[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