<PAGE> File No. 70-8591
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM U-1
APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
APPALACHIAN POWER COMPANY
40 Franklin Road, Roanoke, Virginia 24022
COLUMBUS SOUTHERN POWER COMPANY
215 North Front Street, Columbus, Ohio 43215
INDIANA MICHIGAN POWER COMPANY
One Summit Square, Fort Wayne, Indiana 46801
KENTUCKY POWER COMPANY
1701 Central Avenue, Ashland, Kentucky 41101
KINGSPORT POWER COMPANY
422 Broad Street, Kingsport, Tennessee 37660
OHIO POWER COMPANY
339 Cleveland Avenue, S.W., Canton, Ohio 44702
WHEELING POWER COMPANY
51 - 16th Street, Wheeling, West Virginia 26003
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
Name of top registered holding company
parent of each applicant or declarant)
* * *
G. P. Maloney, Executive Vice President
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
John F. Di Lorenzo, Jr., Associate General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus,Ohio 43215
(Name and addresses of agents for service)
Appalachian Power Company, Columbus Southern Power Company,
Power Company, Kentucky Power Company, Kingsport Power Company,
Indiana Michigan Power Company, Ohio Power Company and Wheeling
Power Company hereby amend their Application or Declaration on Form
U-1 in File No. 70-8591 by amending and restating ITEM 1.
DESCRIPTION OF PROPOSED TRANSACTIONS as follows:
"Appalachian Power Company ('APCo'), Columbus Southern Power
Company ('CSPCo'), Kentucky Power Company ('KPCo'), Kingsport Power
Company ('Kingsport'), Indiana Michigan Power Company ('I&M'), Ohio
Power Company ('OPCo') and Wheeling Power Company ('Wheeling'),
(sometimes individually referred to herein as 'Company' and
collectively as 'Companies'), each request authorization herein (i)
to acquire the debt securities of their customers and (ii) to
provide meter reading, billing and collecting services to gas,
water and other utilities.
Each Company proposes to acquire the debt securities of its
present and future customers in connection with the Company's
financing of equipment generating, transmitting or distributing
electric power (including electrotechnologies), and equipment
providing energy management or energy communications. The maximum
amount of debt securities that APCo, CSPCo, I&M, and OPCo can each
hold at any one time is $50 million, or $5 million per customer.
The maximum amount that KPCo can hold at any one time is $15
million, or $3 million per customer, and the maximum amount that
Kingsport and Wheeling can each hold at any one time is $2 million.
Interest on debt securities will be at prevailing market
rates. The interest rates to be charged would depend on the
prevailing financial market conditions at the time each loan is
made. Factors influencing the calculation of appropriate loan
interest rates would include, but not be limited to, the customer's
credit risk profile; term of each loan; amount and availability of
funds involved; customer's preference for either fixed or variable
interest rate pricing; prospective view of economic changes over
the term of the loan affecting capital market conditions and
interest rates generally; the extent to which any credit
enhancement may be provided, such as letters of credit or loan
guaranties.
Based on recent capital market conditions, and considering the
various factors specified above, the Companies expect that interest
rate pricing for customer loans would in all likelihood be based on
either (a) standard variable rate market benchmarks (such as Libor,
Prime or other short term interest rates) plus loan spreads of up
to 300 basis points or (b) standard fixed rate market benchmarks
(such as U.S. Treasury notes or other longer term interest rates of
up to ten years duration) plus loan spreads of up to 400 basis
points.
The securities will have terms ranging from one to ten years
and will be secured or unsecured. Each Company will acquire the
debt securities with its general corporate funds and may assign
securities acquired from customers to banks or other financial
institutions with or without recourse. The Commission has
previously authorized a public utility to provide similar financing
arrangements for its customers. (See Mississippi Power and Light
Company HCAR No. 35-25140, dated August 30, 1990.)
Transactions authorized in this proceeding will not apply to
the total amounts permitted by Rules 40(a)(5) and 48.
Each Company also proposes to engage in meter reading,
billing, and collecting services ('Meter Reading Services') for
water, gas and other utilities located principally in the service
territories of the Companies and in the service territories of any
wholesale municipal or cooperative customers (such as cities,
townships and electric cooperatives) interconnected with the
Companies as long as such municipalities and cooperatives are
located in the seven states in which the Companies currently
provide electric service ('Other Utilities'). The Meter Reading
Services would be similar to services that the Companies engage in
with respect to their own customers. Such services are now being
performed by both Company and contract employees.
The Companies state that the Meter Reading Services would
allow multiple meters to be read in one visit and allow the Other
Utilities to avoid the capital costs of vehicles to read meters and
of information systems for billing services. These economies and
efficiencies could be duplicated throughout the service territories
of the Companies, all of which now read meters on a regular and
manual basis. Because the reading, billing, and collecting
services performed by the Companies and the Other Utilities are
duplicative, the combination of those operations would result in
cost efficiencies. The Companies already have extensive networked
manpower and information systems to provide these services to their
own customers. The provision of these same services to Other
Utilities allows those entities to avoid operational and capital
costs associated with reading meters, purchasing, leasing and
operation of vehicles used in connection with meter reading, as
well as information systems for billing. Therefore, the Other
Utilities may find it more efficient and economical to outsource
the Meter Reading Services to the Companies.
Connection and disconnection of meters would be performed by
employees of the Other Utilities. However, computerized
communications systems might be established among the offices and
service vehicles of the Other Utilities and the Companies to
facilitate connections, disconnections, and repairs or
replacements.
The Companies would provide the Meter Reading Services to
Other Utilities where the service territories of the respective
Company and Other Utility substantially overlap. In these cases,
it would not be practical or cost-effective for the Companies to
serve all but a minor part of those customers. In addition, the
Companies would perform the Meter Reading Services for any
wholesale municipal or cooperative customers interconnected with
the Companies. Many of the same efficiencies and benefits could be
obtained by providing the Meter Reading Services to such
interconnected entities.
The Companies propose to provide billing and meter repair
services to the Other Utilities in conjunction with the Meter
Reading Services if the Companies can provide such services
efficiently, economically and consistent with the Meter Reading
Services. In these instances, a single bill for both electric and
water or gas or other utility services would be used. A customer
would write a single check for all services. The Companies would
process all checks and credit the appropriate amounts to bank
accounts for the Companies and the Other Utilities. The Commission
has previously authorized the public utilities of a registered
holding company to provide such meter reading and billing services.
(See Central and Southwest Corporation HCAR No. 35-26250, dated
March 14, 1995.) In accordance with the FERC Uniform System of
Accounts, the Companies will credit the revenue derived from the
performance of the subject services to Account 456, Other Electric
Revenues. All expenses incurred which are incremental to the
Companies' electric service operations, including an allocation for
associated fixed costs, will be charged to Account 630.2,
Miscellaneous General Expenses.
Representatives of the Companies met with staff members at the
Kentucky Public Service Commission, Michigan Public Service
Commission, Public Utilities Commission of Ohio, Tennessee Public
Service Commission, Virginia State Corporation Commission and the
West Virginia Public Service Commission early in 1996 to discuss a
variety of programs and services which the Companies intend to
provide, including those referred to in this Application. At each
of the meetings, the Companies indicated that they would perform
these services on a fully allocated cost basis and that such
services would be accomplished without any subsidization from the
'core business'. This is accomplished as long as revenues received
from third parties cover all out-of-pocket expenses, including
allocated fixed costs. The receipt of a profit will provide a net
benefit to the core business. Furthermore, the Companies
represented that if the revenues do not exceed expenses, both the
revenues and expenses would be excluded from the cost-of-service.
None of the Commissions suggested that these services should be
tariffed.
LEGAL DISCUSSION
The Companies believe that the services described above are
consistent with the requirements of Section 11(b) of the Public
Utility Holding Company Act of 1935 ('1935 Act') for the following
reasons:
Section 11(b)(1) of the 1935 Act limits the operations of a
registered holding company system to a single integrated public
utility system, and to such other businesses as are reasonably
incidental, or economically necessary or appropriate to the
operations of such integrated public utility system. Section
11(b)(1) explains that the Commission may permit, as reasonably
incidental or economically necessary or appropriate to the
operations of one or more integrated public utility systems, the
retention of any business that the Commission shall find necessary
or appropriate in the public interest or for the protection of
investors or consumers and not detrimental to the proper
functioning of such system or systems.
As explained above, the Commission has previously authorized
services similar to those proposed by the Companies. Moreover, the
Commission has directly referenced the market conditions in the
electric utility industry that created the need for many of the
Companies' proposed services: 'The electric and gas utility
industry is in transition....companies must adapt to an
increasingly competitive environment.'(1)
In its June 1995 Study of the Regulation of Public-Utility
Holding Companies, the Division of Investment Management noted the
restrictive impact of the 1935 Act:
'We believe that the Holding Company Act is unnecessarily
restrictive in many regards, and may prevent companies
from responding effectively to the changes now occurring
in the utility industry. These effects, we have
concluded, are clearly detrimental to both investors and
consumers.'
With respect to diversified activities in particular, the Division
noted:
'The SEC must continue to respond flexibly to change in
the utility industry. Toward this end, the Division
believes that the registered holding companies should be
permitted to invest in diversified activities without
unnecessary regulatory obstacles....'
The Companies' proposed services respond directly to the
increasingly competitive utility environment. Electric utility
customers desire optimal solutions, in terms of energy and other
resource costs, to their specific needs for end-use services (such
as lighting, heating, ventilation, air conditioning or compressed
air). As indicated earlier, the Commission has approved another
public utility's request to provide similar financing arrangements
for its customers.(2)
This changing industry environment has created a demand for
utility companies to provide new and additional value-added
products and services. To be competitive in this environment,
public utility companies must be positioned to more fully utilize
existing expertise and resources in order to more effectively
produce these new products and services and to produce benefits for
investors and consumers, such as the Meter Reading Services. The
Commission has previously approved a public utility's similar
request to provide meter reading and billing services.(3)
NOTES
1. HCAR No. 35-26153 (11/2/94).
2. Mississippi Power and Light Company HCAR No. 35-25140
(8/30/90).
3. Central and Southwest Corporation HCAR No. 35-26250 (3/14/95).
It is proposed that the Companies file annually, within 120
days after the close of each calendar year, a statement by Company
as to the amount of authorized financings and the revenues from
Meter Reading Services for Other Utilities."
SIGNATURE
Pursuant to the requirements of the Public Utility holding
Company Act of 1935, the undersigned companies have duly caused
this statement to be signed on their behalf by the undersigned
thereunto duly authorized.
APPALACHIAN POWER COMPANY
COLUMBUS SOUTHERN POWER COMPANY
KENTUCKY POWER COMPANY
KINGSPORT POWER COMPANY
INDIANA MICHIGAN POWER COMPANY
OHIO POWER COMPANY
WHEELING POWER COMPANY
By /s/ G. P. Maloney
Vice President
Dated: September 20, 1996
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