurer, March 19, 1999
- --------------------------------------- Chief Financial Officer
(A. A. PENA) and Director
(VII) PRINCIPAL ACCOUNTING OFFICER:
/s/ L. V. ASSANTE Controller and March 19, 1999
- --------------------------------------- Chief Accounting Officer
(L. V. ASSANTE)
(VIII) A MAJORITY OF THE DIRECTORS:
*HENRY W. FAYNE
*WM. J. LHOTA
*JAMES J. MARKOWSKY
*J. H. VIPPERMAN
March 19, 1999
*By: /s/ A. A. Pena
------------------------------
(A. A. PENA, ATTORNEY-IN-FACT)
</TABLE>
62
<PAGE> 70
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE
UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE
TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.
OHIO POWER COMPANY
BY: /s/ A. A. PENA
--------------------------------------
(A. A. PENA, VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER)
Date: March 19, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF
EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(I) PRINCIPAL EXECUTIVE OFFICER:
*E. LINN DRAPER, JR. Chairman of the Board,
Chief Executive Officer
and Director
(II) PRINCIPAL FINANCIAL OFFICER:
/s/ A. A. PENA Vice President, Treasurer, March 19, 1999
- --------------------------------------- Chief Financial Officer
(A. A. PENA) and Director
(III) PRINCIPAL ACCOUNTING OFFICER:
/s/ L. V. ASSANTE Controller and March 19, 1999
- --------------------------------------- Chief Accounting Officer
(L. V. ASSANTE)
(IV) A MAJORITY OF THE DIRECTORS:
*HENRY W. FAYNE
*WM. J. LHOTA
*JAMES J. MARKOWSKY
*J. H. VIPPERMAN
*By: /s/ A. A. PENA. March 19, 1999
----------------------------------
(A. A. PENA, ATTORNEY-IN-FACT)
</TABLE>
63
<PAGE> 71
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT .......................................................... S-2
The following financial statement schedules for the years ended December 31,
1998, 1997 and 1996 are included in this report on the pages indicated.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
Schedule II-- Valuation and Qualifying Accounts and Reserves .................. S-3
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
Schedule II-- Valuation and Qualifying Accounts and Reserves .................. S-3
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
Schedule II-- Valuation and Qualifying Accounts and Reserves .................. S-3
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
Schedule II-- Valuation and Qualifying Accounts and Reserves................... S-4
KENTUCKY POWER COMPANY
Schedule II-- Valuation and Qualifying Accounts and Reserves .................. S-4
OHIO POWER COMPANY AND SUBSIDIARIES
Schedule II-- Valuation and Qualifying Accounts and Reserves................... S-4
</TABLE>
S-1
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARIES:
We have audited the consolidated financial statements of American Electric
Power Company, Inc. and its subsidiaries and the financial statements of certain
of its subsidiaries, listed in Item 14 herein, as of December 31, 1998 and 1997,
and for each of the three years in the period ended December 31, 1998, and have
issued our reports thereon dated February 23, 1999; such financial statements
and reports are included in your respective 1998 Annual Report and are
incorporated herein by reference. Our audits also included the financial
statement schedules of American Electric Power Company, Inc. and its
subsidiaries and of certain of its subsidiaries, listed in Item 14. These
financial statement schedules are the responsibility of the respective Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the corresponding basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Columbus, Ohio
February 23, 1999
S-2
<PAGE> 73
<TABLE>
<CAPTION>
===========================================================================================================================
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ---------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
===========================================================================================================================
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS:
Accumulated Provision for
Uncollectible Accounts:
Year Ended December 31, 1998....... $6,760 $23,646 $8,290(a) $27,621(b) $11,075
====== ======= ====== ======= =======
Year Ended December 31, 1997....... $3,692 $20,650 $8,953(a) $26,535(b) $ 6,760
====== ======= ====== ======= =======
Year Ended December 31, 1996....... $5,430 $16,382 $7,224(a) $25,344(b) $ 3,692
====== ======= ====== ======= =======
- ---------------------
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
===========================================================================================================================
<CAPTION>
===========================================================================================================================
APPALACHIAN POWER COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ---------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
===========================================================================================================================
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>)
DEDUCTED FROM ASSETS:
Accumulated Provision for
Uncollectible Accounts:
Year Ended December 31, 1998....... $1,333 $5,093 $1,306(a) $5,498(b) $2,234
====== ====== ====== ====== ======
Year Ended December 31, 1997....... $ 687 $3,621 $ 666(a) $3,641(b) $1,333
===== ====== ======= ====== ======
Year Ended December 31, 1996....... $2,253 $1,748 $ 779(a) $4,093(b) $ 687
====== ====== ======= ====== ======
- ---------------------
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
===========================================================================================================================
<CAPTION>
===========================================================================================================================
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ---------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
===========================================================================================================================
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>D
EDUCTED FROM ASSETS:
Accumulated Provision for
Uncollectible Accounts:
Year Ended December 31, 1998....... $1,058 $7,551 $5,278(a) $11,289(b) $2,598
====== ====== ====== ======= ======
Year Ended December 31, 1997....... $1,032 $6,815 $6,380(a) $13,169(b) $1,058
====== ====== ====== ======= ======
Year Ended December 31, 1996....... $1,061 $7,720 $3,978(a) $11,727(b) $1,032
====== ====== ====== ======= ======
- ---------------------
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
===========================================================================================================================
</TABLE>
S-3
<PAGE> 74
<TABLE>
<CAPTION>
==========================================================================================================================
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ---------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
===========================================================================================================================
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS:
Accumulated Provision for
Uncollectible Accounts:
Year Ended December 31, 1998......... $1,188 $4,630 $221(a) $4,012(b) $2,027
====== ====== ==== ====== ======
Year Ended December 31, 1997......... $ 156 $4,411 $798(a) $4,177(b) $1,188
====== ====== ==== ====== ======
Year Ended December 31, 1996......... $ 334 $2,208 $791(a) $3,177(b) $ 156
====== ====== ==== ====== ======
- ---------------------
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
==========================================================================================================================
<CAPTION>
==========================================================================================================================
KENTUCKY POWER COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ---------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
===========================================================================================================================
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS:
Accumulated Provision for
Uncollectible Accounts:
Year Ended December 31, 1998......... $525 $1,280 $392(a) $1,349(b) $848
==== ====== ==== ====== ====
Year Ended December 31, 1997......... $272 $1,482 $347(a) $1,576(b) $525
==== ====== ==== ====== ====
Year Ended December 31, 1996......... $259 $1,507 $311(a) $1,805(b) $272
==== ====== ==== ====== ====
- ---------------------
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
==========================================================================================================================
<CAPTION>
==========================================================================================================================
OHIO POWER COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ---------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
===========================================================================================================================
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSETS:
Accumulated Provision for
Uncollectible Accounts:
Year Ended December 31, 1998......... $2,501 $3,255 $941(a) $5,019(b) $1,678
====== ====== ==== ====== ======
Year Ended December 31, 1997......... $1,433 $4,008 $675(a) $3,615(b) $2,501
====== ====== ==== ====== ======
Year Ended December 31, 1996......... $1,424 $2,874 $532(a) $3,397(b) $1,433
====== ====== ==== ====== ======
- ---------------------
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
==========================================================================================================================
</TABLE>
S-4
<PAGE> 75
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk(*), are
filed herewith. The exhibits not so designated have heretofore been filed with
the Commission and, pursuant to 17 C.F.R. 229.10(d) and 240.12b-32, are
incorporated herein by reference to the documents indicated in brackets
following the descriptions of such exhibits. Exhibits, designated with a dagger
(+), are management contracts or compensatory plans or arrangements required to
be filed as an exhibit to this form pursuant to Item 14(c) of this report.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
AEGCO
3(a) -- Copy of Articles of Incorporation of AEGCo [Registration Statement on Form 10 for the Common
Shares of AEGCo, File No. 0-18135, Exhibit 3(a)].
3(b) -- Copy of the Code of Regulations of AEGCo [Registration Statement on Form 10 for the Common
Shares of AEGCo, File No. 0-18135, Exhibit 3(b)].
10(a) -- Copy of Capital Funds Agreement dated as of December 30, 1988 between AEGCo and AEP
[Registration Statement No. 33-32752, Exhibit 28(a)].
10(b)(1) -- Copy of Unit Power Agreement dated as of March 31, 1982 between AEGCo and I&M, as amended
[Registration Statement No. 33-32752, Exhibits 28(b)(1)(A) and 28(b)(1)(B)].
10(b)(2) -- Copy of Unit Power Agreement, dated as of August 1, 1984, among AEGCo, I&M and KEPCo
[Registration Statement No. 33-32752, Exhibit 28(b)(2)].
10(b)(3) -- Copy of Agreement, dated as of October 1, 1984, among AEGCo, I&M, APCo and Virginia Electric
and Power Company [Registration Statement No. 33-32752, Exhibit 28(b)(3)].
10(c) -- Copy of Lease Agreements, dated as of December 1, 1989, between AEGCo and Wilmington Trust
Company, as amended [Registration Statement No. 33-32752, Exhibits 28(c)(1)(C), 28(c)(2)(C),
28(c)(3)(C), 28(c)(4)(C), 28(c)(5)(C) and 28(c)(6)(C); Annual Report on Form 10-K of AEGCo
for the fiscal year ended December 31, 1993, File No. 0-18135, Exhibits 10(c)(1)(B),
10(c)(2)(B), 10(c)(3)(B), 10(c)(4)(B), 10(c)(5)(B) and 10(c)(6)(B)].
*13 -- Copy of those portions of the AEGCo 1998 Annual Report (for the fiscal year ended December
31, 1998) which are incorporated by reference in this filing.
*24 -- Power of Attorney
*27 -- Financial Data Schedules
AEP**
3(a) -- Copy of Restated Certificate of Incorporation of AEP, dated October 29, 1997 [Quarterly
Report on Form 10-Q of AEP for the quarter ended September 30, 1997, File No. 1-3525,
Exhibit 3(a)].
* 3(b) -- Copy of Certificate of Amendment of the Restated Certificate of Incorporation of AEP, dated
January 13, 1999.
* 3(c) -- Composite copy of the Restated Certificate of Incorporation of AEP, as amended.
3(d) -- Copy of By-Laws of AEP, as amended through January 28, 1998 [Annual Report on Form 10-K of
AEP for the fiscal year ended December 31, 1997, File No. 1-3525, Exhibit 3(b)].
10(a) -- Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, OPCo and I&M and
with the Service Corporation, as amended [Registration Statement No. 2-52910, Exhibit 5(a);
Registration Statement No. 2-61009, Exhibit 5(b); and Annual Report on Form 10-K of AEP for
the fiscal year ended December 31, 1990, File No. 1-3525, Exhibit 10(a)(3)].
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
AEP**(continued)
10(b) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and
with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the
fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); and Annual Report on
Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit
10(b)(2)].
10(c) -- Copy of Lease Agreements, dated as of December 1, 1989, between AEGCo or I&M and Wilmington
Trust Company, as amended [Registration Statement No. 33-32752, Exhibits 28(c)(1)(C),
28(c)(2)(C), 28(c)(3)(C), 28(c)(4)(C), 28(c)(5)(C) and 28(c)(6)(C); Registration Statement
No. 33-32753, Exhibits 28(a)(1)(C), 28(a)(2)(C), 28(a)(3)(C), 28(a)(4)(C), 28(a)(5)(C) and
28(a)(6)(C); and Annual Report on Form 10-K of AEGCo for the fiscal year ended December 31,
1993, File No. 0-18135, Exhibits 10(c)(1)(B), 10(c)(2)(B), 10(c)(3)(B), 10(c)(4)(B),
10(c)(5)(B) and 10(c)(6)(B); Annual Report on Form 10-K of I&M for the fiscal year ended
December 31, 1993, File No. 1-3570, Exhibits 10(e)(1)(B), 10(e)(2)(B), 10(e)(3)(B),
10(e)(4)(B), 10(e)(5)(B) and 10(e)(6)(B)].
10(d) -- Lease Agreement dated January 20, 1995 between OPCo and JMG Funding, Limited Partnership, and
amendment thereto (confidential treatment requested) [Annual Report on Form 10-K of OPCo for
the fiscal year ended December 31, 1994, File No. 1-6543, Exhibit 10(l)(2)].
10(e) -- Modification No. 1 to the AEP System Interim Allowance Agreement, dated July 28, 1994, among
APCo, CSPCo, I&M, KEPCo, OPCo and the Service Corporation [Annual Report on Form 10-K of AEP
for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(l)].
10(f) -- Agreement and Plan of Merger, dated as of December 21, 1997, By and Among American Electric
Power Company, Inc., Augusta Acquisition Corporation and Central and South West Corporation
[Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1997, File No.
1-3525, Exhibit 10(f)].
+10(g)(1) -- AEP Deferred Compensation Agreement for certain executive officers [Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(e)].
+10(g)(2) -- Amendment to AEP Deferred Compensation Agreement for certain executive officers [Annual
Report on Form 10-K of AEP for the fiscal year ended December 31, 1986, File No. 1-3525,
Exhibit 10(d)(2)].
+10(h) -- AEP Accident Coverage Insurance Plan for directors [Annual Report on Form 10-K of AEP for the
fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(g)].
+10(i)(1) -- AEP Deferred Compensation and Stock Plan for Non-Employee Directors [Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(f)(1)
+10(i)(2) -- AEP Stock Unit Accumulation Plan for Non-Employee Directors [Annual Report on Form 10-K of
AEP for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(f)(2)].
+10(j)(1)(A) -- AEP Excess Benefit Plan, as amended through August 25, 1997 [Quarterly Report on Form 10-Q
of AEP for the quarter ended September 30, 1997, File No. 1-3525, Exhibit 10].
+10(j)(1)(B) -- Guaranty by AEP of the Service Corporation Excess Benefits Plan [Annual Report on Form 10-K
of AEP for the fiscal year ended December 31, 1990, File No. 1-3525, Exhibit 10(h)(1)(B)].
+10(j)(2) -- AEP System Supplemental Savings Plan, as amended through November 15, 1995 (Non-Qualified)
[Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1996, File No.
1-3525, Exhibit 10(g)(2)].
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
AEP** (continued)
+10(j)(3) -- Service Corporation Umbrella Trust for Executives [Annual Report on Form 10-K of AEP for the
fiscal year ended December 31, 1993, File No. 1-3525, Exhibit 10(g)(3)].
+10(k) -- Employment Agreement between E. Linn Draper, Jr. and AEP and the Service Corporation [Annual
Report on Form 10-K of AEGCo for the fiscal year ended December 31, 1991, File No. 0-18135,
Exhibit 10(g)(3)].
+10(l)(1) -- AEP System Senior Officer Annual Incentive Compensation Plan [Annual Report on Form 10-K of
AEP for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(i)(1)].
+10(l)(2) -- American Electric Power System Performance Share Incentive Plan, as Amended and Restated
through February 26, 1997 [Annual Report on Form 10-K of AEP for the fiscal year ended
December 31, 1996, File No. 1-3525, Exhibit 10(i)(2)].
+10(m) -- AEP System Survivor Benefit Plan, effective January 27, 1998 [Quarterly Report on Form 10-Q of
AEP for the quarter ended September 30, 1998, File No. 1-3525, Exhibit 10].
+*10(n) -- Letter agreement between AEP and Donald M. Clements, Jr. dated August 19, 1994.
+*10(o) -- AEP Senior Executive Severance Plan for Merger with Central and South West Corporation,
effective March 1, 1999.
*13 -- Copy of those portions of the AEP 1998 Annual Report (for the fiscal year ended December 31,
1998) which are incorporated by reference in this filing.
*21 -- List of subsidiaries of AEP
*23 -- Consent of Deloitte & Touche LLP.
*24 -- Power of Attorney
*27 -- Financial Data Schedules
APCO**
3(a) -- Copy of Restated Articles of Incorporation of APCo, and amendments thereto to November 4,
1993 [Registration Statement No. 33-50163, Exhibit 4(a); Registration Statement No. 33-53805,
Exhibits 4(b) and 4(c)].
3(b) -- Copy of Articles of Amendment to the Restated Articles of Incorporation of APCo, dated June 6,
1994 [Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1994, File No.
1-3457, Exhibit 3(b)].
3(c) -- Copy of Articles of Amendment to the Restated Articles of Incorporation of APCo, dated March
6, 1997 [Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1996, File
No. 1-3457, Exhibit 3(c)].
3(d) -- Composite copy of the Restated Articles of Incorporation of APCo (amended as of March 7, 1997)
[Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1996, File No.
1-3457, Exhibit 3(d)].
3(e) -- Copy of By-Laws of APCo (amended as of January 1, 1996) [Annual Report on Form 10-K of APCo
for the fiscal year ended December 31, 1995, File No. 1-3457, Exhibit 3(d)].
4(a) -- Copy of Mortgage and Deed of Trust, dated as of December 1, 1940, between APCo and Bankers
Trust Company and R. Gregory Page, as Trustees, as amended and supplemented [Registration
Statement No. 2-7289, Exhibit 7(b); Registration Statement No. 2-19884, Exhibit 2(1);
Registration Statement No. 2-24453, Exhibit 2(n); Registration Statement No. 2-60015,
Exhibits 2(b)(2), 2(b)(3), 2(b)(4), 2(b)(5), 2(b)(6), 2(b)(7), 2(b)(8), 2(b)(9), 2(b)(10),
2(b)(12), 2(b)(14), 2(b)(15), 2(b)(16), 2(b)(17), 2(b)(18), 2(b)(19), 2(b)(20), 2(b)(21),
2(b)(22), 2(b)(23), 2(b)(24), 2(b)(25), 2(b)(26), 2(b)(27) and 2(b)(28); Registration
Statement No. 2-64102, Exhibit 2(b)(29); Registration Statement No. 2-66457, Exhibits
(2)(b)(30) and 2(b)(31); Registration Statement No. 2-69217, Exhibit 2(b)(32); Registration
Statement No. 2-86237, Exhibit
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
APCO** (continued)
4(b); Registration Statement No. 33-11723, Exhibit 4(b); Registration Statement No. 33-17003,
Exhibit 4(a)(ii), Registration Statement No. 33-30964, Exhibit 4(b); Registration Statement
No. 33-40720, Exhibit 4(b); Registration Statement No. 33-45219, Exhibit 4(b); Registration
Statement No. 33-46128, Exhibits 4(b) and 4(c); Registration Statement No. 33-53410, Exhibit
4(b); Registration Statement No. 33-59834, Exhibit 4(b); Registration Statement No. 33-50229,
Exhibits 4(b) and 4(c); Registration Statement No. 33-58431, Exhibits 4(b), 4(c), 4(d) and
4(e); Registration Statement No. 333-01049, Exhibits 4(b) and 4(c); Registration Statement
No. 333-20305, Exhibits 4(b) and 4(c); Annual Report on Form 10-K of APCo for the fiscal year
ended December 31, 1996, File No. 1-3457, Exhibit 4(b); Annual Report on Form 10-K of APCo
for the fiscal year ended December 31, 1998, Exhibit 4(b)].
4(b) -- Indenture (for unsecured debt securities), dated as of January 1, 1998, between APCo and The
Bank of New York, As Trustee [Registration Statement No. 333-45927, Exhibits 4(a) and 4(b);
Registration Statement No. 333-49071, Exhibit 4(b)].
*4(c) -- Company Order and Officers' Certificate, dated April 22, 1998, establishing certain terms of
the 7.30% Senior Notes, Series B, due 2038.
10(a)(1) -- Copy of Power Agreement, dated October 15, 1952, between OVEC and United States of America,
acting by and through the United States Atomic Energy Commission, and, subsequent to January
18, 1975, the Administrator of the Energy Research and Development Administration, as amended
[Registration Statement No. 2-60015, Exhibit 5(a); Registration Statement No. 2-63234,
Exhibit 5(a)(1)(B); Registration Statement No 2-66301, Exhibit 5(a)(1)(C); Registration
Statement No. 2-67728, Exhibit 5(a)(1)(D); Annual Report on Form 10-K of APCo for the fiscal
year ended December 31, 1989, File No. 1-3457, Exhibit 10(a)(1)(F); and Annual Report on Form
10-K of APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit
10(a)(1)(B)].
10(a)(2) -- Copy of Inter-Company Power Agreement, dated as of July 10, 1953, among OVEC and the
Sponsoring Companies, as amended [Registration Statement No. 2-60015, Exhibit 5(c);
Registration Statement No. 2-67728, Exhibit 5(a)(3)(B); and Annual Report on Form 10-K of
APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(2)(B)].
10(a)(3) -- Copy of Power Agreement, dated July 10, 1953, between OVEC and Indiana-Kentucky Electric
Corporation, as amended [Registration Statement No. 2-60015, Exhibit 5(e)].
10(b) -- Copy of Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, OPCo and I&M
and with the Service Corporation, as amended [Registration Statement No. 2-52910, Exhibit
5(a); Registration Statement No. 2-61009, Exhibit 5(b); Annual Report on Form 10-K of AEP for
the fiscal year ended December 31, 1990, File No. 1-3525, Exhibit 10(a)(3)].
10(c) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and
with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the
fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit 10(b)(2)].
10(d) -- Copy of Modification No. 1 to the AEP System Interim Allowance Agreement, dated July 28,
1994, among APCo, CSPCo, I&M, KEPCo, OPCo and the Service Corporation [Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(l)].
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
APCO** (continued)
10(e) -- Agreement and Plan of Merger, dated as of December 21, 1997, By and Among American Electric
Power Company, Inc., Augusta Acquisition Corporation and Central and South West Corporation
[Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1997, File No.
1-3525, Exhibit 10(f)].
+10(f)(1) -- AEP Deferred Compensation Agreement for certain executive officers [Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(e)].
+10(f)(2) -- Amendment to AEP Deferred Compensation Agreement for certain executive officers [Annual Report
on Form 10-K of AEP for the fiscal year ended December 31, 1986, File No. 1-3525, Exhibit
10(d)(2)].
+10(g)(1) -- AEP System Senior Officer Annual Incentive Compensation Plan [Annual Report on Form 10-K of
AEP for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(i)(1)].
+10(g)(2) -- American Electric Power System Performance Share Incentive Plan as Amended and Restated
through February 26, 1997 [Annual Report on Form 10-K of AEP for the fiscal year ended
December 31, 1996, File No. 1-3525, Exhibit 10(i)(2)].
+10(h)(1) -- Excess Benefits Plan [Quarterly Report on Form 10-Q of AEP for the quarter ended September
30, 1997, File No. 1-3525, Exhibit 10].
+10(h)(2) -- AEP System Supplemental Savings Plan (Non-Qualified) [Annual Report on Form 10-K of AEP for
the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(g)(2)].
+10(h)(3) -- Umbrella Trust for Executives [Annual Report on Form 10-K of AEP for the fiscal year ended
December 31, 1993, File No. 1-3525, Exhibit 10(g)(3)].
+10(i) -- Employment Agreement between E. Linn Draper, Jr. and AEP and the Service Corporation [Annual
Report on Form 10-K of AEGCo for the fiscal year ended December 31, 1991, File No. 0-18135,
Exhibit 10(g)(3)].
+10(j) -- AEP System Survivor Benefit Plan, effective January 27, 1998 [Quarterly Report on Form 10-Q of
AEP for the quarter ended September 30, 1998, File No. 1-3525, Exhibit 10].
+10(k) -- AEP Senior Executive Severance Plan for Merger with Central and South West Corporation,
effective March 1, 1999 [Annual Report on Form 10-K of AEP for the fiscal year ended December
31, 1998, File No. 1-3525, Exhibit 10(o)].
*12 -- Statement re: Computation of Ratios.
*13 -- Copy of those portions of the APCo 1998 Annual Report (for the fiscal year ended December 31,
1998) which are incorporated by reference in this filing.
21 -- List of subsidiaries of APCo [Annual Report on Form 10-K of AEP for the fiscal year ended
December 31, 1998, File No. 1-3525, Exhibit 21].
*23 -- Consent of Deloitte & Touche LLp.
*24 -- Power of Attorney
*27 -- Financial Data Schedules.
CSPCO**
3(a) -- Copy of Amended Articles of Incorporation of CSPCo, as amended to March 6, 1992 [Registration
Statement No. 33-53377, Exhibit 4(a)].
3(b) -- Copy of Certificate of Amendment to Amended Articles of Incorporation of CSPCo, dated May 19,
1994 [Annual Report on Form 10-K of CSPCo for the fiscal year ended December 31, 1994, File
No. 1-2680, Exhibit 3(b)].
3(c) -- Composite copy of Amended Articles of Incorporation of CSPCo, as amended [Annual Report on
Form 10-K of CSPCo for the fiscal year ended December 31, 1994, File No. 1-2680, Exhibit
3(c)].
</TABLE>
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<TABLE>
<CAPTION>
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- -------------- -----------
<S> <C> <C>
CSPCO** (continued)
3(d) -- Copy of Code of Regulations and By-Laws of CSPCo [Annual Report on Form 10-K of CSPCo for the
fiscal year ended December 31, 1987, File No. 1-2680, Exhibit 3(d)].
4(a) -- Copy of Indenture of Mortgage and Deed of Trust, dated September 1, 1940, between CSPCo and
City Bank Farmers Trust Company (now Citibank, N.A.), as trustee, as supplemented and amended
[Registration Statement No. 2-59411, Exhibits 2(B) and 2(C); Registration Statement No.
2-80535, Exhibit 4(b); Registration Statement No. 2-87091, Exhibit 4(b); Registration
Statement No. 2-93208, Exhibit 4(b); Registration Statement No. 2-97652, Exhibit 4(b);
Registration Statement No. 33-7081, Exhibit 4(b); Registration Statement No. 33-12389,
Exhibit 4(b); Registration Statement No. 33-19227, Exhibits 4(b), 4(e), 4(f), 4(g) and 4(h);
Registration Statement No. 33-35651, Exhibit 4(b); Registration Statement No. 33-46859,
Exhibits 4(b) and 4(c); Registration Statement No. 33-50316, Exhibits 4(b) and 4(c);
Registration Statement No. 33-60336, Exhibits 4(b), 4(c) and 4(d); Registration Statement No.
33-50447, Exhibits 4(b) and 4(c); Annual Report on Form 10-K of CSPCo for the fiscal year
ended December 31, 1993, File No. 1-2680, Exhibit 4(b)]
4(b) -- Copy of Indenture (for unsecured debt securities), dated as of September 1, 1997, between
CSPCo and Bankers Trust Company, as Trustee [Registration Statement No. 333-54025, Exhibits
4(a), 4(b), 4(c) and 4(d)].
*4(c) -- Copy of Company Order and Officers' Certificate, dated June 18, 1998, establishing certain
terms of the Unsecured Medium Term Notes, Series B.
*4(d) -- Copy of Instructions, dated June 18, 1998, from CSPCo to Bankers Trust Company, establishing
certain terms of the 6.55% Unsecured Medium Term Notes, Series B, due 2008.
10(a)(1) -- Copy of Power Agreement, dated October 15, 1952, between OVEC and United States of America,
acting by and through the United States Atomic Energy Commission, and, subsequent to January
18, 1975, the Administrator of the Energy Research and Development Administration, as amended
[Registration Statement No. 2-60015, Exhibit 5(a); Registration Statement No. 2-63234,
Exhibit 5(a)(1)(B); Registration Statement No. 2-66301, Exhibit 5(a)(1)(C); Registration
Statement No. 2-67728, Exhibit 5(a)(1)(B); Annual Report on Form 10-K of APCo for the fiscal
year ended December 31, 1989, File No. 1-3457, Exhibit 10(a)(1)(F); and Annual Report on Form
10-K of APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit
10(a)(1)(B)].
10(a)(2) -- Copy of Inter-Company Power Agreement, dated July 10, 1953, among OVEC and the Sponsoring
Companies, as amended [Registration Statement No. 2-60015, Exhibit 5(c); Registration
Statement No. 2-67728, Exhibit 5(a)(3)(B); and Annual Report on Form 10-K of APCo for the
fiscal year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(2)(B)].
10(a)(3) -- Copy of Power Agreement, dated July 10, 1953, between OVEC and Indiana-Kentucky Electric
Corporation, as amended [Registration Statement No. 2-60015, Exhibit 5(e)].
10(b) -- Copy of Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, OPCo and I&M
and the Service Corporation, as amended [Registration Statement No. 2-52910, Exhibit 5(a);
Registration Statement No. 2-61009, Exhibit 5(b); and Annual Report on Form 10-K of AEP for
the fiscal year ended December 31, 1990, File No. 1-3525, Exhibit 10(a)(3)].
10(c) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo, and
with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the
fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); and Annual Report on
Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit
10(b)(2)].
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
CSPCO** (continued)
10(d) -- Copy of Modification No. 1 to the AEP System Interim Allowance Agreement, dated July 28,
1994, among APCo, CSPCo, I&M, KEPCo, OPCo and the Service Corporation [Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(l)].
10(e) -- Agreement and Plan of Merger, dated as of December 21, 1997, By and Among American Electric
Power Company, Inc., Augusta Acquisition Corporation and Central and South West Corporation
[Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1997, File No.
1-3525, Exhibit 10(f)].
*12 -- Statement re: Computation of Ratios.
*13 -- Copy of those portions of the CSPCo 1998 Annual Report (for the fiscal year ended December 31,
1998) which are incorporated by reference in this filing.
*23 -- Consent of Deloitte & Touche LLP.
*24 -- Power of Attorney
*27 -- Financial Data Schedules.
I&M**
3(a) -- Copy of the Amended Articles of Acceptance of I&M and amendments thereto [Annual Report on
Form 10-K of I&M for fiscal year ended December 31, 1993, File No. 1-3570, Exhibit 3(a)].
3(b) -- Copy of Articles of Amendment to the Amended Articles of Acceptance of I&M, dated March 6,
1997 [Annual Report on Form 10-K of I&M for fiscal year ended December 31, 1996, File No.
1-3570, Exhibit 3(b)].
3(c) -- Composite Copy of the Amended Articles of Acceptance of I&M (amended as of March 7, 1997)
[Annual Report on Form 10-K of I&M for fiscal year ended December 31, 1996, File No. 1-3570,
Exhibit 3(c)].
3(d) -- Copy of the By-Laws of I&M (amended as of January 1, 1996) [Annual Report on Form 10-K of I&M
for fiscal year ended December 31, 1995, File No. 1-3570, Exhibit 3(c)].
4(a) -- Copy of Mortgage and Deed of Trust, dated as of June 1, 1939, between I&M and Irving Trust
Company (now The Bank of New York) and various individuals, as Trustees, as amended and
supplemented [Registration Statement No. 2-7597, Exhibit 7(a); Registration Statement No.
2-60665, Exhibits 2(c)(2), 2(c)(3), 2(c)(4), 2(c)(5), 2(c)(6), 2(c)(7), 2(c)(8), 2(c)(9),
2(c)(10), 2(c)(11), 2(c)(12), 2(c)(13), 2(c)(14), 2(c)(15), (2)(c)(16), and 2(c)(17);
Registration Statement No. 2-63234, Exhibit 2(b)(18); Registration Statement No. 2-65389,
Exhibit 2(a)(19); Registration Statement No. 2-67728, Exhibit 2(b)(20); Registration
Statement No. 2-85016, Exhibit 4(b); Registration Statement No. 33-5728, Exhibit 4(c);
Registration Statement No. 33-9280, Exhibit 4(b); Registration Statement No. 33-11230,
Exhibit 4(b); Registration Statement No. 33-19620, Exhibits 4(a)(ii), 4(a)(iii), 4(a)(iv) and
4(a)(v); Registration Statement No. 33-46851, Exhibits 4(b)(i), 4(b)(ii) and 4(b)(iii);
Registration Statement No. 33-54480, Exhibits 4(b)(I) and 4(b)(ii); Registration Statement
No. 33-60886, Exhibit 4(b)(i); Registration Statement No. 33-50521, Exhibits 4(b)(I),
4(b)(ii) and 4(b)(iii); Annual Report on Form 10-K of I&M for fiscal year ended December 31,
1993, File No. 1-3570, Exhibit 4(b); Annual Report on Form 10-K of I&M for fiscal year ended
December 31, 1994, File No. 1-3570, Exhibit 4(b); Annual Report on Form 10-K of I&M for
fiscal year ended December 31, 1996, File No. 1-3570, Exhibit 4(b)].
* 4(b) -- Copy of indenture (for unsecured debt securities), dated as of October 1, 1998, between I&M
and The Bank of New York, as Trustee.
* 4(c) -- Copy of Company Order and Officers' Certificate, dated October 29, 1998, establishing certain
terms of the Unsecured Medium Term Notes, Series A.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
I&M** (continued)
* 4(d) -- Copy of Instructions, dated November 4, 1998, from I&M to The Bank of New York, establishing
certain terms of the 6.45% Unsecured Medium Term Notes, Series A, due 2008.
10(a)(1) -- Copy of Power Agreement, dated October 15, 1952, between OVEC and United States of America,
acting by and through the United States Atomic Energy Commission, and, subsequent to January
18, 1975, the Administrator of the Energy Research and Development Administration, as amended
[Registration Statement No. 2-60015, Exhibit 5(a); Registration Statement No. 2-63234,
Exhibit 5(a)(1)(B); Registration Statement No. 2-66301, Exhibit 5(a)(1)(C); Registration
Statement No. 2-67728, Exhibit 5(a)(1)(D); Annual Report on Form 10-K of APCo for the fiscal
year ended December 31, 1989, File No. 1-3457, Exhibit 10(a)(1)(F); and Annual Report on Form
10-K of APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit
10(a)(1)(B)].
10(a)(2) -- Copy of Inter-Company Power Agreement, dated as of July 10, 1953, among OVEC and the
Sponsoring Companies, as amended [Registration Statement No. 2-60015, Exhibit 5(c);
Registration Statement No. 2-67728, Exhibit 5(a)(3)(B); Annual Report on Form 10-K of APCo
for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(2)(B)].
10(a)(3) -- Copy of Power Agreement, dated July 10, 1953, between OVEC and Indiana-Kentucky Electric
Corporation, as amended [Registration Statement No. 2-60015, Exhibit 5(e)].
10(a)(4) -- Copy of Inter-Company Power Agreement, dated as of July 10, 1953, among OVEC and the
Sponsoring Companies, as amended [Registration Statement No. 2-60015, Exhibit 5(c);
Registration Statement No. 2-67728, Exhibit 5(a)(3)(B); Annual Report on Form 10-K of APCo
for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(2)(B)].
10(a)(5) -- Copy of Power Agreement, dated July 10, 1953, between OVEC and Indiana-Kentucky Electric
Corporation, as amended [Registration Statement No. 2-60015, Exhibit 5(e)].
10(b) -- Copy of Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, I&M, and
OPCo and with the Service Corporation, as amended [Registration Statement No. 2-52910,
Exhibit 5(a); Registration Statement No. 2-61009, Exhibit 5(b); and Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1990, File No. 1-3525, Exhibit 10(a)(3)].
10(c) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and
with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the
fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); and Annual Report on
Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit
10(b)(2)].
10(d) -- Copy of Modification No. 1 to the AEP System Interim Allowance Agreement, dated July 28,
1994, among APCo, CSPCo, I&M, KEPCo, OPCo and the Service Corporation [Annual Report on Form
10-K of AEP for the fiscal year ended December 1, 1996, File No. 1-3525, Exhibit 10(l)].
10(e) -- Copy of Nuclear Material Lease Agreement, dated as of December 1, 1990, between I&M and DCC
Fuel Corporation [Annual Report on Form 10-K of I&M for the fiscal year ended December 31,
1993, File No. 1-3570, Exhibit 10(d)].
10(f) -- Copy of Lease Agreements, dated as of December 1, 1989, between I&M and Wilmington Trust
Company, as amended [Registration Statement No. 33-32753, Exhibits 28(a)(1)(C), 28(a)(2)(C),
28(a)(3)(C), 28(a)(4)(C), 28(a)(5)(C) and 28(a)(6)(C); Annual Report on Form 10-K of I&M for
the fiscal year ended December
</TABLE>
E-8
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
I&M** (continued)
31, 1993, File No. 1-3570, Exhibits 10(e)(1)(B), 10(e)(2)(B), 10(e)(3)(B), 10(e)(4)(B),
10(e)(5)(B) and 10(e)(6)(B)].
10(g) -- Agreement and Plan of Merger, dated as of December 21, 1997, By and Among American Electric
Power Company, Inc., Augusta Acquisition Corporation and Central and South West Corporation
[Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1997, File No.
1-3525, Exhibit 10(f)].
*12 -- Statement re: Computation of Ratios
*13 -- Copy of those portions of the I&M 1998 Annual Report (for the fiscal year ended December 31,
1998) which are incorporated by reference in this filing.
21 -- List of subsidiaries of I&M [Annual Report on Form 10-K of AEP for the fiscal year ended
December 31, 1998, File No. 1-3525, Exhibit 21].
*23 -- Consent of Deloitte & Touche LLP.
*24 -- Power of Attorney
*27 -- Financial Data Schedules.
KEPCO**
3(a) -- Copy of Restated Articles of Incorporation of KEPCo [Annual Report on Form 10-K of KEPCo for
the fiscal year ended December 31, 1991, File No. 1-6858, Exhibit 3(a)].
3(b) -- Copy of By-Laws of KEPCo (amended as of January 1, 1996) [Annual Report on Form 10-K of KEPCo
for the fiscal year ended December 31, 1995, File No. 1-6858, Exhibit 3(b)].
4(a) -- Copy of Mortgage and Deed of Trust, dated May 1, 1949, between KEPCo and Bankers Trust
Company, as supplemented and amended [Registration Statement No. 2-65820, Exhibits 2(b)(1),
2(b)(2), 2(b)(3), 2(b)(4), 2(b)(5), and 2(b)(6); Registration Statement No. 33-39394,
Exhibits 4(b) and 4(c); Registration Statement No. 33-53226, Exhibits 4(b) and 4(c);
Registration Statement No. 33-61808, Exhibits 4(b) and 4(c), Registration Statement No.
33-53007, Exhibits 4(b), 4(c) and 4(d)].
4(b) -- Copy of Indenture (for unsecured debt securities), dated as of September 1, 1997, between
KEPCo and Bankers Trust Company, as Trustee [Annual Report on Form 10-K of KEPCo for the
fiscal year ended December 31, 1997, Exhibits 4(b), 4(c) and 4(d)].
*4(c) -- Copy of Instructions, dated November 4, 1998, from KEPCo to Bankers Trust Company,
establishing certain terms of the 6.45% Unsecured Medium Term Notes, Series A, due 2008.
10(a) -- Copy of Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, I&M and OPCo
and with the Service Corporation, as amended [Registration Statement No. 2-52910, Exhibit
5(a);Registration Statement No. 2-61009, Exhibit 5(b); and Annual Report on Form 10-K of AEP
for the fiscal year ended December 31, 1990, File No. 1-3525, Exhibit 10(a)(3)].
10(b) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and
with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the
fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); and Annual Report on
Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit
10(b)(2)].
10(c) -- Copy of Modification No. 1 to the AEP System Interim Allowance Agreement, dated July 28,
1994, among APCo, CSPCo, I&M, KEPCo, OPCo and the Service Corporation [Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(l)].
</TABLE>
E-9
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
KEPCO** (continued)
10(d) -- Agreement and Plan of Merger, dated as of December 21, 1997, By and Among American Electric
Power Company, Inc., Augusta Acquisition Corporation and Central and South West Corporation
[Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1997, File No.
1-3525, Exhibit 10(f)].
*12 -- Statement re: Computation of Ratios.
*13 -- Copy those portions of the KEPCo 1998 Annual Report (for the fiscal year ended December 31,
1998) which are incorporated by reference in this filing.
*23 -- Consent of Deloitte & Touche LLP.
*24 -- Power of Attorney
*27 -- Financial Data Schedules
OPCO**
3(a) -- Copy of Amended Articles of Incorporation of OPCo, and amendments thereto to December 31, 1993
[Registration Statement No. 33-50139, Exhibit 4(a); Annual Report on Form 10-K of OPCo for the
fiscal year ended December 31, 1993, File No. 1-6543, Exhibit 3(b)].
3(b) -- Certificate of Amendment to Amended Articles of Incorporation of OPCo, dated May 3, 1994
[Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1994, File No.
1-6543, Exhibit 3(b)
3(c) -- Copy of Certificate of Amendment to Amended Articles of Incorporation of OPCo, dated March 6,
1997 [Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1996, File
No. 1-6543, Exhibit 3(c)].
3(d) -- Composite copy of the Amended Articles of Incorporation of OPCo (amended as of March 7, 1997)
[Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1996, File No.
1-6543, Exhibit 3(d)].
3(e) -- Copy of Code of Regulations of OPCo [Annual Report on Form 10-K of OPCo for the fiscal year
ended December 31, 1990, File No. 1-6543, Exhibit 3(d)].
4(a) -- Copy of Mortgage and Deed of Trust, dated as of October 1, 1938, between OPCo and
Manufacturers Hanover Trust Company (now Chemical Bank), as Trustee, as amended and
supplemented [Registration Statement No. 2-3828, Exhibit B-4; Registration Statement No.
2-60721, Exhibits 2(c)(2), 2(c)(3), 2(c)(4), 2(c)(5), 2(c)(6), 2(c)(7), 2(c)(8), 2(c)(9),
2(c)(10), 2(c)(11), 2(c)(12), 2(c)(13), 2(c)(14), 2(c)(15), 2(c)(16), 2(c)(17), 2(c)(18),
2(c)(19), 2(c)(20), 2(c)(21), 2(c)(22), 2(c)(23), 2(c)(24), 2(c)(25), 2(c)(26), 2(c)(27),
2(c)(28), 2(c)(29), 2(c)(30), and 2(c)(31); Registration Statement No. 2-83591, Exhibit 4(b);
Registration Statement No. 33-21208, Exhibits 4(a)(ii), 4(a)(iii) and 4(a)(iv); Registration
Statement No. 33-31069, Exhibit 4(a)(ii); Registration Statement No. 33-44995, Exhibit
4(a)(ii); Registration Statement No. 33-59006, Exhibits 4(a)(ii), 4(a)(iii) and 4(a)(iv);
Registration Statement No. 33-50373, Exhibits 4(a)(ii), 4(a)(iii) and 4(a)(iv); Annual Report
on Form 10-K of OPCo for the fiscal year ended December 31, 1993, File No. 1-6543, Exhibit
4(b)].
4(b) -- Copy of Indenture (for unsecured debt securities), dated as of September 1, 1997, between OPCo
and Bankers Trust Company, as Trustee [Registration Statement No. 333-49595, Exhibits 4(a),
4(b) and 4(c)].
*4(c) -- Copy of Instructions, dated December 1, 1998, from OPCo to Bankers Trust Company, establishing
certain terms of the 6.24% Unsecured Medium Term Notes, Series A, due 2008.
*4(d) -- Copy of Company Order and Officers' Certificate, dated April 29, 1998, establishing certain
terms of the 7 3/8% Senior Notes, Series A, due 2038.
</TABLE>
E-10
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
OPCO** (continued)
10(a)(1) -- Copy of Power Agreement, dated October 15, 1952, between OVEC and United States of America,
acting by and through the United States Atomic Energy Commission, and, subsequent to January
18, 1975, the Administrator of the Energy Research and Development Administration, as amended
[Registration Statement No. 2-60015, Exhibit 5(a); Registration Statement No. 2-63234,
Exhibit 5(a)(1)(B); Registration Statement No. 2-66301, Exhibit 5(a)(1)(C); Registration
Statement No. 2-67728, Exhibit 5(a)(1)(D); Annual Report on Form 10-K of APCo for the fiscal
year ended December 31, 1989, File No. 1-3457, Exhibit 10(a)(1)(F); Annual Report on Form
10-K of APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit
10(a)(1)(B)].
10(a)(2) -- Copy of Inter-Company Power Agreement, dated July 10, 1953, among OVEC and the Sponsoring
Companies, as amended [Registration Statement No. 2-60015, Exhibit 5(c); Registration
Statement No. 2-67728, Exhibit 5(a)(3)(B); Annual Report on Form 10-K of APCo for the fiscal
year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(2)(B)].
10(a)(3) -- Copy of Power Agreement, dated July 10, 1953, between OVEC and Indiana-Kentucky Electric
Corporation, as amended [Registration Statement No. 2-60015, Exhibit 5(e)].
10(b) -- Copy of Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, I&M and OPCo
and with the Service Corporation, as amended [Registration Statement No. 2-52910, Exhibit
5(a); Registration Statement No. 2-61009, Exhibit 5(b); Annual Report on Form 10-K of AEP for
the fiscal year ended December 31, 1990, File 1-3525, Exhibit 10(a)(3)].
10(c) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and
with the Service Corporation as agent [Annual Report on Form 10-K of AEP for the fiscal year
ended December 31, 1985, File No. 1-3525, Exhibit 10(b); Annual Report on Form 10-K of AEP
for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit 10(b)(2)].
10(d) -- Copy of Modification No. 1 to the AEP System Interim Allowance Agreement, dated July 28,
1994, among APCo, CSPCo, I&M, KEPCo, OPCo and the Service Corporation [Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(l)].
10(e) -- Copy of Amendment No. 1, dated October 1, 1973, to Station Agreement dated January 1, 1968,
among OPCo, Buckeye and Cardinal Operating Company, and amendments thereto [Annual Report on
Form 10-K of OPCo for the fiscal year ended December 31, 1993, File No. 1-6543, Exhibit
10(f)].
10(f) -- Lease Agreement dated January 20, 1995 between OPCo and JMG Funding, Limited Partnership, and
amendment thereto (confidential treatment requested) [Annual Report on Form 10-K of OPCo for
the fiscal year ended December 31, 1994, File No. 1-6543, Exhibit 10(l)(2)].
10(g) -- Agreement and Plan of Merger, dated as of December 21, 1997, by and among American Electric
Power Company, Inc., Augusta Acquisition Corporation and Central and South West Corporation
[Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1997, File No.
1-3525, Exhibit 10(f)].
+10(h)(1) -- AEP Deferred Compensation Agreement for certain executive officers [Annual Report on Form
10-K of AEP for the fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(e)].
+10(h)(2) -- Amendment to AEP Deferred Compensation Agreement for certain executive officers [Annual Report
on Form 10-K of AEP for the fiscal year ended December 31, 1986, File No. 1-3525, Exhibit
10(d)(2)].
</TABLE>
E-11
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C> <C>
OPCO** (continued)
+10(i)(1) -- AEP System Senior Officer Annual Incentive Compensation Plan [Annual Report on Form 10-K of
AEP for the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(i)(1)].
+10(i)(2) -- American Electric Power System Performance Share Incentive Plan, as Amended and Restated
through February 26, 1997 [Annual Report on Form 10-K of AEP for the fiscal year ended
December 31, 1996, File No. 1-3525, Exhibit 10(i)(2)].
+10(j)(1) -- Excess Benefits Plan [Quarterly Report on Form 10-Q of AEP for the quarter ended September
30, 1997, File No. 1-3525, Exhibit 10].
+10(j)(2) -- AEP System Supplemental Savings Plan (Non-Qualified) [Annual Report on Form 10-K of AEP for
the fiscal year ended December 31, 1996, File No. 1-3525, Exhibit 10(g)(2)].
+10(j)(3) -- Umbrella Trust for Executives [Annual Report on Form 10-K of AEP for the fiscal year ended
December 31, 1993, File No. 1-3525, Exhibit 10(g)(3)].
+10(k) -- Employment Agreement between E. Linn Draper, Jr. and AEP and the Service Corporation [Annual
Report on Form 10-K of AEGCo for the fiscal year ended December 31, 1991, File No. 0-18135,
Exhibit 10(g)(3)].
+10(l) -- AEP System Survivor Benefit Plan, effective January 27, 1998 [Quarterly Report on Form 10-Q of
AEP for the quarter ended September 30, 1998, File No. 1-3525, Exhibit 10].
+10(m) -- AEP Senior Executive Severance Plan for Merger with Central and South West Corporation,
effective March 1, 1999 [Annual Report on Form 10-K of AEP for the fiscal year ended December
31, 1998, File No. 1-3525, Exhibit 10(o)].
*12 -- Statement re: Computation of Ratios.
*13 -- Copy of those portions of the OPCo 1998 Annual Report (for the fiscal year ended December 31,
1998) which are incorporated by reference in this filing.
21 -- List of subsidiaries of OPCo [Annual Report on Form 10-K of AEP for the fiscal year ended
December 31, 1998, File No. 1-3525, Exhibit 21].
*23 -- Consent of Deloitte & Touche LLP.
*24 -- Power of Attorney.
*27 -- Financial Data Schedules.
</TABLE>
-------------------------------------
** Certain instruments defining the rights of holders of long-term debt of the
registrants included in the financial statements of registrants filed
herewith have been omitted because the total amount of securities
authorized thereunder does not exceed 10% of the total assets of
registrants. The registrants hereby agree to furnish a copy of any such
omitted instrument to the SEC upon request.
E-12
<PAGE>
EXHIBIT 4(b)
INDIANA MICHIGAN POWER COMPANY
AND
THE BANK OF NEW YORK,
AS TRUSTEE
INDENTURE
Dated as of October 1, 1998
<PAGE>
CROSS-REFERENCE TABLE
Section of
Trust Indenture Act Section of
of 1939, as amended Indenture
310(a)............................................ 7.09
310(b)............................................ 7.08
............................................ 7.10
310(c)............................................ Inapplicable
311(a)............................................ 7.13
311(b)............................................ 7.13
311(c)............................................ Inapplicable
312(a)............................................ 5.01
............................................ 5.02(a)
312(b)............................................ 5.02(c)
............................................ 5.02(d)
312(c)............................................ 5.02(e)
313(a)............................................ 5.04(a)
313(b)............................................ 5.04(b)
313(c)............................................ 5.04(a)
............................................ 5.04(b)
313(d)............................................ 5.04(c)
314(a)............................................ 5.03
314(b)............................................ Inapplicable
314(c)............................................ 13.06(a)
314(d)............................................ Inapplicable
314(e)............................................ 13.06(b)
314(f)............................................ Inapplicable
315(a)............................................ 7.01(a)
............................................ 7.02
315(b)............................................ 6.07
315(c)............................................ 7.01(a)
315(d)............................................ 7.01(b)
315(e)............................................ 6.08
316(a)............................................ 6.06
............................................ 8.04
316(b)............................................ 6.04
316(c)............................................ 8.01
317(a)............................................ 6.02
317(b)............................................ 4.03
318(a)............................................ 13.08
i
<PAGE>
TABLE OF CONTENTS
This Table of Contents does not constitute part of the Indenture and
should not have any bearing upon the interpretation of any of its terms or
provisions
RECITALS:
Purpose of Indenture........................................1
Compliance with legal requirements..........................1
Purpose of and consideration for Indenture..................1
ARTICLE ONE - DEFINITIONS
Section 1.01
Certain terms defined, other terms defined in the Trust Indenture Act
of 1939, as amended, or by reference therein in the Securities Act of
1933, as amended, to have the meanings assigned therein
Affiliate..............................................2
Authenticating Agent...................................2
Authorized Officer.....................................3
Board of Directors.....................................3
Board Resolution.......................................3
Business Day...........................................3
Certificate............................................3
Commission.............................................3
Company................................................4
Company Order..........................................4
Corporate Trust Office.................................4
Default................................................4
Depository.............................................4
Discount Security......................................4
Dollar.................................................5
Eligible Obligations...................................5
Event of Default.......................................5
Global Security........................................5
Governmental Authority.................................5
Governmental Obligations...............................5
Indenture..............................................6
Instructions...........................................6
Interest ..............................................6
Interest Payment Date..................................6
Officers' Certificate..................................6
Opinion of Counsel.....................................7
Outstanding............................................7
Periodic Offering......................................7
Person.................................................8
Place of Payment.......................................8
Predecessor Security...................................8
Responsible Officer....................................8
Security...............................................8
Securityholder.........................................8
Series.................................................9
Tranche................................................9
Trustee................................................9
Trust Indenture Act....................................9
United States..........................................9
ARTICLE TWO - ISSUE, DESCRIPTION, TERMS, EXECUTION,
REGISTRATION AND EXCHANGE OF SECURITIES
Section 2.01
Designation, terms, amount, authentication
and delivery of Securities.............................9
Section 2.02
Form of Security and Trustee's certificate............11
Section 2.03
Date and denominations of Securities,
and provisions for payment of principal,
premium and interest..................................12
Section 2.04
Execution of Securities...............................14
Section 2.05
Exchange of Securities................................16
(a) Registration and transfer
of Securities....................................16
(b) Security Register; Securities to be accompanied
by proper instruments of transfer................16
(c) Charges upon exchange, transfer or
registration of Securities.......................17
(d) Restrictions on transfer or
exchange at time of redemption...................17
Section 2.06
Temporary Securities..................................17
Section 2.07
Mutilated, destroyed, lost or
stolen Securities.....................................18
Section 2.08
Cancellation of surrendered Securities................19
Section 2.09
Provisions of Indenture and Securities
for sole benefit of parties and
Securityholders.......................................19
Section 2.10
Appointment of Authenticating Agent...................19
Section 2.11
Global Security.......................................20
(a) Authentication and Delivery;
Legend...........................................20
(b) Transfer of Global Security......................20
(c) Issuance of Securities in
Definitive Form..................................20
Section 2.12
Payment in Proper Currency............................21
Section 2.13
Identification of Securities..........................22
ARTICLE THREE - REDEMPTION OF SECURITIES AND
SINKING FUND PROVISIONS
Section 3.01
Redemption of Securities..............................22
Section 3.02
(a) Notice of redemption.............................22
(b) Selection of Securities in case
less than all Securities to be
redeemed.........................................23
Section 3.03
(a) When Securities called for
redemption become due and payable................24
(b) Receipt of new Security upon
partial payment..................................24
Section 3.04
Sinking Fund for Securities...........................24
Section 3.05
Satisfaction of Sinking Fund
Payments with Securities..............................25
Section 3.06
Redemption of Securities for
Sinking Fund..........................................25
ARTICLE FOUR - PARTICULAR COVENANTS OF THE COMPANY
Section 4.01
Payment of principal (and premium
if any) and interest on Securities....................26
Section 4.02
Maintenance of office or agency for payment of Securities,
designation of office or agency for payment, registration,
transfer and exchange of Securities...................26
Section 4.03
(a) Duties of paying agent...........................26
(b) Company as paying agent..........................27
(c) Holding sums in trust............................27
Section 4.04
Appointment to fill vacancy in
office of Trustee.....................................28
Section 4.05
Restriction on consolidation,
merger or sale........................................28
Section 4.06
Calculation of Original Issue Discount................28
ARTICLE FIVE - SECURITYHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
Section 5.01
Company to furnish Trustee information
as to names and addresses of
Securityholders.......................................28
Section 5.02
(a) Trustee to preserve information
as to names and addresses of
Securityholders received by it
in capacity of paying agent......................28
(b) Trustee may destroy list of
Securityholders on certain
conditions.......................................29
(c) Trustee to make information as to names and
addresses of Securityholders available to
"applicants" to mail communications to
Securityholders in certain circumstances.........29
(d) Procedure if Trustee elects not to
make information available to
applicants.......................................29
(e) Company and Trustee not accountable
for disclosure of information....................30
Section 5.03
(a) Annual and other reports to be filed
by Company with Trustee..........................30
(b) Additional information and reports to be filed
with Trustee and Securities and Exchange
Commission.......................................30
(c) Summaries of information and reports to be transmitted by
Company to Securityholders........31
(d) Annual Certificate to be furnished
to Trustee.......................................31
(e) Effect of Delivery to Trustee....................31
Section 5.04
(a) Trustee to transmit annual report
to Securityholders...............................31
(b) Trustee to transmit certain further
reports to Securityholders.......................32
(c) Copies of reports to be filed with stock exchanges and
Securities and Exchange Commission.33
ARTICLE SIX - REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
Section 6.01
(a) Events of default defined........................33
(b) Acceleration of maturity
upon Event of Default............................34
(c) Waiver of default and rescission
of declaration of maturity.......................35
(d) Restoration of former position
and rights upon curing default...................35
Section 6.02
(a) Covenant of Company to pay to Trustee whole
amount due on Securities on default in
payment of interest or principal (and
premium, if any).................................36
(b) Trustee may recover judgment for whole amount due on Securities
on failure of Company to pay...36
(c) Billing of proof of claim by Trustee in
bankruptcy, reorganization or receivership
proceeding.......................................36
(d) Rights of action and of asserting claims may be
enforced by Trustee without possession of
Securities.......................................37
Section 6.03
Application of monies collected by Trustee............37
Section 6.04
Limitation on suits by holders of Securities..........38
Section 6.05
(a) Remedies Cumulative..............................39
(b) Delay or omission in exercise
of rights not waiver of default..................39
Section 6.06
Rights of holders of majority in
principal amount of Securities to
direct trustee and to waive defaults..................39
Section 6.07
Trustees to give notice of defaults
known to it, but may withhold in
certain circumstances.................................40
Section 6.08
Requirements of an undertaking to pay
costs in certain suits under Indenture
or against Trustee....................................41
ARTICLE SEVEN - CONCERNING THE TRUSTEE
Section 7.01
(a) Upon Event of Default occurring and
continuing, Trustee shall exercise powers
vested in it, and use same degree of
care and skill in their exercise, as
prudent individual will use......................41
(b) Trustee not relieved from liability
for negligence or willful misconduct
except as provided in this section...............41
(1) Prior to Event of Default and after
the curing of all Events of Default which may have occurred
(i) Trustee not liable except for performance of duties
specifically set forth (ii) In absence of bad faith,
Trustee may conclusively rely on certificates or opinions
furnished it hereunder, subject to duty to examine the same
if specifically required to be furnished to it
(2) Trustee not liable for error of judgment made in good faith
by Responsible Officer unless Trustee negligent
(3) Trustee not liable for action or non-action in accordance
with direction of holders of majority in principal amount
of Securities
(4) Trustee need not expend own funds without adequate
indemnity
Section 7.02
Subject to provisions of Section 7.01:
(a) Trustee may rely on documents believed
genuine and properly signed or presented.........43
(b) Sufficient evidence by certain
instruments provided for.........................43
(c) Trustee may consult with counsel and act
on advice or Opinion of Counsel..................43
(d) Trustee may require indemnity from
Securityholders..................................43
(e) Trustee not liable for actions in good
faith believed to be authorized..................44
(f) Trustee not bound to investigate facts or
matters stated in certificates, etc. unless
requested in writing by Securityholders..........44
(g) Trustee may perform duties directly or
through agents or attorneys......................44
(h) Permissive rights of Trustee.....................44
Section 7.03
(a) Trustee not liable for recitals in
Indenture or in Securities.......................44
(b) No representations by Trustee as to
validity or Indenture or of Securities...........44
(c) Trustee not accountable for use of
Securities or proceeds...........................44
Section 7.04
Trustee, paying agent or Security
Registrar may own Security............................45
Section 7.05
Monies received by Trustee to be held
in Trust without interest.............................45
Section 7.06
(a) Trustee entitled to compensation,
reimbursement and indemnity......................45
(b) Obligations to Trustee to be
secured by lien prior to
Securities.......................................45
(c) Nature of Expenses...............................46
(d) Survival of Obligations..........................46
Section 7.07
Right of Trustee to rely on certificate
of officers of Company where no other
evidence specifically prescribed......................46
Section 7.08
Trustee acquiring conflicting interest
to eliminate conflict or resign.......................46
Section 7.09
Requirements for eligibility of
trustee...............................................46
Section 7.10
(a) Resignation of Trustee and
appointment of successor.........................47
(b) Removal of Trustee by Company
or by court on Securityholders'
application......................................47
(c) Removal of Trustee by holders
of majority in principal amount
of Securities....................................48
(d) Time when resignation or removal
of Trustee effective.............................48
(e) One Trustee for each series......................48
Section 7.11
(a) Acceptance by successor Trustee..................48
(b) Trustee with respect to less than
all series.......................................49
(c) Company to confirm Trustee's rights..............50
(d) Successor Trustee to be qualified................50
(e) Notice of succession.............................50
Section 7.12
Successor to Trustee by merger, consolidation
of succession to business.............................50
Section 7.13
Limitations on rights of Trustee as a
creditor to obtain payment of certain
claims................................................50
ARTICLE EIGHT - CONCERNING THE SECURITYHOLDERS
Section 8.01
Evidence of action by Securityholders.................50
Section 8.02
Proof of execution of instruments and of
holding of Securities.................................51
Section 8.03
Who may be deemed owners of Securities................52
Section 8.04
Securities owned by Company or controlled
or controlling companies disregarded for
certain purposes......................................52
Section 8.05
Instruments executed by Securityholders
bind future holders...................................53
ARTICLE NINE - SUPPLEMENTAL INDENTURES
Section 9.01
Purposes for which supplemental indenture
may be entered into without consent of
Securityholders.......................................53
Section 9.02
Modification of Indenture with consent
of Securityholders....................................56
Section 9.03
Effect of supplemental indentures.....................57
Section 9.04
Securities may bear notation of changes
by supplemental indentures............................58
Section 9.05
Opinion of Counsel....................................58
ARTICLE TEN - CONSOLIDATION, MERGER AND SALE
Section 10.01
Consolidations or mergers of Company
and sales or conveyances of property
of Company permitted..................................58
Section 10.02
(a) Rights and duties of successor company...........59
(b) Appropriate changes may be made in
phraseology and form of Securities...............59
(c) Company may consolidate or merge into
itself or acquire properties of other
corporations.....................................59
Section 10.03
Opinion of Counsel....................................60
ARTICLE ELEVEN - DEFEASANCE AND CONDITIONS TO DEFEASANCE;
UNCLAIMED MONIES
Section 11.01
Defeasance and conditions to defeasance...............60
Section 11.02
Application by Trustee of funds deposited
for payment of Securities.............................61
Section 11.03
Repayment of monies held by paying agent..............62
Section 11.04
Repayment of monies held by Trustee...................62
Section 11.05
Delivery of Officer's Certificate
and Opinion of Counsel................................62
ARTICLE TWELVE - IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 12.01
Incorporators, Stockholders, officers and
directors of Company exempt from individual
liability.............................................62
ARTICLE THIRTEEN - MISCELLANEOUS PROVISIONS
Section 13.01
Successors and assigns of Company
bound by Indenture....................................63
Section 13.02
Acts of board, committee or officer
of successor company valid............................63
Section 13.03
Surrender of powers by Company........................63
Section 13.04
Required notices or demands may by
served by mail........................................63
Section 13.05
Indenture and Securities to be construed
in accordance with laws of the State
of New York...........................................64
Section 13.06
(a) Officers' Certificate and Opinion of
Counsel to be furnished upon applications
or demands by company............................64
(b) Statements to be included in each certificate or opinion with
respect to compliance with condition or covenant.........64
Section 13.07
Payments due on non-Business Days.....................64
Section 13.08
Provisions required by Trust Indenture
Act of 1939 to control................................65
Section 13.09
Indenture may be executed in counterparts.............65
Section 13.10
Separability of Indenture provisions..................65
Section 13.11
Assignment by Company to subsidiary...................65
Section 13.12
Headings..............................................65
Section 13.13
Securities in Foreign Currencies......................65
ACCEPTANCE OF TRUST BY TRUSTEE...................................66
TESTIMONIUM......................................................66
SIGNATURES AND SEALS.............................................67
ACKNOWLEDGEMENTS.................................................68
<PAGE>
THIS INDENTURE, dated as of the 1st day of October, 1998, between INDIANA
MICHIGAN POWER COMPANY, a corporation duly organized and existing under the laws
of the State of Indiana (hereinafter sometimes referred to as the "Company"),
and THE BANK OF NEW YORK, a banking corporation of the State of New York, as
trustee (hereinafter sometimes referred to as the "Trustee"):
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance of unsecured promissory notes or other evidences of indebtedness
(hereinafter referred to as the "Securities"), in an unlimited aggregate
principal amount to be issued from time to time in one or more series as in this
Indenture provided, as registered Securities without coupons, to be
authenticated by the certificate of the Trustee, and which will rank pari passu
with all other unsecured and unsubordinated debt of the Company;
WHEREAS, to provide the terms and conditions upon which the Securities are
to be authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture;
WHEREAS, the Securities and the certificate of authentication to be borne
by the Securities (the "Certificate of Authentication") are to be substantially
in such forms as may be approved by a Company Order (as defined below), or set
forth in this Indenture or in any indenture supplemental to this Indenture;
AND WHEREAS, all acts and things necessary to make the Securities issued
pursuant hereto, when executed by the Company and authenticated and delivered by
the Trustee as in this Indenture provided, the valid, binding and legal
obligations of the Company, and to constitute these presents a valid indenture
and agreement according to its terms, have been done and performed or will be
done and performed prior to the issuance of such Securities, and the execution
of this Indenture has been and the issuance hereunder of the Securities has been
or will be prior to issuance in all respects duly authorized, and the Company,
in the exercise of the legal right and power in it vested, executes this
Indenture and proposes to make, execute, issue and deliver the Securities;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the
Securities are and are to be authenticated, issued and delivered, and in
consideration of the premises, of the purchase and acceptance of the Securities
by the holders thereof and of the sum of one dollar ($1.00) to it duly paid by
the Trustee at the execution of these presents, the receipt whereof is hereby
acknowledged, the Company covenants and agrees with the Trustee, for the equal
and proportionate benefit (subject to the provisions of this Indenture) of the
respective holders from time to time of the Securities, without any
discrimination, preference or priority of any one Security over any other by
reason of priority in the time of issue, sale or negotiation thereof, or
otherwise, except as provided herein, as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.01. The terms defined in this Section (except as in this
Indenture otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture, any Company Order, any Board Resolution, and
any indenture supplemental hereto shall have the respective meanings specified
in this Section. All other terms used in this Indenture which are defined in the
Trust Indenture Act of 1939, as amended, or which are by reference in such Act
defined in the Securities Act of 1933, as amended (except as herein otherwise
expressly provided or unless the context otherwise requires), shall have the
meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of the execution of this instrument.
Affiliate:
The term "Affiliate" of the Company shall mean any company at least a majority
of whose outstanding voting stock shall at the time be owned by the Company, or
by one or more direct or indirect subsidiaries of or by the Company and one or
more direct or indirect subsidiaries of the Company. For the purposes only of
this definition of the term "Affiliate", the term "voting stock", as applied to
the stock of any company, shall mean stock of any class or classes having
ordinary voting power for the election of a majority of the directors of such
company, other than stock having such power only by reason of the occurrence of
a contingency.
Authenticating Agent:
The term "Authenticating Agent" shall mean an authenticating agent with respect
to all or any of the series of Securities, as the case may be, appointed with
respect to all or any series of the Securities, as the case may be, by the
Trustee pursuant to Section 2.10.
Authorized Officer:
The term "Authorized Officer" shall mean the Chairman of the Board, the
President, any Vice President, the Treasurer, any Assistant Treasurer or any
other officer or agent of the Company duly authorized by the Board of Directors
to act in respect of matters relating to this Indenture.
Board of Directors or Board:
The term "Board of Directors" or "Board" shall mean the Board of Directors of
the Company, or any duly authorized committee of such Board.
Board Resolution:
The term "Board Resolution" shall mean a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
Business Day:
The term "Business Day", with respect to any Security, shall mean any day that
(a) in the Place of Payment (or in any of the Places of Payment, if more than
one) in which amounts are payable as specified in the form of such Security and
(b) in the city in which the Trustee administers its corporate trust business,
is not a day on which banking institutions are authorized or required by law or
regulation to close.
Certificate:
The term "Certificate" shall mean a certificate signed by an Authorized Officer.
The Certificate need not comply with the provisions of Section 13.06.
Commission:
The term "Commission" shall mean the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or if at any time after the execution of this
instrument such Commission is not existing and performing the duties now
assigned to it under the Trust Indenture Act, then the body, if any, performing
such duties on such date.
Company:
The term "Company" shall mean Indiana Michigan Power Company, a corporation duly
organized and existing under the laws of Indiana, and, subject to the provisions
of Article Ten, shall also include its successors and assigns.
Company Order:
The term "Company Order" shall mean a written order signed in the name of the
Company by an Authorized Officer and the Secretary or an Assistant Secretary of
the Company, pursuant to a Board Resolution establishing a series of Securities.
Corporate Trust Office:
The term "Corporate Trust Office" shall mean the office of the Trustee at which
at any particular time its corporate trust business shall be principally
administered, which office at the date of the execution of this Indenture is
located at 101 Barclay Street, Floor 21W, New York, New York 10286.
Default:
The term "Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
Depository:
The term "Depository" shall mean, with respect to Securities of any series, for
which the Company shall determine that such Securities will be issued as a
Global Security, The Depository Trust Company, New York, New York, another
clearing agency, or any successor registered as a clearing agency under the
Exchange Act or other applicable statute or regulation, which, in each case,
shall be designated by the Company pursuant to either Section 2.01 or 2.11.
Discount Security:
The term "Discount Security" means any Security which provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration of the maturity thereof pursuant to Section 6.01(b).
Dollar:
The term "Dollar" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
Eligible Obligations:
The term "Eligible Obligations" means (a) with respect to Securities denominated
in Dollars, Governmental Obligations; or (b) with respect to Securities
denominated in a currency other than Dollars or in a composite currency, such
other obligations or instruments as shall be specified with respect to such
Securities, as contemplated by Section 2.01.
Event of Default:
The term "Event of Default" with respect to Securities of a particular series
shall mean any event specified in Section 6.01, continued for the period of
time, if any, therein designated.
Global Security:
The term "Global Security" shall mean, with respect to any series of Securities,
a Security executed by the Company and authenticated and delivered by the
Trustee to the Depository or pursuant to the Depository's instruction, all in
accordance with the Indenture, which shall be registered in the name of the
Depository or its nominee.
Governmental Authority:
The term "Governmental Authority" means the government of the United States or
of any State or Territory thereof or of the District of Columbia or of any
county, municipality or other political subdivision of any of the foregoing, or
any department, agency, authority or other instrumentality of any of the
foregoing.
Governmental Obligations:
The term "Governmental Obligations" shall mean securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a person controlled or
supervised by and acting as an agency or instrumentality of the United States,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act of 1933, as amended) as custodian with respect to any such
Governmental Obligation or a specific payment of principal of or interest on any
such Governmental Obligation held by such custodian for the account of the
holder of such depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by such
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depository receipt.
Indenture:
The term "Indenture" shall mean this instrument as originally executed, or, if
amended or supplemented as herein provided, as so amended or supplemented, and
shall include the terms of a particular series of Securities established as
contemplated by Section 2.01.
Instructions:
The term "Instructions" shall mean instructions acceptable to the Trustee issued
pursuant to a Company Order in connection with a Periodic Offering and signed by
an Authorized Officer. Instructions need not comply with the provisions of
Section 13.06.
Interest:
The term "interest" when used with respect to non-interest bearing Securities
shall mean interest payable after maturity (whether at stated maturity, upon
acceleration or redemption or otherwise) or after the date, if any, on which the
Company becomes obligated to acquire a Security, whether by purchase or
otherwise.
Interest Payment Date:
The term "Interest Payment Date" when used with respect to any installment of
interest on a Security of a particular series shall mean the date specified in
such Security or in a Board Resolution, Company Order or an indenture
supplemental hereto with respect to such series as the fixed date on which an
installment of interest with respect to Securities of that series is due and
payable.
Officers' Certificate:
The term "Officers' Certificate" shall mean a certificate signed by an
Authorized Officer and by the Secretary or Assistant Secretary of the Company.
Each such certificate shall include the statements provided for in Section
13.06, if and to the extent required by the provisions thereof.
Opinion of Counsel:
The term "Opinion of Counsel" shall mean an opinion in writing signed by legal
counsel, who may be an employee of or counsel for the Company. Each such opinion
shall include the statements provided for in Section 13.06, if and to the extent
required by the provisions thereof.
Outstanding:
The term "outstanding", when used with reference to Securities of any series,
shall, subject to the provisions of Section 8.04, mean, as of any particular
time, all Securities of that series theretofore authenticated and delivered by
the Trustee under this Indenture, except (a) Securities theretofore canceled by
the Trustee or any paying agent, or delivered to the Trustee or any paying agent
for cancellation or which have previously been canceled; (b) Securities or
portions thereof for the payment or redemption of which monies or Eligible
Obligations in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or shall have been set
aside and segregated in trust by the Company (if the Company shall act as its
own paying agent); provided, however, that if such Securities or portions of
such Securities are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been given as in Article Three provided, or provision
satisfactory to the Trustee shall have been made for giving such notice; and (c)
Securities in lieu of or in substitution for which other Securities shall have
been authenticated and delivered pursuant to the terms of Section 2.07. The
principal amount of a Discount Security that shall be deemed to be Outstanding
for purposes of this Indenture shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a declaration
of acceleration of the maturity thereof.
Periodic Offering:
The term "Periodic Offering" means an offering of Securities of a series from
time to time, during which any or all of the specific terms of the Securities,
including without limitation the rate or rates of interest, if any, thereon, the
maturity or maturities thereof and the redemption provisions, if any, with
respect thereto, are to be determined by the Company or its agents upon the
issuance of such Securities.
Person:
The term "person" means any individual, corporation, partnership, limited
liability company, joint venture, trust or unincorporated organization or any
Governmental Authority.
Place of Payment:
The term "Place of Payment" shall mean the place or places where the principal
of and interest, if any, on the Securities of any series are payable as
specified in accordance with Section 2.01.
Predecessor Security:
The term "Predecessor Security" of any particular Security shall mean every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 2.07 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
Responsible Officer:
The term "Responsible Officer" when used with respect to the Trustee shall mean
the chairman of the board of directors, the president, any vice president, the
secretary, the treasurer, any trust officer, any corporate trust officer or any
other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his or her knowledge of and familiarity with the particular subject.
Security or Securities:
The term "Security" or "Securities" shall mean any Security or Securities, as
the case may be, authenticated and delivered under this Indenture.
Securityholder:
The term "Securityholder", "holder of Securities" or "registered holder" shall
mean the person or persons in whose name or names a particular Security shall be
registered on the books of the Company kept for that purpose in accordance with
the terms of this Indenture.
Series:
The term "series" means a series of Securities established pursuant to this
Indenture and includes, if the context so requires, each Tranche thereof.
Tranche:
The term "Tranche" means Securities which (a) are of the same series and (b)
have identical terms except as to principal amount and/or date of issuance.
Trustee:
The term "Trustee" shall mean The Bank of New York, and, subject to the
provisions of Article Seven, shall also include its successors and assigns, and,
if at any time there is more than one person acting in such capacity hereunder,
"Trustee" shall mean each such person. The term "Trustee" as used with respect
to a particular series of the Securities shall mean the trustee with respect to
that series.
Trust Indenture Act:
The term "Trust Indenture Act", subject to the provisions of Sections 9.01,
9.02, and 10.01, shall mean the Trust Indenture Act of 1939, as amended and in
effect at the date of execution of this Indenture.
United States:
The term "United States" means the United States of America, its Territories,
its possessions and other areas subject to its political jurisdiction.
ARTICLE TWO
ISSUE, DESCRIPTION, TERMS, EXECUTION,
REGISTRATION AND EXCHANGE OF SECURITIES
SECTION 2.01. The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued from time to time in one or more series and
in one or more Tranches thereof. Each series shall be authorized by a Company
Order or Orders or one or more indentures supplemental hereto, which shall
specify whether the Securities of such series shall be subject to a Periodic
Offering. The Company Order or Orders or supplemental indenture and, in the case
of a Periodic Offering, Instructions or other procedures acceptable to the
Trustee specified in such Company Order or Orders, shall establish the terms of
the series, which may include the following: (i) any limitations on the
aggregate principal amount of the Securities to be authenticated and delivered
under this Indenture as part of such series (except for Securities authenticated
and delivered upon registration of transfer of, in exchange for or in lieu of
other Securities of that series); (ii) the stated maturity or maturities of such
series; (iii) the date or dates from which interest shall accrue, the Interest
Payment Dates on which such interest will be payable or the manner of
determination of such Interest Payment Dates and the record date for the
determination of holders to whom interest is payable on any such Interest
Payment Date; (iv) the interest rate or rates (which may be fixed or variable),
or method of calculation of such rate or rates, for such series; (v) the terms,
if any, regarding the redemption, purchase or repayment of such series (whether
at the option of the Company or a holder of the Securities of such series and
whether pursuant to a sinking fund or analogous provisions, including payments
made in cash in anticipation of future sinking fund obligations), including
redemption, purchase or repayment date or dates of such series, if any, and the
price or prices and other terms and conditions applicable to such redemption,
purchase or repayment (including any premium); (vi) whether or not the
Securities of such series shall be issued in whole or in part in the form of a
Global Security and, if so, the Depositary for such Global Security and the
related procedures with respect to transfer and exchange of such Global
Security; (vii) the designation of such series; (viii) the form of the
Securities of such series; (ix) the maximum annual interest rate, if any, of the
Securities permitted for such series; (x) whether the Securities of such series
shall be subject to Periodic Offering; (xi) the currency or currencies,
including composite currencies, in which payment of the principal of (and
premium, if any) and interest on the Securities of such series shall be payable,
if other than Dollars; (xii) any other information necessary to complete the
Securities of such series; (xiii) the establishment of any office or agency
pursuant to Section 4.02 hereof and any other place or places which the
principal of and interest, if any, on Securities of that series shall be
payable; (xiv) if other than denominations of $1,000 or any integral multiple
thereof, the denominations in which the Securities of the series shall be
issuable; (xv) the obligations or instruments, if any, which shall be considered
to be Eligible Obligations in respect of the Securities of such series
denominated in a currency other than Dollars or in a composite currency; (xvi)
whether or not the Securities of such series shall be issued as Discount
Securities and the terms thereof, including the portion of the principal amount
thereof which shall be payable upon declaration of acceleration of the maturity
thereof pursuant to Section 6.01(b); (xvii) if the principal of and premium, if
any, or interest, if any, on such Securities are to be payable, at the election
of the Company or the holder thereof, in coin or currency, including composite
currencies, other than that in which the Securities are stated to be payable,
the period or periods within which, and the terms and conditions upon which,
such election shall be made; (xviii) if the amount of payment of principal of
and premium, if any, or interest, if any, on such Securities may be determined
with reference to an index, formula or other method, or based on a coin or
currency other than that in which the Securities are stated to be payable, the
manner in which such amount shall be determined; and (xix) any other terms of
such series not inconsistent with this Indenture.
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided in or pursuant to any
such Company Order or in any indentures supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Company Order, a copy of an appropriate record of the applicable Board
Resolution shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order setting forth the terms of that series.
SECTION 2.02. The Securities of any series shall be substantially of the
tenor and purport (i) as set forth in one or more indentures supplemental hereto
or as provided in a Company Order, or (ii) with respect to any Tranche of
Securities of a series subject to Periodic Offering, to the extent permitted by
any of the documents referred to in clause (i) above, in Instructions, or by
other procedures acceptable to the Trustee specified in such Company Order or
Orders, in each case with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture, and may
have such letters, numbers or other marks of identification or designation and
such legends or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which Securities of that series may be listed or of the Depository,
or to conform to usage.
The Trustee's Certificate of Authentication shall be in substantially the
following form:
"This is one of the Securities of the series designated
in accordance with, and referred to in, the
within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK, as Trustee
By:___________________________
Authorized Signatory"
SECTION 2.03. The Securities shall be issuable as registered Securities
and in the denominations of $1,000 or any integral multiple thereof, subject to
Sections 2.01(xi) and (xiv). The Securities of a particular series shall bear
interest payable on the dates and at the rate or rates specified with respect to
that series. Except as otherwise specified as contemplated by Section 2.01, the
principal of and the interest on the Securities of any series, as well as any
premium thereon in case of redemption thereof prior to maturity, shall be
payable in Dollars at the office or agency of the Company maintained for that
purpose. Each Security shall be dated the date of its authentication.
The interest installment on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date for
Securities of that series shall be paid to the person in whose name said
Security (or one or more Predecessor Securities) is registered at the close of
business on the regular record date for such interest installment, except that
interest payable on redemption or maturity shall be payable as set forth in the
Company Order or indenture supplemental hereto establishing the terms of such
series of Securities. Except as otherwise specified as contemplated by Section
2.01, interest on Securities will be computed on the basis of a 360-day year of
twelve 30-day months.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date for Securities of the same
series (herein called "Defaulted Interest") shall forthwith cease to be payable
to the registered holder on the relevant regular record date by virtue of having
been such holder; and such Defaulted Interest shall be paid by the Company, at
its election, as provided in clause (1) or clause (2) below:
(1) The Company may make payment of any Defaulted Interest on
Securities to the persons in whose names such Securities (or their
respective Predecessor Securities) are registered at the close of business
on a special record date for the payment of such Defaulted Interest, which
shall be fixed in the following manner: the Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each such Security and the date of the proposed payment, and at the
same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the persons entitled
to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a special record date for the payment of such Defaulted
Interest which shall not be more than 15 nor less than 10 days prior to
the date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such special record date and, in the
name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the special record date therefor to
be mailed, first class postage prepaid, to each Securityholder at his or
her address as it appears in the Security Register (as hereinafter
defined), not less than 10 days prior to such special record date. Notice
of the proposed payment of such Defaulted Interest and the special record
date therefor having been mailed as aforesaid, such Defaulted Interest
shall be paid to the persons in whose names such Securities (or their
respective Predecessor Securities) are registered on such special record
date and shall be no longer payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest on any
Securities in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the proposed payment
pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Unless otherwise set forth in a Company Order or one or more indentures
supplemental hereto establishing the terms of any series of Securities pursuant
to Section 2.01 hereof, the term "regular record date" as used in this Section
with respect to a series of Securities with respect to any Interest Payment Date
for such series shall mean either the fifteenth day of the month immediately
preceding the month in which an Interest Payment Date established for such
series pursuant to Section 2.01 hereof shall occur, if such Interest Payment
Date is the first day of a month, or the last day of the month immediately
preceding the month in which an Interest Payment Date established for such
series pursuant to Section 2.01 hereof shall occur, if such Interest Payment
Date is the fifteenth day of a month, whether or not such date is a Business
Day.
Subject to the foregoing provisions of this Section, each Security of a
series delivered under this Indenture upon transfer of or in exchange for or in
lieu of any other Security of such series shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.04. The Securities shall, subject to the provisions of Section
2.06, be printed on steel engraved borders or fully or partially engraved, or
legibly typed, as the proper officer of the Company may determine, and shall be
signed on behalf of the Company by an Authorized Officer. The signature of such
Authorized Officer upon the Securities may be in the form of a facsimile
signature of a present or any future Authorized Officer and may be imprinted or
otherwise reproduced on the Securities and for that purpose the Company may use
the facsimile signature of any person who shall have been an Authorized Officer,
notwithstanding the fact that at the time the Securities shall be authenticated
and delivered or disposed of such person shall have ceased to be an Authorized
Officer.
Only such Securities as shall bear thereon a Certificate of Authentication
substantially in the form established for such Securities, executed manually by
an authorized signatory of the Trustee, or by any Authenticating Agent with
respect to such Securities, shall be entitled to the benefits of this Indenture
or be valid or obligatory for any purpose. Such certificate executed by the
Trustee, or by any Authenticating Agent appointed by the Trustee with respect to
such Securities, upon any Security executed by the Company shall be conclusive
evidence that the Security so authenticated has been duly authenticated and
delivered hereunder and that the registered holder thereof is entitled to the
benefits of this Indenture.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with an indenture
supplemental hereto or a Company Order for the authentication and delivery of
such Securities and the Trustee, in accordance with such supplemental indenture
or Company Order, shall authenticate and deliver such Securities; provided,
however, that in the case of Securities offered in a Periodic Offering, the
Trustee shall authenticate and deliver such Securities from time to time in
accordance with Instructions or such other procedures acceptable to the Trustee
as may be specified by or pursuant to such supplemental indenture or Company
Order delivered to the Trustee prior to the time of the first authentication of
Securities of such series.
In authenticating such Securities and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall receive and (subject to Section 7.01) shall be fully protected in
relying upon, (i) an Opinion of Counsel and (ii) an Officers' Certificate, each
stating that the form and terms thereof have been established in conformity with
the provisions of this Indenture; provided, however, that, with respect to
Securities of a series subject to a Periodic Offering, the Trustee shall be
entitled to receive such Opinion of Counsel and Officers' Certificate only once
at or prior to the time of the first authentication of Securities of such series
and that, in such opinion or certificate, the opinion or certificate described
above may state that when the terms of such Securities, or each Tranche thereof,
shall have been established pursuant to a Company Order or Orders or pursuant to
such procedures acceptable to the Trustee, as may be specified by a Company
Order, such terms will have been established in conformity with the provisions
of this Indenture. Each Opinion of Counsel and Officers' Certificate delivered
pursuant to this Section 2.04 shall include all statements prescribed in Section
13.06(b). Such Opinion of Counsel shall also be to the effect that when such
Securities have been executed by the Company and authenticated by the Trustee in
accordance with the provisions of this Indenture and delivered to and duly paid
for by the purchasers thereof, they will be valid and legally binding
obligations of the Company, enforceable in accordance with their terms (subject
to customary exceptions) and will be entitled to the benefits of this Indenture.
With respect to Securities of a series subject to a Periodic Offering, the
Trustee may conclusively rely, as to the authorization by the Company of any of
such Securities, the forms and terms thereof and the legality, validity, binding
effect and enforceability thereof, upon the Company Order, Opinion of Counsel,
Officers' Certificate and other documents delivered pursuant to Sections 2.01
and this Section, as applicable, at or prior to the time of the first
authentication of Securities of such series unless and until such Company Order,
Opinion of Counsel, Officers' Certificate or other documents have been
superseded or revoked or expire by their terms.
The Trustee shall not be required to authenticate such Securities if the
issue of such Securities pursuant to this Indenture will affect the Trustee's
own rights, duties or immunities under the Securities and this Indenture or
otherwise in a manner which is not reasonably acceptable to the Trustee.
SECTION 2.05. (a) Securities of any series may be exchanged upon
presentation thereof at the office or agency of the Company designated for such
purpose, for other Securities of such series of authorized denominations, and
for a like aggregate principal amount, upon payment of a sum sufficient to cover
any tax or other governmental charge in relation thereto, all as provided in
this Section. In respect of any Securities so surrendered for exchange, the
Company shall execute, the Trustee shall authenticate and such office or agency
shall deliver in exchange therefor the Security or Securities of the same series
which the Securityholder making the exchange shall be entitled to receive,
bearing numbers not contemporaneously outstanding.
(b) The Company shall keep, or cause to be kept, at its office or agency
designated for such purpose in the Borough of Manhattan, the City and State of
New York, or such other location designated by the Company a register or
registers (herein referred to as the "Security Register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall register the
Securities and the transfers of Securities as in this Article provided and which
at all reasonable times shall be open for inspection by the Trustee. The
registrar for the purpose of registering Securities and transfer of Securities
as herein provided shall be appointed as authorized by Board Resolution or
Company Order (the "Security Registrar").
Upon surrender for transfer of any Security at the office or agency of the
Company designated for such purpose in the Borough of Manhattan, the City and
State of New York, or other location as aforesaid, the Company shall execute,
the Trustee shall authenticate and such office or agency shall deliver in the
name of the transferee or transferees a new Security or Securities of the same
series as the Security presented for a like aggregate principal amount.
All Securities presented or surrendered for exchange or registration of
transfer, as provided in this Section, shall be accompanied (if so required by
the Company or the Security Registrar) by a written instrument or instruments of
transfer, in form satisfactory to the Company or the Security Registrar, duly
executed by the registered holder or by his duly authorized attorney in writing.
(c) Except as provided in the first paragraph of Section 2.07, no service
charge shall be made for any exchange or registration of transfer of Securities,
or issue of new Securities in case of partial redemption of any series, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge in relation thereto, other than exchanges pursuant to
Section 2.06, Section 3.03(b) and Section 9.04 not involving any transfer.
(d) The Company shall neither be required (i) to issue, exchange or
register the transfer of any Securities during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption of
less than all the outstanding Securities of the same series and ending at the
close of business on the day of such mailing, nor (ii) to register the transfer
of or exchange any Securities of any series or portions thereof called for
redemption or as to which the holder thereof has exercised its right, if any, to
require the Company to repurchase such Security in whole or in part, except that
portion of such Security not required to be repurchased. The provisions of this
Section 2.05 are, with respect to any Global Security, subject to Section 2.11
hereof.
SECTION 2.06. Pending the preparation of definitive Securities of any
series, the Company may execute, and the Trustee shall authenticate and deliver,
temporary Securities (printed, lithographed or typewritten) of any authorized
denomination, and substantially in the form of the definitive Securities in lieu
of which they are issued, but with such omissions, insertions and variations as
may be appropriate for temporary Securities, all as may be determined by the
Company. Every temporary Security of any series shall be executed by the Company
and be authenticated by the Trustee upon the same conditions and in
substantially the same manner, and with like effect, as the definitive
Securities of such series in accordance with Section 2.04. Without unnecessary
delay the Company will execute and will furnish definitive Securities of such
series and thereupon any or all temporary Securities of such series may be
surrendered in exchange therefor (without charge to the holders thereof), at the
office or agency of the Company designated for the purpose, and the Trustee
shall authenticate and such office or agency shall deliver in exchange for such
temporary Securities an equal aggregate principal amount of definitive
Securities of such series, unless the Company advises the Trustee to the effect
that definitive Securities need not be executed and furnished until further
notice from the Company. Until so exchanged, the temporary Securities of such
series shall be entitled to the same benefits under this Indenture as definitive
Securities of such series authenticated and delivered hereunder.
SECTION 2.07. In case any temporary or definitive Security shall become
mutilated or be destroyed, lost or stolen, the Company (subject to the next
succeeding sentence) shall execute, and upon its request the Trustee (subject as
aforesaid) shall authenticate and deliver, a new Security of the same series
bearing a number not contemporaneously outstanding, in exchange and substitution
for the mutilated Security, or in lieu of and in substitution for the Security
so destroyed, lost or stolen. In every case the applicant for a substituted
Security shall furnish to the Company and to the Trustee such security or
indemnity as may be required by them to save each of them harmless, and, in
every case of destruction, loss or theft, the applicant shall also furnish to
the Company and to the Trustee evidence to their satisfaction of the
destruction, loss or theft of the applicant's Security and of the ownership
thereof. The Trustee may authenticate any such substituted Security and deliver
the same upon the written request or authorization of any officer of the
Company. Upon the issuance of any substituted Security, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses (including the
fees and expenses of the Trustee) connected therewith. In case any Security
which has matured or is about to mature shall become mutilated or be destroyed,
lost or stolen, the Company may, instead of issuing a substitute Security, pay
or authorize the payment of the same (without surrender thereof except in the
case of a mutilated Security) if the applicant for such payment shall furnish to
the Company and to the Trustee such security or indemnity as they may require to
save them harmless, and, in case of destruction, loss or theft, evidence to the
satisfaction of the Company and the Trustee of the destruction, loss or theft of
such Security and of the ownership thereof.
Every Security issued pursuant to the provisions of this Section in
substitution for any Security which is mutilated, destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether or
not the mutilated, destroyed, lost or stolen Security shall be found at any
time, or be enforceable by anyone, and shall be entitled to all the benefits of
this Indenture equally and proportionately with any and all other Securities of
the same series duly issued hereunder. All Securities shall be held and owned
upon the express condition that the foregoing provisions are exclusive with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities, and shall preclude (to the extent lawful) any and all other rights
or remedies, notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
SECTION 2.08. All Securities surrendered for the purpose of payment,
redemption, exchange or registration of transfer, or for credit against a
sinking fund, shall, if surrendered to the Company or any paying agent, be
delivered to the Trustee for cancellation, or, if surrendered to the Trustee,
shall be canceled by it, and no Securities shall be issued in lieu thereof
except as expressly required or permitted by any of the provisions of this
Indenture. On request of the Company, the Trustee shall deliver to the Company
canceled Securities held by the Trustee. In the absence of such request the
Trustee may dispose of canceled Securities in accordance with its standard
procedures. If the Company shall otherwise acquire any of the Securities,
however, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Securities unless and until the same are
delivered to the Trustee for cancellation.
SECTION 2.09. Nothing in this Indenture or in the Securities, express or
implied, shall give or be construed to give to any person, firm or corporation,
other than the parties hereto and the holders of the Securities, any legal or
equitable right, remedy or claim under or in respect of this Indenture, or under
any covenant, condition or provision herein contained; all such covenants,
conditions and provisions being for the sole benefit of the parties hereto and
of the holders of the Securities.
SECTION 2.10. So long as any of the Securities of any series remain
outstanding there may be an Authenticating Agent for any or all such series of
Securities which the Trustee shall have the right to appoint. Said
Authenticating Agent shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon exchange, transfer or partial
redemption thereof, and Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. All references in this Indenture to
the authentication of Securities by the Trustee shall be deemed to include
authentication by an Authenticating Agent for such series except for
authentication upon original issuance or pursuant to Section 2.07 hereof. Each
Authenticating Agent shall be acceptable to the Company and shall be a
corporation which has a combined capital and surplus, as most recently reported
or determined by it, sufficient under the laws of any jurisdiction under which
it is organized or in which it is doing business to conduct a trust business,
and which is otherwise authorized under such laws to conduct such business and
is subject to supervision or examination by Federal or State authorities. If at
any time any Authenticating Agent shall cease to be eligible in accordance with
these provisions it shall resign immediately.
Any Authenticating Agent may at any time resign by giving written notice
of resignation to the Trustee and to the Company. The Trustee may at any time
(and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint an
eligible successor Authenticating Agent acceptable to the Company. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder as if
originally named as an Authenticating Agent pursuant hereto. The Company agrees
to pay to each Authenticating Agent from time to time reasonable compensation
for its services under this Section.
SECTION 2.11. (a) If the Company shall establish pursuant to Section 2.01
that the Securities of a particular series are to be issued as a Global
Security, then the Company shall execute and the Trustee shall, in accordance
with Section 2.04, authenticate and deliver, a Global Security which (i) shall
represent, and shall be denominated in an amount equal to the aggregate
principal amount of, all of the Outstanding Securities of such series, (ii)
shall be registered in the name of the Depository or its nominee, (iii) shall be
authenticated and delivered by the Trustee to the Depository or pursuant to the
Depository's instruction and (iv) shall bear a legend substantially to the
following effect: "Except as otherwise provided in Section 2.11 of the
Indenture, this Security may be transferred, in whole but not in part, only to
another nominee of the Depository or to a successor Depository or to a nominee
of such successor Depository."
(b) Notwithstanding the provisions of Section 2.05, the Global Security of
a series may be transferred, in whole but not in part and in the manner provided
in Section 2.05, only to another nominee of the Depository for such series, or
to a successor Depository for such series selected or approved by the Company or
to a nominee of such successor Depository.
(c) If at any time the Depository for a series of Securities notifies the
Company that it is unwilling or unable to continue as Depository for such series
or if at any time the Depository for such series shall no longer be registered
or in good standing under the Exchange Act, or other applicable statute or
regulation and a successor Depository for such series is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such condition, as the case may be, this Section 2.11 shall no longer be
applicable to the Securities of such series and the Company will execute, and
subject to Section 2.05, the Trustee will authenticate and deliver Securities of
such series in definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Security of such series in exchange for such Global
Security. In addition, the Company may at any time determine that the Securities
of any series shall no longer be represented by a Global Security and that the
provisions of this Section 2.11 shall no longer apply to the Securities of such
series. In such event the Company will execute, and subject to Section 2.05, the
Trustee, upon receipt of an Officers' Certificate evidencing such determination
by the Company, will authenticate and deliver Securities of such series in
definitive registered form without coupons, in authorized denominations, and in
an aggregate principal amount equal to the principal amount of the Global
Security of such series in exchange for such Global Security. Upon the exchange
of the Global Security for such Securities in definitive registered form without
coupons, in authorized denominations, the Global Security shall be canceled by
the Trustee. Such Securities in definitive registered form issued in exchange
for the Global Security pursuant to this Section 2.11(c) shall be registered in
such names and in such authorized denominations as the Depository, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Security Registrar. The Trustee shall deliver such Securities to
the Depository for delivery to the persons in whose names such Securities are so
registered.
SECTION 2.12. In the case of the Securities of any series denominated in
any currency other than Dollars or in a composite currency (the "Required
Currency"), except as otherwise specified with respect to such Securities as
contemplated by Section 2.01, the obligation of the Company to make any payment
of the principal thereof, or the premium or interest thereon, shall not be
discharged or satisfied by any tender by the Company, or recovery by the
Trustee, in any currency other than the Required Currency, except to the extent
that such tender or recovery shall result in the Trustee timely holding the full
amount of the Required Currency then due and payable. If any such tender or
recovery is in a currency other than the Required Currency, the Trustee may take
such actions as it considers appropriate to exchange such currency for the
Required Currency. The costs and risks of any such exchange, including, without
limitation, the risks of delay and exchange rate fluctuation, shall be borne by
the Company, the Company shall remain fully liable for any shortfall or
delinquency in the full amount of Required Currency then due and payable, and in
no circumstances shall the Trustee be liable therefor except in the case of its
negligence or willful misconduct.
SECTION 2.13. The Company in issuing Securities may use "CUSIP" numbers
(if then generally in use) and, if so used, the Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to holders of Securities;
provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or contained in
any notice of redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company shall
promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE THREE
REDEMPTION OF SECURITIES AND SINKING FUND PROVISIONS
SECTION 3.01. The Company may redeem the Securities of any series issued
hereunder on and after the dates and in accordance with the terms established
for such series pursuant to Section 2.01 hereof.
SECTION 3.02. (a) In case the Company shall desire to exercise such right
to redeem all or, as the case may be, a portion of the Securities of any series
in accordance with the right reserved so to do, it shall give notice of such
redemption to holders of the Securities of such series to be redeemed by
mailing, first class postage prepaid, a notice of such redemption not less than
30 days and not more than 60 days before the date fixed for redemption of that
series to such holders at their last addresses as they shall appear upon the
Security Register. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
registered holder receives the notice. In any case, failure duly to give such
notice to the holder of any Security of any series designated for redemption in
whole or in part, or any defect in the notice, shall not affect the validity of
the proceedings for the redemption of any other Securities of such series or any
other series. In the case of any redemption of Securities prior to the
expiration of any restriction on such redemption or subject to compliance with
certain conditions provided in the terms of such Securities or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with any such restriction or condition.
Unless otherwise so provided as to a particular series of Securities, if
at the time of mailing of any notice of redemption the Company shall not have
deposited with the paying agent an amount in cash sufficient to redeem all of
the Securities called for redemption, including accrued interest to the date
fixed for redemption, such notice shall state that it is subject to the receipt
of redemption moneys by the paying agent on or before the date fixed for
redemption (unless such redemption is mandatory) and such notice shall be of no
effect unless such moneys are so received on or before such date.
Each such notice of redemption shall identify the Securities to be
redeemed (including CUSIP numbers, if any), specify the date fixed for
redemption and the redemption price at which Securities of that series are to be
redeemed, and shall state that payment of the redemption price of such
Securities to be redeemed will be made at the office or agency of the Company,
upon presentation and surrender of such Securities, that interest accrued to the
date fixed for redemption will be paid as specified in said notice, that from
and after said date interest will cease to accrue and that the redemption is for
a sinking fund, if such is the case. If less than all the Securities of a series
are to be redeemed, the notice to the holders of Securities of that series to be
redeemed in whole or in part shall specify the particular Securities to be so
redeemed. In case any Security is to be redeemed in part only, the notice which
relates to such Security shall state the portion of the principal amount thereof
to be redeemed, and shall state that on and after the redemption date, upon
surrender of such Security, a new Security or Securities of such series in
principal amount equal to the unredeemed portion thereof will be issued.
(b) If less than all the Securities of a series are to be redeemed, the
Company shall give the Trustee at least 45 days' notice in advance of the date
fixed for redemption (unless the Trustee shall agree to a shorter period) as to
the aggregate principal amount of Securities of the series to be redeemed, and
thereupon the Trustee shall select, by lot or in such other manner as it shall
deem appropriate and fair in its discretion and which may provide for the
selection of a portion or portions (equal to $1,000 or any integral multiple
thereof, subject to Sections 2.01(xi) and (xiv)) of the principal amount of such
Securities of a denomination larger than $1,000 (subject as aforesaid), the
Securities to be redeemed and shall thereafter promptly notify the Company in
writing of the numbers of the Securities to be redeemed, in whole or in part.
The Company may, if and whenever it shall so elect, by delivery of
instructions signed on its behalf by an Authorized Officer, instruct the Trustee
or any paying agent to call all or any part of the Securities of a particular
series for redemption and to give notice of redemption in the manner set forth
in this Section, such notice to be in the name of the Company or its own name as
the Trustee or such paying agent may deem advisable. In any case in which notice
of redemption is to be given by the Trustee or any such paying agent, the
Company shall deliver or cause to be delivered to, or permit to remain with, the
Trustee or such paying agent, as the case may be, such Security Register,
transfer books or other records, or suitable copies or extracts therefrom,
sufficient to enable the Trustee or such paying agent to give any notice by mail
that may be required under the provisions of this Section.
SECTION 3.03. (a) If the giving of notice of redemption shall have been
completed as above provided, the Securities or portions of Securities of the
series to be redeemed specified in such notice shall become due and payable on
the date and at the place stated in such notice at the applicable redemption
price, together with, subject to the Company Order or supplemental indenture
hereto establishing the terms of such series of Securities, interest accrued to
the date fixed for redemption and interest on such Securities or portions of
Securities shall cease to accrue on and after the date fixed for redemption,
unless the Company shall default in the payment of such redemption price and
accrued interest with respect to any such Security or portion thereof. On
presentation and surrender of such Securities on or after the date fixed for
redemption at the place of payment specified in the notice, said Securities
shall be paid and redeemed at the applicable redemption price for such series,
together with, subject to the Company Order or supplemental indenture hereto
establishing the terms of such series of Securities, interest accrued thereon to
the date fixed for redemption.
(b) Upon presentation of any Security of such series which is to be
redeemed in part only, the Company shall execute and the Trustee shall
authenticate and the office or agency where the Security is presented shall
deliver to the holder thereof, at the expense of the Company, a new Security or
Securities of the same series, of authorized denominations in principal amount
equal to the unredeemed portion of the Security so presented.
SECTION 3.04. The provisions of this Section 3.04 and Sections 3.05 and
3.06 shall be applicable to any sinking fund for the retirement of Securities of
a series, except as otherwise specified as contemplated by Section 2.01 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms
of Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment". If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 3.05. Each sinking fund payment shall be applied to the redemption of
Securities of such series as provided for by the terms of Securities of such
series.
SECTION 3.05. The Company (i) may deliver Outstanding Securities of a
series (other than any previously called for redemption) and (ii) may apply as a
credit Securities of a series which have been redeemed either at the election of
the Company pursuant to the terms of such Securities or through the application
of permitted optional sinking fund payments pursuant to the terms of such
Securities, in each case in satisfaction of all or any part of any mandatory
sinking fund payment; provided that such Securities have not been previously so
credited. Such Securities shall be received and credited for such purpose by the
Trustee at the redemption price specified in such Securities for redemption
through operation of the mandatory sinking fund and the amount of such mandatory
sinking fund payment shall be reduced accordingly.
SECTION 3.06. Not less than 45 days prior to each sinking fund payment
date for any series of Securities, the Company will deliver to the Trustee an
Officers' Certificate specifying the amount of the next ensuing sinking fund
payment for that series pursuant to the terms of that series, the portion
thereof, if any, which is to be satisfied by delivering and crediting Securities
of that series pursuant to Section 3.05 and the basis for such credit and will,
together with such Officers' Certificate, deliver to the Trustee any Securities
to be so delivered. Not less than 30 days before each such sinking fund payment
date the Trustee shall select the Securities to be redeemed upon such sinking
fund payment date in the manner specified in Section 3.02 and cause notice of
the redemption thereof to be given in the name of and at the expense of the
Company in the manner provided in Section 3.02, except that the notice of
redemption shall also state that the Securities of such series are being
redeemed by operation of the sinking fund and the sinking fund payment date.
Such notice having been duly given, the redemption of such Securities shall be
made upon the terms and in the manner stated in Section 3.03.
ARTICLE FOUR
PARTICULAR COVENANTS OF THE COMPANY
The Company covenants and agrees for each series of the Securities as
follows:
SECTION 4.01. The Company will duly and punctually pay or cause to be paid
the principal of (and premium, if any) and interest on the Securities of that
series at the time and place and in the manner provided herein and established
with respect to such Securities.
SECTION 4.02. So long as any series of the Securities remain outstanding,
the Company agrees to maintain an office or agency with respect to each such
series, which shall be in the Borough of Manhattan, the City and State of New
York or at such other location or locations as may be designated as provided in
this Section 4.02, where (i) Securities of that series may be presented for
payment, (ii) Securities of that series may be presented as hereinabove
authorized for registration of transfer and exchange, and (iii) notices and
demands to or upon the Company in respect of the Securities of that series and
this Indenture may be given or served, such designation to continue with respect
to such office or agency until the Company shall, by written notice signed by an
Authorized Officer and delivered to the Trustee, designate some other office or
agency for such purposes or any of them. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, notices and demands may be
made or served at the Corporate Trust Office of the Trustee, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
notices and demands. The Trustee will initially act as paying agent for the
Securities.
The Company may also from time to time, by written notice signed by an
Authorized Officer and delivered to the Trustee, designate one or more other
offices or agencies for the foregoing purposes within or outside the Borough of
Manhattan, City of New York, and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligations to maintain an office or
agency in the Borough of Manhattan, City of New York for the foregoing purposes.
The Company will give prompt written notice to the Trustee of any change in the
location of any such other office or agency.
SECTION 4.03. (a) If the Company shall appoint one or more paying agents
for all or any series of the Securities, other than the Trustee, the Company
will cause each such paying agent to execute and deliver to the Trustee an
instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section:
(1) that it will hold all sums held by it as such agent for the
payment of the principal of (and premium, if any) or interest on the
Securities of that series (whether such sums have been paid to it by the
Company or by any other obligor of such Securities) in trust for the
benefit of the persons entitled thereto;
(2) that it will give the Trustee prompt notice of any failure by the
Company (or by any other obligor of such Securities) to make any payment
of the principal of (and premium, if any) or interest on the Securities of
that series when the same shall be due and payable;
(3) that it will, at any time during the continuance of any failure
referred to in the preceding paragraph (a)(2) above, upon the written
request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such paying agent; and
(4) that it will perform all other duties of paying agent as set
forth in this Indenture.
(b) If the Company shall act as its own paying agent with respect to any
series of the Securities, it will on or before each due date of the principal of
(and premium, if any) or interest on Securities of that series, set aside,
segregate and hold in trust for the benefit of the persons entitled thereto a
sum sufficient to pay such principal (and premium, if any) or interest so
becoming due on Securities of that series until such sums shall be paid to such
persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of such action, or any failure (by it or any other obligor on such
Securities) to take such action. Whenever the Company shall have one or more
paying agents for any series of Securities, it will, prior to each due date of
the principal of (and premium, if any) or interest on any Securities of that
series, deposit with the paying agent a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due, such sum to be held in trust for
the benefit of the persons entitled to such principal, premium or interest, and
(unless such paying agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
(c) Anything in this Section to the contrary notwithstanding, (i) the
agreement to hold sums in trust as provided in this Section is subject to the
provisions of Section 11.04, and (ii) the Company may at any time, for the
purpose of obtaining the satisfaction and discharge of this Indenture or for any
other purpose, pay, or direct any paying agent to pay, to the Trustee all sums
held in trust by the Company or such paying agent, such sums to be held by the
Trustee upon the same terms and conditions as those upon which such sums were
held by the Company or such paying agent; and, upon such payment by any paying
agent to the Trustee, such paying agent shall be released from all further
liability with respect to such money.
SECTION 4.04. The Company, whenever necessary to avoid or fill a vacancy
in the office of Trustee, will appoint, in the manner provided in Section 7.10,
a Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 4.05. The Company will not, while any of the Securities remain
outstanding, consolidate with, or merge into, or merge into itself, or sell or
convey all or substantially all of its property to any other Person unless the
provisions of Article Ten hereof are complied with.
SECTION 4.06. In the event that the Company issues a Discount Security,
the Company shall file with the Trustee at or prior to the time of the
authentication of such Discount Security a written notice, in such form as
mutually agreed upon by the Company and the Trustee, specifying the amount of
original issue discount that will be accrued on such Discount Security in each
calendar year from the date of issuance to the maturity thereof.
ARTICLE FIVE
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE
SECTION 5.01. The Company will furnish or cause to be furnished to the
Trustee (a) on each regular record date (as defined in Section 2.03) for the
Securities of each Tranche of a series a list, in such form as the Trustee may
reasonably require, of the names and addresses of the holders of such Tranche of
Securities as of such regular record date, provided, that the Company shall not
be obligated to furnish or cause to be furnished such list at any time that the
list shall not differ in any respect from the most recent list furnished to the
Trustee by the Company and (b) at such other times as the Trustee may request in
writing within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior to the
time such list is furnished; provided, however, no such list need be furnished
for any series for which the Trustee shall be the Security Registrar.
SECTION 5.02. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Securities contained in the most recent list furnished to it as
provided in Section 5.01 and as to the names and addresses of holders of
Securities received by the Trustee in its capacity as Security Registrar (if
acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 5.01 upon receipt of a new list so furnished.
(c) In case three or more holders of Securities of a series (hereinafter
referred to as "applicants") apply in writing to the Trustee, and furnish to the
Trustee reasonable proof that each such applicant has owned a Security for a
period of at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other holders
of Securities of such series or holders of all Securities with respect to their
rights under this Indenture or under such Securities, and is accompanied by a
copy of the form of proxy or other communication which such applicants propose
to transmit, then the Trustee shall, within five Business Days after the receipt
of such application, at its election, either:
(1) afford to such applicants access to the information preserved at
the time by the Trustee in accordance with the provisions of subsection
(a) of this Section 5.02; or
(2) inform such applicants as to the approximate number of holders of
Securities of such series or of all Securities, as the case may be, whose
names and addresses appear in the information preserved at the time by the
Trustee, in accordance with the provisions of subsection (a) of this
Section 5.02, and as to the approximate cost of mailing to such
Securityholders the form of proxy or other communication, if any,
specified in such application.
(d) If the Trustee shall elect not to afford such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to each holder of such series or of all Securities, as the case
may be, whose name and address appears in the information preserved at the time
by the Trustee in accordance with the provisions of subsection (a) of this
Section 5.02, a copy of the form of proxy or other communication which is
specified in such request, with reasonable promptness after a tender to the
Trustee of the material to be mailed and of payment, or provision for the
payment, of the reasonable expenses of mailing, unless within five days after
such tender, the Trustee shall mail to such applicants and file with the
Commission, together with a copy of the material to be mailed, a written
statement to the effect that, in the opinion of the Trustee, such mailing would
be contrary to the best interests of the holders of Securities of such series or
of all Securities, as the case may be, or would be in violation of applicable
law. Such written statement shall specify the basis of such opinion. If the
Commission, after opportunity for a hearing upon the objections specified in the
written statement so filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for hearing,
that all the objections so sustained have been met and shall enter an order so
declaring, the Trustee shall mail copies of such material to all such
Securityholders with reasonable promptness after the entry of such order and the
renewal of such tender; otherwise, the Trustee shall be relieved of any
obligation or duty to such applicants respecting their application.
(e) Each and every holder of the Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any paying agent nor any Security Registrar shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the holders of Securities in accordance with the provisions of
subsection (c) of this Section, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under said subsection
(c).
SECTION 5.03. (a) The Company covenants and agrees to file with the
Trustee, within 30 days after the Company is required to file the same with the
Commission, a copy of the annual reports and of the information, documents and
other reports (or a copy of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) which the
Company may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then to
file with the Trustee and, unless the Commission shall not accept such
information, documents or reports, the Commission, in accordance with the rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act, in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from time to
time by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or reputable over-night delivery service which provides for
evidence of receipt, to the Securityholders, as their names and addresses appear
upon the Security Register, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required to be
filed by the Company pursuant to subsections (a) and (b) of this Section as may
be required by rules and regulations prescribed from time to time by the
Commission.
(d) The Company covenants and agrees to furnish to the Trustee, on or
before May 15 in each calendar year in which any of the Securities are
outstanding, or on or before such other day in each calendar year as the Company
and the Trustee may from time to time agree upon, a certificate from the
principal executive officer, principal financial officer or principal accounting
officer, as to his or her knowledge of the Company's compliance with all
conditions and covenants under this Indenture. For purposes of this subsection
(d), such compliance shall be determined without regard to any period of grace
or requirement of notice provided under this Indenture.
(e) Delivery of such information, documents or reports to the Trustee
pursuant to Section 5.03(a) or 5.03(b) is for informational purposes only and
the Trustee's receipt thereof shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including, in the case of Section 5.03(b), the Company's compliance
with any of the covenants hereunder.
SECTION 5.04. (a) On or before July 15 in each year in which any of the
Securities are outstanding, the Trustee shall transmit by mail, first class
postage prepaid, to the Securityholders, as their names and addresses appear
upon the Security Register, a brief report dated as of the preceding May 15,
with respect to any of the following events which may have occurred within the
previous twelve months (but if no such event has occurred within such period no
report need be transmitted):
(1) any change to its eligibility under Section 7.09, and its
qualifications under Section 310 of the Trust Indenture Act;
(2) the creation of or any material change to a relationship
specified in paragraphs (1) through (10) of Section 310(b) of the Trust
Indenture Act;
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made
by the Trustee (as such) which remain unpaid on the date of such report,
and for the reimbursement of which it claims or may claim a lien or
charge, prior to that of the Securities, on any property or funds held or
collected by it as trustee if such advances so remaining unpaid aggregate
more than 1/2 of 1% of the principal amount of the Securities outstanding
on the date of such report;
(4) any change to the amount, interest rate, and maturity date of all
other indebtedness owing by the Company, or by any other obligor on the
Securities, to the Trustee in its individual capacity, on the date of such
report, with a brief description of any property held as collateral
security therefor, except any indebtedness based upon a creditor
relationship arising in any manner described in paragraphs (2), (3), (4)
or (6) of Section 311(b) of the Trust Indenture Act;
(5) any change to the property and funds, if any, physically in the
possession of the Trustee as such on the date of such report;
(6) any release, or release and substitution, of property subject to
the lien, if any, of this Indenture (and the consideration therefor, if
any) which it has not previously reported;
(7) any additional issue of Securities which the Trustee has not
previously reported; and
(8) any action taken by the Trustee in the performance of its duties
under this Indenture which it has not previously reported and which in its
opinion materially affects the Securities or the Securities of any series,
except any action in respect of a default, notice of which has been or is
to be withheld by it in accordance with the provisions of Section 6.07.
(b) The Trustee shall transmit by mail, first class postage prepaid, to
the Securityholders, as their names and addresses appear upon the Security
Register, a brief report with respect to the character and amount of any
advances (and if the Trustee elects so to state, the circumstances surrounding
the making thereof) made by the Trustee as such since the date of the last
report transmitted pursuant to the provisions of subsection (a) of this Section
(or if no such report has yet been so transmitted, since the date of execution
of this Indenture), for the reimbursement of which it claims or may claim a lien
or charge prior to that of the Securities of any series on property or funds
held or collected by it as Trustee, and which it has not previously reported
pursuant to this subsection if such advances remaining unpaid at any time
aggregate more than 10% of the principal amount of Securities of such series
outstanding at such time, such report to be transmitted within 90 days after
such time.
(c) A copy of each such report shall, at the time of such transmission to
Securityholders, be filed by the Trustee with the Company, with each stock
exchange upon which any Securities are listed (if so listed) and also with the
Commission. The Company agrees to notify the Trustee when any Securities become
listed on any stock exchange.
ARTICLE SIX
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 6.01. (a) Whenever used herein with respect to Securities of a
particular series, "Event of Default" means any one or more of the following
events which has occurred and is continuing:
(1) default in the payment of any installment of interest upon any of
the Securities of that series, as and when the same shall become due and
payable, and continuance of such default for a period of 30 days;
(2) default in the payment of the principal of (or premium, if any,
on) any of the Securities of that series as and when the same shall become
due and payable whether at maturity, upon redemption, pursuant to any
sinking fund obligation, by declaration or otherwise, and continuance of
such default for a period of 3 Business Days;
(3) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company with
respect to that series contained in such Securities or otherwise
established with respect to that series of Securities pursuant to Section
2.01 hereof or contained in this Indenture (other than a covenant or
agreement which has been expressly included in this Indenture solely for
the benefit of one or more series of Securities other than such series)
for a period of 90 days after the date on which written notice of such
failure, requiring the same to be remedied and stating that such notice is
a "Notice of Default" hereunder, shall have been given to the Company by
the Trustee, by registered or certified mail, or to the Company and the
Trustee by the holders of at least 33% in principal amount of the
Securities of that series at the time outstanding;
(4) a decree or order by a court having jurisdiction in the premises
shall have been entered adjudging the Company as bankrupt or insolvent, or
approving as properly filed a petition seeking liquidation or
reorganization of the Company under the Federal Bankruptcy Code or any
other similar applicable Federal or State law, and such decree or order
shall have continued unvacated and unstayed for a period of 90 consecutive
days; or an involuntary case shall be commenced under such Code in respect
of the Company and shall continue undismissed for a period of 90
consecutive days or an order for relief in such case shall have been
entered; or a decree or order of a court having jurisdiction in the
premises shall have been entered for the appointment on the ground of
insolvency or bankruptcy of a receiver or custodian or liquidator or
trustee or assignee in bankruptcy or insolvency of the Company or of its
property, or for the winding up or liquidation of its affairs, and such
decree or order shall have remained in force unvacated and unstayed for a
period of 90 consecutive days;
(5) the Company shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer or consent
seeking liquidation or reorganization under the Federal Bankruptcy Code or
any other similar applicable Federal or State law, or shall consent to the
filing of any such petition, or shall consent to the appointment on the
ground of insolvency or bankruptcy of a receiver or custodian or
liquidator or trustee or assignee in bankruptcy or insolvency of it or of
its property, or shall make an assignment for the benefit of creditors; or
(6) the occurrence of any other Event of Default with respect to
Securities of such series, as contemplated by Section 2.01 hereof.
(b) The Company shall file with the Trustee written notice of the
occurrence of any Event of Default within five Business Days of the Company's
becoming aware of any such Event of Default. In each and every such case, unless
the principal of all the Securities of that series shall have already become due
and payable, either the Trustee or the holders of not less than 33% in aggregate
principal amount of the Securities of that series then outstanding hereunder, by
notice in writing to the Company (and to the Trustee if given by such
Securityholders), may declare the principal (or, if any of such Securities are
Discount Securities, such portion of the principal amount thereof as may be
specified by their terms as contemplated by Section 2.01) of all the Securities
of that series to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and payable, anything
contained in this Indenture or in the Securities of that series or established
with respect to that series pursuant to Section 2.01 hereof to the contrary
notwithstanding.
(c) Section 6.01(b), however, is subject to the condition that if, at any
time after the principal of the Securities of that series shall have been so
declared due and payable, and before any judgment or decree for the payment of
the monies due shall have been obtained or entered as hereinafter provided, the
Company shall pay or shall deposit with the Trustee a sum sufficient to pay all
matured installments of interest upon all the Securities of that series and the
principal of (and premium, if any, on) any and all Securities of that series
which shall have become due otherwise than by acceleration (with interest upon
such principal and premium, if any, and, to the extent that such payment is
enforceable under applicable law, upon overdue installments of interest, at the
rate per annum expressed in the Securities of that series to the date of such
payment or deposit) and the amount payable to the Trustee under Section 7.06,
and any and all defaults under the Indenture, other than the nonpayment of
principal on Securities of that series which shall not have become due by their
terms, shall have been remedied or waived as provided in Section 6.06, then and
in every such case the holders of a majority in aggregate principal amount of
the Securities of that series then outstanding, by written notice to the Company
and to the Trustee, may rescind and annul such declaration and its consequences
with respect to that series of Securities; but no such rescission and annulment
shall extend to or shall affect any subsequent default, or shall impair any
right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Securities of that series under this Indenture and such proceedings
shall have been discontinued or abandoned because of such rescission or
annulment or for any other reason or shall have been determined adversely to the
Trustee, then and in every such case the Company and the Trustee shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company and the Trustee shall continue as
though no such proceedings had been taken.
SECTION 6.02. (a) The Company covenants that in case an Event of Default
described in subsection 6.01(a)(1) or (a)(2) shall have occurred and be
continuing, upon demand of the Trustee, the Company will pay to the Trustee, for
the benefit of the holders of the Securities of that series, the whole amount
that then shall have become due and payable on all such Securities for principal
(and premium, if any) or interest, or both, as the case may be, with interest
upon the overdue principal (and premium, if any) and (to the extent that payment
of such interest is enforceable under applicable law and without duplication of
any other amounts paid by the Company in respect thereof) upon overdue
installments of interest at the rate per annum expressed in the Securities of
that series; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, and the amount payable
to the Trustee under Section 7.06.
(b) In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or other obligor upon the
Securities of that series and collect in the manner provided by law out of the
property of the Company or other obligor upon the Securities of that series
wherever situated the monies adjudged or decreed to be payable.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or other judicial
proceedings affecting the Company, any other obligor on such Securities, or the
creditors or property of either, the Trustee shall have power to intervene in
such proceedings and take any action therein that may be permitted by the court
and shall (except as may be otherwise provided by law) be entitled to file such
proofs of claim and other papers and documents as may be necessary or advisable
in order to have the claims of the Trustee and of the holders of Securities of
such series allowed for the entire amount due and payable by the Company or such
other obligor under this Indenture at the date of institution of such
proceedings and for any additional amount which may become due and payable by
the Company or such other obligor after such date, and to collect and receive
any monies or other property payable or deliverable on any such claim, and to
distribute the same after the deduction of the amount payable to the Trustee
under Section 7.06; and any receiver, assignee or trustee in bankruptcy or
reorganization is hereby authorized by each of the holders of Securities of such
series to make such payments to the Trustee, and, in the event that the Trustee
shall consent to the making of such payments directly to such Securityholders,
to pay to the Trustee any amount due it under Section 7.06.
(d) All rights of action and of asserting claims under this Indenture, or
under any of the terms established with respect to Securities of that series,
may be enforced by the Trustee without the possession of any of such Securities,
or the production thereof at any trial or other proceeding relative thereto, and
any such suit or proceeding instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment shall,
after provision for payment to the Trustee of any amounts due under Section
7.06, be for the ratable benefit of the holders of the Securities of such
series.
In case of an Event of Default hereunder, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in the Indenture or in aid of the exercise
of any power granted in this Indenture, or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities of that series or the rights of any holder thereof or to authorize
the Trustee to vote in respect of the claim of any Securityholder in any such
proceeding.
SECTION 6.03. Any monies collected by the Trustee pursuant to Section 6.02
with respect to a particular series of Securities shall be applied in the order
following, at the date or dates fixed by the Trustee and, in case of the
distribution of such monies on account of principal (or premium, if any) or
interest, upon presentation of the several Securities of that series, and
stamping thereon the payment, if only partially paid, and upon surrender thereof
if fully paid:
FIRST: To the payment of costs and expenses of
collection and of all amounts payable to the Trustee under
Section 7.06;
SECOND: To the payment of the amounts then due and unpaid upon
Securities of such series for principal (and premium, if any) and
interest, in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal
(and premium, if any) and interest, respectively; and
THIRD: To the Company.
SECTION 6.04. No holder of any Security of any series shall have any right
by virtue or by availing of any provision of this Indenture to institute any
suit, action or proceeding in equity or at law upon or under or with respect to
this Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless such holder previously shall have given to the Trustee
written notice of an Event of Default and of the continuance thereof with
respect to Securities of such series specifying such Event of Default, as
hereinbefore provided, and unless also the holders of not less than 33% in
aggregate principal amount of the Securities of such series then outstanding
shall have made written request upon the Trustee to institute such action, suit
or proceeding in its own name as trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
failed to institute any such action, suit or proceeding; it being understood and
intended, and being expressly covenanted by the taker and holder of every
Security of such series with every other such taker and holder and the Trustee,
that no one or more holders of Securities of such series shall have any right in
any manner whatsoever by virtue or by availing of any provision of this
Indenture to affect, disturb or prejudice the rights of the holders of any other
of such Securities, or to obtain or seek to obtain priority over or preference
to any other such holder, or to enforce any right under this Indenture, except
in the manner herein provided and for the equal, ratable and common benefit of
all holders of Securities of such series. For the protection and enforcement of
the provisions of this Section, each and every Securityholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.
Notwithstanding any other provisions of this Indenture, however, the right
of any holder of any Security to receive payment of the principal of (and
premium, if any) and interest on such Security, as therein provided, on or after
the respective due dates expressed in such Security (or in the case of
redemption, on the redemption date), or to institute suit for the enforcement of
any such payment on or after such respective dates or redemption date, shall not
be impaired or affected without the consent of such holder.
SECTION 6.05. (a) All powers and remedies given by this Article to the
Trustee or to the Securityholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any others thereof or of any other powers
and remedies available to the Trustee or the holders of the Securities, by
judicial proceedings or otherwise, to enforce the performance or observance of
the covenants and agreements contained in this Indenture or otherwise
established with respect to such Securities.
(b) No delay or omission of the Trustee or of any holder of any of the
Securities to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 6.04, every power and remedy
given by this Article or by law to the Trustee or to the Securityholders may be
exercised from time to time, and as often as shall be deemed expedient, by the
Trustee or by the Securityholders.
SECTION 6.06. The holders of a majority in aggregate principal amount of
the Securities of any series at the time outstanding, determined in accordance
with Section 8.04, shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee with respect to such series;
provided, however, that such direction shall not be in conflict with any rule of
law or with this Indenture or unduly prejudicial to the rights of holders of
Securities of any other series at the time outstanding determined in accordance
with Section 8.04 not parties thereto. Subject to the provisions of Section
7.01, the Trustee shall have the right to decline to follow any such direction
if the Trustee in good faith shall, by a Responsible Officer or Officers of the
Trustee, determine that the proceeding so directed might involve the Trustee in
personal liability. The holders of a majority in aggregate principal amount of
the Securities of any series at the time outstanding affected thereby,
determined in accordance with Section 8.04, may on behalf of the holders of all
of the Securities of such series waive any past default in the performance of
any of the covenants contained herein or established pursuant to Section 2.01
with respect to such series and its consequences, except a default in the
payment of the principal of, or premium, if any, or interest on, any of the
Securities of that series as and when the same shall become due by the terms of
such Securities otherwise than by acceleration (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal otherwise than by acceleration and any premium has been deposited with
the Trustee (in accordance with Section 6.01(c))) or a call for redemption of
Securities of that series. Upon any such waiver, the default covered thereby
shall be deemed to be cured for all purposes of this Indenture and the Company,
the Trustee and the holders of the Securities of such series shall be restored
to their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other default or impair any right consequent
thereon.
SECTION 6.07. The Trustee shall, within 90 days after the occurrence of a
default with respect to a particular series, transmit by mail, first class
postage prepaid, to the holders of Securities of that series, as their names and
addresses appear upon the Security Register, notice of all defaults with respect
to that series known to the Trustee, unless such defaults shall have been cured
or waived before the giving of such notice (the term "defaults" for the purposes
of this Section being hereby defined to be the events specified in subsections
(1), (2), (3), (4), (5), (6) and (7) of Section 6.01(a), not including any
periods of grace provided for therein and irrespective of the giving of notice
provided for by subsection (4) of Section 6.01(a)); provided, that, except in
the case of default in the payment of the principal of (or premium, if any) or
interest on any of the Securities of that series or in the payment of any
sinking or analogous fund installment established with respect to that series,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee, or a trust committee of directors
and/or Responsible Officers, of the Trustee in good faith determine that the
withholding of such notice is in the interests of the holders of Securities of
that series; provided further, that in the case of any default of the character
specified in Section 6.01(a)(4) with respect to Securities of such series no
such notice to the holders of the Securities of that series shall be given until
at least 30 days after the occurrence thereof.
The Trustee shall not be deemed to have knowledge of any default, except
(i) a default under subsection (a)(1), (a)(2) or (a)(3) of Section 6.01 as long
as the Trustee is acting as paying agent for such series of Securities or (ii)
any default as to which the Trustee shall have received written notice or a
Responsible Officer charged with the administration of this Indenture shall have
obtained written notice.
SECTION 6.08. All parties to this Indenture agree, and each holder of any
Securities by his or her acceptance thereof shall be deemed to have agreed, that
any court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Securityholder, or group of
Securityholders, holding more than 10% in aggregate principal amount of the
outstanding Securities of any series, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Security of such series, on or after the
respective due dates expressed in such Security or established pursuant to this
Indenture.
ARTICLE SEVEN
CONCERNING THE TRUSTEE
SECTION 7.01. (a) The Trustee, prior to the occurrence of an Event of
Default with respect to Securities of a series and after the curing of all
Events of Default with respect to Securities of that series which may have
occurred, shall undertake to perform with respect to Securities of such series
such duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee. In case an Event of Default with respect to
Securities of a series has occurred (which has not been cured or waived), the
Trustee shall exercise with respect to Securities of that series such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(1) prior to the occurrence of an Event of Default with respect to
Securities of a series and after the curing or waiving of all such Events
of Default with respect to that series which may have occurred:
(i) the duties and obligations of the Trustee shall with respect
to Securities of such series be determined solely by the express
provisions of this Indenture, and the Trustee shall not be liable
with respect to Securities of such series except for the performance
of such duties and obligations as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may with respect to Securities of such series conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture; but in the case of any such certificates or opinions which
by any provision hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein);
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the
Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the holders of not less than a majority in principal amount
of the Securities of any series at the time outstanding relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon
the Trustee under this Indenture with respect to the Securities of that
series; and
(4) none of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur or risk
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Trustee reasonably
believes that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Indenture or adequate indemnity
against such risk is not reasonably assured to it.
(c) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section
7.01.
SECTION 7.02. Except as otherwise provided in Section 7.01:
(a) The Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, demand,
approval, bond, security or other paper or document believed by it (i) to be
genuine and (ii) to have been signed or presented by the proper party or
parties;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an Officers'
Certificate (unless other evidence in respect thereof is specifically prescribed
herein);
(c) The Trustee may consult with counsel of its selection and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted hereunder in good faith and in reliance thereon;
(d) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request, order or direction of
any of the Securityholders, pursuant to the provisions of this Indenture, unless
such Securityholders shall have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which may be
incurred therein or thereby; nothing herein contained shall, however, relieve
the Trustee of the obligation, upon the occurrence of an Event of Default with
respect to a series of the Securities (which has not been cured or waived) to
exercise with respect to Securities of that series such of the rights and powers
vested in it by this Indenture, and to use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs;
(e) The Trustee shall not be liable for any action taken or omitted to be
taken by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture;
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, direction, order, demand, approval,
bond, security, or other papers or documents, unless requested in writing so to
do by the holders of not less than a majority in principal amount of the
outstanding Securities of the particular series affected thereby (determined as
provided in Section 8.04); provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded to it by
the terms of this Indenture, the Trustee may require reasonable indemnity
against such costs, expenses or liabilities as a condition to so proceeding. The
reasonable expense of every such examination shall be paid by the Company or, if
paid by the Trustee, shall be repaid by the Company upon demand. Notwithstanding
the foregoing, the Trustee, in its direction, may make such further inquiry or
investigation into such facts or matters as it may see fit. In making any
investigation required or authorized by this subparagraph, the Trustee shall be
entitled to examine books, records and premises of the Company, personally or by
agent or attorney;
(g) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(h) The permissive right of the Trustee to do things enumerated in this
Indenture shall not be construed as a duty.
SECTION 7.03. (a) The recitals contained herein and in the Securities
(other than the Certificate of Authentication on the Securities) shall be taken
as the statements of the Company, and the Trustee assumes no responsibility for
the correctness of the same.
(b) The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Securities.
(c) The Trustee shall not be accountable for the use or application by the
Company of any of the Securities or of the proceeds of such Securities, or for
the use or application of any monies paid over by the Trustee in accordance with
any provision of this Indenture or established pursuant to Section 2.01, or for
the use or application of any monies received by any paying agent other than the
Trustee.
SECTION 7.04. The Trustee or any paying agent or Security Registrar, in
its individual or any other capacity, may become the owner or pledgee of
Securities with the same rights it would have if it were not Trustee, paying
agent or Security Registrar.
SECTION 7.05. Subject to the provisions of Section 11.04, all monies
received by the Trustee shall, until used or applied as herein provided, be held
in trust for the purposes for which they were received, but need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any monies received by it hereunder
except such as it may agree in writing with the Company to pay thereon.
SECTION 7.06. (a) The Company covenants and agrees to pay to the Trustee
from time to time, and the Trustee shall be entitled to, reasonable compensation
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by it
in the execution of the trusts hereby created and in the exercise and
performance of any of the powers and duties hereunder of the Trustee, and the
Company will pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the reasonable expenses and disbursements of its
counsel and agents and of all persons not regularly in its employ) except any
such expense, disbursement or advance as may arise from its negligence, willful
misconduct or bad faith. The Company also covenants to indemnify the Trustee
(and its officers, agents, directors and employees) for, and to hold it harmless
against, any loss, liability or expense incurred without negligence, willful
misconduct or bad faith on the part of the Trustee and arising out of or in
connection with the acceptance or administration of this trust, including the
reasonable costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder.
(b) The obligations of the Company under this Section to compensate and
indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
Such additional indebtedness shall be secured by a lien prior to that of the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Securities.
(c) Without prejudice to any other rights available to the Trustee under
applicable law, when the Trustee incurs expenses or renders services in
connection with an Event of Default, the expenses (including reasonable charges
and expenses of its counsel) and compensation for its services are intended to
constitute expenses of administration under applicable federal or state
bankruptcy, insolvency or similar law.
(d) The provisions of this Section 7.06 shall survive the satisfaction and
discharge of this Indenture or the appointment of a successor trustee.
SECTION 7.07. Except as otherwise provided in Section 7.01, whenever in
the administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
suffering or omitting to take any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may, in the
absence of bad faith on the part of the Trustee, be deemed to be conclusively
proved and established by an Officers' Certificate delivered to the Trustee and
such certificate, in the absence of bad faith on the part of the Trustee, shall
be full warrant to the Trustee for any action taken, suffered or omitted to be
taken by it under the provisions of this Indenture upon the faith thereof.
SECTION 7.08. If the Trustee has acquired or shall acquire a conflicting
interest within the meaning of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
SECTION 7.09. There shall at all times be a Trustee with respect to the
Securities issued hereunder which shall at all times be a corporation organized
and doing business under the laws of the United States of America or any State
or Territory thereof or of the District of Columbia, or a corporation or other
person permitted to act as trustee by the Commission, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least 50 million dollars, and subject to supervision or examination by Federal,
State, Territorial, or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. The Company may not, nor may any person
directly or indirectly controlling, controlled by, or under common control with
the Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 7.10.
SECTION 7.10. (a) The Trustee or any successor hereafter appointed, may at
any time resign with respect to the Securities of one or more series by giving
written notice thereof to the Company and by transmitting notice of resignation
by mail, first class postage prepaid, to the Securityholders of such series, as
their names and addresses appear upon the Security Register. Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee
with respect to Securities of such series by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the resigning Trustee and one copy to the successor trustee. If
no successor trustee shall have been so appointed and have accepted appointment
within 30 days after the mailing of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee with respect to Securities of such series, or any
Securityholder of that series who has been a bona fide holder of a Security or
Securities for at least six months may, subject to the provisions of Section
6.08, on behalf of himself and all others similarly situated, petition any such
court for the appointment of a successor trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with the provisions of Section
7.08 after written request therefor by the Company or by any
Securityholder who has been a bona fide holder of a Security or Securities
for at least six months; or
(2) The Trustee shall cease to be eligible in accordance with the
provisions of Section 7.09 and shall fail to resign after written request
therefor by the Company or by any such Securityholder; or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee with respect to all
Securities and appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor trustee,
or, subject to the provisions of Section 6.08, unless, with respect to
subsection (b)(1) above, the Trustee's duty to resign is stayed as provided in
Section 310(b) of the Trust Indenture Act, any Securityholder who has been a
bona fide holder of a Security or Securities for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it may
deem proper and prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities of any series at the time outstanding may at any time remove the
Trustee with respect to such series and appoint a successor trustee.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Securities of a series pursuant to any of
the provisions of this Section shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 7.11.
(e) Any successor trustee appointed pursuant to this Section may be
appointed with respect to the Securities of one or more series or all of such
series, and at any time there shall be only one Trustee with respect to the
Securities of any particular series.
SECTION 7.11. (a) In case of the appointment hereunder of a successor
trustee with respect to all Securities, every such successor trustee so
appointed shall execute, acknowledge and deliver to the Company and to the
retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee;
but, on the request of the Company or the successor trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor trustee all the rights, powers, and trusts of the
retiring Trustee and shall duly assign, transfer and deliver to such successor
trustee all property and money held by such retiring Trustee hereunder, subject
to any prior lien provided for in Section 7.06(b).
(b) In case of the appointment hereunder of a successor trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor trustee relates, (2)
shall contain such provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the retiring Trustee
with respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust, that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee and that no Trustee shall be responsible for any act or
failure to act on the part of any other Trustee hereunder; and upon the
execution and delivery of such supplemental indenture the resignation or removal
of the retiring Trustee shall become effective to the extent provided therein,
such retiring Trustee shall with respect to the Securities of that or those
series to which the appointment of such successor trustee relates have no
further responsibility for the exercise of rights and powers or for the
performance of the duties and obligations vested in the Trustee under this
Indenture, and each such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor trustee relates; but, on request of
the Company or any successor trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor trustee, to the extent contemplated by
such supplemental indenture, the property and money held by such retiring
Trustee hereunder with respect to the Securities of that or those series to
which the appointment of such successor trustee relates.
(c) Upon request of any such successor trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor trustee all such rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor trustee shall accept its appointment unless at the time
of such acceptance such successor trustee shall be qualified under the Trust
Indenture Act and eligible under this Article.
(e) Upon acceptance of appointment by a successor trustee as provided in
this Section, the Company shall transmit notice of the succession of such
trustee hereunder by mail, first class postage prepaid, to the Securityholders,
as their names and addresses appear upon the Security Register. If the Company
fails to transmit such notice within ten days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such notice to be
transmitted at the expense of the Company.
SECTION 7.12. Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be qualified under the provisions of
the Trust Indenture Act and eligible under the provisions of Section 7.09,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding. In
case any Securities shall have been authenticated, but not delivered, by the
Trustee then in office, any successor by merger, conversion or consolidation to
such authenticating Trustee may adopt such authentication and deliver the
Securities so authenticated with the same effect as if such successor Trustee
had itself authenticated such Securities.
SECTION 7.13. If and when the Trustee shall become a creditor of the
Company (or any other obligor upon the Securities), the Trustee shall be subject
to the provisions of the Trust Indenture Act regarding collection of claims
against the Company (or any other obligor upon the Securities).
ARTICLE EIGHT
CONCERNING THE SECURITYHOLDERS
SECTION 8.01. Whenever in this Indenture it is provided that the holders
of a majority or specified percentage in aggregate principal amount of the
Securities of a particular series may take any action (including the making of
any demand or request, the giving of any notice, consent or waiver or the taking
of any other action), the fact that at the time of taking any such action the
holders of such majority or specified percentage of that series have joined
therein may be evidenced by any instrument or any number of instruments of
similar tenor executed by such holders of Securities of that series in person or
by agent or proxy appointed in writing.
If the Company shall solicit from the Securityholders of any series any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, as evidenced by an Officers'
Certificate, fix in advance a record date for such series for the determination
of Securityholders entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other action, but the Company shall have
no obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other action may be given
before or after the record date, but only the Securityholders of record at the
close of business on the record date shall be deemed to be Securityholders for
the purposes of determining whether Securityholders of the requisite proportion
of outstanding Securities of that series have authorized or agreed or consented
to such request, demand, authorization, direction, notice, consent, waiver or
other action, and for that purpose the outstanding Securities of that series
shall be computed as of the record date; provided that no such authorization,
agreement or consent by such Securityholders on the record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after the record date.
In determining whether the holders of the requisite aggregate principal
amount of Securities of a particular series have concurred in any direction,
consent or waiver under this Indenture, the principal amount of a Discount
Security that shall be deemed to be outstanding for such purposes shall be the
amount of the principal thereof that would be due and payable as of the date of
such determination upon a declaration of acceleration of the maturity thereof
pursuant to Section 6.01.
SECTION 8.02. Subject to the provisions of Section 7.01, proof of the
execution of any instrument by a Securityholder (such proof will not require
notarization) or his agent or proxy and proof of the holding by any person of
any of the Securities shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Securities shall be proved by the Security Register
of such Securities or by a certificate of the Security Registrar thereof.
(c) The Trustee may require such additional proof of any matter referred
to in this Section as it shall deem necessary.
SECTION 8.03. Prior to the due presentment for registration of transfer of
any Security, the Company, the Trustee, any paying agent and any Security
Registrar may deem and treat the person in whose name such Security shall be
registered upon the books of the Company as the absolute owner of such Security
(whether or not such Security shall be overdue and notwithstanding any notice of
ownership or writing thereon made by anyone other than the Security Registrar)
for the purpose of receiving payment of or on account of the principal of and
premium, if any, and (subject to Section 2.03) interest on such Security and for
all other purposes; and neither the Company nor the Trustee nor any paying agent
nor any Security Registrar shall be affected by any notice to the contrary.
SECTION 8.04. In determining whether the holders of the requisite
aggregate principal amount of Securities of a particular series have concurred
in any direction, consent or waiver under this Indenture, Securities of that
series which are owned by the Company or any other obligor on the Securities of
that series or by any person directly or indirectly controlling or controlled by
or under common control with the Company or any other obligor on the Securities
of that series shall be disregarded and deemed not to be outstanding for the
purpose of any such determination, except that for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver, only Securities of such series which the Trustee actually knows are
so owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as outstanding for the purposes of this Section, if
the pledgee shall establish to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Securities and that the pledgee is not a
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any such other obligor. In case of a
dispute as to such right, any decision by the Trustee taken upon the advice of
counsel shall be full protection to the Trustee.
SECTION 8.05. At any time prior to (but not after) the evidencing to the
Trustee, as provided in Section 8.01, of the taking of any action by the holders
of the majority or percentage in aggregate principal amount of the Securities of
a particular series specified in this Indenture in connection with such action,
any holder of a Security of that series which is shown by the evidence to be
included in the Securities the holders of which have consented to such action
may, by filing written notice with the Trustee, and upon proof of holding as
provided in Section 8.02, revoke such action so far as concerns such Security.
Except as aforesaid any such action taken by the holder of any Security shall be
conclusive and binding upon such holder and upon all future holders and owners
of such Security, and of any Security issued in exchange therefor, on
registration of transfer thereof or in place thereof, irrespective of whether or
not any notation in regard thereto is made upon such Security. Any action taken
by the holders of the majority or percentage in aggregate principal amount of
the Securities of a particular series specified in this Indenture in connection
with such action shall be conclusively binding upon the Company, the Trustee and
the holders of all the Securities of that series.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 9.01. In addition to any supplemental indenture otherwise
authorized by this Indenture, the Company, when authorized by a Board
Resolution, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as then in effect), without the consent of
the Securityholders, for one or more of the following purposes:
(a) to evidence the succession of another person to the Company, and the
assumption by any such successor of the covenants of the Company contained
herein or otherwise established with respect to the Securities; or
(b) to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions for the protection of the holders of the
Securities of all or any series, and to make the occurrence, or the occurrence
and continuance, of a default in any of such additional covenants, restrictions,
conditions or provisions a default or an Event of Default with respect to such
series permitting the enforcement of all or any of the several remedies provided
in this Indenture as herein set forth; provided, however, that in respect of any
such additional covenant, restriction, condition or provision such supplemental
indenture may provide for a particular period of grace after default (which
period may be shorter or longer than that allowed in the case of other defaults)
or may provide for an immediate enforcement upon such default or may limit the
remedies available to the Trustee upon such default or may limit the right of
the holders of a majority in aggregate principal amount of the Securities of
such series to waive such default; or
(c) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under this Indenture as shall not be inconsistent with the provisions of
this Indenture and shall not adversely affect the interests of the holders of
the Securities of any series; or
(d) to change or eliminate any of the provisions of this Indenture or to
add any new provision to this Indenture; provided, however, that such change,
elimination or addition shall become effective only when there is no Security
outstanding of any series created prior to the execution of such supplemental
indenture that is entitled to the benefit of such provisions; or
(e) to establish the form or terms of Securities of any series as
permitted by Section 2.01; or
(f) to add any additional Events of Default with respect to all or any
series of outstanding Securities; or
(g) to provide collateral security for the Securities; or
(h) to provide for the authentication and delivery of bearer securities
and coupons appertaining thereto representing interest, if any, thereon and for
the procedures for the registration, exchange and replacement thereof and for
the giving of notice to, and the solicitation of the vote or consent of, the
holders thereof, and for any other matters incidental thereto; or
(i) to evidence and provide for the acceptance of appointment hereunder by
a separate or successor Trustee with respect to the Securities of one or more
series and to add to or change any of the provisions of this Indenture as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Article
Seven; or
(j) to change any place or places where (1) the principal of and premium,
if any, and interest, if any, on all or any series of Securities shall be
payable, (2) all or any series of Securities may be surrendered for registration
of transfer, (3) all or any series of Securities may be surrendered for exchange
and (4) notices and demands to or upon the Company in respect of all or any
series of Securities and this Indenture may be served; provided, however, that
any such place shall be located in New York, New York or be the principal office
of the Company; or
(k) to provide for the payment by the Company of additional amounts in
respect of certain taxes imposed on certain holders and for the treatment of
such additional amounts as interest and for all matters incidental thereto; or
(l) to provide for the issuance of Securities denominated in a currency
other than Dollars or in a composite currency and for all matters incidental
thereto.
Without limiting the generality of the foregoing, if the Trust Indenture
Act as in effect at the date of the execution and delivery of this Indenture or
at any time thereafter shall be amended and
(x) if any such amendment shall require one or more changes to any
provisions hereof or the inclusion herein of any additional provisions, or
shall by operation of law be deemed to effect such changes or incorporate
such provisions by reference or otherwise, this Indenture shall be deemed
to have been amended so as to conform to such amendment to the Trust
Indenture Act, and the Company and the Trustee may, without the consent of
any Securityholders, enter into a supplemental indenture hereto to effect
or evidence such changes or additional provisions; or
(y) if any such amendment shall permit one or more changes to, or the
elimination of, any provisions hereof which, at the date of the execution
and delivery hereof or at any time thereafter, are required by the Trust
Indenture Act to be contained herein, this Indenture shall be deemed to
have been amended to effect such changes or elimination, and the Company
and the Trustee may, without the consent of any Securityholders, enter
into a supplemental indenture hereto to effect such changes or
elimination; or
(z) if, by reason of any such amendment, one or more provisions
which, at the date of the execution and delivery hereof or at any time
thereafter, are required by the Trust Indenture Act to be contained herein
shall be deemed to be incorporated herein by reference or otherwise, or
otherwise made applicable hereto, and shall no longer be required to be
contained herein, the Company and the Trustee may, without the consent of
any Securityholders, enter into a supplemental indenture hereto to effect
the elimination of such provisions.
The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, and to make any further appropriate
agreements and stipulations which may be therein contained, but the Trustee
shall not be obligated to enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Any supplemental indenture authorized by the provisions of this Section
may be executed by the Company and the Trustee without the consent of the
holders of any of the Securities at the time outstanding, notwithstanding any of
the provisions of Section 9.02.
SECTION 9.02. With the consent (evidenced as provided in Section 8.01) of
the holders of not less than a majority in aggregate principal amount of the
Securities of each series affected by such supplemental indenture or indentures
at the time outstanding, the Company, when authorized by a Board Resolution, and
the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as then in effect) for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of any supplemental indenture or of modifying in any manner the
rights of the holders of the Securities of such series under this Indenture;
provided, however, that no such supplemental indenture shall (i) extend the
fixed maturity of any Securities of any series, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest thereon,
or reduce any premium payable upon the redemption thereof, or reduce the amount
of the principal of a Discount Security that would be due and payable upon a
declaration of acceleration of the maturity thereof pursuant to Section 6.01,
without the consent of the holders of each Security then outstanding and
affected, (ii) reduce the aforesaid percentage of Securities, the holders of
which are required to consent to any such supplemental indenture, or reduce the
percentage of Securities, the holders of which are required to waive any default
and its consequences, without the consent of the holder of each Security then
outstanding and affected thereby, or (iii) modify any provision of Section
6.01(c) (except to increase the percentage of principal amount of securities
required to rescind and annul any declaration of amounts due and payable under
the Securities) without the consent of the holders of each Security then
outstanding and affected thereby.
Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Securityholders required
to consent thereto as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture that has expressly been included solely for the
benefit of one or more particular series of Securities, or that modifies the
rights of holders of Securities of such series with respect to such covenant or
other provision, shall be deemed not to affect the rights under this Indenture
of the holders of Securities of any other series.
It shall not be necessary for the consent of the Securityholders of any
series affected thereby under this Section to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall transmit by mail, first class postage prepaid, a notice, setting forth in
general terms the substance of such supplemental indenture, to the
Securityholders of all series affected thereby as their names and addresses
appear upon the Security Register. Any failure of the Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 9.03. Upon the execution of any supplemental indenture pursuant to
the provisions of this Article or of Section 10.01, this Indenture shall, with
respect to such series, be and be deemed to be modified and amended in
accordance therewith and the respective rights, limitations of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the holders of Securities of the series affected thereby shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 9.04. Securities of any series, affected by a supplemental
indenture, authenticated and delivered after the execution of such supplemental
indenture pursuant to the provisions of this Article, Article Two or Article
Seven or of Section 10.01, may bear a notation in form approved by the Company,
provided such form meets the requirements of any exchange upon which such series
may be listed, as to any matter provided for in such supplemental indenture. If
the Company shall so determine, new Securities of that series so modified as to
conform, in the opinion of the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture may be prepared by the
Company, authenticated by the Trustee and delivered in exchange for the
Securities of that series then outstanding.
SECTION 9.05. The Trustee, subject to the provisions of Section 7.01,
shall be entitled to receive, and shall be fully protected in relying upon, an
Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant to this Article is authorized or permitted by, and conforms
to, the terms of this Article and that it is proper for the Trustee under the
provisions of this Article to join in the execution thereof.
ARTICLE TEN
CONSOLIDATION, MERGER AND SALE
SECTION 10.01. Nothing contained in this Indenture or in any of the
Securities shall prevent any consolidation or merger of the Company with or into
any other corporation or corporations (whether or not affiliated with the
Company), or successive consolidations or mergers in which the Company or its
successor or successors shall be a party or parties, or shall prevent any sale,
conveyance, transfer or other disposition of all or substantially all of the
property of the Company or its successor or successors as an entirety, or
substantially as an entirety, to any other corporation (whether or not
affiliated with the Company or its successor or successors) authorized to
acquire and operate the same; provided, however, the Company hereby covenants
and agrees that, upon any such consolidation, merger, sale, conveyance, transfer
or other disposition, the due and punctual payment of the principal of (premium,
if any) and interest on all of the Securities of all series in accordance with
the terms of each series, according to their tenor, and the due and punctual
performance and observance of all the covenants and conditions of this Indenture
with respect to each series or established with respect to such series pursuant
to Section 2.01 to be kept or performed by the Company, shall be expressly
assumed, by supplemental indenture (which shall conform to the provisions of the
Trust Indenture Act as then in effect) satisfactory in form to the Trustee
executed and delivered to the Trustee by the entity formed by such
consolidation, or into which the Company shall have been merged, or by the
entity which shall have acquired such property.
SECTION 10.02. (a) In case of any such consolidation, merger, sale,
conveyance, transfer or other disposition and upon the assumption by the
successor corporation, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the due and punctual payment
of the principal of and premium, if any, and interest on all of the Securities
of all series outstanding and the due and punctual performance of all of the
covenants and conditions of this Indenture or established with respect to each
series of the Securities pursuant to Section 2.01 to be kept or performed by the
Company with respect to each series, such successor corporation shall succeed to
and be substituted for the Company, with the same effect as if it had been named
herein as the party of the first part, and thereupon (provided, that in the case
of a lease, the term of the lease is at least as long as the longest maturity of
any Securities outstanding at such time) the predecessor corporation shall be
relieved of all obligations and covenants under this Indenture and the
Securities. Such successor corporation thereupon may cause to be signed, and may
issue either in its own name or in the name of the Company or any other
predecessor obligor on the Securities, any or all of the Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor company, instead
of the Company, and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee shall authenticate and shall deliver any
Securities which previously shall have been signed and delivered by the officers
of the predecessor Company to the Trustee for authentication, and any Securities
which such successor corporation thereafter shall cause to be signed and
delivered to the Trustee for that purpose. All the Securities so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance with the terms of this
Indenture as though all of such Securities had been issued at the date of the
execution hereof.
(b) In case of any such consolidation, merger, sale, conveyance, transfer
or other disposition such changes in phraseology and form (but not in substance)
may be made in the Securities thereafter to be issued as may be appropriate.
(c) Nothing contained in this Indenture or in any of the Securities shall
prevent the Company from merging into itself or acquiring by purchase or
otherwise all or any part of the property of any other corporation (whether or
not affiliated with the Company).
SECTION 10.03. The Trustee, subject to the provisions of Section 7.01, may
receive an Opinion of Counsel as conclusive evidence that any such
consolidation, merger, sale, conveyance, transfer or other disposition, and any
such assumption, comply with the provisions of this Article.
ARTICLE ELEVEN
DEFEASANCE AND CONDITIONS TO DEFEASANCE; UNCLAIMED MONIES
SECTION 11.01. Securities of a series may be defeased in accordance with
their terms and, unless the Company Order or supplemental indenture establishing
the series otherwise provides, in accordance with this Article.
The Company at any time may terminate as to a series all of its
obligations for such series under this Indenture ("legal defeasance option").
The Company at any time may terminate as to a series its obligations, if any,
under any restrictive covenant which may be applicable to a particular series
("covenant defeasance option"). However, in the case of the legal defeasance
option, the Company's obligations in Sections 2.05, 2.07, 4.02, 7.06, 7.10 and
11.04 shall survive until the Securities of the series are no longer
outstanding; thereafter the Company's obligations in Sections 7.06, 7.10 and
11.04 shall survive.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, a series may not be accelerated because of an Event of
Default. If the Company exercises its covenant defeasance option, a series may
not be accelerated by reference to any restrictive covenant which may be
applicable to a particular series so defeased under the terms of the series.
The Trustee, upon request of and at the cost and expense of the Company,
shall, subject to compliance with Section 13.06, acknowledge in writing the
discharge of those obligations that the Company terminates.
The Company may exercise as to a series its legal defeasance option or its
covenant defeasance option if:
(1) The Company irrevocably deposits in trust with the Trustee or
another trustee (x) money in an amount which shall be sufficient; or (y)
Eligible Obligations the principal of and the interest on which when due,
without regard to reinvestment thereof, will provide moneys, which,
together with the money, if any, deposited or held by the Trustee or such
other trustee, shall be sufficient; or (z) a combination of money and
Eligible Obligations which shall be sufficient, to pay the principal of
and premium, if any, and interest, if any, due and to become due on such
Securities on or prior to maturity;
(2) the Company delivers to the Trustee a Certificate to the effect
that the requirements set forth in clause (1) above have been satisfied;
(3) immediately after the deposit no Default exists; and
(4) the Company delivers to the Trustee an Opinion of Counsel to the
effect that holders of the series will not recognize income, gain or loss
for Federal income tax purposes as a result of the defeasance but will
realize income, gain or loss on the Securities, including payments of
interest thereon, in the same amounts and in the same manner and at the
same time as would have been the case if such defeasance had not occurred
and which, in the case of legal defeasance, shall be (x) accompanied by a
ruling of the Internal Revenue Service issued to the Company or (y) based
on a change in law or regulation occurring after the date hereof; and
(5) the deposit specified in paragraph (1) above shall not result in
the Company, the Trustee or the trust created in connection with such
defeasance being deemed an "investment company" under the Investment
Company Act of 1940, as amended.
In the event the Company exercises its option to effect a covenant
defeasance with respect to the Securities of any series as described above and
the Securities of that series are thereafter declared due and payable because of
the occurrence of any Event of Default other than the Event of Default caused by
failing to comply with the covenants which are defeased, the amount of money and
securities on deposit with the Trustee may not be sufficient to pay amounts due
on the Securities of that series at the time of the acceleration resulting from
such Event of Default. However, the Company shall remain liable for such
payments.
SECTION 11.02. All monies or Eligible Obligations deposited with the
Trustee pursuant to Section 11.01 shall be held in trust and shall be available
for payment as due, either directly or through any paying agent (including the
Company acting as its own paying agent), to the holders of the particular series
of Securities for the payment or redemption of which such monies or Eligible
Obligations have been deposited with the Trustee.
SECTION 11.03. In connection with the satisfaction and discharge of this
Indenture all monies or Eligible Obligations then held by any paying agent under
the provisions of this Indenture shall, upon demand of the Company, be paid to
the Trustee and thereupon such paying agent shall be released from all further
liability with respect to such monies or Eligible Obligations.
SECTION 11.04. Any monies or Eligible Obligations deposited with any
paying agent or the Trustee, or then held by the Company, in trust for payment
of principal of or premium or interest on the Securities of a particular series
that are not applied but remain unclaimed by the holders of such Securities for
at least two years after the date upon which the principal of (and premium, if
any) or interest on such Securities shall have respectively become due and
payable, upon the written request of the Company and unless otherwise required
by mandatory provisions of applicable escheat or abandoned or unclaimed property
law, shall be repaid to the Company on May 31 of each year or (if then held by
the Company) shall be discharged from such trust; and thereupon the paying agent
and the Trustee shall be released from all further liability with respect to
such monies or Eligible Obligations, and the holder of any of the Securities
entitled to receive such payment shall thereafter, as an unsecured general
creditor, look only to the Company for the payment thereof.
SECTION 11.05. In connection with any satisfaction and discharge of this
Indenture pursuant to this Article Eleven, the Company shall deliver to the
Trustee an Officers' Certificate and an Opinion of Counsel to the effect that
all conditions precedent in this Indenture provided for relating to such
satisfaction and discharge have been complied with.
ARTICLE TWELVE
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS
SECTION 12.01. No recourse under or upon any obligation, covenant or
agreement of this Indenture, or of any Security, or for any claim based thereon
or otherwise in respect thereof, shall be had against any incorporator,
stockholder, officer or director, past, present or future as such, of the
Company or of any predecessor or successor corporation, either directly or
through the Company or any such predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that this
Indenture and the obligations issued hereunder are solely corporate obligations,
and that no such personal liability whatever shall attach to, or is or shall be
incurred by, the incorporators, stockholders, officers or directors as such, of
the Company or of any predecessor or successor corporation, or any of them,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Securities or implied therefrom; and that any and all such
personal liability of every name and nature, either at common law or in equity
or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, stockholder, officer or director as such,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Securities or implied therefrom, are hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Indenture and the issuance of such Securities.
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
SECTION 13.01. All the covenants, stipulations, promises and agreements in
this Indenture contained by or on behalf of the Company shall bind its
successors and assigns, whether so expressed or not.
SECTION 13.02. Any act or proceeding by any provision of this Indenture
authorized or required to be done or performed by any board, committee or
officer of the Company shall and may be done and performed with like force and
effect by the corresponding board, committee or officer of any corporation that
shall at the time be the lawful sole successor of the Company.
SECTION 13.03. The Company by instrument in writing executed by authority
of two-thirds of its Board of Directors and delivered to the Trustee may
surrender any of the powers reserved to the Company under this Indenture and
thereupon such power so surrendered shall terminate both as to the Company and
as to any successor corporation.
SECTION 13.04. Except as otherwise expressly provided herein any notice or
demand which by any provision of this Indenture is required or permitted to be
given or served by the Trustee or by the holders of Securities to or on the
Company may be given or served by being deposited first class postage prepaid in
a post office letter box addressed (until another address is filed in writing by
the Company with the Trustee), as follows: Indiana Michigan Power Company, One
Summit Square, P.O. Box 60, Fort Wayne, Indiana 46801, with a copy to the
Company in care of American Electric Power Service Corporation, 1 Riverside
Plaza, Columbus, Ohio 43215, Attention: Treasurer. Any notice, election, request
or demand by the Company or any Securityholder to or upon the Trustee shall be
deemed to have been sufficiently given or made, for all purposes, if given or
made in writing at the Corporate Trust Office of the Trustee.
SECTION 13.05. This Indenture and each Security shall be deemed to be a
contract made under the laws of the State of New York, and for all purposes
shall be construed in accordance with the laws of said State.
SECTION 13.06. (a) Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.
(b) Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
in this Indenture (other than the certificate provided pursuant to Section
5.03(d) of this Indenture) shall include (1) a statement that the person making
such certificate or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based; (3) a statement that, in the opinion of such person, he or she has made
such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and (4) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.
SECTION 13.07. Except as provided pursuant to Section 2.01 pursuant to a
Company Order, or established in one or more indentures supplemental to this
Indenture, in any case where the date of maturity of principal or an Interest
Payment Date of any Security or the date of redemption, purchase or repayment of
any Security shall not be a Business Day then payment of interest or principal
(and premium, if any) may be made on the next succeeding Business Day with the
same force and effect as if made on the nominal date of maturity or redemption,
and no interest shall accrue for the period after such nominal date.
SECTION 13.08. If and to the extent that any provision of this Indenture
limits, qualifies or conflicts with the duties imposed by the Trust Indenture
Act, such imposed duties shall control.
SECTION 13.09. This Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
SECTION 13.10. In case any one or more of the provisions contained in this
Indenture or in the Securities of any series shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Indenture or of
such Securities, but this Indenture and such Securities shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein or therein.
SECTION 13.11. The Company will have the right at all times to assign any
of its rights or obligations under the Indenture to a direct or indirect wholly
owned subsidiary of the Company; provided that, in the event of any such
assignment, the Company will remain liable for all such obligations. Subject to
the foregoing, this Indenture is binding upon and inures to the benefit of the
parties thereto and their respective successors and assigns. This Indenture may
not otherwise be assigned by the parties thereto.
SECTION 13.12. The Article and Section Headings in this Indenture and the
Table of Contents are for convenience only and shall not affect the construction
hereof.
SECTION 13.13. Whenever this Indenture provides for any action by, or the
determination of any rights of, holders of Securities of any series in which not
all of such Securities are denominated in the same currency, in the absence of
any provision to the contrary in the form of Security of any particular series,
any amount in respect of any Security denominated in a currency other than
Dollars shall be treated for any such action or determination of rights as that
amount of Dollars that could be obtained for such amount on such reasonable
basis of exchange and as of the record date with respect to Securities of such
series (if any) for such action or determination of rights (or, if there shall
be no applicable record date, such other date reasonably proximate to the date
of such action or determination of rights) as the Company may specify in a
written notice to the Trustee or, in the absence of such written notice, as the
Trustee may determine.
The Bank of New York, as Trustee, hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove set
forth.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
INDIANA MICHIGAN POWER COMPANY
By /S/ A. A. PENA
Treasurer
Attest:
By /S/ J. F. DI LORENZO, JR.
Secretary
THE BANK OF NEW YORK,
as Trustee
By /S/ MICHAEL CULHANE
Vice President
Attest:
By /S/ REMO J. REALE
Trust Officer
<PAGE>
State of Ohio }
} ss:
County of Franklin }
On this 29th day of October, 1998, personally appeared before me, a Notary
Public within and for said County in the State aforesaid, Armando A. Pena and
John F. Di Lorenzo, Jr., to me known and known to me to be respectively the
Treasurer and Secretary of INDIANA MICHIGAN POWER COMPANY, one of the
corporations named in and which executed the foregoing instrument, who severally
acknowledged that they did sign and seal said instrument as such Treasurer and
Secretary for and on behalf of said corporation and that the same is their free
act and deed as such Treasurer and Secretary, respectively, and the free and
corporate act and deed of said corporation.
In Witness Whereof, I have hereunto set my hand and notarial seal this
29th day of October, 1998.
/S/ JANA LEE BROWN
Notary Public, State of Ohio
<PAGE>
State of New York } ss:
County of New York }
Be it remembered, that on this 28th day of October, 1998, personally
appeared before me the undersigned, a Notary Public within and for said County
and State, The Bank of New York, one of the corporations named in and which
executed the foregoing instrument, by Michael Culhane one of its Vice
Presidents, and by Remo J. Reale, one of its Trust Officers, to me known and
known by me to be such Vice President and Trust Officer, respectively, who
severally duly acknowledged the signing and sealing of the foregoing instrument
to be their free act and voluntary deed, and the free act and voluntary deed of
each of them as such Vice President and Trust Officer, respectively, and the
free act and voluntary deed of said corporation, for the uses and purposes
therein expressed and mentioned.
In Witness Whereof, I have hereunto set my hand and notarial seal this
28th day of October, 1998.
[Notarial Seal]
------------------------------------
Notary Public, State of ________
My Commission Expires: ________
<PAGE>
October 29, 1998
Company Order and Officers' Certificate
Unsecured Medium Term Notes, Series A
The Bank of New York, as Trustee
101 Barclay Street, Floor 21W
New York, New York 10286
Attn: Corporate Trust Division
Ladies and Gentlemen:
Pursuant to Article Two of the Indenture, dated as of October 1, 1998 (as it may
be amended or supplemented, the "Indenture"), from Indiana Michigan Power
Company (the "Company") to The Bank of New York, as trustee (the "Trustee"), and
the Board Resolutions dated August 27, 1998, a copy of which certified by the
Secretary or an Assistant Secretary of the Company is being delivered herewith
under Section 2.01 of the Indenture, and unless otherwise provided in a
subsequent Company Order pursuant to Section 2.04 of the Indenture,
1. The Company's Unsecured Notes, Series A (the "Notes") are hereby
established and shall be subject to a Periodic Offering. Fixed Rate Notes
shall be in substantially the form attached hereto as Exhibit 1 and
Floating Rate Notes shall be in substantially the form attached hereto as
Exhibit 2.
2. The terms and characteristics of the Notes shall be as follows
(the numbered clauses set forth below corresponding to the numbered
subsections of Section 2.01 of the Indenture, with terms used and not
defined herein having the meanings specified in the Indenture):
(i) the aggregate principal amount of Notes which may be
authenticated and delivered under the Indenture shall be limited to
$100,000,000, except as contemplated in Section 2.01(i) of the
Indenture;
(ii) the date or dates on which the principal of the Notes shall be
payable shall be determined by an officer of the Company and
communicated to the Trustee by Instructions, as defined below, or
otherwise in accordance with procedures, acceptable to the Trustee,
specified in a Company Order or Orders (both of such methods of
determination being hereinafter referred to as "determined pursuant
to Instructions); provided, however, that no Note shall have a term
of less than nine months or more than 50 years;
(iii) interest shall accrue from the date of authentication of the
Notes; with respect to fixed rate Notes, the Interest Payment Dates
on which such interest will be payable shall be February 1 and August
1 or such other date or dates as determined pursuant to Instructions,
with respect to floating rate Notes, the Interest Payment Dates shall
be as determined pursuant to Instructions; the Regular Record Date
shall be the fifteenth calendar day immediately preceding the related
Interest Payment Date or such other date or dates as determined
pursuant to Instructions; provided however that if the Original Issue
Date of a Note shall be after a Regular Record Date and before the
corresponding Interest Payment Date, payment of interest shall
commence on the second Interest Payment Date succeeding such Original
Issue Date and shall be paid to the Person in whose name this Note
was registered on the Regular Record Date for such second Interest
Payment Date; and provided further, that interest payable on the
Stated Maturity Date or any Redemption Date shall be paid to the
Person to whom principal shall be paid;
(iv) the interest rate or rates, or interest rate formula or
formulas, if any, at which the Notes, or any Tranche thereof, shall
bear interest shall be determined pursuant to Instructions;
(v) the terms, if any, regarding the redemption, purchase or
repayment of such series, shall be determined pursuant to
Instructions;
(vi) (a) the Notes shall be issued in the form of a Global Note; (b)
the Depositary for such Global Note shall be The Depository Trust
Company; and (c) the procedures with respect to transfer and exchange
of Global Notes shall be as set forth in the form of Note attached
hereto;
(vii) the title of the Notes shall be "Unsecured Medium Term Notes,
Series A;
(viii) the form of the Notes shall be as set forth in Paragraph 1
above;
(ix) the maximum interest rate on fixed rate Notes shall not exceed
by 3.5% the yield to maturity at the date of pricing on United States
Treasury Bonds of comparable maturity and the initial interest rate
on any floating rate Note shall not exceed 9%;
(x) the Notes shall be subject to a Periodic Offering;
(xi) not applicable;
(xii) any other information necessary to complete the Notes shall be
determined pursuant to Instructions;
(xiii) not applicable;
(xiv) not applicable;
(xv) not applicable;
(xvi) whether any Notes shall be issued as Discount Securities and
the terms thereof shall be determined pursuant to Instructions;
(xvii) not applicable;
(xviii) not applicable; and
(xix) any other terms of the Notes not inconsistent with the
Indenture may be determined pursuant to Instructions.
3. You are hereby requested to authenticate, from time to time after
the date hereof and in the manner provided by the Indenture, such
aggregate principal amount of the Notes not to exceed $100,000,000 as
shall be set forth in Instructions (the "Instructions") in substantially
the form attached hereto as Exhibit 3 for fixed rate Notes and Exhibit 4
for floating rate Notes.
4. You are hereby requested to hold the Notes authenticated pursuant
to each of the Instructions in accordance with the Administrative
Procedures attached as Exhibit A to the Selling Agency Agreement dated
October 29, 1998, between the Company and each of the agents named
therein.
5. Concurrently with this Company Order, an Opinion of Counsel under
Sections 2.04 and 13.06 of the Indenture is being delivered to you.
6. The undersigned Armando A. Pena and John F. Di Lorenzo, Jr., the
Treasurer and Secretary, respectively, of the Company do hereby certify
that:
(i) we have read the relevant portions of the Indenture, including
without limitation the conditions precedent provided for therein
relating to the action proposed to be taken by the Trustee as
requested in this Company Order and Officers' Certificate, and the
definitions in the Indenture relating thereto;
(ii) we have read the Board Resolutions of the Company and the
Opinion of Counsel referred to above;
(iii) we have conferred with other officers of the Company, have
examined such records of the Company and have made such other
investigation as we deemed relevant for purposes of this certificate;
(iv) in our opinion, we have made such examination or investigation
as is necessary to enable us to express an informed opinion as to
whether or not such conditions have been complied with; and
(v) on the basis of the foregoing, we are of the opinion that all
conditions precedent provided for in the Indenture relating to the
action proposed to be taken by the Trustee as requested herein have
been complied with.
Kindly acknowledge receipt of this Company Order and Officers' Certificate,
including the documents listed herein, and confirm the arrangements set forth
herein by signing and returning the copy of this document.
Very truly yours,
INDIANA MICHIGAN POWER COMPANY
By: /S/ A. A. PENA
Treasurer
And: /S/ JOHN F. DI LORENZO, JR.
Secretary
Acknowledged by Trustee:
By: /S/ MICHAEL CULHANE
Vice President
<PAGE>
Exhibit 1
[Unless this certificate is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) to the issuer or
its agent for registration of transfer, exchange or payment, and any certificate
to be issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of The Depository Trust Company and
any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.]
No.
INDIANA MICHIGAN POWER COMPANY
Unsecured Medium Term Note, Series A
(Fixed Rate)
CUSIP: Original Issue Date:
Stated Maturity: Interest Rate:
Principal Amount:
Redeemable: Yes ____ No ____
In Whole: Yes ____ No ____
In Part: Yes ____ No ____
Initial Redemption Date:
Redemption Limitation Date:
Initial Redemption Price:
Reduction Percentage:
INDIANA MICHIGAN POWER COMPANY, a corporation duly organized and existing
under the laws of the State of Indiana (herein referred to as the "Company",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to CEDE & CO. or
registered assigns, the Principal Amount specified above on Stated Maturity
specified above, and to pay interest on said Principal Amount from the Original
Issue Date specified above or from the most recent interest payment date (each
such date, an "Interest Payment Date") to which interest has been paid or duly
provided for, [semi-annually in arrears on February 1 and August 1 in each
year,] commencing (except as provided in the following sentence) with the
Interest Payment Date next succeeding the Original Issue Date specified above,
at the Interest Rate per annum specified above, until the Principal Amount shall
have been paid or duly provided for. Interest shall be computed on the basis of
a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date, as provided in the Indenture, as hereinafter defined,
shall be paid to the Person in whose name this Note (or one or more Predecessor
Securities) shall have been registered at the close of business on the Regular
Record Date with respect to such Interest Payment Date, which shall be the
fifteenth calendar day (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date; provided however that if the
Original Issue Date of this Note shall be after a Regular Record Date and before
the corresponding Interest Payment Date, payment of interest shall commence on
the second Interest Payment Date succeeding such Original Issue Date and shall
be paid to the Person in whose name this Note was registered on the Regular
Record Date for such second Interest Payment Date; and provided further, that
interest payable on Stated Maturity or any Redemption Date shall be paid to the
Person to whom principal shall be paid. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date and shall be paid as provided in said Indenture.
If any Interest Payment Date, any Redemption Date or Stated Maturity is
not a Business Day, then payment of the amounts due on this Note on such date
will be made on the next succeeding Business Day, and no interest shall accrue
on such amounts for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be. The principal of (and
premium, if any) and the interest on this Note shall be payable at the office or
agency of the Company maintained for that purpose in the Borough of Manhattan,
the City of New York, New York, in any coin or currency of the United States of
America which at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest (other than interest
payable on Stated Maturity or any Redemption Date) may be made at the option of
the Company by check mailed to the registered holder at such address as shall
appear in the Note Register.
This Note is one of a duly authorized series of Notes of the Company
(herein sometimes referred to as the "Notes"), specified in the Indenture, all
issued or to be issued in one or more series under and pursuant to an Indenture
dated as of October 1, 1998 duly executed and delivered between the Company and
The Bank of New York, a corporation organized and existing under the laws of the
State of New York, as Trustee (herein referred to as the "Trustee") (such
Indenture, as originally executed and delivered and as thereafter supplemented
and amended being hereinafter referred to as the "Indenture"), to which
Indenture and all indentures supplemental thereto or Company Orders reference is
hereby made for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the holders of
the Notes. By the terms of the Indenture, the Notes are issuable in series which
may vary as to amount, date of maturity, rate of interest and in other respects
as in the Indenture provided. This Note is one of the series of Notes designated
on the face hereof.
[If so specified on the face hereof and subject to the terms of Article
Three of the Indenture, this Note is subject to redemption at any time on or
after the Initial Redemption Date specified on the face hereof, as a whole or,
if specified, in part, at the election of the Company, at the applicable
redemption price (as described below) plus any accrued but unpaid interest to
the date of such redemption. Unless otherwise specified on the face hereof, such
redemption price shall be the Initial Redemption Price specified on the face
hereof for the twelve-month period commencing on the Initial Redemption Date and
shall decline for the twelve-month period commencing on each anniversary of the
Initial Redemption Date by a percentage of principal amount equal to the
Reduction Percentage specified on the face hereof until such redemption price is
100% of the principal amount of this Note to be redeemed.]
[Notwithstanding the foregoing, the Company may not, prior to the
Redemption Limitation Date, if any, specified on the face hereof, redeem any
Note of this series and Tranche as contemplated above as a part of, or in
anticipation of, any refunding operation by the application, directly or
indirectly, of moneys borrowed having an effective interest cost to the Company
(calculated in accordance with generally accepted financial practice) of less
than the effective interest cost the Company (similarly calculated) of this
Note.]
[This Note shall be redeemable to the extent set forth herein and in the
Indenture upon not less than thirty, but not more than sixty, days previous
notice by mail to the registered owner.]
The Company shall not be required to (i) issue, exchange or register the
transfer of any Notes during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of less than all
the outstanding Notes of the same series and Tranche and ending at the close of
business on the day of such mailing, nor (ii) register the transfer of or
exchange of any Notes of any series or portions thereof called for redemption.
This Global Note is exchangeable for Notes in definitive registered form only
under certain limited circumstances set forth in the Indenture.
In the event of redemption of this Note in part only, a new Note or Notes
of this series and Tranche, of like tenor, for the unredeemed portion hereof
will be issued in the name of the Holder hereof upon the surrender of this Note.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Notes may be declared,
and upon such declaration shall become, due and payable, in the manner, with the
effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Note upon compliance by the Company with certain conditions
set forth therein.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Notes of each series affected at the time outstanding,
as defined in the Indenture, to execute supplemental indentures for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of any supplemental indenture or of modifying in
any manner the rights of the Holders of the Notes; provided, however, that no
such supplemental indenture shall (i) extend the fixed maturity of any Notes of
any series, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or reduce any premium payable upon the
redemption thereof, or reduce the amount of the principal of a Discount Security
that would be due and payable upon a declaration of acceleration of the maturity
thereof pursuant to the Indenture, without the consent of the holder of each
Note then outstanding and affected; (ii) reduce the aforesaid percentage of
Notes, the holders of which are required to consent to any such supplemental
indenture, or reduce the percentage of Notes, the holders of which are required
to waive any default and its consequences, without the consent of the holder of
each Note then outstanding and affected thereby; or (iii) modify any provision
of Section 6.01(c) of the Indenture (except to increase the percentage of
principal amount of securities required to rescind and annul any declaration of
amounts due and payable under the Notes), without the consent of the holder of
each Note then outstanding and affected thereby. The Indenture also contains
provisions permitting the Holders of a majority in aggregate principal amount of
the Notes of all series at the time outstanding affected thereby, on behalf of
the Holders of the Notes of such series, to waive any past default in the
performance of any of the covenants contained in the Indenture, or established
pursuant to the Indenture with respect to such series, and its consequences,
except a default in the payment of the principal of or premium, if any, or
interest on any of the Notes of such series. Any such consent or waiver by the
registered Holder of this Note (unless revoked as provided in the Indenture)
shall be conclusive and binding upon such Holder and upon all future Holders and
owners of this Note and of any Note issued in exchange herefor or in place
hereof (whether by registration of transfer or otherwise), irrespective of
whether or not any notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Note at the time and place and at the rate and in the money
herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, this Note is transferable by the registered holder hereof on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company as may be designated by the
Company accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company or the Trustee duly executed by the registered
Holder hereof or his or her attorney duly authorized in writing, and thereupon
one or more new Notes of authorized denominations and for the same aggregate
principal amount and series will be issued to the designated transferee or
transferees. No service charge will be made for any such transfer, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Note, the
Company, the Trustee, any paying agent and any Note Registrar may deem and treat
the registered Holder hereof as the absolute owner hereof (whether or not this
Note shall be overdue and notwithstanding any notice of ownership or writing
hereon made by anyone other than the Note Registrar) for the purpose of
receiving payment of or on account of the principal hereof and premium, if any,
and interest due hereon and for all other purposes, and neither the Company nor
the Trustee nor any paying agent nor any Note Registrar shall be affected by any
notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Note, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture, against any incorporator,
stockholder, officer or director, past, present or future, as such, of the
Company or of any predecessor or successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issuance hereof, expressly waived and
released.
The Notes of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations, Notes of this
series and Tranche are exchangeable for a like aggregate principal amount of
Notes of this series and Tranche of a different authorized denomination, as
requested by the Holder surrendering the same.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
IN WITNESS WHEREOF, the Company has caused this Instrument to be executed.
Dated ____________________
INDIANA MICHIGAN POWER COMPANY
By:___________________________
Attest:
By:___________________________
CERTIFICATE OF AUTHENTICATION
This is one of the Notes of the series of Notes designated in accordance
with, and referred to in, the within-mentioned Indenture.
Dated:_______________
THE BANK OF NEW YORK
By:___________________________
Authorized Signatory
FOR VALUE RECEIVED, the undersigned hereby sell(s),
assign(s) and transfer(s) unto
(PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE)
- ---------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
- ----------------------------------------------------------------
ASSIGNEE) the within Note and all rights thereunder, hereby
- ----------------------------------------------------------------
irrevocably constituting and appointing such person attorney to
- ----------------------------------------------------------------
transfer such Note on the books of the Issuer, with full
- ----------------------------------------------------------------
power of substitution in the premises.
Dated:________________________ _________________________
NOTICE: The signature to this assignment must correspond with
the name as written upon the face of the within Note in
every particular, without alteration or enlargement or
any change whatever and NOTICE: Signature(s) must be
guaranteed by a financial institution that is a member
of the Securities Transfer Agents Medallion Program
("STAMP"), the Stock Exchange Medallion Program
("SEMP") or the New York Stock Exchange, Inc. Medallion
Signature Program ("MSP").
<PAGE>
Exhibit 2
[Unless this certificate is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) to the issuer or
its agent for registration of transfer, exchange or payment, and any certificate
to be issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of The Depository Trust Company and
any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein. Except as otherwise provided
in Section 2.11 of the Indenture, this Security may be transferred, in whole but
not in part, only to another nominee of the Depository or to a successor
Depository or to a nominee of such successor Depository.]
Registered No. FLR-____
INDIANA MICHIGAN POWER COMPANY
UNSECURED MEDIUM TERM NOTE, SERIES A
(Floating Rate)
CUSIP No.:
Original Issue Date:
Stated Maturity:
Principal Amount:
INTEREST RATE BASIS OR BASES:
IF LIBOR: IF CMT RATE:
[ ] LIBOR Reuters Designated CMT Telerate Page:
[ ] LIBOR Telerate Designated CMT Maturity Index:
INDEX MATURITY: INITIAL INTEREST RATE: % INTEREST PAYMENT DATE(S):
SPREAD SPREAD MULTIPLIER: INITIAL INTEREST RESET DATE:
(PLUS OR MINUS):
MINIMUM INTEREST RATE: % MAXIMUM INTEREST RATE: % INTEREST RESET DATE(S):
INITIAL REDEMPTION DATE: INITIAL REDEMPTION ANNUAL REDEMPTION
PERCENTAGE: % PERCENTAGE REDUCTION: %
OPTIONAL REPAYMENT DATE(S): CALCULATION AGENT:
INTEREST CATEGORY: DAY COUNT CONVENTION:
[ ] Regular Floating Rate Note [ ] 30/360 for the period
[ ] Floating Rate/Fixed Rate Note from to
Fixed Rate Commencement Date:[ ] Actual/360 for the period
Fixed Interest Rate: % from to
[ ] Inverse Floating Rate Note [ ] Actual/Actual for the period
Fixed Interest Rate: % from to
[ ] Original Issue Discount Note Applicable Interest Rate Basis:
Issue Price: %
AUTHORIZED DENOMINATION:
[ ] $1,000 and integral multiples thereof
[ ] Other
DEFAULT RATE: %
ADDENDUM ATTACHED
[ ] Yes
[ ] No
OTHER/ADDITIONAL PROVISIONS:
INDIANA MICHIGAN POWER COMPANY, a corporation duly organized and existing
under the laws of the State of Indiana (herein referred to as the "Company",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the Principal Amount specified above, on the Stated Maturity
specified above (or any Redemption Date or Repayment Date, each as defined
herein) (each such Stated Maturity, Redemption Date or Repayment Date being
hereinafter referred to as the "Maturity Date" with respect to the principal
repayable on such date) and to pay interest thereon, at a rate per annum equal
to the Initial Interest Rate specified above until the Initial Interest Reset
Date specified above and thereafter at a rate determined in accordance with the
provisions specified above and as herein provided with respect to one or more
Interest Rate Bases specified above until the principal hereof is paid or duly
made available for payment, and (to the extent that the payment of such interest
shall be legally enforceable) at the Default Rate per annum specified above on
any overdue principal, premium and/or interest. The Company will pay interest in
arrears on each Interest Payment Date, if any, specified above (each, an
"Interest Payment Date"), commencing with the first Interest Payment Date next
succeeding the Original Issue Date specified above, and on the Maturity Date;
provided, however, that if the Original Issue Date occurs between a Regular
Record Date (as defined below) and the next succeeding Interest Payment Date,
interest payments will commence on the second Interest Payment Date next
succeeding the Original Issue Date to the holder of this Note on the Regular
Record Date with respect to such second Interest Payment Date.
Interest on this Note will accrue from, and including, the immediately
preceding Interest Payment Date to which interest has been paid or duly provided
for (or from, and including, the Original Issue Date if no interest has been
paid or duly provided for) to, but excluding, the applicable Interest Payment
Date or the Maturity Date, as the case may be (each, an "Interest Period"). The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, subject to certain exceptions described herein, be paid to
the person in whose name this Note (or one or more predecessor Notes) is
registered at the close of business on the fifteenth calendar day (whether or
not a Business Day, as defined herein) immediately preceding such Interest
Payment Date (the "Regular Record Date"); provided, however, that interest
payable on the Maturity Date will be payable to the person to whom the principal
hereof and premium, if any, hereon shall be payable. Any such interest not so
punctually paid or duly provided for ("Defaulted Interest") will forthwith cease
to be payable to the holder on any Regular Record Date, and shall be paid to the
person in whose name this Note is registered at the close of business on a
special record date (the "Special Regular Record Date") for the payment of such
Defaulted Interest to be fixed by the Trustee hereinafter referred to, notice
whereof shall be given to the holder of this Note by the Trustee not less than
10 calendar days prior to such Special Regular Record Date or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which this note may be listed, and upon such notice as
may be required by such exchange, all as more fully provided for in the
Indenture.
Payment of principal, premium, if any, and interest in respect of this
Note due on the Maturity Date will be made in immediately available funds upon
presentation and surrender of this Note (and, with respect to any applicable
repayment of this Note, a duly completed election form as contemplated herein)
at the office or agency of the Company maintained for that purpose in the
Borough of Manhattan, The City of New York, New York. Payment of interest due on
any Interest Payment Date other than the Maturity Date will be made by check
mailed to the address of the person entitled thereto as such address shall
appear in the Security Register maintained at the aforementioned office or
agency of the Company; provided, however, that a holder of U.S.$10,000,000 or
more in aggregate principal amount of Notes (whether having identical or
different terms and provisions) will be entitled to receive interest payments on
such Interest Payment Date by wire transfer of immediately available funds if
appropriate wire transfer instructions have been received in writing by the
Company not less than 15 calendar days prior to such Interest Payment Date. Any
such wire transfer instructions received by the Company shall remain in effect
until revoked by such holder.
If any Interest Payment Date other than the Maturity Date would otherwise
be a day that is not a Business Day, such Interest Payment Date shall be
postponed to the next succeeding Business Day, except that if LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next
succeeding calendar month, such Interest Payment Date shall be the immediately
preceding Business Day. If the Maturity Date falls on a day that is not a
Business Day, the required payment of principal, premium, if any, and interest
shall be made on the next succeeding Business Day with the same force and effect
as if made on the date such payment was due, and no interest shall accrue with
respect to such payment for the period from and after the Maturity Date to the
date of such payment on the next succeeding Business Day.
Reference is hereby made to the further provisions of this Note set forth
herein and, if so specified above, in the Addendum hereto, which further
provisions shall have the same force and effect as if set forth herein.
This Note is one of a duly authorized series of Debt Securities (the "Debt
Securities") of the Company issued and to be issued under an Indenture, dated as
of October 1, 1998, as amended, modified or supplemented from time to time (the
"Indenture"), between the Company and The Bank of New York, as Trustee (the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental and Company Orders thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
holders of the Debt Securities, and of the terms upon which the Debt Securities
are, and are to be, authenticated and delivered. This Note is one of the series
of Debt Securities designated as "Unsecured Medium-Term Notes, Series A" (the
"Notes"). All terms used but not defined in this Note specified herein or in an
Addendum hereto shall have the meanings assigned to such terms in the Indenture.
[This Note is issuable only in registered form without
coupons in minimum denominations of U.S. $1,000 and integral
multiples thereof or any Other Authorized Denomination specified
herein.]
This Note will not be subject to any sinking fund and, unless otherwise
provided herein in accordance with the provisions of the following two
paragraphs, will not be redeemable or repayable prior to the Stated Maturity.
[If so specified on the face hereof and subject to the terms of Article
Three of the Indenture, this Note is subject to redemption at the option of the
Company on any date on or after the Initial Redemption Date, if any, specified
herein, in whole or from time to time in part in increments of U.S.$1,000 or any
Other Denomination (provided that any remaining principal amount hereof shall be
at least U.S.$1,000 or such Other Denomination), at the Redemption Price (as
defined below), together with unpaid interest accrued thereon to the date fixed
for redemption (each, a "Redemption Date"), on notice given no more than 60 nor
less than 30 calendar days prior to the Redemption Date and in accordance with
the provisions of the Indenture. The "Redemption Price" shall initially be the
Initial Redemption Percentage specified herein multiplied by the unpaid
principal amount of this Note to be redeemed. The Initial Redemption Percentage
shall decline at each anniversary of the Initial Redemption Date by the Annual
Redemption Percentage Reduction, if any, specified herein until the Redemption
Price is 100% of unpaid principal amount to be redeemed. In the event of
redemption of this Note in part only, a new Note of like tenor for the
unredeemed portion hereof and otherwise having the same terms as this Note shall
be issued in the name of the holder hereof upon the presentation and surrender
hereof.]
[This Note is subject to repayment by the Company at the option of the
holder hereof on the Optional Repayment Date(s), if any, specified herein, in
whole or in part in increments of U.S.$1,000 or any Other Denomination (provided
that any remaining principal amount hereof shall be at least U.S.$1,000 or such
Other Denomination), at a repayment price equal to 100% of the unpaid principal
amount to be repaid, together with unpaid interest accrued thereon to the date
fixed for repayment (each, a "Repayment Date"). For this Note to be repaid, this
Note must be received, together with the form hereon entitled "Option to Elect
Repayment" duly completed, by the Trustee at its corporate trust office not more
than 60 nor less than 30 calendar days prior to the Repayment Date. Exercise of
such repayment option by the holder hereof will be irrevocable. In the event of
repayment of this Note in part only, a new Note of like tenor for the unrepaid
portion hereof and otherwise having the same terms as this Note shall be issued
in the name of the holder hereof upon the presentation and surrender hereof.]
[If the Interest Category of this Note is specified herein as an Original
Issue Discount Note, the amount payable to the holder of this Note in the event
of redemption, repayment or acceleration of maturity of this Note will be equal
to the sum of (1) the Issue Price specified herein (increased by any accruals of
the Discount, as defined below) and, in the event of any redemption of this Note
(if applicable), multiplied by the Initial Redemption Percentage (as adjusted by
the Annual Redemption Percentage Reduction, if applicable) and (2) any unpaid
interest on this Note accrued from the Original Issue Date to the Redemption
Date, Repayment Date or date of acceleration of maturity, as the case may be.
The difference between the Issue Price and 100% of the principal amount of this
Note is referred to herein as the "Discount."]
[For purposes of determining the amount of Discount that has accrued as of
any Redemption Date, Repayment Date or date of acceleration of maturity of this
Note, such Discount will be accrued so as to cause an assumed yield on the Note
to be constant. The assumed constant yield will be calculated using a 30-day
month, 360-day year convention, a compounding period that, except for the
Initial Period (as defined below), corresponds to the shortest period between
Interest Payment Dates (with ratable accruals within a compounding period), a
constant coupon rate equal to the initial interest rate applicable to this Note
and an assumption that the maturity of this Note will not be accelerated. If the
period from the Original Issue Date to the initial Interest Payment Date (the
"Initial Period") is shorter than the compounding period for this Note, a
proportionate amount of the yield for an entire compounding period will be
accrued. If the Initial Period is longer than the compounding period, then such
period will be divided into a regular compounding period and a short period,
with the short period being treated as provided in the preceding sentence.]
The interest rate borne by this Note will be determined as follows:
(i) Unless the Interest Category of this Note is specified herein as
a "Floating Rate/Fixed Rate Note" or an "Inverse Floating Rate Note", this Note
shall be designated as a "Regular Floating Rate Note" and, except as set forth
herein, shall bear interest at the rate determined by reference to the
applicable Interest Rate Basis or Bases (a) plus or minus the Spread, if any,
and/or (b) multiplied by the Spread Multiplier, if any, in each case as
specified herein. Commencing on the Initial Interest Reset Date, the rate at
which interest on this Note shall be payable shall be reset as of each Interest
Reset Date specified herein; provided, however, that the interest rate in effect
for the period, if any, from the Original Issue Date to the Initial Interest
Reset Date shall be the Initial Interest Rate.
(ii) If the Interest Category of this Note is specified herein as a
"Floating Rate/Fixed Rate Note", then, except as set forth herein, this Note
shall bear interest at the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the Spread, if any, and/or (b)
multiplied by the Spread Multiplier, if any. Commencing on the Initial Interest
Reset Date, the rate at which interest on this Note shall be payable shall be
reset as of each Interest Reset Date; provided, however, that (y) the interest
rate in effect for the period, if any, from the Original Issue Date to the
Initial Interest Reset Date shall be the Initial Interest Rate and (z) the
interest rate in effect for the period commencing on the Fixed Rate Commencement
Date specified herein to the Maturity Date shall be the Fixed Interest Rate
specified herein or, if no such Fixed Interest Rate is specified, the interest
rate in effect hereon on the day immediately preceding the Fixed Rate
Commencement Date.
(iii) If the Interest Category of this Note is specified herein as an
"Inverse Floating Rate Note", then, except as set forth herein, this Note shall
bear interest at the Fixed Interest Rate minus the rate determined by reference
to the applicable Interest Rate Basis or Bases (a) plus or minus the Spread, if
any, and/or (b) multiplied by the Spread Multiplier, if any; provided, however,
that, unless otherwise specified herein, the interest rate hereon shall not be
less than zero. Commencing on the Initial Interest Reset Date, the rate at which
interest on this Note shall be payable shall be reset as of each Interest Reset
Date; provided, however, that the interest rate in effect for the period, if
any, from the Original Issue Date to the Initial Interest Reset Date shall be
the Initial Interest Rate.
Unless otherwise specified herein, the rate with respect to each Interest
Rate Basis will be determined in accordance with the applicable provisions
below. Except as set forth herein, the interest rate in effect on each day shall
be (i) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as defined below) immediately preceding such
Interest Reset Date or (ii) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
If any Interest Reset Date would otherwise be a day that is not a Business
Day, such Interest Reset Date shall be postponed to the next succeeding Business
Day, except that if LIBOR is an applicable Interest Rate Basis and such Business
Day falls in the next succeeding calendar month, such Interest Reset Date shall
be the immediately preceding Business Day. In addition, if the Treasury Rate is
an applicable Interest Rate Basis is an applicable Interest Rate Basis and the
Interest Determination Date would otherwise fall on an Interest Reset Date, then
such Interest Reset Date will be postponed to the next succeeding Business Day.
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law or executive order to close in The City of New
York or in any Place of Payment; provided that if LIBOR is an applicable
Interest Rate Basis, such day is also a London Business Day (as defined below).
"London Business Day" means any day on which dealings in U.S. Dollars are
transacted in the London interbank market.
The "Interest Determination Date" with respect to the CD Rate, the CMT
Rate, the Commercial Paper Rate, the Federal Funds Rate and the Prime Rate will
be the second Business Day immediately preceding the applicable Interest Reset
Date; and the "Interest Determination Date" with respect to LIBOR shall be the
second London Business Day immediately preceding the applicable Interest Reset
Date. The "Interest Determination Date" with respect to the Treasury Rate shall
be the day in the week in which the applicable Interest Reset Date falls on
which day Treasury Bills (as defined below) are normally auctioned (Treasury
Bills are normally sold at an auction held on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
following Tuesday, except that such auction may be held on the preceding
Friday); provided, however, that if an auction is held on the Friday of the week
preceding the applicable Interest Reset Date, the Interest Determination Date
shall be such preceding Friday. If the interest rate of this Note is determined
with reference to two or more Interest Rate Bases specified herein, the
"Interest Determination Date" pertaining to this Note shall be the most recent
Business Day which is at least two Business Days prior to the applicable
Interest Reset Date on which each Interest Rate Basis is determinable. Each
Interest Rate Basis shall be determined as of such date, and the applicable
interest rate shall take effect on the related Interest Reset Date.
CD Rate. If an Interest Rate Basis for this Note is specified herein as
the CD Rate, the CD Rate shall be determined as of the applicable Interest
Determination Date (a "CD Rate Interest Determination Date") as the rate on such
date for negotiable United States dollar certificates of deposit having the
Index Maturity specified herein as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates" or any successor publication ("H.15(519)") under the heading "CDs
(Secondary Market)", or, if not published by 3:00 P.M., New York City time, on
the related Calculation Date (as defined below), the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates of
deposit of the Index Maturity as published by the Federal Reserve Bank of New
York in its daily statistical release "Composite 3:30 P.M. Quotations for United
States Government Securities" or any successor publication ("Composite
Quotations") under the heading "Certificates of Deposit". If such rate is not
yet published in either H.15(519) or Composite Quotations by 3:00 P.M., New York
City time, on the related Calculation Date, then the CD Rate on such CD Rate
Interest Determination Date will be calculated by the Calculation Agent
specified herein and will be the arithmetic mean of the secondary market offered
rates as of 10:00 A.M., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United States
dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable United States dollar certificates of deposit of
major United States money center banks for negotiable United States dollar
certificates of deposit with a remaining maturity closest to the Index Maturity
in an amount that is representative for a single transaction in that market at
that time; provided, however, that if the dealers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the CD Rate determined as
of such CD Rate Interest Determination Date will be the CD Rate in effect on
such CD Rate Interest Determination Date.
CMT Rate. If an Interest Rate Basis for this Note is specified herein as
the CMT rate, the CMT Rate shall be determined as of the applicable Interest
Determination Date (a "CMT Rate Interest Determination Date") as the rate
displayed on the Designated CMT Telerate Page (as defined below) under the
caption "...Treasury Constant Maturities...Federal Reserve Board Release
H.15...Mondays Approximately 3:45 P.M.", under the column for the Designated CMT
Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page is
7055, the rate on such CMT Rate Interest Determination Date and (ii) if the
Designated CMT Telerate Page is 7052, the week, or the month, as applicable,
ended immediately preceding the week in which the related CMT Rate Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page or is not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index as published in the relevant H.15(519). If such rate is no longer
published or is not published by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate on such CMT Rate Interest Determination Date
will be such treasury constant maturity rate for the Designated CMT Maturity
Index (or other United States Treasury rate for the Designated CMT Maturity
Index) for the CMT Rate Interest Determination Date with respect to such
Interest Reset Date as may then be published by either the Board of Governors of
the Federal Reserve System or the United States Department of the Treasury that
the Calculation Agent determines to be comparable to the rate formerly displayed
on the Designated CMT Telerate Page and published in the relevant H.15(519). If
such information is not provided by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate on the CMT Rate Interest
Determination Date will be calculated by the Calculation Agent and will be a
yield to maturity, based on the arithmetic mean of the secondary market closing
offer side prices as of approximately 3:30 P.M., New York City time, on such CMT
Rate Interest Determination Date reported, according to their written records,
by three leading primary United States government securities dealers (each, a
"Reference Dealer") in The City of New York selected by the Calculation Agent
(from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for the most recently issued direct noncallable fixed rate obligations
of the United States ("Treasury Notes") with an original maturity of
approximately the Designated CMT Maturity Index and a remaining term to maturity
of not less than such Designated CMT Maturity Index minus one year. If the
Calculation Agent is unable to obtain three such Treasury Note quotations, the
CMT Rate on such CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offer side prices as of approximately 3:30 P.M., New
York City time, on such CMT Rate Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers selected by
the Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for Treasury Notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least U.S.$100 million. If three or four (and not
five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided,
however, that if fewer than three Reference Dealers selected by the Calculation
Agent are quoting as mentioned herein, the CMT Rate determined as of such CMT
Rate Interest Determination Date will be the CMT Rate in effect on such CMT Rate
Interest Determination Date. If two Treasury Notes with an original maturity as
described in the second preceding sentence have remaining terms to maturity
equally close to the Designated CMT Maturity Index, the Calculation Agent will
obtain from five Reference Dealers quotations for the Treasury Note with the
shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified herein (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)) for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519). If no such
page is specified herein, the Designated CMT Telerate Page shall be 7052, for
the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the United States Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified herein with respect to which the CMT Rate will be calculated. If no
such maturity is specified herein, the Designated CMT Maturity Index shall be 2
years.
Commercial Paper Rate. If an Interest Rate Basis for this Note is
specified herein as the Commercial Paper Rate, the Commercial Paper Rate shall
be determined as of the applicable Interest Determination Date (a "Commercial
Paper Rate Interest Determination Date") as the Money Market Yield (as defined
below) on such date of the rate for commercial paper having the Index Maturity
as published in H.15(519) under the heading "Commercial Paper-Nonfinancial". In
the event that such rate is not published by 3:00 P.M., New York City time, on
such Calculation Date, then the Commercial Paper Rate on such Commercial Paper
Rate Interest Determination Date will be the Money Market Yield of the rate for
commercial paper having the Index Maturity as published in Composite Quotations
under the heading "Commercial Paper" (with an Index Maturity of one month or
three months being deemed to be equivalent to an Index Maturity of 30 days or 90
days, respectively). If such rate is not yet published in either H.15(519) or
Composite Quotations by 3:00 P.M., New York City time, on such Calculation Date,
then the Commercial Paper Rate on such Commercial Paper Rate Interest
Determination Date will be calculated by the Calculation Agent and shall be the
Money Market Yield of the arithmetic mean of the offered rates at approximately
11:00 A.M., New York City time, on such Commercial Paper Rate Interest
Determination Date of three leading dealers of commercial paper in The City of
New York selected by the Calculation Agent for commercial paper having the Index
Maturity placed for an industrial issuer whose bond rating is "Aa", or the
equivalent from a nationally recognized statistical rating organization;
provided, however, that if the dealers so selected by the Calculation Agent are
not quoting as mentioned in this sentence, the Commercial Paper Rate determined
as of such Commercial Paper Rate Interest Determination Date will be the
Commercial Paper Rate in effect on such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
Money Market Yield = ((D x 360) / (360 - (D x M))) x 100
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Interest Period for which interest is being calculated.
Federal Funds Rate. If an Interest Rate Basis for this Note is specified
herein as the Federal Funds Rate, the Federal Funds Rate shall be determined as
of the applicable Interest Determination Date (a "Federal Funds Rate Interest
Determination Date") as the rate on such date for United States dollar federal
funds as published in H.15(519) under the heading "Federal Funds (Effective)"
or, if not published by 3:00 P.M., New York City time, on the Calculation Date,
the rate on such Federal Funds Rate Interest Determination Date as published in
Composite Quotations under the heading "Federal Funds/Effective Rate". If such
rate is not published in either H.15(519) or Composite Quotations by 3:00 P.M.,
New York City time, on the related Calculation Date, then the Federal Funds Rate
on such Federal Funds Rate Interest Determination Date shall be calculated by
the Calculation Agent and will be the arithmetic mean of the rates for the last
transaction in overnight United States dollar federal funds arranged by three
leading brokers of federal funds transactions in The City of New York selected
by the Calculation Agent, prior to 9:00 A.M., New York City time, on such
Federal Funds Rate Interest Determination Date; provided, however, that if the
brokers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Federal Funds Rate determined as of such Federal Funds Rate
Interest Determination Date will be the Federal Funds Rate in effect on such
Federal Funds Rate Interest Determination Date.
LIBOR. If an Interest Rate Basis for this Note is specified herein as
LIBOR, LIBOR shall be determined by the Calculation Agent as of the applicable
Interest Determination Date (a "LIBOR Interest Determination Date") in
accordance with the following provisions:
(i) if (a) "LIBOR Reuters" is specified herein, the arithmetic mean of
the offered rates (unless the Designated LIBOR Page (as defined below) by its
terms provides only for a single rate, in which case such single rate will be
used) for deposits in U.S. Dollars having the Index Maturity, commencing on the
applicable Interest Reset Date, that appear (or, if only a single rate is
required as aforesaid, appears) on the Designated LIBOR Page (as defined below)
as of 11:00 A.M., London time, on such LIBOR Interest Determination Date, or (b)
"LIBOR Telerate" is specified herein, or if neither "LIBOR Reuters" nor "LIBOR
Telerate" is specified herein as the method for calculating LIBOR, the rate for
deposits in U.S. Dollars having the Index Maturity, commencing on such Interest
Reset Date, that appears on the Designated LIBOR Page as of 11:00 A.M., London
time, on such LIBOR Interest Determination Date. If fewer than two such offered
rates appear, or if no such rate appears, as applicable, LIBOR on such LIBOR
Interest Determination Date shall be determined in accordance with the
provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on the
Designated LIBOR Page as specified in clause (i) above, the Calculation Agent
shall request the principal London offices of each of four major reference banks
in the London interbank market, as selected by the Calculation Agent, to provide
the Calculation Agent with its offered quotation for deposits in U.S. Dollars
for the period of the Index Maturity, commencing on the applicable Interest
Reset Date, to prime banks in the London interbank market at approximately 11:00
A.M., London time, on such LIBOR Interest Determination Date and in a principal
amount that is representative for a single transaction in U.S. Dollars in such
market at such time. If at least two such quotations are so provided, then LIBOR
on such LIBOR Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two such quotations are so provided, then LIBOR on
such LIBOR Interest Determination Date will be the arithmetic mean of the rates
quoted at approximately 11:00 A.M., New York City Time, on such LIBOR Interest
Determination Date by three major banks in the City of New York selected by the
Calculation Agent for loans in U.S. Dollars to leading European banks, having
the Index Maturity and in a principal amount that is representative for a single
transaction in U.S. Dollars in such market at such time; provided, however, that
if the banks so selected by the Calculation Agent are not quoting as mentioned
in this sentence, LIBOR determined as of such LIBOR Interest Determination Date
shall be LIBOR in effect on such LIBOR Interest Determination Date.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified herein,
the display on the Reuter Monitor Money Rates Service (or any successor service)
for the purpose of displaying the London interbank rates of major banks for U.S.
Dollars, or (b) if "LIBOR Telerate" is specified herein or neither "LIBOR
Reuters" nor "LIBOR Telerate" is specified herein as the method for calculating
LIBOR, the display on the Dow Jones Telerate Service (or any successor service)
for the purpose of displaying the London interbank rates of major banks for U.S.
Dollars.
Prime Rate. If an Interest Rate Basis for this Note is specified on the
face hereto as the Prime Rate, the Prime Rate shall be determined as of the
applicable Interest Determination Date (a "Prime Rate Interest Determination
Date") as the rate on such date as such rate is published in H.15(519) under the
heading "Bank Prime Loan". If such rate is not published prior to 3:00 P.M., New
York City time, on the related Calculation Date, then the Prime Rate shall be
the arithmetic mean of the rates of interest publicly announced by each bank
that appears on the Reuters Screen USPRIME1 Page (as defined below) as such
bank's prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page for such Prime Rate Interest Determination Date, the Prime Rate
shall be the arithmetic mean of the prime rates or base leading rates quoted on
the basis of the actual number of days in the year divided by a 360-day year as
of the close of business on such Prime Rate Interest Determination Date by four
major money center banks in The City of New York selected by the Calculation
Agent. If fewer than four such quotations are so provided, the Prime Rate shall
be the arithmetic mean of four prime rates quoted on the basis of the actual
number of days in the year divided by a 360-day year as of the close of business
on such Prime Rate Interest Determination Date as furnished in The City of New
York by the major money center banks, if any, that have provided such quotations
and by as many substitute banks or trust companies as necessary to obtain four
such prime rate quotations, provided such substitute banks or trust companies
are organized and doing business under the laws of the United States, or any
State thereof, each having total equity capital of at least U.S.$500 million and
being subject to supervision or examination by Federal or State authority,
selected by the Calculation Agent to provide such rate or rates; provided,
however, that if the banks or trust companies so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the Prime Rate determined
as of such Prime Rate Interest Determination Date will be the Prime Rate in
effect on such Prime Rate Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display designated as page
"USPRIME1" on the Reuter Monitor Money Rates Service or any successor service
(or such other page as may replace the USPRIME1 page on that service for the
purpose of displaying prime rates or base lending rates of major United States
banks).
Treasury Rate. If an Interest Rate Basis for this Note is specified herein
as the Treasury Rate, the Treasury Rate shall be determined as of the applicable
Interest Determination Date (a "Treasury Rate Interest Determination Date") as
the rate from the auction held on such Treasury Rate Interest Determination Date
(the "Auction") of direct obligations of the United States ("Treasury Bills")
having the Index Maturity, as such rate is published in H.15(519) under the
heading "Treasury Bills-auction average (investment)" or, if not published by
3:00 P.M., New York City time, on the related Calculation Date, the auction
average rate of such Treasury Bills (expressed as a bond equivalent on the basis
of a year of 365 or 366 days, as applicable, and applied on a daily basis) as
otherwise announced by the United States Department of the Treasury. In the
event that the results of the Auction of Treasury Bills having the Index
Maturity are not reported as provided above by 3:00 P.M., New York City time, on
such Calculation Date, or if no such Auction is held, then the Treasury Rate
shall be calculated by the Calculation Agent and shall be a yield to maturity
(expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York City time,
on such Treasury Rate Interest Determination Date, of three leading primary
United States government securities dealers selected by the Calculation Agent,
for the issue of Treasury Bills with a remaining maturity closest to the Index
Maturity; provided, however, that if the dealers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the Treasury Rate
determined as of such Treasury Rate Interest Determination Date will be the
Treasury Rate in effect on such Treasury Rate Interest Determination Date.
Notwithstanding the foregoing, the interest rate hereon shall not be
greater than the Maximum Interest Rate, if any, or less than the Minimum
Interest Rate, if any, in each case as specified herein. The interest rate on
this Note will in no event be higher than the maximum rate permitted by New York
law, as the same may be modified by United States law of general application.
The Calculation Agent shall calculate the interest rate hereon on or
before each Calculation Date. The "Calculation Date", if applicable, pertaining
to any Interest Determination Date shall be the earlier of (i) the tenth
calendar day after such Interest Determination Date or, if such day is not a
Business Day, the next succeeding Business Day or (ii) the Business Day
immediately preceding the applicable Interest Payment Date or the Maturity Date,
as the case may be. At the request of the Holder hereof, the Calculation Agent
will provide to the Holder hereof the interest rate hereon then in effect and,
if determined, the interest rate that will become effective as a result of a
determination made for the next succeeding Interest Reset Date.
Accrued interest hereon shall be an amount calculated by multiplying the
principal amount hereof by an accrued interest factor. Such accrued interest
factor shall be computed by adding the interest factor calculated for each day
in the applicable Interest Period. Unless otherwise specified as the Day Count
Convention herein, the interest factor for each such date shall be computed by
dividing the interest rate applicable to such day by 360 if the CD Rate, the
Commercial Paper Rate, the Federal Funds Rate, LIBOR or the Prime Rate is an
applicable Interest Rate Basis or by the actual number of days in the year if
the CMT Rate or the Treasury Rate is an applicable Interest Rate Basis. Unless
otherwise specified as the Day Count Convention herein, the interest factor for
this Note, if the interest rate is calculated with reference to two or more
Interest Rate Bases, shall be calculated in each period in the same manner as if
only the Applicable Interest Rate Basis specified herein applied.
All percentages resulting from any calculation on this Note shall be
rounded to the nearest one hundred-thousandth of a percentage point, with five
one-millionths of a percentage point rounded upwards, and all amounts used in or
resulting from such calculation on this Note shall be rounded, in the case of
United States dollars, to the nearest cent (with one-half cent being rounded
upwards).
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Notes may be declared,
and upon such declaration shall become, due and payable, in the manner, with the
effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Note upon compliance by the Company with certain conditions
set forth therein.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Notes of each series affected at the time outstanding,
as defined in the Indenture, to execute supplemental indentures for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of any supplemental indenture or of modifying in
any manner the rights of the Holders of the Notes; provided, however, that no
such supplemental indenture shall (i) extend the fixed maturity of any Notes of
any series, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or reduce any premium payable upon the
redemption thereof, or reduce the amount of the principal of a Discount Security
that would be due and payable upon a declaration of acceleration of the maturity
thereof pursuant to the Indenture, without the consent of the holder of each
Note then outstanding and affected; (ii) reduce the aforesaid percentage of
Notes, the holders of which are required to consent to any such supplemental
indenture, or reduce the percentage of Notes, the holders of which are required
to waive any default and its consequences, without the consent of the holder of
each Note then outstanding and affected thereby; or (iii) modify any provision
of Section 6.01(c) of the Indenture (except to increase the percentage of
principal amount of securities required to rescind and annul any declaration of
amounts due and payable under the Notes), without the consent of the holder of
each Note then outstanding and affected thereby. The Indenture also contains
provisions permitting the Holders of a majority in aggregate principal amount of
the Notes of all series at the time outstanding affected thereby, on behalf of
the Holders of the Notes of such series, to waive any past default in the
performance of any of the covenants contained in the Indenture, or established
pursuant to the Indenture with respect to such series, and its consequences,
except a default in the payment of the principal of or premium, if any, or
interest on any of the Notes of such series. Any such consent or waiver by the
registered Holder of this Note (unless revoked as provided in the Indenture)
shall be conclusive and binding upon such Holder and upon all future Holders and
owners of this Note and of any Note issued in exchange herefor or in place
hereof (whether by registration of transfer or otherwise), irrespective of
whether or not any notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Note at the time and place and at the rate and in the money
herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, this Note is transferable by the registered holder hereof on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company as may be designated by the
Company accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company or the Trustee duly executed by the registered
Holder hereof or his or her attorney duly authorized in writing, and thereupon
one or more new Notes of authorized denominations and for the same aggregate
principal amount and series will be issued to the designated transferee or
transferees. No service charge will be made for any such transfer, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Note, the
Company, the Trustee, any paying agent and any Note Registrar may deem and treat
the registered Holder hereof as the absolute owner hereof (whether or not this
Note shall be overdue and notwithstanding any notice of ownership or writing
hereon made by anyone other than the Note Registrar) for the purpose of
receiving payment of or on account of the principal hereof and premium, if any,
and interest due hereon and for all other purposes, and neither the Company nor
the Trustee nor any paying agent nor any Note Registrar shall be affected by any
notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Note, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture, against any incorporator,
stockholder, officer or director, past, present or future, as such, of the
Company or of any predecessor or successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issuance hereof, expressly waived and
released.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The Indenture and this Note shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely in such State.
IN WITNESS WHEREOF, the Company has caused this Instrument to be executed.
INDIANA MICHIGAN POWER COMPANY
By:___________________________
Treasurer
Attest:
By:___________________________
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Notes of the series of Notes designated in accordance
with, and referred to in, the within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK, as Trustee
By:___________________________
Authorized Signatory
<PAGE>
FOR VALUE RECEIVED, the undersigned hereby sell(s),
assign(s) and transfer(s) unto
(PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE)
- ---------------------------------------
- ----------------------------------------------------------------
- ----------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
- ----------------------------------------------------------------
ASSIGNEE) the within Note and all rights thereunder, hereby
- ----------------------------------------------------------------
irrevocably constituting and appointing such person attorney to
- ----------------------------------------------------------------
transfer such Note on the books of the Issuer, with full
- ----------------------------------------------------------------
power of substitution in the premises.
Dated:________________________ _________________________
NOTICE: The signature to this assignment must correspond with
the name as written upon the face of the within Note in
every particular, without alteration or enlargement or
any change whatever and NOTICE: Signature(s) must be
guaranteed by a financial institution that is a member
of the Securities Transfer Agents Medallion Program
("STAMP"), the Stock Exchange Medallion Program
("SEMP") or the New York Stock Exchange, Inc. Medallion
Signature Program ("MSP").
<PAGE>
[FORM OF ABBREVIATIONS]
The following abbreviations, when used in the inscription on the face of
the within Bond, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - Custodian
(Cust) (Minor)
Under Uniform Gifts to Minors Act
(State)
Additional abbreviations may also be used though not in list above.
<PAGE>
[OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably request(s) and instruct(s) the Company
to repay this Note (or portion hereof specified below) pursuant to its terms at
a price equal to 100% of the principal amount to be repaid, together with unpaid
interest accrued hereon to the Repayment Date, to the undersigned, at
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Trustee must receive at its
corporate trust office in the Borough of Manhattan, The City of
New York, currently located at
, not more than 60 nor less
than 30 calendar days prior to the Repayment Date, this Note with this "Option
to Elect Repayment" form duly completed.
If less than the entire principal amount of this Note is to be repaid,
specify the portion hereof (which shall be increments of U.S.$1,000 (or, if the
Specified Currency is other than United States dollars, the minimum Authorized
Denomination specified herein)) which the holder elects to have repaid and
specify the denomination or denominations (which shall be an Authorized
Denomination) of the Notes to be issued to the holder for the portion of this
Note not being repaid (in the absence of any such specification, one such Note
will be issued for the portion not being repaid).
Principal Amount
to be Repaid: $
Date:
Notice: The signature(s) on this Option to Elect Repayment must correspond with
the name(s) as written upon the face of this Note in every particular, without
alteration or enlargement or any change whatsoever.
Notwithstanding any provisions to the contrary contained herein, if the
face of this Note specifies that an Addendum is attached hereto or that
"Other/Additional Provisions" apply, this Note shall be subject to the terms set
forth in such Addendum or such "Other/Additional Provisions".
Unless the Certificate of Authentication hereon has been executed by the
Company by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.]
<PAGE>
EXHIBIT 4(d)
Instruction No. 1
Indiana Michigan Power Company
Unsecured Medium Term Notes, Series A
Instructions
(Fixed Rate)
To: Bank of New York, as Trustee
Trade or sale date: November 4, 1998
Principal Amount: $ 50,000,000
Maturity Date: 11-10-2008
Interest Rate: 6.45%
Original Issue Date: 11-09-98
Public Offering Price: 100%
Presenting Agent's Commission: .625%
Net Proceeds to Company: 99.375%
CUSIP No.: 45488P AA 8
Account number of participant account maintained by DTC on behalf of Presenting
Agent:
Salomon Smith Barney Inc # 274
Merrill Lynch & Co #5132
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Account number of participant account maintained by DTC on behalf of Trustee:
Bank of New York #0901
Each Presenting Agent's name and proportionate amount of Global Note:
Salomon Smith Barney Inc. 50%
Merrill Lynch & Co 50%
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Name in which the Note is to be registered (Registered Owner):
Cede & Co.
Address and taxpayer identification number of Registered Owner and address for
payment:
The Depository Trust Company
55 Water Street
New York, NY 10041
#13-2555119
Discount Security: Yes___ No X
Yield to Maturity: 6.45%
Initial Accrual Period: 11-09-98 - 01-31-99
Account of Company into which net proceeds are to be deposited:
Citibank ABA #021-000-089 Account #0003-4403
Any Other Book-Entry Note represented by Global Security (to the extent known):
Redemption Provisions:
Redeemable: Yes No X
In Whole: Yes No X
In Part: Yes No X
The Company sold $25,000,000 principal amount of the notes to Salomon
Smith Barney Inc. and $25,000,000 principal amount of the notes to Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated as principals in this
transaction, in each case for resale to one or more investors at the Public
Offering Price stated above, or in certain circumstances, at varying prices
related to prevailing market conditions at the time of resale as determined by
Salomon Smith Barney Inc. or Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, as the case may be.
INDIANA MICHIGAN POWER COMPANY
By:____________________________
(President, Vice President,
or Treasurer)
<PAGE>
<TABLE>
EXHIBIT 12
INDIANA MICHIGAN POWER COMPANY
Computation of Consolidated Ratio of Earnings to Fixed Charges
(in thousands except ratio data)
<CAPTION>
Year Ended December 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest on First Mortgage Bonds. . . . . . . . $ 43,564 $ 43,410 $ 41,209 $ 39,678 $ 35,910
Interest on Other Long-term Debt. . . . . . . . 24,725 23,564 20,100 21,064 27,457
Interest on Short-term Debt . . . . . . . . . . 1,883 2,003 2,982 3,248 4,903
Miscellaneous Interest Charges. . . . . . . . . 3,520 3,472 3,262 3,187 3,113
Estimated Interest Element in Lease Rentals . . 85,000 82,700 82,600 79,700 79,300
Total Fixed Charges. . . . . . . . . . . . $158,692 $155,149 $150,153 $146,877 $150,683
Earnings:
Net Income. . . . . . . . . . . . . . . . . . . $157,502 $141,092 $157,153 $146,740 $ 96,628
Plus Federal Income Taxes . . . . . . . . . . . 32,303 55,990 76,899 74,223 47,210
Plus State Income Taxes . . . . . . . . . . . . 6,063 7,058 9,270 7,519 4,938
Plus Fixed Charges (as above) . . . . . . . . . 158,692 155,149 150,153 146,877 150,683
Total Earnings . . . . . . . . . . . . . . $354,560 $359,289 $393,475 $375,359 $299,459
Ratio of Earnings to Fixed Charges. . . . . . . . 2.23 2.31 2.62 2.55 1.98
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Data
Year Ended December 31,
1998 1997 1996 1995 1994
(in thousands)
INCOME STATEMENTS DATA:
<S> <C> <C> <C> <C> <C>
Operating Revenues $1,405,794 $1,339,232 $1,328,493 $1,283,157 $1,251,309
Operating Expenses 1,239,787 1,131,444 1,108,076 1,077,434 1,029,340
Operating Income 166,007 207,788 220,417 205,723 221,969
Nonoperating Income (Loss) (839) 4,415 2,729 6,272 7,428
Income Before Interest
Charges 165,168 212,203 223,146 211,995 229,397
Interest Charges 68,540 65,463 65,993 70,903 71,895
Net Income 96,628 146,740 157,153 141,092 157,502
Preferred Stock Dividend
Requirements 4,824 5,736 10,681 11,791 11,681
Earnings Applicable to
Common Stock $ 91,804 $ 141,004 $ 146,472 $ 129,301 $ 145,821
Year Ended December 31,
1998 1997 1996 1995 1994
(in thousands)
BALANCE SHEETS DATA:
Electric Utility Plant $4,631,848 $4,514,497 $4,377,669 $4,319,564 $4,269,306
Accumulated Depreciation
and Amortization 2,081,355 1,973,937 1,861,893 1,751,965 1,659,940
Net Electric Utility Plant $2,550,493 $2,540,560 $2,515,776 $2,567,599 $2,609,366
Total Assets $4,148,523 $3,967,798 $3,897,484 $3,928,337 $3,878,035
Common Stock and Paid-in
Capital $ 789,189 $ 789,056 $ 787,856 $ 787,686 $ 790,234
Retained Earnings 253,154 278,814 269,071 235,107 216,658
Total Common Shareholder's
Equity $1,042,343 $1,067,870 $1,056,927 $1,022,793 $1,006,892
Cumulative Preferred Stock:
Not Subject to Mandatory
Redemption $ 9,273 $ 9,435 $ 21,977 $ 52,000 $ 52,000
Subject to Mandatory
Redemption (a) 68,445 68,445 135,000 135,000 135,000
Total Cumulative
Preferred Stock $ 77,718 $ 77,880 $ 156,977 $ 187,000 $ 187,000
Long-term Debt (a) $1,175,789 $1,049,237 $1,042,104 $1,040,101 $1,069,887
Obligations Under Capital
Leases (a) $ 186,427 $ 195,227 $ 130,965 $ 142,506 $ 152,589
Total Capitalization
and Liabilities $4,148,523 $3,967,798 $3,897,484 $3,928,337 $3,878,035
(a) Including portion due within one year.
</TABLE>
<PAGE>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This discussion includes forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements reflect assumptions, and involve
a number of risks and uncertainties. Among the factors that could
cause actual results to differ materially from forward looking
statements are: electric load and customer growth; abnormal weather
conditions; available sources and costs of fuels; availability of
generating capacity; the speed and degree to which competition is
introduced to the power generation business, the structure and
timing of a competitive market and its impact on energy prices or
fixed rates; the ability to recover stranded costs in connection
with possible deregulation of generation; new legislation and
government regulations; the ability of the Company to successfully
control its costs; the economic climate and growth in our service
territory; unforeseen events affecting the Company's nuclear plant
which is on an extended safety related shutdown; unforeseen
problems or failures related to Year 2000 readiness of computer
software and hardware; inflationary trends; electricity market
prices; interest rates; and other risks and unforeseen events.
This discussion contains a "Year 2000 Readiness Disclosure" within
the meaning of the Year 2000 Information and Readiness Disclosure
Act.
Indiana Michigan Power Company (the Company) is a wholly-owned
subsidiary of American Electric Power Company, Inc. (AEP Co.,
Inc.), a public utility holding company. The Company is engaged in
the generation, purchase, sale, transmission and distribution of
electric power to 554,000 retail customers in its service territory
in northern and eastern Indiana and a portion of southwestern
Michigan and conducts business as American Electric Power (AEP).
The Company supplies electric power to the AEP System Power Pool
(AEP Power Pool) and shares the revenues and costs of AEP Power
Pool wholesale sales to utility systems and power marketers. The
Company also sells wholesale power to municipalities and electric
cooperatives. As a member of the AEP Power Pool and a signatory
company to the AEP System Transmission Equalization Agreement, the
Company's generation and transmission facilities are operated in
conjunction with the facilities of certain other affiliated
utilities as an integrated utility system.
Results of Operations
Although operating revenues increased $67 million or 5% in 1998
and $11 million or 1% in 1997, net income decreased in both years.
Net income declined $50 million or 34% in 1998 due to increased
purchased power and maintenance expense related to an extended
outage of the Company's two unit Donald C. Cook Nuclear Plant (Cook
Plant) which was shutdown in September 1997 and losses on certain
non-regulated energy trades outside of the AEP Power Pool's
traditional marketing area. The 1997 decline of $10 million or 7%
resulted from increases in purchased power and other operation
expenses due in part to the nuclear plant outage.
Operating Revenues Increase
Operating revenues increased 5% in 1998 following a 1% increase
in 1997. The increases in operating revenues in 1998 and 1997 can
be attributed mainly to increased retail revenues. The following
analyzes the changes in operating revenues:
Increase (Decrease)
From Previous Year
(Dollars in Millions) 1998 1997
Amount % Amount %
Retail:
Residential $ 26.4 $ 4.3
Commercial 26.1 10.3
Industrial 38.1 19.4
Other 0.4 -
91.0 9.6 34.0 3.7
Wholesale (40.6)(11.2) (29.1) (7.4)
Transmission 13.4 83.2 4.3 35.9
Miscellaneous 2.8 27.6 1.5 18.6
Total $ 66.6 5.0 $ 10.7 0.8
Revenues from retail customers increased in 1998 due to the
accrual of revenues under fuel adjustment clauses for the increased
cost of replacement power and increased fossil fuel usage
necessitated by the extended outage of the Company's two nuclear
units and a 3% increase in sales. The increase in retail revenues
in 1997 resulted from the accruals of revenues to be recovered
under power supply recovery mechanisms. Under the retail
jurisdictional fuel clauses, revenues are accrued for the
unrecovered cost of fuel in both retail jurisdictions and for
replacement power costs in the Michigan jurisdiction until approved
for billing.
The Company as part of the AEP System shares costs and benefits
of the System's generating facilities through the AEP Power Pool.
The cost of the System's generating capacity is allocated among the
AEP Power Pool members, based on their relative peak demands and
generating reserves through the payment or receipt of capacity
charges and credits. AEP Power Pool members are also compensated
for the out-of-pocket costs of energy delivered to the AEP Power
Pool and charged for energy received from the AEP Power Pool.
The AEP Power Pool calculates each Company's prior twelve month
peak demand relative to the total peak demand of all member
companies as a basis for sharing revenues and costs. The result of
this calculation is each Company's member load ratio (MLR) which
determines each Company's percentage share of revenues or costs.
During 1998 the Company's MLR increased resulting in the Company
being allocated a larger share of wholesale revenues and expenses
from the AEP Power Pool.
In 1997 management decided to develop a power marketing and
trading business. The power marketing and trading business is
conducted by the AEP Power Pool and its revenues and expenses are
allocated to AEP Power Pool members based on MLR.
Wholesale revenues declined in 1998 due to a decline in sales
to the AEP Power Pool reflecting the unavailability of the nuclear
units. The decline was partially offset by the Company's share of
increased power marketing sales and trading activities. A decrease
in sales to the AEP Power Pool due mainly to the outage of Cook
Plant is also the primary reason for the decline in wholesale
revenues in 1997.
Operating Expenses Increase
Total operating expenses increased 10% in 1998 and 2% in 1997
primarily due to an increase in power purchases. The changes in
operating expenses were:
Increase (Decrease)
From Previous Year
(dollars in millions) 1998 1997
Amount % Amount %
Fuel $(53.8) (23.8) $(9.8) (4.2)
Purchased Power 133.3 80.9 26.1 18.8
Other Operation 13.1 3.9 23.6 7.6
Maintenance 39.8 33.8 2.5 2.2
Depreciation and
Amortization 4.3 3.1 0.4 0.3
Amortization of Rockport
Plant Unit 1 Phase-in
Plan Deferrals (11.9)(100.0) (3.8) (24.1)
Taxes Other Than
Federal Income Taxes 2.6 4.1 (8.8) (11.9)
Federal Income Taxes (19.1) (27.0) (6.8) (8.8)
Total $108.3 9.6 $23.4 2.1
The decrease in fuel expense in 1998 and 1997 reflects the
decrease in nuclear generation as both nuclear units were
unavailable from September 1997 through the end of 1998. See Cook
Nuclear Plant Shutdown discussed below.
Purchased power expense increased significantly in 1998 and
1997 due to increased purchases from the AEP Power Pool and the
Company's MLR share of increased purchases of electricity by the
AEP Power Pool. The purchases replace power usually generated by
the unavailable nuclear units and supply the electricity for the
AEP Power Pool's marketing sales.
The increases in other operation and maintenance expenses in
1998 were due to expenditures to prepare the nuclear units for
restart. Other operation expense increased in 1997 due to the
effect of gains on the disposition of emission allowances recorded
in 1996 and higher administrative and general costs and
uncollectible accounts receivable expenses.
The recovery period for Rockport Plant Unit 1 costs deferred
under rate phase-in plans in the Indiana and the Federal Energy
Regulatory Commission (FERC) jurisdictions ended in 1997 causing
the decrease in the amortization of phase-in plan deferrals. The
deferred costs were amortized over a 10-year period commensurate
with their collection from customers.
The decrease in taxes other than federal income taxes in 1997
was due to decreases in real and personal property taxes, Michigan
single business tax and Indiana supplemental income tax.
Federal income taxes attributable to operations decreased in
1998 and 1997 due to decreases in pre-tax operating income.
Nonoperating Income
The decline in nonoperating income is due to losses in 1998
from non-regulated electricity trading activities. These trading
activities are for forward electricity sales and purchases outside
of the AEP Power Pool's traditional marketing area and also include
electricity derivatives such as options, swaps, etc. Open trades
are marked-to-market and recorded in nonoperating income.
Business Outlook
The most significant factors affecting the Company's future
earnings are the restart of the Cook Plant units (discussed below
under Cook Nuclear Plant Shutdown) and the ability to recover costs
as the electric generating business becomes more competitive. The
introduction of competition and customer choice for retail
customers in the Company's service territory has been slow and
continues at a deliberate pace as legislators and regulatory
officials recognize the complexity of the issues. Federal
legislation has been proposed to mandate competition and customer
choice at the retail level, and several states have introduced or
are considering similar legislation. Certain states, including
California, instituted full customer choice in 1998. The Michigan
Commission has started a program for certain utilities to phase-in
to competition with the objective of providing full customer choice
by 2002. The Company has begun discussions with the Michigan
Commission and other interested parties to formulate a plan. The
actions by the Michigan Commission were not mandated by legislation
and are subject to a number of uncertainties and it is not
presently possible to determine what impact if any the resolution
of these matters will have on the operations of the Company. The
Company's Michigan jurisdiction accounts for 13% of total revenues.
Indiana is considering legislative initiatives to move to customer
choice, although the timing is uncertain. The Company supports
customer choice and is proactively involved in discussions at both
the state and federal levels regarding the best competitive market
structure and method to transition to a competitive marketplace.
As the pricing of generation in the electric energy market
evolves from regulated cost-of-service ratemaking to market-based
rates, many complex issues must be resolved, including the recovery
of stranded costs. Stranded costs are those costs above market
that potentially would not be recoverable in a competitive market.
At the wholesale level recovery of stranded costs under certain
conditions was addressed by the FERC when it established rules for
open transmission access and competition in the wholesale markets.
However, the issue of stranded cost is unresolved at the retail
level where it is much larger than it is at the wholesale level.
The amount of stranded cost the Company could experience depends on
the timing and extent to which competition is introduced to its
generation business and the future market prices of electricity.
The recovery of stranded cost is dependent on the terms of future
legislation and related regulatory proceedings.
Under the provisions of Statement of Financial Accounting
Standards (SFAS) 71 "Accounting for the Effects of Certain Types of
Regulation," regulatory assets (deferred expenses) and regulatory
liabilities (deferred revenues) are included in the consolidated
balance sheets of regulated utilities in accordance with regulatory
actions to match expenses and revenues with cost-based rates in the
same accounting period. In order to maintain net regulatory assets
on the balance sheet, SFAS 71 requires that rates charged to
customers be cost-based and provide for the recovery of deferred
expenses over future accounting periods. In the event a portion of
the Company's business no longer meets the requirements of SFAS 71,
SFAS 101 "Accounting for the Discontinuance of Application of
Statement 71" requires that net regulatory assets be written off
for that portion of the business. The provisions of SFAS 71 and
SFAS 101 never anticipated that deregulation would include an
extended transition period or that it could provide for recovery of
stranded costs during and after the transition period. In 1997 the
Financial Accounting Standards Board's (FASB) Emerging Issues Task
Force (EITF) addressed such a situation with the consensus reached
on issue 97-4 that requires the application of SFAS 71 to a segment
of a regulated electric utility cease when that segment is subject
to a legislatively approved plan for competition or an enabling
rate order is issued containing sufficient detail for the utility
to reasonably determine what the plan would entail. The EITF
indicated that the cessation of application of SFAS 71 would
require that regulatory assets and impaired plant be written off
unless they are recoverable in future rates.
Although certain FERC orders provide for competition in the
firm wholesale market, that market is a relatively small part of
our business and most of our firm wholesale sales are still under
cost-of-service contracts. As a result, the Company's generation
business is still cost-based regulated and should remain so for the
near future. We believe that enabling state legislation should
provide for the recovery of any generation-related net regulatory
assets and other reasonable stranded costs from impaired generating
assets. However, if in the future the Company's generation
business were to no longer be cost-based regulated and if it were
not possible to demonstrate probability of recovery of resultant
stranded costs including regulatory assets, results of operations,
cash flows and financial condition would be adversely affected.
Litigation
Corporate Owned Life Insurance
The Internal Revenue Service (IRS) agents auditing the AEP
System's consolidated federal income tax returns for the years 1991
to 1993 requested a ruling from their National Office that certain
interest deductions claimed by the Company relating to AEP's
corporate owned life insurance (COLI) program should not be
allowed. As a result of a suit filed by the Company in United
States (US) District Court (discussed below) this request for
ruling was withdrawn by the IRS agents. Adjustments have been or
will be proposed by the IRS disallowing COLI interest deductions
for taxable years 1991-96. A disallowance of the COLI interest
deductions through December 31, 1998 would reduce earnings by
approximately $66 million (including interest). The Company has
made no provision for any possible adverse earnings impact from
this matter.
In 1998 the Company made payments of taxes and interest
attributable to COLI interest deductions for taxable years 1991-97
to avoid the potential assessment by the IRS of any additional
above market rate interest on the contested amount. The payments
to the IRS are included on the balance sheet in other property and
investments pending the resolution of this matter. The Company
will seek refund, either administratively or through litigation, of
all amounts paid plus interest. In order to resolve this issue
without further delay, on March 24, 1998, the Company filed suit
against the US in the US District Court for the Southern District
of Ohio. Management believes that it has a meritorious position
and will vigorously pursue this lawsuit. In the event the
resolution of this matter is unfavorable, it will have a material
adverse impact on results of operations and cash flows.
The Company is involved in a number of other legal proceedings
and claims. While we are unable to predict the outcome of such
litigation, it is not expected that the ultimate resolution of
these matters will have a material adverse effect on the results of
operations, cash flows and/or financial condition.
Cost Containment and Process Improvement
Efforts continue to reduce the cost of products and services in
order to maintain competitiveness. The accounting department
completed its consolidation of operations and the marketing
department completed its reorganization in 1998 producing cost
reductions. In 1998 the Company reviewed its staffing levels for
power generation and energy delivery and developed plans to reduce
staff in 1999. The cost of staff reductions planned for 1999 was
provided for in the fourth quarter of 1998. Although cost savings
are expected to result from the power generation and energy
delivery reorganizations, the Company continues to incur expenses
related to investments in marketing and customer services and the
reengineering and improvement of business processes.
During 1998, the Company completed installation of a new
unified customer service system which is designed to support
customer requests for service, billings, accounts receivable,
credit and collection functions. On January 1, 1999, the Company's
new financial data base and PeopleSoft client server accounting and
purchasing software became operational. The move to client server
business software and related online data bases will empower
employees to maximize the benefits of their personal computers and
will position them to better access the power of the Internet and
other new technologies.
Costs for Spent Nuclear Fuel and Decommissioning
The Company, as the owner of the Cook Plant, like other nuclear
power plant owners, has a significant future financial commitment
to safely dispose of spent nuclear fuel (SNF) and decommission and
decontaminate the plant. The Nuclear Waste Policy Act of 1982
established federal responsibility for the permanent off-site
disposal of SNF and high-level radioactive waste. By law we
participate in the Department of Energy's (DOE) SNF disposal
program which is described in Note 3 of the Notes to Consolidated
Financial Statements. Since 1983 we have collected $272 million
from customers for the disposal of nuclear fuel consumed at the
Cook Plant. Of these funds, $115 million has been deposited in
external trust funds to provide for the future disposal of SNF and
$157 million has been remitted to the DOE. Under the provisions of
the Nuclear Waste Policy Act, collections from customers are to
provide the DOE with money to build a repository for SNF. However,
in December 1996, the DOE notified the Company that it would be
unable to begin accepting SNF by the January 1998 deadline required
by law.
As a result of DOE's failure to make sufficient progress toward
a permanent repository or otherwise assume responsibility for SNF,
the Company along with a number of unaffiliated utilities and
states filed suit in the US Court of Appeals for the District of
Columbia Circuit requesting, among other things, that the court
order DOE to meet its obligations under the law. The court ordered
the parties to proceed with contractual remedies but declined to
order DOE to begin accepting SNF for disposal. DOE estimates its
planned site for the nuclear waste will not be ready until 2010.
In June 1998, the Company filed a complaint in the US Court of
Federal Claims seeking damages in excess of $150 million due to the
DOE's partial material breach of its unconditional contractual
deadline to begin disposing of SNF generated by the Cook Plant.
Similar lawsuits have been filed by other utilities. As long as
the delay in the availability of a government approved storage
repository for SNF continues, the cost of both temporary and
permanent storage will increase.
The cost to decommission the Cook Plant is affected by both
Nuclear Regulatory Commission (NRC) regulations and the delayed SNF
disposal program. Studies completed in 1997 estimate the cost to
decommission the Cook Plant ranges from $700 million to $1,152
million in 1997 dollars. This estimate could escalate due to
continued uncertainty in the SNF disposal program and the length of
time that SNF may need to be stored at the plant site. External
trust funds have been established and funded with amounts collected
from customers to decommission the plant. At December 31, 1998,
the total decommissioning trust fund balance was $443 million which
includes earnings on the trust investments. We will work with
regulators and customers to recover the remaining estimated cost of
decommissioning the Cook Plant. However, future results of
operations, cash flows and possibly financial condition would be
adversely affected if the cost of SNF disposal and decommissioning
continue to increase and cannot be recovered from customers.
Cook Nuclear Plant Shutdown
Management shut down both units of the Cook Plant in September
1997 due to questions, which arose during a NRC architect engineer
design inspection, regarding the operability of certain safety
systems. The NRC issued a Confirmatory Action Letter in September
1997 requiring the Company to address the issues identified in the
letter. We are working with the NRC to resolve the remaining open
issue in the letter.
In April 1998 the NRC notified the Company that it had convened
a Restart Panel for Cook Plant. A list of required restart
activities was provided by the NRC in July 1998 and in October the
NRC expanded the list. In order to identify and resolve the issues
necessary to restart the Cook units, the Company is and will be
meeting with the Panel on a regular basis, until the units are
returned to service.
In January 1999 we announced that we will conduct additional
engineering reviews at the Cook Plant that will delay restart of
the units. Previously, the units were scheduled to return to
service at the end of the first and second quarters of 1999. The
decision to delay restart resulted from internal assessments that
indicated a need to conduct expanded system readiness reviews. A
new restart schedule will be developed based on the results of the
expanded reviews and should be available in June 1999. When
maintenance and other activities required for restart are complete,
the Company will seek concurrence from the NRC to return the Cook
Plant to service. Until these additional reviews are completed,
management is unable to determine when the units will be returned
to service.
One of the steps the Company has taken toward expediting the
restart of the Cook units is to augment its existing nuclear
generation management and staff with personnel experienced in
restarting unaffiliated companies' nuclear plants during NRC
supervised extended outages.
The costs incurred in 1997 and 1998 for restart of the Cook
units were $6 million and $78 million, respectively, and were
recorded as operation and maintenance expense. Reductions in other
operation and maintenance expenses partially offset these costs.
Currently incremental restart expenses are approximately $12
million a month.
In July 1998 the Company received an "adverse trend letter"
from the NRC indicating that NRC senior managers determined that
there had been a slow decline in performance at the Cook Plant
during the 18 month period preceding the letter. The letter
indicated that the NRC will closely monitor efforts to address
issues at Cook Plant through additional inspection activities. In
October 1998 the NRC issued the Company a Notice of Violation and
proposed a $500,000 civil penalty for alleged violations at the
Cook Plant discovered during five inspections conducted between
August 1997 and April 1998. The penalty was paid.
The cost of electricity supplied to retail customers rose due
to the outage of the two units since higher cost coal-fired
generation and coal based purchased power were substituted for low
cost nuclear generation. The Indiana and Michigan retail
jurisdictional fuel cost recovery mechanisms permit the recovery,
subject to regulatory commission review and approval, of changes in
fuel costs including the fuel component of purchased power in the
Indiana jurisdiction and changes in replacement power in the
Michigan jurisdiction. Under these fuel cost recovery mechanisms,
retail rates contain a fuel cost adjustment factor that reflects
estimated fuel costs for the period during which the factor will be
in effect subject to reconciliation to actual fuel costs in a
future proceeding. When actual fuel costs exceed the estimated
costs reflected in the billing factor a regulatory asset is
recorded and revenues are accrued. Therefore, a regulatory asset
has been recorded and revenues accrued in anticipation of the
future reconciliation and billing under the fuel cost recovery
mechanisms of the higher fuel costs to replace Cook energy during
the extended outage. At December 31, 1998, the regulatory asset
was $65 million.
The Indiana Utility Regulatory Commission (IURC) approved,
subject to future reconciliation or refund, agreements authorizing
the Company, during the billing months of July 1998 through March
1999, to include in rates a fuel cost adjustment factor less than
that requested. The agreements provide the parties to the
proceedings with the opportunity to conduct discovery regarding
certain issues that were raised in the proceedings, including the
appropriateness of the recovery of replacement energy cost due to
the extended Cook Plant outage, in anticipation of resolving the
issues in a future fuel cost adjustment proceeding.
On March 16, 1999 a settlement agreement was filed with the
IURC resolving all matters related to the reasonableness of fuel
costs and all outage issues during an extended outage of the Cook
Plant. The settlement agreement, which is subject to IURC
approval, provides for, among other things, a credit of $55 million
to Indiana retail customers; authorization to defer any unrecovered
fuel revenues accrued between September 9, 1997 and December 31,
1999 including the $55 million; authorization to defer up to $150
million of incremental operation and maintenance restart costs for
the Cook Plant above the base rate level incurred during 1999;
amortization of the fuel recoveries and restart cost deferrals over
a five-year period ending December 31, 2003; a freeze in base rates
though December 31, 2003; and a cap on fuel recovery charges
through March 1, 2004. The $55 million credit will be refunded
through customer's bills during the months of July, August and
September 1999. If the IURC does not approve the settlement, the
issue of recovery of replacement energy costs would be resolved
through regulatory hearings.
Unless the costs of the extended outage and restart efforts are
recovered from customers, there would be a material adverse effect
on results of operations, cash flows, and possibly financial
condition.
Environmental Concerns and Issues
We take great pride in our efforts to economically produce and
deliver electricity while minimizing the impact on the environment.
The Company has spent hundreds of millions of dollars to equip our
facilities with the latest economical clean air and water
technologies and to research new technologies. We intend to
continue in a leadership role fostering economically prudent
efforts to protect and preserve the environment.
By-products from the generation of electricity include
materials such as ash, slag, sludge, low-level radioactive waste
and SNF. Coal combustion by-products are typically disposed of or
treated in captive disposal facilities or are beneficially
utilized. In addition, our generating plants and transmission and
distribution facilities have used asbestos, polychlorinated
biphenyls (PCBs) and other hazardous and nonhazardous materials.
The Company is currently incurring costs to safely dispose of such
substances. Additional costs could be incurred to comply with new
laws and regulations if enacted.
The Comprehensive Environmental Response, Compensation and
Liability Act (Superfund) addresses clean-up of hazardous
substances at disposal sites and authorized the US Environmental
Protection Agency (Federal EPA) to administer the clean-up
programs. As of year-end 1998, the Company is currently involved
in litigation with respect to one site overseen by the Federal EPA,
and has been named by the Federal EPA as a potentially responsible
party (PRP) for two other sites. There is one additional site for
which the Company has received an information request which could
lead to PRP designation. Historically, the Company's liability has
been resolved for a number of sites with no significant effect on
results of operations and present estimates do not anticipate
material cleanup costs for identified sites for which we have been
declared a PRP. However, if for reasons not currently identified
significant cleanup costs are incurred, results of operations, cash
flows and possibly financial condition would be adversely affected
unless the costs can be recovered from customers.
On September 24, 1998, the administrator of Federal EPA signed
final rules which require reductions in nitrogen oxides (NOx)
emissions in 22 eastern states, including the states in which the
generating plants of the Company and its affiliates in the AEP
System are located. The implementation of the final rules would be
achieved through the revision of state implementation plans (SIPs)
by September 1999. SIPs are a procedural method used by each state
to comply with Federal EPA rules. The final rules anticipate the
imposition of a NOx reduction on utility sources of approximately
85% below 1990 emission levels by the year 2003. On October 30,
1998, a number of utilities, including the Company and the other
operating companies of the AEP System, filed a petition in the US
Court of Appeals for the District of Columbia Circuit seeking a
review of the final rules.
Should the states fail to adopt the required revisions to their
SIPs within one year of the date the final rules were signed
(September 24, 1999), Federal EPA has proposed to implement a
federal plan to accomplish the NOx reductions. Federal EPA also
proposed the approval of portions of petitions filed by eight
northeastern states that would result in imposition of NOx emission
reductions on utility and industrial sources in upwind midwestern
states. These reductions are substantially the same as those
required by the final NOx rules and could be adopted by Federal EPA
in the event the states fail to implement SIPs in accordance with
the final rules.
Preliminary estimates indicate that compliance could result in
required capital expenditures of approximately $169 million.
Compliance costs cannot be estimated with certainty and the actual
costs incurred to comply could be significantly different from this
preliminary estimate depending upon the compliance alternatives
selected to achieve reductions in NOx emissions. Unless such costs
are recovered from customers, they would have a material adverse
effect on results of operations, cash flows and possibly financial
condition.
At the Third Conference of the Parties to the United Nations
Framework Convention on Climate Change held in Kyoto, Japan in
December 1997 more than 160 countries, including the US, negotiated
a treaty requiring legally-binding reductions in emissions of
greenhouse gases, chiefly carbon dioxide, which many scientists
believe are contributing to global climate change. The treaty,
which requires the advice and consent of the US Senate for
ratification, would require the US to reduce greenhouse gas
emissions seven percent below 1990 levels in the years 2008-2012.
Although the US has agreed to the treaty and signed it on November
12, 1998, President Clinton has indicated that he will not submit
the treaty to the Senate for consideration until it contains
requirements for "meaningful participation by key developing
countries" and the rules, procedures, methodology and guidelines of
the treaty's market-based policy instruments, joint implementation
programs and compliance enforcement provisions have been
negotiated. At the Fourth Conference of the Parties, held in
Buenos Aires, Argentina, in November 1998, the parties agreed to a
work plan to complete negotiations on outstanding issues with a
view toward approving them at the Sixth Conference of the Parties
to be held in December 2000. We will continue to work with the
Administration and Congress to monitor the development of public
policy on this issue.
If the Kyoto treaty is approved by Congress, the costs to
comply with the emission reductions required by the treaty are
expected to be substantial and would have a material adverse impact
on results of operations, cash flows and possibly financial
condition if not recovered from customers.
Financial Condition
The Company issued $175 million principal amount of long-term
obligations in 1998 at interest rates ranging from 6.45% to 7.6%.
The principal amount of long-term debt retirements, including
maturities, totaled $55 million at interest rates ranging from 7%
to 7.8%. Our senior secured debt/first mortgage bond ratings are:
Moody's, Baa1; Standard & Poor's, A-; and Fitch, BBB+.
Gross plant and property additions were $159 million in 1998
and $235 million in 1997. Management estimates construction
expenditures for the next three years to be $366 million which
includes the replacement of the Cook Plant Unit 1 steam generators.
The funds for construction of new facilities and improvement of
existing facilities can come from a combination of internally
generated funds, short-term and long-term borrowings, preferred
stock issuances and investments in common equity by the Company's
parent, American Electric Power Company, Inc. (AEP Co., Inc.)
However, all of the construction expenditures for the next three
years are expected to be financed with internally generated funds.
When necessary the Company generally issues short-term debt to
provide for interim financing of capital expenditures that exceed
internally generated funds. At December 31, 1998, $763 million of
unused short-term lines of credit shared with other AEP System
companies were available. Short-term debt borrowings are limited
by provisions of the Public Utility Holding Company Act of 1935 to
$300 million. Generally periodic reductions of outstanding short-term
debt are made through issuances of long-term debt and
additional capital contributions by the parent company.
The Company's earnings coverage presently exceeds all minimum
coverage requirements for the issuance of mortgage bonds and
preferred stock. The minimum coverage ratios are 2.0 for mortgage
bonds and 1.5 for preferred stock. At December 31, 1998, the
mortgage bond and preferred stock coverage ratios were 6.39 and
2.08, respectively.
The Company is committed under unit power agreements to
purchase all of an affiliate's share, 50% of the 2,600 megawatt
(mw) Rockport Plant capacity, unless it is sold to other utilities.
The affiliate has a long-term unit power agreement for the sale of
455 mw to an unaffiliated utility. Revenues received under this
agreement (which expires at the end of 1999) were $70 million in
1998. An agreement between the affiliate which owns Rockport Plant
and another affiliate provides for the sale of 390 mw of capacity
to that affiliate through 2004.
Market Risks
The Company has certain market risks inherent in its business
activities from changes in electricity commodity prices and
interest rates. The trading of electricity and related financial
derivative instruments through the AEP Power Pool on the Company's
behalf exposes the Company to market risk. Market risk represents
the risk of loss that may impact the Company due to adverse changes
in electricity commodity market prices and rates. In 1998 the AEP
Power Pool substantially increased the volume of its wholesale
power marketing and trading activities. Various policies and
procedures have been established to manage market risk exposures
including the use of a risk measurement model utilizing Value at
Risk (VaR). Throughout the year ending December 31, 1998, the
Company's share of the highest, lowest and average quarterly VaR in
the wholesale trading portfolio was less than $2 million at a 95%
confidence level with a holding period of three business days. The
AEP Power Pool uses the variance-covariance method for calculating
VaR based on three months of daily prices. Based on this VaR
analysis, at December 31, 1998 a near term change in commodity
prices is not expected to have a material effect on the Company's
results of operations, cash flows or financial condition.
The Company is exposed to changes in interest rates primarily
due to short-term and long-term borrowings to fund its business
operations. The debt portfolio has both fixed and variable
interest rates with terms from one day to forty years and an
average duration of six years at December 31, 1998. The Company
measures interest rate market risk exposure utilizing a VaR model.
The model is based on the Monte Carlo method of simulated price
movements with a 95% confidence level and a one year holding
period. The volatilities and correlations are based on three years
of monthly prices. The risk of potential loss in fair value
attributable to the Company's exposure to interest rates, primarily
related to long-term debt with fixed interest rates, was $102
million at December 31, 1998. The Company would not expect to
liquidate its entire debt portfolio in a one year holding period.
Therefore, a near term change in interest rates should not
materially affect results of operations or the consolidated
financial position of the Company. Also since the Company's rates
are cost-based regulated, the risk of interest rate changes on debt
used to finance regulated operations is mitigated.
Inflation affects the Company's cost of replacing utility plant
and the cost of operating and maintaining its plant. The rate-making
process generally limits our recovery to the historical cost
of assets resulting in economic losses when the effects of
inflation are not recovered from customers on a timely basis.
However, economic gains that result from the repayment of long-term
debt with inflated dollars partly offset such losses.
Other Matters
Computer Issue - Year 2000
On or about midnight on December 31, 1999, digital computing
systems may begin to produce erroneous results or fail, unless
these systems are modified or replaced, because such systems may be
programmed incorrectly and interpret the date of January 1, 2000 as
being January 1st of the year 1900 or another incorrect date. In
addition, certain systems may fail to detect that the year 2000 is
a leap year. Problems can also arise earlier than January 1, 2000,
as dates in the next millennium are entered into non-Year 2000
ready programs.
Readiness Program - Internally, the Company, through the AEP
System, is modifying or replacing its computer hardware and
software programs to minimize Year 2000-related failures and repair
such failures if they occur. This includes both information
technology systems (IT), which are mainframe and client server
applications, and embedded logic systems (non-IT), such as process
controls for energy production and delivery. Externally, the
problem is being addressed with entities that interact with the
Company, including suppliers, customers, creditors, financial
service organizations and other parties essential to the Company's
operations. In the course of the external evaluation, the Company
has sought written assurances from third parties regarding their
state of Year 2000 readiness.
Another issue we are addressing is the impact of electric power
grid problems that may occur outside of our transmission system.
The Company, along with other electric utilities in North America,
regularly submits information to the North American Electric
Reliability Council (NERC) as part of NERC's Year 2000 readiness
program. NERC then publicly reports summary information to the DOE
regarding the Year 2000 readiness of electric utilities. In 1999
AEP plans to participate in two NERC-sponsored coordinated electric
industry Year 2000 readiness drills.
The second NERC report, dated January 11, 1999 and entitled:
Preparing the Electric Power Systems of North American for
Transition to the Year 2000 - A Status Report and Work Plan, Fourth
Quarter 1998, states that: "With more than 44% of mission critical
components tested through November 30, 1998, findings continue to
indicate that transition through critical Year 2000 (Y2K) rollover
dates is expected to have minimal impact on electric system
operations in North America." The Company continues to set a
target date of June 30, 1999 for having all mission critical and
high priority systems and components Y2K ready.
Through the Electric Power Research Institute, an electric
industry-wide effort has been established to deal with Year 2000
problems affecting embedded systems. Under this effort,
participating utilities are working together to assess specific
vendors' system problems and test plans.
The state regulatory commissions in the Company's service
territory are also reviewing the Year 2000 readiness of the
Company.
Company's State of Readiness - Work has been prioritized in
accordance with business risk. The highest priority has been
assigned to activities that potentially affect safety, the physical
generation and delivery of energy, and communications; followed by
back office activities such as customer service/billing, regulatory
reporting, internal reporting and administrative activities (e.g.
payroll, procurement, accounts payable); and finally, those
activities that would cause inconvenience or productivity loss in
normal business operations.
<PAGE>
The following chart shows our progress toward becoming ready
for the Year 2000 as of December 31, 1998:
IT SYSTEMS NON-IT SYSTEMS
COMPLETION COMPLETION
DATE/ESTIMATED PERCENT DATE/ESTIMATED PERCENT
YEAR 2000 PROJECT PHASES COMPLETION DATE COMPLETE COMPLETION DATE COMPLETE
Launch: Initiation of 2/24/1998 100% 5/31/1998 100%
the Year 2000 activities
within the organization.
Establishment of
organizational structure,
personnel assignments
and budget for the
workgroup. Continuous
management update and
awareness program.
Inventory and Assessment:
Identifying all Company 7/31/1998 100% 2/15/1999 99%
computer systems that
could be affected by the
millennium change.
Prioritize repair efforts
based upon criticality to
maintaining ongoing operations.
Remediation/Testing: The
process of modifying, 6/30/1999 Mainframe: 6/30/1999 37%
replacing or retiring 70%
those mission critical and
high priority digital-based
systems with problems Client
processing dates past the Server:
Year 2000. Testing these 18%
systems to ensure that after
modifications have been
implemented correct date
processing occurs and full
functionality has been maintained.
Costs to Address the Company's Year 2000 Issues - Through
December 31, 1998, the Company has spent $4 million on the Year
2000 project and, estimates spending an additional $6 million to $9
million to achieve Year 2000 readiness. Most Year 2000 costs are
for software modifications, IT consultants and salaries and are
expensed; however, in certain cases the Company has acquired
hardware that was capitalized. The Company intends to fund these
expenditures through internal sources. Although significant, the
cost of becoming Year 2000 compliant is not expected to have a
material impact on the Company's results of operations, cash flows
or financial condition.
Risks of the Company's Year 2000 Issues - The applications
posing the greatest business risk to the Company's operations
should they experience Y2K problems are:
* Automated power generation, transmission and distribution systems
* Telecommunications systems
* Energy trading systems
* Time-in-use, demand and remote metering systems for
commercial and industrial customers and
* Work management and billing systems.
The potential problems related to erroneous processing by, or
failure of, these systems are:
* Power service interruptions to customers
* Interrupted revenue data gathering and collection
* Poor customer relations resulting from delayed billing and
settlement.
In addition, although as discussed relationships with third
parties, such as suppliers, customers and other electric utilities,
are being monitored, these third parties nonetheless represent a
risk that cannot be assessed with precision or controlled with
certainty.
Due to the complexity of the problem and the interdependent
nature of computer systems, if our corrective actions, and/or the
actions of others not affiliated with the AEP System, fail for
critical applications, Year 2000-related issues may materially
adversely affect the Company.
Company's Contingency Plans - To address possible failures of
electric generation and delivery of electrical energy due to Year
2000 related failures, we have established a draft Year 2000
contingency plan and submitted it to the East Central Area
Reliability Council in December 1998 as part of NERC's review of
regional and individual electric utility contingency plans in 1999.
NERC's target date is June 1999 for the completion of this
contingency plan. In addition, the Company intends to establish
contingency plans for its business units to address alternatives if
Year 2000 related failures occur. Contingency plans will be
developed by the end of 1999. The Company's plans build upon the
disaster recovery, system restoration, and contingency planning
that we have had in place.
New Accounting Standards
In 1997 the FASB issued SFAS 130 "Reporting Comprehensive
Income" and SFAS 131 "Disclosures About Segments of an Enterprise
and Related Information." SFAS 130 establishes the standards for
reporting and displaying components of "comprehensive income,"
which is the total of net income and all transactions not included
in net income affecting equity except those with shareholders. The
Company adopted SFAS 130 in the first quarter of 1998. For 1998
there were no material differences between net income and
comprehensive income.
SFAS 131 initiates standards for annual and interim financial
statements to report operating segments of a business for which
separate financial information is available and regularly evaluated
by the chief operating decision maker in allocating resources and
reviewing performance. Information about products and services and
geographic areas is to be reported at an enterprise-level instead
of by segment. SFAS 131 was required to be adopted by the Company
for the year ended December 31, 1998 with restatement of prior
period comparative information. Adoption of SFAS 131 did not have
any effect on results of operations, cash flows or financial
condition.
In the first quarter of 1998 the Company adopted the American
Institute of Certified Public Accountants' (AICPA) Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". The SOP requires the
capitalization and amortization of certain costs of acquiring or
developing internal use computer software. Previously the Company
expensed all software acquisition and development costs. The SOP
had to be adopted at the beginning of a fiscal year with no
restatement or retroactive adjustment of prior periods. The
adoption of the SOP effective January 1, 1998 did not have a
material effect on results of operations, cash flows or financial
condition.
In February 1998, the FASB issued SFAS 132 "Employers'
Disclosure about Pensions and Other Postretirement Benefits" which
revised employers' disclosures about pensions and other
postretirement benefit plans and suggested that the disclosure be
combined. It did not change the measurement or recognition
requirements for postretirement benefit accounting. The adoption
of SFAS 132 did not have an effect on results of operations, cash
flows or financial condition.
EITF 98-10 "Accounting for Contracts Involved in Energy Trading
and Risk Management Activities" was issued in November 1998 to
address the application of mark-to-market accounting for energy
trading contracts. Under the provisions of this standard, which
must be adopted by the Company in January 1999, energy trading
contracts can no longer be accounted for on a settlement basis.
Instead they are to be marked-to-market. Initial adoption of EITF
98-10 is not expected to have a significant impact on results of
operations, cash flows, or financial condition.
The FASB issued SFAS 133 "Accounting for Derivative Instruments
and Hedging Activities" in June 1998. SFAS 133 establishes
accounting and reporting standards for derivative instruments. It
requires that all derivatives be recognized as either an asset or
a liability and measured at fair value in the financial statements.
If certain conditions are met a derivative may be designated as a
hedge of possible changes in fair value of an asset, liability or
firm commitment; variable cash flows of forecasted transactions; or
foreign currency exposure. The accounting/reporting for changes in
a derivative's fair value (gains and losses) depend on the intended
use and resulting designation of the derivative. Management is
currently studying the provisions of SFAS 133 to determine the
impact, of its adoption on January 1, 2000, on results of
operations, cash flows and financial condition.
In April 1998 the AICPA issued SOP 98-5 "Reporting on the Costs
of Start-up Activities". The SOP clarifies the accounting and
reporting for one time start-up activities and organization costs,
requiring that they be expensed as incurred. The adoption of this
standard in January 1999 is not expected to have a material effect
on results of operations, cash flows or financial condition.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of
Directors of Indiana Michigan Power Company:
We have audited the accompanying consolidated balance sheets of
Indiana Michigan Power Company and its subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of
income, retained earnings, and cash flows for each of the three
years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Indiana
Michigan Power Company and its subsidiaries as of December 31, 1998
and 1997, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Columbus, Ohio
February 23, 1999
(March 16, 1999 as to Note 4)
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Year Ended December 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES $1,405,794 $1,339,232 $1,328,493
OPERATING EXPENSES:
Fuel 172,592 226,402 236,237
Purchased Power 298,046 164,775 138,687
Other Operation 347,207 334,115 310,513
Maintenance 157,593 117,780 115,300
Depreciation and Amortization 145,112 140,812 140,437
Amortization of Rockport Plant Unit 1
Phase-in Plan Deferrals - 11,871 15,644
Taxes Other Than Federal Income Taxes 67,592 64,945 73,729
Federal Income Taxes 51,645 70,744 77,529
Total Operating Expenses 1,239,787 1,131,444 1,108,076
OPERATING INCOME 166,007 207,788 220,417
NONOPERATING INCOME (LOSS) (839) 4,415 2,729
INCOME BEFORE INTEREST CHARGES 165,168 212,203 223,146
INTEREST CHARGES 68,540 65,463 65,993
NET INCOME 96,628 146,740 157,153
PREFERRED STOCK DIVIDEND REQUIREMENTS 4,824 5,736 10,681
EARNINGS APPLICABLE TO COMMON STOCK $ 91,804 $ 141,004 $ 146,472
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
1998 1997
(in thousands)
ASSETS
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Production $2,556,732 $2,545,484
Transmission 913,252 908,736
Distribution 768,803 737,902
General (including nuclear fuel) 236,650 233,888
Construction Work in Progress 156,411 88,487
Total Electric Utility Plant 4,631,848 4,514,497
Accumulated Depreciation and Amortization 2,081,355 1,973,937
NET ELECTRIC UTILITY PLANT 2,550,493 2,540,560
NUCLEAR DECOMMISSIONING AND SPENT NUCLEAR
FUEL DISPOSAL TRUST FUNDS 648,307 566,390
OTHER PROPERTY AND INVESTMENTS 197,368 156,228
CURRENT ASSETS:
Cash and Cash Equivalents 12,465 5,860
Accounts Receivable:
Customers 94,502 107,087
Affiliated Companies 19,528 15,662
Miscellaneous 18,743 14,561
Allowance for Uncollectible Accounts (2,027) (1,188)
Fuel - at average cost 20,857 17,182
Materials and Supplies - at average cost 78,009 78,701
Accrued Utility Revenues 37,277 30,521
Prepayments and Other 18,953 4,685
TOTAL CURRENT ASSETS 298,307 273,071
REGULATORY ASSETS 421,475 400,489
DEFERRED CHARGES 32,573 31,060
TOTAL $4,148,523 $3,967,798
</TABLE>
See Notes to Consolidated Financial Statements.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
December 31,
1998 1997
(in thousands)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common Stock - No Par Value:
Authorized - 2,500,000 Shares
Outstanding - 1,400,000 Shares $ 56,584 $ 56,584
Paid-in Capital 732,605 732,472
Retained Earnings 253,154 278,814
Total Common Shareholder's Equity 1,042,343 1,067,870
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption 9,273 9,435
Subject to Mandatory Redemption 68,445 68,445
Long-term Debt 1,140,789 1,014,237
TOTAL CAPITALIZATION 2,260,850 2,159,987
OTHER NONCURRENT LIABILITIES:
Nuclear Decommissioning 445,934 381,016
Other 240,320 232,667
TOTAL OTHER NONCURRENT LIABILITIES 686,254 613,683
CURRENT LIABILITIES:
Long-term Debt Due Within One Year 35,000 35,000
Short-term Debt 108,700 119,600
Accounts Payable - General 53,187 36,729
Accounts Payable - Affiliated Companies 37,647 31,665
Taxes Accrued 35,161 46,850
Interest Accrued 15,279 15,741
Obligations Under Capital Leases 9,667 34,033
Other 87,293 63,250
TOTAL CURRENT LIABILITIES 381,934 382,868
DEFERRED INCOME TAXES 559,288 559,708
DEFERRED INVESTMENT TAX CREDITS 129,779 138,045
DEFERRED GAIN ON SALE AND LEASEBACK -
ROCKPORT PLANT UNIT 2 88,712 92,419
DEFERRED CREDITS 41,706 21,088
COMMITMENTS AND CONTINGENCIES (Note 3)
TOTAL $4,148,523 $3,967,798
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 96,628 $ 146,740 $ 157,153
Adjustments for Noncash Items:
Depreciation and Amortization 149,209 148,630 148,123
Amortization of Rockport Plant Unit 1
Phase-in Plan Deferrals - 11,871 15,644
Amortization (Deferral) of Incremental Nuclear
Refueling Outage Expenses (net) 14,142 (15,967) 7,662
Deferred Federal Income Taxes 17,905 3,922 (24,687)
Deferred Investment Tax Credits (8,266) (8,428) (8,729)
Over (Under)-recovery of Fuel and Purchased Power (46,846) (22,812) 12,477
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net) 5,376 (10,456) (10,235)
Fuel, Materials and Supplies (2,983) 5,168 903
Accrued Utility Revenues (6,756) 7,774 5,642
Accounts Payable 22,440 6,502 1,186
Taxes Accrued (11,689) (18,550) (6,296)
Payment of Disputed Tax and Interest Related to COLI (53,628) - -
Other (net) (8,176) 5,817 (4,502)
Net Cash Flows From Operating Activities 167,356 260,211 294,341
INVESTING ACTIVITIES:
Construction Expenditures (147,627) (122,360) (95,046)
Proceeds from Sales of Property and Other 4,419 2,016 2,776
Net Cash Flows Used For Investing Activities (143,208) (120,344) (92,270)
FINANCING ACTIVITIES:
Issuance of Long-term Debt 170,675 47,728 38,579
Retirement of Cumulative Preferred Stock (120) (78,877) (30,568)
Retirement of Long-term Debt (55,000) (50,000) (46,091)
Change in Short-term Debt (net) (10,900) 76,100 (46,475)
Dividends Paid on Common Stock (117,464) (131,260) (112,508)
Dividends Paid on Cumulative Preferred Stock (4,734) (5,931) (10,498)
Net Cash Flows Used For Financing Activities (17,543) (142,240) (207,561)
Net Increase (Decrease) in Cash and Cash Equivalents 6,605 (2,373) (5,490)
Cash and Cash Equivalents January 1 5,860 8,233 13,723
Cash and Cash Equivalents December 31 $ 12,465 $ 5,860 $ 8,233
</TABLE>
See Notes to Consolidated Financial Statements.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Year Ended December 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
Retained Earnings January 1 $278,814 $269,071 $235,107
Net Income 96,628 146,740 157,153
375,442 415,811 392,260
Deductions:
Cash Dividends Declared:
Common Stock 117,464 131,260 112,508
Cumulative Preferred Stock:
4-1/8% Series 247 249 495
4.56% Series 67 88 273
4.12% Series 79 80 165
5.90% Series 985 985 2,360
6-1/4% Series 1,266 1,266 1,875
6.30% Series 834 834 2,205
6-7/8% Series 1,255 1,255 2,063
7.08% Series - - 531
Total Cash Dividends Declared 122,197 136,017 122,475
Capital Stock Expense 91 980 714
Total Deductions 122,288 136,997 123,189
Retained Earnings December 31 $253,154 $278,814 $269,071
</TABLE
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization
Indiana Michigan Power Company (the Company or I&M) is a
wholly-owned subsidiary of American Electric Power Company, Inc.
(AEP Co., Inc.), a public utility holding company. The Company is
engaged in the generation, purchase, sale, transmission and
distribution of electric power to 554,000 retail customers in its
service territory in northern and eastern Indiana and a portion of
southwestern Michigan and conducts business as American Electric
Power (AEP). The Company supplies electric power to the AEP System
Power Pool (Power Pool) and shares the revenues and costs of Power
Pool wholesale sales to utility systems and power marketers. The
Company also sells wholesale power to municipalities and electric
cooperatives. As a member of the Power Pool and a signatory
company to the AEP System Transmission Equalization Agreement, the
Company's generation and transmission facilities are operated in
conjunction with the facilities of certain other affiliated
utilities as an integrated utility system.
The Company has two wholly-owned subsidiaries, that were
formerly engaged in coal-mining operations which are consolidated
in these financial statements, Blackhawk Coal Company and Price
River Coal Company. Blackhawk Coal Company currently leases and
subleases portions of its Utah coal rights, land and related mining
equipment to unaffiliated companies. Price River Coal Company,
which owns no land or mineral rights, is inactive. The Company's
River Transportation Division provided barging services to
affiliated and unaffiliated companies.
Regulation
As a subsidiary of AEP Co., Inc., the Company is subject to the
regulation of the Securities and Exchange Commission (SEC) under
the Public Utility Holding Company Act of 1935 (1935 Act). Retail
rates are regulated by the Indiana Utility Regulatory Commission
(IURC) and the Michigan Public Service Commission (MPSC). The
Federal Energy Regulatory Commission (FERC) regulates wholesale
rates.
Principles of Consolidation
The consolidated financial statements include the revenues,
expenses, cash flows, assets, liabilities and equity of I&M and its
wholly-owned subsidiaries. Significant intercompany items are
eliminated in consolidation.
Basis of Accounting
As a cost-based rate-regulated entity, I&M's financial
statements reflect the actions of regulators that result in the
recognition of revenues and expenses in different time periods than
enterprises that are not rate regulated. In accordance with
Statement of Financial Accounting Standards (SFAS) 71, "Accounting
for the Effects of Certain Types of Regulation," regulatory assets
(deferred expenses) and regulatory liabilities (deferred income)
are recorded to reflect the economic effects of regulation and to
match expenses with regulated revenues.
Use of Estimates
The preparation of these financial statements in conformity
with generally accepted accounting principles requires in certain
instances the use of estimates. Actual results could differ from
those estimates.
Utility Plant
Electric utility plant is stated at original cost and is
generally subject to first mortgage liens. Additions, major
replacements and betterments are added to the plant accounts.
Retirements of plant are deducted from the electric utility plant
in service account and are deducted from accumulated depreciation
together with associated removal costs, net of salvage. The costs
of labor, materials and overheads incurred to operate and maintain
utility plant are included in operating expenses.
Allowance for Funds Used During Construction (AFUDC)
AFUDC is a noncash nonoperating income item that is capitalized
and recovered through depreciation over the service life of utility
plant. It represents the estimated cost of borrowed and equity
funds used to finance construction projects. The amounts of AFUDC
for 1998, 1997 and 1996 were not significant.
Depreciation and Amortization
Depreciation of electric utility plant is provided on a
straight-line basis over the estimated useful lives of utility
plant and is calculated largely through the use of composite rates
by functional class. The annual composite depreciation rates for
1998, 1997 and 1996 are as follows:
Functional Class Annual Composite
of Property Depreciation Rates
1998 1997 1996
Production:
Steam-Nuclear 3.4% 3.4% 3.4%
Steam-Fossil-Fired 4.4% 4.4% 4.4%
Hydroelectric-Conventional 3.4% 3.2% 3.2%
Transmission 1.9% 1.9% 1.9%
Distribution 4.2% 4.2% 4.2%
General 3.8% 3.8% 3.8%
Amounts for the demolition and removal of non-nuclear plant are
charged to the accumulated provision for depreciation and recovered
through depreciation charges included in rates. The accounting and
rate-making treatment afforded nuclear decommissioning costs and
nuclear fuel disposal costs are discussed in Note 3.
Cash and Cash Equivalents
Cash and cash equivalents include temporary cash investments
with original maturities of three months or less.
Operating Revenues and Fuel Costs
Revenues include the accrual of electricity consumed but
unbilled at month-end as well as billed revenues. Fuel costs are
matched with revenues in accordance with rate commission orders.
Revenues are accrued related to unrecovered fuel in both state
retail jurisdictions and for replacement power costs in the
Michigan jurisdiction until approved for billing. If the Company's
earnings exceed the allowed return in the Indiana jurisdiction, the
fuel clause mechanism provides for the refunding of the excess
earnings to ratepayers. FERC wholesale jurisdictional fuel cost
changes are expensed and billed as incurred.
Derivative Financial Instruments
During 1998, the AEP Power Pool substantially increased the
volume of its power marketing and trading transactions (trading
activities) in which the Company shares. Trading activities
involve the sale of electricity under physical forward contracts at
fixed and variable prices and the trading of electricity contracts
including exchange traded futures and options and over-the-counter
options and swaps. The majority of these transactions represent
physical forward contracts in the AEP System's traditional
marketing area and are typically settled by entering into
offsetting contracts. The net revenues from these transactions are
included in operating revenues for ratemaking, accounting and
financial and regulatory reporting purposes.
In addition the AEP Power Pool enters into transactions for the
purchase and sale of electricity options, futures and swaps, and
for the forward purchase and sale of electricity outside of the AEP
Power Pool's traditional marketing area. These non-regulated
trading activities are included in nonoperating income and
accounted for on a mark-to-market basis. The unrealized mark-to-market
gains and losses from such non-regulated trading activity
are reported as assets and liabilities, respectively.
The Company enters into forward contracts to manage the
exposure to unfavorable changes in the cost of debt to be issued.
These anticipatory debt instruments are entered into in order to
manage the change in interest rates between the time a debt
offering is initiated and the issuance of the debt (usually a
period of 60 days). Any resultant gains or losses are deferred and
amortized over the life of the debt issuance. There were no such
forward contracts outstanding at December 31, 1998 or 1997.
See Note 7 - Financial Instruments, Credit and Risk Management
for further discussion.
Reclassification
In the fourth quarter of 1998 the Company changed the
presentation of its trading activities from a gross basis
(purchases and sales reported separately) to a net basis (purchases
and sales are reported on a net basis as revenues). This
reclassification had no impact on net income. Certain prior year
amounts have been reclassified to conform to current year
presentation. Such reclassifications had no impact on previously
reported net income.
Levelization of Nuclear Refueling Outage Costs
Incremental operation and maintenance costs associated with
refueling outages at the Company's Donald C. Cook Nuclear Plant
(Cook Plant) are deferred commensurate with their rate-making
treatment and amortized over the period beginning with the
commencement of an outage and ending with the beginning of the next
outage.
Income Taxes
The Company follows the liability method of accounting for
income taxes as prescribed by SFAS 109, "Accounting for Income
Taxes." Under the liability method, deferred income taxes are
provided for all temporary differences between the book cost and
tax basis of assets and liabilities which will result in a future
tax consequence. Where the flow-through method of accounting for
temporary differences is reflected in rates, deferred income taxes
are provided with related regulatory assets and liabilities in
accordance with SFAS 71.
Investment Tax Credits
Investment tax credits have been accounted for under the flow-through
method except where regulatory commissions have reflected
investment tax credits in the rate-making process on a deferral
basis. Investment tax credits that have been deferred are being
amortized over the life of regulated plant investment.
Debt and Preferred Stock
Gains and losses from the reacquisition of debt are deferred as
regulatory assets and amortized over the remaining term of the
reacquired debt in accordance with rate-making treatment. If the
debt is refinanced the reacquisition costs are deferred and
amortized over the term of the replacement debt commensurate with
their recovery in rates.
Debt discount or premium and debt issuance expenses are
deferred and amortized over the term of the related debt, with the
amortization included in interest charges.
Redemption premiums paid to reacquire preferred stock are
included in paid-in capital and amortized to retained earnings
commensurate with their recovery in rates. The excess of par value
over the cost of preferred stock reacquired is credited to paid-in
capital and amortized to retained earnings.
Nuclear Decommissioning and Spent Nuclear Fuel Disposal Trust Funds
Securities held in trust funds for decommissioning nuclear
facilities and for the disposal of spent nuclear fuel (SNF) are
recorded at market value in accordance with SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities." Securities
in the trust funds have been classified as available-for-sale due
to their long-term purpose. Due to the rate-making process,
adjustments for unrealized gains and losses are not reported in
equity but result in adjustments to the liability account for the
nuclear decommissioning trust funds and to regulatory assets or
liabilities for the SNF disposal trust funds.
Other Property and Investments
Other property and investments are stated at cost.
Comprehensive Income
There were no material differences between net income and
comprehensive income.
2. EFFECTS OF REGULATION AND PHASE-IN PLANS:
In accordance with SFAS 71 the consolidated financial
statements include regulatory assets (deferred expenses) and
regulatory liabilities (deferred income) recorded in accordance
with regulatory actions in order to match expenses and revenues
from cost-based rates in the same accounting period. Regulatory
assets are expected to be recovered in future periods through the
rate-making process and regulatory liabilities are expected to
reduce future cost recoveries. Among other things, application of
SFAS 71 requires that the Company's regulated rates be cost-based
and recovery of regulatory assets must be probable. Management has
reviewed the evidence currently available and concluded that the
Company continues to meet the requirements to apply SFAS 71. In
the event a portion of the Company's business no longer met these
requirements, that is, its rates were no longer cost-based,
regulatory assets and liabilities would have to be written off for
that portion of the business and tangible assets would have to be
tested for possible impairment and if required an impairment loss
recorded unless the net regulatory assets and impairment losses are
recoverable as a stranded cost.
Recognized regulatory assets and liabilities are comprised of
the following:
December 31,
1998 1997
(in thousands)
Regulatory Assets:
Amounts Due From Customers for
Future Income Taxes $259,641 $277,966
Unrecovered Fuel and
Purchased Power 65,308 18,462
Department of Energy
Decontamination and
Decommissioning Assessment 38,898 42,648
Nuclear Refueling
Outage Cost Levelization 17,630 31,772
Unamortized Loss On
Reacquired Debt 16,434 17,210
Other 23,564 12,431
Total Regulatory Assets $421,475 $400,489
Regulatory Liabilities:
Deferred Investment Tax Credits $129,779 $138,045
Other* 16,507 1,262
Total Regulatory Liabilities $146,286 $139,307
* Included in Deferred Credits on Consolidated Balance
Sheets.
The Rockport Plant consists of two 1,300 megawatt (mw) coal-fired
units. I&M and AEP Generating Company (AEGCo), an affiliate,
each own 50% of one unit (Rockport 1) and each lease a 50% interest
in the other unit (Rockport 2) from unaffiliated lessors under an
operating lease. The gain on the sale and leaseback of Rockport 2
was deferred and is being amortized, with related taxes, over the
initial lease term which expires in 2022.
At January 1, 1997 rate phase-in plan deferrals existed for the
Rockport Plant. Rate phase-in plans in the Company's Indiana and
FERC jurisdictions provided for the recovery and straight-line
amortization of deferred Rockport Plant Unit 1 costs over ten years
beginning in 1987. In 1997 the amortization and recovery of the
deferred Rockport Plant Unit 1 Phase-in Plan costs were completed.
During the recovery period net income was unaffected by the
recovery of the phase-in deferrals. Amortization was $11.9 million
in 1997 and $15.6 million in 1996.
<PAGE>
3. COMMITMENTS AND CONTINGENCIES:
Construction and Other Commitments
Substantial construction commitments have been made to support
the Company's utility operations including the replacement of the
Cook Plant Unit 1 steam generators. Such commitments do not
include any expenditures for new generating capacity. Construction
program expenditures for 1999-2001 are estimated to be $366
million.
Long-term fuel supply contracts contain clauses that provide
for periodic price adjustments. The retail jurisdictions have fuel
clause mechanisms that provide for recovery of changes in the cost
of fuel with the regulators' review and approval. See Note 4 for
changes in the fuel clause mechanism in the Indiana jurisdiction
proposed in a settlement agreement. The contracts are for various
terms, the longest of which extends to 2014, and contain various
clauses that would release the Company from its obligation under
certain force majeure conditions.
The Company is committed under unit power agreements to
purchase all of an affiliate's share, 50% of the 2,600 mw Rockport
Plant capacity, unless it is sold to other utilities. The
affiliate has a long-term unit power agreement for the sale of 455
mw to an unaffiliated utility. Revenues received under this
agreement (which expires at the end of 1999) were $70 million in
1998. An agreement between the affiliate which owns Rockport Plant
and another affiliate provides for the sales of 390 mw of capacity
to that affiliate through 2004.
The Company sells under contract up to 250 mw of its Rockport
Plant capacity to an unaffiliated utility. The contract expires in
2009.
Nuclear Plant
I&M owns and operates the two-unit 2,110 mw Cook Plant under
licenses granted by the Nuclear Regulatory Commission (NRC). The
operation of a nuclear facility involves special risks, potential
liabilities, and specific regulatory and safety requirements.
Should a nuclear incident occur at any nuclear power plant facility
in the United States (US), the resultant liability could be
substantial. By agreement I&M is partially liable together with
all other electric utility companies that own nuclear generating
units for a nuclear power plant incident. In the event nuclear
losses or liabilities are underinsured or exceed accumulated funds
and recovery in rates is not possible, results of operations, cash
flows and financial condition would be negatively affected.
Nuclear Plant Shutdown
I&M shut down both units of the Cook Plant in September 1997
due to questions, which arose during a NRC architect engineer
design inspection, regarding the operability of certain safety
systems. The NRC issued a Confirmatory Action Letter in September
1997 requiring I&M to address the issues identified in the letter.
I&M is working with the NRC to resolve the remaining open issue in
the letter.
In April 1998 the NRC notified I&M that it had convened a
Restart Panel for Cook Plant. A list of required restart
activities was provided by the NRC in July 1998 and in October the
NRC expanded the list. In order to identify and resolve the issues
necessary to restart the Cook units, I&M is and will be meeting
with the Panel on a regular basis, until the units are returned to
service.
In January 1999 I&M announced that it will conduct additional
engineering reviews at the Cook Plant that will delay restart of
the units. Previously, the units were scheduled to return to
service at the end of the first and second quarters of 1999. The
decision to delay restart resulted from internal assessments that
indicated a need to conduct expanded system readiness reviews. A
new restart schedule will be developed based on the results of the
expanded reviews and should be available in June 1999. When
maintenance and other activities required for restart are complete,
I&M will seek concurrence from the NRC to return the Cook Plant to
service. Until these additional reviews are completed, management
is unable to determine when the units will be returned to service.
Unless the costs of the extended outage and restart efforts are
recovered from customers, there would be a material adverse effect
on results of operations, cash flows and possibly financial
condition.
The costs incurred in 1997 and 1998 for restart of the Cook
units were $6 million and $78 million, respectively, and were
recorded as operation and maintenance expense. Reductions in other
operation and maintenance expenses partially offset these costs.
Currently incremental restart expenses are approximately $12
million a month.
In July 1998 I&M received an "adverse trend letter" from the
NRC indicating that NRC senior managers determined that there had
been a slow decline in performance at the Cook Plant during the 18
month period preceding the letter. The letter indicated that the
NRC will closely monitor efforts to address issues at Cook Plant
through additional inspection activities. In October 1998 the NRC
issued I&M a Notice of Violation and proposed a $500,000 civil
penalty for alleged violations at the Cook Plant discovered during
five inspections conducted between August 1997 and April 1998. I&M
paid the penalty.
The cost of electricity supplied to certain retail customers
rose due to the extended outage since higher cost coal-fired
generation and coal based purchased power were substituted for low
cost nuclear generation. I&M's Indiana and Michigan retail
jurisdictional fuel cost recovery mechanisms permit the recovery,
subject to regulatory commission review and approval, of changes in
fuel costs including the fuel component of purchased power in the
Indiana jurisdiction and changes in replacement power in the
Michigan jurisdiction. The IURC approved, subject to future
reconciliation or refund, agreements authorizing I&M, during the
billing months of July 1998 through March 1999, to include in rates
a fuel cost adjustment factor less than that requested by I&M. The
agreements provide the parties to the proceedings with the
opportunity to conduct discovery regarding certain issues that were
raised in the proceedings, including the appropriateness of the
recovery of replacement energy cost due to the extended Cook Plant
outage, in anticipation of resolving the issues in a future fuel
cost adjustment proceeding. A regulatory asset in the amount of
$65 million of replacement energy costs has been recorded at
December 31, 1998. See Note 4 for discussion of proposed
settlement agreement for the Indiana jurisdiction.
Historically, the Company has been permitted to recover through
the fuel recovery mechanism the cost of replacement energy during
outages. Management believes that it should be allowed to recover
the deferred Cook replacement energy costs; however, if recovery of
the replacement costs is denied, future results of operations and
cash flows would be adversely affected by the writeoff of the
regulatory asset.
Nuclear Incident Liability
Public liability is limited by law to $9 billion should an
incident occur at any licensed reactor in the US. Commercially
available insurance provides $200 million of coverage. In the
event of a nuclear incident at any nuclear plant in the US the
remainder of the liability would be provided by a deferred premium
assessment of $88 million on each licensed reactor payable in
annual installments of $10 million. As a result, I&M could be
assessed $176 million per nuclear incident payable in annual
installments of $20 million. The number of incidents for which
payments could be required is not limited.
Nuclear insurance pools and other insurance policies provide $3
billion of property damage, decommissioning and decontamination
coverage for Cook Plant. Additional insurance provides coverage
for extra costs resulting from a prolonged accidental Cook Plant
outage. Some of the policies have deferred premium provisions
which could be triggered by losses in excess of the insurer's
resources. The losses could result from claims at the Cook Plant
or certain other unaffiliated nuclear units. The Company could be
assessed up to $23.2 million annually under these policies.
SNF Disposal
Federal law provides for government responsibility for
permanent SNF disposal and assesses nuclear plant owners fees for
SNF disposal. A fee of one mill per kilowatthour for fuel consumed
after April 6, 1983 is being collected from customers and remitted
to the US Treasury. Fees and related interest of $190 million for
fuel consumed prior to April 7, 1983 have been recorded as long-term
debt. I&M has not paid the government the pre-April 1983 fees
due to continued delays and uncertainties related to the federal
disposal program. At December 31, 1998, funds collected from
customers towards payment of the pre-April 1983 fee and related
earnings thereon approximate the liability.
Decommissioning and Low Level Waste Accumulation Disposal
Decommissioning costs are being accrued over the service life
of the Cook Plant. The licenses to operate the two nuclear units
expire in 2014 and 2017. After expiration of the licenses the
plant is expected to be decommissioned through dismantlement. The
estimated cost of decommissioning and low level radioactive waste
accumulation disposal costs ranges from $700 million to $1,152
million in 1997 nondiscounted dollars. The wide range is caused by
variables in assumptions including the estimated length of time SNF
may need to be stored at the plant site subsequent to ceasing
operations. This, in turn, depends on future developments in the
federal government's SNF disposal program. Continued delays in the
federal fuel disposal program can result in increased
decommissioning costs. The Company is recovering estimated
decommissioning costs in its three rate-making jurisdictions based
on at least the lower end of the range in the most recent
decommissioning study at the time of the last rate proceeding. The
Company records decommissioning costs in other operation expense
and records a noncurrent liability equal to the decommissioning
cost recovered in rates; such amount was $29 million in 1998, $28
million in 1997 and $27 million in 1996. Decommissioning costs
recovered from customers are deposited in external trusts, which
are described in Note 7. Trust fund earnings increase the fund
assets and the recorded liability and decrease the amount needed to
be recovered from ratepayers. During 1998 the Company withdrew $3
million from the trust funds and expects to withdraw $8 million in
1999 for decommissioning the original steam generators removed from
Unit 2. At December 31, 1998 and 1997, the Company has recognized
a decommissioning liability of $446 million and $381 million,
respectively.
Air Quality
On September 24, 1998, the US Environmental Protection Agency
(Federal EPA) finalized rules which require reductions in nitrogen
oxides (NOx) emissions in 22 eastern states, including the states
in which the generating plants of the Company and its AEP Power
Pool affiliates are located. The implementation of the final rules
would be achieved through the revision of state implementation
plans (SIPs) by September 1999. SIPs are a procedural method used
by each state to comply with Federal EPA rules. The final rules
anticipate the imposition of a NOx reduction on utility sources of
approximately 85% below 1990 emission levels by the year 2003. On
October 30, 1998, a number of utilities, including the Company and
the other operating companies of the AEP System, filed petitions in
the US Court of Appeals for the District of Columbia Circuit
seeking a review of the final rules.
Should the states fail to adopt the required revisions to their
SIPs within one year of the date of the final rules (September 24,
1999), Federal EPA has proposed to implement a federal plan to
accomplish the NOx reductions. Federal EPA also proposed the
approval of portions of petitions filed by eight northeastern
states that would result in imposition of NOx emission reductions
on utility and industrial sources in upwind midwestern states.
These reductions are substantially the same as those required by
the final NOx rules and could be adopted by Federal EPA in the
event the states fail to implement SIPs in accordance with the
final rules.
Preliminary estimates indicate that compliance could result in
required capital expenditures of approximately $169 million.
Compliance costs cannot be estimated with certainty and the actual
costs incurred to comply could be significantly different from this
preliminary estimate depending upon the compliance alternatives
selected to achieve reductions in NOx emissions. Unless such costs
are recovered from customers, they would have a material adverse
effect on results of operations, cash flows and possibly financial
condition.
Litigation
The Internal Revenue Service (IRS) agents auditing the AEP
System's consolidated federal income tax returns for the years 1991
to 1993 requested a ruling from their National Office that certain
interest deductions claimed by the Company relating to a corporate
owned life insurance (COLI) program should not be allowed. As a
result of a suit filed by the Company in US District Court
(discussed below) the request for ruling was withdrawn by the IRS
agents. Adjustments have been or will be proposed by the IRS
disallowing COLI interest deductions for taxable years 1991-96. A
disallowance of the COLI interest deductions through December 31,
1998 would reduce earnings by approximately $66 million (including
interest). The Company has made no provision for any possible
adverse earnings impact from this matter.
In 1998 the Company made payments of taxes and interest
attributable to COLI interest deductions for taxable years 1991-97
to avoid the potential assessment by the IRS of any additional
above market rate interest on the contested amount. The payments
to the IRS are included on the balance sheet in other property and
investments pending the resolution of this matter. The Company
will seek refund, either administratively or through litigation, of
all amounts paid plus interest. In order to resolve this issue
without further delay, on March 24, 1998, the Company filed suit
against the US in the US District Court for the Southern District
of Ohio. Management believes that it has a meritorious position
and will vigorously pursue this lawsuit. In the event the
resolution of this matter is unfavorable, it will have a material
adverse impact on results of operations and cash flows.
The Company is involved in a number of other legal proceedings
and claims. While management is unable to predict the ultimate
outcome of litigation, it is not expected that the resolution of
these matters will have a material adverse effect on the results of
operations, cash flows and financial condition.
4. SUBSEQUENT EVENT - SETTLEMENT AGREEMENT (MARCH 16, 1999):
On March 16, 1999 a settlement agreement was filed with the
IURC resolving all matters related to the reasonableness of fuel
costs and all outage issues during an extended outage of the Cook
Plant. The settlement agreement, which is subject to IURC
approval, provides for, among other things, a credit of $55 million
to Indiana retail customers; authorization to defer any unrecovered
fuel revenues accrued between September 9, 1997 and December 31,
1999 including the $55 million; authorization to defer up to $150
million of incremental operation and maintenance restart costs for
the Cook Plant above the base rate level incurred during 1999;
amortization of the fuel recoveries and restart cost deferrals over
a five-year period ending December 31, 2003; a freeze in base rates
though December 31, 2003; and a cap on fuel recovery charges
through March 1, 2004. The $55 million credit will be refunded
through customer's bills during the months of July, August and
September 1999. If the IURC does not approve the settlement, the
issue of recovery of replacement energy costs would be resolved
through regulatory hearings. Unless the costs of the extended
outage and restart efforts are recovered from customers, there
would be a material adverse effect on results of operations, cash
flows, and possibly financial condition.
5. RELATED PARTY TRANSACTIONS:
Benefits and costs of the AEP System's generating plants are
shared by members of the AEP Power Pool of which the Company is a
member. Under the terms of the AEP System Interconnection
Agreement, capacity charges and credits are designed to allocate
the cost of the AEP System's capacity among the AEP Power Pool
members based on their relative peak demands and generating
reserves. AEP Power Pool members are also compensated for the
out-of-pocket costs of energy delivered to the AEP Power Pool and
charged for energy received from the AEP Power Pool. The Company
is a net supplier to the AEP Power Pool and, therefore, receives
capacity credits from the AEP Power Pool.
<PAGE>
Operating revenues include revenues for capacity and energy
supplied to the AEP Power Pool as follows:
Year Ended December 31,
1998 1997 1996
(in thousands)
Capacity Revenues $33,011 $ 53,282 $ 57,594
Energy Revenues 4,550 64,861 98,162
Total $37,561 $118,143 $155,756
Purchased power expense includes charges of $125.2 million in
1998, $51 million in 1997 and $34.5 million in 1996 for energy
received from the AEP Power Pool.
Power marketing and trading operations, which are described in
Note 1, are conducted by the AEP Power Pool and shared with the
Company. The Company's operating revenues, purchased power expense
and nonoperating income include amounts for power marketing and
trading allocated by the AEP Power Pool as follows:
Year Ended December 31,
1998 1997 1996
(in thousands)
Operating Revenues $124,973 $74,895 $73,424
Purchased Power Expense 71,588 15,415 8,098
Nonoperating Loss (7,122) (61) -
The cost of Rockport Plant power purchased from AEGCo, an
affiliated company that is not a member of the AEP Power Pool, was
included in purchased power expense in the amounts of $86.2
million, $87.5 million and $85.4 million in 1998, 1997 and 1996,
respectively.
The cost of power purchased from Ohio Valley Electric
Corporation, an affiliated company that is not a member of the
AEP Power Pool, was included in purchased power expense in the
amounts of $14.3 million, $11 million and $10.7 million in 1998,
1997 and 1996, respectively.
The Company operates the Rockport Plant and bills AEGCo for its
share of operating costs.
AEP System companies participate in the AEP System Transmission
Equalization Agreement. This agreement combines certain AEP System
companies' investments in transmission facilities and shares the
costs of ownership in proportion to the AEP System companies'
respective peak demands. Pursuant to the terms of the agreement,
since the Company's relative investment in transmission facilities
is greater than its relative peak demand, other operation expense
includes equalization credits of $44.1 million, $46.1 million and
$46.3 million in 1998, 1997 and 1996, respectively.
Revenues from providing barging services were recorded in
nonoperating income as follows:
Year Ended December 31,
1998 1997 1996
(in thousands)
Affiliated Companies $23,494 $24,427 $22,740
Unaffiliated Companies 12,490 8,383 6,776
Total $35,984 $32,810 $29,516
American Electric Power Service Corporation (AEPSC) provides
certain managerial and professional services to AEP System
companies including the Company. The costs of the services are
billed by AEPSC to its affiliated clients on a direct-charge basis
whenever possible and on reasonable bases of proration for shared
services. The billing for services are made at cost and include no
compensation for the use of equity capital, which is furnished to
AEPSC by AEP Co., Inc. Billings from AEPSC are capitalized or
expensed depending on the nature of the services rendered. AEPSC
and its billings are subject to the regulation of the SEC under the
1935 Act.
6. SEGMENT INFORMATION:
Effective December 31, 1998 the Company adopted SFAS 131,
"Disclosures about Segments of an Enterprise and Related
Information". The Company has one reportable segment, a regulated
vertically integrated electricity generation and energy delivery
business. All other activities are insignificant. The Company's
operations are managed on an integrated basis because of the
substantial impact of bundled cost-based rates and regulatory
oversight on business processes, cost structures and operating
results. Aggregated in the regulated electric utility segment is
the power marketing and trading activities that are discussed in
Note 1 and the Company's barging activities. For the years ended
December 31, 1998, 1997 and 1996, all revenues are derived in the
US.
7. FINANCIAL INSTRUMENTS, CREDIT AND RISK MANAGEMENT:
The Company is subject to market risk as a result of changes in
electricity commodity prices and interest rates. The Company
participates in the AEP Power Pool's power marketing and trading
operation that manages the exposure to electricity commodity price
movements using physical forward purchase and sale contracts at
fixed and variable prices, and financial derivative instruments
including exchange traded futures and options, over-the-counter
options, swaps and other financial derivative contracts at both
fixed and variable prices. Physical forward electricity contracts
within the AEP Power Pool's traditional marketing area are recorded
on a net basis as operating revenues in the month when the physical
contract settles. The Company's share of the net gains from these
regulated transactions for the year ended December 31, 1998 was $21
million. Physical forward electricity contracts outside the AEP
Power Pool's traditional marketing area and all financial
electricity trading transactions including exchange traded
contracts that are marked to market and recorded in nonoperating
income. The Company's share of the net losses from these non-regulated
trading transactions for the year ended December 31, 1998
was $7 million. The unrealized mark-to-market gains and losses
from such trading of financial instruments are reported as assets
and liabilities, respectively. These activities were not material
in prior periods.
The Company is exposed to risk from changes in interest rates
primarily due to short-term and long-term borrowings used to fund
its business operations. The debt portfolio has both fixed and
variable interest rates with terms from one day to forty years and
an average duration of six years at December 31, 1998. A near term
change in interest rates should not materially affect results of
operations or financial position since the Company would not expect
to liquidate its entire debt portfolio in a one year holding
period. Also since the Company's rates are cost-based regulated,
the risk of interest rate changes on debt used to finance regulated
operations is mitigated.
Market Valuation
The book value of cash and cash equivalents, accounts
receivable, short-term debt and accounts payable approximate fair
value because of the short-term maturity of these instruments. The
book value of the pre-April 1983 spent nuclear fuel disposal
liability approximates the Company's best estimate of its fair
value.
The book value amounts and fair values of the Company's share
of significant financial instruments at December 31, 1998 and 1997
are summarized in the following table. The fair values of long-term
debt and preferred stock are based on quoted market prices for
the same or similar issues and the current dividend or interest
rates offered for instruments of the same remaining maturities.
The fair value of those financial instruments that are marked-to-market
are based on management's best estimates using over-the-counter quotations,
exchange prices, volatility factors and
valuation methodology. The estimates presented herein are not
necessarily indicative of the amounts that the Company could
realize in a current market exchange. At December 31, 1997 the
notional amounts and fair values of derivatives were not material.
<PAGE>
Book Value Fair Value
(in thousands)
Non-Derivatives
1998
Long-term Debt $1,175,800 $1,235,200
Preferred Stock 68,400 72,600
1997
Long-term Debt 1,049,200 1,094,100
Preferred Stock 68,400 73,300
Derivatives
1998
Fair Value Average Fair Value
(in thousands)
Trading Assets
Electric
Physicals $8,700 $ 7,700
Options 6,300 15,300
Swaps 600 200
Trading Liabilities
Electric
Futures (1,300) (300)
Physicals (9,400) (8,800)
Options (5,700) (15,200)
Swaps (1,400) (400)
At December 31, 1998 the notional amounts of the Company's
nonregulated electric trading physical forward contract purchases
and sales are 1,912 Gigawatt hours (Gwh) and 2,044 Gwh,
respectively; the notional amounts for fixed priced swaps purchases
and sales are 70 Gwh and 75 Gwh, respectively; and the notional
amounts for options to purchase and to sell are 1,381 Gwh and 992
Gwh, respectively. The Company has a net long position of 74 Gwh
for electric future contracts.
At December 31, 1998 the fair value of the assets and
liabilities related to the wholesale electric forward contracts was
$69 million and $67 million, respectively. The related notional
amounts were 9,094 Gwh for purchases and 9,280 Gwh for sales. The
average fair value amounts outstanding during the period were $175
million of assets and $167 million of liabilities.
Credit and Risk Management
In addition to market risk associated with price movements, the
Company through the AEP Power Pool is also subject to the credit
risk inherent in its risk management activities. Credit risk
refers to the financial risk arising from commercial transactions
and/or the intrinsic financial value of contractual agreements with
trading counter parties, by which there exists a potential risk of
nonperformance. The AEP Power Pool has established and enforced
credit policies that minimize this risk. The AEP Power Pool
accepts as counter parties to forwards, futures, and other
derivative contracts primarily those entities that are classified
as Investment Grade, or those that can be considered as such due to
the effective placement of credit enhancements and/or collateral
agreements. Investment grade is the designation given to the four
highest debt rating categories (i.e., AAA, AA, A, BBB) of the major
rating services, e.g., ratings BBB- and above at Standard & Poor's
and Baa3 and above at Moody's. When adverse market conditions have
the potential to negatively affect a counter party's credit
position, the AEP Power Pool requires further credit enhancements
to mitigate risk. Since the formation of the power marketing and
trading business in July of 1997, the Company has experienced no
significant losses due to the credit risk associated with risk
management activities; furthermore, the Company does not anticipate
any future material effect on its results of operations, cash flow
or financial condition as a result of counter party nonperformance.
Nuclear Trust Funds Recorded at Market Value
The Nuclear Decommissioning and Spent Nuclear Fuel Disposal
Trust Fund investments are recorded at market value in accordance
with SFAS 115 and consist of tax-exempt municipal bonds and other
securities.
At December 31, 1998 and 1997 the fair values of trust fund
investments were $648 million and $566 million, respectively.
Accumulated gross unrealized holding gains were $65 million and $41
million and accumulated gross unrealized holding losses were $1.1
million and $1.2 million at December 31, 1998 and 1997,
respectively. The change in market value in 1998, 1997 and 1996
was a net unrealized holding gain of $24 million, $19.1 million and
$2.6 million, respectively.
The trust fund investments' cost basis by security type were:
December 31,
1998 1997
(in thousands)
Tax-Exempt Bonds $326,239 $335,358
Equity Securities 95,854 74,398
Treasury Bonds 71,194 44,200
Corporate Bonds 10,661 9,167
Cash, Cash Equivalents
and Interest Accrued 80,065 63,392
Total $584,013 $526,515
Proceeds from sales and maturities of securities of $225
million during 1998 resulted in $8.2 million of realized gains and
$2.8 million of realized losses. Proceeds from sales and
maturities of securities of $147.3 million during 1997 resulted in
$3.9 million of realized gains and $1.4 million of realized losses.
Proceeds from sales and maturities of securities of $115.3 million
during 1996 resulted in $2.6 million of realized gains and $2.1
million of realized losses. The cost of securities for determining
realized gains and losses is original acquisition cost including
amortized premiums and discounts.
At December 31, 1998, the year of maturity of trust fund
investments, other than equity securities, was:
(in thousands)
1999 $106,316
2000-2003 157,224
2004-2008 175,751
After 2008 48,868
Total $488,159
8. STAFF REDUCTIONS:
During 1998 an internal evaluation of the power generation
organization was conducted with a goal of developing a better
organizational structure for a competitive generation market. The
study was completed in October 1998. In addition, a review of
energy delivery staffing levels was conducted in 1998. As a result
approximately 80 power generation and energy delivery positions
were identified for elimination.
Severance accruals totaling $3.7 million were recorded in
December 1998 for reductions in power generation and energy
delivery staffs and were charged to other operation expense in the
Consolidated Statements of Income. In the first quarter of 1999
the power generation and energy delivery staff reductions were
made.
9. BENEFIT PLANS:
The Company and its subsidiaries participate in the AEP System
qualified pension plan, a defined benefit plan which covers all
employees. Net pension costs for the years ended December 31,
1998, 1997 and 1996 were $2.1 million, $2.1 million and $4.1
million, respectively.
Postretirement benefits other than pensions are provided for
retired employees for medical and death benefits under an AEP
System plan. The Company's annual accrued costs for 1998, 1997 and
1996 were $12 million, $11.5 million and $12.8 million,
respectively.
A defined contribution employee savings plan required that the
Company make contributions to the plan totaling $4 million in 1998
and 1997 and $3.7 million in 1996.
</TABLE>
<TABLE>
<PAGE>
10. FEDERAL INCOME TAXES:
The details of federal income taxes as reported are as follows:
<CAPTION>
Year Ended December 31,
1998 1997 1996
(in thousands)
<S> <C> <C> <C>
Charged (Credited) to Operating Expenses (net):
Current $ 38,165 $ 75,442 $110,133
Deferred 21,073 3,088 (24,730)
Deferred Investment Tax Credits (7,593) (7,786) (7,874)
Total 51,645 70,744 77,529
Charged (Credited) to Nonoperating Income (net):
Current (594) 3,287 182
Deferred (3,168) 834 43
Deferred Investment Tax Credits (673) (642) (855)
Total (4,435) 3,479 (630)
Total Federal Income Taxes as Reported $ 47,210 $ 74,223 $ 76,899
The following is a reconciliation of the difference between the
amount of federal income taxes computed by multiplying book income
before federal income taxes by the statutory tax rate, and the
amount of federal income taxes reported.
Year Ended December 31,
1998 1997 1996
(in thousands)
Net Income $ 96,628 $146,740 $157,153
Federal Income Taxes 47,210 74,223 76,899
Pre-tax Book Income $143,838 $220,963 $234,052
Federal Income Tax on Pre-tax Book Income at
Statutory Rate (35%) $50,343 $77,337 $81,918
Increase (Decrease) in Federal Income Tax
Resulting From the Following Items:
Depreciation 17,257 14,082 13,880
Corporate Owned Life Insurance (3,263) (3,348) (2,178)
Nuclear Fuel Disposal Costs (3,397) (3,286) (3,096)
Investment Tax Credits (net) (8,266) (8,428) (8,729)
Other (5,464) (2,134) (4,896)
Total Federal Income Taxes as Reported $47,210 $74,223 $76,899
Effective Federal Income Tax Rate 32.8% 33.6% 32.9%
</TABLE>
<PAGE>
The following tables show the elements of the net deferred tax
liability and the significant temporary differences giving rise to
such deferrals:
December 31,
1998 1997
(in thousands)
Deferred Tax Assets $ 226,118 $ 223,772
Deferred Tax Liabilities (785,406) (783,480)
Net Deferred Tax Liabilities $(559,288) $(559,708)
Property Related
Temporary Differences $(460,077) $(471,898)
Amounts Due From Customers
For Future Federal
Income Taxes (69,102) (74,282)
Deferred State Income Taxes (62,302) (65,679)
Deferred Gain on Sale and
Leaseback of Rockport
Plant Unit 2 31,049 32,347
Accrued Nuclear
Decommissioning Expense 29,930 26,991
All Other (net) (28,786) (7,187)
Net Deferred Tax Liabilities $(559,288) $(559,708)
The Company and its subsidiaries join in the filing of a
consolidated federal income tax return with their affiliates in the
AEP System. The allocation of the AEP System's current
consolidated federal income tax to the AEP System companies is in
accordance with SEC rules under the 1935 Act. These rules permit
the allocation of the benefit of current tax losses to the System
companies giving rise to them in determining their current tax
expense. The tax loss of the parent company, AEP Co., Inc., is
allocated to its subsidiaries with taxable income. With the
exception of the loss of the parent company, the method of
allocation approximates a separate return result for each company
in the consolidated group.
The AEP System has settled with the IRS all issues from the
audits of the consolidated federal income tax returns for the years
prior to 1991. Returns for the years 1991 through 1996 are
presently being audited by the IRS. With the exception of interest
deductions related to COLI, which are discussed under the heading,
Litigation, in Note 3, management is not aware of any issues for
open tax years that upon final resolution are expected to have a
material adverse effect on results of operations.
12. COMMON SHAREHOLDER'S EQUITY:
Mortgage indentures, charter provisions and orders of
regulatory authorities place various restrictions on the use of
retained earnings for the payment of cash dividends on common
stock. At December 31, 1998, $5.9 million of retained earnings
were restricted. Regulatory approval is required to pay dividends
out of paid-in capital.
In 1998, 1997 and 1996 net changes to paid-in capital of
$133,000, $1,200,000 and $170,000 respectively, represented gains
and expenses associated with cumulative preferred stock
transactions.
12. SUPPLEMENTARY INFORMATION:
Year Ended December 31,
1998 1997 1996
(in thousands)
Cash was paid for:
Interest (net of
capitalized amounts) $66,313 $ 62,274 $ 64,117
Income Taxes 36,413 120,212 125,707
Noncash Acquisitions
Under Capital Leases 9,658 111,395 48,305
In connection with the 1996 early termination of a western coal
land sublease the Company will receive cash payments from the
lessee of $30.8 million over a ten-year period which was recorded
at a net present value of $22.8 million. The long-term portion of
this receivable is recorded as other property and investments and
the current portion is recorded as miscellaneous accounts
receivable.
13. CUMULATIVE PREFERRED STOCK:
At December 31, 1998, authorized shares of cumulative
preferred stock were as follows:
Par Value Shares Authorized
$100 2,250,000
25 11,200,000
The cumulative preferred stock is callable at the price
indicated below plus accrued dividends. The involuntary
liquidation preference is par value. Unissued shares of the
cumulative preferred stock may or may not possess mandatory
redemption characteristics upon issuance. During 1996 the Company
redeemed and canceled 300,000 shares of the 7.08% series not
subject to mandatory redemption.
A. Cumulative Preferred Stock Not Subject to Mandatory Redemption:
<TABLE>
<CAPTION>
Call Price Shares Amount
December 31, Par Number of Shares Redeemed Outstanding December 31,
Series 1998 Value Year Ended December 31, December 31, 1998 1998 1997
1998 1997 1996 (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4-1/8% $106.125 $100 771 59,760 233 59,236 $5,924 $6,001
4.56% 102 100 650 44,788 - 14,562 1,456 1,521
4.12% 102.728 100 200 20,869 - 18,931 1,893 1,913
$9,273 $9,435
B. Cumulative Preferred Stock Subject to Mandatory Redemption:
Shares Amount
Par Number of Shares Redeemed Outstanding December 31,
Series(a) Value Year Ended December 31, December 31, 1998 1998 1997
1998 1997 1996 (in thousands)
5.90% (b) $100 - 233,000 - 167,000 $16,700 $16,700
6-1/4%(b) 100 - 97,500 - 202,500 20,250 20,250
6.30% (b) 100 - 217,550 - 132,450 13,245 13,245
6-7/8%(c) 100 - 117,500 - 182,500 18,250 18,250
$68,445 $68,445
</TABLE>
(a) Not callable until after 2002. There are no aggregate sinking
fund provisions through 2002. A sinking fund provision requires
the redemption of 15,000 shares in 2003.
(b) Commencing in 2004 and continuing through 2008 the Company may
redeem, at $100 per share, 20,000 shares of the 5.90% series,
15,000 shares of the 6-1/4% series and 17,500 shares of the 6.30%
series outstanding under sinking fund provisions at its option and
all remaining outstanding shares must be redeemed not later than
2009. Shares redeemed in 1997 may be applied to meet the sinking
fund requirement.
(c) Commencing in 2003 and continuing through the year 2007, a
sinking fund will require the redemption of 15,000 shares each year
and the redemption of the remaining shares outstanding on April 1,
2008, in each case at $100 per share. Shares redeemed in 1997 may
be applied to meet the sinking fund requirement.
14. LONG-TERM DEBT AND LINES OF CREDIT:
Long-term debt by major category was outstanding as follows:
December 31,
1998 1997
(in thousands)
First Mortgage Bonds $ 466,330 $ 520,317
Installment Purchase
Contracts 309,418 309,269
Senior Unsecured Notes 48,559 -
Other Long-term Debt (a) 190,192 180,837
Junior Debentures 161,290 38,814
1,175,789 1,049,237
Less Portion Due Within
One Year 35,000 35,000
Total $1,140,789 $1,014,237
(a) Represents a SNF disposal liability including interest accrued
payable to the Department of Energy. See Note 3.
<PAGE>
First mortgage bonds outstanding were as follows:
December 31,
1998 1997
(in thousands)
% Rate Due
7.00 1998 - May 1 $ - $ 35,000
7.30 1999 - December 15 35,000 35,000
6.40 2000 - March 1 48,000 48,000
7.63 2001 - June 1 40,000 40,000
7.60 2002 - November 1 50,000 50,000
7.70 2002 - December 15 40,000 40,000
6.80 2003 - July 1 20,000 20,000
6.55 2003 - October 1 20,000 20,000
6.10 2003 - November 1 30,000 30,000
6.55 2004 - March 1 25,000 25,000
8.50 2022 - December 15 75,000 75,000
7.80 2023 - July 1 - 20,000
7.35 2023 - October 1 20,000 20,000
7.20 2024 - February 1 40,000 40,000
7.50 2024 - March 1 25,000 25,000
Unamortized Discount (net) (1,670) (2,683)
466,330 520,317
Less Portion Due Within One Year 35,000 35,000
Total $431,330 $485,317
Certain indentures relating to the first mortgage bonds
contain improvement, maintenance and replacement provisions
requiring the deposit of cash or bonds with the trustee, or in lieu
thereof, certification of unfunded property additions.
Installment purchase contracts have been entered into in
connection with the issuance of pollution control revenue bonds by
governmental authorities as follows:
December 31,
1998 1997
(in thousands)
% Rate Due
City of Lawrenceburg, Indiana:
7.00 2015 - April 1 $ 25,000 $ 25,000
5.90 2019 - November 1 52,000 52,000
City of Rockport, Indiana:
(a) 2014 - August 1 50,000 50,000
7.60 2016 - March 1 40,000 40,000
6.55 2025 - June 1 50,000 50,000
(b) 2025 - June 1 50,000 50,000
City of Sullivan, Indiana:
5.95 2009 - May 1 45,000 45,000
Unamortized Discount (2,582) (2,731)
Total $309,418 $309,269
<PAGE>
(a) A variable interest rate is determined weekly. The average
weighted interest rate was 4.1% for 1998 and 4.3% for 1997.
(b) An adjustable interest rate can be a daily, weekly, commercial
paper or term rate as designated by the Company. A weekly
rate was selected which ranged from 2.7% to 4.3% in 1998 and
from 3.0% to 4.6% in 1997 and averaged 3.6% and 3.8% during
1998 and 1997, respectively.
Under the terms of certain installment purchase contracts, the
Company is required to pay amounts sufficient to enable the cities
to pay interest on and the principal (at stated maturities and upon
mandatory redemption) of related pollution control revenue bonds
issued to finance the construction of pollution control facilities
at certain generating plants. On the two variable rate series the
principal is payable at the stated maturities or on the demand of
the bondholders at periodic interest adjustment dates which occur
weekly. The variable rate bonds due in 2014 are supported by a
bank letter of credit which expires in 2002. I&M has agreements
that provide for brokers to remarket the adjustable rate bonds due
in 2025 tendered at interest adjustment dates. In the event
certain bonds cannot be remarketed, I&M has a standby bond
purchase agreement with a bank that provides for the bank to
purchase any bonds not remarketed. The purchase agreement expires
in 2000. Accordingly, the variable and adjustable rate installment
purchase contracts have been classified for repayment purposes
based on the expiration dates of the standby purchase agreement and
the letter of credit.
In November 1998 the Company issued $50,000,000 of 6.45%
senior unsecured notes due November 10, 2008. The unamortized
discount at December 31, 1998 was $1,441,000.
Junior debentures are composed of the following:
December 31,
1998 1997
(in thousands)
% Rate Due
8.00 2026 - March 31 $ 40,000 $40,000
7.60 2038 - June 30 125,000 -
Unamortized Discount (3,710) (1,186)
Total $161,290 $38,814
Interest may be deferred and payment of principal and interest
on the junior debentures is subordinated and subject in right to
the prior payment in full of all senior indebtedness of the
Company.
<PAGE>
At December 31, 1998, future annual long-term debt payments
are as follows:
Amount
(in thousands)
1999 $ 35,000
2000 98,000
2001 40,000
2002 140,000
2003 70,000
Later Years 802,192
Total Principal Amount 1,185,192
Unamortized Discount (9,403)
Total $1,175,789
Short-term debt borrowings are limited by provisions of the
1935 Act to $300 million. Lines of credit are shared with AEP
System companies and at December 31, 1998 and 1997 were available
in the amounts of $763 million and $442 million, respectively.
Facility fees of approximately 1/10 of 1% of the short-term lines
of credit are required by the banks to maintain the lines of
credit.
Outstanding short-term debt consisted of:
Year-end
Balance Weighted
Outstanding Average
(in thousands) Interest Rate
December 31, 1998:
Commercial Paper $108,700 6.2%
December 31, 1997:
Notes Payable $ 56,410 6.3%
Commercial Paper 63,190 6.8
Total $119,600 6.6
15. LEASES:
Leases of property, plant and equipment are for periods of
up to 35 years and require payments of related property taxes,
maintenance and operating costs. The Company is leasing 50% of
the 1,300 mw Rockport 2 generating unit under an operating lease.
The lease has 24 years remaining and total minimum lease payments
of $1.8 billion. The majority of the leases have purchase or
renewal options and will be renewed or replaced by other leases.
<PAGE>
Lease rentals for both operating and capital leases are
generally charged to operating expenses in accordance with rate-making
treatment. The components of rental costs are as follows:
Year Ended December 31,
1998 1997 1996
(in thousands)
Lease Payments on
Operating Leases $ 88,297 $ 92,067 $ 96,096
Amortization of Capital Leases 10,717 42,882 55,789
Interest on Capital Leases 10,302 9,737 10,624
Total Lease Rental Costs $109,316 $144,686 $162,509
Properties under capital leases and related obligations
recorded on the Consolidated Balance Sheets are as follows:
December 31,
1998 1997
(in thousands)
Electric Utility Plant Under Capital Leases:
Production Plant $ 8,850 $ 9,218
Distribution Plant 14,645 14,660
General Plant:
Nuclear Fuel (net of amortization) 103,939 103,939
Other Plant 60,002 61,268
Total Electric Utility Plant
Under Capital Leases 187,436 189,085
Accumulated Amortization 33,948 31,358
Net Electric Utility Plant
Under Capital Leases 153,488 157,727
Other Property Under Capital Leases 37,672 40,746
Accumulated Amortization 4,733 3,246
Net Other Property Under Capital Leases 32,939 37,500
Net Properties Under Capital Leases $186,427 $195,227
Capital Lease Obligations*:
Noncurrent Liability $176,760 $161,194
Liability Due Within One Year 9,667 34,033
Total Capital Lease Obligations $186,427 $195,227
* Represents the present value of future minimum lease payments.
The noncurrent portion of capital lease obligations is
included in other noncurrent liabilities in the Consolidated
Balance Sheets. Properties under operating leases and related
obligations are not included in the Consolidated Balance Sheets.
<PAGE>
Future minimum lease payments consisted of the following at
December 31, 1998:
Non-
Cancelable
Capital Operating
Leases Leases
(in thousands)
1999 $ 15,807 $ 98,992
2000 14,371 98,729
2001 12,524 97,494
2002 18,521 95,778
2003 9,141 95,685
Later Years 38,505 1,608,787
Total Future Minimum
Lease Payments 108,869(a) $2,095,465
Less Estimated
Interest Element 26,381
Estimated Present
Value of Future
Minimum Lease
Payments 82,488
Unamortized Nuclear
Fuel 103,939
Total $186,427
(a) Excludes nuclear fuel rentals which are paid in proportion to
heat produced and carrying charges on the unamortized nuclear
fuel balance. There are no minimum lease payment requirements
for leased nuclear fuel.
16. UNAUDITED QUARTERLY FINANCIAL INFORMATION:
Net
Quarterly Periods Operating Operating Income
Ended Revenues Income (Loss)
(in thousands)
1998
March 31 $328,468 $51,368 $33,744
June 30 348,271 42,194 28,536
September 30 412,908 58,639 38,691
December 31 316,147 13,806 (4,343)
1997
March 31 341,313 59,894 44,259
June 30 320,508 50,140 33,908
September 30 347,668 60,449 45,091
December 31 329,743 37,305 23,482
Fourth quarter 1998 operating income and net income declined
primarily as a result of expenditures to prepare the nuclear units
for restart.
See "Reclassification" in Note 1 regarding reclassification of
prior period amounts.
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-50521 and 333-65349 of Indiana Michigan Power Company on Form S-3 of our
reports dated February 23, 1999 and February 23, 1999 (March 16, 1999 as to Note
4), appearing in and incorporated by reference in this Annual Report on Form
10-K of Indiana Michigan Power Company for the year ended December 31, 1998.
Deloitte & Touche LLP
Columbus, Ohio
March 29, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
INDIANA MICHIGAN POWER COMPANY
Annual Report on Form lO-K for the Fiscal Year
Ended
December 31, 1998
The undersigned directors of INDIANA MICHIGAN POWER COMPANY, an Indiana
corporation (the "Company"), do hereby constitute and appoint E. LINN DRAPER,
JR., ARMANDO A. PENA and HENRY W. FAYNE, and each of them, their
attorneys-in-fact and agents, to execute for them, and in their names, and in
any and all of their capacities, the Annual Report of the Company on Form lO-K,
pursuant to Section 13 of the Securities Exchange Act of 1934, for the fiscal
year ended December 31, 1998, and any and all amendments thereto, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform every act and thing required or necessary to be done, as fully to
all intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have signed these presents this 24th
day of February, 1999.
/s/ Karl G. Boyd /s/ James J. Markowsky
Karl G. Boyd James J. Markowsky
/s/ C. R. Boyle, III /s/ Armando A. Pena
C. R. Boyle, III Armando A. Pena
/s/ G. A. Clark /s/ D. B. Synowiec
G. A. Clark D. B. Synowiec
/s/ E. Linn Draper, Jr. /s/ J. H. Vipperman
E. Linn Draper, Jr. J. H. Vipperman
/s/ Henry W. Fayne /s/ W. E. Walters
Henry W. Fayne W. E. Walters
/s/ James A. Kobyra /s/ E. H. Wittkamper
James A. Kobyra E. H. Wittkamper
/s/ Wm. J. Lhota
Wm. J. Lhota
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<NAME> INDIANA MICHIGAN POWER COMPANY
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