File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM U-1
-------------------
APPLICATION OR DECLARATION
Under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
***
AMERICAN ELECTRIC POWER COMPANY, INC.
AEP GENERATING COMPANY
AMERICAN ELECTRIC POWER SERVICE CORPORATION
APPALACHIAN POWER COMPANY
CENTRAL AND SOUTH WEST CORPORATION
CENTRAL POWER AND LIGHT COMPANY
COLUMBUS SOUTHERN POWER COMPANY
INDIANA MICHIGAN POWER COMPANY
KENTUCKY POWER COMPANY
KINGSPORT POWER COMPANY
OHIO POWER COMPANY
PUBLIC SERVICE COMPANY OF OKLAHOMA
SOUTHWESTERN ELECTRIC POWER COMPANY
WEST TEXAS UTILITIES COMPANY
WHEELING POWER COMPANY
1 Riverside Plaza, Columbus, Ohio 43215
(Name of company or companies filing this state-
ment 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 SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
Jeffrey D. Cross, General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
(Names and addresses of agents for service)
TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS..............................2
A. Introduction and General Request...............................2
B. Background and Existing Authority..............................3
C. Overview of the Request........................................4
D. Parameters of Financings.......................................5
1. Effective Cost of Money on Debt Securities
and Borrowings Under Credit Agreements....................6
2. Maturity of Debt..........................................6
3. Issuance Expenses.........................................6
4. Use of Proceeds...........................................6
5. Borrowing Limits..........................................7
6. Financial Condition.......................................9
E. Description of Specific Types of Financing.....................9
(a) Long-Term Debt..........................................10
(b) Short-term Debt.........................................11
(c) Credit Enhancement......................................13
(d) Financing Entities......................................13
(e) Tender Offers and Repurchase of Securities..............15
(f) Interest Rate Management Agreements.....................16
(1) Pricing Parameters....................................17
(2) Accounting............................................17
(3) Commission Authorization..............................18
F. Extension of Authority for Utility Money Pool.................18
1. Background...............................................18
2. Current Operations.......................................19
3. Sources of Funds.........................................21
4. Use of Proceeds..........................................21
5. Interest Rate............................................22
G. Nonutility Money Pool.........................................23
H. Guarantee of Indebtedness/Obligations.........................24
I. Payments of Dividends out of Capital or Unearned Surplus......26
J. Summary of Requests...........................................26
K. Compliance with Rule 54.......................................27
Item 2. Fees, Commissions and Expenses...................................31
Item 3. Applicable Statutory Provisions..................................32
Item 4. Regulatory Approval..............................................32
Item 5. Procedure........................................................32
Item 6. Exhibits and Financial Statements................................33
Item 7. Information as to Environmental Effects..........................33
American Electric Power Company, Inc., a New York corporation ("AEP") and
Central and South West Corporation, a Delaware corporation ("CSW"), both
registered holding companies under the Public Utility Holding Company Act of
1935, as amended (the "Act") and the direct and indirect subsidiaries of AEP
("Subsidiaries"), including the following public utility subsidiaries: AEP
Generating Company ("Generating"), Appalachian Power Company ("Appalachian"),
Central Power and Light Company ("CPL"), Columbus Southern Power Company
("Columbus"), Indiana Michigan Power Company ("Indiana"), Kentucky Power Company
("Kentucky"), Kingsport Power Company ("Kingsport"), Ohio Power Company
("Ohio"), Public Service Company of Oklahoma ("PSO"), Southwestern Electric
Power Company ("SWEPCO"), West Texas Utilities Company ("West Texas"), and
Wheeling Power Company ("Wheeling") (collectively, "the Public Utility
Subsidiaries") are seeking authorization for the financing plan described below
("Financing Plan"). For purposes hereof "Subsidiaries" shall also include other
direct or indirect subsidiaries that AEP may form pursuant to the Rule 58
exception or pursuant to Sections 32, 33 or 34 of the Act. All of AEP's direct
and indirect Subsidiaries, other than Public Utility Subsidiaries, are herein
called "Nonutility Subsidiaries."
This application-declaration seeks to consolidate in one filing requests
for authorization by Applicants for various financing transactions and does not
set forth the specific terms for individual components of the Financing Plan.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS
A. Introduction and General Request
AEP and its Subsidiaries seek the authorization and approval of the
Commission with respect to the ongoing financing activities, the provision
of intrasystem services and guarantees and other matters pertaining to AEP
and its Subsidiaries as set forth herein. Specifically, this
Application-Declaration seeks the following authorizations and approvals of
the Commission:
(i) In order to ensure that the AEP system is able to meet its capital
requirements and plan its future financing, AEP and its Subsidiaries
hereby request authorization for financing transactions for the period
beginning with the effective date of an order issued pursuant to this
filing and continuing, unless otherwise specified in this Application,
until September 30, 2007 (the "Authorization Period");
(ii) SWEPCO and Wheeling request authorization to issue long-term debt
in amounts not to exceed $350 million and $40 million, respectively;
(iii) AEP and its Public Utility Subsidiaries request that the
Commission approve an aggregate financing request in the amount of
$7.2 billion outstanding in short-term financing capacity for AEP and
its Public Utility Subsidiaries as more fully described in the
Application-Declaration;
(iv) CPL, Columbus, Ohio and West Texas, companies affected by
restructuring, seek interim authority until restructuring is
implemented, to issue short and long-term debt in an amount not to
exceed $3.9 billion;
(v) Subsidiaries seek authorization to organize financing entities for
certain types of financings;
(vi) Applicants seek authority to make tender offers for their
securities and repurchase of their own securities from affiliates;
(vii) AEP and its Subsidiaries which are participants in the Utility
Money Pool request the continuation of the Money Pool through the
Authorization Period;
(viii) AEP and its Nonutility Subsidiaries request authority to form
and continue a Nonutility Money Pool on substantially the same terms
and conditions as the Utility Money Pool;
(ix) AEP requests the Commission approve the issuance by AEP and its
Subsidiaries of guarantees and other forms of credit support in an
aggregate amount not to exceed $900 million outstanding at any time in
exposure as more fully described below; and
(x) AEP and its Nonutility Subsidiaries request authorization for the
Subsidiaries to pay dividends out of capital or unearned surplus to
the fullest extent of the law.
B. Background and Existing Authority
By Order dated December 30, 1997 (Release No. 35-26811, in file No.
70-9107), CSW and its electric public utility subsidiary companies, CPL,
PSO, SWEPCO, WTU and Central and South West Services, Inc., were authorized
to engage in various financing and related transactions through December
31, 2002.
By Order dated June 14, 2000 (Release No. 35-27186 in File No.
70-9381), AEP was authorized to acquire by merger all of the outstanding
common stock of CSW. By that order, AEP, its operating subsidiaries and
certain other subsidiaries were added to the CSW Money Pool.
By Order dated October 26, 2001 (Release No. 27457 in File No.
70-9937) the Money Pool authority was extended to December 31, 2002 and
certain sublimits relating to restructuring were established.
AEP, AEPSC, CSW, CPL, Columbus, Ohio, SWEPCO and West Texas have
pending before this Commission an application to restructure their
operations pursuant to deregulation statutes in Texas and Ohio which will
result in the separation of the generation and energy delivery functions of
CPL, Columbus, Ohio, and West Texas ("Restructuring Application") [File No.
70-9785]. This authority includes the issuance of short and long-term debt
by the new generation, distribution and transmission entities and
guarantees relating to these enterprises. It is possible that an order in
this matter will not be issued until after December 31, 2002, and interim
financing authority for these companies will be required pending issuance
of the restructuring order.
C. Overview of the Request
The Applicants hereby request authorization to engage in the
transactions set forth herein during the Authorization Period. The
financing transactions relate to:
(1) external issuances by AEP and the Public Utility Subsidiaries of
short-term debt;
(2) external issuances by SWEPCO and Wheeling of common stock,
preferred securities; short-term debt financing; long-term debt
financing, such as first mortgage bonds, pollution control
revenue bonds, notes (secured and unsecured) and debentures;
sales of tax-advantaged preferred securities; and borrowings
under Credit Agreements with banks; credit enhancements and other
financial institutions in each case not subject to Rule 52;
(3) entering into by SWEPCO and Wheeling of hedging transactions to
the extent not exempt by Rule 52;
(4) continuation of the Utility Money Pool;
(5) implementation of a Nonutility Money Pool;
(6) authorization of issuance of intrasystem and other guarantees.
D. Parameters of Financings
The Applicants request authority to engage in financing transactions
for which the specific terms and conditions are not currently known,
subject to certain conditions concerning the financial condition of the
Applicants. The general conditions for financing without further prior
approval are set forth below.
1. Effective Cost of Money on Debt Securities and Borrowings Under
Credit Agreements
The effective cost of money on long term debt borrowings issued
pursuant to this Application will not exceed the greater of (i) 450 basis
points over comparable term U.S. Treasury securities, or (ii) a gross
spread over U.S. Treasury securities which is consistent with similar
securities of comparable credit quality and maturities issued by other
companies.
2. Maturity of Debt
The maturity of indebtedness will not exceed 50 years.
3. Issuance
Expenses The underwriting fees, commissions, or other similar expenses
paid in connection with the issue, sale or distribution of a security
pursuant to the Application will not exceed 5% of the principal or total
amount of the financing.
4. Use of Proceeds
The proceeds from the sale of securities in external financing
transactions by the Applicants will be added to their respective treasuries
and subsequently used principally for general corporate purposes including:
(i) the financing, in part, of capital expenditures;
(ii) the financing of working capital requirements;
(iii)the acquisition, retirement or redemption of securities
previously issued by AEP or its Subsidiaries without the need for
prior Commission approval; and
(iv) other lawful purposes, including direct or indirect investment in
Rule 58 companies by AEP, other subsidiaries approved by the
Commission, EWGs and FUCOs.
5. Borrowing Limits
The aggregate amount of outstanding external financing effected by the
Applicants pursuant to the authorization requested hereunder during the
Authorization Period, other than the refunding of outstanding securities
which will not be limited, will not exceed:
(a) Long-term debt limits:
SWEPCO $350,000,000
Wheeling $40,000,000
(b) Short-term borrowing limits for regulated companies through the
Money Pool or external borrowings, or borrowings from AEP, are as follows:
Company Amount
------- ------
Appalachian $600,000,000
Indiana $500,000,000
Kentucky $200,000,000
Generating $125,000,000
Kingsport $40,000,000
PSO $300,000,000
SWEPCO $350,000,000
Wheeling $40,000,000
AEP requires an amount of authority for short-term borrowings
sufficient to fund the Utility Money Pool and the Nonutility Money Pool as
well as its own requirements in an amount not to exceed $7,200,000,000.
(c) Interim Limits
If the Restructuring Order referred to above is not obtained by
December 31, 2002, the companies affected by restructuring will need
continued interim authority to issue debt, including both long and short
term debt, both on the external market or from the Utility Money Pool,
until restructuring is implemented as described in File No. 70-9785:
Company Debt Limits
------- -----------
CPL $1,400,000,000
Columbus $800,000,000
Ohio $1,200,000,000
West Texas $500,000,000
6. Financial Condition
AEP hereby represents that it will maintain for itself and for all the
Public Utility Subsidiaries the common equity at a percentage of the
consolidated capital (inclusive of short-term debt and excluding
securitization bonds) of 30% during the authorization period.
E. Description of Specific Types of Financing
1. External Financing - All external financing will be at rates or
prices and under conditions based upon, or otherwise determined, by
competitive capital markets.
The Applicants request authority to sell securities covered by this
Application in any of the following ways: (i) through underwriters or
dealers; (ii) directly to a limited number of purchasers or to a single
purchaser, or (iii) through agents or dealers. If underwriters are used in
the sale of the securities, such securities will be acquired by the
underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale.
The securities may be offered to the public either through underwriting
syndicates (which may be represented by managing underwriters) or directly
by one or more underwriters acting alone. The securities may be sold
directly by AEP or a Subsidiary or through agents designated from time to
time. If dealers are used in the sale of any securities, such securities
will be sold to the dealers as principal. Any dealer may then resell such
securities to the public at varying prices to be determined by such dealer
at the time of resale.
If debt securities are being sold, they may be sold pursuant to
"delayed delivery contracts" which permit the underwriters to locate buyers
who will agree to buy the debt at the same price but at a later date than
the date of the closing of the sale to the underwriters. Debt securities
may also be sold through the use of medium-term note and similar programs,
including in transactions covered by Rule 144A under the Securities Act of
1933. Pollution control revenue bonds may be sold either currently or in
forward refundings where the price of the securities is established
currently for delivery at a future date.
(a) Long-Term Debt
Under current law, the public utility commission in the states of
Indiana, Virginia, Tennessee, Ohio, Oklahoma and Kentucky approve the
issuance of long-term securities by public utility companies.
Therefore, Rule 52(a) provides an exemption from this Commission for
the issuances of long term debt securities by all of AEP's public
utility subsidiaries except CPL, SWEPCO, West Texas and Wheeling.
Financing authorization is being sought for CPL and West Texas
with the Restructuring Application and in Section (c) Interim Limits
above. SWEPCO and Wheeling seek long-term debt authority in an amount
not to exceed $350 million and $40 million.
Any long-term debt or other security would have such
designations, aggregate principal amount, maturity, interest rate(s)
or methods of determining the same, interest payment terms, redemption
provisions, non-refunding provisions, sinking fund terms, conversion
or put terms and other terms and conditions as the Applicants may at
the time of issuance determine.
(b) Short-term Debt
The public utility direct or indirect subsidiaries of AEP are
members of the AEP System Money Pool and make short-term borrowings
from the Money Pool. The Money Pool is funded by AEP currently through
a commercial paper program. No participant in the Money Pool may
borrow from the Money Pool if the borrowing Company could borrow more
cheaply directly from banks or through the issuance of its own
commercial paper. The Companies also require authority for short term
borrowing in the event funds are not available from the Money Pool.
Therefore, AEP and the public utility subsidiaries seek authorization
for the issuance of short-term debt in the form of bank loans,
commercial paper programs and other products in the amount set forth
in Borrowing Limits above, as well as direct issuance from AEP.
Commercial paper would be sold in established domestic or
European commercial paper markets. Short-term borrowings will have
maturities of less than one year from the date of issuance.
Flexibility AEP requires flexibility in the types of short-term
debt by which it borrows externally to take advantage of new products
being offered in the market for short-term securities, including but
not limited to, the extendible commercial notes program currently
being offered by certain commercial paper dealers, and new products to
provide alternate backup liquidity for commercial paper and short-term
notes.
AEP and the Participants believe that by having flexibility to
allocate short-term borrowings between sales of notes and sales of
commercial paper, they will be able to realize economies in meeting
their short-term financing requirements, and such companies propose,
in general, taking appropriate long and short-term considerations into
account, to utilize the most economical means available at any time to
meet their short-term financing requirements.
The Companies may engage in other types of short-term financing
generally available to borrowers with comparable credit ratings as it
may deem appropriate in light of its needs and market conditions at
the time of issuance.
(c) Credit Enhancement
Applicants may obtain credit enhancement for the securities
covered by this Application, which could include insurance, a letter
of credit or a liquidity facility. The Applicants anticipate they may
be required to provide credit enhancement if they were to issue
floating rate securities, whereas credit enhancement would be a purely
economic decision for fixed rate securities. The Applicants anticipate
that even though they would be required to pay a premium or fee to
obtain the credit enhancement, they would realize a net benefit
through a reduced interest rate on the new securities. Applicants will
obtain credit enhancement only if it is economically beneficial to do
so.
(d) Financing Entities
The Subsidiaries seek authority to organize new corporations,
trusts, partnerships or other entities to be created for the purpose
of facilitating certain types of financings such as the issuance of
tax advantaged preferred securities. Request is also made for these
financing entities to issue such securities to third parties.
Additionally, request is made for authorization with respect to (i)
the issuance of debentures or other evidences of indebtedness by the
Subsidiaries to a financing entity in return for the proceeds of the
financing and (ii) the acquisition by a Subsidiary of voting interests
or equity securities issued by the financing entity to establish the
Subsidiary's ownership of the financing entity (the equity portion of
the entity generally being created through a capital contribution or
the purchase of equity securities, such as shares of stock or
partnership interests, involving an amount usually ranging from 1 to
25 percent of the capitalization of the financing entity). The
Subsidiaries also request authorization to enter into expense
agreements with their respective financing entities, pursuant to which
they would agree to pay all expenses of such entity.
The Subsidiaries may also guarantee (i) payment of interest,
dividends or distributions on the securities issued by their
subsidiary financing entities if and to the extent such financing
entities declare dividends or distributions or pay interest out of
funds legally available therefor; (ii) payments to the holders of the
securities issued by such entities of amounts due upon liquidation of
such entities or redemption of the securities of such entities; and
(iii) certain additional amounts that may be payable in respect of
such securities.
(e) Tender Offers and Repurchase of Securities
AEP and the Subsidiaries may determine to acquire outstanding
securities (the "Outstanding Securities") through tender offers to the
holders of such Outstanding Securities. Tender offers may be
conditioned upon receipt of a certain percentage of the Outstanding
Securities. The tender offer price would be based on a number of
factors, including the coupon rate of the Outstanding Securities, the
date of expiration of the refunding protection of the Outstanding
Securities, the redemption price on such expiration date and the then
current market rates for similar securities, all of which are relevant
to the decision of an informed holder as to whether to hold or sell
Outstanding Securities. Holders of Outstanding Securities may be
offered a fixed price for their Outstanding Securities, or the tender
offer may be a "fixed spread" offer pursuant to which the Applicants
will offer a price based upon a fixed spread over comparable U.S.
Treasury securities. Any tender offer will be conducted in accordance
with standard market practice, i.e., the length of time the offer will
be held open, the method of solicitation, etc., at the time of the
tender offer.
AEP and the Subsidiaries would, in connection with any tender
offer, retain one or more investment banking firms experienced in such
matters to act as tender agent and dealer-manager. The dealer-manager
will act as the agent in disseminating the tender offer and receiving
responses thereto. As a dealer-manager, the investment banking firm
will not itself become obligated to purchase or sell any of the
Outstanding Securities. The dealer-manager's fee will be determined
following negotiation and investigation of fees in similar
transactions and will include reasonable out-of-pocket expenses and
attorney's fees. It is expected that the Applicant will be required,
as is customary, to indemnify the dealer-manager for certain
liabilities. The Applicant may also retain a depositary to hold the
tendered Outstanding Securities pending the purchase thereof and/or an
information agent to assist in the tender offer.
AEP and the Public Utility Subsidiaries also seek authority to
repurchase their own securities issued to affiliates.
(f) Interest Rate Management Agreements
In connection with the issuance of its short-term debt, any of
the Companies may utilize interest rate management techniques and
enter into Interest Rate Management Agreements. Such authority will
allow each company sufficient alternatives and flexibility when
striving to reduce its effective interest cost and manage interest
cost on financings.
The Interest Rate Management Agreements will be products commonly
used in today's capital markets, consisting of "interest rate swaps",
"caps", "collars", "floors", "options", or hedging products such as
"forwards" or "futures", or similar products, the purpose of which is
to manage and minimize interest costs. These agreements will be
entered into with counterparties that are highly rated financial
institutions. The transactions will be for a fixed period and a stated
principal amount, and may be for underlying fixed or variable
obligations of the company entering into them.
(1) Pricing Parameters.
The Companies propose that the pricing parameters for
Interest Rate Management Agreements be governed by the parameters
contained herein. Fees and commission in connection with any
Interest Rate Management Agreement will be in addition to the
above parameters and will not exceed 2.00% of the amount of the
underlying obligation involved.
(2) Accounting.
The Companies propose to account for these transactions in
accordance with generally accepted accounting principles.
(3) Commission Authorization.
Since market opportunities for these interest rate
management alternatives are transitory, the Companies must be
able to execute interest rate management transactions when the
opportunity arises to obtain the most competitive pricing. Thus,
the Companies seek approval to enter into any or all of the
described transactions within the parameters discussed above
prior to the time the Companies reach agreement with respect to
the terms of such transaction.
The authorization of the Interest Rate Management Agreements
consistent with the parameters described herein in no way
relieves the Companies of their responsibility to obtain the best
terms reasonably available for the product selected. If the
Companies utilize Interest Rate Management Agreements, the
Companies short-term interest charges are expected to change.
F. Extension of Authority for Utility Money Pool
1. Background.
By Order dated December 30, 1976 (HCAR No. 19829; 70-5930) and in
subsequent Orders, the Commission authorized Central and South West
Corporation ("CSW"), a Delaware corporation and a registered holding
company under the Act and a wholly owned subsidiary of AEP, to establish
and utilize a system money pool ("Money Pool") to co-ordinate short-term
borrowings for CSW, its electric subsidiary companies and Central and South
West Services, Inc. as set forth in Central and South West Corp., HCAR No.
26697 (Mar. 28, 1997, 70-8557) HCAR No. 24855 (April 5, 1989, 70-7643),
HCAR No. 26254 (March 21, 1995, 70-8557), HCAR No. 26854 (Apr. 3, 1998,
70-8557).
In its Order dated June 14, 2000 in File 70-9381 (HCAR No. 27186), the
Commission authorized AEP to continue the Money Pool and to add its utility
subsidiaries and certain other subsidiaries1 as participants in the AEP
System Money Pool (the "Participants") and established borrowing limits for
all Participants.
By Order dated October 26, 2001 (HCAR No. 35-27457), AEP was
authorized to increase its external borrowing from $5 billion to $6.910
billion through December 31, 2002, through the issuance and sale of
short-term notes and commercial paper.
2. Current Operations.
All short-term borrowing needs of the Participants may be met by funds
in the Money Pool to the extent such funds are available. Each Participant
shall have the right to borrow from the Money Pool from time to time,
subject to the availability of funds and the limitations and conditions set
forth in orders of this Commission; provided, however, that the aggregate
amount of all loans requested by any Participant approved hereunder shall
not exceed the applicable borrowing limits set forth in orders of the
Commission and other regulatory authorities, and agreements binding upon
such Participant. No Participant shall be obligated to borrow from the
Money Pool if lower cost funds can be obtained from its own external
borrowing. AEP will not borrow funds from the Money Pool or any
Participant.
AEPSC, a Rule 88 subsidiary service company, acts as administrative
agent of the Money Pool. Each Participant and AEP determine the amount of
funds it has available for contribution to the Money Pool. The
determination of whether a Participant or AEP at any time has surplus
funds, or shall lend such funds to the Money Pool, will be made by such
Participant treasurer, or by a designee thereof, on the basis of cash flow
projections and other relevant factors, in such Participant's sole
discretion. Each Participant may withdraw any of its funds at any time upon
notice to AEPSC.
Each Participant may borrow from the Money Pool to the extent of
Borrowing Limits for short-term debt.
3. Sources of Funds.
The Money Pool is composed from time to time of funds from the
following sources: (i) surplus funds of AEP; (ii) surplus funds of any of
the Participants; or (iii) short-term borrowings by AEP.
AEPSC administers the Money Pool by matching up, to the extent
possible, short-term cash surpluses and loan requirements of AEP and the
various Participants. Participants' requests for short-term loans are met
first from surplus funds of other Participants which are available to the
Money Pool and then from AEP corporate funds to the extent available. To
the extent that Participant contributions of surplus funds to the Money
Pool are insufficient to meet Participant requests for short-term loans,
borrowings are made from outside the system.
Funds which are loaned from Participants into the Money Pool which are
not required to satisfy borrowing needs of other Participants will be
invested by AEP on the behalf of the lending Participants in one or more
short-term instruments.
4. Use of Proceeds.
The Money Pool makes funds available to Participants for the interim
financing of their capital expenditure programs and their other working
capital needs, and to AEP to loan and to make capital contributions to any
of the Participants and in both instances to repay previous borrowings
incurred for such purposes. External borrowings by AEP will not be made
unless there are no surplus funds in the treasuries of the Participants
sufficient to meet borrowing needs. However, no loan will be made by AEP or
any Participant if the borrowing company could borrow more cheaply directly
from banks or through the sale of its own commercial paper. When more than
one Participant is borrowing, each borrowing Participant will borrow pro
rata from each fund source in the same proportion that the amount of funds
provided by that fund source bears to the total amount of short-term funds
available to the Money Pool.
5. Interest Rate.
The interest rate applicable on any day to then outstanding loans
through the Money Pool will be the composite weighted average daily
effective cost incurred by AEP for short-term borrowings from external
sources. If there are no borrowings outstanding then the rate would be the
certificate of deposit yield equivalent of the 30- day Federal Reserve
"A2/P2" Non Financial Commercial Paper Composite Rate ("Composite"), or if
no composite is established for that day then the applicable rate will be
the Composite for the next preceding day for which the Composite is
established.
If the Composite shall cease to exist, then the rate would be the
composite which then most closely resembles the Composite and/or most
closely mirrors the pricing AEP would expect if it had External Funds.
Interest income related to external investments will be calculated
daily and allocated back to lending parties on the basis of their relative
contribution to the investment pool funds on that date.
Each Participant receiving a loan hereunder shall repay the principal
amount of such loan, together with all interest accrued thereon, on demand
and in any event not later than the expiration date of the SEC
authorization for the operation of the Money Pool. All loans made through
the Money Pool may be prepaid by the borrower without premium or penalty.
G. Nonutility Money Pool
AEP and any existing or future direct or indirect nonutility
subsidiary (including any exempt wholesale generator under Section 32 of
the Act, a foreign utility company under Section 33 of the Act or an exempt
telecommunications company under Section 34 of the Act) and including any
Rule 58 company (collectively the "Nonutility Subsidiaries") propose to
form and participate in a separate system of intercorporate borrowings (the
"Nonutility Money Pool"). The Nonutility Money Pool would be established
and administered in the same manner and subject to the same conditions as
the Utility Money Pool.
The participation of the Nonutility Subsidiaries in the Nonutility
Money Pool would permit their available cash and/or short-term borrowing
requirements to be matched on a daily basis with those of the other
participants in the Utility Money Pool, thereby minimizing the need of the
AEP system for external short-term borrowing. If the Nonutility
Subsidiaries are authorized to participate in the Nonutility Money Pool,
funds will be loaned from the Nonutility Money Pool in the form of open
account advances under the same terms and limitations as currently
authorized for the Utility Money Pool.
H. Guarantee of Indebtedness/Obligations
The provision of parent guarantees by holding companies to affiliates
in the generation and power marketing business is a standard industry
practice. AEP requests authorization herein to enter into guarantees,
obtain letters of credit, enter into support or expense agreements or
otherwise provide credit support from time to time through September 30,
2007 on behalf of any of its direct or indirect Subsidiaries up to
$900,000,000. AEP also requests authority to guarantee the obligations of
its direct or indirect subsidiaries as may be appropriate or necessary to
enable the subsidiaries to carry on the ordinary course of their
businesses. Each of the Public Utility Subsidiaries seeks authorization to
enter into guarantees and other credit support with respect to obligations
of each of its subsidiaries.
Applicants also request authority for each nonutility subsidiary to
provide guarantees and other forms of credit support to other nonutility
subsidiaries. Certain of the guarantees referred to above may be in support
of the obligations of Subsidiaries which are not capable of exact
quantification. In such cases, AEP will determine the exposure of the
instrument for purposes of measuring compliance with the total guarantee
limit.
The aggregate amount of the guarantees will not exceed $900 million
(not taking into account obligations exempt pursuant to Rule 45 and under
other current Commission orders). A portion of this authority replaces
current authority of CSW which expires at or near year end [see Orders in
Files 70-9083 and 70-8205].
I. Payments of Dividends out of Capital or Unearned Surplus
Section 12 of the Act and Rule 46 thereunder generally prohibit the
payment of dividends out of capital or unearned surplus except pursuant to
an order of the Commission. AEP and the Nonutility Subsidiaries hereby
request authority for the direct and indirect Nonutility Subsidiaries to
pay dividends out of capital or unearned surplus to the fullest extent of
the law.
J. Summary of Requests
(i) Applicants in this file request authorization for financing
transactions for the period beginning with the effective date of
an order issued pursuant to this filing and continuing until
September 30, 2007 unless otherwise provided;
(ii) SWEPCO and Wheeling request authorization to issue long-term debt
in amounts not to exceed $350 million and $40 million,
respectively;
(iii)AEP and its Public Utility Subsidiaries request that the
Commission approve an aggregate financing request in the amount
of $7.2 billion outstanding in short-term financing capacity for
AEP and its Public Utility Subsidiaries as more fully described
in the Application-Declaration;
(iv) CPL, Columbus, Ohio and West Texas, companies affected by
restructuring, seek interim authority until restructuring is
implemented, to issue short and long-term debt in an amount not
to exceed $3.9 billion;
(v) Applicants seek authorization to organize financing entities for
certain types of financings;
(vi) Applicants seek authority to make tender offers for their
securities and to repurchase their own securities from
affiliates;
(vii)AEP and its Subsidiaries which are participants in the Utility
Money Pool request the continuation of the Money Pool through the
Authorization Period;
(viii) AEP and its Nonutility Subsidiaries request authority to form
and continue a Nonutility Money Pool on substantially the same
terms and conditions as the Utility Money Pool;
(ix) AEP requests the Commission approve the issuance by AEP and its
Subsidiaries of guarantees and other forms of credit support in
an aggregate amount not to exceed $900 million outstanding at any
time in exposure; and
(x) AEP and its Nonutility Subsidiaries request authorization for the
Subsidiaries to pay dividends out of capital or unearned surplus
to the fullest extent of the law.
K. Compliance with Rule 54
Sections 9(a), 10 and 11 of the Act and Rule 54 thereunder are or may
be applicable to the transactions proposed herein. To the extent that any
other sections of the Act may be applicable to the proposed transactions,
the Company hereby requests appropriate authority thereunder.
The proposed transactions are subject to Rule 54, which provides that,
in determining whether to approve an application which does not relate to
any EWG or FUCO, the Commission shall not consider the effect of the
capitalization or earnings of any such EWG or FUCO which is a subsidiary of
a registered holding company if the requirements of Rule 53(a), (b) and (c)
are satisfied.
AEP consummated the merger with Central and South West Corporation
("CSW") on June 15, 2000 pursuant to an order dated June 14, 2000 (HCAR No.
27186), which further authorized AEP to invest up to 100% of its
consolidated retained earnings, with consolidated retained earnings to be
calculated on the basis of the combined consolidated retained earnings of
AEP and CSW (as extended pursuant to HCAR No. 27316, December 26, 2000, the
"Rule 53(c) Order").
AEP currently meets all of the conditions of Rule 53(a), except for
clause (1). At June 30, 2002, AEP's "aggregate investment", as defined in
Rule 53(a)(1), in EWGs and FUCOs was approximately $3.049 billion, or about
95.1% of AEP's "consolidated retained earnings", also as defined in Rule
53(a)(1), for the four quarters ended June 30, 2002 ($3.206 billion). With
respect to Rule 53(a)(1), however, the Commission has determined that AEP's
financing of investments in EWGs and FUCOs in an amount greater than the
amount that would otherwise be allowed by Rule 53(a)(1) would not have
either of the adverse effects set forth in Rule 53(c). See the Rule 53(c)
Order.
In addition, AEP has complied and will continue to comply with the
record-keeping requirements of Rule 53(a)(2), the limitation under Rule
53(a)(3) on the use of operating company personnel to render services to
EWGs and FUCOs, and the requirements of Rule 53(a)(4) concerning the
submission of copies of certain filings under the Act to retail rate
regulatory commissions. Further, none of the circumstances described in
Rule 53(b) has occurred.
Moreover, even if the effect of the capitalization and earnings of
EWGs and FUCOs in which AEP has an ownership interest upon the AEP holding
company system were considered, there would be no basis for the Commission
to withhold or deny approval for the proposal made in this
Application-Declaration. The action requested in the instant filing would
not, by itself, or even considered in conjunction with the effect of the
capitalization and earnings of AEP's EWGs and FUCOs, have a material
adverse effect on the financial integrity of the AEP system, or an adverse
impact on AEP's public-utility subsidiaries, their customers, or the
ability of State commissions to protect such public-utility customers. The
Rule 53(c) Order was predicated, in part, upon an assessment of AEP's
overall financial condition which took into account, among other factors,
AEP's consolidated capitalization ratio and the recent growth trend in
AEP's retained earnings.
As of December 31, 1999, the most recent period for which financial
statement information was evaluated in the 53(c) Order, AEP's consolidated
capitalization (including CSW on a pro forma basis) consisted of 37.3%
common and preferred equity, 61.3% debt and $335 million principal amount
of certain subsidiary obligated mandatorily redeemable preferred securities
of subsidiary trusts holding solely junior subordinated debentures of such
subsidiaries ("Trust Preferred Securities") representing 1.4%. As of June
30, 2002, AEP's consolidated capitalization consisted of 60.4% debt, 35.2%
common and preferred equity (consisting of 347,833,712 shares of common
stock representing 34.6% and $145 million principal amount of preferred
stock representing 0.6%), $321 million principal amount of Trust Preferred
Securities representing 1.3% and $750 million minority interest in finance
subsidiary representing 3.1%.
Since the date of the Rule 53(c) Order, there has been a reduction in
AEP's consolidated equity capitalization ratio; however, it remains within
acceptable ranges and limits of rating agencies for strong investment grade
corporate credit ratings. In addition, the operating subsidiaries, which
will have a significant influence on the determination of the AEP corporate
rating, continue to show strong financial statistics as measured by the
rating agencies.
As of December 31, 1999, Standard & Poor's rating of secured debt for
AEP's operating subsidiaries was as follows: APCo, A; CSP, A-; I&M, A-;
KPCo, A; and OPCo, A-. As of December 31, 1999, Standard & Poor's rating of
secured debt for CSW's operating subsidiaries was as follows: CPL, A; PSO,
AA-; SWEPCO, AA-; and WTU, A.
As of June 30, 2002, Standard & Poor's rating of secured debt for
AEP's operating subsidiaries was as follows: APCo, A; CSP, A-; I&M, A-;
KPCo, A- and OPCo, A-. As of December 31, 2001, Standard & Poor's rating of
secured debt for CSW's Operating Subsidiaries was as follows: CPL, A-; PSO,
A; SWEPCO, A; and WTU, A-.
Reporting
AEP and the Participants will report quarterly to the Commission
pursuant to Rule 24 under the Act within 30 days after the end of each
calendar quarter.
Item 2. Fees, Commissions and Expenses
Rating agency fees for commercial paper (annual):
Moody's Investors Service, Inc...................... $56,000
Standard & Poor's................................... $40,000
Fitch............................................... $17,000
Miscellaneous and incidental expenses
including travel, telephone and postage............. $5,000
Total $118,000
========
Item 3. Applicable Statutory Provisions
Sections 6(a), 7, 9(a), 10 and 12 and Rules 43, 45 and 46 thereunder
are or may be applicable to the proposed transactions. To the extent any
other sections of the Act may be applicable to the proposed transactions,
the Applicants hereby request appropriate orders thereunder.
Item 4. Regulatory Approval
No state regulatory authority which has not already been obtained and
no federal regulatory authority, other than the Commission under the Act,
has jurisdiction over the proposed transactions.
Item 5. Procedure
It is requested, pursuant to Rule 23(c) of the Rules and Regulations
of the Commission, that the Commission's order granting and permitting to
become effective this Application or Declaration be issued on or before
October ____, 2002. Applicants waive any recommended decision by a hearing
officer or by any other responsible officer of the Commission and waive the
30-day waiting period between the issuance of the Commission's order and
the date it is to become effective, since it is desired that the
Commission's order, when issued, become effective forthwith. Applicants
consent to the Division of Investment Management assisting in the
preparation of the Commission's decision and/or order in this matter,
unless the Division opposes the matter covered by this Application or
Declaration.
Item 6. Exhibits and Financial Statements
The following exhibit and financial statements are filed as part of
this statement:
(a) Exhibit:
Exhibit A Opinion of counsel (to be filed by amendment)
Exhibit H Form of Notice
(b) Financial Statements:
Balance Sheets as of June 30, 2002 and Statements of Income and
Retained Earnings for the 12 months ended June 30, 2002 of American
and its subsidiaries consolidated (to be filed by amendment).
Item 7. Information as to Environmental Effects
The Commission's action in this matter will not constitute any major
federal action having a significant effect on the human environment. To the
best of AEP's knowledge, no federal agency has prepared or is preparing an
environmental impact statement with respect to the proposed transaction.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this Amendment No. 2 to its Form
U-1 to be signed on its behalf by the undersigned thereunto duly authorized.
AMERICAN ELECTRIC POWER COMPANY, INC.
And
AEP GENERATING COMPANY
AMERICAN ELECTRIC POWER SERVICE CORPORATION
APPALACHIAN POWER COMPANY
CENTRAL AND SOUTH WEST CORPORATION
CENTRAL POWER AND LIGHT COMPANY
COLUMBUS SOUTHERN POWER COMPANY
INDIANA MICHIGAN POWER COMPANY
KENTUCKY POWER COMPANY
KINGSPORT POWER COMPANY
OHIO POWER COMPANY
PUBLIC SERVICE COMPANY OF OKLAHOMA
SOUTHWESTERN ELECTRIC POWER COMPANY
WEST TEXAS UTILITIES COMPANY
WHEELING POWER COMPANY
And other Subsidiaries
By: /s/ Armando A. Pena
Treasurer of all the above-listed companies.
Dated: September 24, 2002
Exhibit H
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No. /September ___, 2002
In the Matter of
AMERICAN ELECTRIC POWER COMPANY, INC., et al.
1 Riverside Plaza
Columbus, OH 43215
(70- )
NOTICE IS HEREBY GIVEN that American Electric Power Company, Inc., a New York
corporation ("AEP") and Central and South West Corporation, a Delaware
corporation ("CSW"), both registered holding companies under the Public Utility
Holding Company Act of 1935, as amended (the "Act") and the direct and indirect
subsidiaries of AEP ("Subsidiaries"), including the following public utility
subsidiaries: AEP Generating Company ("Generating"), Appalachian Power Company
("Appalachian"), Central Power and Light Company ("CPL"), Columbus Southern
Power Company ("Columbus"), Indiana Michigan Power Company ("Indiana"), Kentucky
Power Company ("Kentucky"), Kingsport Power Company ("Kingsport"), Ohio Power
Company ("Ohio"), Public Service Company of Oklahoma ("PSO"), Southwestern
Electric Power Company ("SWEPCO"), West Texas Utilities Company ("West Texas"),
and Wheeling Power Company ("Wheeling") (collectively, "the Public Utility
Subsidiaries") have filed a Form U-1 Application or Declaration with this
Commission pursuant to Sections 6(a), 7, 9(a), 10 and 12 of the Act, and Rules
43, 45 and 46 thereunder for authorization for certain financial transactions
described in the Application through September 30, 2007 unless otherwise
specified in the Application.
It is stated that no other state commission, other than those whose approval has
been obtained, and no federal commission, other than this Commission, has
jurisdiction over the proposed transaction.
The Application or Declaration and any amendments thereto are available for
public inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing should submit their
views in writing by October _____, 2002 to the Secretary, Securities and
Exchange Commission, Washington, D.C. 20549, and serve a copy on the applicant
or declarant at the address specified above. Proof of service (by affidavit or,
in case of any attorney at law, by certificate) should be filed with the
request. Any request for a hearing shall identify specifically the issues of
fact or law that are disputed. A person who so requests will be notified of any
hearing if ordered, and will receive a copy of any notice or Order issued in
this matter. After said date, the Application or Declaration, as filed or as it
may be amended, may be permitted to become effective.
For the Commission, by the Office of Public Utility Regulation, pursuant to
delegated authority.
Jonathan G. Katz
Secretary
1 The additional subsidiaries are Cedar Coal Co., Central Appalachian Coal
Co., Central Coal Co., Colomet, Inc., Simco, Inc., Southern Appalachian Coal
Co., Blackhawk Coal Co., Conesville Coal Preparation Company, Franklin Real
Estate Company, and Indiana Franklin Realty Company.