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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
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)
215 North Front Street
Columbus, Ohio 43215
Telephone (614) 464-7700
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
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 (check mark) No
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
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
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
Kentucky Power Company 8.72% Junior Subordinated Deferrable
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
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 (Section 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 (Section 229.405 of this chap-
ter) 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. (check mark)
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of each class
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
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 13, 1998 February 13, 1998
AEP Generating Company None 1,000
($1,000 par value)
American Electric Power
Company, Inc. $9,333,250,000 189,989,989
($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)
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).
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Into Which Document
Description Is Incorporated
Portions of Annual Reports of the following companies for the
fiscal year ended December 31, 1997: Part II
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 1998 Annual Meeting of Shareholders,
to be filed within 120 days after December 31, 1997 Part III
Portions of Information Statements of the following companies
for 1998 Annual Meeting of Shareholders, to be filed within
120 days after December 31, 1997: Part III
Appalachian Power Company
Ohio Power Company
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.
TABLE OF CONTENTS
Page
Number
Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 27
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 31
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . . 32
Executive Officers of the Registrants . . . . . . . . . . . . . . . 32
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . 34
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 34
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition . . . . . . . . . 35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
35
Item 8. Financial Statements and Supplementary Data . . . . . . 35
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . 36
PART III
Item 10. Directors and Executive Officers of the Registrants . . . 36
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 38
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . 41
Item 13. Certain Relationships and Related Transactions . . . . . 42
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . 42
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Index to Financial Statement Schedules . . . . . . . . . . . . . . . . . S-1
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . S-2
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this
report, they have the meanings indicated below.
Term Meaning
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.
Ohio EPA Ohio Environmental Protection Agency.
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.
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 in the U.S.
and 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 subsidiar-
ies 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, 1997, the subsidiaries of AEP had a total of 17,844
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 877,000 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, 1997, APCo and its
wholly owned subsidiaries had 3,877 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 621,000 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, 1997,
CSPCo had 1,802 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 549,000 customers in northern and eastern Indiana and
southwestern Michigan, and in supplying electric power at wholesale to
other electric utility companies, rural electric cooperatives and
municipalities. At December 31, 1997, I&M had 3,306 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 168,000 customers in an area in eastern Kentucky,
and in supplying electric power at wholesale to other utilities and
municipalities in Kentucky. At December 31, 1997, KEPCo had 731
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 43,000 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,
1997, Kingsport Power Company had 85 employees.
OPCo (organized in Ohio in 1907 and reincorporated in 1924) is
engaged in the generation, sale, purchase, transmission and distribution
of electric power to approximately 679,000 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, 1997, OPCo and its wholly
owned subsidiaries had 4,376 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
43,000 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, 1997, Wheeling
Power Company had 94 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 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 affili-
ate 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. It is expected that a number of bills contemplating the
restructuring of the electric utility industry will be introduced in the cur-
rent 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.
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, 1997 are as follows:
<TABLE>
<CAPTION>
AEP
AEGCo APCo CSPCo I&M KEPCo OPCo System (a)
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Retail
Residential
Without Electric Heating . . . . $ 0 $ 227,457 $ 317,341 $ 237,475 $ 40,395 $ 274,680 $1,117,740
With Electric Heating . . . . . 0 336,395 110,385 110,547 65,522 147,503 806,095
Total Residential . . . . . . . 0 563,852 427,726 348,022 105,917 422,183 1,923,835
Commercial . . . . . . . . . . . 0 281,939 381,368 264,031 56,680 263,212 1,286,452
Industrial . . . . . . . . . . . 0 382,056 147,367 332,218 94,645 618,548 1,637,058
Miscellaneous . . . . . . . . . 0 32,271 16,170 6,465 863 8,109 67,387
Total Retail . . . . . . . . . 0 1,260,118 972,631 950,736 260,105 1,312,052 4,914,732
Wholesale (sales for resale) . . 227,803 410,813 141,769 415,077 89,337 597,133 1,080,190
Total from KWH Sales . . . . . 227,803 1,670,931 1,114,400 1,365,813 349,442 1,909,185 5,994,922
Provision for Revenue Refunds . . 0 (250) 0 0 0 0 (250)
Total Net of Provision for
Revenue Refunds . . . . . . . . . 227,803 1,670,681 1,114,400 1,365,813 349,442 1,909,185 5,994,672
65 49,329 25,204 26,104 10,101 56,633 166,696
$227,868 $1,720,010 $1,139,604 $1,391,917 $359,543 $1,965,818 $6,161,368
</TABLE>
__________
(a) Includes revenues of other subsidiaries not shown and reflects 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.
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, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997(a)
(in thousands)
<S> <C> <C> <C>
APCo . . . . . . $(252,000) $(258,000) $(237,000)
CSPCo . . . . . . (143,000) (145,000) (138,000)
I&M . . . . . . . 118,000 121,000 67,000
KEPCo . . . . . . 23,000 2,000 20,000
OPCo . . . . . . 254,000 280,000 288,000
</TABLE>
__________
(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 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, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995(a) 1996(a) 1997(a)
(in thousands)
<S> <C> <C> <C>
AEGCo(b) . . . . $ 29,200 $ 26,300 $ 26,200
APCo(c) . . . . . 24,100 36,800 37,500
CSPCo(c) . . . . 12,000 18,100 18,300
I&M(c)(d) . . . . 34,700 43,000 42,400
KEPCo(c) . . . . 5,000 7,600 7,700
OPCo(c) . . . . . 20,200 30,200 30,200
Total System . $125,200 $162,000 $162,300
</TABLE>
__________
(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 1995, 1996 and 1997 were made on a short-term
basis, except that $22,500,000, $33,300,000 and $25,900,000
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 1995, 1996 and 1997
amounts for I&M include $21,000,000, $20,900,000 and $21,100,000 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
1997 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 1995, customers have given notices of termination, effective in
1998 and 1999, 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 450 megawatts.
In June 1993, certain municipal customers of APCo, who have since given
APCo notice to terminate their contracts in 1998, 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 are full-requirements contracts which preclude
the customers from purchasing power from third parties. 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 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.
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 Regulations. 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,
1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
(in thousands)
<S> <C> <C> <C>
APCo . . . . . . $( 5,400) $( 6,500) $( 8,400)
CSPCo . . . . . . ( 31,100) ( 30,600) ( 29,900)
I&M . . . . . . . 46,700 46,300 46,100
KEPCo . . . . . . 3,500 3,300 2,700
OPCo . . . . . . ( 13,700) ( 12,500) ( 10,500)
</TABLE>
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, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
(in thousands)
<S> <C> <C> <C>
APCo . . . . . . $ 6,000 $ 13,800 $ 18,000
CSPCo . . . . . . 4,200 8,000 10,200
I&M . . . . . . . 4,800 7,700 10,500
KEPCo . . . . . . 1,200 2,800 3,900
OPCo . . . . . . 17,800 17,800 27,200
$ 34,000 $ 50,100 $ 69,800
</TABLE>
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 trans-
mission 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 transmis-
sion 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.
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. On January
15, 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, but supports the formation
of voluntary ISOs, and is currently examining its options, which include,
among others, participation in the Midwest ISO. 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 945,000 kilowatts. On March
1, 1998, 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 1997. 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 27 of the rural electric cooperatives
which operate in the State of Ohio at 306 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.
On October 3, 1996, the PUCO approved, with some exceptions, a contract
pursuant to which OPCo will continue to provide electric service to Ravenswood
for the period July 1, 1996 through July 31, 2003. On February 6, 1997, the
PUCO approved an amendment to the contract addressing these exceptions and the
amended contract is now in effect.
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.
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 pro-
portionate 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 asso-
ciated 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 Agree-
ment 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, 1999, unless extended to 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 1997 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) pro-
vide 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.
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 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; 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. FERC has required utilities to sell transmission
services separately from their other services. 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 stranded investment losses.
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
benefitted 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 service territory. A require-
ment 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 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 1998, S.B. 431 was introduced in the Indiana
Senate. The bill contained provisions allowing all customers the unrestricted
right to choose their generator of electricity by July 1, 2004. Under the
bill, customers could have chosen their power supplier after October 1, 1999,
by paying an access charge, while transmission and distribution services would
have continued to be regulated at the federal and state levels, respectively.
Prior to the full vote on the bill, S.B. 431 was amended on the Senate floor
to remove these restructuring provisions.
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 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 guidance 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. The MPSC has not yet acted on I&M's filing. The MPSC has approved,
by orders dated January 14, 1998 and February 11, 1998, 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: On April 15, 1994, the Ohio Energy Strategy Task Force released
its final report. The report contained seven broad implementation strategies
along with 53 specific initiatives to be undertaken by government and the
private sector. One strategy recommended continuing to encourage competition
in the electric utility industry in a manner which maximizes benefits and
efficiencies for all customers. An initiative under this strategy recommends
facilitating informal roundtable discussions on issues concerning competition
in the electric utility industry and promoting increased competitive options
for Ohio businesses that do not unduly harm the interests of utility company
shareholders or ratepayers. The PUCO has begun such discussions. As a
result, on February 15, 1996, the PUCO adopted guidelines for interruptible
electric service, including a buy-through provision that will enable customers
to avoid being interrupted during utility capacity deficiencies by having the
utility purchase off-system replacement power for the customer. On February
28, 1997, CSPCo and OPCo implemented four new interruptible electric services
in conformance with the PUCO guidelines.
Also stemming from the roundtable discussions, on December 24, 1996, the
PUCO issued conjunctive electric service guidelines under which customers may
be aggregated for cost-of-service, rate design, rate eligibility and billing
purposes. Pursuant to a PUCO order, all Ohio electric utilities made
conjunctive electric service filings on March 31, 1997. Six unaffiliated
utilities have appealed these guidelines to the Ohio Supreme Court.
In February 1997, the Ohio General Assembly formed the Joint Committee
on Electric Utility Deregulation to study and report to the General Assembly
concerning deregulation of the electric utility industry in Ohio. The co-
chairs of the Joint Committee issued their report on January 6, 1998, which
described plans for introducing electric retail competition to Ohio consumers.
On February 18, 1998, the General Assembly's Joint Committee forwarded
its report to the House Speaker and Senate President. The report contains the
co-chairs report and the comments of other Committee members. The co-chairs
report proposes the establishment of a fully competitive marketplace by the
year 2000 and utility tax reform intended to place Ohio's utilities on a level
playing field with out-of-state suppliers.
One of the co-chairs has indicated her intention to introduce
legislation based on the co-chairs report's recommendations. However, there
are a number of other bills pending which could be used to enact deregulation.
Virginia: Pursuant to a resolution of the Virginia legislature, in
November 1997 the staff of the Virginia SCC provided its draft of a working
model of a restructured electric utility industry for Virginia to the joint
subcommittee of the legislature studying restructuring of the electric utility
industry.
Two major bills providing for the restructuring of the electric utility
industry were acted on by the Virginia General Assembly. One bill, introduced
by the chairman of the joint subcommittee, was "carried over" to serve as a
framework for study and debate over the balance of 1998, with oversight
provided by the joint subcommittee. The second bill, passed by the Virginia
General Assembly in March 1998, provides a general timetable for the
transition to retail competition by January 1, 2004, but leaves the details to
be decided in subsequent legislation.
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. If signed into law, the bill would authorize the West Virginia
PSC to proceed with the development of a plan for electric industry
restructuring in West Virginia, 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.
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 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.
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 continues to consider new business opportunities, particularly those
which allow use of its expertise. These endeavors began in 1982 and are
conducted through AEP Resources, Inc. (Resources), AEP Resources Service
Company (formerly AEP Energy Services, Inc.) (AEPRESC) and AEP Energy
Services, Inc. (formerly AEP Energy Solutions, Inc.) (AEPES).
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.
On February 24, 1997, AEP and Public Service Company of Colorado (PSCo)
jointly agreed with the Board of Directors of Yorkshire Electricity Group plc
(Yorkshire Electricity) in the United Kingdom to make a cash tender offer (the
Tender Offer) for Yorkshire Electricity. The Tender Offer valued Yorkshire
Electricity at U.S. $2.4 billion. The Tender Offer was effected by Yorkshire
Holdings plc, a holding company owned by Yorkshire Power Group Limited, which
is equally owned and controlled by Resources and New Century International
Inc. (NCII), a wholly-owned subsidiary of PSCo, which is a wholly-owned
subsidiary of New Century Energies, Inc. Resources and NCII each contributed
U.S. $360 million toward the Tender Offer with the remaining U.S. $1.7 billion
funded through a non-recourse loan to Yorkshire Power Group Limited.
Yorkshire Power Group gained effective control of Yorkshire Electricity on
April 1, 1997. Yorkshire Electricity is an English independent regional
electricity company. It is principally engaged in the distribution of elec-
tricity to 2.1 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 which is
expected to occur by 1999. Resources' share of the total cost of the project
of $190 million is estimated to be approximately $110 million.
On October 2, 1997, Resources, DuPont and Conoco, the energy subsidiary
of DuPont, signed a letter of intent to form two jointly held venture
companies to provide energy management and capital to industrial and large
commercial customers. AEP Conoco Energy Capital will acquire and lease back
energy assets at industrial and large commercial facilities and provide future
capital for energy projects. AEP Conoco Energy Management Services will
provide energy management services. The ventures will initially acquire and
manage industrial energy assets valued at approximately $1 billion for DuPont
energy facilities at 33 U.S. industrial plants. Resources and DuPont will
each invest approximately $125 million in equity in the joint ventures with
the remainder to be financed through non-recourse debt.
AEPRESC offers engineering, construction, project management and other
consulting services for projects involving transmission, distribution or
generation of electric power both domestically and internationally.
AEP Communications, LLC (Communications) was formed in 1997 to pursue
opportunities in the telecommunications field. Communications is currently
constructing a fiber optic line that stretches between Kentucky, Ohio,
Virginia and West Virginia. This fiber optic line will be capable of
providing high speed telecommunications capacity to other telecommunications
companies. In addition to establishing and providing fiber optic services,
Communications also made investments in two companies engaged in providing
digital personal communications services, the West Virginia PCS Alliance, LC
and the Virginia PCS Alliance, LC.
AEP has received approval from the SEC under PUHCA to issue and sell
securities in an amount up to 50%, and is seeking approval to finance up to
100%, of its consolidated retained earnings (approximately $1,600,000,000 at
December 31, 1997), for investment in exempt wholesale generators and foreign
utility companies. Resources expects to investigate opportunities to develop
and invest in new, and invest in existing, generation projects worldwide.
The SEC adopted Rule 58, effective March 24, 1997, which 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.
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 has requested FERC to clarify that the applicability of this condition
relates only to transactions between AEP utility subsidiaries and AEPPM.
AEPPM is inactive pending FERC's decision.
These continuing efforts to invest in and develop new business
opportunities offer the potential of earning returns which may exceed those of
rate-regulated operations. However, they also involve a higher degree of risk
which must be carefully considered and assessed. AEP may make substantial
investments in these and other new businesses.
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
receipt of approval of the merger and the transactions contemplated thereby by
the shareholders of AEP and CSW and the receipt of the required regulatory
approvals. Assuming the receipt of all required approvals, completion of the
merger is anticipated to occur in the first half 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 states of Texas, Oklahoma, Louisiana
and Arkansas and a regional electricity company in the United Kingdom. CSW
owns other international energy operations and non-utility subsidiaries
involved in energy-related investments, telecommunications, energy efficiency
services and financial transactions.
Construction Program
New Generation
The AEP System companies are continuously involved in an assessment of
the adequacy of its generation, transmission, distribution and other
facilities necessary to 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 accordingly, 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 generation
resources through the year 2001 include: a purchase from an independent power
producer's hydro project with an expected capacity value of 28 megawatts,
reratings of several existing AEP System generating units, and the expiration
of the Rockport Unit 1 sale of 455 megawatts to VEPCo on December 31, 1999
(see AEGCo). Beyond these changes, 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 2002. 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 need of
AEP's operating companies for any additional generation resources in the fore-
seeable future is highly uncertain.
Proposed Transmission Facilities
APCo: 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.
In an interim order issued in 1995, the Virginia SCC found, based on the
record before it, that there is a compelling need for additional electric
capacity to serve APCo's Central and Eastern regions and that the proposed
transmission line may be the best possible solution. In December 1996, APCo
filed a report with the Virginia SCC reviewing the need for the project.
Based on that review and after considering all other feasible alternatives,
APCo concluded that the need for reinforcement of the transmission system
serving its Central and Eastern areas remains compelling and the proposed
project is the best alternative for addressing the need.
Procedural schedules have been issued in each state. In Virginia, five
public hearings will be held in March and April and an evidentiary hearing
will be held in July. In West Virginia, three public meetings will be held in
early May, followed by an evidentiary hearing. By statute, the West Virginia
PSC has 400 days from the filing date, or November 4, 1998, to issue the
certificate. If it fails to act, APCo receives the certificate automatically.
Virginia does not have such a time constraint.
If Virginia and West Virginia issue the required certificates, APCo will
cooperate with the Forest Service to complete the EIS process and obtain the
federal permits. Management estimates that the project cannot be completed
before the winter of 2002-2003. However, given the findings in the Draft EIS,
APCo cannot presently predict the schedule for completion of the state and
federal permitting process.
APCo and KEPCo: APCo and KEPCo have announced an improvement plan to be
implemented during a four-year period (1996-1999) to reinforce their 138,000-
volt transmission system. Included in this plan is a new transmission line to
link KEPCo's Big Sandy Plant to communities in eastern Kentucky. APCo's and
KEPCo's estimated project costs are $5,800,000 and $81,600,000, respectively.
The KPSC approved the project in its order dated June 11, 1996. Construction
commenced in late 1996.
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 1995, 1996 and 1997 and their current estimate of 1998
construction expenditures, in each case including AFUDC but excluding nuclear
fuel and other assets acquired under leases. The construction expenditures
for the years 1995-1997 were, and it is anticipated that the estimated
construction expenditures for 1998 will be, approximately:
<TABLE>
<CAPTION>
1995 1996 1997 1998
Actual Actual Actual Estimate
<S> <C> <C> <C> <C>
(in thousands)
AEGCo . . . . . . . . . . . $ 4,000 $ 2,200 $ 3,900 $ 4,200
APCo . . . . . . . . . . . 217,600 192,900 218,100 205,600
CSPCo . . . . . . . . . . . 99,500 93,600 108,900 117,900
I&M . . . . . . . . . . . . 113,000 90,500 123,400 169,100
KEPCo . . . . . . . . . . . 39,300 75,800 66,700 53,800
OPCo . . . . . . . . . . . 116,900 113,800 172,700 187,700
AEP System (a) . . . . .
$601,200 $578,000 $762,000 $847,000
</TABLE>
__________
(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, en-
vironmental 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 1995, 1996 and 1997 and the current estimate for 1998 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.
<TABLE>
<CAPTION>
1995 1996 1997 1998
Actual Actual Actual Estimate
<S> <C> <C> <C> <C>
(in thousands)
AEGCo . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
APCo . . . . . . . . . . . 7,800 10,500 9,100 11,500
CSPCo . . . . . . . . . . . 10,000 1,800 1,300 4,500
I&M . . . . . . . . . . . . 0 0 0 3,200
KEPCo . . . . . . . . . . . 600 0 0 4,000
OPCo . . . . . . . . . . . 3,100 1,600 1,800 32,800
AEP System . . . . . . .
$ 21,500 $ 13,900 $ 12,200 $ 56,000
</TABLE>
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 preferred stock, 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 pur-
pose of retiring the short-term debt previously incurred. In 1997, AEP issued
approximately 1,755,000 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 1995-1997, external funds from financings and capital
contributions by AEP amounted, with respect to APCo and KEPCo, to approximate-
ly 28% and 70%, 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, I&M 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, 1998, 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions)
Amount authorized . . . . . . . . . . . $150 $ 80 $250 $175 $175 $150 $250 $1,230
Amount outstanding:
Notes payable . . . . . . . . . . . . $ 24 $ 12 $ 34 $ 4 $ 57 -- $ 11 $ 199
Commercial paper . . . . . . . . . . 29 -- 96 63 63 37 68 356
$ 53 $ 12 $130 $ 67 $120 $ 37 $ 79 $ 555
</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 and preferred stock,
it is necessary for APCo, CSPCo, I&M, KEPCo and OPCo to comply with earnings
coverage requirements contained in their respective mortgages and charters.
The most restrictive of these provisions in each instance generally requires
(1) 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 and (2) for the issuance of additional preferred stock by APCo,
I&M and OPCo, a minimum, after income tax, gross income coverage of one and
one-half times pro forma annual interest charges and preferred stock
dividends, in each case 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 from
time to time restricted the ability of one or more of the above subsidiaries
of AEP to issue senior securities.
The respective mortgage and preferred stock coverages of APCo, CSPCo,
I&M, KEPCo and OPCo under their respective mortgage and charter provisions,
calculated on the foregoing basis and in accordance with the respective
amounts then recorded in the accounts of the companies, assuming, with respect
to the preferred stock coverages, that the respective short-term debt of the
companies at those dates were to remain outstanding for a twelve-month period
at the respective rates of interest prevailing at those dates, were at least
those stated in the following table:
<TABLE>
<CAPTION>
December 31,
1995 1996 1997
<S> <C> <C> <C>
APCo
Mortgage coverage . . . . . . . 3.47 3.98 3.72
Preferred stock coverage . . . 1.78 1.99 1.92
CSPCo
Mortgage coverage . . . . . . . 3.90 4.44 4.95
I&M
Mortgage coverage . . . . . . . 6.25 6.66 7.57
Preferred stock coverage . . . 2.63 3.07 2.88
KEPCo
Mortgage coverage . . . . . . . 2.86 3.22 4.23
OPCo
Mortgage coverage . . . . . . . 6.17 8.27 9.74
Preferred stock coverage . . . 3.04 3.63 3.67
</TABLE>
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 and preferred stock 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.
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.
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 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. See Competition and Business
Change.
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
issued an initial decision recommending, among other things, the higher level
of postretirement benefits other than pensions under SFAS 106. FERC action on
APCo's applications is pending.
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. APCo's Plan would institute a moratorium period
during which no changes from the rate levels (including APCo's current 1.482
cents/kwh fuel factor) proposed by APCo would be made prior to January 1,
2001. In addition, the Plan includes a sharing of earnings above certain
levels between APCo and its customers, and acceleration of the recovery of
generation-related regulatory assets. 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. A
hearing has been scheduled for July 6, 1998 to consider APCo's proposal.
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 overre-
coveries 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
On September 9, 1997, I&M filed a petition with the IURC requesting
approval of accounting authority to increase nuclear decommissioning expense
in an amount equal to the expiring Rockport phase-in plan amortization
expense. The petition would increase I&M's Indiana jurisdictional nuclear
decommissioning provision by $10,900,000 annually, effective September 1,
1997. A hearing on I&M's petition was held on February 3, 1998, and an order
is awaited from the IURC. I&M has recorded the requested increased nuclear
decommissioning expense provision, but has not deposited the increased
provision into its nuclear decommissioning trust funds pending IURC approval.
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 fixes the EFC 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 pre-
determined price agreement. Management intends to seek from non-Ohio
jurisdictional ratepayers recovery of the non-Ohio jurisdictional portion of
the investment in, and the liabilities and closing costs of, OPCo's Meigs,
Muskingum and Windsor 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 $53,000,000 for Meigs, $37,000,000 for Muskingum and $12,000,000
for Windsor, after tax at December 31, 1997.
OPCo's Muskingum and Windsor mines may have to close by January 2000 as
a result of compliance by the Muskingum River Plant and Cardinal Unit 1 with
the Phase II requirements of the Clean Air Act Amendments of 1990 (see
Environmental and Other Matters - Air Pollution Control - Acid Rain). The
Muskingum and Windsor mines supply coal to Muskingum River Plant and Cardinal
Plant, respectively. The Muskingum and/or Windsor mines could close prior to
January 2000 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 Meigs, Muskingum and Windsor mines can be
recovered, AEP's and OPCo's results of operations would be adversely affected.
Management anticipates closing the Muskingum mine in 1999, Windsor mine
in 2000 and Meigs mine in 2001. Management, however, in making such a
determination, will consider certain factors, including the competitiveness of
the price of the coal extracted from the mine and the value of SO2 Allowances
after the accelerated amortization of mine closure and the recovery of other
costs.
In November 1992, the municipal wholesale customers of OPCo filed a
complaint with the SEC requesting an investigation of the sale of the Martinka
mining operation to an unaffiliated company and an investigation into the
pricing of OPCo's affiliated coal purchases back to 1986. OPCo has filed a
response with the SEC seeking to dismiss this complaint. These customers also
sought to intervene in three proceedings before the SEC. In September 1996,
the SEC denied two requests to intervene, but has not ruled on the complaint.
Fuel Supply
The following table shows the sources of power generated by the AEP
System:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Coal . . . . . . . . . . . 86% 91% 88% 87% 92%
Nuclear . . . . . . . . . . 13% 8% 11% 12% 7%
Hydroelectric and other . . 1% 1% 1% 1% 1%
</TABLE>
Variations in the generation of nuclear power are primarily related to
refueling outages and, in 1997, the shutdown of the Cook Plant to respond to
issues raised by the NRC. See 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.
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 a
terminal on the Ohio River for transloading to barges for delivery to
generating stations on the river. Subsidiaries of AEP lease approximately
3,460 coal hopper cars to be used in unit train movements, as well as 13
towboats, 307 jumbo barges and 183 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>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Total coal delivered to
AEP operated plants (thousands of tons) . . . . . 40,561 49,024 46,867 51,030 54,292
Sources (percentage):
Subsidiaries . . . . . . . . . . . . . . . . . . . 20% 15% 14% 13% 14%
Long-term contracts . . . . . . . . . . . . . . . 66% 65% 75% 71% 66%
Spot or short-term purchases . . . . . . . . . . . 14% 20% 11% 16% 20%
Average price per ton of spot-purchased coal . . . $23.55 $23.00 $25.15 $23.85 $24.38
</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>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Dollars per ton
AEP System Companies . . . . . 33.57 33.95 32.52 31.70 31.77
AEGCo . . . . . . . . . . . . . 17.74 18.59 18.80 18.22 19.30
APCo . . . . . . . . . . . . . 42.65 39.89 38.86 37.60 36.09
CSPCo . . . . . . . . . . . . . 33.87 32.80 33.23 31.70 31.69
I&M . . . . . . . . . . . . . . 23.80 22.85 23.25 22.99 23.68
KEPCo . . . . . . . . . . . . . 27.08 26.83 26.91 27.25 26.76
OPCo . . . . . . . . . . . . . 38.12 41.10 37.58 35.96 36.00
Cost per Million Btu's
AEP System Companies . . . . . 150.89 152.41 145.26 140.48 140.23
AEGCo . . . . . . . . . . . . . 107.71 112.06 112.87 109.25 115.21
APCo . . . . . . . . . . . . . 173.32 161.37 156.96 152.54 146.54
CSPCo . . . . . . . . . . . . . 143.66 140.45 140.79 134.60 134.44
I&M . . . . . . . . . . . . . . 129.39 123.62 125.50 121.16 123.36
KEPCo . . . . . . . . . . . . . 113.90 113.40 114.77 114.42 110.37
OPCo . . . . . . . . . . . . . 161.25 173.51 157.62 151.55 151.66
</TABLE>
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, 1997, the
System's coal inventory was approximately 43 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 1997 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 1997 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
of Delivered Coal
Estimated Require-
Total Consumption ments for Remainder
During 1997 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) . . . . 5,043 251 0.3% 0.7
APCo . . . . . . 11,682 446 0.8% 1.3
CSPCo . . . . . . 6,082(b) 236(b) 2.8% 4.7
I&M(c) . . . . . 7,304 294 0.7% 1.4
KEPCo . . . . . . 2,909 91 1.3% 2.1
OPCo . . . . . . 20,493 642 2.1% 3.5
</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 1997, 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 3,400,000 tons per year through 1998. 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 52,010,543
tons expires on December 31, 2014 and another contract with remaining deliv-
eries of 43,395,000 tons expires on December 31, 2004.
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 1998. 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 which contain approximately 200,000,000 tons of
clean recoverable coal, which ranges in sulfur content between 3.4% and 4.5%
sulfur by weight (weighted average, 3.8%), which can be recovered based upon
existing mining plans and projections and employing current mining practices
and techniques. 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 2.6%).
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
103,000,000 tons of clean recoverable coal ranging in sulfur content between
1.4% and 4.0% sulfur by weight (weighted average, 2.2%) of which approximately
26,000,000 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 the mining
and milling of uranium ore to uranium concentrates; the conversion of uranium
concentrates to uranium hexafluoride; the enrichment of uranium hexafluoride;
the fabrication of fuel assemblies; the utilization of nuclear fuel in the
reactor; and the reprocessing or other disposition of spent fuel. Steps cur-
rently 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 to permit normal operations through 2010.
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
$71,964,000, exclusive of interest of $108,873,000 at December 31, 1997. The
aggregate amount has been recorded as 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, 1996, 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 dis-
posal 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 in 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. In February 1998,
the states and the utilities filed with the Court of Appeals for additional
relief in connection with DOE's failure to meet the January 31, 1998 deadline.
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 $28,000,000 in 1997, $27,000,000 in 1996 and $30,000,000 in
1995 (including $4,000,000 in special deposits). At December 31, 1997, I&M
had recognized a decommissioning liability of $381,000,000. 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.
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 (a) the type of decommissioning plan selected,
(b) the escalation of various cost elements (including, but not limited to,
general inflation), (c) the further development of regulatory requirements
governing decommissioning, (d) the limited availability to date of significant
experience in decommissioning such facilities, (e) the technology available at
the time of decommissioning differing significantly from that assumed in these
studies and (f) the 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. 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 prog-
ress 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 decommissioning and decontamination of DOE's existing uranium enrichment
facilities from a combination of sources including assessments against
electric utilities which purchased enrichment services from DOE facilities.
I&M's remaining estimated liability is $39,325,000, subject to inflation
adjustments, and is payable in annual assessments over the next nine years.
I&M recorded a regulatory asset concurrent with the recording of the
liability. The payments are being recorded and recovered as fuel expense.
These assessments were held to be unlawful in a June 1995 decision of
the U.S. Court of Federal Claims in a case involving an unaffiliated utility.
Based upon that decision I&M filed a complaint in the same court seeking
refunds of the assessments levied with respect to its enrichment services
contracts. In May 1997 the U.S. Court of Appeals for the Federal Circuit
reversed the lower court's 1995 decision. The utility has petitioned the U.S.
Supreme Court for review of the decision. I&M's complaint has been stayed
pending a final decision in this case.
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.
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. On February 13, 1998, the U.S. Court of Appeals for the
District of Columbia Circuit, in an appeal in which the AEP System operating
companies participated, upheld the emission limitations.
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. Title I, dealing generally with attainment of federally
set National Ambient Air Quality Standards (NAAQS), establishes a tiered
system for classifying degrees of nonattainment with the one-hour NAAQS for
ozone. Depending upon the severity of non-attainment within a given non-
attainment area, reductions in NOx emissions from fossil fuel-fired power
plants may be required as part of a state's plan for achieving attainment with
the one-hour ozone NAAQS. While one-hour ozone NAAQS non-attainment is
largely restricted to urban areas, AEP System generating units could be
determined to be affecting downwind urban ozone concentrations and may
therefore, eventually be required to reduce NOx emissions pursuant to Title I.
In July 1997, Federal EPA revised the ozone and particulate matter
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. The AEP System operating companies joined with other utilities to
appeal the revised NAAQS by filing petitions for review in August and
September 1997 in the U.S. Court of Appeals for the District of Columbia
Circuit.
On July 9, 1997, Federal EPA proposed 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./megawatt-hour net
energy output) for coal-fired boilers as for gas-fired boilers. If finalized,
the proposal would effectively require costly selective catalytic reduction or
comparable technology to control NOx emissions from new or modified coal-fired
boilers.
NOx SIP Calls and the Ozone Transport Assessment Group: In 1995, the
Environmental Council of States formed the Ozone Transport Assessment Group
(OTAG) to study the role of transport of ozone and ozone precursor emissions
(primarily NOx) in contributing to ozone nonattainment in the Northeast,
Chicago, and Atlanta nonattainment areas. OTAG was comprised of the
environmental commissioners of 37 eastern states, members of Federal EPA and
representatives from environmental and industry groups. OTAG studied the
ozone problem for two years, conducting extensive modeling and analysis of
ozone levels and the effects of ozone transport. OTAG submitted its final
recommendations to Federal EPA in July 1997.
After receipt of the OTAG recommendations, Federal EPA in October 1997
issued a notice (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 proposed NOx transport SIP call would establish state-by-state NOx
emission budgets for the five-month ozone season to be met by the year 2002.
The proposed NOx budgets apply to 22 eastern states and are premised mainly on
the assumption of controlling power plant NOx emissions to 0.15 lb./MBtu
(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 NOx reductions called for by Federal EPA are clearly targeted
at coal-fired electric utilities and may adversely impact the ability of
electric utilities to obtain new and modified source permits. The cost of
meeting NOx emissions reduction requirements that might be imposed as a result
of the NOx transport SIP call cannot be precisely predicted at this time, but
could be significant.
Section 126 Petitions: On or about August 14, 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 power
plants in midwestern states, including all the coal-fired plants of AEP's
operating subsidiaries, prevent the Northeast 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.
Federal EPA on or about December 19, 1997 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 calls for a proposed rulemaking on the Section 126 petitions by September
30, 1998 and final action by April 30, 1999 (subject to certain limited
exceptions). On January 9, 1998, a number of utilities, including the
operating companies of the AEP System, filed a petition in the U.S. Court of
Appeals for the District of Columbia Circuit seeking a review of the MOA. On
February 25, 1998, the eight northeastern states filed an action in the U.S.
District Court for the Southern District of New York seeking an order
directing Federal EPA to rule on the Section 126 petitions within 60 days of
receipt.
SO2 NAAQS: On January 30, 1998, the U.S. Court of Appeals for the
District of Columbia Circuit remanded the final rule promulgated in May 1996
by Federal EPA reaffirming the existing primary NAAQS for SO2. The court
directed Federal EPA to provide additional justification for the rule but did
not specify a schedule for completion.
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. On March 10, 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. Oral argument in that case is
scheduled to be heard on April 21, 1998.
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 sulphur hexafluoride 7% below 1995 levels in the years
2008-2012. The Protocol will be available for signature from March 1998 to
March 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. The agreement is not expected to be sent to the U.S. Senate for
ratification before 1999.
Since the AEP System is a significant emitter of carbon dioxide, its
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 November 1998. 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. This is accomplished
using a unit of measurement known as a "deciview." The plan's goal is to
reduce visibility impairment by one deciview or more over each 10-15 year
period. The final time period will be set as part of the final rulemaking.
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.
Life Extension: 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. The
court recently requested that the parties submit proposed briefing schedules.
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 applica-
tions are being prepared or have been filed for renewal of NPDES permits which
expire in 1998.
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 curtail-
ment 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.
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. Management cannot presently determine
whether the GLWQI would have a significant adverse impact on AEP operations.
The significance of such impact will depend on the outcome of Federal EPA's
policy on intake credits and site specific variables as well as Michigan's
implementation strategy. Federal EPA's rule is presently under review by the
District of Columbia Circuit Court of Appeals in litigation initiated by
several industry groups. If Indiana and Ohio eventually adopt the GLWQI
criteria for statewide application, AEP System plants located in those states
could also be affected.
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, Compensa-
tion, 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 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 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 environ-
mental problems result. AEP System companies are presently defendants in five
cases involving cost-recovery lawsuits at Federal EPA-identified CERCLA sites.
OPCo is involved at three of these sites and I&M at the two other sites. AEP
System companies are identified as Potentially Responsible Parties (PRPs) for
seven additional federal sites, including CSPCo, KEPCo and Wheeling Power
Company at one site each, I&M at three sites, and OPCo at two sites. I&M has
been named as a PRP at one state remediation site. 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 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. On October 31, 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 con-
clusion of the committee is that the current body of evidence does not show
that exposure to these fields presents a human health hazard..." The epidemi-
ological studies that have received the most public attention, including the
NAS report, reflect a weak correlation between surrogate or indirect estimates
of EMF exposure and certain cancers. Studies using direct measurements of EMF
exposure show no such association.
On July 3, 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 will end in 1998. The program funding is $65,000,000,
half of which was provided by private parties including utilities. AEP has
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 1997. See Research and Development.
AEP's participation in the programs is a continuation of its efforts to
monitor and support further research and to communicate with its customers and
employees about this issue. Its operating company subsidiaries provide their
residential customers with 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 in
recent years 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.
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.
Research and Development
AEP and its subsidiaries are involved in a number of research projects
which are directed toward developing more efficient methods of burning coal,
reducing the contaminants resulting from combustion of coal, and 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 that manages research and
development on behalf of the U.S. electric utility industry. EPRI, founded in
1973, manages technical research and development programs for its members to
improve power production, delivery and use. Approximately 700 utilities are
members. Total AEP dues to EPRI were $15,300,000 for 1997, $9,900,000 for
1996 and $9,600,000 for 1995.
Total research and development expenditures by AEP and its subsidiaries,
including EPRI dues, were approximately $23,600,000 for the year ended
December 31, 1997, $16,400,000 for the year ended December 31, 1996 and
$13,600,000 for the year ended December 31, 1995. This includes expenditures
of $4,600,000 for 1997, $3,300,000 for 1996 and $1,100,000 for 1995 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, 1997, 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
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
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 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:
<TABLE>
<CAPTION>
Total Overhead
Circuit Miles
of Transmission and Circuit Miles of
Distribution Lines 765,000-volt Lines
<S> <C> <C>
AEP System(a) . . . . . 127,864(b) 2,022
APCo . . . . . . . . . 49,534 641
CSPCo(a) . . . . . . . 14,820 --
I&M . . . . . . . . . . 20,855 614
KEPCo . . . . . . . . . 10,136 258
OPCo . . . . . . . . . 29,448 509
</TABLE>
__________
(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.
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 120 high-voltage transmission
interconnections with 26 neighboring electric utility systems. The all-time
and 1997 one-hour peak System demands were 25,940,000 and 24,485,000 kilo-
watts, respectively (which included 7,314,000 and 4,400,000 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 January 17, 1997, respectively. The net
dependable capacity to serve the System load on such date, including power
available under contractual obligations, was 23,457,000 and 23,669,000 kilo-
watts, respectively. The all-time and 1997 one-hour internal peak demands
were 19,557,000 and 19,381,000 kilowatts, respectively, and occurred on
February 5, 1996 and January 17, 1997, respectively. The net dependable
capacity to serve the System load on such date, including power dedicated
under contractual arrangements, was 23,765,000 and 23,669,000 kilowatts,
respectively. The all-time one-hour integrated and internal net system peak
demands and 1997 peak demands for AEP's generating subsidiaries are shown in
the following tabulation:
<TABLE>
<CAPTION>
All-time one-hour integrated 1997 one-hour integrated
net system peak demand net system peak demand
(in thousands)
Number of Number of
Kilowatts Date Kilowatts Date
<S> <C> <C> <C> <C>
APCo 8,303 January 17, 1997 8,303 January 17, 1997
CSPCo 4,172 June 17, 1994 3,910 July 2, 1997
I&M 5,027 June 17, 1994 4,681 July 2, 1997
KEPCo 1,711 January 17, 1997 1,711 January 17, 1997
OPCo 7,291 June 17, 1994 6,450 January 17, 1997
</TABLE>
<TABLE>
<CAPTION>
All-time one-hour integrated 1997 one-hour integrated
net internal peak demand net internal peak demand
(in thousands)
Number of Number of
Kilowatts Date Kilowatts Date
<S> <C> <C> <C> <C>
APCo 6,903 February 5, 1996 6,857 January 17, 1997
CSPCo 3,378 August 14, 1995 3,354 June 25, 1997
I&M 3,926 July 14, 1997 3,926 July 14, 1997
KEPCo 1,418 February 5, 1996 1,417 January 17, 1997
OPCo 5,641 August 14, 1995 5,519 July 14, 1997
</TABLE>
Hydroelectric Plants
AEP has 17 facilities, of which 16 are licensed through FERC. Licenses
for six System hydroelectric plants expired in 1993. Four new licenses were
issued in 1994 and two were issued in 1996. 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 will be filed in
1998. The license for Mottville expires in 2003. A notice of intent to
relicense will be 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 52.6% during 1997 and 97.6% during 1996. 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 65.1% during 1997 and 87.0% during 1996. The Cook
Plant was shut down in September 1997 to respond to issues raised by the NRC.
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 significant and less predictable than costs
associated with other sources of generation, in large part due to changing
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. In addition,
for economic or other reasons, operation of the Cook Plant for the full term
of its now assumed life cannot be assured. 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
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 these issues and other issues related to restart of the units.
Certain issues identified in the letter have been addressed. At this time
management is unable to determine when the units will be returned to service.
If the units are not returned to service in a reasonable period of time, it
could have a materially adverse impact on results of operations and possibly
financial condition.
Nuclear Incident Liability
The Price-Anderson Act limits public liability for a nuclear incident at
any licensed reactor in the United States to $8.9 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 $8.9 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 $158,600,000 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), Nuclear Mutual Limited (NML) and Nuclear Electric Insurance Limited
(NEIL). If EIB's, NML's and NEIL's losses exceed their available resources,
I&M would be subject to a total retrospective premium assessment of up to
$20,900,000. 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 NML and 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 $7,125,000.
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 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 April 4, 1991, then Secretary of Labor Lynn Martin announced that the
U.S. Department of Labor (DOL) had issued a total of 4,710 citations to opera-
tors of 847 coal mines who allegedly submitted respirable dust sampling
cassettes that had been altered so as to remove a portion of the dust. The
cassettes were submitted in compliance with DOL regulations which require
systematic sampling of airborne dust in coal mines and submission of the
entire cassettes (which include filters for collecting dust particulates) to
the Mine Safety and Health Administration (MSHA) for analysis. The amount of
dust contained on the cassette's filter determines an operator's compliance
with respirable dust standards under the law. OPCo's Meigs No. 2, Meigs No.
31, Martinka, and Windsor Coal mines received 16, 3, 15 and 2 citations,
respectively. MSHA has assessed civil penalties totalling $56,900 for all
these citations. OPCo's samples in question involve about 1 percent of the
2,500 air samples that OPCo submitted over a 20-month period from 1989 through
1991 to the DOL. OPCo is contesting the citations before the Federal Mine
Safety and Health Review Commission. An administrative hearing was held
before an administrative law judge with respect to all affected coal
operators. On July 20, 1993, the administrative law judge rendered a decision
in this case holding that the Secretary of Labor failed to establish that the
presence of a "white center" on the dust sampling filter indicated intentional
alteration. In the case of an unaffiliated mine, the administrative law judge
ruled on April 20, 1994, that there was not an intentional alteration of the
dust sampling filter. The Secretary of Labor appealed to the Federal Mine
Safety and Health Review Commission the July 20, 1993 and April 20, 1994
administrative law judge decisions and in November 1995 the Commission
affirmed these decisions. The Secretary of Labor has appealed the Com-
mission's decision to the U.S. Court of Appeals for the District of Columbia
Circuit. All remaining cases, including the citations involving OPCo's mines,
have been stayed.
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. On January 10, 1997, OPCo and the Service Corporation filed
their answer and counterclaims in the District Court. A trial date in late
1998 is anticipated.
See Item 1 for a discussion of certain environmental and rate matters.
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, 1998.
Name Age Office (a)
E. Linn Draper, Jr. 56 Chairman of the Board, President and Chief
Executive Officer of AEP and of the
Service Corporation
Peter J. DeMaria 63 Controller of AEP; Vice Chairman of the
Board of the Service Corporation
Gerald P. Maloney 64 Vice President and Secretary of AEP; Vice
Chairman of the Board of the Service
Corporation
Paul D. Addis 44 Executive Vice President of the Service
Corporation
Donald M. Clements, Jr. 48 Executive Vice President-Corporate
Development of the Service Corporation
Henry Fayne 51 Executive Vice President-Financial
Services of the Service Corporation
William J. Lhota 58 Executive Vice President of the Service
Corporation
James J. Markowsky 53 Executive Vice President-Power Generation
of the Service Corporation
J. H. Vipperman 57 Executive Vice President-Corporate
Services of the Service Corporation
__________
(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 Messrs.
Addis and Clements. Prior to joining the Service Corporation in
February 1997 in his present position, Mr. Addis was Executive Vice
President (1992-1993) and President (1993-January 1997) of Louis Dreyfus
Electric Power Inc. and President of Duke/Louis Dreyfus LLC (1995-
January 1997). 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, 1998, 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.
Name Age Position (a) Period
E. Linn Draper, Jr. 56 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
Peter J. DeMaria 63 Director 1988-Present
Vice President 1991-Present
Controller 1995-Present
Treasurer 1978-1995
Controller of AEP 1995-Present
Treasurer of AEP 1978-1995
Vice Chairman of the Board of
the Service Corporation 1998-Present
Executive Vice President-
Administration and Chief Accounting
Officer of the Service Corporation 1984-1997
William J. Lhota 58 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
Gerald P. Maloney 64 Director and Vice President 1970-Present
Vice President of AEP 1974-Present
Secretary of AEP 1994-Present
Vice Chairman of the Board of
the Service Corporation 1998-Present
Executive Vice President-
Chief Financial Officer of
the Service Corporation 1991-1997
James J. Markowsky 53 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
__________
(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, 1998, 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.
Name Age Position (a) Period
E. Linn Draper, Jr. 56 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
Peter J. DeMaria 63 Director 1978-Present
Vice President 1991-Present
Controller 1995-Present
Treasurer 1978-1995
Controller of AEP 1995-Present
Treasurer of AEP 1978-1995
Vice Chairman of the Board of
the Service Corporation 1998-Present
Executive Vice President-
Administration and Chief Accounting
Officer of the Service Corporation 1984-1997
William J. Lhota 58 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
Gerald P. Maloney 64 Director 1973-Present
Vice President 1970-Present
Vice President of AEP 1974-Present
Secretary of AEP 1994-Present
Vice Chairman of the Board of
the Service Corporation 1998-Present
Executive Vice President-
Chief Financial Officer of
the Service Corporation 1991-1997
James J. Markowsky 53 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
__________
(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.
<TABLE>
<CAPTION>
Per Share
Market Price
Quarter Ended High Low Dividend(1)
<S> <C> <C> <C>
March 1996 . . . . . $44-3/4 $40-1/8 $.60
June 1996 . . . . . . 42-3/4 38-5/8 .60
September 1996 . . . 43-1/8 40 .60
December 1996 . . . . 42-1/2 39-1/2 .60
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
</TABLE>
(1) See Note 5 of the Notes to the Consolidated Financial Statements of AEP
for information regarding restrictions on payment of dividends.
At December 31, 1997, AEP had approximately 145,000 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.
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 1997 Annual Report (for the fiscal year ended December 31, 1997).
APCo. The information required by this item is incorporated herein by
reference to the material under Selected Consolidated Financial Data in the
APCo 1997 Annual Report (for the fiscal year ended December 31, 1997).
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 1997 Annual Report (for the fiscal year ended December 31, 1997).
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 1997 Annual Report (for the fiscal year ended December 31, 1997).
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 1997
Annual Report (for the fiscal year ended December 31, 1997).
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 1997 Annual Report
(for the fiscal year ended December 31, 1997).
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 1997 Annual Report
(for the fiscal year ended December 31, 1997).
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 1997
Annual Report (for the fiscal year ended December 31, 1997).
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 1997 Annual Report
(for the fiscal year ended December 31, 1997).
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 1997
Annual Report (for the fiscal year ended December 31, 1997).
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 1997 Annual Report
(for the fiscal year ended December 31, 1997).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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 1997 Annual Report
(for the fiscal year ended December 31, 1997).
AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo. Not applicable.
Item 8. Financial Statements and Supplementary Data
AEGCo. The information required by this item is incorporated herein by
reference to the financial statements and supplementary data described under
Item 14 herein.
AEP. The information required by this item is incorporated herein by
reference to the financial statements and supplementary data described under
Item 14 herein.
APCo. The information required by this item is incorporated herein by
reference to the financial statements and supplementary data described under
Item 14 herein.
CSPCo. The information required by this item is incorporated herein
by reference to the financial statements and supplementary data described
under Item 14 herein.
I&M. The information required by this item is incorporated herein by
reference to the financial statements and supplementary data described under
Item 14 herein.
KEPCo. The information required by this item is incorporated herein by
reference to the financial statements and supplementary data described under
Item 14 herein.
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.
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 1998 annual meeting of shareholders, to be filed within 120 days
after December 31, 1997. 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 1998 annual meeting of stockholders, to
be filed within 120 days after December 31, 1997. 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, 1998, 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.
Name Age Position (a)(b)(c) Period
E. Linn Draper, Jr. 56 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
Peter J. DeMaria 63 Director 1992-Present
Vice President 1991-Present
Controller 1995-Present
Treasurer 1978-1995
Controller of AEP 1995-Present
Treasurer of AEP 1978-1995
Vice Chairman of the Board of
the Service Corporation 1998-Present
Executive Vice President-
Administration and Chief Accounting
Officer of the Service Corporation 1984-1997
William J. Lhota 58 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
Gerald P. Maloney 64 Director 1978-Present
Vice President 1970-Present
Vice President of AEP 1974-Present
Secretary of AEP 1994-Present
Vice Chairman of the Board of
the Service Corporation 1998-Present
Executive Vice President-
Chief Financial Officer of
the Service Corporation 1991-1997
James J. Markowsky 53 Director 1995-Present
Vice President 1993-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 57 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 1996-1998
K. G. Boyd 46 Director 1997-Present
Indiana Region Manager 1997-Present
Fort Wayne District Manager 1994-1997
C. R. Boyle, III 49 Director and Vice President 1996-Present
President and Chief Operating
Officer of KEPCo 1990-1995
J. A. Kobyra 45 Director 1998-Present
Cook Plant Steam Generator
Project Manager 1998-Present
D. B. Synowiec 54 Director 1995-Present
Plant Manager 1990-Present
W. E. Walters 50 Director 1991-Present
Michiana Region Manager 1994-Present
Executive Assistant to President 1987-1994
E. H. Wittkamper 59 Director 1996-Present
Director of System Operations
(Fort Wayne) 1996
System Operations Manager
(Fort Wayne) 1990-1996
__________
(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. DeMaria, Lhota and Maloney are
directors of AEGCo, APCo, CSPCo, KEPCo and OPCo. Dr. Draper and Messrs.
DeMaria and Maloney are also directors of AEP. Mr. Vipperman is a
director of APCo, CSPCo, KEPCo and OPCo.
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 1997 annual meeting of
shareholders, to be filed within 120 days after December 31, 1997. 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 1998 annual meeting of shareholders to be
filed within 120 days after December 31, 1997.
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 1998 annual meeting of stockholders, to
be filed within 120 days after December 31, 1997.
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 1998 annual meeting of shareholders, to
be filed within 120 days after December 31, 1997.
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 1997, 1996 and 1995 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, 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Payouts All Other
Salary Bonus Compensation
Name and Principal Position Year ($) ($)(1) LTIP Payouts($)(1) ($)(2)
<S> <C> <C> <C> <C> <C>
E. Linn Draper, Jr. - 1997 720,000 327,744 951,132 31,620
Chairman of the board and 1996 720,000 281,664 675,903 31,990
chief executive officer of 1995 685,000 236,325 334,851 30,790
the Company; chairman of the
board, president and chief
executive officer of AEP and
the Service Corporation;
chairman of the board and
chief executive officer of
other AEP System companies
Peter J. DeMaria - Vice 1997 385,000 153,345 391,793 21,570
president, controller and 1996 360,000 140,832 290,825 21,190
director of the Company; 1995 330,000 113,850 143,829 20,050
controller and director of
AEP; vice chairman and
director of the Service
Corporation; vice president,
controller and director of
other AEP System companies
G. P. Maloney - Vice 1997 385,000 153,345 391,793 21,570
president and director of the 1996 360,000 140,832 286,288 21,190
Company; vice president, 1995 330,000 113,850 141,582 20,060
secretary and director of
AEP; vice chairman and
director of the Service
Corporation; vice president
and director of other AEP
System companies
William J. Lhota - President, 1997 355,000 141,396 364,436 20,570
chief operating officer and 1996 320,000 125,184 263,114 19,690
director of the Company; 1995 300,000 103,500 132,592 19,140
executive vice president and
director of the Service
Corporation; president, chief
operating officer and
director of other AEP System
companies
James J. Markowsky - Vice 1997 325,000 129,447 338,382 18,020
president and director of the 1996 303,000 118,534 254,535 19,480
Company; executive vice 1995 285,000 98,325 126,599 17,515
president-power generation
and director of the Service
Corporation; vice president
and director of other AEP
System companies
</TABLE>
___________
(1) Amounts in the "Bonus" column reflect payments under the Senior Officer
Annual Incentive Compensation Plan (and predecessor Management Incentive
Compensation Plan) for performance measured for each of the years ended
December 31, 1995, 1996 and 1997. Payments are made in March of the
subsequent year. Amounts for 1997 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 (which
became effective January 1, 1994) for the two-, three- and three-year
performance periods ending December 31, 1995, 1996 and 1997,
respectively. The two-year performance period was a transition
performance period.
See below under "Long-Term Incentive Plans - Awards in 1997" and page 10
for additional information.
(2) For 1997, includes (i) employer matching contributions under the AEP
System Employees Savings Plan: Dr. Draper, $3,400; Mr. DeMaria, $3,306;
Mr. Maloney, $4,800; Mr. Lhota, $4,800; and Dr. Markowsky, $3,250;
(ii) employer matching contributions under the AEP System Supplemental
Savings Plan, a non-qualified plan designed to supplement the AEP
Savings Plan: Dr. Draper, $18,200; Mr. DeMaria, $8,244; Mr. Maloney,
$6,750; Mr. Lhota, $5,850; and Dr. Markowsky, $6,500; and
(iii) subsidiary companies director fees: Dr. Draper and Messrs. DeMaria
and Maloney, $10,020; Mr. Lhota, $9,920; and Dr. Markowsky, $8,270.
Long-Term Incentive Plans - Awards In 1997
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-year 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.
<TABLE>
<CAPTION>
Estimated Future Payouts of
Performance Share Units Under
Non-Stock Price-Based Plan
Performance
Number of Period Until
Performance Maturation Threshold Target Maximum
Name Share Units or Payout (#) (#) (#)
<S> <C> <C> <C> <C> <C>
E. L. Draper, Jr. 7,111 1997-1999 1,778 7,111 14,222
P. J. DeMaria 3,327 1997-1999 832 3,327 6,654
G. P. Maloney 3,327 1997-1999 832 3,327 6,654
W. J. Lhota 3,068 1997-1999 767 3,068 6,136
J. J. Markowsky 2,809 1997-1999 702 2,809 5,618
</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.
<TABLE>
<CAPTION>
Pension Plan Table
Years of Accredited Service
Highest Average
Annual Earnings 15 20 25 30 35 40 45
<S> <C> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 93,660 $124,880 $156,100 $187,320 $218,540 $245,140 $271,740
500,000 117,660 156,880 196,100 235,320 274,540 307,790 341,040
600,000 141,660 188,880 236,110 283,320 330,540 370,440 410,340
700,000 165,660 220,880 276,100 331,320 386,540 433,090 479,640
900,000 213,660 284,880 356,100 427,320 498,540 588,390 618,240
1,100,000 261,660 348,880 436,100 523,320 610,540 683,390 756,840
1,300,000 309,660 412,880 516,100 619,320 722,540 808,990 895,440
</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 60 and 62 and
further reduced 6% per year in the case of retirement between ages 55 and 60.
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 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, 1997, the
number of full years of service applicable for retirement benefit calculation
purposes for such officers were as follows: Dr. Draper, five years; Mr.
DeMaria, 38 years; Mr. Maloney, 42 years; Mr. Lhota, 33 years; and Dr.
Markowsky, 26 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.
Fourteen AEP System employees (including Messrs. DeMaria, Maloney and
Lhota 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 1998 of the executive officers named in
the Summary Compensation Table, only Messrs. DeMaria and Maloney would be
affected and their annual supplemental benefit would be $491 and $3,847,
respectively.
The Company 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 par-
ticipant 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 payments commencing at age 65,
annual supplemental retirement payments under the 1982 and 1986 programs.
<TABLE>
<CAPTION>
1982 Program 1986 Program
Annual Amount Annual Amount
of of
Annual Supplemental Annual Supplemental
Amount Retirement Amount Retirement
Deferred Payment Deferred Payment
(4-Year (15-Year (4-Year (15-Year
Name Period) Period) Period) Period)
<S> <C> <C> <C> <C>
P. J. DeMaria . $10,000 $52,000 $13,000 $53,300
G. P. Maloney . 15,000 67,500 16,000 56,400
</TABLE>
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.
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 1998 annual meeting
of shareholders to be filed within 120 days after December 31, 1997.
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 1998 annual
meeting of stockholders, to be filed within 120 days after December 31, 1997.
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, 1998, 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.
<TABLE>
<CAPTION>
Stock
Name Shares Units(a) Total
<S> <C> <C> <C>
Karl G. Boyd . . . . . . 1,534(b) 81 1,615
Coulter R. Boyle, III . . 3,702(b) 745 4,447
Gregory A. Clark . . . . 1,066(b) 106 1,172
P. J. DeMaria . . . . . . 7,754(b)(c)(d)(e) 15,932 23,686
E. L. Draper, Jr. . . . . 7,373(b)(d) 62,857 70,230
James A. Kobyra . . . . . 3,188(b)(d) 520 3,708
W. J. Lhota . . . . . . . 15,056(b)(c)(d) 14,827 29,883
G. P. Maloney . . . . . . 5,803(b)(c)(d) 12,715 18,518
J. J. Markowsky . . . . . 5,126(b)(e) 12,417 17,543
David B. Synowiec . . . . 993(b) 124 1,117
J. H. Vipperman . . . . . 5,837(b)(d) 7,676 13,513
William E. Walters . . . 5,655(b) 317 5,972
Earl H. Wittkamper . . . 2,983(b) 315 3,298
All directors and
executive officers . . .
151,301(d)(f) 128,632 279,933
</TABLE>
(a) This column includes amounts deferred in stock units and held under the
Management Incentive Compensation Plan, Senior Officer Annual Incentive
Compensation Plan and Performance Share Incentive Plan.
(b) Includes share equivalents held in the AEP Employees Savings Plan in the
amounts listed below:
AEP Employees Savings
Plan (Share Equivalents)
Mr. Boyd 1,524
Mr. Boyle 3,702
Mr. Clark 1,066
Mr. DeMaria 3,187
Dr. Draper 2,716
Mr. Kobyra 2,380
Mr. Lhota 12,876
Mr. Maloney 3,436
Dr. Markowsky 5,074
Mr. Synowiec 993
Mr. Vipperman 5,142
Mr. Walters 5,655
Mr. Wittkamper 1,653
All Directors and
Executive Officers 49,404
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.
(c) Does not include, for Messrs. DeMaria, Lhota and Maloney, 85,231 shares
in the American Electric Power System Educational Trust Fund over which
Messrs. DeMaria, Lhota and Maloney 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.
(d) Includes the following numbers of shares held in joint tenancy with a
family member: Mr. DeMaria, 462; Dr. Draper, 2,200; Mr. Kobyra, 808;
Mr. Lhota, 2,180; Mr. Maloney, 2,367; and Mr. Vipperman, 64.
(e) Includes the following numbers of shares held by family members over
which beneficial ownership is disclaimed: Mr. DeMaria, 3,192; and
Dr. Markowsky, 19.
(f) Represents less than 1% of the total number of shares outstanding.
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 1998 annual
meeting of shareholders, to be filed within 120 days after December 31, 1997.
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: Page
The following financial statements have been incorporated herein
by reference pursuant to Item 8.
AEGCo:
Independent Auditors' Report; Statements of Income for the years
ended December 31, 1997, 1996 and 1995; Statements of Retained
Earnings for the years ended December 31, 1997, 1996 and 1995;
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995; Balance Sheets as of December 31, 1997 and 1996;
Notes to Financial Statements.
AEP and its subsidiaries consolidated:
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995; Consolidated Statements of Retained Earnings
for the years ended December 31, 1997, 1996 and 1995; Consolidated
Balance Sheets as of December 31, 1997 and 1996; Consolidated
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995; Notes to Consolidated Financial Statements;
Schedule of Consolidated Cumulative Preferred Stocks of
Subsidiaries at December 31, 1997 and 1996; Schedule of
Consolidated Long-term Debt of Subsidiaries at December 31, 1997
and 1996; Independent Auditors' Report.
APCo:
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995; Consolidated Balance Sheets as of December
31, 1997 and 1996; Consolidated Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995; Consolidated
Statements of Retained Earnings for the years ended December 31,
1997, 1996 and 1995; Notes to Consolidated Financial Statements;
Independent Auditors' Report.
CSPCo:
Independent Auditors' Report; Consolidated Statements of Income
for the years ended December 31, 1997, 1996 and 1995; Consolidated
Balance Sheets as of December 31, 1997 and 1996; Consolidated
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995; Consolidated Statements of Retained Earnings for
the years ended December 31, 1997, 1996 and 1995; Notes to
Consolidated Financial Statements.
I&M:
Independent Auditors' Report; Consolidated Statements of Income
for the years ended December 31, 1997, 1996 and 1995; Consolidated
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995; Consolidated Balance Sheets as of December 31, 1997
and 1996; Consolidated Statements of Retained Earnings for the
years ended December 31, 1997, 1996 and 1995; Notes to
Consolidated Financial Statements.
KEPCo:
Independent Auditors' Report; Statements of Income for the years
ended December 31, 1997, 1996 and 1995; Statements of Retained
Earnings for the years ended December 31, 1997, 1996 and 1995;
Balance Sheets as of December 31, 1997 and 1996; Statements of
Cash Flows for the years ended December 31, 1997, 1996 and 1995;
Notes to Financial Statements.
OPCo:
Independent Auditors' Report; Consolidated Statements of Income
for the years ended December 31, 1997, 1996 and 1995; Consolidated
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995; Consolidated Balance Sheets as of December 31, 1997
and 1996; Consolidated Statements of Retained Earnings for the
years ended December 31, 1997, 1996 and 1995; 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
(b) Reports on Form 8-K:
Company Reporting Date of Report Items Reported
AEGCo, AEP, APCo,
CSPCo, I&M, KEPCo
and OPCo December 21, 1997 Item 5. Other Events
Item 7. Financial Statements
and Exhibits
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/ G. P. Maloney__
(G. P. Maloney, Vice President)
Date: March 16, 1998
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.
Signature Title Date
(i) Principal Executive Officer:
*E. Linn Draper, Jr. President,
Chief Executive Officer
and Director
(ii) Principal Financial Officer:
__/s/ G. P. Maloney__ Vice President March 16, 1998
(G. P. Maloney) and Director
(iii) Principal Accounting Officer:
__/s/ P. J. DeMaria__ Vice President, Controller March 16, 1998
(P. J. DeMaria) and Director
(iv) A Majority of the Directors:
*Henry Fayne
*John R. Jones, III
*Wm. J. Lhota
*James J. Markowsky
*By:__/s/ G. P. Maloney__ March 16, 1998
(G. P. Maloney, Attorney-in-Fact)
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.
AMERICAN ELECTRIC POWER COMPANY, INC.
By:__/s/ G. P. Maloney__
(G. P. Maloney, Vice President)
Date: March 16, 1998
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.
Signature Title Date
(i) Principal Executive Officer:
*E. Linn Draper, Jr. Chairman of the Board,
President,
Chief Executive Officer
and Director
(ii) Principal Financial Officer:
__/s/ G. P. Maloney__ Vice President, Secretary March 16, 1998
(G. P. Maloney) and Director
(iii) Principal Accounting Officer:
__/s/ P. J. DeMaria__ Controller and Director March 16, 1998
(P. J. DeMaria)
(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/ G. P. Maloney__ March 16, 1998
(G. P. Maloney, Attorney-in-Fact)
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/ G. P. Maloney__
(G. P. Maloney, Vice President)
Date: March 16, 1998
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.
Signature Title Date
(i) Principal Executive Officer:
*E. Linn Draper, Jr. Chairman of the Board,
Chief Executive Officer
and Director
(ii) Principal Financial Officer:
__/s/ G. P. Maloney__ Vice President March 16, 1998
(G. P. Maloney) and Director
(iii) Principal Accounting Officer:
__/s/ P. J. DeMaria__ Vice President, Controller March 16, 1998
(P. J. DeMaria) and Director
(iv) A Majority of the Directors:
*Henry Fayne
*Wm. J. Lhota
*James J. Markowsky
*J. H. Vipperman
*By:__/s/ G. P. Maloney__ March 16, 1998
(G. P. Maloney, Attorney-in-Fact)
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/ G. P. Maloney__
(G. P. Maloney, Vice President)
Date: March 16, 1998
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.
Signature Title Date
(i) Principal Executive Officer:
*E. Linn Draper, Jr. Chairman of the Board,
Chief Executive Officer
and Director
(ii) Principal Financial Officer:
__/s/ G. P. Maloney__ Vice President March 16, 1998
(G. P. Maloney) and Director
(iii) Principal Accounting Officer:
__/s/ P. J. DeMaria__ Vice President, Controller March 16, 1998
(P. J. DeMaria) and Director
(iv) A Majority of the Directors:
*Henry Fayne
*Wm. J. Lhota
*James J. Markowsky
*J. H. Vipperman
*By:__/s/ G. P. Maloney__ March 16, 1998
(G. P. Maloney, Attorney-in-Fact)
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/ G. P. Maloney__
(G. P. Maloney, Vice President)
Date: March 16, 1998
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.
Signature Title Date
(i) Principal Executive Officer:
*E. Linn Draper, Jr. Chairman of the Board,
Chief Executive Officer
and Director
(ii) Principal Financial Officer:
__/s/ G. P. Maloney__ Vice President March 16, 1998
(G. P. Maloney) and Director
(iii) Principal Accounting Officer:
__/s/ P. J. DeMaria__ Vice President, Controller March 16, 1998
(P. J. DeMaria) and Director
(iv) A Majority of the Directors:
*K. G. Boyd
*C. R. Boyle, III
*G. A. Clark
*James A. Kobyra
*Wm. J. Lhota
*James J. Markowsky
*D. B. Synowiec
*J. H. Vipperman
*W. E. Walters
*E. H. Wittkamper
*By:__/s/ G. P. Maloney__ March 16, 1998
(G. P. Maloney, Attorney-in-Fact)
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/ G. P. Maloney__
(G. P. Maloney, Vice President)
Date: March 16, 1998
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.
Signature Title Date
(i) Principal Executive Officer:
*E. Linn Draper, Jr. Chairman of the Board,
Chief Executive Officer
and Director
(ii) Principal Financial Officer:
__/s/ G. P. Maloney__ Vice President March 16, 1998
(G. P. Maloney) and Director
(iii) Principal Accounting Officer:
__/s/ P. J. DeMaria__ Vice President, Controller March 16, 1998
(P. J. DeMaria) and Director
(iv) A Majority of the Directors:
*Henry Fayne
*Wm. J. Lhota
*James J. Markowsky
*J. H. Vipperman
*By:__/s/ G. P. Maloney__ March 16, 1998
(G. P. Maloney, Attorney-in-Fact)
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/ G. P. Maloney__
(G. P. Maloney, Vice President)
Date: March 16, 1998
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.
Signature Title Date
(i) Principal Executive Officer:
*E. Linn Draper, Jr. Chairman of the Board,
Chief Executive Officer
and Director
(ii) Principal Financial Officer:
__/s/ G. P. Maloney__ Vice President March 16, 1998
(G. P. Maloney) and Director
(iii) Principal Accounting Officer:
__/s/ P. J. DeMaria__ Vice President, Controller March 16, 1998
(P. J. DeMaria) and Director
(iv) A Majority of the Directors:
*Henry Fayne
*Wm. J. Lhota
*James J. Markowsky
*J. H. Vipperman
*By:__/s/ G. P. Maloney__ March 16, 1998
(G. P. Maloney, Attorney-in-Fact)
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . S-2
The following financial statement schedules for the years ended
December 31, 1997, 1996 and 1995 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
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,
1997 and 1996, and for each of the three years in the period ended December
31, 1997, and have issued our reports thereon dated February 24, 1998; such
financial statements and reports are included in your respective 1997 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 24, 1998
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
(in thousands)
Deducted from Assets:
Accumulated Provision for
Uncollectible Accounts:
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
Year Ended December 31, 1995 . . $4,056 $12,907 $ 5,927(a) $17,460(b) $5,430
</TABLE>
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
APPALACHIAN POWER COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
(in thousands)
Deducted from Assets:
Accumulated Provision for
Uncollectible Accounts:
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
Year Ended December 31, 1995 . . $ 830 $ 3,442 $ 963(a) $ 2,982(b) $2,253
</TABLE>
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
(in thousands)
Deducted from Assets:
Accumulated Provision for
Uncollectible Accounts:
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
Year Ended December 31, 1995 . . $1,768 $ 4,873 $ 3,531(a) $ 9,111(b) $1,061
</TABLE>
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
(in thousands)
Deducted from Assets:
Accumulated Provision for
Uncollectible Accounts:
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
Year Ended December 31, 1995 . . $ 121 $ 1,506 $ 632(a) $ 1,925(b) $ 334
</TABLE>
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
KENTUCKY POWER COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
(in thousands)
Deducted from Assets:
Accumulated Provision for
Uncollectible Accounts:
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
Year Ended December 31, 1995 . . $ 260 $ 925 $ 234(a) $ 1,160(b) $ 259
</TABLE>
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
OHIO POWER COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
(in thousands)
Deducted from Assets:
Accumulated Provision for
Uncollectible Accounts:
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
Year Ended December 31, 1995 . . $1,019 $ 1,952 $ 472(a) $ 2,019(b) $1,424
</TABLE>
(a) Recoveries on accounts previously written off.
(b) Uncollectible accounts written off.
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. Sections 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.
Exhibit Number Description
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 1997 Annual Report (for
the fiscal year ended December 31, 1997) 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, Exhibit 3(a)].
* 3(b) Copy of By-Laws of AEP, as amended through January 28, 1998.
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)].
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.
!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)].
!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)].
* 13 Copy of those portions of the AEP 1997 Annual Report (for
the fiscal year ended December 31, 1997) 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 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)].
* 4(b) Copy of Indenture Supplemental, dated as of May 1, 1997, to
Mortgage and Deed of Trust.
4(c) 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)].
* 4(d) Company Order and Officers' Certificate, dated March 3,
1998, establishing certain terms of the 7.20% Senior Notes,
Series A, 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)].
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)].
* 12 Statement re: Computation of Ratios.
* 13 Copy of those portions of the APCo 1997 Annual Report (for
the fiscal year ended December 31, 1997) 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, 1997, 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)].
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.
* 4(c) Copy of Company Order and Officers' Certificate, dated
September 29, 1997, establishing certain terms of the
Unsecured Medium Term Notes, Series A.
* 4(d) Copy of Instructions, dated September 30, 1997, from CSPCo
to Bankers Trust Company, establishing certain terms of the
6.85% Unsecured Medium Term Notes, Series A, due 2005.
* 4(e) Copy of Instructions, dated February 5, 1998, from CSPCo to
Bankers Trust Company, establishing certain terms of the
6.51% 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)(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)].
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 1997 Annual Report (for
the fiscal year ended December 31, 1997) 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)].
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)(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(b) Copy of Interconnection Agreement, dated July 6, 1951,
between 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 31,
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 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 1997 Annual Report (for
the fiscal year ended December 31, 1997) 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, 1997, 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.
* 4(c) Copy of Company Order and Officers' Certificate, dated
September 24, 1997, establishing certain terms of the
Unsecured Medium Term Notes, Series A.
* 4(d) Copy of Instructions, dated September 26, 1997, from KEPCo
to Bankers Trust Company, establishing certain
terms of the 6.91% Unsecured Medium Term Notes, Series A,
due 2007.
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)].
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 1997 Annual Report (for the
fiscal year ended December 31, 1997) 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)(vi); 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.
* 4(c) Copy of Company Order and Officers' Certificate, dated
September 24, 1997, establishing certain terms of the
Unsecured Medium Term Notes, Series A.
* 4(d) Copy of Instructions, dated September 25, 1997, from OPCo to
Bankers Trust Company, establishing certain
terms of the 6.73% Unsecured Medium Term Notes, Series A,
due 2004.
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,
between 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)].
!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)].
* 12 Statement re: Computation of Ratios.
* 13 Copy of those portions of the OPCo 1997 Annual Report (for
the fiscal year ended December 31, 1997) 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, 1997, File No. 1-
3525, Exhibit 21].
* 23 Consent of Deloitte & Touche LLP.
* 24 Power of Attorney.
* 27 Financial Data Schedules.
!! 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.
<PAGE> Exhibit 4(b)
OHIO POWER COMPANY
AND
BANKERS TRUST COMPANY,
AS TRUSTEE
--------------------
INDENTURE
Dated as of September 1, 1997
--------------------
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
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 . . . . . . . . . . . . . . . . . .2
Board of Directors . . . . . . . . . . . . . . . . . .3
Board Resolution . . . . . . . . . . . . . . . . . . .3
Business Day . . . . . . . . . . . . . . . . . . . . .3
Certificate. . . . . . . . . . . . . . . . . . . . . .3
Commission . . . . . . . . . . . . . . . . . . . . . .3
Company. . . . . . . . . . . . . . . . . . . . . . . .3
Company Order. . . . . . . . . . . . . . . . . . . . .3
Corporate Trust Office . . . . . . . . . . . . . . . .4
Default. . . . . . . . . . . . . . . . . . . . . . . .4
Depository . . . . . . . . . . . . . . . . . . . . . .4
Discount Security. . . . . . . . . . . . . . . . . . .4
Dollar . . . . . . . . . . . . . . . . . . . . . . . .4
Eligible Obligations . . . . . . . . . . . . . . . . .4
Event of Default . . . . . . . . . . . . . . . . . . .4
Global Security. . . . . . . . . . . . . . . . . . . .5
Governmental Obligations . . . . . . . . . . . . . . .5
Governmental Authority . . . . . . . . . . . . . . . .5
Indenture. . . . . . . . . . . . . . . . . . . . . . .5
Instructions . . . . . . . . . . . . . . . . . . . . .6
Interest . . . . . . . . . . . . . . . . . . . . . . .6
Interest Payment Date. . . . . . . . . . . . . . . . .6
Officers' Certificate. . . . . . . . . . . . . . . . .6
Opinion of Counsel . . . . . . . . . . . . . . . . . .6
Outstanding. . . . . . . . . . . . . . . . . . . . . .6
Periodic Offering. . . . . . . . . . . . . . . . . . .7
Person . . . . . . . . . . . . . . . . . . . . . . . .7
Place of Payment . . . . . . . . . . . . . . . . . . .7
Predecessor Security . . . . . . . . . . . . . . . . .7
Responsible Officer. . . . . . . . . . . . . . . . . .7
Security . . . . . . . . . . . . . . . . . . . . . . .8
Securityholder . . . . . . . . . . . . . . . . . . . .8
Series . . . . . . . . . . . . . . . . . . . . . . . .8
Tranche. . . . . . . . . . . . . . . . . . . . . . . .8
Trustee. . . . . . . . . . . . . . . . . . . . . . . .8
Trust Indenture Act. . . . . . . . . . . . . . . . . .8
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 . . . . . 10
Section 2.03
Date and denominations of Securities,
and provisions for payment of principal,
premium and interest . . . . . . . . . . . . . . . . 11
Section 2.04
Execution of Securities. . . . . . . . . . . . . . . 13
Section 2.05
Exchange of Securities . . . . . . . . . . . . . . . 15
(a) Registration and transfer
of Securities . . . . . . . . . . . . . . . . . 15
(b) Security Register; Securities to be accompanied
by proper instruments of transfer . . . . . . . 15
(c) Charges upon exchange, transfer or
registration of Securities. . . . . . . . . . . 15
(d) Restrictions on transfer or
exchange at time of redemption. . . . . . . . . 16
Section 2.06
Temporary Securities . . . . . . . . . . . . . . . . 16
Section 2.07
Mutilated, destroyed, lost or
stolen Securities. . . . . . . . . . . . . . . . . . 16
Section 2.08
Cancellation of surrendered Securities . . . . . . . 17
Section 2.09
Provisions of Indenture and Securities
for sole benefit of parties and
Securityholders. . . . . . . . . . . . . . . . . . . 18
Section 2.10
Appointment of Authenticating Agent. . . . . . . . . 18
Section 2.11
Global Security. . . . . . . . . . . . . . . . . . . 19
(a) Authentication and Delivery;
Legend. . . . . . . . . . . . . . . . . . . . . 19
(b) Transfer of Global Security . . . . . . . . . . 19
(c) Issuance of Securities in
Definitive Form . . . . . . . . . . . . . . . . 19
Section 2.12
Payment in Proper Currency . . . . . . . . . . . . . 20
Section 2.13
Identification of Securities . . . . . . . . . . . . 20
ARTICLE THREE - REDEMPTION OF SECURITIES AND
SINKING FUND PROVISIONS
Section 3.01
Redemption of Securities . . . . . . . . . . . . . . 20
Section 3.02
(a) Notice of redemption. . . . . . . . . . . . . . 21
(b) Selection of Securities in case
less than all Securities to be
redeemed. . . . . . . . . . . . . . . . . . . . 22
Section 3.03
(a) When Securities called for
redemption become due and payable . . . . . . . 22
(b) Receipt of new Security upon
partial payment . . . . . . . . . . . . . . . . 23
Section 3.04
Sinking Fund for Securities. . . . . . . . . . . . . 23
Section 3.05
Satisfaction of Sinking Fund
Payments with Securities . . . . . . . . . . . . . . 23
Section 3.06
Redemption of Securities for
Sinking Fund . . . . . . . . . . . . . . . . . . . . 23
ARTICLE FOUR - PARTICULAR COVENANTS OF THE COMPANY
Section 4.01
Payment of principal (and premium
if any) and interest on Securities . . . . . . . . . 24
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. . . . . . . . . . . . . . . . . . . . 24
Section 4.03
(a) Duties of paying agent. . . . . . . . . . . . . 25
(b) Company as paying agent . . . . . . . . . . . . 25
(c) Holding sums in trust . . . . . . . . . . . . . 26
Section 4.04
Appointment to fill vacancy in
office of Trustee. . . . . . . . . . . . . . . . . . 26
Section 4.05
Restriction on consolidation,
merger or sale . . . . . . . . . . . . . . . . . . . 26
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. . . . . . . . . . . . . . . . . . . 26
Section 5.02
(a) Trustee to preserve information
as to names and addresses of
Securityholders received by it
in capacity of paying agent . . . . . . . . . . 26
(b) Trustee may destroy list of
Securityholders on certain
conditions. . . . . . . . . . . . . . . . . . . 27
(c) Trustee to make information as to
names and addresses of Securityholders
available to "applicants" to mail
communications to Securityholders in
certain circumstances . . . . . . . . . . . . . 27
(d) Procedure if Trustee elects not to
make information available to
applicants. . . . . . . . . . . . . . . . . . . 27
(e) Company and Trustee not accountable
for disclosure of information . . . . . . . . . 28
Section 5.03
(a) Annual and other reports to be filed
by Company with Trustee . . . . . . . . . . . . 28
(b) Additional information and reports
to be filed with Trustee and
Securities and Exchange Commission. . . . . . . 28
(c) Summaries of information and reports
to be transmitted by Company to
Securityholders . . . . . . . . . . . . . . . . 29
(d) Annual Certificate to be furnished
to Trustee. . . . . . . . . . . . . . . . . . . 29
(e) Effect of Delivery to Trustee . . . . . . . . . 29
Section 5.04
(a) Trustee to transmit annual report
to Securityholders. . . . . . . . . . . . . . . 29
(b) Trustee to transmit certain further
reports to Securityholders. . . . . . . . . . . 30
(c) Copies of reports to be filed with
stock exchanges and Securities and
Exchange Commission . . . . . . . . . . . . . . 31
ARTICLE SIX - REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF DEFAULT
Section 6.01
(a) Events of default defined . . . . . . . . . . . 31
(b) Acceleration of maturity
upon Event of Default . . . . . . . . . . . . . 32
(c) Waiver of default and rescission
of declaration of maturity. . . . . . . . . . . 32
(d) Restoration of former position
and rights upon curing default. . . . . . . . . 33
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). . . . . . . . . . . . . . . . 33
(b) Trustee may recover judgment for
whole amount due on Securities on
failure of Company to pay . . . . . . . . . . . 33
(c) Billing of proof of claim by Trustee
in bankruptcy, reorganization or
receivership proceeding . . . . . . . . . . . . 34
(d) Rights of action and of asserting
claims may be enforced by Trustee
without possession of Securities. . . . . . . . 34
Section 6.03
Application of monies collected by Trustee . . . . . 35
Section 6.04
Limitation on suits by holders of Securities . . . . 35
Section 6.05
(a) Remedies Cumulative . . . . . . . . . . . . . . 36
(b) Delay or omission in exercise
of rights not waiver of default . . . . . . . . 36
Section 6.06
Rights of holders of majority in
principal amount of Securities to
direct trustee and to waive defaults . . . . . . . . 36
Section 6.07
Trustees to give notice of defaults
known to it, but may withhold in
certain circumstances. . . . . . . . . . . . . . . . 37
Section 6.08
Requirements of an undertaking to pay
costs in certain suits under Indenture
or against Trustee . . . . . . . . . . . . . . . . . 38
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 . . . . . . . . . . 38
(b) Trustee not relieved from liability
for negligence or willful misconduct
except as provided in this section. . . . . . . 39
(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. . . . 40
(b) Sufficient evidence by certain
instruments provided for. . . . . . . . . . . . 40
(c) Trustee may consult with counsel and act
on advice or Opinion of Counsel . . . . . . . . 40
(d) Trustee may require indemnity from
Securityholders . . . . . . . . . . . . . . . . 40
(e) Trustee not liable for actions in good
faith believed to be authorized . . . . . . . . 41
(f) Trustee not bound to investigate facts or
matters stated in certificates, etc. unless
requested in writing by Securityholders . . . . 41
(g) Trustee may perform duties directly or
through agents or attorneys . . . . . . . . . . 41
(h) Permissive rights of Trustee. . . . . . . . . . 41
Section 7.03
(a) Trustee not liable for recitals in
Indenture or in Securities. . . . . . . . . . . 41
(b) No representations by Trustee as to
validity or Indenture or of Securities. . . . . 41
(c) Trustee not accountable for use of
Securities or proceeds. . . . . . . . . . . . . 41
Section 7.04
Trustee, paying agent or Security
Registrar may own Security . . . . . . . . . . . . . 42
Section 7.05
Monies received by Trustee to be held
in Trust without interest. . . . . . . . . . . . . . 42
Section 7.06
(a) Trustee entitled to compensation,
reimbursement and indemnity . . . . . . . . . . 42
(b) Obligations to Trustee to be
secured by lien prior to
Securities. . . . . . . . . . . . . . . . . . . 42
(c) Nature of Expenses. . . . . . . . . . . . . . . 43
(d) Survival of Obligations . . . . . . . . . . . . 43
Section 7.07
Right of Trustee to rely on certificate
of officers of Company where no other
evidence specifically prescribed . . . . . . . . . . 43
Section 7.08
Trustee acquiring conflicting interest
to eliminate conflict or resign. . . . . . . . . . . 43
Section 7.09
Requirements for eligibility of
trustee. . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.10
(a) Resignation of Trustee and
appointment of successor. . . . . . . . . . . . 44
(b) Removal of Trustee by Company
or by court on Securityholders'
application . . . . . . . . . . . . . . . . . . 45
(c) Removal of Trustee by holders
of majority in principal amount
of Securities . . . . . . . . . . . . . . . . . 45
(d) Time when resignation or removal
of Trustee effective. . . . . . . . . . . . . . 45
(e) One Trustee for each series . . . . . . . . . . 45
Section 7.11
(a) Acceptance by successor Trustee . . . . . . . . 45
(b) Trustee with respect to less than
all series. . . . . . . . . . . . . . . . . . . 45
(c) Company to confirm Trustee's rights . . . . . . 46
(d) Successor Trustee to be qualified . . . . . . . 46
(e) Notice of succession. . . . . . . . . . . . . . 46
Section 7.12
Successor to Trustee by merger, consolidation
of succession to business. . . . . . . . . . . . . . 47
Section 7.13
Limitations on rights of Trustee as a
creditor to obtain payment of certain
claims . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE EIGHT - CONCERNING THE SECURITYHOLDERS
Section 8.01
Evidence of action by Securityholders. . . . . . . . 47
Section 8.02
Proof of execution of instruments and of
holding of Securities. . . . . . . . . . . . . . . . 48
Section 8.03
Who may be deemed owners of Securities . . . . . . . 48
Section 8.04
Securities owned by Company or controlled
or controlling companies disregarded for
certain purposes . . . . . . . . . . . . . . . . . . 48
Section 8.05
Instruments executed by Securityholders
bind future holders. . . . . . . . . . . . . . . . . 49
ARTICLE NINE - SUPPLEMENTAL INDENTURES
Section 9.01
Purposes for which supplemental indenture
may be entered into without consent of
Securityholders. . . . . . . . . . . . . . . . . . . 49
Section 9.02
Modification of Indenture with consent
of Securityholders . . . . . . . . . . . . . . . . . 52
Section 9.03
Effect of supplemental indentures. . . . . . . . . . 53
Section 9.04
Securities may bear notation of changes
by supplemental indentures . . . . . . . . . . . . . 54
Section 9.05
Opinion of Counsel . . . . . . . . . . . . . . . . . 54
ARTICLE TEN - CONSOLIDATION, MERGER AND SALE
Section 10.01
Consolidations or mergers of Company
and sales or conveyances of property
of Company permitted . . . . . . . . . . . . . . . . 54
Section 10.02
(a) Rights and duties of successor company. . . . . 55
(b) Appropriate changes may be made in
phraseology and form of Securities. . . . . . . 55
(c) Company may consolidate or merge into
itself or acquire properties of other
corporations. . . . . . . . . . . . . . . . . . 55
Section 10.03
Opinion of Counsel . . . . . . . . . . . . . . . . . 56
ARTICLE ELEVEN - DEFEASANCE AND CONDITIONS TO DEFEASANCE;
UNCLAIMED MONIES
Section 11.01
Defeasance and conditions to defeasance. . . . . . . 56
Section 11.02
Application by Trustee of funds deposited
for payment of Securities. . . . . . . . . . . . . . 57
Section 11.03
Repayment of monies held by paying agent . . . . . . 57
Section 11.04
Repayment of monies held by Trustee. . . . . . . . . 58
Section 11.05
Delivery of Officer's Certificate
and Opinion of Counsel . . . . . . . . . . . . . . . 58
ARTICLE TWELVE - IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 12.01
Incorporators, Stockholders, officers and
directors of Company exempt from individual
liability. . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE THIRTEEN - MISCELLANEOUS PROVISIONS
Section 13.01
Successors and assigns of Company
bound by Indenture . . . . . . . . . . . . . . . . . 59
Section 13.02
Acts of board, committee or officer
of successor company valid . . . . . . . . . . . . . 59
Section 13.03
Surrender of powers by Company . . . . . . . . . . . 59
Section 13.04
Required notices or demands may by
served by mail . . . . . . . . . . . . . . . . . . . 59
Section 13.05
Indenture and Securities to be construed
in accordance with laws of the State
of New York. . . . . . . . . . . . . . . . . . . . . 59
Section 13.06
(a) Officers' Certificate and Opinion of
Counsel to be furnished upon applications
or demands by company . . . . . . . . . . . . . 60
(b) Statements to be included in each
certificate or opinion with respect
to compliance with condition or covenant. . . . 60
Section 13.07
Payments due on non-Business Days. . . . . . . . . . 60
Section 13.08
Provisions required by Trust Indenture
Act of 1939 to control . . . . . . . . . . . . . . . 60
Section 13.09
Indenture may be executed in counterparts. . . . . . 60
Section 13.10
Separability of Indenture provisions . . . . . . . . 60
Section 13.11
Assignment by Company to subsidiary. . . . . . . . . 61
Section 13.12
Headings . . . . . . . . . . . . . . . . . . . . . . 61
Section 13.13
Securities in Foreign Currencies . . . . . . . . . . 61
ACCEPTANCE OF TRUST BY TRUSTEE . . . . . . . . . . . . . . . . 62
TESTIMONIUM. . . . . . . . . . . . . . . . . . . . . . . . . . 62
SIGNATURES AND SEALS . . . . . . . . . . . . . . . . . . . . . 62
ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . 63
THIS INDENTURE, dated as of the 1st day of September, 1997,
between OHIO POWER COMPANY, a corporation duly organized and
existing under the laws of the State of Ohio (hereinafter sometimes
referred to as the "Company"), and BANKERS TRUST COMPANY, a
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 Ohio Power Company, a corporation
duly organized and existing under the laws of Ohio, 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 Four Albany
Street, New York, New York.
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 Bankers Trust Company, 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:
BANKERS TRUST COMPANY
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) and 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 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.
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 as to 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(b) 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 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 thereof, 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 and the written
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: Ohio Power
Company, 301 Cleveland Avenue, S.W., Canton, Ohio 44701, 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.
Bankers Trust Company, 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.
OHIO POWER COMPANY
By_/s/ A. A. Pena________
Treasurer
Attest:
By_/s/ John M. Adams, Jr.
Assistant Secretary
BANKERS TRUST COMPANY,
as Trustee
By_/s/ James McDonough____
Vice President
Attest:
By_/s/ Jason Theriault___
Trust Officer
State of Ohio }
County of Franklin, } ss:
On this 23rd day of September, 1997, personally appeared
before me, a Notary Public within and for said County in the State
aforesaid, Armando A. Pena and John M. Adams, Jr., to me known and
known to me to be respectively the Treasurer and an Assistant
Secretary of OHIO 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 Assistant Secretary for and on behalf of said
corporation and that the same is their free act and deed as such
Treasurer and Assistant 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 23rd day of September, 1997.
[Notarial Seal]
_/s/ Mary M. Soltesz______
Notary Public, State of Ohio
My Commission Expires: 7-12-99
State of New York }
County of New York } ss:
Be it remembered, that on this 24th day of September, 1997,
personally appeared before me the undersigned, a Notary Public
within and for said County and State, Bankers Trust Company, one of
the corporations named in and which executed the foregoing
instrument, by James McDonough, one of its Vice Presidents, and by
Jason Theriault, 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 24th day of September, 1997.
[Notarial Seal]
_/s/ Sharon V. Alston_____
Notary Public, State of New York
My Commission Expires: 5-7-98
<PAGE> Exhibit 4(c)
September 24, 1997
Company Order and Officers' Certificate
Unsecured Medium Term Notes, Series A
Bankers Trust Company, as Trustee
Four Albany Street
New York, New York 10006
Attn: Corporate Trust Division
Ladies and Gentlemen:
Pursuant to Article Two of the Indenture, dated as of September 1,
1997 (as it may be amended or supplemented, the "Indenture"), from
Ohio Power Company (the "Company") to Bankers Trust Company, as
trustee (the "Trustee"), and the Board Resolutions dated August 25,
1997, 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 Medium Term Notes, Series A
(the "Notes") are hereby established and shall be subject to
a Periodic Offering. The Notes shall be in substantially the
form attached hereto as Exhibit 1.
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 $150,000,000, 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 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 42 years;
(iii) interest shall accrue from the date of
authentication of the Notes; the Interest Payment Dates
on which such interest will be payable shall be May 1 and
November 1, and the Regular Record Date for the
determination of holders to whom interest is payable on
any such Interest Payment Date shall be the April 15 or
October 15, as the case may be, next preceding such
Interest Payment Date; 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, 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 of the Notes shall not
exceed by 2.5% the yield to maturity at the date of
pricing on United States Treasury Bonds of comparable
maturity;
(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 $150,000,000 as shall be set forth in
Instructions (the "Instructions") in substantially the form
attached hereto as Exhibit 2.
4. You have been furnished with a supply of Notes
prepared in compliance with the Indenture and the Board
Resolutions referred to above. Before authenticating Notes in
the aggregate principal amount specified in any of the
Instructions, you are requested to complete such Notes as
directed by such Instructions.
5. 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 September 24,
1997, between the Company and each of the agents named
therein.
6. Concurrently with this Company Order, an Opinion of
Counsel under Sections 2.04 and 13.06 of the Indenture is
being delivered to you.
7. The undersigned Armando A. Pena and John M. Adams,
Jr., the Treasurer and Assistant 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 attached hereto.
Very truly yours,
OHIO POWER COMPANY
By: _/s/ A. A. Pena___________
Treasurer
And: /s/ John M. Adams, Jr.___
Assistant Secretary
Acknowledged by Trustee:
By: _/s/ Scott Thiel__________
Assistant Vice President
Exhibit 1
[Unless this certificate is presented by an authorized representa-
tive 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.
OHIO POWER COMPANY
Unsecured Medium Term Note, Series A
CUSIP: Original Issue Date:
Maturity Date: 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:
OHIO POWER COMPANY, a corporation duly organized and existing
under the laws of the State of Ohio (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 Date 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
May 1 and November 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 April 15
or October 15 (whether or not a Business Day), as the case may be,
next 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 the Stated Maturity Date 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 the
Stated Maturity Date 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 Date, 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 the Stated Maturity Date 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 September 1, 1997
duly executed and delivered between the Company and Bankers Trust
Company, a national banking association organized and existing
under the laws of the United States, as Trustee (herein referred to
as the "Trustee") (such Indenture, as originally executed and
delivered and as thereafter supplemented and amended being herein-
after 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 ____________________
OHIO 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:_______________
BANKERS TRUST COMPANY
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").
Exhibit 2
Instruction No.
Unsecured Medium Term Notes, Series A
Instructions
To: _____________________________, as Trustee
Trade or sale date:
Principal Amount: $_____________________
Maturity Date: ____________________________
Interest Rate: ______%
Redemption Provisions:
Redeemable: Yes___ No___
In Whole: Yes___ No___
In Part: Yes___ No___
Initial Redemption Date: ______________________
Redemption Limitation Date: ____________________
Initial Redemption Price: ______%
Reduction Percentage: _______%
Original Issue Date: ____________________________
Public Offering Price: ______%
Presenting Agent's Commission: ______%
Net Proceeds to Company: ______%
CUSIP No.: ___________________
Account number of participant account maintained
by DTC on behalf of Presenting Agent: ___________________________
Account number of participant account maintained
by DTC on behalf of Trustee: ____________________________________
Each Presenting Agent's name and
proportionate amount of Global Note:
__________________________________________________________________
__________________________________________________________________
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___
Yield to Maturity: ________%
Initial Accrual Period: ________________________________________
Account of Company into which net proceeds are to be deposited:
__________________________________________________
Any Other Book-Entry Note represented by Global Security (to the
extent known):
OHIO POWER COMPANY
By:___________________________
(President, Vice President, or
Treasurer)
<PAGE> Exhibit 4(d)
Instruction No. 1
Ohio Power Company
Unsecured Medium Term Notes, Series A
Instructions
To: Bankers Trust Company, as Trustee
Trade or sale date: 9/25/97
Principal Amount: $48,000,000
Maturity Date: 11/01/04
Interest Rate: 6.73%
Redemption Provisions:
Redeemable: Yes___ No X
In Whole: Yes___ No___
In Part: Yes___ No___
Initial Redemption Date: ______________________
Redemption Limitation Date: ____________________
Initial Redemption Price: ______%
Reduction Percentage: _______%
Original Issue Date: 9/30/97
Public Offering Price: 100%
Presenting Agent's Commission: 0.600%
Net Proceeds to Company: 99.4%
CUSIP No.: 67741 P AA5
Account number of participant account maintained by
DTC on behalf of Presenting Agent:
Salomon Brothers #274
Morgan Stanley #050
Account number of participant account maintained by
DTC on behalf of Trustee:
Each Presenting Agent's name and
proportionate amount of Global Note:
Morgan Stanley: 50%
Salomon Brothers: 50%
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
Original Issue Discount Security: Yes___ No X
Yield to Maturity: 6.84%
Initial Accrual Period: 9/30/97 - 10/31/97
Account of Company into which net proceeds
are to be deposited: Citibank ABA #021-000-089, Account #0004-1347
Any Other Book-Entry Note represented by
Global Security (to the extent known):
OHIO POWER COMPANY
By:_/s/ A. A. Pena________
(President, Vice President,
or Treasurer)
<PAGE>
<TABLE>
EXHIBIT 12
OHIO POWER COMPANY
Computation of Consolidated Ratio of Earnings to Fixed Charges
(in thousands except ratio data)
<CAPTION>
Year Ended December 31,
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest on First Mortgage Bonds . . . . . . . . . $ 74,121 $ 63,805 $ 61,836 $ 52,147 $ 45,540
Interest on Other Long-term Debt . . . . . . . . . 24,510 21,453 23,193 27,045 29,620
Interest on Short-term Debt. . . . . . . . . . . . 1,122 992 2,658 4,006 4,519
Miscellaneous Interest Charges . . . . . . . . . . 2,958 5,140 7,126 3,705 4,464
Estimated Interest Element in Lease Rentals. . . . 15,300 13,900 50,700 53,200 52,900
Total Fixed Charges . . . . . . . . . . . . . $118,011 $105,290 $145,513 $140,103 $137,043
Earnings:
Net Income . . . . . . . . . . . . . . . . . . . . $185,770 $162,626 $189,447 $217,655 $208,689
Plus Federal Income Taxes. . . . . . . . . . . . . 64,244 74,822 93,699 117,243 121,559
Plus State Income Taxes. . . . . . . . . . . . . . 2,626 3,375 1,618 2,252 2,655
Plus Fixed Charges (as above). . . . . . . . . . . 118,011 105,290 145,513 140,103 137,043
Total Earnings. . . . . . . . . . . . . . . . $370,651 $346,113 $430,277 $477,253 $469,946
Ratio of Earnings to Fixed Charges . . . . . . . . . 3.14 3.28 2.95 3.40 3.42
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
OHIO POWER COMPANY AND SUBSIDIARIES
Selected Consolidated Financial Data
Year Ended December 31,
1997 1996 1995 1994 1993
(in thousands)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENTS DATA:
Operating Revenues $1,965,818 $1,911,708 $1,822,997 $1,738,726 $1,708,577
Operating Expenses 1,689,425 1,614,547 1,550,837 1,493,853 1,440,390
Operating Income 276,393 297,161 272,160 244,873 268,187
Nonoperating Income 14,822 6,374 11,240 7,722 18,075
Income Before Interest
Charges 291,215 303,535 283,400 252,595 286,262
Interest Charges 82,526 85,880 93,953 89,969 100,492
Net Income 208,689 217,655 189,447 162,626 185,770
Preferred Stock
Dividend Requirements 2,647 8,778 14,668 15,301 16,990
Earnings Applicable to
Common Stock $ 206,042 $ 208,877 $ 174,779 $ 147,325 $ 168,780
December 31,
1997 1996 1995 1994 1993
(in thousands)
BALANCE SHEETS DATA:
Electric Utility Plant $5,155,797 $4,996,621 $4,915,222 $4,938,121 $4,802,327
Accumulated Depreciation
and Amortization 2,349,995 2,216,534 2,091,148 2,077,626 1,992,082
Net Electric Utility Plant $2,805,802 $2,780,087 $2,824,074 $2,860,495 $2,810,245
Total Assets $4,163,202 $4,092,166 $4,156,564 $4,151,140 $4,133,791
Common Stock and
Paid-in Capital $ 783,497 $ 781,863 $ 780,675 $ 784,301 $ 784,301
Retained Earnings 590,151 584,015 518,029 483,222 474,500
Total Common Shareholder's
Equity $1,373,648 $1,365,878 $1,298,704 $1,267,523 $1,258,801
Cumulative Preferred Stock:
Not Subject to Mandatory
Redemption $ 17,542 $ 38,532 $ 41,240 $ 126,240 $ 126,240
Subject to Mandatory
Redemption (a) 11,850 109,900 115,000 115,000 115,000
Total Cumulative
Preferred Stock $ 29,392 $ 148,432 $ 156,240 $ 241,240 $ 241,240
Long-term Debt (a) $1,095,226 $1,069,729 $1,227,632 $1,188,989 $1,194,483
Obligations Under Capital
Leases (a) $ 157,487 $ 131,285 $ 131,926 $ 127,735 $ 97,329
Total Capitalization and
Liabilities $4,163,202 $4,092,166 $4,156,564 $4,151,140 $4,133,791
</TABLE>
(a) Including portion due within one year.
OHIO 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 are: electric load and
customer growth; abnormal weather conditions; available sources and
costs of fuels and availability of generating capacity; the speed
and degree to which competition is introduced to our power
generation business, the terms of the transition to competition,
and its impact on rate structures; the ability to recover stranded
costs, new legislation and government regulations, the ability of
the Company to successfully reduce its costs; the economic climate
and growth in our service territory; inflationary trends, interest
rates and other risks.
Business Outlook
The Company's ability to recover its costs as the industry
transitions to competition and as customer choice is more broadly
available is the most significant factor affecting its future.
Competition in the wholesale generation market continues to
intensify since the adoption of federal legislation in 1992 which
gave wholesale customers the right to choose their energy supplier
and the Federal Energy Regulatory Commission (FERC) orders issued
in 1996 which forced open access transmission. The introduction of
competition and customer choice for retail customers has been slow
although activity has been increasing. 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. Ohio 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 how best
to structure and transition to a competitive marketplace.
As the electric energy market evolves from cost-of-service
ratemaking to market-based pricing, many complex issues must be
resolved, including the recovery of stranded costs. While FERC
orders No. 888 and 889 provide, under certain conditions, for
recovery of stranded cost at the wholesale level, the issue of
stranded cost recovery is unresolved at the much larger retail
level. The amount of any stranded costs the Company may experience
depends on the timing and extent to which direct competition is
introduced to our business and the then-existing market price of
electricity.
Under the provisions of Statement of Financial Accounting
Standards (SFAS) No. 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 cost-based regulated utilities in
accordance with regulatory actions to match expenses and revenues
with cost-based rates. In order to maintain net regulatory assets
(net expense deferrals) on the balance sheet, SFAS No. 71 requires
that rates charged to customers be cost-based and the recovery of
regulatory assets must be probable. In the event a portion of the
Company's business no longer meets the requirements of SFAS No. 71,
net regulatory assets would have to be written off for that portion
of the business. The provisions of SFAS No. 71 and SFAS No. 101
"Accounting for the Discontinuance of Application of Statement No.
71" never anticipated that deregulation would include an extended
transition period or that it would provide for recovery after the
transition period of stranded costs. In July 1997 the Emerging
Issues Task Force (EITF) of the Financial Accounting Standards
Board (FASB) reached a consensus that the application of SFAS No.
71 to a segment of a regulated electric utility which is subject to
a legislative plan to transition to competition in that segment
should cease when the legislation is passed, 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 existing regulatory assets and impaired plant be
written off unless they are recoverable.
Although FERC orders No. 888 and 889 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 foreseeable future pending the passage of enabling state
legislation to deregulate the generation business. 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 generation assets. We are working
with regulators, customers and legislators to provide for probable
recovery of these stranded costs during a transition period in
which rates are fixed or frozen and electric utilities would take
steps to achieve cost savings which would be used to reduce or
eliminate their stranded costs. 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 of the
Company would be adversely affected.
Cost Containment and Process Improvements
Efforts continue to reduce the costs of products and services
in order to maintain our competitiveness. Prior to 1997, reviews
of our major processes led to decisions to consolidate in the
American Electric Power Service Corporation senior management and
certain functions and operations. Among the functions consolidated
in this restructuring were generation plant maintenance, system
operations, accounting and load research. While staff reductions
and cost savings are presently being achieved in these and other
areas, expenses for new marketing, customer services and modern
efficient management information systems are increasing to prepare
the Company for competition.
Process improvement efforts and expenditures to develop and
implement the new customer service system and similar efforts and
expenditures to acquire, install and enhance new client server
based accounting and budgeting/financial planning software should
produce further improvements and efficiencies, enabling the Company
to continue to offer its customers excellent service at competitive
prices.
Fuel Costs
We recognize that we must continue to manage our coal costs to
maintain our competitive position. Nearly all of the Company's
generation is coal fired and approximately 35% of the 20 million
tons of coal we burn is supplied by affiliated mines with the
remainder acquired under long-term contracts and purchases in the
spot market. As long-term contracts expire we are negotiating with
unaffiliated suppliers to lower coal costs. We intend to continue
to prudently supplement our long-term coal supplies with spot
market purchases as long as favorable spot market prices exist.
Affiliated Coal
In prior years we have agreed in our Ohio jurisdiction to
certain limitations on the recovery of affiliated coal costs. Our
analysis shows that we should be able to recover, through 2009,
the term of the agreement, the Ohio jurisdictional portion of the
costs of our affiliated mining operations including future mine
closure costs. Management expects to recover its non-Ohio
jurisdictional portion of the investment in and the liabilities and
closing costs of our affiliated mines estimated to be $102 million
after tax at December 31, 1997. However, should it become apparent
that these affiliated mining costs will not be recovered from Ohio
and/or non-Ohio jurisdictional customers, the mines may have to be
closed and future earnings, cash flows and possibly financial
condition could be adversely affected. In addition compliance with
Phase II requirements of the Clean Air Act Amendments of 1990 (CAAA),
which become effective in January 2000, could also cause the mining
operations to close. Unless the cost of any mine closure is
recovered either in regulated rates or as a stranded cost under a
plan to transition the generation business to competition, future
earnings, cash flows and possibly financial condition could be
adversely affected.
Environmental Concerns
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 possible new technologies. We intend
to continue to take a leadership role to foster economically
prudent efforts to protect and preserve the environment.
By-products from the generation of electricity include
materials such as ash, slag, and sludge. 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, 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 or Superfund addresses clean-up of hazardous
substances at disposal sites and authorized the United States
Environmental Protection Agency (Federal EPA) to administer the
clean-up programs. As of year-end 1997, the Company is currently
involved in litigation with respect to three sites overseen by the
Federal EPA, and has been named by the Federal EPA as a
"Potentially Responsible Party" (PRP) for two other sites. There
are three additional sites for which the Company has received
information requests which could lead to PRP designation. 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 in
which we have been declared a PRP. However, if for reasons not
currently identified significant costs are incurred for cleanup,
future results of operations, cash flows and possibly financial
condition would be adversely affected unless the costs can be
recovered.
Federal EPA is required by the CAAA to issue rules to implement
the law. In December 1996 Federal EPA issued final rules governing
nitrogen oxide (NOx) emissions that must be met after January 1,
2000 (Phase II of the CAAA). The final rules will require
substantial reductions in NOx emissions from certain types of power
plant boilers including those in AEP's power plants. In December
1996 a group of utilities including AEP operating companies filed
a petition for review of the rules in a U.S. Court of Appeals and
requested expedited consideration of the appeal. In addition the
Federal EPA published proposed rulemaking requiring the revision of
state implementation plans in 22 eastern states, including Ohio and
West Virginia in which the Company has coal-fired generating
plants. The proposed rule will require reductions in NOx emissions
from utility sources of approximately 85% below 1990 levels and
entail very substantial capital and operating expenditures by AEP
System operating companies. Since the Company shares energy and
wholesale sales as a member of the AEP System Power Pool it is
affected by expenditures at the generating units of other
affiliated members of the AEP Pool. Pollution controls to meet the
proposed revised NOx emission limits would have to be in place by
2002. Also, the Federal EPA has been petitioned for a new
rulemaking by eight northeast states for the development of
controls for upwind sources. The costs to comply with the emission
reductions required by these Federal EPA actions is expected to be
substantial and would have a material adverse impact on future
results of operations, cash flows and possibly financial condition
if the resultant costs are not recovered from customers.
In 1997 the Federal EPA published a revised ambient air quality
standard for ozone and established a new ambient air quality
standard for fine particulate matter. These standards are expected
to result in redesignation of a number of areas of the country
currently in compliance with the existing standard to nonattainment
which could ultimately dictate more stringent emission restrictions
for the Company's generating units. Under the new rules the states
must first determine the attainment status of their areas. The
states then have three years to submit a compliance plan and up to
ten years after designation to come into compliance with the new
standards. The compliance deadline could be as late as 2010 for
the ozone standard and 2012-2015 for the fine particulate standard.
Although we are reviewing the impact of the new rules, we are
unable to estimate compliance costs without knowledge of the
reductions that Ohio will find necessary to meet the new standards.
If such reductions are significant and the Company and its
affiliates must bear a significant portion of the cost of
compliance in a region or county that is in violation of the
revised standards, it would have a material adverse effect on
results of operations, cash flows and possibly financial condition
unless such costs are recovered from customers.
At the global climate conference in Kyoto, Japan in December
1997 more than 160 countries negotiated a treaty limiting emissions
of greenhouse gases, chiefly carbon dioxide, which may eventually
contribute to global warming. Although there is no clear
scientific evidence that carbon dioxide contributes to global
warming and damages the environment, the treaty, which requires
Congressional approval, calls for a seven percent reduction below
emission levels of green house gases in 1990. We intend to work
with the Congress to insure that science and reason are introduced
to the debate. If approved by the Congress the costs to comply
with the emission reductions required by the Kyoto 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.
Results of Operations
Although operating revenues increased in 1997 due to increased
wholesale transactions from a new power marketing business, net
income declined $9 million or 4% largely due to a decline in retail
sales, price concessions granted to two major industrial customers
and the effects of the competitive nature of the wholesale power
market. In July of 1997 AEP started a new business of buying and
selling power outside the AEP System. The significant increase in
revenues was substantially offset by an increase in the related
purchased power expense. Net income increased 15% in 1996
primarily due to increased sales of energy and services and reduced
financing charges. The 1996 sales increase was due to increased
wholesale power sales to the Power Pool and unaffiliated utilities
and increased services provided to power marketers and other
utilities. Also contributing to the improvement in net income in
1996 were severance pay charges recorded in 1995 in connection with
AEP's restructuring of management and operations and gains recorded
in 1996 from emission allowance transactions.
<PAGE>
Operating Revenues and Energy Sales Increase
Operating revenues increased 3% in 1997 primarily due to new
wholesale power marketing transactions which began in July. The 5%
increase in 1996 operating revenues reflects increased sales to
wholesale customers. The change in operating revenues in both
years is analyzed as follows:
Increase (Decrease)
From Previous Year
(dollars in millions) 1997 1996
Amount % Amount %
Retail:
Price Variance. . . . . . . . . $ (7.9) $ 7.9
Volume Variance . . . . . . . . (12.8) 3.4
Fuel Cost Recoveries. . . . . . (12.3) 5.8
(33.0) (2.5) 17.1 1.3
Wholesale:
Price Variance. . . . . . . . . (10.8) (153.2)
Volume Variance . . . . . . . . 80.8 220.4
Fuel Cost Recoveries. . . . . . 0.4 1.7
70.4 13.4 68.9 15.1
Other Operating Revenues. . . . . 16.7 2.7
Total . . . . . . . . . . . . $ 54.1 2.8 $ 88.7 4.9
The decrease in 1997 retail revenues was due to price
concessions to two major industrial customers; reduced sales to
residential and industrial customers; and decreased fuel clause
revenues. Mild weather in 1997 reduced energy usage by residential
customers. Sales to industrial customers decreased due to a labor
dispute at a major industrial customer which idled its
manufacturing facilities from October 1, 1996 through most of the
third quarter of 1997. Pursuant to a Public Utilities Commission
of Ohio (PUCO) order, deferred emission allowance gains were
returned to retail customers through the fuel clause adjustment
mechanism in 1997. Retail revenues increased in 1996 due primarily
to a March 1995 increase in retail rates approved by the PUCO as
part of the Settlement Agreement which allowed recovery of CAAA
compliance costs. Revenues from residential and commercial
customers each increased 3% reflecting the rate increase.
Industrial customer revenues were flat as the positive effect of
the rate increase on revenues was offset by the effect of a
favorable adjustment recorded in June 1995 under a major industrial
contract. Growth in the number of residential and commercial
customers also contributed to the increase in retail operating
revenues.
Wholesale sales increased significantly in 1997 mainly due to
increased power sales from new power marketing transactions which
began in July 1997 and increased coal conversion services. The new
power marketing transactions involve the purchase and sale of power
outside the AEP transmission system. Coal conversion services
which began in 1996 are provided to power marketers and certain
non-affiliated utilities under a FERC approved interruptible tariff
for the conversion of customers' coal to electricity and do not
include any fuel cost. In 1996 wholesale revenues increased 15%
while sales increased 48%. The Company's share of Power Pool sales
increased 100% reflecting increased sales of coal conversion
services which resulted in 1.8 billion kilowatthours of electricity
being provided to power marketers and certain other utilities.
Since these sales are for the service of converting the customers'
coal to electricity and do not include any fuel cost, the average
wholesale price per kilowatt was significantly less in 1996 than in
1995. Wholesale power sales to the Power Pool increased 46%
reflecting increased weather-related demand of affiliated Power
Pool members in the first half of 1996 and the increased
availability of the Gavin Plant in 1996. Energy sales to the Power
Pool are priced to compensate the supplying Power Pool member for
its out-of-pocket costs. The Gavin units had been out-of-service
for extended periods during the first three months of 1995 while
the flue gas desulfurization systems (scrubbers) were being
installed and maintained.
The increase in other operating revenues in 1997 was primarily
due to increased transmission service for the delivery of power
between unaffiliated companies.
<PAGE>
Operating Expenses Increase
Operating expenses increased by approximately 5% in 1997 and 4%
in 1996. The increase in 1997 was attributable to the Company's
share of power purchases by AEP's new power marketing business.
Changes in the components of operating expenses were as follows:
Increase (Decrease)
From Previous Year
(dollars in millions) 1997 1996
Amount % Amount %
Fuel. . . . . . . . . . . . . . . . . $(5.2) (0.8) $31.2 5.1
Purchased Power . . . . . . . . . . . 82.0 128.4 1.9 3.1
Other Operation . . . . . . . . . . . (0.5) (0.1) (4.5) (1.4)
Maintenance . . . . . . . . . . . . . (8.7) (5.7) 8.3 5.8
Depreciation and Amortization . . . . 3.0 2.2 2.0 1.4
Taxes Other Than Federal Income Taxes 0.5 0.3 (2.0) (1.2)
Federal Income Taxes. . . . . . . . . 3.8 3.1 26.8 28.0
Total Operating Expenses. . . . . . $74.9 4.6 $63.7 4.1
The increase in fuel expense in 1996 was due to a 7% increase
in generation to meet the increased demand for energy. The
increased availability of the Gavin units in 1996 compared with
1995 when the units were out of service for extended periods during
the first three months of 1995 for the installation and maintenance
of the scrubbers enabled the Company to increase generation.
Purchased power expense increased in 1997 primarily due to the
Company's share of purchases of power by AEP's new power marketing
business.
The decrease in maintenance expense in 1997 reflects decreased
boiler plant maintenance reflecting a reduction in planned
maintenance work on generating facilities. Maintenance expense
rose in 1996 as the level of maintenance activity went up
reflecting a full year's operation of the Gavin Plant scrubbers and
increased generation.
In 1996 federal income tax expense attributable to operations
increased primarily due to an increase in pre-tax operating income.
Interest Charges and Preferred Stock Dividends
Interest charges decreased in 1996 due to a reduction in the
average outstanding balance of long-term debt and a decrease in
carrying charges recorded on deferred gains on the sale of emission
allowances.
The reacquisition of 1.2 million shares of preferred stock
through a first quarter 1997 tender offer was primarily responsible
for the decrease in 1997 in preferred stock dividend requirements.
Financial Condition
In 1997 the Company maintained its strong financial condition.
We redeemed 1,190,395 shares of cumulative preferred stock with
rates ranging from 4.08% to 6.35% at a total cost of $118 million.
Part of the reacquired shares were reacquired under terms of a
tender offer in conjunction with a special shareholders' meeting at
which the articles of incorporation were revised to remove certain
capitalization ratio requirements that constrained the Company's
issuance of unsecured and short-term debt. The restrictions
limited our financial flexibility and could have placed us at a
competitive disadvantage in the future. We used short-term debt
and junior subordinated deferrable interest debentures to pay for
the preferred stock tendered and to benefit from the tax
deductibility of interest.
The Company issued $148 million principal amount of long-term
obligations in 1997 at interest rates ranging from 6.73% to 7.92%.
We continued to reduce financing costs in 1997, as evidenced by the
reduction in interest expense, by retiring higher-cost bonds and
restructuring the long-term debt from senior secured/first mortgage
bonds to senior unsecured debt and junior debentures. The
principal amount of long-term debt retirements, including
maturities, totaled $117 million with interest rates ranging from
6.5% to 8.75%. Our senior secured debt/first mortgage bond ratings
which were reaffirmed and improved in 1997, are: Moody's, A3;
Standard & Poor's, A-; Fitch, A-; and Duff & Phelps, A. The
Company's good bond ratings meet and often exceed the required
rating of bond investors. With higher bond ratings, the Company
attracts a wider investor base, a bigger share of capital in the
bond market and lower interest rates.
Gross plant and property additions were $226 million in 1997
and $145 million in 1996. Management estimates construction
expenditures for the next three years to be $577 million. 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. However, all of the
construction expenditures for the next three years are expected to
be financed with internally generated funds. Allowance for funds
used during construction accruals declined in recent years
primarily due to the decrease in generation plant construction
combined with a decrease in interest rates. Inflation affects the
Company's cost of replacing utility plant and the cost of operating
and maintaining 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.
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, 1997, $442 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
$250 million. Generally periodic reductions of outstanding short-term
debt are made through issuances of long-term debt and through
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, 1997, the
mortgage bonds and preferred stock coverage ratios were 9.74 and
3.67, respectively.
Other Matters
Corporate Owned Life Insurance
In connection with the audit of AEP's consolidated federal
income tax returns the Internal Revenue Service (IRS) agents sought
a ruling from the IRS National Office that certain interest
deductions relating to a corporate owned life insurance (COLI)
program should not be allowed. The Company established the COLI
program in 1990 as part of its strategy to fund and reduce the cost
of medical benefits for retired employees. AEP filed a brief with
the IRS National Office refuting the agents' position. No
adjustments have been proposed by the IRS. However, should a
disallowance of the COLI interest deductions be proposed it would,
if sustained, reduce earnings by approximately $107 million
(including interest). Management believes it has meritorious
defenses and will vigorously contest any proposed adjustments. No
provisions for this amount have been recorded. In the event the
Company is unsuccessful it could have a material adverse impact on
results of operations and cash flows.
Computer Software - Year 2000 Compliance
Many existing computer hardware and software programs will not
properly recognize calendar dates beginning in the year 2000.
Unless corrected, this "Year 2000" problem may cause computer
malfunctions, such as system shutdowns or incorrect calculations
and system output. The Company is addressing the problem
internally by modifying or replacing its computer hardware and
software programs. The problem is also being addressed externally
with entities that interact electronically with the Company,
including but not limited to, suppliers, service providers,
government agencies, customers, creditors and financial service
organizations. However, due to the complexity of the problem and
the interdependent nature of computer systems, if the Company's
corrective actions, and/or the actions of other interdependent
entities, fail for critical applications, the Company may be
adversely impacted in the year 2000. Although significant, the
cost of correcting the "Year 2000" problem is not expected to have
a material impact on the results of operations, cash flows or
financial condition.
New Accounting Standards
In June 1997 the FASB issued SFAS No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 130
establishes the standards for reporting and displaying components
of "comprehensive income," which is the total of net income and all
other changes in equity except those resulting from investments by
shareholders and dispositions to shareholders. SFAS No. 131
initiates standards for reporting information about operating
segments in annual and interim financial statements as well as
related disclosures about products and services, geographic areas
and major customers. The adoption of these new reporting standards
in 1998 is not expected to have a material effect on the results of
operations, cash flows and/or financial condition.
Litigation
The Company is involved in a number of 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of
Directors of Ohio Power Company:
We have audited the accompanying consolidated balance sheets of
Ohio Power Company and its subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, retained
earnings, and cash flows for each of the three years in the period
ended December 31, 1997. 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 Ohio
Power Company and its subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Columbus, Ohio
February 24, 1998
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
OHIO POWER COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
Year Ended December 31,
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES $1,965,818 $1,911,708 $1,822,997
OPERATING EXPENSES:
Fuel 642,135 647,391 616,132
Purchased Power 145,861 63,862 61,945
Other Operation 322,088 322,567 327,026
Maintenance 143,831 152,495 144,202
Depreciation and Amortization 140,807 137,804 135,844
Taxes Other Than Federal Income Taxes 168,480 168,017 170,047
Federal Income Taxes 126,223 122,411 95,641
Total Operating Expenses 1,689,425 1,614,547 1,550,837
OPERATING INCOME 276,393 297,161 272,160
NONOPERATING INCOME 14,822 6,374 11,240
INCOME BEFORE INTEREST CHARGES 291,215 303,535 283,400
INTEREST CHARGES 82,526 85,880 93,953
NET INCOME 208,689 217,655 189,447
PREFERRED STOCK DIVIDEND REQUIREMENTS 2,647 8,778 14,668
EARNINGS APPLICABLE TO COMMON STOCK $ 206,042 $ 208,877 $ 174,779
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
OHIO POWER COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 208,689 $ 217,655 $ 189,447
Adjustments for Noncash Items:
Depreciation, Depletion and Amortization 172,186 164,485 154,915
Deferred Federal Income Taxes 7,627 18,682 29,573
Deferred Investment Tax Credits (3,487) (3,552) (3,570)
Deferred Fuel Costs (net) (34,548) (17,745) (26,213)
Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net) (62,371) (32,008) (41,631)
Fuel, Materials and Supplies (11,127) 18,151 7,451
Accrued Utility Revenues 1,266 1,248 (11,325)
Accounts Payable 95,348 (13,181) (19,852)
Other (net) 68,435 17,866 63,658
Net Cash Flows From Operating Activities 442,018 371,601 342,453
INVESTING ACTIVITIES:
Construction Expenditures (172,477) (113,481) (122,132)
Proceeds from Sales of Property and Other 8,954 8,756 4,241
Net Cash Flows Used For Investing Activities (163,523) (104,725) (117,891)
FINANCING ACTIVITIES:
Issuance of Long-term Debt 146,590 - 82,331
Retirement of Cumulative Preferred Stock (117,624) (6,788) (86,917)
Retirement of Long-term Debt (122,127) (160,486) (44,348)
Change in Short-term Debt (net) 37,398 31,902 (7,835)
Dividends Paid on Common Stock (199,333) (142,856) (139,428)
Dividends Paid on Cumulative Preferred Stock (3,199) (8,645) (15,065)
Net Cash Flows Used For Financing Activities (258,295) (286,873) (211,262)
Net Increase (Decrease) in Cash and Cash Equivalents 20,200 (19,997) 13,300
Cash and Cash Equivalents January 1 24,003 44,000 30,700
Cash and Cash Equivalents December 31 $ 44,203 $ 24,003 $ 44,000
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
OHIO POWER COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
1997 1996
(in thousands)
<S> <C> <C>
ASSETS
ELECTRIC UTILITY PLANT:
Production $2,606,981 $2,556,507
Transmission 837,953 820,636
Distribution 927,239 872,936
General (including mining assets) 709,475 680,443
Construction Work in Progress 74,149 66,099
Total Electric Utility Plant 5,155,797 4,996,621
Accumulated Depreciation and Amortization 2,349,995 2,216,534
NET ELECTRIC UTILITY PLANT 2,805,802 2,780,087
OTHER PROPERTY AND INVESTMENTS 113,925 106,485
CURRENT ASSETS:
Cash and Cash Equivalents 44,203 24,003
Accounts Receivable:
Customers 196,982 118,551
Affiliated Companies 55,597 69,412
Miscellaneous 43,594 44,771
Allowance for Uncollectible Accounts (2,501) (1,433)
Fuel - at average cost 119,543 113,361
Materials and Supplies - at average cost 80,853 75,908
Accrued Utility Revenues 37,586 38,852
Prepayments 36,611 44,203
TOTAL CURRENT ASSETS 612,468 527,628
REGULATORY ASSETS 523,891 540,123
DEFERRED CHARGES 107,116 137,843
TOTAL $4,163,202 $4,092,166
</TABLE>
See Notes to Consolidated Financial Statements.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
OHIO POWER COMPANY AND SUBSIDIARIES
December 31,
1997 1996
(in thousands)
CAPITALIZATION AND LIABILITIES
<S> <C> <C>
CAPITALIZATION:
Common Stock - No Par Value:
Authorized - 40,000,000 Shares
Outstanding - 27,952,473 Shares $ 321,201 $ 321,201
Paid-in Capital 462,296 460,662
Retained Earnings 590,151 584,015
Total Common Shareholder's Equity 1,373,648 1,365,878
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption 17,542 38,532
Subject to Mandatory Redemption 11,850 109,900
Long-term Debt 1,012,031 1,002,436
TOTAL CAPITALIZATION 2,415,071 2,516,746
OTHER NONCURRENT LIABILITIES 295,375 245,032
CURRENT LIABILITIES:
Long-term Debt Due Within One Year 83,195 67,293
Short-term Debt 78,700 41,302
Accounts Payable - General 146,824 51,506
Accounts Payable - Affiliated Companies 37,923 37,893
Taxes Accrued 160,055 162,798
Interest Accrued 16,255 18,094
Obligations Under Capital Leases 30,307 24,153
Other 94,338 84,385
TOTAL CURRENT LIABILITIES 647,597 487,424
DEFERRED INCOME TAXES 723,172 738,626
DEFERRED INVESTMENT TAX CREDITS 42,821 46,308
DEFERRED CREDITS 39,166 58,030
COMMITMENTS AND CONTINGENCIES (Note 4)
TOTAL $4,163,202 $4,092,166
</TABLE>
See Notes to Consolidated Financial Statements.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
OHIO POWER COMPANY AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Year Ended December 31,
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Retained Earnings January 1 $584,015 $518,029 $483,222
Net Income 208,689 217,655 189,447
792,704 735,684 672,669
Deductions:
Cash Dividends Declared:
Common Stock 199,333 142,856 139,428
Cumulative Preferred Stock:
4.08% Series 91 189 204
4-1/2% Series 581 911 911
4.20% Series 127 235 252
4.40% Series 204 417 440
5.90% Series 961 2,587 2,655
6.02% Series 735 2,401 2,408
6.35% Series 500 1,905 1,905
7.60% Series - - 2,564
7-6/10% Series - - 2,564
8.04% Series - - 1,162
Total Dividends 202,532 151,501 154,493
Capital Stock Expense 21 168 147
Total Deductions 202,553 151,669 154,640
Retained Earnings December 31 $590,151 $584,015 $518,029
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization
Ohio Power Company (the Company or OPCo) 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, sale, purchase, transmission and distribution of
electric power and provides electric power to over 679,000 retail
customers in northwestern, east central, eastern and southern
sections of Ohio. Wholesale electric power is supplied to
neighboring utility systems, power marketers and the American
Electric Power (AEP) System Power Pool (Power Pool). As a member
of the AEP Power Pool and a signatory company to the American
Electric Power System (AEP System) Transmission Equalization
Agreement, OPCo's facilities are operated in conjunction with the
facilities of certain other AEP affiliated utilities as an
integrated system.
The Company has three wholly-owned coal-mining subsidiaries:
Central Ohio Coal Company, Southern Ohio Coal Company and Windsor
Coal Company which conduct mining operations at the Muskingum mine,
Meigs mine and Windsor mine, respectively. Substantially all coal
produced by the coal-mining subsidiaries is sold to the Company at
cost including a Securities and Exchange Commission (SEC) approved
return on investment.
Regulation
As a subsidiary of AEP Co., Inc., the Company is subject to
regulation by the SEC under the Public Utility Holding Company Act
of 1935 (1935 Act). Retail rates are regulated by the Public
Utilities Commission of Ohio (PUCO). The Federal Energy Regulatory
Commission(FERC) regulates wholesale rates.
Principles of Consolidation
The consolidated financial statements include OPCo and its
wholly-owned subsidiaries. Significant intercompany items are
eliminated in consolidation.
Basis of Accounting
As a cost-based rate-regulated entity, the Company's
consolidated 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) No. 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 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 1997, 1996 and 1995 were not significant.
Depreciation, Depletion and Amortization
Depreciation of electric utility plant is provided on a
straight-line basis over the estimated useful lives of property,
other than coal-mining property, and is calculated largely through
the use of composite rates by functional class as follows:
Functional Class Annual Composite
of Property Depreciation Rates
Production:
Steam-Fossil-Fired 3.4%
Hydroelectric-Conventional 2.7%
Transmission 2.3%
Distribution 4.0%
General 2.5%
Amounts to be used for demolition and removal of plant are
recovered through depreciation charges included in rates.
Depreciation, depletion and amortization of coal-mining assets is
provided over each asset's estimated useful life, ranging up to 30
years, and is calculated using the straight-line method for mining
structures and equipment. The units-of-production method is used
to amortize coal rights and mine development costs based on
estimated recoverable tonnages at a current average rate of $1.91
per ton. These costs are included in the cost of coal charged to
fuel expense.
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. Changes in
retail fuel cost are deferred until reflected in revenues through
a PUCO fuel cost recovery mechanism. The PUCO approved a February
1995 Settlement Agreement between OPCo and certain other parties
which fixed the fuel cost recovery rate factor at 1.465 cents per
kwh through November of 1998. See Note 3. Wholesale jurisdictional
fuel cost changes are expensed and billed as incurred.
Income Taxes
The Company follows the liability method of accounting for
income taxes as prescribed by SFAS No. 109, "Accounting for Income
Taxes." Under the liability method, deferred income taxes are
provided for all temporary differences between 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 recorded with related regulatory assets and liabilities in
accordance with SFAS No. 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. Deferred investment tax credits are being amortized over
the life of the related plant investment.
Debt and Preferred Stock
Gains and losses on reacquisition of debt are deferred 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 expenses of debt issuances are
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 costs of preferred stock reacquired is credited to paid-in
capital and amortized to retained earnings.
Other Property and Investments
Other property and investments are stated at cost.
2. EFFECTS OF REGULATION:
In accordance with SFAS No. 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. 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 No. 71
requires that the Company's rates be cost-based regulated. The
Company has reviewed all the evidence currently available and
concluded that it continues to meet the requirements to apply SFAS
No. 71. In the event a portion of the Company's business no longer
meets those requirements, net regulatory assets would have to be
written off for that portion of the business and assets
attributable to that portion of the business 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 investment.
Recognized regulatory assets and liabilities are comprised of
the following:
December 31,
1997 1996
(In Thousands)
Regulatory Assets:
Amounts Due From Customers
For Future Income Taxes $383,887 $412,946
Deferred Fuel Costs 61,838 28,538
Unamortized Loss On
Reacquired Debt 16,229 18,022
Other 61,937 80,617
Total Regulatory Assets $523,891 $540,123
Regulatory Liabilities:
Deferred Investment Tax Credits $42,821 $46,308
Deferred Gains From Emission
Allowance Sales* 25,895 39,706
Other* 6,982 10,034
Total Regulatory Liabilities $75,698 $96,048
*Included in Deferred Credits on Consolidated Balance Sheets.
3. RATE MATTERS:
Recovery of Fuel Costs
Under the terms of a 1992 stipulation agreement the cost of
coal burned at the Gavin Plant is subject to a 15-year
predetermined price of $1.575 per million Btu's with quarterly
escalation adjustments through November 2009. A 1995 Settlement
Agreement set the fuel component of the electric fuel
component (EFC) factor at 1.465 cents per kwh for the period June
1, 1995 through November 30, 1998. The stipulation and settlement
agreements provide OPCo with the opportunity to recover over the
term of the stipulation agreement the Ohio jurisdictional share of
OPCo's investment in and the liabilities and future shutdown costs
of its affiliated mines as well as any fuel costs incurred above
the predetermined rate to the extent the actual cost of coal burned
at the Gavin Plant is below the predetermined prices. After full
recovery of these costs or November 2009, whichever comes first,
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. Pursuant to these
agreements the Company has deferred for future recovery $61 million
at December 31, 1997.
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.
Management expects to seek from ratepayers recovery of the non-Ohio
jurisdictional portion of the investment in and the liabilities and
closing costs of the affiliated Meigs, Muskingum and Windsor mines.
The non-Ohio jurisdictional portion of shutdown costs for these
mines which includes the investment in the mines, leased asset
buyouts, reclamation costs and employee benefits is estimated to be
approximately $102 million after tax at December 31, 1997.
The affiliated Muskingum and Windsor mines may have to close
by January 2000 in order to comply with the Phase II requirements
of the Clean Air Act Amendments of 1990 (CAAA). The Muskingum
and/or Windsor mines could close prior to January 2000 depending on
the economics of continued operation under the terms of the above
Settlement Agreement. Unless the cost of affiliated coal
production and/or future shutdown costs of the Meigs, Muskingum and
Windsor mines can be recovered, results of operations, cash flows
and possibly financial condition would be adversely affected.
4. COMMITMENTS AND CONTINGENCIES:
Construction and Other Commitments
Substantial construction commitments have been made to support
our utility operations. Such commitments do not include any
expenditures for new generating capacity. Aggregate construction
program expenditures for 1998-2000 are estimated to be $577
million.
In addition to fuel acquired from coal-mining subsidiaries and
spot-markets, the Company has long-term fuel supply contracts with
unaffiliated companies. The contracts generally contain clauses
that provide for periodic price adjustments. The Company's retail
jurisdictional fuel clause mechanism provides, with the PUCO's
review and approval, for deferral and subsequent recovery or refund
of changes in the cost of fuel. (See Note 3 for changes in the
fuel clause mechanism resulting from the Settlement and Stipulation
Agreements.) The unaffiliated contracts are for various terms, the
longest of which extends to 2012, and contain clauses that would
release the Company from its obligation under certain force majeure
conditions.
Revised Air Quality Standards
On July 18, 1997, the United States Environmental Protection
Agency published a revised National Ambient Air Quality Standard
(NAAQS) for ozone and a new NAAQS for fine particulate matter (less
than 2.5 microns in size). The new ozone standard is expected to
result in redesignation of a number of areas of the country that
are currently in compliance with the existing standard to
nonattainment status which could ultimately dictate more stringent
emission restrictions for AEP System generating units. New
stringent emission restrictions on AEP System generating units to
achieve attainment of the fine particulate matter standard could
also be imposed. The AEP System operating companies joined with
other utilities to appeal the revised NAAQS and filed petitions for
review in August and September 1997 in the U.S. Court of Appeals
for the District of Columbia Circuit. Management is unable to
estimate compliance costs without knowledge of the reductions that
may be necessary to meet the new standards. If such costs are
significant, they could have a material adverse effect on results
of operations, cash flows and possibly financial condition unless
recovered.
Litigation
The Company is involved in a number of legal proceedings and
claims. While management is unable to predict the 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 or financial condition.
5. RELATED PARTY TRANSACTIONS:
Benefits and costs of the System's generating plants are shared
by members of the Power Pool. The Company is a member of the Power
Pool. Under the terms of the System Interconnection Agreement,
capacity charges and credits are designed to allocate the cost of
the System's capacity among the Power Pool members based on their
relative peak demands and generating reserves. Power Pool members
are also compensated for the out-of-pocket costs of energy
delivered to the Power Pool and charged for energy received from
the Power Pool. The Company is a net supplier to the pool and,
therefore, receives capacity credits from the Power Pool.
<PAGE>
Operating revenues includes revenues for capacity and energy
supplied to the Power Pool as follows:
Year Ended December 31,
1997 1996 1995
(In Thousands)
Capacity Revenues $165,604 $158,599 $147,317
Energy Revenues 149,436 152,909 132,604
Total $315,040 $311,508 $279,921
Purchased power expense includes charges of $26.4 million in
1997, $31.1 million in 1996 and $26.6 million in 1995 for energy
received from the Power Pool.
Power Pool members share in wholesale sales to unaffiliated
entities made by the Power Pool. The Company's share of the Power
Pool's wholesale sales included in operating revenues were $179.1
million in 1997, $106.1 million in 1996 and $94 million in 1995.
In addition, the Power Pool purchases power from unaffiliated
companies for resale to other unaffiliated entities. The Company's
share of these purchases was included in purchased power expense
and totaled $95.6 million (including new power marketing
transactions) in 1997, $11.8 million in 1996 and $15.6 million in
1995. Revenues from these transactions, including a transmission
fee for power that passes through the AEP System transmission
network, are included in the above Power Pool wholesale operating
revenues.
Purchased power expense includes $6.2 million in 1997, $5
million in 1996 and $2.9 million in 1995 for energy bought from the
Ohio Valley Electric Corporation, an affiliated company that is not
a member of the Power Pool.
Operating revenues include energy sold directly to Wheeling
Power Company (WPCo) in the amounts of $55.0 million in 1997, $57.1
million in 1996 and $55.2 million in 1995. WPCo is an affiliated
distribution utility that is not a member of the Power Pool.
AEP System companies participate in a transmission equalization
agreement. This agreement combines certain AEP System companies'
investments in transmission facilities and shares the costs of
ownership in proportion to the 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 charges of $10.5 million, $12.5 million and $13.7
million in 1997, 1996 and 1995, respectively.
Coal-transportation costs paid to affiliated companies aggre-
gate approximately $8.5 million, $8.6 million and $4.3 million in
1997, 1996 and 1995, respectively. These charges are included in
fuel expense. The prices charged by the affiliates for coal
transportation services are computed in accordance with orders
issued by the SEC.
The Company and an affiliate, Appalachian Power Company,
jointly own two power plants. The costs of operating these
facilities are apportioned between the owners based on ownership
interests. The Company's share of these costs is included in the
appropriate expense accounts on the Consolidated Statements of
Income and the investment is included in electric utility plant on
the Consolidated Balance Sheets.
American Electric Power Service Corporation (AEPSC) provides
certain managerial and professional services to AEP System
companies. The costs of the services are billed by AEPSC on a
direct-charge basis to the extent practicable and on reasonable
bases of proration for indirect costs. The charges 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. BENEFIT PLANS:
AEP System Pension Plan
The Company and its subsidiaries participate in the AEP System
pension plan, a trusteed, noncontributory defined benefit plan
covering all employees meeting eligibility requirements, except
participants in the United Mine Workers of America (UMWA) pension
plans. Benefits are based on service years and compensation
levels. Pension costs are allocated by first charging each
participating AEP System company with its service cost and then
allocating the remaining pension cost in proportion to its share of
the projected benefit obligation. The funding policy is to make
annual trust fund contributions equal to the net periodic pension
cost up to the maximum amount deductible for federal income taxes,
but not less than the minimum required contribution in accordance
with the Employee Retirement Income Security Act of 1974. The
Company's share of net pension cost of the AEP System pension plan
for the years ended December 31, 1997, 1996 and 1995 was $1.4
million, $4.1 million and $2.4 million, respectively.
Postretirement Benefits Other Than Pensions (OPEB)
The AEP System provides certain other benefits for retired
employees. Substantially all non-UMWA employees are eligible for
postretirement health care and life insurance if they retire from
active service after reaching age 55 and have at least 10 service
years.
Postretirement medical benefits for UMWA employees who have or
will retire after January 1, 1976 are the liability of the coal-mining
subsidiaries. Eligibility for postretirement medical
benefits is based on retirement from active service after reaching
age 55 with at least 10 service years. In addition, non-active
UMWA employees will become eligible at age 55 if they have had 20
service years.
The funding policy for OPEB cost is to make contributions to
an external Voluntary Employees Beneficiary Association trust fund
equal to the incremental OPEB costs (i.e., the amount that the
total postretirement benefits cost under SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions,"
exceeds the pay-as-you-go amount). Contributions were $11.4
million in 1997, $14.6 million in 1996, and $11.7 million in 1995.
OPEB costs are determined by the application of AEP System
actuarial assumptions to each company's employee complement. The
Company's annual accrued costs for 1997, 1996 and 1995 required by
SFAS 106 for employees and retirees were $30.1 million, $32.1
million and $35 million, respectively.
With the issuance of SFAS No. 106, the Company received
regulatory authority to defer the increased OPEB costs resulting
from the SFAS 106 required change from pay-as-you-go to accrual
accounting which were not being recovered in rates. The deferred
amounts are being amortized over a 4-year period ending in March
1999. At December 31, 1997 and 1996, $6 million and $10.9 million,
respectively, of OPEB costs were deferred.
AEP System Savings Plan
An employee savings plan is offered to non-UMWA employees which
allows participants to contribute up to 17% of their salaries into
various investment alternatives, including AEP Co., Inc. common
stock. An employer matching contribution, equaling one-half of the
employees' contribution to the plan up to a maximum of 3% of the
employees' base salary, is invested in AEP Co., Inc. common stock.
The employer's annual contributions totaled $4 million in 1997 and
1996 and $4.4 million in 1995.
Other UMWA Benefits - The Company provides UMWA pension, health and
welfare benefits for certain employees, retirees, and their
survivors who meet eligibility requirements. The benefits are
administered by UMWA trustees and contributions are made to their
trust funds. Contributions based on hours worked are expensed as
paid as part of the cost of active mining operations and were not
material in 1997, 1996 and 1995. Based upon the UMWA actuarial
estimate the Company's share of the unfunded pension liability was
$6.7 million at June 30, 1997. In the event the Company should
significantly reduce or cease mining operations or contributions to
the UMWA trust funds, a withdrawal obligation will be triggered for
both the pension and health and welfare plans. If the mining
operations had been closed on December 31, 1997 the estimated
withdrawal liability for all UMWA benefits plans would have been
$6.7 million.
7. 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, 1997, $20.8 million of retained earnings
were restricted. Regulatory approval is required to pay dividends
out of paid-in capital.
In 1997, 1996 and 1995 net changes to paid-in capital of $1.6
million, $1.2 million and $(3.6) million, respectively, represented
gains and expenses associated with cumulative preferred stock
transactions.
8. FEDERAL INCOME TAXES:
<TABLE>
The details of federal income taxes as reported are as follows:
<CAPTION>
Year Ended December 31,
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Charged (Credited) to Operating Expenses (net):
Current $116,795 $102,406 $67,513
Deferred 11,257 21,835 29,960
Deferred Investment Tax Credits (1,829) (1,830) (1,832)
Total 126,223 122,411 95,641
Charged (Credited) to Nonoperating Income (net):
Current 624 (293) 183
Deferred (3,630) (3,153) (387)
Deferred Investment Tax Credits (1,658) (1,722) (1,738)
Total (4,664) (5,168) (1,942)
Total Federal Income Taxes as Reported $121,559 $117,243 $93,699
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,
1997 1996 1995
(in thousands)
Net Income $208,689 $217,655 $189,447
Federal Income Taxes 121,559 117,243 93,699
Pre-tax Book Income $330,248 $334,898 $283,146
Federal Income Taxes on Pre-tax Book Income at
Statutory Rate (35%) $115,587 $117,214 $99,101
Increase (Decrease) in Federal Income Taxes
Resulting From the Following Items:
Depreciation 15,961 13,394 14,250
Removal Costs (5,040) (5,775) (5,775)
Corporate Owned Life Insurance (7,179) (3,735) (8,415)
Investment Tax Credits (net) (3,487) (3,552) (3,453)
Other 5,717 (303) (2,009)
Total Federal Income Taxes as Reported $121,559 $117,243 $93,699
Effective Federal Income Tax Rate 36.8% 35.0% 33.1%
</TABLE>
<PAGE>
The following tables show the elements of the net deferred tax
liability and the significant temporary difference giving rise to
such deferrals:
December 31,
1997 1996
(in thousands)
Deferred Tax Assets $ 167,816 $ 161,409
Deferred Tax Liabilities (890,988) (900,035)
Net Deferred Tax Liabilities $(723,172) $(738,626)
Property Related Temporary
Differences $(619,067) $(621,254)
Amounts Due From Customers For
Future Federal Income Taxes (127,445) (135,281)
Deferred State Income Taxes (20,515) (21,337)
All Other (net) 43,855 39,246
Total Net Deferred
Tax Liabilities $(723,172) $(738,626)
The Company and its subsidiaries join in the filing of a
consolidated federal income tax return with their affiliated
companies in the AEP System. The allocation of the AEP System's
current consolidated federal income tax to the 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 System 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 Internal Revenue Service
(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 open and under audit by the IRS.
During the audit the IRS agents requested a ruling from their
National Office that certain interest deductions relating to
corporate owned life insurance (COLI) claimed by the Company should
not be allowed. The COLI program was established in 1990 as part
of the Company's strategy to fund and reduce the cost of medical
benefits for retired employees. AEP filed a brief with the IRS
National Office refuting the agent's position. Although no
adjustments have been proposed, a disallowance of the COLI interest
deductions through December 31, 1997 would reduce earnings by
approximately $107 million (including interest). Management
believes it has meritorious defenses and will vigorously contest
any proposed adjustments. No provisions for this amount have been
recorded. In the event the Company is unsuccessful it could have
a material adverse impact on results of operations and cash flows.
9. LEASES:
Leases of property, plant and equipment are for periods of up
to 30 years and require payments of related property taxes,
maintenance and operating costs. The majority of the leases have
purchase or renewal options and will be renewed or replaced by
other leases.
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,
1997 1996 1995
(in thousands)
Operating Leases $62,260 $64,891 $61,979
Amortization of
Capital Leases 25,275 23,217 24,467
Interest on
Capital Leases 9,445 8,473 8,528
Total Rental Costs $96,980 $96,581 $94,974
Properties under capital leases and related obligations on the
Consolidated Balance Sheets are as follows:
December 31,
1997 1996
(in thousands)
Electric Utility Plant:
Production $ 23,098 $ 21,689
General (including mining assets) 211,380 184,489
Total Electric Utility Plant 234,478 206,178
Accumulated Amortization 86,501 82,973
Net Electric Utility Plant 147,977 123,205
Other Property (net) 9,510 8,080
Net Property under
Capital Leases $157,487 $131,285
Obligations under Capital Leases:*
Noncurrent Liability $127,180 $107,132
Liability Due Within One Year 30,307 24,153
Total Capital Lease Obligations $157,487 $131,285
*Represents the present value of future minimum lease payments.
Noncurrent capital lease obligations are 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 rentals consisted of the following at
December 31, 1997:
Non-Cancelable
Capital Operating
Leases Leases
(in thousands)
1998 $ 38,620 $ 57,083
1999 33,638 54,986
2000 29,049 54,388
2001 23,370 53,995
2002 14,688 53,726
Later Years 54,926 455,851
Total Future Minimum
Lease Rentals 194,291 $730,029
Less Estimated
Interest Element 36,804
Estimated Present Value
of Future Minimum
Lease Rentals $157,487
10. CUMULATIVE PREFERRED STOCK:
At December 31, 1997, authorized shares of cumulative preferred
stock were as follows:
Par Value Shares Authorized
$100 3,762,403
25 4,000,000
Unissued shares of the cumulative preferred stock may or may
not possess mandatory redemption characteristics upon issuance.
The cumulative preferred stock is callable at the price indicated
plus accrued dividends. The involuntary liquidation preference is
par value.
In 1995 the Company redeemed and canceled all of the
outstanding shares of the following series of cumulative preferred
stock not subject to mandatory redemption: 7.60%, 350,000 shares;
7-6/10%, 350,000 shares; and 8.04%, 150,000 shares.
<TABLE>
A. Cumulative Preferred Stock Not Subject to Mandatory Redemption:
<CAPTION>
Call Price Shares Amount
December 31, Par Number of Shares Redeemed Outstanding December 31,
Series 1997 Value Year Ended December 31, December 31, 1997 1997 1996
1997 1996 1995 (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4.08% $103 $100 27,182 7,425 - 15,393 $ 1,539 $ 4,258
4-1/2% 110 100 97,949 - - 104,454 10,446 20,240
4.20% 103.20 100 28,875 8,025 - 23,100 2,310 5,198
4.40% 104 100 55,889 11,637 - 32,474 3,247 8,836
$17,542 $38,532
B. Cumulative Preferred Stock Subject to Mandatory Redemption:
<PAGE>
<CAPTION>
Shares Amount
Par Number of Shares Redeemed Outstanding December 31,
Series (a) Value Year Ended December 31, December 31, 1997 1997 1996
1997 1996 1995 (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
5.90% (b) $100 321,500 46,000 - 82,500 $ 8,250 $ 40,400
6.02% (c) 100 364,000 5,000 - 31,000 3,100 39,500
6.35% (c) 100 295,000 - - 5,000 500 30,000
$11,850 $109,900
(a) Not callable until after 2002. The sinking fund provisions of
each series have been met by the purchase of shares in advance of
the due date.
(b) Commencing in 2004 and continuing through the year 2008, a
sinking fund for the 5.90% cumulative preferred stock will require
the redemption of 22,500 shares each year and the redemption of the
remaining shares outstanding on January 1, 2009, in each case at
$100 per share. Shares previously redeemed may be applied to meet
sinking fund requirements.
(c) Commencing in 2003 and continuing through 2007 the Company may
redeem at $100 per share 20,000 shares of the 6.02% series and
5,000 shares of the 6.35% series outstanding under sinking fund
provisions at its option and all remaining outstanding shares must
be redeemed in 2008. Shares previously redeemed may be applied to
meet the sinking fund requirement.
</TABLE>
11. LONG-TERM DEBT AND LINES OF CREDIT:
Long-term debt by major category was outstanding as follows:
December 31,
1997 1996
(in thousands)
First Mortgage Bonds $ 568,343 $ 664,429
Installment Purchase
Contracts 232,598 232,474
Senior Unsecured Notes 47,722 -
Notes Payable 61,681 81,681
Junior Debentures 131,620 82,475
Other 53,262 8,670
1,095,226 1,069,729
Less Portion Due Within
One Year 83,195 67,293
Total $1,012,031 $1,002,436
<PAGE>
First mortgage bonds outstanding were as follows:
December 31,
1997 1996
(in thousands)
% Rate Due
6-1/2 1997 - August 1 $ - $ 46,620
6-3/4 1998 - March 1 55,661 55,661
8.10 2002 - February 15 50,000 50,000
8.25 2002 - March 15 50,000 50,000
6.75 2003 - April 1 40,000 40,000
6.875 2003 - June 1 40,000 40,000
6.55 2003 - October 1 40,000 40,000
6.00 2003 - November 1 25,000 25,000
6.15 2003 - December 1 50,000 50,000
8.80 2022 - February 10 50,000 50,000
8.75 2022 - June 1 - 50,000
7.75 2023 - April 1 40,000 40,000
7.85 2023 - June 1 40,000 40,000
7.375 2023 - October 1 40,000 40,000
7.10 2023 - November 1 25,000 25,000
7.30 2024 - April 1 25,000 25,000
Unamortized Discount (net) (2,318) (2,852)
568,343 664,429
Less Portion Due Within
One Year 55,661 46,620
Total $512,682 $617,809
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.
<PAGE>
Installment purchase contracts have been entered into in
connection with the issuance of pollution control revenue bonds by
governmental authorities as follows:
December 31,
1997 1996
(in thousands)
Ohio Air Quality Development
7.4% Series B
due 2009 - August 1 $ 50,000 $ 50,000
Mason County, West Virginia:
5.45% Series B
due 2016 - December 1 50,000 50,000
Marshall County, West
Virginia:
5.45% Series B
due 2014 - July 1 50,000 50,000
5.90% Series D
due 2022 - April 1 35,000 35,000
6.85% Series C
due 2022 - June 1 50,000 50,000
Unamortized Discount (2,402) (2,526)
Total $232,598 $232,474
Under the terms of the installment purchase contracts, the
Company is required to pay amounts sufficient to enable the payment
of 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 plants.
The senior unsecured notes are due November 1, 2004 and their
interest rate is 6.73%.
Notes payable outstanding are as follows:
December 31,
% Rate Due 1997 1996
(in thousands)
7.19 1997 - January 29 $ - $20,000
6.85 1998 - January 29 16,681 16,681
Variable(a) 1999 - January 31 15,000 15,000
6.20 2001 - January 31 5,000 5,000
6.20 2001 - January 31 7,000 7,000
6.20 2001 - January 31 18,000 18,000
61,681 81,681
Less Portion Due Within One Year 16,681 20,000
Total $45,000 $61,681
(a) The rate at December 31, 1997 was 6.2625%.
<PAGE>
Junior debentures outstanding were as follows:
December 31,
1997 1996
(in thousands)
8.16% Series A
due 2025 - September 30 $ 85,000 $85,000
7.92% Series B
due 2027 - March 31 50,000 -
Unamortized Discount (3,380) (2,525)
Total $131,620 $82,475
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.
Finance obligations were entered into by the Company's coal
mining subsidiaries for mining facilities and equipment through
sale and leaseback transactions. In accordance with SFAS 98, the
transactions did not qualify as sale and leasebacks for accounting
purposes and therefore are shown as other long-term debt. The
terms on these long-term debt obligations are up to 20 years
including renewals, and contain bargain purchase options at
expiration of the agreements. At December 31, 1997 the interest
rates range from 6.61% to 6.98%.
At December 31, 1997, future long-term debt payments are as
follows:
Amount
(in thousands)
1998 $ 83,195
1999 26,575
2000 12,325
2001 43,077
2002 100,570
Later Years 837,862
Total Principal Amount 1,103,604
Unamortized Discount (8,378)
Total $1,095,226
<PAGE>
Short-term debt borrowings are limited by provisions of the
1935 Act to $250 million. Lines of credit are shared with other
AEP System companies and at December 31, 1997 and 1996 were
available in the amounts of $442 million and $409 million,
respectively. Facility fees of approximately 1/10 of 1% of the
short-term lines of credit are required to maintain the lines of
credit. Outstanding short-term debt consisted of:
Year-end
Balance Weighted
Outstanding Average
(in thousands) Interest Rate
December 31, 1997:
Notes Payable $10,700 6.6%
Commercial Paper 68,000 6.7
Total $78,700 6.7
December 31, 1996:
Notes Payable $ 4,600 5.4%
Commercial Paper 36,702 7.2
Total $41,302 7.0
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts 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.
Fair values for preferred stock subject to mandatory redemption
were $12.5 million and $109.7 million and for long-term debt were
$1.136 billion and $1.08 billion at December 31, 1997 and 1996,
respectively. The carrying amounts for preferred stock subject to
mandatory redemption were $11.9 million and $109.9 million and for
long-term debt were $1.095 billion and $1.07 billion at December
31, 1997 and 1996, respectively. Fair values 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.
13. SUPPLEMENTARY INFORMATION:
Year Ended December 31,
1997 1996 1995
(in thousands)
Cash was paid for:
Interest (net of
capitalized
amounts) $ 81,594 $ 85,769 $93,126
Income Taxes 127,719 105,035 65,629
Noncash Acquisitions
Under Capital Leases 53,389 30,942 31,799
14. UNAUDITED QUARTERLY FINANCIAL INFORMATION:
Quarterly Periods Operating Operating Net
Ended Revenues Income Income
(in thousands)
1997
March 31 $484,300 $80,531 $65,591
June 30 447,147 69,092 50,319
September 30 486,398 69,116 50,671
December 31 547,973 57,654 42,108
1996
March 31 504,741 87,844 66,536
June 30 449,383 67,283 43,949
September 30 483,957 69,252 54,920
December 31 473,627 72,782 52,250
<PAGE> Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 33-50139, 33-50373, 33-53133 and 333-35585 of Ohio
Power Company on Form S-3 of our reports dated February 24, 1998,
appearing in and incorporated by reference in this Annual Report on
Form 10-K of Ohio Power Company for the year ended December 31,
1997.
Deloitte & Touche LLP
Columbus, Ohio
March 25, 1998
<PAGE> Exhibit 24
POWER OF ATTORNEY
OHIO POWER COMPANY
Annual Report on Form lO-K for the Fiscal Year Ended
December 31, 1997
The undersigned directors of OHIO POWER COMPANY, an Ohio
corporation (the "Company"), do hereby constitute and appoint E.
LINN DRAPER, JR., G. P. MALONEY and P. J. DeMARIA, 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, 1997, 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 Commis-
sion, 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 28th day of January, 1998.
/s/ P. J. DeMaria /s/ G. P. Maloney
P. J. DeMaria G. P. Maloney
/s/ E. Linn Draper, Jr. /s/ James J. Markowsky
E. Linn Draper, Jr. James J. Markowsky
/s/ Henry W. Fayne /s/ J. H. Vipperman
Henry W. Fayne J. H. Vipperman
/s/ W. J. Lhota
Wm. J. Lhota
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000073986
<NAME> OHIO POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,805,802
<OTHER-PROPERTY-AND-INVEST> 113,925
<TOTAL-CURRENT-ASSETS> 612,468
<TOTAL-DEFERRED-CHARGES> 107,116
<OTHER-ASSETS> 523,891
<TOTAL-ASSETS> 4,163,202
<COMMON> 321,201
<CAPITAL-SURPLUS-PAID-IN> 462,296
<RETAINED-EARNINGS> 590,151
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,373,648
11,850
17,542
<LONG-TERM-DEBT-NET> 1,012,031
<SHORT-TERM-NOTES> 10,700
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 68,000
<LONG-TERM-DEBT-CURRENT-PORT> 83,195
0
<CAPITAL-LEASE-OBLIGATIONS> 127,180
<LEASES-CURRENT> 30,307
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,428,749
<TOT-CAPITALIZATION-AND-LIAB> 4,163,202
<GROSS-OPERATING-REVENUE> 1,965,818
<INCOME-TAX-EXPENSE> 128,878
<OTHER-OPERATING-EXPENSES> 1,560,547
<TOTAL-OPERATING-EXPENSES> 1,689,425
<OPERATING-INCOME-LOSS> 276,393
<OTHER-INCOME-NET> 14,822
<INCOME-BEFORE-INTEREST-EXPEN> 291,215
<TOTAL-INTEREST-EXPENSE> 82,526
<NET-INCOME> 208,689
2,647
<EARNINGS-AVAILABLE-FOR-COMM> 206,042
<COMMON-STOCK-DIVIDENDS> 199,333
<TOTAL-INTEREST-ON-BONDS> 45,540
<CASH-FLOW-OPERATIONS> 442,018
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1> All common stock owned by parent company; no EPS required.
</FN>
</TABLE>
