File No. 70-8237
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
Post-Effective Amendment No. 2 to
FORM U-1
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APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
AEP GENERATING COMPANY
1 Riverside Plaza, Columbus, Ohio 43215
(Name of company filing this statement and
address of principal executive offices)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
(Name of top registered holding company
parent of each applicant or declarant)
* * *
A. A. Pena, Treasurer
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
John F. Di Lorenzo, Jr., Associate General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
(Names and addresses of agents for service)
The undersigned American Electric Power Company, Inc.,
registered holding company ("AEP"), and AEP Generating Company, a
subsidiary of AEP ("Generating"), hereby amend the Application or
Declaration on Form U-1, as amended, in File No. 70-8237 as
follows:
1. By adding the following paragraphs to ITEM 1 of said Form
U-1:
Background
"By Orders dated December 10, 1993 and August 24, 1994 in this
file (HCAR Nos. 25943 and 26112), Generating was authorized to pay
to AEP up to $16 million in dividends out of paid-in capital
through December 31, 1997. To date, Generating has paid $13.5
million in such dividends.
Generating represented in this file that, without further
authorization from this Commission, Generating would not declare
any dividend if at such time the retained earnings of Generating
were less than $-0-.
Generating also represented that, through December 31, 1997,
upon effecting payment of any dividends and considering any
increase in long-term or short-term debt, its percentage of common
equity to total capitalization would not fall below 30%.
Since its formation, Generating's business has consisted of
the ownership and financing of its 50% interest in the Rockport
Plant and, more recently, leasing of its 50% interest in Unit 2 of
the Rockport Plant. Generating sells its power under long-term
unit power agreements under which it is entitled to recover its
full costs of service from its purchasers.
Generating has unique capital requirements because it has both
a guaranteed stream of revenue and is the beneficiary of a Capital
Funds Agreement which was approved by this Commission in File No.
70-7584. Generating's guaranteed stream of income is the result of
its contractual commitments to sell all of its energy produced to
one nonaffiliated and two affiliated utilities pursuant its unit
power agreements. Pursuant to these unit power agreements,
Generating is entitled to recover its full cost of service from the
purchasers. Recovery includes cost of operation, a return on
common equity and a return on other capital net of temporary cash
investments. Generating will be entitled to recover future
increases in such costs, including increases in fuel and capital
costs. Pursuant to the Capital Funds Agreement, AEP has agreed to
provide cash capital contributions, or in certain circumstances
subordinated loans, to Generating, to the extent necessary to
enable Generating, among other things, to provide its proportionate
share of funds required to permit continuation of the commercial
operation of the Rockport Plant and to perform all of its obliga-
tions, covenants and agreements under, among other things, all loan
agreements, leases and related documents to which Generating is or
becomes a party.
As of March 31, 1997, Generating has cash and cash equivalents
of $10,333,000 and accounts receivable of $18,835,000 from affili-
ates. As of March 31, 1997, Generating has paid-in capital of
$42,235,000. $20,000,000 of the outstanding $90,000,000 Series
1995 pollution control revenue bonds have been called for redemp-
tion at 100% of their principal amount plus accrued interest on
June 2, 1997 at the election of Generating. Generating continues
to receive a stream of income from unit power agreements with one
nonaffiliated and two affiliated utilities, described in the Form
U-1 in this file, and to pay dividends to its parent from these
retained earnings. Cash received from revenues exceeds expenses
primarily because of the recovery of depreciation expense.
Proposal
Because Generating is entitled to recover its full costs of
service under these unit power agreements, it has no other uses for
its excess cash. Generating desires to have the flexibility to
transfer such excess cash in the form of dividends to its parent.
Generating now proposes to pay dividends out of paid in
capital from time to time through December 31, 2002, to the full
extent permitted by applicable corporate law. Generating also
requests that it no longer be subject to the restriction that, in
the payment of any dividend out of capital, its percentage of com-
mon equity to total capitalization would not fall below 30%.
Discussion
Section 12(c) of the Public Utility Holding Company Act of
1935 (the "Act") makes it unlawful for any registered holding com-
pany or subsidiary company thereof to declare or pay a dividend in
contravention of rules or regulations or orders the Commission may
prescribe "to protect the financial integrity of companies in
holding company systems, to safeguard the working capital of public
utility companies, to prevent the payment of dividends out of
capital or unearned surplus, and to prevent the circumvention of
the provisions of [the Act]." Rule 46(a) promulgated under the Act
prohibits a registered holding company or subsidiary thereof from
paying dividends out of capital or unearned surplus except pursuant
to a declaration and order of the Commission. The payment of the
dividend must be appropriate, in the public interest, and in the
best interests of the security holders. See Allegheny Generating
Company, HCAR 26579 (1996).
Generating has outstanding installment purchase agreements
relating to pollution control revenue bonds issued by the City of
Rockport (File No. 70-7584). Under these agreements, there are
minimum equity requirements, but there is an absolute limit on the
issuance of debt (excluding pollution control bonds) by Generating
to the extent of $80 million. Rather than relying on financial
covenants, investors recognized Generating is a special purpose
corporation. Its ability to pay its obligations is based on the
unit power agreements and the Capital Funds Agreement. Thus,
investors insisted that these agreements could not be changed with-
out their approval as adequate protection of their investment.
Thus, the interests of the security holders are protected.
The consumers are benefitted by the ability of Generating to
declare and pay such dividends because such payments result in a
reduction in equity. This reduction correspondingly reduces the
cost of capital and results in a reduction in Generating's monthly
charge under the unit power agreements Generating to its wholesale
customers.
In light of the above discussion, Generating's proposal to pay
dividends out of paid-in capital does not contravene the intent of
section 12(c) of the Act. The payment of dividends out of other
paid-in capital will not be detrimental to the financial integrity
or working capital of Generating nor will it adversely affect the
position of debt security holders.
Therefore, Generating hereby requests authority to issue divi-
dends out of other paid in capital through December 31, 2001 to the
fullest extent of applicable law without restriction as to a ratio
of debt to equity.
Compliance with Rule 54:
Rule 54 provides that in determining whether to approve cer-
tain transactions other than those involving exempt wholesale
generators ('EWG') or foreign utility companies ('FUCO'), as de-
fined in the 1935 Act, the Commission will not consider the effect
of the capitalization or earnings of any subsidiary which is an EWG
or FUCO if Rule 53(a), (b) and (c) are satisfied. The requirements
of Rule 53(a), (b) and (c) are satisfied.
Rule 53(a)(1). Nanyang General Light Electric Co. Ltd.
('Nanyang'), an indirect subsidiary of AEP, is a FUCO. As of March
31, 1997, AEP, through its subsidiary, AEP Resources, Inc., and
through AEP Resources' subsidiaries, AEP Pushan Power LDC, AEP
Resources Delaware, Inc., had invested $12,120,000 in Nanyang.
This investment represents less than 1% of $1,540,440,000, the
average of the consolidated retained earnings of AEP reported on
Form 10-K or Form 10-Q, as applicable, for the four consecutive
quarters ended March 31, 1997.
Rule 53(a)(2). Nanyang will maintain books and records and
make available the books and records required by Rule 53(a)(2).
Rule 53(a)(3). No more than 2% of the employees of the opera-
ting company subsidiaries of AEP will, at any one time, directly or
indirectly, render services to Nanyang.
Rule 53(a)(4). AEP has submitted and will submit a copy of
Item 9 and Exhibits G and H of AEP's Form U5S to each of the public
service commissions having jurisdiction over the retail rates of
AEP's operating company subsidiaries.
Rule 53(b). (i) Neither AEP nor any subsidiary of AEP is the
subject of any pending bankruptcy or similar proceeding; (ii) AEP's
average consolidated retained earnings for the four most recent
quarterly periods ($1,540,440,000) represented an increase of
approximately $32,481,000 (or 2.2%) in the average consolidated
retained earnings from the previous four quarterly periods
($1,507,959,000); and (iii) for the year ended March 31, 1997,
there were no losses attributable to AEP's investments in Nanyang.
Rule 53(c). Rule 53(c) is inapplicable because the require-
ments of Rule 53(a) and (b) have been satisfied."
2. By amending ITEM 6 to supply the following:
Balance Sheets as of March 31, 1997 and Statements of Income
and Retained Earnings for the twelve months ended March 31, 1997,
of Generating and American Electric Power Company, Inc. and its
subsidiaries consolidated, together with journal entries reflecting
the proposed transaction and a source of funds statement (to be
filed by amendment).
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused
this Post-Effective Amendment to be signed on their behalf by the
undersigned thereunto duly authorized.
AMERICAN ELECTRIC POWER COMPANY, INC.
AEP GENERATING COMPANY
By: /s/ A. A. Pena
A. A. Pena
Treasurer
Dated: June 9, 1997
