[Federal Register Volume 67, Number 120 (Friday, June 21, 2002)]
[Notices]
[Pages 42294-42300]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15709]



[[Page 42294]]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27540]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

June 14, 2002.
    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 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch 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 July 9, 2002, to the Secretary, Securities and Exchange 
Commission, Washington, D.C. 20549-0609, and serve a copy on the 
relevant applicant(s) and/or declarant(s) at the address(es) specified 
below. Proof of service (by affidavit or, in the case of an attorney at 
law, by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts 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 July 9, 2002, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

American Electric Power Company Inc., et al. (70-9785)

    American Electric Power Company Inc. (``AEP''), Central and South 
West Corporation (``CSW''), both registered holding companies, American 
Electric Power Service Corporation (``AEPSC''), and Columbus Southern 
Power Company (``CSP''), all located at 1 Riverside Plaza, Columbus, 
Ohio 43215; Central Power and Light Company (``CPL''), 539 North 
Carancahua Street, Corpus Christi, Texas 78401-2802; Ohio Power Company 
(``OPCO''), 301 Cleveland Avenue S.W., Canton, Ohio 44702; Southwestern 
Electric Power Company (``SWEPCO''), 428 Travis Street, Shreveport, 
Louisiana 71156-0001; and West Texas Utilities Company (``WTU''), 301 
Cypress Street, Abilene, Texas 78601-5820, (collectively, 
``Applicants''), have filed an application-declaration 
(``Application'') under sections 6(a), 7, 9(a), 10, 12(b), 12(c), 
12(d),13(b), and 32 of the Act and rules 43, 44, 45, 46, 54, 90 and 91 
under the Act.
    Applicants seek authority to restructure the AEP system and to 
carry out transactions associated with that restructuring. The 
restructuring of the AEP system is prompted by restructuring of the 
electric industry in Texas and Ohio. The Application requests authority 
to create and capitalize certain entities and transfer generating and 
distribution/transmission assets. Applicants also make a number of 
financing requests associated with the restructuring.
    AEP holds vertically integrated electric utility companies with 
retail utility operations in 11 states--Arkansas, Indiana, Kentucky, 
Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and 
West Virginia. These states have reached different decisions about when 
and how to restructure electric industries. Texas and Ohio have opted 
to deregulate generation, require separation of the generation and 
energy delivery functions and eliminate the concept of native load 
retail service in favor of free and open competition for retail 
customers. Both states have approved restructuring plans. To comply, 
AEP's utility companies operating in Texas and Ohio will separate their 
assets between Power Generating Company (``PGC'') affiliates that will 
sell power and energy at wholesale and Energy Delivery Company 
(``EDC'') affiliates that will own transmission and local distribution 
facilities, transport energy and perform metering functions.
    In connection with this restructuring, AEP proposes to realign 
certain of its utility and nonutility businesses under three first tier 
subsidiaries: CSW, Enterprises and AEPSC. CSW will become the regulated 
holding company (``Reg Holdco'') and will serve as an intermediate 
holding company for the EDC affiliates and certain other AEP utility 
subsidiary companies that are not required to restructure, including 
vertically integrated companies. Enterprises will be an intermediate 
holding company for AEP's nonutility businesses and the PGC 
subsidiaries. Under Enterprises will be Wholesale Holdco, which will 
hold Domestic Holdco. Domestic Holdco will hold the PGC affiliates. 
AEPSC will continue to provide services to the AEP system companies, 
such as centralized and regionalized management and support for 
generation subsidiaries.
    The Ohio statute that provides for competitive retail electric 
service, referred to as S.B.3, directs vertically integrated electric 
utilities that offer retail electric service to separate their 
generating and other competitive operations (such as marketing, and 
brokering) and related assets from their transmission and distribution 
operations and assets.
    The Texas statute, referred to as S.B. 7, requires vertically 
integrated electric utilities to separate ownership of their generating 
and other power supply assets from ownership of their transmission and 
distribution assets. Under S.B. 7, vertically integrated utilities are 
generally obligated to disaggregate into at least three separate 
corporate units: (1) A PGC that will sell power and energy at 
wholesale; (2) an EDC that will own transmission and local distribution 
facilities and perform metering functions but cannot own power supply 
facilities or sell electricity; and (3) a retail electric provider 
(``REP'') that will sell electricity to retail customers.

Transfer of Assets Proposals

    To comply with restructuring plans in Texas and Ohio, Applicants 
seek authority for CPL, CSP, OPCO, SWEPCO \1\ and WTU (``Operating 
Companies'') to transfer assets as required by each state. Assets to be 
transferred will be generating facilities, step-up transformers, 
circuit breakers, interconnection facilities, related facilities and 
other assets associated with generating units that CPL and WTU will 
transfer to PGC companies as well as transmission lines, transmission 
facilities, distribution lines and distribution facilities that CSP, 
OPCO and SWEPCO \2\ will transfer to EDC companies. Assets remaining 
after these transfers will be transmission/distribution assets held by 
CPL EDC and WTU EDC and generation assets held by CSP PGC, OPCO PGC and 
SWEPCO PGC.
---------------------------------------------------------------------------

    \1\ Applicants request that the Commission reserve jurisdiction 
over all transfers and other authority requested in the Application 
relating to SWEPCO, SWEPCO EDC and SWEPCO Transco (a to-be-formed 
EDC which will hold the Texas transmission assets and related 
liabilities of SWEPCO).
    \2\ SWEPCO will retain title to its generating assets because it 
provides bundled retail electric service in Louisiana, which to date 
has not adopted retail competition legislation, and in Arkansas, 
where SWEPCO is not obligated to separate ownership of its 
generating assets from its transmission and distribution assets. In 
order to comply with S.B. 7, however, SWEPCO will contribute its 
transmission and distribution assets in Texas and related business 
operations to SWEPCO EDC, a wholly owned subsidiary of AEP.
---------------------------------------------------------------------------

    Specifically, the transfer requests are as follows:
    (i) CPL to transfer or contribute a total of 100% of its ownership 
interests in its

[[Page 42295]]

generation assets (estimated net book value at December 31, 2001, 
$2,412 million) and related liabilities (estimated book value at 
December 31, 2001, $1,074 million) to CPL PGC at their net book value 
at the transfer date and for CPL PGC to transfer or contribute a total 
of 100% of its ownership interests in such generation assets and 
related liabilities to CPL PGC LP at the same book value.\3\
---------------------------------------------------------------------------

    \3\ CPL will retain its transmission and distribution assets 
(estimated net book value at December 31, 2001, $2,703 million) and 
related liabilities (estimated book value at December 31, 2001, 
$2,203 million).
---------------------------------------------------------------------------

    (ii) WTU to transfer or contribute a total of 100% of its ownership 
interests in its generation assets (estimated net book value at 
December 31, 2001, $394 million) and related liabilities (estimated 
book value at December 31, 2001, $208 million) to WTU PGC at their net 
book value at the transfer date and for WTU PGC to transfer or 
contribute a total of 100% of its ownership interests in such 
generation assets and related liabilities to WTU PGC LP at the same 
book value (see Exhibits B-3 and B-6).\4\
---------------------------------------------------------------------------

    \4\ WTU will retain its transmission and distribution assets 
(estimated net book value at December 31, 2001, $629 million) and 
related liabilities (estimated book value at December 31, 2001, $376 
million).
---------------------------------------------------------------------------

    (iii) OPCO to transfer or contribute a total of 100% of its 
ownership interests in its transmission and distribution assets 
(estimated net book value at December 31, 2001, $2,263 million) and 
related liabilities (estimated book value at December 31, 2001, $816 
million) to OPCO EDC at their book value at the transfer date.\5\
---------------------------------------------------------------------------

    \5\ OPCO will retain its generation assets (estimated net book 
value at December 31, 2001, $2,814 million) and related liabilities 
(estimated book value at December 31, 2001, $2,252 million).
---------------------------------------------------------------------------

    (iv) CSP to transfer or contribute a total of 100% of its ownership 
interests in its transmission and distribution assets (estimated net 
book value at December 31, 2001, $1,515 million) and related 
liabilities (estimated book value at December 31, 2001, $474 million) 
to CSP EDC at their book value at the transfer date.\6\
---------------------------------------------------------------------------

    \6\ CSP will retain its generation assets (estimated net book 
value at December 31, 2001, $1,680 million) and related liabilities 
(estimated book value at December 31, 2001, $1,320 million).
---------------------------------------------------------------------------

    (v) SWEPCO to transfer or contribute a total of 100% of its 
ownership interests in (i) its distribution assets and related 
liabilities located in Texas to SWEPCO EDC and (ii) the undivided 
interest in a load-based allocation of all of SWEPCO's transmission 
assets and related liabilities (``Texas Transmission Assets and Related 
Liabilities'') to SWEPCO Transco (a to-be-formed EDC) at their book 
value on the transfer date (the value of assets and liabilities to be 
transferred and retained have not yet been determined).
    (vi) After the transfers are executed, AEP seeks approval for:
    (a) CPL EDC to dividend CPL PGC's common stock or limited liability 
interest to CSW, which will dividend the stock to AEP, which will 
contribute the stock to Enterprises, which will contribute the stock or 
limited liability interest to Wholesale Holdco, which will contribute 
the stock or limited liability interest to Domestic Holdco.
    (b) WTU EDC to dividend WTU PGC's common stock or limited liability 
interest to CSW, which will dividend the stock to AEP, which will 
contribute the stock or limited liability interest to Enterprises, 
which will contribute the stock or limited liability interest to 
Wholesale Holdco, which will contribute the stock to Domestic Holdco.
    (c) OPCO PGC to dividend OPCO EDC's common stock or limited 
liability interest to AEP, which will contribute the stock or limited 
liability interest to Reg Holdco.
    (d) OPCO EDC to merge with and into OPCO EDC LLC so that following 
the merger OPCO EDC will be a single member limited liability company 
all of whose limited liability interest is held by Reg Holdco.
    (e) CSP PGC to dividend CSP EDC's common stock or limited liability 
interest to AEP, which will contribute the stock or limited liability 
interest to Reg Holdco.
    (f) SWEPCO to dividend the common stock or limited liability 
interest of SWEPCO EDC to CSW.
    (vii) Upon completion of these transactions, Reg Holdco will hold 
CPL EDC, WTU EDC, SWEPCO, SWEPCO EDC, OPCO EDC and CSP EDC, and, 
indirectly, SWEPCO Transco, each of which will own transmission and 
distribution assets and related liabilities (other than SWEPCO which 
will continue to be a vertically integrated utility with respect to its 
operations located outside of Texas). Domestic Holdco will hold, among 
other things, CPL PGC, WTU PGC, OPCO PGC and CSP PGC, each of which 
will own, directly or indirectly, generation assets and related 
liabilities and, upon all necessary state and federal regulatory 
approval, will be exempt wholesale generators (``EWGs''), as defined in 
section 32 of the Act.
    (viii) Subject to any required state approval, AEP seeks 
authorization to contribute the stock of the AEP Generating Company, 
Appalachian Power Company, Indiana Michigan Power Company, Kentucky 
Power Company, Kingsport Power Company and Wheeling Power Company 
(``Vertically Integrated Companies''), all currently owned by AEP, to 
Reg Holdco and for Reg Holdco to acquire the stock of the Vertically-
Integrated Companies.

Formation and Capitalization of Entities

    Applicants seek authority to form and capitalize Enterprises as a 
first tier wholly owned corporation or limited liability company, 
Wholesale Holdco as a wholly owned subsidiary corporation or limited 
liability company of Enterprises, and Domestic Holdco as a wholly owned 
subsidiary corporation or limited liability company of Wholesale 
Holdco. AEP, Enterprises and Wholesale Holdco, respectively, propose to 
make an initial capital contribution to Enterprises, Wholesale Holdco 
and Domestic Holdco, respectively, in an amount to be determined, in 
exchange for all of the commons stock of, or limited liability interest 
in, Enterprises, Wholesale Holdco and Domestic Holdco. AEP, Enterprises 
and Wholesale Holdco seek authority for Enterprises, Wholesale Holdco 
and Domestic Holdco to issue, and for AEP, Enterprises and Wholesale 
Holdco, respectively, to acquire all of the common stock of or limited 
liability interest in Enterprises, Wholesale Holdco and Domestic 
Holdco, respectively.
    Applicants also seek authority to form and capitalize the EDC and 
PGC entities to which and through which the generation and the 
transmission/distribution assets will be transferred. CPL will form and 
capitalize CPL PGC to hold the generation assets and related 
liabilities of CPL; WTU will form and capitalize WTU PGC to hold the 
generation assets and related liabilities of WTU; CPL PGC will form and 
capitalize CPL PGC LLC, which would serve as the general partner of CPL 
PGC LP; (4) CPL PGC and CPL PGC LLC will form and capitalize CPL PGC LP 
to hold the generation assets and related liabilities of CPL PGC; WTU 
PGC will form and capitalize WTU PGC LLC, to serve as the general 
partner of WTU PGC LP; WTU PGC and WTU PGC LLC will form and capitalize 
WTU PGC LP to hold the generation assets and related liabilities of WTU 
PGC; OPCO will form and capitalize OPCO EDC to hold the transmission 
and distribution assets and related liabilities of OPCO; CSP will form 
and capitalize CSP EDC to hold the transmission and distribution assets 
and related liabilities of CSP; SWEPCO will form and capitalize SWEPCO 
EDC to hold its distribution assets and related liabilities in Texas 
and SWEPCO Transco to hold the Texas Transmission

[[Page 42296]]

Assets and Related Liabilities; and Reg Holdco will form and capitalize 
OPCO EDC LLC for the purpose of merging OPCO EDC with and into Reg 
Holdco.
    To capitalize the PGC and EDC subsidiaries, Applicants seek the 
following authority:
    (i) CPL to acquire all of the common stock of, or limited liability 
interest in, CPL PGC in exchange for transferring its generation assets 
(including its interest in the South Texas Project nuclear generating 
station) and related liabilities to CPL PGC and for CPL PGC to issue, 
and for CPL to acquire, all of the common stock of, or limited 
liability interest in, CPL PGC.
    (ii) CPL PGC to acquire all of the membership interests of CPL PGC 
LLC in exchange for sufficient capitalization for CPL PGC LLC to act as 
general partner of CPL PGC LP and for CPL PGC LLC to issue, and for CPL 
PGC to acquire, all of the membership interests of CPL PGC LLC.
    (iii) CPL PGC to acquire all of the limited partnership interest of 
CPL PGC LP in exchange for transferring its generation assets and 
related liabilities to CPL PGC LP, for CPL PGC LLC to acquire the 
general partnership interest of CPL PGC LP, for CPL PGC LP to issue, 
and for CPL PGC to acquire, all of the limited partnership interest of 
CPL PGC LP and for CPL PGC LP to issue, and for CPL PGC LLC to acquire, 
the general partnership interest of CPL PGC LP.
    (iv) WTU to acquire all of the common stock of, or limited 
liability interest in, WTU PGC in exchange for transferring its 
generation assets and related liabilities to WTU PGC and for WTU PGC to 
issue, and for WTU to acquire, all of the common stock of, or limited 
liability interest in, WTU PGC.
    (v) WTU PGC to acquire all of the membership interests of WTU PGC 
LLC in exchange for sufficient capitalization for WTU PGC LLC to act as 
general partner of WTU PGC LP and for WTU PGC LLC to issue, and for WTU 
PGC to acquire, all of the membership interests of WTU PGC LLC.
    (vi) WTU PGC to acquire all of the limited partnership interest of 
WTU PGC LP in exchange for transferring its generation assets and 
related liabilities to WTU PGC LP, for WTU PGC LLC to acquire the 
general partnership interest of WTU PGC LP, for WTU PGC LP to issue, 
and for WTU PGC to acquire, all of the limited partnership interest of 
WTU PGC LP and for WTU PGC LP to issue, and for WTU PGC LLC to acquire, 
the general partnership interest of WTU PGC LP.
    (vii) OPCO to acquire all of the common stock of, or limited 
liability interest in, OPCO EDC in exchange for transferring its 
transmission and distribution assets and related liabilities to OPCO 
EDC and for OPCO EDC to issue, and for OPCO to acquire, all of the 
common stock of, or limited liability interest in, OPCO EDC.
    (viii) CSP to acquire all of the common stock of, or limited 
liability interest in, CSP EDC in exchange for transferring its 
transmission and distribution assets and related liabilities to CSP EDC 
and for CSP EDC to issue, and for CSP to acquire, all of the common 
stock of, or limited liability interest in, CSP EDC.
    (ix) SWEPCO to acquire all of the common stock of, or limited 
liability interests in, SWEPCO EDC in exchange for transferring its 
distribution assets and related liabilities located in Texas to SWEPCO 
EDC and to acquire all of the common stock of, or limited liability 
interests in SWEPCO Transco in exchange for transferring the Texas 
Transmission Assets and Related Liabilities to SWEPCO Transco, and for 
SWEPCO EDC and SWEPCO Transco, respectively, to issue and SWEPCO to 
acquire all of the common stock of or limited liability interest in 
SWEPCO EDC and SWEPCO Transco.
    (x) Reg Holdco to acquire all of the limited liability interest in 
OPCO EDC LLC and for OPCO EDC LLC to issue all of its limited liability 
interest to Reg Holdco.

Other Proposals

    AEP is seeking EWG status for the PGC affiliates. If EWG status is 
not immediately obtained, Enterprises, Wholesale Holdco and Domestic 
Holdco (``Enterprise Holding Companies'') will register under the Act. 
Accordingly, for a period of 12 months beginning with the date of the 
order in this filing, the Enterprise Holding Companies seek a waiver 
from the otherwise applicable requirement to file Form U5B while EWG 
certification is sought for the generating assets they will hold. 
Applicants also request authority under section 12(d) of the Act to 
divest to third parties the generating capability of CPL's Lon Hill 
Units 1-4, Nueces Bay plant, and Joslin Unit 1 if EWG status is not 
obtained in time for CPL to meet the deadline to divest these 
generating assets. If divestment of these units is made to 
nonaffiliated purchasers, divestment will be at fair market value.
    In addition to the foregoing affiliate transfers, CPL, SWEPCO and 
WTU seek authority to sell certain utility assets to non-affiliates as 
required by S.B.7. The statute states that each electric utility 
``shall separate from its regulated utility activities its customer 
energy services business activities that are otherwise also already 
widely available in the competitive market.'' Rules promulgated in 
connection with this provision define ``competitive energy services'' 
as non-roadway lights and distribution facilities, including 
distribution transformers, conductors, and associated distribution 
equipment beyond the customer's primary metering point as well as 
substation facilities dedicated to serving individual customers. CPL, 
SWEPCO and WTU have offered customers the option to purchase such 
facilities, provide their own facilities or convert their service to 
secondary metering. Should a customer elect to purchase the facilities, 
CPL, SWEPCO and WTU request authority to sell these assets.
    AEP also seeks authority to restructure within or to the 
Enterprises chain of entities its nonutility holdings (including 
utility holdings that are not subject to state regulation) from time to 
time as may be necessary or appropriate. This restructuring might 
involve the acquisition of new special purpose subsidiaries to acquire 
and hold direct or indirect interests in any or all of the AEP system's 
existing or future authorized nonutility businesses or it might involve 
the creation, capitalization and acquisition of a subsidiary to hold 
non-utility interests or the transfer of existing subsidiaries or 
portions of existing businesses among AEP associates or the 
reincorporation of existing subsidiaries in a different state.
    AEPSC seeks authority to render services to any direct or indirect 
subsidiary of any Applicant to be formed as requested in this 
Application in accordance with the existing AEP service agreement and 
in compliance with ``at cost'' provisions of Rules 90 and 91 of the 
Act. Also requested is authority for Operating Companies to enter into 
operating agreements with respective subsidiaries for the period 
following receipt of respective state regulatory approvals of relevant 
portions of the AEP restructuring proposed in this filing but prior to 
actual restructuring as proposed.
    Authority is also requested to establish services entities. AEP 
proposes to organize a specialized service company (``GenServCo'') for 
dispatch, wholesale trading and fuel procurement of generation assets 
not subject to state regulation and other energy-related services. 
Affiliate companies will reimburse GenServCo for its services on a full 
cost basis in accordance with the Act. Applicants request that the 
Commission reserve jurisdiction on approval of GenServCo until 
completion of the record. In addition, a division may be established 
under AEPSC to

[[Page 42297]]

comply with a code of conduct established in connection with S.B. 7 
which prohibits PGCs and EDCs in Texas from sharing the services of a 
single service provider for services such as engineering, purchasing of 
electric transmission, transmission and distribution system operations 
and marketing services.
    CPL EDC, CPL PGC, CPL PGC LLC, CPL PGC LP, CSP EDC, CSP PGC, 
Domestic Holdco, Enterprises, OPCO EDC, OPCO PGC, Reg Holdco, SWEPCO 
EDC, SWEPCO Transco, Wholesale Holdco, WTU EDC, WTU PGC, WTU PGC LLC 
and WTU PGC LP (``Finance Applicants'') and, following the transactions 
for which authority is sought in this Application, any subsidiary 
controlled by a Finance Applicant, requests authorization under Section 
13(b) of the 1935 Act to provide services and sell goods to the 
nonutility associate companies described below at fair market prices 
determined without regard to cost and requests an exemption under 
Section 13(b) of the 1935 Act from the cost standards of Rules 90 and 
91, as applicable to these transactions, in any case in which the 
nonutility subsidiary purchasing these goods or services is:
    1. A FUCO or foreign EWG which derives no part of its income, 
directly or indirectly, from the generation, transmission, or 
distribution of electric energy for sale within the United States.
    2. An EWG which sells electricity at market-based rates which have 
been approved by the FERC, provided that the purchaser is not a public 
utility company in the AEP system;
    3. A ``qualifying facility'' (``QF'') within the meaning of the 
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA''), 
that sells electricity exclusively at rates negotiated at arms'' length 
to one or more industrial or commercial customers purchasing the 
electricity for their own use and not directly for resale and/or to an 
electric utility company other than a public utility in the AEP system 
at the purchaser's ``avoided cost'' as determined in accordance with 
PURPA regulations;
    4. A domestic EWG or QF that sells electricity at rates based upon 
its cost of service, as approved by FERC or any state public utility 
commission having jurisdiction, provided that the purchaser is not a 
public utility company in the AEP System;
    5. A subsidiary engaged in Rule 58 activities or any other 
nonutility subsidiary that: (1) is partially owned by a member of the 
AEP system, (2) is engaged solely in the business of developing, 
owning, operating and/or providing services or goods to the nonutility 
subsidiaries described in clauses 1 through 4 immediately above, or (3) 
does not derive any part of its income from a public-utility company 
within the AEP system.

Financing Requests

    Applicants make a number of financing requests in connection with 
the restructuring for a period up to June 30, 2005.
    AEP requests authority to:
    (1) Issue guarantees (including guarantees for debt), obtain 
letters of credit, enter into support or expense agreements or 
otherwise provide credit support to Finance Applicants and enter into 
guarantees of nonaffiliated third parties' obligations in an amount not 
to exceed $15 billion outstanding at any one time (such guarantees 
issued by AEP will be subject to rule 58(a)(1) and rule 53 limitations 
in effect for AEP).
    (2) Acquire the debt or other securities of Enterprises, Wholesale 
Holdco, Domestic Holdco and Reg Holdco for the purpose of lending to 
them.
    (3) Invest in the EWGS to be held by CPL PGC, CPL PGC LLC, CPL PGC 
LP, CSP, OPCO, WTU PGC, WTU PGC LLC and WTU PGC LP (``Enterprises 
Subsidiaries''), the entities holding the generation assets to be 
transferred by this Application, up to the aggregate of the equity 
accounts of the Enterprises Subsidiaries, which was approximately $2.4 
billion as of December 31, 2001, plus up to an aggregate of $1.5 
billion of related guarantees and credit support for the benefit of the 
Enterprises Subsidiaries. This Application contemplates that (i) 
generation assets currently owned by WTU and CPL (``Generation 
Assets'') will be transferred to Texas PGC subsidiaries (``Texas 
PGCs''), (ii) upon transfer of the transmission and distribution assets 
and related liabilities, OPCO and CSP will be PGCs (``Ohio PGCs''), 
which with the Texas PGCs are also the Enterprises Subsidiaries, and 
(iii) the Enterprises Subsidiaries will be held by a direct or indirect 
subsidiary of Enterprises. The Enterprises Subsidiaries will be public 
utility companies within the meaning of the Act until such time as the 
Federal Energy Regulatory Commission grants them EWG status. The 
Generation Assets will be transferred to the Texas PGCs at book value 
as required by Texas state law. The fair market value of the Generation 
Assets is not known at this time. Applicants propose that once EWG 
status is obtained for the Enterprises Subsidiaries, the aggregate 
investment in them will be $3.911 billion consisting of (i) $2.411 
billion, as of December 31, 2001, which is the aggregate of the equity 
accounts of the Enterprises Subsidiaries as projected in Exhibit B-2 
and which amount reflects the equity investment of AEP in the 
Enterprises Subsidiaries and, therefore, is recourse to AEP (``Recourse 
Amounts''), and (ii) $1.5 billion of related guarantees and other 
credit support by AEP for the benefit of these subsidiaries. If AEP 
subsequently determines to retain the Texas PGCs, the fair market value 
of the Generation Assets will be substituted for the Texas PGC portion 
of the Recourse Amounts in the $3.911 billion aggregate investment 
amount. AEP is currently authorized by order to engage in EWG and FUCO 
financings in an amount equal to 100 percent of consolidated retained 
earnings as defined in rule 53(a)(1). That amount was $3.308 billion as 
of March 31, 2002. Current investment in these entities is $2.970 
billion.
    Financing requests by other entities:
    The following entities seek authority to issue securities to non-
affiliated and affiliated entities in aggregate principal amounts (not 
including the refunding of outstanding securities) as follows: (1) each 
Enterprises Holding Company up to $5 billion; (2) CPL PGC, CPL PGC LP, 
and CPL PGC LLC up to $1 billion; (3) CSP PGC up to $500 million; (4) 
OPCO PGC up to $1 billion; (5) WTU PGC, WTU PGC LP, and WTU PGC LLC up 
to $250 million; (6) Reg Holdco up to $10 billion; (7) CPL EDC up to $1 
billion; (8) SWEPCO EDC up to $500 million; (9) SWEPCO Transco up to 
$500 million; (10) WTU EDC up to $500 million.
    Each Enterprise Holding Company proposes to: (1) issue guarantees 
and extend credit support to Enterprises subsidiaries, any finance 
subsidiary owned by it, any other Enterprises Holding Company, any 
direct or indirect subsidiary of any Enterprises Holding Company or any 
nonaffiliate in accordance with the parameters set forth in the 
Application in an aggregate amount not to exceed $10 billion; (2) enter 
into hedging transactions; (3) acquire the debt or other securities of 
any Enterprises subsidiary or other Enterprises holding company for the 
purpose of lending to them.
    Authority is sought for Reg Holdco to acquire the debt or other 
securities of any affiliated public utility company whose common equity 
is owned directly or indirectly by Reg Holdco for the purpose of 
lending to it; to enter into hedging transactions; to issue guarantees 
and extend credit support to CPL EDC, CSP EDC, OPCO EDC, SWEPCO EDC, 
SWEPCO Transco and

[[Page 42298]]

WTU EDC (``Regulated Subsidiaries'') and to any finance subsidiary 
owned by it or any non-affiliate in accordance with the parameters set 
forth in the Application in an aggregate amount not to exceed $10 
billion; and to borrow from the AEP money pool, subject to the terms of 
previous money pool orders (HCAR No. 27186, June 14, 2000, and HCAR No. 
26697, March 28, 1997, HCAR No. 26854, April 3, 1998), (collectively, 
``Money Pool Orders''), and to issue short-term debt up to $3 billion 
by participating in the money pool or otherwise in accordance with the 
parameters set forth in the Application.
    The Enterprises Subsidiaries and the Regulated Subsidiaries seek 
authority to issue guarantees and extend credit support in the amounts 
of financing authority stated above to any subsidiary owned by it or 
any non-affiliate, and, in the case of the Enterprises Subsidiaries, to 
any other subsidiary of Enterprises. Enterprises Subsidiaries and 
Regulated Subsidiaries also seek authority to enter into hedging 
transactions. Regulated Subsidiaries also seek authority to participate 
in the authorized AEP money pool as set forth in the Money Pool Orders 
and to issue short-term debt by participating in the money pool or 
otherwise in accordance with the parameters set forth in the 
Application up to the following amounts: CPL EDC, $200 million; CSP 
EDC, $175 million; OPCO EDC, $250 million; SWEPCO EDC, $100 million; 
SWEPCO Transco, $100 million; WTU EDC, $75 million.
    Each Finance Applicant requests authority to organize and acquire 
all of the common stock or other equity interests in one or more 
financing subsidiaries for the purpose of effecting any financing 
requested in the Application and authority for any financing subsidiary 
so organized to effect any transaction for which a Finance Applicant 
has received authorization in this filing.

Request To Pay Dividends Out of Capital or Unearned Surplus

    The Operating Companies and Reg Holdco request authority to pay 
dividends from paid-in capital in projected amounts for the purpose of 
placing the PGCs under Enterprises and the EDCs under Reg Holdco. After 
the transactions set forth in the Application and through June 30, 
2004, each Utility Subsidiary and Reg Holdco requests authority to pay 
dividends in an aggregate amount up to but not exceeding the retained 
earnings of the respective Operating Company associated with CPL EDC, 
CPL PGC, CPL PGC LLC, CPL PGC LP, CSP EDC, CSP PGC, OPCO EDC, OPCO PGC, 
SWEPCO, SWEPCO EDC, SWEPCO Transco, WTU EDC, WTU PGC, WTU PGC LLC AND 
WTU PGC LP (``Utility Subsidiaries'') (or, in the case of Reg Holdco, 
of Reg Holdco) immediately preceding the transactions set forth in the 
Application.
    By way of example, as of December 31, 2001, CSP had retained 
earnings of approximately $176 million. The Application seeks authority 
for CSP to form, capitalize and transfer its transmission and 
distribution assets and liabilities to CSP EDC (after which CSP will be 
CSP PGC). Because no retained earnings can be transferred to CSP EDC 
and because the retained earnings of CSP PGC will be eliminated when it 
dividends CSP EDC to AEP, neither CSP EDC nor CSP PGC will have any 
retained earnings as a result of the proposed transactions. 
Accordingly, granting the authority requested here would permit CSP EDC 
and CSP PGC to dividend an amount (when added to amounts already 
dividended by either) equal to $176 million through June 30, 2004, 
assuming the proposed transactions had occurred on December 31, 2001, 
which amount would be increased by any retained earnings of either 
(such increases applying only to the company earning them).
    For extraordinary reasons related to the adoption of utility 
restructuring legislation in Texas and Ohio, the Operating Companies 
and Reg Holdco will each be declaring and distributing significant 
portions of their respective assets (the equity interest each Operating 
Company owns in the subsidiaries created by each and the equity 
interest in the Texas PGCs owned by Reg Holdco) to their respective 
immediate parents as more fully described in the Application. The 
following, each contemplated by the proposed transactions, result in 
separate but related entries on the equity account of each entity 
involved: (i) The direct or indirect contribution by AEP of additional 
paid-in capital to the Operating Companies in amounts such that: (a) 
Assuming the elimination of retained earnings, sufficient paid-in 
capital is available to effect the dividend, and, (b) following the 
distribution of the newly capitalized subsidiaries, the equity portion 
of consolidated capitalization of each entity declaring a dividend is 
no less than 30%, and (ii) the distribution by the Operating Companies 
(and, with respect to the Texas PGCs, by Reg Holdco) of the common 
stock or limited liability interests of the newly capitalized 
subsidiaries to their ultimate parent, AEP. Subsequent contributions of 
common stock or limited liability interests of the newly capitalized 
subsidiaries or common stock of applicable Operating Companies and 
vertically-integrated companies in order to achieve the proposed 
corporate structure are not expected to impact the equity account of 
any entity involved.
    The distribution of the common stock or limited liability interest 
of each subsidiary will result in a debit in the equity account of each 
entity declaring the dividend in an amount equal to the value of the 
common stock or limited liability interest of the applicable 
subsidiary, i.e., the value of the utility assets and liabilities 
contributed to such subsidiary. Generally speaking, there are three 
components to the equity account of a corporation: stated capital 
(common stock), paid-in capital and retained earnings. Under general 
corporate principles, no dividend may exceed the aggregate amount of 
paid-in capital and retained earnings.
    There are two constraints on the distribution by the Operating 
Companies (and, with respect to the Texas PGCs, by Reg Holdco) of the 
common stock or limited liability interest of their respective newly 
capitalized subsidiaries: (i) Unless expressly approved by the 
Commission, the amount of any dividend may not exceed the amount of 
retained earnings of the entity declaring the dividend, and, (ii) 
consistent with Commission policy, following the dividend, the equity 
portion of each entity declaring a dividend may not be less than 30%. 
Currently, in all but one Operating Company and Reg Holdco the amount 
of the dividend, i.e., the value of the common stock or limited 
liability interest of the applicable subsidiary, is greater than the 
retained earnings of the entity declaring the dividend. Accordingly, in 
order to effect the proposed transactions, each Operating Company 
requests authority to pay dividends out of paid-in capital.
    Except for one Operating Company and Reg Holdco, the distribution 
of the subsidiaries to AEP will (i) eliminate the retained earnings 
component of the equity account of each Operating Company, and (ii) 
reduce, in varying degrees, or eliminate the paid-in capital component 
of the equity account of each Operating Company. These reductions in 
the equity account of each entity declaring a dividend might otherwise 
cause the equity portion of the consolidated capitalization of the 
entity declaring the dividend to fall below 30%. Therefore, in order to 
effect the dividend out of paid-in capital and maintain a 30% equity 
ratio, AEP, directly or indirectly, will contribute

[[Page 42299]]

sufficient capital into each entity declaring a dividend prior to such 
dividend in the amount needed to increase the paid-in capital component 
of the equity account to a level where the equity portion of the 
consolidated capitalization of each entity declaring a dividend will be 
no less than 30%. AEP uses the equity method of accounting; the 
retained earnings and equity account of AEP will not be impacted by 
these dividends or by any of the subsequent contributions of common 
stock or limited liability interests of the newly capitalized 
subsidiaries or common stock of applicable Operating Companies and 
vertically-integrated companies contemplated by the proposed 
transactions.
    In addition to the foregoing dividends, Reg Holdco will borrow, 
directly or indirectly, an amount projected to be approximately $1.4 
billion and authority is sought for Reg Holdco to dividend the cash 
proceeds, from paid-in capital, to AEP. AEP will contribute the cash 
proceeds of this dividend to CSP and OPCO to permit them to pay down 
existing indebtedness as contemplated by the proposed transaction. CSP 
EDC will borrow an amount projected to be approximately $600 million 
from Reg Holdco and authority is sought for CSP EDC to dividend the 
cash proceeds of such borrowing, from paid-in capital, to Reg Holdco. 
OPCO EDC will also borrow an amount projected to be approximately $800 
million from Reg Holdco and authority is sought for OPCO EDC to 
dividend the cash proceeds of such borrowing, from paid in capital, to 
Reg Holdco. Such borrowings, dividends, contributions and retirements 
of indebtedness are necessary to achieve the appropriate capitalization 
and equity ratio for each entity involved.
    Through a series of internal transactions which will be recorded on 
the books of the AEP affiliates involved as corresponding dividends and 
contributions of capital, CPL and WTU will transfer certain of their 
pollution control bonds to Wholesale Holdco via Reg Holdco, AEP and 
Enterprises. Such transfers are necessary to prevent pollution control 
bonds remaining on the books of CPL and WTU following the transfer by 
each of their respective generation assets and related liabilities to 
CPL PGC and WTU PGC, respectively. Moreover, indebtedness cannot be 
transferred to CPL PGC and WTU PGC without incurring substantial tax 
liability when those entities are dividended to Reg Holdco and AEP and 
contributed to Domestic Holdco. Authority is requested to make the 
necessary dividends from paid-in capital to transfer such pollution 
control bonds from CPL and WTU to Wholesale Holdco.
    These distributions will also result, on a pro forma basis, in 
unusual reductions in, and/or elimination of, the retained earnings of 
the Operating Companies, Wholesale Holdco and Reg Holdco, which may 
make it difficult in some cases for each to continue to pay dividends 
at historical levels without such dividends being paid from paid-in 
capital. Accordingly, until June 30, 2004 each Utility Subsidiary, 
Enterprise Holding Company and Reg Holdco requests authority to pay 
dividends out of paid-in capital up to an amount not to exceed the 
aggregate retained earnings (immediately prior to the proposed 
transactions) of the Operating Companies and Reg Holdco. The effect of 
this limit shall be to preserve for a short interval the historical 
retained earnings of each Operating Company or Reg Holdco, as 
applicable, to permit its respective post-transaction successors to pay 
dividends without increasing the amount of dividends any could have 
paid, but for the proposed transactions. Each Utility Subsidiary and 
Reg Holdco shall pay dividends out of paid-in capital only if its 
common equity is at least 30% of its consolidated capitalization.

Financing Parameters

    Applicants state that for any requested transaction the effective 
cost of money on unsecured, long-term, debt borrowings authorized by 
order in this application-declaration 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. The effective cost of money on short-term debt 
borrowings authorized 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.
    Applicants state that the maturities on unsecured indebtedness will 
not exceed 50 years, that all preferred securities will be redeemed no 
later than 50 years after issuance, and that underwriting fees and 
similar remuneration paid in connection with the issue or sale of 
securities authorized by this filing will be less than 5% of the 
principal or amount of the security being issued. AEP and the Finance 
Applicants state that each will maintain common equity of at least 30% 
of consolidated capitalization as defined by the Application and they 
will not publicly issue any secured or unsecured indebtedness or 
preferred securities unless they maintain at least an investment grade 
corporate or senior unsecured debt rating by at least one nationally 
recognized rating agency. Applicants have excluded CPL's securitization 
debt from the calculation of indebtedness and total capitalization. 
Applicants request that the Commission reserve jurisdiction over CPL's 
exclusion of securitization debt from its calculation of consolidated 
capitalization until such time that its common equity would otherwise 
be less than 30 percent of its consolidated capitalization with the 
inclusion of the securitization debt.
    Proceeds of the financing requests will be used for capital 
expenditures of the AEP system; working capital for the system; 
acquisition, retirement or redemption of securities previously issued 
by AEP subsidiaries; investment by Enterprises Holding Companies in 
companies authorized by prior Commission order, including energy-
related companies as defined in Rule 58 of the Act, EWGs, Foreign 
Utility Companies as described in section 33 of the Act, exempt 
telecommunications companies, and other approved subsidiaries; and 
other lawful purposes.
    With regard to requests to engage in hedging activities, Applicants 
state that interest rate hedging transactions with respect to existing 
indebtedness (``Interest Rate Hedges''), subject to certain limitations 
and restrictions, would be entered into in order to reduce or manage 
interest rate cost or risk. Interest Rate Hedges would only be entered 
into with counterparties (``Approved Counterparties'') whose senior 
debt ratings, or whose parent companies' senior debt ratings, as 
published by Standard and Poor's Ratings Group, are equal to or greater 
than BBB, or an equivalent rating from Moody's Investors' Service or 
Fitch Investor Service. Interest Rate Hedges will involve the use of 
financial instruments and derivatives commonly used in today's capital 
markets, such as interest rate swaps, options, caps, collars, floors, 
and structured notes (i.e.,

[[Page 42300]]

a debt instrument in which the principal and/or interest payments are 
indirectly linked to the value of an underlying asset or index), or 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury obligations. The transactions would be for fixed periods 
and stated notional amounts. In no case will the notional principal 
amount of any interest rate swap exceed that of the underlying debt 
instrument and related interest rate exposure. Applicants will not 
engage in speculative transactions. Fees, commissions and other amounts 
payable to the counterparty or exchange (excluding, however, the swap 
or option payments) in connection with an Interest Rate Hedge will not 
exceed those generally obtainable in competitive markets for parties of 
comparable credit quality.
    In addition, interest rate hedging transactions with respect to 
anticipated debt offerings (the ``Anticipatory Hedges''), subject to 
certain limitations and restrictions would only be entered into with 
Approved Counterparties, and would be utilized to fix and/or limit the 
interest rate risk associated with any new issuance through (i) a 
forward sale of exchange-traded U.S. Treasury futures contracts, U.S. 
Treasury obligations and/or a forward swap (each a ``Forward Sale''); 
(ii) the purchase of put options on U.S. Treasury obligations (a ``Put 
Options Purchase''); (iii) a Put Options Purchase in combination with 
the sale of call options on U.S. Treasury obligations (a ``Zero Cost 
Collar''); (iv) transactions involving the purchase or sale, including 
short sales, of U.S. Treasury obligations; or (v) some combination of a 
Forward Sale, Put Options Purchase, Zero Cost Collar and/or other 
derivative or cash transactions, including, but not limited to 
structured notes, options, caps and collars, appropriate for the 
Anticipatory Hedges. Anticipatory Hedges may be executed on-exchange 
(``On-Exchange Trades'') with brokers through the opening of futures 
and/or options positions traded on the Chicago Board of Trade or the 
Chicago Mercantile Exchange, the opening of over-the-counter positions 
with one or more counterparties (``Off-Exchange Trades''), or a 
combination of On-Exchange Trades and Off-Exchange Trades. Each 
Applicant will determine the optimal structure of each Anticipatory 
Hedge transaction at the time of execution. Applicants may decide to 
lock in interest rates and/or limit its exposure to interest rate 
increases. Applicants represent that each Interest Rate Hedge and 
Anticipatory Hedge will be treated for accounting purposes under 
generally accepted accounting principles. Applicants will comply with 
the then existing financial disclosure requirements of the Financial 
Accounting Standards Board associated with hedging transactions.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-15709 Filed 6-20-02; 8:45 am]
BILLING CODE 8010-01-P