[Federal Register Volume 64, Number 48 (Friday, March 12, 1999)]
[Notices]
[Pages 12391-12396]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6129]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-26989]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
March 5, 1999.
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules
promulgated under the Act. All interested persons are referred to the
applications(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendments is/are available for public
inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by April 6, 1999, to the Secretary, Securities and Exchange
Commission, Washington, D.C. 20549, and serve a copy on the relevant
applicant(s) and/or declarants(s) at the address(es) specified below.
Proof of service (by affidavit or, in case of an attorney at law, by
certificate) should be filed with the request. Any request for hearing
should 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 the
matter. After April 6, 1999, the applicantion(s) and/or declaration(s),
as filed or as amended, may be granted and/or permitted to become
effective.
[[Page 12392]]
American Electric Power Company, Inc. and Central and South West
Corporation (70-9381)
American Electric Power Company, Inc. (``AEP''), 1 Riverside Plaza,
Columbus, Ohio 43215, and Central and South West Corporation (``CSW''),
1616 Woodall Rodgers Freeway, Dallas, Texas 75266, each a registered
holding company (collectively, ``Applicants''), have filed a joint
application-declaration under sections 6(a), 7, 9(a), 10, 11, 12(b),
12(c), 13(b), 32 and 33 of the Act and rules 43, 45, 46, 53, 54, 83,
87, 88, 90 and 91 under the Act.
Summary of Proposal
As described in more detail below, AEP proposes: (1) To acquire, by
means of the merger described below, all of the issued and outstanding
common stock of CSW (``CSW Common Stock'') and, as a result of the
acquisition of CSW Common Stock, acquire (a) all of the issued and
outstanding common stock of CSW's four direct electric utility
subsidiary companies and (b) all of the issued and outstanding common
stock of CSW's nonutility subsidiaries; (2) to capitalize a special
purpose subsidiary and issue shares of AEP common stock (``AEP Common
Stock'') to effect the proposed transactions; (3) to provide loans and
guarantees to CSW's nonutility subsidiaries; (4) that its service
company subsidiary, American Electric Power Service Corporation (``AEP
Service'') render services to AEP's and CSW's utility and nonutility
subsidiaries; (5) to retain CSW as a subsidiary public utility holding
company registered under section 5 of the Act for a period of not more
than eight years following the proposed merger; and (6) to retain CSW's
nonutility businesses.
AEP and Subsidiaries
AEP, a New York corporation, was incorporated under the laws of the
State of New York in 1906 and reorganized in 1925. AEP is a registered
public utility holding company that owns all of the outstanding shares
of common stock of seven U.S. electric utility operating subsidiaries:
Appalachian Power Company (``Appalachian Power''), Columbus Southern
Power Company (``Columbus Southern Power''), Indiana Michigan Power
Company (``Indiana Michigan Power'') Kentucky Power Company (``Kentucky
Power'') Kingsport Power Company (``Kingsport Power''), Ohio Power
Company (``Ohio Power'') and Wheeling Power Company (``Wheeling
Power''). Most of the operating revenues of AEP and its subsidiaries
are derived from sales of electricity. AEP also owns, either directly
or indirectly, all of the common stock of four material nonutility
businesses--AEP Resources, Inc. (``AEP Resources''), AEP Resources
Service Company ``AEPRESCO''), AEP Communications, LLC (``AEP
Communications''), and AEP Energy Services, Inc. (``AEP Energy
Services'')--and all of the common stock of two other businesses--AEP
Generating Company (``AEP Generating'') and AEP Service. AEP indirectly
owns 50% of the outstanding share capital of Yorkshire Electricity
Group plc.
AEP and its subsidiaries are subject to regulation by the
Commission under the Act. Certain of AEP's subsidiaries are also
subject to regulation by the Federal Energy Regulatory Commission
(``FERC'') under the Federal Power Act (``FPA'') with respect to rates
for interstate sale at wholesale and transmission of electric power,
accounting and other matters.
AEP's electric utility operating subsidiaries serve approximately
three million customers in Indiana, Kentucky, Michigan, Ohio,
Tennessee, Virginia and West Virginia. The generating and transmission
facilities of these subsidiaries are physically interconnected, and
their operations are coordinated, as a single integrated electric
utility system.\1\ Transmission networks are interconnected with
extensive distribution facilities in the territories served.
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\1\ The Commission has found that the AEP system is a single
integrated electric utility system. See American Elec. Power Co.,
Inc., HCAR No. 20633 (July 21, 1978).
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At December 31, 1997, the U.S. subsidiaries of AEP had a total of
17,844 employees. AEP itself has no employees. The seven electric
utility operating subsidiaries of AEP are each described below:
Appalachian Power, organized in Virginia in 1926, is engaged in
the generation, sale, purchase, transmission and distribution of
electric power to approximately 877,000 customers in the
southwestern portion of Virginia and southern West Virginia.
Appalachian Power also supplies electric power at wholesale to other
electric utility companies and municipalities in those states and in
Tennessee. Appalachian Power's retail rates and certain other
matters are subject to regulation by the West Virginia Public
Service Commission (``West Virginia Commission'') and the State
Corporation Commission of Virginia.
Colubus Southern Power, 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
central and southern Ohio. Columbus Southern Power also supplies
electric power at wholesale to other electric utilities and to
municipally owned distribution systems within its service area.
Columbus Southern Power's retail rates and certain other matters are
subject to regulation by the Public Utilities Commission of Ohio
(``Ohio Commission'').
Indiana Michigan Power, 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. Indiana Michigan Power
also supplies electric power at wholesale to other electric utility
companies, rural electric cooperatives and municipalities. Indiana
Michigan Power's retail rates and certain other matters are subject
to regulation by the Indiana Utility Regulatory Commission and the
Michigan Public Service Commission. Indiana Michigan Power also is
subject to regulation by the Nuclear Regulatory Commission (``NRC'')
under the Atomic Energy Act of 1954, as amended (``Atomic Energy
Act'') with respect to the operation of its nuclear generation
plant.
Kentucky Power, organized in Kentucky in 1919, is engaged in the
generation, sale, purchase, transmission and distribution of
electric power to approximately 168,000 customers in eastern
Kentucky. Kentucky Power also supplies electric power at wholesale
to other utilities and municipalities in Kentucky. Kentucky Power's
retail rates and certain other matters are subject to regulation by
the Kentucky Public Service Commission.
Kingsport Power, organized in Virginia in 1917, provides
electric service to approximately 43,000 customers in Kingsport and
eight neighboring communities in northeastern Tennessee. Kingsport
Power's retail rates and certain other matters are subject to
regulation by the Tennessee Regulatory Authority.
Ohio Power, 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. Ohio Power also supplies electric power at wholesale to other
electric utility companies and municipalities. Ohio Power's retail
rates and certain other matters are subject to regulation by the
Ohio Commission.
Wheeling Power, organized in West Virginia in 1883 and
reincorporated in 1911, provides electric service to approximately
42,000 customers in northern West Virginia. Wheeling Power owns no
generating facilities. It purchases electric power distributed to
its customers from Ohio Power. The principal industries served by
Wheeling Power include chemicals, coal mining and primary metal
products. Wheeling Power's retail rates and certain other matters
are subject to regulation by the West Virginia Commission.
AEP Generating was organized in Ohio in 1982 as an electric
generating company. AEP Generating sells power at
[[Page 12393]]
wholesale to Indiana Michigan Power and Kentucky Power, as well as to
Virginia Electric and Power Company, an unaffiliated public utility.
AEP Generating has no employees.
AEP Service provides, at cost, accounting, administrative,
information systems, engineering, financial, legal, maintenance and
other services to the AEP companies. The executive officers of AEP and
its public utility subsidiaries are all employees of AEP Service.
AEP engages in nonutility businesses primarily through AEP
Resources, AEPRESCO, AEP Communications, and AEP Energy Services, each
of which is described below:
AEP Resources' primary business is development of, and investment
in, ``exempt wholesale generators'' (as defined in section 32 of the
Act, ``EWGs''), ``foreign utility companies'' (as defined in section 33
of the Act, ``FUCOs''), qualifying cogeneration facilities and other
energy-related domestic and international investment opportunities and
projects.
AEPRESCO 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 was formed in 1997 to pursue opportunities in
the telecommunications field. AEP Communications operates a fiber optic
line that runs through Kentucky, Ohio, Virginia and West Virginia.
AEP Energy Services is authorized to engage in energy-related
activities, including marketing electricity, gas and other energy
commodities. AEP Energy Services is an energy-related company as
defined in rule 58 under the Act.
AEP Common Stock is listed on the New York Stock Exchange
(``NYSE''). As of August 31, 1998, there were 190,915,648 shares of AEP
Common Stock outstanding. AEP's consolidated operating revenues for the
twelve months ended June 30, 1998, after eliminating intercompany
transactions, were $8,195,575,000. Consolidated assets of AEP and its
subsidiaries as of June 30, 1998, were approximately $17.8 billion,
consisting of $11.6 billion in net electric utility property, plant and
equipment and $6.2 billion in other corporate assets.
CSW and Subsidiaries
CSW, incorporated under the laws of Delaware in 1925, owns all of
the common stock of four U.S. electric utility operating subsidiaries:
Central Power and Light Company (``CP&L''), Public Service Company of
Oklahoma (``PSO''), Southwestern Electric Power Company (``SWEPCO'')
and West Texas Utilities Company (``WTU''). CSW also owns all of the
common stock of Central and South West Services, Inc. (``CSW
Services''), CSW Energy, Inc. (``CSW Energy''), CSW International, Inc.
(``CSW International''), CSW Energy Services, Inc. (``CSW Energy
Services''), C3 Communications, Inc. (``C3 Communications''), CSW
Credit, Inc. (``CSW Credit'') and EnerShop, Inc. (``EnerShop''). In
addition, CSW owns 80% of the outstanding shares of common stock of CSW
Leasing, Inc. (``CSW Leasing'').
CSW's four electric utility subsidiaries are public utility
companies engaged in generating, purchasing, transmitting, distributing
and selling electricity. The generating, transmission and distribution
facilities of these subsidiaries are physically interconnected, and
their operations are coordinated, as a single integrated electric
utility system.\2\ CSW's U.S. electric utility operating subsidiaries
serve approximately 1.7 million customers in portions of Texas,
Oklahoma, Louisiana and Arkansas. These companies serve a mix of
residential, commercial and diversified industrial customers.
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\2\ See Central and South West Corp., HCAR No. 22439 (April 1,
1982) (terminating a Section 11(b)(1) hearing and upholding a 1945
determination by the Commission that CSW comprises one integrated
public utility system).
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CSW and its subsidiaries are subject to regulation by the
Commission under the Act. Certain of CSW's subsidiaries are also
subject to regulation by the FERC under the FPA with respect to rates
for interstate sale at wholesale and transmission of electric power,
accounting and other matters and construction and operation of
hydroelectric projects.
At December 31, 1997, the U.S. subsidiaries of CSW had 7,254
employees. CSW itself has no employees. The four electric utility
operating subsidiaries of CSW are described below:
CP&L, organized in Texas in 1945, is engaged in the generation,
sale, purchase, transmission and distribution of electric power to
approximately 628,000 customers in portions of south Texas. CP&L
also supplies electric power at wholesale to other electric utility
companies and municipalities. The Public Utility Commission of Texas
(``Texas Commission'') has original jurisdiction over retail rates
in the unincorporated areas of the state and appellate jurisdiction
over retail rates in the incorporated areas served by CP&L. CP&L is
also subject to regulation by the NRC under the Atomic Energy Act
with respect to the operation of its ownership interest in a nuclear
generating plant.
PSO, organized in Oklahoma in 1913, is engaged in the
generation, sale, purchase, transmission and distribution of
electric power to approximately 481,000 customers in portions of
eastern and southwestern Oklahoma. PSO also supplies electric power
at wholesale to other electric utility companies and municipalities.
PSO is subject to the jurisdiction of the Corporation Commission of
the State of Oklahoma with respect to retail rates.
SWEPCO, organized in Delaware in 1912, is engaged in the
generation, sale, purchase, transmission and distribution of
electric power to approximately 416,000 customers in portions of
northeastern Texas, northwestern Louisiana and western Arkansas.
SWEPCO also supplies electric power at wholesale to other electric
utility companies and municipalities. SWEPCO is subject to the
jurisdiction of the Arkansas Public Service Commission and the
Louisiana Public Service Commission with respect to retail rates. In
addition, the Texas Commission has original jurisdiction over retail
rates in the unincorporated areas and appellate jurisdiction over
retail rates in the incorporated areas served by SWEPCO in Texas.
WTU, organized in Texas in 1927, is engaged in the generation,
sale, purchase, transmission and distribution of electric power to
approximately 187,000 customers in portions of central west Texas.
WTU also supplies electric power at wholesale to other electric
utility companies and municipalities. The Texas Commission has
original jurisdiction over retail rates in the unincorporated areas
and appellate jurisdiction over retail rates in the incorporated
areas served by WTU.
CSW Services performs, at cost, various accounting, engineering,
tax, legal, financial, electronic data processing, centralized economic
dispatching of electric power and other services for the CSW companies,
primarily for CSW's U.S.electric utility subsidiaries. After the
Merger, services performed by CSW Services will be performed by AEP
Service.
CSW's material nonutility businesses are conducted through CSW
Energy, CSW International, CSW Energy Services, C3 Communications, CSW
Credit, EnerShop and CSW Leasing, each of which is described below:
CSW Energy develops, owns and operates independent power production
and cogeneration facilities within the United States. Currently, CSW
Energy has ownership interests in seven projects, six in operation and
one in development.
CSW International engages in international activities, including
developing, acquiring, financing and owning EWGs and FUCOs, either
alone or with local or other partners.
CSW Energy Services, an energy-related company under the Act, was
formed to compete in restructured
[[Page 12394]]
electric utility markets and serves as an energy service provider to
wholesale and retail customers. It also engages in the business of
marketing, selling, and leasing to certain consumers throughout the
United States certain electric vehicles and retrofit kits subject to
limitations imposed by the Commission.
C3 Communications has two main lines of business. C3
Communications' Utility Automation Division specializes in providing
automated meter reading and related services to investor owned
municipal and cooperative electric utilities. C3 Communications also
offers systems to aggregate meter data from a variety of technologies
and vendor products that span multiple communication mode
infrastructures including broadband, wireless network, power line
carrier and telephony-based systems. C3 Communications is an ``exempt
telecommunication company'' under section 34 of the Act.
CSW Credit was originally formed to purchase, without recourse,
accounts receivable from the CSW electric utility subsidiaries to
reduce working capital requirements.\3\ Because CSW Credit's capital
structure is more highly leveraged than that of the CSW electric
utility subsidiaries, CSW's overall cost of capital is lower.
Subsequent to its formation, DSW Credit's business has expanded to
include the purchase, without recourse, of accounts receivable from
certain nonaffiliated parties subject to limitations imposed by the
Commission.\4\
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\3\ See HCAR No. 24157 (July 31, 1986).
\4\ See HCAR No. 25138 (August 30, 1990); HCAR No. 25696
(December 8, 1992); HCAR No. 25720 (December 20, 1992); HCAR No.
26627 (December 13, 1996); HCAR No. 26684 (March 11, 1997).
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EnerShop, an energy-related company under the Act, provides energy
services to commercial, industrial, institutional and governmental
customers in Texas.
CSW Leasing is a joint venture with CIT Group/Capital Equipment
Financing. It was formed to invest in leveraged leases for the purpose
of managing the CSW system's tax liability.\5\
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\5\ See HCAR No. 23578 (January 22, 1985).
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CSW Common Stock is listed on the NYSE. As of August 31, 1998,
there were 212,461,876 shares of CSW Common Stock outstanding. CSW's
consolidated operating revenues for the twelve months ended June 30,
1998, after eliminating intercompany transactions, were approximately
$5.4 billion. Consolidated assets of CSW and its subsidiaries as of
June 30, 1998 were approximately $13.8 billion, consisting of $8.4
billion in net electric utility property, plant and equipment and $5.4
billion in other corporate assets.
The Proposed Merger
An Agreement and Plan of Merger, dated as of December 21, 1997
(``Merger Agreement'') among AEP, CSW and Augusta Acquisition
Corporation, a wholly owned subsidiary that AEP has incorporated under
Delaware law (``Merger Sub''), provides for a combination of AEP and
CSW in which Merger Sub will be merged with and into CSW (``Merger''),
with CSW as the surviving corporation.
Merger Sub was organized solely for the purpose of the Merger and
has not conducted any activities other than in connection with the
Merger. Merger Sub has no subsidiaries. Under the Merger Agreement,
each share of common stock of Merger Sub, par value $0.01 per share, to
be issued to AEP and outstanding immediately before the consummation of
the Merger will be converted into one share of CSW Common Stock, upon
consummation of the Merger. Thus, the sole purpose for Merger Sub is to
serve as an acquisition subsidiary of AEP for purposes of effecting the
Merger. AEP requests authority to acquire the common stock of Merger
Sub in order to effect the proposed Merger.
AEP also requests authority to issue shares of AEP Common Stock to
consummate the Merger. Each share of CSW Common Stock (other than
shares of CSW Common Stock owned by AEP, Merger Sub or any other direct
or indirect subsidiary of AEP, as well as shares of CSW Common Stock
that are owned by CSW or any direct or indirect subsidiary of CSW, in
each case not held on behalf of third parties) issued and outstanding
immediately prior to the effective date of the Merger will be converted
into the right to receive, and become exchangeable for, 0.60 shares of
AEP Common Stock. The former holders of CSW Common Stock will own
approximately 40% of the outstanding shares of AEP Common Stock after
the Merger. Each outstanding share of AEP Common Stock will be
unchanged as a result of the Merger. Applicants state that the Merger
is expected to have no effect on the outstanding public debt and
preferred securities of CSW and the respective subsidiaries of AEP and
CSW, which are described in the application.
After the Merger, CSW will be a wholly owned subsidiary of AEP.
Therefore, Applicants request that CSW survive as a holding company
interposed between AEP and the CSW electric utility subsidiaries, as
well as a portion of the other subsidiaries it currently owns, for a
period of up to eight years following the closing of the Merger. AEP's
utility and nonutility subsidiaries would remain subsidiaries of AEP.
CSW's utility and nonutility subsidiaries would become indirect
subsidiaries of AEP, other than CSW Services, which would be merged
into AEP Service, and CSW Credit, which would be held directly by AEP.
AEP, CSW and each of their subsidiaries after the Merger are referred
to collectively as the ``Combined Company.''
The Board of Directors of the Combined Company immediately
following the Merger will be composed of 15 members and will be
reconstituted to include all the then-current board members of AEP, the
current Chairman of CSW, and four additional outside directors of CSW
to be nominated by AEP. The headquarters of the Combined Company will
be located in Columbus, Ohio.
Related Proposals
Intrasystem Financings; CSW Money Pool. In order to maximize the
efficiencies resulting from the Merger, Applicants seek authority for
the Combined Company to reorganize, consolidate and, where necessary,
restate certain of the intrasystem financing and other authorizations
previously issued by the Commission to each of AEP, CSW, and their
respective subsidiaries, as discussed in more detail below.
Currently, the CSW system uses short-term debt, primarily
commercial paper, to meet working capital requirements and other
interim capital needs. In addition, to improve efficiency, CSW has
established a system money pool (``CSW Money Pool'') to coordinate
short-term borrowings for CSW, its electric utility subsidiary
companies and CSW Services, as set forth in prior Commission orders.\6\
AEP has no equivalent to the CSW Money Pool. Applicants request
authority, effective upon consummation of the Merger, for the Combined
Company to continue the Money Pool and to manage and fund it consistent
with all the terms and conditions of the CSW Money Pool Orders, and all
previous orders of this Commission relating to the Money Pool, subject
to the following: (1) CSW's $2,500,000,000 short-term borrowing
authorization will transfer to the Combined Company and Combined
Company's short-term borrowing limit shall be increased from
$500,000,000 to $4,675,000,000 (consisting of (a) $2,500,000,000
authorized for CSW, (b)
[[Page 12395]]
$2,135,000,000 authorized for AEP and AEP's utility subsidiaries, and
(c) $40,000,000 for AEP Service); (2) the Combined Company and AEP's
utility subsidiaries will be added as participants to the Money Pool
and permitted to issue short-term debt up to the amounts specified in
Commission order dated May 4, 1998 (HCAR No. 26867); and (3) AEP
Service will be added as a participant to the Money Pool, although its
borrowings would be exempt under rule 52(b). Applicants request that
following the Merger, both the Combined Company and CSW (for a
transitional period) will have in aggregate the authority that CSW has
with respect to the orders referenced above.
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\6\ See e.g. Central and South West Corp., HCAR No. 26697 (March
28, 1997); Central and South West Corp., HCAR No. 26854 (April 3,
1998) (``CSW Money Pool Orders'').
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CSW Credit purchases, without recourse, the accounts receivable of
CSW's U.S. electric utility subsidiary companies and certain
nonaffiliated utility companies. The sale of accounts receivable
provides CSW's U.S. electric utility subsidiary companies with cash
immediately, resulting in reduced working capital needs and revenue
requirements. In addition, because CSW Credit's capital structure is
more highly leveraged than that of CSW's U.S. electric utility
subsidiaries and due to CSW Credit's higher short-term debt ratings,
CSW's overall cost of capital is lower. CSW Credit issues commercial
paper to meet its financing needs. Applicants request approval,
effective upon consummation of the Merger, for the Combined Company to
acquire directly, and for CSW to transfer to the Combined Company, the
business of CSW Credit through: (1) the merger of CSW Credit with a
subsidiary of the Combined Company to be formed, if appropriate, (2)
the distribution or payment as a dividend of the common stock of CSW
Credit from CSW to the Combined Company, or (3) the acquisition of the
assets or common stock of CSW Credit by a subsidiary of the Combined
Company to be formed, if appropriate. Applicants request that, upon the
acquisition of the business of CSW Credit by the Combined Company, the
resulting company (``New Credit'') succeed to all of the authority of
CSW Credit as set forth in prior Commission orders.\7\
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\7\ See supra notes 3 and 4.
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Financing for CSW and Its Subsidiaries
Applicants request authorization for CSW and CSW's nonutility
subsidiaries to borrow or obtain guarantees from AEP under the same
terms and conditions as CSW and the nonutility subsidiaries of CSW are
currently authorized by Commission orders described below.
CSW has supported the financing and other activities of its
subsidiaries through obtaining Commission approval to issue and
guarantee certain indebtedness. After the Merger it may be more
efficient or commercially necessary for the Combined Company to support
certain of the financing arrangements and business activity previously
supported by CSW. Applicants request approval for the Combined Company,
upon consummation of the Merger, to support those financing and other
activities presently supported by CSW, including the issuance and
guaranteeing of indebtedness, under certain orders of the
Commission.\8\ It is Applicants' intention that, following the Merger,
both the Combined Company and CSW will simultaneously have in aggregate
the authority that CSW currently has with respect to those orders. The
Combined Company does not seek to increase this authority.
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\8\ Specifically, Applicants proposed that the authority of CSW
as stated in the following Commission orders be vested in both CSW
and the Combined Company: (i) Central and South West Corp., HCAR No.
26910 (August 24, 1998); (ii) Central and South West Corp., HCAR No.
26767 (October 21, 1997); (iii) Central and South West Corp., HCAR
No. 26766 (Oct. 21, 1997); (iv) Central and South West Corp., HCAR
No. 26762 (Sept. 30, 1997); and (v) Central and South West Corp.,
HCAR No. 26522 (May 29, 1996). In addition, the Applicants propose
that the guarantee authority of CSW as stated in Central and South
West Corp., HCAR No. 26811 (December 30l, 1997) be vested in both
CSW and the Combined Company and that all other authority of CSW as
stated in that order be vested in the Combined Company.
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Acquisition, Consolidation and Reorganization of nonutility Businesses.
Certain of the nonutility businesses of CSW (each, a ``CSW
Nonutility Business'') conduct activities that are substantially
equivalent to the activities of one or more nonutility subsidiaries of
AEP (each, an ``AEP Nonutility Business''). Applicants request
approval, as deemed appropriate by management, for the Combined Company
to acquire directly or indirectly, and for CSW to transfer to the
Combined Company, CSW Nonutility Businesses through: (1) merger or one
or more CSW Nonutility Businesses with one or more wholly owned
nonutility subsidiaries (either presently existing and performing
substantially equivalent activities or to be formed, if appropriate) of
the Combined Company (each, a ``Combined Nonutility Business''), (2)
the distribution or payment as a dividend of the common stock of one or
more CSW Nonutility Businesses from CSW to the Combined Company, or (3)
the acquisition of the assets or common stock of one or more CSW
Nonutility Businesses by one or more Combined Nonutility Businesses.
Applicants request approval, if management deems appropriate, to
consolidate each CSW Nonutility Business with its corresponding AEP
Nonutility Business into a single Combined Nonutility Business directly
or indirectly owned by the Combined Company. Applicants request
approval for the Combined Company to transfer to CSW, and CSW to
acquire, any AEP Nonutility Business or to consolidate any AEP
Nonutility Businesses with and into any like CSW Nonutility Business
consistent with the principles and authority noted above. Applicants
request that upon consolidation, each resulting Combined Nonutility
Business succeed to all of the authority of each corresponding CSW
Nonutility Business and AEP Nonutility Business, respectively, as set
forth in the applicable Commission orders.
Merger of CSW Services Into AEP Service; Amended Service Agreements
Applicants request approval, effective upon consummation of the
Merger, to merge CSW Services with and into AEP Service. Applicants
also request that, upon the merger of CSW Services into AEP Service,
AEP Service succeed to certain of the authority of CSW Services as set
forth in various Commission orders and that these activities with
respect to CSW Services include AEP Service.\9\
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\9\ Specifically, Applicants request that AEP Service succeed to
the authority of CSW Services as stated in: (i) Central Power and
Light Co., HCAR No. 26931 (October 21, 1998); (ii) Central and South
West Services, Inc., HCAR No. 26898 (July 21, 1998); (iii) Central
and South West Services, Inc., HCAR No. 26795 (December 11, 1997);
and (iv) Central Power and Light Corp., HCAR No. 26771 (October 31,
1997). Applicants, further request that the activities with respect
to CSW Services authorized in these orders include AEP Service, and
where applicable, the utility operating companies and the service
territories of the Combined Company's system.
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Under service agreements with each of the subsidiary companies of
AEP, AEP Service provides various technical, engineering, accounting,
administrative, financial, purchasing, computing, managerial,
operational and legal services to each of the AEP subsidiary companies.
Under the service agreements, these services are provided at cost.
Similarly, under service agreements with each of the subsidiary
companies of CSW, CSW Services provides various technical, engineering,
accounting, administrative, financial, purchasing, computing,
managerial, operational and legal services to each of
[[Page 12396]]
the CSW subsidiary companies. Under the service agreements, these
services are provided at cost.
Upon consummation of the Merger, CSW Services would be merged with
AEP Service, and AEP Service would be the surviving service company for
the Combined Company. Applicants intend that AEP Service would enter
into an amended service agreement with AEP's subsidiary companies and
CSW's subsidiary companies. Under the amended service agreement, AEP
Service would provide the services previously provided by the two
service companies, CSW Services and AEP Service.
Under the terms of the amended service agreement, AEP service will
render to the subsidiary companies of the Combined Company, at cost,
various technical, engineering, accounting, administrative, financial,
purchasing, computing, managerial, operational and legal services. AEP
Service will account for, allocate and charge its costs of the serves
provided on a full cost reimbursement basis under a work order system
consistent with the Uniform System of Accounts for Mutual and
Subsidiary Service Companies. Costs incurred in connection with
services performed for a specific subsidiary company will be billed
100% to that subsidiary company. Costs incurred in connection with
services performed for two or more subsidiary companies will be
allocated in accordance with various allocation factors. Indirect costs
incurred by AEP Service which are not directly allocable to one or more
subsidiary companies will be allocated and billed in proportion to how
either direct salaries or total costs are billed to the subsidiary
companies depending on the nature of the indirect costs themselves. The
time AEP Service employees spend working for each subsidiary will be
billed to and paid by the applicable subsidiary on a monthly basis,
based upon time records. Each subsidiary company will maintain separate
financial records and detailed supporting records. Applicants request
that the Commission approve the amended service agreement between AEP
Service and the subsidiary companies of the Combined Company and the
related allocation factors.
Investment in EWGs and FUCOs
By orders dated April 27, 1998 (HCAR No. 26864) and May 10, 1996
(HCAR No. 26516) (collectively, ``AEP EWG/FUCO Orders''), the
Commission authorized AEP to issue and sell securities up to 100% of
its consolidated retained earnings (approximately $1,645,000,000 at
June 30, 1998 (for investment in EWGs and FUCOs through AEP Resources.
By order dated January 24, 1997 (HCAR No. 26653) (``CSW EWG/FUCO
Order''), the Commission authorized CSW to issue and sell securities in
an amount up to 100% of its consolidated retained earnings
(approximately $1,732,000,000 at June 30, 1998) for investment in EWGs
and FUCOs through CSW Energy and CSW International. Applicants proposed
that the CSW EWG/FUCO Order terminate upon consummation of the Merger
and that the authority of the Combined Company to issue and sell
securities in an amount up to 100% of its consolidated retained
earnings for investment in EWGs and FUCOs be the same as that provided
by the AEP EWG/FUCO Orders, except that for purposes of determining the
amount of consolidated retained earnings as contemplated by the AEP
EWG/FUCO Orders, ``consolidated retained earnings;' will consist of the
consolidated retained earnings of the Combined Company.
Effect of Merger on Certain Stock-Based Benefit Plans
By order dated November 27, 1996 (HCAR No. 26616), the Commission
confirmed previous authority and authorized CSW to offer, through
December 31, 2001, 10,000,000 shares of CSW Common Stock under its
Dividend Reinvestment and Stock Purchase Plan (``CSW Dividend Plan''),
of which approximately 2,000,000 remain unissued. By order dated August
13, 1996 (HCAR No. 26553) (``AEP Dividend Plan Order'') the Commission
confirmed previous authority and authorized AEP to offer, through
December 31, 2000, 54,000,000 shares of AEP Common Stock under its
Dividend Reinvestment and Direct Stock Purchase Plan (``AEP Dividend
Plan''). Applicants request that, as soon as practicable upon
consummation of the Merger, (1) the authority of the CSW Dividend Plan
be terminated, and (2) the Combined Company be authorized to issue
55,200,000 shares of AEP Common Stock through December 31, 2000 under
the AEP Dividend Plan consistent otherwise with all the terms and
conditions set forth in the AEP Dividend Plan Order.
By order dated November 21, 1995 (HCAR No. 26413) (``CSW Thrift
Plan Order''), the Commission confirmed previous authority and
authorized CSW to issue and sell a total of 5,000,000 shares of CSW
Common Stock to the trustee of the Central and South West Thrift Plan
(``CSW Thrift Plan''), of which approximately 4,400,000 remain
unissued. By order dated December 1, 1997 (HCAR No. 26786) (``AEP
Savings Plan Order''), the Commission confirmed previous authority and
authorized AEP to sell, through December 31, 2001, 8,800,000 shares of
AEP Common Stock to the trustee of the American Electric Power System
Employees Savings Plan (``AEP Saving Plan''). Applicants request that,
upon consummation of the Merger, (1) authority of CSW to issue shares
of CSW Common Stock to the CSW Thrift Plan be terminated, and (2) the
Combined Company be authorized to issue 11,440,000 shares of AEP Common
Stock through December 31, 2001 in connection with the AEP Savings Plan
and the CSW Thrift Plan, for a transitional period, consistent
otherwise with all the terms and conditions of the AEP Savings Plan
Order and the CSW Thrift Plan Order, respectively.
By order dated April 7, 1992 (HCAR No. 25511) (``CSW Incentive Plan
Order''), the Commission authorized CSW to adopt the Central and South
West Corporation 1992 Long Term Incentive Plan (``CSW Incentive Plan'')
under which certain key employees would be eligible, through December
31, 2001, to receive certain performance and equity-based awards
including (a) stock options, (b) stock appreciation rights, (c)
performance units, (d) phantom stock, and (e) restricted shares of
common stock. Applicants request that, upon consummation of the Merger,
the Combined Company succeed to the authority of CSW to permit it (1)
to honor the awards granted by CSW prior to the consummation of the
Merger, (2) to administer the plan (subject to any necessary
shareholder or regulatory approval) on a Combined Company basis and
grant any remaining awards, and (3) to reserve and issue sufficient
shares of AEP Common Stock under subparagraphs (1) and (2) above in
connection with the CSW Incentive Plan consistent otherwise with all
the terms and conditions.
For the Commission, by the Division of Investment Management
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-6129 Filed 3-11-99; 8:45 am]
BILLING CODE 8010-01-M
