<PAGE> File No. 70-8970
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
(Name of companies filing this statement and
addresses of principal executive offices)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Name of top registered holding company
parent of each applicant or declarant)
* * *
Armando A. Pena, Treasurer
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
(Names and addresses of agents for service)
The undersigned Appalachian Power Company ("APCO" or the
"Company") hereby amends its Application/Declaration on Form U-1 to
amend and restate ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION as
follows:
Item 1. Description of Proposed Transaction.
Background.
Appalachian Power Company ("APCo"), a public utility subsidi-
ary of American Electric Power Company, Inc., a registered holding
company, is party to a utility mortgage dated December 1, 1940 (the
"Mortgage") with Bankers Trust Company (the "Trustee"). Under
Section 40 of the Mortgage, APCo covenants that it will, at all
times, make or cause to be made such expenditures by means of re-
pairs, maintenance, substitutions of property or otherwise as shall
be necessary to maintain, preserve and keep the mortgaged property
in good repair, working order and condition as an operating system
or systems...."
Maintenance Certificate
In furtherance of its maintenance obligation, annually APCo
must furnish a treasurer's maintenance certificate to the Trustee.
Part I of the maintenance certificate provides that the maintenance
obligation be calculated on a 15% of base operating revenues test.
Part II of the maintenance certificate supplements Part I by
requiring that the maintenance obligation be calculated on the
percentage of depreciable property, currently 2.25% (the
"Applicable Percentage"). [See Footnote 1]
[Footnote 1]
"Applicable Percentage" is defined as 2-1/4% or such other
percentage as shall be authorized or approved, upon application by
the Company, by the Securities and Exchange Commission, or by any
successor commission thereto, under the Public Utility Holding
Company Act of 1935.
"Depreciable Property" is defined as an amount equal to the
sum of (a) the aggregate of the cost to the Company, or the
original cost (whichever is less) of the depreciable property of
the Company in service and used or useful in the business of
generating, transmitting, distributing or supplying electricity.
[End of Footnote 1]
Under Part II, the Company must deposit an amount in cash or
principal amount of bonds outstanding equal to the excess of the
product of the Applicable Percentage and the average of the
Depreciable Property of the Company at the first and the last day
of the preceding calendar year over the sum of (i) the aggregate
amount expended during the preceding calendar year for property
subsituted for retired property, (ii) the aggregate of the property
additions certified, and the cash and/or bonds deposited pursuant
to Part I, and (iii) any credit applicable to prior years. The
Company may under this covenant certify to the Trustee, in lieu of
depositing cash or bonds, property additions which are not then
funded property (which thereupon become funded propety) at cost or
fair value, whichever is less.
Cash deposited with the Trustee pursuant to Section 40 of the
Mortgage may be used to redeem certain series of First Mortgage
Bonds at par.
1979 Order.
On May 7, 1979 (HCAR No. 21040; File 70-6289), the Commission
approved the amendment of the Mortgage to facilitate the amendment
of the Mortgage at a future date to delete the third paragraph of
Part I of Section 40: the requirement that the Company annually
satisfy the 15% revenue test.
In the same order, the Commission approved a change in the
amount of the Applicable Percentage specified under Part II of the
Mortgage from 2-1/4% to 2.90%, such change to become effective on
the date when the Mortgage shall be amended to delete the provi-
sions of the third paragraph of Part I of Section 40, and to con-
tinue at 2.90% until another change in such percentage shall be
authorized or approved.
Said amendment to delete such provisions of Part I could not
be made as long as bonds issued under the prior provisions of the
Mortgage were outstanding. No such series of first mortgage bonds
are currently outstanding and the Company proposes at this time to
amend the Mortgage to delete the third paragraph of Part I of
Section 40. Such amendment would automatically effect an increase
in the Applicable Percentage from 2.25% to 2.90% in accordance with
the May 1979 order unless a different percentage is authorized by
the Commission.
Retention of Current Applicable Percentage.
APCo believes that the current 2.25% Applicable Percentage is
a reasonable annual requirement for the replacement of the book
cost of its depreciable mortgaged property. An increase in said
Applicable Percentage to 2.9% would significantly increase the
amount of cash, bonds or property additions the Company would be
required to deposit with the Trustee without increasing the actual
amount the Company must expend to maintain its property. [See
Footnote 2]
[Footnote 2]
For the year ended December 31, 1995, under Part II of the
maintenance certificate, the deficit was computed as follows:
Depreciable property $4,260,217,018
Applicable Percentage x 2.25%
Product 95,854,883
Less retirements (77,902,123)
Deficit $ 17,952,760
Based on an Applicable Percentage of 2.90% the deficit would be:
Depreciable property $4,260,217,018
Applicable Percentage x 2.90%
Product 123,546,294
Less retirements (77,902,123)
Deficit $ 45,644,171
[End of Footnote 2]
Retaining the current percentage maintains the maintenance
obligation but provides the Company with the flexibility to utilize
its property additions and/or cash in other ways. Bondholders
benefit from the lower Applicable Percentage because when the
Company elects to put up cash to fulfill its obligations, it can
direct the Trustee to call bonds for redemption at par with said
cash, thereby (1) depriving the holders of their anticipated
interest income stream for the term of the bonds and (2) redeeming
the bonds for a lesser amount than would be payable for non-main-
tenance optional redemptions. [See Footnote 3]
[Footnote 3]
For example, in 1996 the 9-7/8% Series of First Mortgage Bonds
were redeemed with money deposited pursuant to the maintenance
provisions, at 100% of their principal amount. If they had been
redeemed by option of the Company and not pursuant to maintenance
provisions, they would have been redeemed at a premium of 106.42%
of the principal amount.
[End of Footnote 3]
Compliance with Rule 54:
Rule 54 provides that in determining whether to approve cer-
tain transactions other than those involving exempt wholesale
generators ('EWG') or foreign utility companies ('FUCO'), as
defined in the 1935 Act, the Commission will not consider the
effect of the capitalization or earnings of any subsidiary which is
an EWG or FUCO if Rule 53(a), (b) and (c) are satisfied. The
requirements of Rule 53(a), (b) and (c) are satisfied.
Rule 53(a)(1). As of September 30, 1996, American Electric
Power Company, Inc. ('American'), parent of the Companies, had no
investments in EWGs or FUCOs. This investment represents less than
1% of $1,473,434,000, the average of the consolidated retained
earnings of American reported on Form 10-K or Form 10-Q, as
applicable, for the four consecutive quarters ended September 30,
1996.
Rule 53(a)(2). American will maintain books and records and
make available the books and records required by Rule 53(a)(2).
Rule 53(a)(3). No more than 2% of the employees of the
operating company subsidiaries of American will, at any one time,
directly or indirectly, render services to an EWG or FUCO.
Rule 53(a)(4). American has submitted and will submit a copy
of Item 9 and Exhibits G and H of American's Form U5S to each of
the public service commissions having jurisdiction over the retail
rates of American's operating company subsidiaries.
Rule 53(b). (i) Neither American nor any subsidiary of
American is the subject of any pending bankruptcy or similar pro-
ceeding; (ii) American's average consolidated retained earnings for
the four most recent quarterly periods ($1,472,434,000) represented
an increase of approximately $117,179,000 (or 8.6%) in the average
consolidated retained earnings from the previous four quarterly
periods ($1,356,255,000); and (iii) for the year ended December 31,
1995, there were no losses attributable to American's investments
in any EWG or FUCO.
Rule 53(c). Rule 53(c) is inapplicable because the require-
ments of Rule 53(a) and (b) have been satisfied."
The Company hereby requests authority to retain the 2.25%
Applicable Percentage currently in effect upon amendment of the
Mortgage to delete the third paragraph of Part I of Section 40.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned company has duly caused this
Amendment to be signed on its behalf by the undersigned thereunto
duly authorized.
APPALACHIAN POWER COMPANY
By: /s/ A. A. Pena
A. A. Pena, Treasurer
Date: December 17, 1996
