File No. 70-9353
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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POST-EFFECTIVE AMENDMENT NO. 9
TO
FORM U-1
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APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
AEP RESOURCES, INC.
AEP ENERGY SERVICES, INC.
1 Riverside Plaza, Columbus, Ohio 43215
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(Name of company or companies filing this statement
and addresses of principal executive offices)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
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(Name of top registered holding company
parent of each applicant or declarant)
A. A. Pena, Senior Vice President and Treasurer
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
* * *
Susan Tomasky, General Counsel
AMERICAN ELECTRIC POWER SERVICE CORPORATION
1 Riverside Plaza, Columbus, Ohio 43215
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(Names and addresses of agents for service)
American Electric Power Company, Inc. ("AEP"), a holding company
registered under the Public Utility Holding Company Act of 1935, as amended
("1935 Act"), AEP Energy Services, Inc., a wholly-owned non-utility subsidiary
of AEP ("AEPES"), and AEP Resources, Inc., a wholly-owned non-utility subsidiary
of AEP and an intermediate holding company of non-utility subsidiaries
(collectively, with any new or successor intermediate holding company of
non-utility subsidiaries, "Resources"), hereinafter sometimes collectively
referred to as "Applicants", hereby amend the Application-Declaration in File
No. 70-9353 as follows:
1. By amending and restating Item 1 of the Application-Declaration:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS
A. Background
By orders dated September 13, 1996 (HCAR No. 26572), September 27, 1996
(HCAR No. 26583), May 2, 1997 (HCAR No. 26713), November 30, 1998 (HCAR No.
26947) and April 7, 1999 (HCAR No. 26998), the Commission authorized AEP to form
direct or indirect nonutility subsidiaries to broker and market energy
commodities, including electric power, natural and manufactured gas, emission
allowances, coal, oil, refined petroleum products and natural gas liquids in the
United States ("Commodities Business"). By order dated August 19, 1999 (HCAR No.
27062), the Commission authorized AEP to engage in the Commodities Business in
Canada.
Pursuant to an order of the Commission dated June 6, 1989 (HCAR No. 24898)
and supplemental orders dated October 8, 1993 (HCAR No. 25905) and February 4,
1994 (HCAR No. 25984), AEP obtained authorization to invest in Resources, whose
primary business is development of, and investments in, exempt wholesale
generators, foreign utility companies, qualifying cogeneration facilities and
other energy-related domestic and international investment opportunities and
projects.
Pursuant to previous orders of the Commission issued in connection with
this File, Applicants were authorized to acquire in one or more transactions
from time to time through December 31, 2003, non-utility energy assets in the
United States, including, without limitation, natural gas production, gathering,
processing, storage and transportation facilities and equipment, liquid oil
reserves and storage facilities, and associated facilities, that would be
incidental to and would assist Applicants and their subsidiaries (or any other
energy trading, marketing or brokering subsidiary hereafter acquired by
Applicants) in connection with their duly authorized marketing, brokering and
trading activities as more fully explained below. Applicants are authorized
pursuant to this File to invest up to $2.0 billion in such non-utility energy
assets or in the equity securities of companies substantially all of whose
physical properties consist of such non-utility energy assets.
Pursuant to the authority granted by the Commission in this File,
Applicants have, among other things, acquired midstream gas assets, including
intrastate pipeline systems in Louisiana and Texas, natural gas processing
plants and storage facilities.
B. Summary of Proposed Transaction
Applicants are now seeking approval to acquire in one or more transactions
from time to time through June 30, 2004 (the "Authorization Period"), additional
energy assets in the United States and Canada, including, without limitation,
oil and natural gas exploration, development, production, gathering, processing,
storage and transportation facilities and equipment, liquid oil reserves and
storage facilities, and associated facilities (collectively, "Energy Assets"),
that would be incidental to and would assist Applicants and their subsidiaries
(or any other energy trading, marketing or brokering subsidiary hereafter
acquired by Applicants) in connection with the Commodities Business.1
Applicants further seek approval to organize direct or indirect special
purpose financing subsidiaries organized specifically for the purpose of
financing any such acquisition ("Special Purpose Finance Subsidiaries").
Applicants request approval to invest up to an additional $2.0 billion, which,
together with existing authority, would increase the aggregate amount that could
be invested to $4.0 billion (the "Investment Limitation") during the
Authorization Period in such Energy Assets or in the securities of companies
substantially all of whose physical properties consist of such Energy Assets.2
Such Energy Assets (or equity securities of companies owning Energy Assets) may
be acquired for cash or in exchange for common stock of AEP or other securities
of Applicants or may include the assumption of debt of the seller of such Energy
Assets, or any combination of the foregoing. If common stock of AEP is used as
consideration in connection with any such acquisition, the market value thereof
on the date of issuance will be counted against the proposed Investment
Limitation. Under no circumstances will Applicants acquire, directly or
indirectly, any assets or properties the ownership or operation of which would
cause such companies to be considered an "electric utility company" or "gas
utility company" as defined under the 1935 Act.
As this Commission has recognized in SEI Holdings, Inc., HCAR No. 26581
(September 26, 1996) and other decisions, a successful marketer of energy
commodities must be able to control some level of physical assets that are
incidental and reasonably necessary in its day-to-day operations. Gas marketers
today must be able to offer their customers a variety of value-added, or
"bundled" services, such as gas storage and processing, which the interstate
pipelines offered prior to FERC Order 636.3 In order to provide such value-added
services, many of the leading gas marketers have invested in production,
gathering, processing, and storage capacity at or near the principal gas
producing areas and hubs and market centers in the United States. Similarly, in
order to compete with both pipelines and local distribution companies for
industrial and electric utility sales, marketers must have the flexibility to
acquire or construct such supply facilities. In fact, most of the large
marketers with which AEP's non-utility subsidiaries compete own substantial
physical assets of the type described herein.
Exploration, development, production, gathering, processing, and storage
capacity would support Applicants' marketing activities by providing the
opportunity to hedge the prices of future supplies of oil and natural gas
against market fluctuations. Price volatility occurs due to fluctuations in
supply and demand over periods as short as one day or seasonally. Storage and
pipeline assets allow energy marketers to "bank" lower cost supplies for use
during periods of high volatility or take advantage of differential price
spreads between different markets. Energy marketers with strong and balanced
physical asset portfolios are able to originate tolling or reverse tolling of
gas and electric commodities. The integration of exploration, development,
production, gathering, and storage assets offers energy marketers the
opportunity to provide oil, gas and/or electric products and services to energy
users, at their discretion, depending on user requirements and needs. Finally,
the physical assets underlying an energy marketer's balance sheet may provide
substantial credit support for the financial transactions undertaken by the
marketer.
It is the intention of Applicants to add non-utility, marketing-related
assets as and when market conditions warrant, whether through acquisitions of
specific assets or groups of assets that are offered for sale, or by acquiring
existing companies (for example, other gas marketing companies which own
significant physical assets in the areas of gas production, processing, storage,
and transportation). Ultimately, it is the objective of Applicants to control a
portfolio of Energy Assets that would provide Applicants with the flexibility
and capacity to compete for sales in all major markets in the United States and
Canada.
With respect to investments and/or acquisitions in Canada, as in the
United States, such Energy Assets would be incidental to and would assist
Applicants and their subsidiaries (or any other energy trading, marketing or
brokering subsidiary hereafter acquired by Applicants) in connection with the
Commodities Business in Canada. Approval of this portion of the request would be
consistent with (i) the Commission's precedent authorizing the Commodity
Business in Canada, (ii) the Commission's recognition of the integration of the
North American energy market and the competitive benefits of allowing holding
companies to transact the Commodity Business in Canada, and (iii) recent trends
in energy policy as reflected in legislative and administrative action taken by
the United States Congress and U.S. regulatory authorities.4
C. Summary of Financing Proposals
As indicated, Applicants wish to have the flexibility to acquire Energy
Assets in cash transactions or in transactions in which the seller may wish to
receive common stock or other securities of Applicants or may include the
assumption of debt of the seller of such Energy Assets, or any combination of
the foregoing. A seller of Energy Assets may, for example, wish to arrange a
tax-free transaction in which it receives common stock of AEP. From the
Applicants' perspective, having the flexibility to arrange a tax-free
transaction may lower the seller's overall sales price. Accordingly, in order to
provide the maximum flexibility, AEP requests authorization to issue securities
in order to finance the purchase of Energy Assets, or the purchase of the
securities of companies owning Energy Assets, by Resources, AEPES and any
existing or new, direct or indirect subsidiaries of either company, in an
aggregate amount not to exceed the Investment Limitation, such securities to
consist of any combination of (i) shares of common stock of AEP; (ii) borrowings
by AEP from banks or other financial institutions under credit lines or
otherwise; (iii) guarantees of indebtedness issued by Resources, AEPES or any
existing or new, direct or indirect subsidiary of, Resources or AEPES; or (iv)
guarantees of securities issued by any Special Purpose Finance Subsidiary.
In turn, to the extent not exempt under Rule 52 and/or Rule 45(b),
Applicants also propose that Resources, AEPES, any existing or new, direct or
indirect subsidiary of Resources, AEPES, as well as any Special Purpose Finance
Subsidiary, be authorized to issue debt, equity or preferred securities of any
type, including guarantees as appropriate, from time to time during the
Authorization Period to finance acquisitions of Energy Assets.
The effective cost of money on long-term debt borrowings occurring
pursuant to the authorizations granted under this Application will not exceed
the greater of (i) 500 basis points over the comparable term U.S. Treasury
securities or (ii) a gross spread over U.S. Treasuries that is consistent with
similar securities of comparable credit quality and maturities issued by other
companies.5 The effective cost of money on short-term debt borrowings pursuant
to authorizations granted under this Application will not exceed the greater of
(i) 350 basis points over the comparable term London Interbank Offered Rate
("LIBOR") or (ii) a gross spread over LIBOR that is consistent with similar
securities of comparable credit quality and maturities issued by other
companies. The dividend rate on any series of preferred securities will not
exceed the greater of (a) 700 basis points over the yield to maturity of a U.S.
Treasury security having a remaining term equal to the term of such series of
preferred securities or (b) a rate that is consistent with similar securities of
comparable credit quality and maturities issued by other companies. The maturity
of unsecured indebtedness will not exceed 50 years. All preferred securities
will be redeemed no later than 50 years after the issuance thereof. The total of
(i) any AEP financings for which approval is requested above and (ii) any
financings performed on an exempt basis under Rule 52 will not exceed the
Investment Limitation. Any debt security issued to AEP to evidence loans by AEP
will comply with the requirements of Rule 52(b)(2).
AEP, Resources, AEPES and any existing or new, direct or indirect
subsidiary of either company, request authority to guarantee financial
commitments, other than indebtedness, of any entity owning or operating Energy
Assets entered into during the Authorization Period in an aggregate principal
amount not to exceed the Investment Limitation outstanding at any one time,
exclusive of any guarantees and other forms of credit support that are exempt
pursuant to Rule 45(b) and Rule 52(b). Each guarantor proposes to charge each
subsidiary a fee for each guarantee provided on its behalf that is comparable to
those obtainable by the beneficiary of the guarantee from third parties. Certain
of the guarantees may be in support of obligations of subsidiaries which are not
capable of exact quantification. In such cases, Applicants will determine the
exposure under such guarantee for purposes of measuring compliance with the
Investment Limitation by appropriate means including estimation of exposure
based on loss experience or projected potential payment amounts. Such estimates
will be reevaluated periodically and will be made in accordance with generally
accepted accounting principles.
Dividends Out of Capital.
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Rule 46 under the 1935 Act prohibits subsidiaries of registered holding
companies, including those companies formed by Applicants to own Energy Assets
or to hold, directly or indirectly, Applicants' ownership interests in such
companies (collectively, "Energy Asset Subsidiaries"), from declaring or paying
dividends out of capital or unearned surplus. It is requested that Energy Asset
Subsidiaries be authorized to declare and pay dividends to their parent
companies from time to time out of capital or unearned surplus to the extent
permitted by applicable law.6 Resources and AEPES may then pay dividends to AEP
to the extent that the dividend is based upon a (i) corresponding dividend paid
to them out of capital or unearned surplus by an Energy Asset Subsidiary that is
a direct subsidiary of Resources or AEPES, as the case may be, or (ii)
Resources' or AEPES' direct or indirect ownership of an Energy Asset Subsidiary.
It is expected that situations will arise where Energy Asset Subsidiaries
will have unrestricted cash available for distribution in excess of current and
retained earnings, if any. Consequently, in these situations the declaration and
payment of a dividend would have to be charged, in whole or in part, to capital
or unearned surplus.
One such situation could result if an Energy Asset Subsidiary were to sell
a portion or all of its equity in a subsidiary to a third party for cash. It
then would have substantial unrestricted cash available for upstream
distribution, but (assuming no profit on the sale) would not have available
current earnings and therefore could not, without prior Commission approval,
declare and pay a dividend to the Applicants out of such cash proceeds.
Any dividend actually declared and paid by an Energy Asset Subsidiary out
of capital or unearned surplus pursuant to the authority requested herein will
conform to applicable law of the respective company's jurisdiction of
organization and applicable covenant restrictions in loan or other financing
agreements.
The ability of the Energy Asset Subsidiaries to use distributable cash to
pay dividends ultimately to Resources or AEPES will benefit the AEP System by
enabling Resources and AEPES to dividend the cash to AEP or to apply such
amounts to the reduction or refinancing of outstanding bank borrowings and to
fund operations of other AEP subsidiaries. In addition, since Energy Asset
Subsidiaries will be engaged in activities described in this Application, the
payment of dividends out of capital or unearned surplus by these AEP direct and
indirect subsidiaries will not adversely affect the financial integrity of the
AEP System or jeopardize the working capital of AEP's Utility Subsidiaries
within the contemplation of Section 12(c) of the 1935 Act. Similar authority was
granted by the Commission in Entergy Corporation, HCAR No. 27039 (June 22,
1999), GPU International, Inc., HCAR No. 27023 (May 14, 1999) and Cinergy Corp.,
HCAR No. 26984 (March 1, 1999).
D. Other Matters
Pursuant to Rule 24, Applicants propose to report on a quarterly basis the
amount of Energy Assets purchased or constructed in the preceding period and a
brief description thereof. It is also proposed that the amount, type, and, if a
debt security, the maturity and interest rate, of securities issued by AEP,
Resources, AEPES and subsidiaries of either company, or any special purpose
financing subsidiary in connection with the acquisition of Energy Assets be made
a part of such quarterly report filed pursuant to Rule 24, and that such
reporting also be in lieu of any separate report on Form U-6B-2 for those
financings that are performed on an exempt basis under Rule 52.
E. Compliance with Rule 54
Rule 54 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 on June
15, 2000 pursuant to an order issued 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) and none of the
conditions set forth in Rule 53(b) exist or will exist as a result of the
transactions proposed herein.
Rule 53(a)(1) At September 30, 2001, AEP's "aggregate investment", as
defined in Rule 53(a)(1), in EWGs and FUCOs was approximately $1.547 billion, or
about 48.0% of AEP's "consolidated retained earnings", also as defined in Rule
53(a)(1), for the four quarters ended September 30, 2001 ($3.225 billion).
Rule 53(a)(2) Each FUCO in which AEP invests 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 electric utility
subsidiaries of AEP will, at any one time, directly or indirectly, render
services to any FUCO.
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 electric utility
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 quarters ended September 30, 2001
($3,225,000,000) represented a decrease of approximately $285,000,000 (or 8.8%)
in the average consolidated retained earnings from the four quarters ended
September 30, 2000 ($3,510,000,000); and (iii) for the fiscal year ended
December 31, 2000, AEP did not report operating losses attributable to its
direct or indirect investments in EWGs and FUCOs.
AEP's interests in EWGs and FUCOs have made a positive contribution to
earnings over the four calendar years ending after the Rule 53(c) Order.
Accordingly, since the date of the Rule 53(c) Order, the capitalization and
earnings attributable to AEP's investments in EWGs and FUCOs has not had an
adverse impact on AEP's financial integrity.
2. By filing these exhibits:
(a) Exhibits:
Exhibit C Cash flow analysis and capitalization forecast with a
request for confidential treatment
(b) Financial Statements:
Consolidated balance sheet of AEP at September 30, 2001. (Designated in
AEP's Form 10-Q for the period ended September 30, 2001, File No.
1-3525.)
Statements of income and cash flows of AEP at September 30, 2001.
(Designated in AEP's Form 10-Q for the period ended September 30, 2001,
File No. 1-3525.)
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned companies have duly caused this statement to be signed on
their behalf by the undersigned thereunto duly authorized.
AMERICAN ELECTRIC POWER COMPANY, INC.
AEP ENERGY SERVICES, INC.
AEP RESOURCES, INC.
By__/s/ A. A. Pena___
Treasurer
Dated: January 17, 2002
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1 The requested authority is consistent with Commission precedent. See
Alliant Energy Corporation, HCAR No. 27344 (Feb. 12, 2001) (authorizing
investment in gas and oil exploration, production, gathering, processing,
storage and transportation and facilities and related facilities in the U.S.
and Canada); see also Emera Incorporated, HCAR No. 27445 (Oct. 1, 2001).
2 Companies whose physical properties consist of Energy Assets may also be
currently engaged in energy (gas or electric or both) marketing or trading
activities. To the extent necessary, Applicants request authorization to
continue such activities in the event they acquire such companies.
3 See FERC Order 636, "Pipeline Service Obligations and Revisions to
Regulations Governing Self-Implementing Transportation; and Regulation of
Natural Gas Pipelines After Partial Wellhead Decontrol," 57 Fed. Reg. 13270
(April 16, 1992).
4 See the Commission's analysis in HCAR No. 27062 (August 19, 1999) for a
thorough discussion of the integration of North American energy markets.
5 See The Southern Company, HCAR No. 27134 (Feb. 9, 2000).
6 This authorization will not apply if any company becomes a 'public utility' as
defined in the 1935 Act.