[Federal Register Volume 69, Number 84 (Friday, April 30, 2004)]
[Notices]
[Pages 23826-23833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-9788]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27839]


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

April 23, 2004.
    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 May 18, 2004, to the Secretary, Securities and Exchange 
Commission, Washington, DC 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 May 18, 2004, 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. (70-10166)

    American Electric Power Company, Inc. (``AEP'') a New York 
corporation and AEP Utilities, Inc., formerly Central and South West 
Corporation and a Delaware corporation (``AEP Utilities''), both 
registered holding companies; and the following direct and indirect 
subsidiaries of AEP: AEP Generating Company (``Generating''), AEP Texas 
Central Company, formerly Central Power and Light Company (``TCC''), 
AEP Texas North Company, formerly West Texas Utilities Company 
(``TNC''), Appalachian Power Company (``Appalachian''), Columbus 
Southern Power Company (``Columbus''), Indiana Michigan Power Company 
(``Indiana''), Kentucky Power Company (``Kentucky''), Kingsport Power 
Company (``Kingsport''), Ohio Power Company (``Ohio''), Public Service 
Company of Oklahoma (``PSO''), Southwestern Electric Power Company 
(``SWEPCO''), and Wheeling Power Company (``Wheeling'') (collectively, 
``Public Utilities''); Cedar Coal Company, Central Appalachian Coal 
Company, Central Coal Company, Colomet, Inc., Simco, Inc. Southern 
Appalachian Coal Company, Blackhawk Coal Company, Conesville Coal 
Preparation Company, (collectively, ``Coal Companies''); Franklin 
Realty Inc.; Indiana Franklin Realty Company (collectively, ``Real 
Estate Companies''); American Electric Power Service Corporation 
(together the Public Utilities, Coal Companies; Real Estate Companies, 
``Utility Money Pool Participants''); AEP Houston Pipeline Company, 
LLC; AEP Texas POLR GP, LLC; AEP Coal Marketing LLC; AEP Emissions 
Marketing, LLC; CSW Orange, Inc.; CSW Mulberry, Inc.; Noah I Power 
G.P., Inc.; CSW Orange II, Inc.; CSW Mulberry II, Inc.; CSW Sweeny GP 
I, Inc.; CSW Sweeny GP II, Inc.; CSW Sweeny LP I, Inc.; CSW Sweeny LP 
II, Inc.; CSW Services International Inc.; Trent Wind Farm LP; AEP Wind 
LP, LLC; AEP Wind GP, LLC; HPL GP LLC; AEP Desert Sky LP II, LLC; AEPR 
Ohio LLC; AEP Wind LP II, LLC; and AEP Wind Holding, LLC 
(collectively,'' New Nonutility Money Pool Participants'') and the 
nonutility subsidiaries listed in Exhibit A as defined in Section IV.C 
below (``Prior Nonutility Money Pool Participants'')(collectively, 
``Applicants''), all located at 1 Riverside Plaza, Columbus, Ohio 43215 
have filed an application-declaration (``Application'') under sections 
6(a), 7, 9(a), 10, and 12(b), 12(c), 32, and 33, and rules 43, 45, 46, 
53 and 54 under the Act.

I. Background and Summary

    By Commission order dated December 18, 2002 (HCAR No. 27623) 
(``December Order''), AEP was authorized to conduct financing 
transactions until March 31, 2006, including among other things: the 
issuance of guarantees and other credit support; the creation of 
financing entities; the continuation of the public utilities' money 
pool; the creation of the

[[Page 23827]]

nonutility money pool; and the payment of dividends out of capital or 
unearned surplus. AEP currently has authority to issue commercial 
paper, promissory notes and other forms of short-term indebtedness in 
an aggregate amount not to exceed $7.2 billion to fund the money pools 
and for its own requirements. In addition, AEP and any existing direct 
or indirect nonutility subsidiary (including any exempt wholesale 
generator under section 32 of the Act (``EWG''), a foreign utility 
company under section 33 of the Act (``FUCO'') or an exempt 
telecommunications company under section 34 of the Act (``ETC''), and 
any rule 58 company (``Rule 58 Company'')) (collectively the 
``Nonutility Subsidiaries'') were authorized in the December Order to 
participate in and form the nonutility money pool as a separate system 
of intercorporate borrowings. The nonutility money pool is administered 
in the same manner and subject to the same conditions as the utility 
money pool.
    Prior to the December Order, the Commission by order dated April 
11, 2002 (HCAR No. 27517) (``April Order''), authorized the formation 
of financing subsidiaries and special purpose subsidiaries through June 
30, 2004 with the following limits:
     Neither AEP, any financing subsidiary 
(``Financing Subsidiary''), nor any special purpose subsidiary 
(``SPS'') will publicly issue notes, debt securities, preferred 
securities, or, to the extent they are rated, stock purchase contracts 
and/or stock purchase units in this file unless it has maintained at 
least an investment grade corporate or senior unsecured debt rating by 
at least one nationally recognized rating agency.
     The Financing Subsidiary or SPS will limit the 
aggregate amount of securities they will issue to no more than $1 
billion out of the total $3 billion requested, and the Commission 
reserved jurisdiction over the additional $2 billion.
     No Financing Subsidiary or SPS shall acquire or 
dispose of, directly or indirectly, any interest in any ``utility 
asset,'' as that term is defined under the Act.
     Financing Subsidiaries are authorized to 
transfer proceeds of any financing to their respective parent 
companies.
    The Applicants request authorization to replace the December Order 
and the April Order with the following requests with respect to 
external financing activities, the provision of intrasystem financings, 
guarantees, and other matters through March 31, 2007 (``Authorization 
Period'').

II. Financing Requests

A. Financing Parameters

    The Applicants request authority to engage in financing 
transactions under the following terms (``Financing Parameters''):
1. Investment Grade Requirements
    Applicants represent that, except for securities issued for the 
purpose of funding AEP money pool operations, no guarantees or other 
securities, other than common stock, may be issued in reliance upon the 
authorization to be granted by the Commission, unless: (1) The security 
to be issued, if rated, is rated investment grade; (2) all outstanding 
securities of the issuer that are rated are rated investment grade; and 
(3) all outstanding securities of AEP that are rated are rated 
investment grade (``Investment Grade Condition''). For purposes of this 
Investment Grade Condition, a security will be deemed to be rated 
``investment grade'' if it is rated investment grade by at least one 
nationally recognized statistical rating organization, as that term is 
used in paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the 
Securities Exchange Act of 1934, as amended.
2. Common Equity
    AEP hereby represents that it will maintain during the 
Authorization Period for itself and for all the Public Utilities a 
minimum of 30% common equity as a percentage of consolidated capital 
(inclusive of short-term debt and inclusive of securitization bonds for 
the recovery of regulatory assets in connection with state-mandated 
utility restructuring); however TCC seeks authority to maintain a 
common equity ratio of 25% for so long as securitization bonds are 
outstanding. The 25% common equity as a percentage of consolidated 
capital is being sought because of the issuance of securitization 
bonds. Securitization bonds are expected to be outstanding until the 
currently outstanding TCC Transition Funding securitization bond issue 
is scheduled to be fully retired by January 15, 2016. However, TCC is 
anticipating an additional issuance which would remain outstanding for 
approximately 15 years after it is issued.
3. Effective Cost of Money
    The effective cost of capital on Preferred Stock, equity-linked 
securities, Preferred Securities, Long-term Debt and Short-Term Debt 
will not exceed competitive market rates available at the time of 
issuance for securities having the same or reasonably similar terms and 
conditions issued by similar companies of reasonably comparable credit 
quality. Applicants state that in no event will the effective cost of 
capital (a) on any series of Long-term Debt, exceed 500 basis points 
over a U.S. Treasury security having a remaining term equal to the term 
of such series, (b) on any series of Preferred Stock, Preferred 
Securities or equity-linked securities, exceed 600 basis points over a 
U.S. Treasury security having a remaining term equal to the term of 
such series, and (c) on Short-term Debt, exceed 500 basis points over 
the London Interbank Offered Rate (``LIBOR'') for maturities of less 
than one year
4. Maturity
    Maturity of indebtedness will not exceed 50 years for long term. 
Preferred Securities and equity-linked securities will be redeemed no 
later than 50 years after the issuance, unless converted into Common 
Stock. Preferred Stock issued directly by AEP may be perpetual in 
duration. Short-term borrowings will have maturities of less than one 
year from the date of issuance.
5. Issuance Expenses
    The underwriting fees, commissions, or other similar expenses paid 
in connection with the issue, sale or distribution of a security 
pursuant to the Application will not exceed the greater of (a) 5% of 
the principal or total amount of the securities being issued, or (b) 
issuance expenses that are generally paid at the time of the pricing 
for sales of the particular issuance, having the same or reasonably 
similar terms and conditions issued by similar companies of reasonably 
comparable credit quality.
6. External Financing
    External financing will be at rates or prices and under conditions 
based upon, or otherwise determined, by competitive capital markets. 
The Applicants request authority to sell securities covered by this 
Application in any of the following ways: (a) Through underwriters or 
dealers; (b) directly to a limited number of purchasers or to a single 
purchaser, or (c) through agents or dealers. If debt securities are 
being sold, they may be sold pursuant to ``delayed delivery contracts'' 
which permit the underwriters to locate buyers who will agree to buy 
the debt at the same price but at a later date than the date of the 
closing of the sale to the underwriters. Debt securities may also be 
sold through the use of medium-term note and similar programs, 
including in transactions covered by Rule 144A under the Securities Act 
of 1933.

[[Page 23828]]

7. Borrowing Limits
    Borrowing limits for the aggregate amount of outstanding external 
financing effected by the Applicants under the authorization requested 
during the Authorization Period, other than the refinancing of 
currently outstanding securities, which shall not be limited, will not 
exceed:
    a. Long-term debt limits:

AEP--$3,000,000,000
Kingsport--$ 40,000,000
TCC--$600,000,000
TNC--$250,000,000
SWEPCO--$600,000,000
Wheeling--$40,000,000

    b. Short-term limits:
    i. Public Utility Subsidiaries through the money pool or external 
borrowings, or borrowings from AEP or from a Financing Subsidiary, are 
as follows:

Appalachian--$600,000,000
Columbus--$350,000,000
Indiana--$500,000,000
Kentucky--$200,000,000
Generating--$125,000,000
Kingsport--$40,000,000
Ohio--$600,000,000
PSO--$300,000,000
SWEPCO--$350,000,000
TCC--$600,000,000
TNC--$250,000,000
Wheeling--$40,000,000

    ii. AEP requires an amount of authority for short-term borrowings 
sufficient to fund the utility money pool and the nonutility money 
pool, to make loans to other Subsidiaries, as well as for its own 
requirements in an amount not to exceed $7,200,000,000.
    iii. AEP Utilities, Inc., a registered public utility holding 
company, requests authority to borrow up to $100,000,000 outstanding at 
any one time from external sources or from its parent AEP for its own 
corporate purposes. This authority is in addition to its authority to 
borrow to fund the utility money pool.
8. Use of Proceeds
    The proceeds from the sale of securities in external financing 
transactions by the Applicants will be added to their respective 
treasuries and subsequently used principally for general corporate 
purposes including:
    a. The financing, in part, of capital expenditures;
    b. The financing of working capital requirements;
    c. The acquisition, retirement or redemption of securities 
previously issued by such Applicant; and
    a. Other lawful purposes, including direct or indirect investment 
in Rule 58 Companies by AEP, other subsidiaries approved by the 
Commission, EWGs and FUCOs.
    The Applicants represent that no such financing proceeds will be 
used to acquire a new subsidiary unless such financing is consummated 
in accordance with an order of the Commission or an available exemption 
under the Act.

B. AEP External Financing

    AEP seeks authority to increase its capitalization by issuing and 
selling from time to time during the Authorization Period: (1) 
Directly, additional common stock or options, warrants, equity-linked 
securities or stock purchase contracts convertible into or exercisable 
for common stock, and preferred stock; (2) indirectly through one or 
more financing subsidiaries as described in Section III.D (``Financing 
Subsidiaries''), other forms of preferred securities (including trust 
preferred securities) (collectively ``Preferred Securities''); (3) 
directly or indirectly through one or more Financing Subsidiaries new 
long term debt securities (``Long-Term Debt''), in an amount up to $3 
billion (excluding securities issued for purposes of refunding or 
replacing other outstanding securities where AEP's capitalization is 
not increased) as more fully described below.
    Common Stock. AEP seeks authority to issue and sell Common Stock 
and to issue and sell options, warrants, equity-linked securities or 
other stock purchase rights exercisable for Common Stock. The aggregate 
amount of financing obtained by AEP during the Authorization Period 
from issuance and sale of Common Stock (other than for employee benefit 
plans or stock purchase and dividend reinvestment plans), when combined 
with issuances of preferred stock, Preferred Securities, equity linked 
securities, and long-term debt, as described in this section, and other 
than for refunding or replacement of securities where capitalization is 
not increased as a result thereof, shall not exceed $3 billion. Any 
refunding or replacement of securities where capitalization is not 
increased from that in place at September 30, 2003, will be through the 
issuance of securities of the type and under the same terms and 
conditions authorized in this Application. Common Stock financings may 
be effected through underwriting agreements of a type generally 
standard in the industry. Public distributions may be pursuant to 
private negotiation with underwriters, dealers or agents as discussed 
below or effected through competitive bidding among underwriters. In 
addition, sales may be made through private placements or other non-
public offerings to one or more persons. All such Common Stock sales 
will be at rates or prices and under conditions negotiated or based 
upon, or otherwise determined by, competitive capital markets.
    AEP may sell Common Stock covered by this Application in any one of 
the following ways: (i) Through underwriters or dealers; (ii) through 
agents; or (iii) directly through a limited number of purchasers or a 
single purchaser. If underwriters are used in the sale of the 
securities, such securities will be acquired by the underwriters for 
their own account and may be resold from time to time in one or more 
transactions, including negotiated transactions, at a fixed public 
offering price or at varying prices determined at the time of sale. The 
securities may be offered to the public either through underwriting 
syndicates (which may be represented by a managing underwriter or 
underwriters designated by AEP) or directly by one or more underwriters 
acting alone. If Common Stock is being sold in an underwritten 
offering, AEP may grant the underwriters a ``green shoe'' option 
permitting the purchase from AEP at the same price of additional shares 
then being offered solely for the purpose of covering over-allotments.
    Preferred Securities. AEP seeks to have the flexibility to issue 
Preferred Stock or other types of Preferred Securities (including, 
without limitation, trust preferred securities or monthly income 
preferred securities) directly or indirectly through one or more 
special-purpose Financing Subsidiaries organized by AEP specifically 
for such purpose as described. The aggregate amount of financing 
obtained by AEP during the Authorization Period from issuance and sale 
of preferred stock, Preferred Securities and equity linked securities, 
when combined with issuances of Common Stock (other than for employee 
benefit plans or stock purchase and dividend reinvestment plans), and 
long-term debt, as described in this section, shall not exceed $3 
billion for the uses set forth above. Any refunding or replacement of 
securities where capitalization is not increased from that in place at 
September 30, 3003, will be through the issuance of securities of the 
type authorized in this Application.
    Preferred Stock or other types of Preferred Securities may be 
issued in one or more series with such rights, preferences and 
priorities as may be designated in the instrument creating each such 
series, as determined by AEP's Board of Directors. Dividends or 
distributions on Preferred Securities will be made periodically and to 
the extent funds are legally available for

[[Page 23829]]

such purpose, but may be made subject to terms which allow the issuer 
to defer dividend payments for specified periods. Preferred Securities 
may be convertible or exchangeable into shares of AEP Common Stock or 
indebtedness. Equity linked securities will be exercisable or 
exchangeable for or convertible, either mandatorily or at the option of 
the holder, into Common Stock or indebtedness or allow the holder to 
surrender to the issuer or apply the value of a security issued by AEP 
as approved by the Commission to such holder's obligation to make a 
payment on another security of AEP issued as permitted by the 
Commission. Any convertible or equity linked securities will be 
convertible into or linked to Common Stock, Preferred Securities or 
unsecured debt that AEP is otherwise authorized to issue by Commission 
order directly, or indirectly through Financing Subsidiaries on behalf 
of AEP.
    Long-Term Debt. AEP requests Commission authorization during the 
Authorization Period to issue unsecured, Long-Term Debt securities in 
an aggregate principal amount outstanding at any time, when combined 
with issuances of common stock (other than for benefit plans or stock 
purchase and dividend reinvestment plans) preferred stock, Preferred 
Securities, and equity linked securities as described in this section, 
and other than for refunding or replacement of securities where 
capitalization is not increased as a result thereof from that in place 
at September 30, 2003, not to exceed $3 billion. Any refunding or 
replacement of securities where capitalization is not increased will be 
through the issuance of securities of the type authorized in this 
Application.
    AEP may directly or indirectly issue unsecured Long-Term Debt 
through one or more Financing Subsidiaries in the form of bonds, notes, 
medium-term notes or debentures under one or more indentures or long-
term indebtedness under agreements with banks or other institutional 
lenders. Each series of Long-Term Debt would have such designation, 
aggregate principal amount, maturity, interest rate(s) or methods of 
determining the same, terms of payment of interest, redemption 
provisions, sinking fund terms and other terms and conditions as AEP 
may determine at the time of issuance. Any Long-Term Debt (a) may be 
convertible into any other securities of AEP, (b) will have maturities 
up to 50 years, (c) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at various premiums above 
the principal amount thereof, (d) may be entitled to mandatory or 
optional sinking fund provisions, (e) may provide for reset of the 
coupon pursuant to a remarketing arrangement, (f) may be subject to 
tender or the obligation of the issuer to repurchase at the election of 
the holder or upon the occurrence of a specified event, (g) may be 
called from existing investors by a third party and (h) may be entitled 
to the benefit of affirmative or negative financial or other covenants.
    The maturity dates, interest rates, redemption and sinking fund 
provisions, tender or repurchase and conversion features, if any, with 
respect to the Long-Term Debt of a particular series, as well as any 
associated placement, underwriting or selling agent fees, commissions 
and discounts, if any, will be established by negotiation or 
competitive bidding. Specific terms of any Long-Term Debt will be 
determined by AEP at the time of issuance and will comply in all 
regards with the Financing Parameters.
    Short-Term Debt. AEP also seeks authority to issue directly or 
indirectly through a Financing Subsidiary commercial paper, promissory 
notes and other forms of short-term indebtedness having maturities of 
less than one year (``Short-Term Debt'') in an aggregate amount not to 
exceed $7.2 billion to fund the Money Pools, to make loans to 
Subsidiaries and for its own corporate purposes. Commercial paper would 
be sold in established domestic or European commercial paper markets. 
Such commercial paper would be sold to dealers at the discount rate or 
the coupon rate per annum prevailing at the date of issuance for 
commercial paper of comparable quality and maturities sold to 
commercial paper dealers generally. It is expected that the dealers 
acquiring commercial paper from AEP, AEP Utilities, any Financing 
Subsidiary or the Public Utility Subsidiaries will re-offer such paper 
at a discount to corporate and institutional investors. Institutional 
investors are expected to include commercial banks, insurance 
companies, pension funds, investment trusts, foundations, colleges and 
universities and finance companies.
    AEP, AEP Utilities, any Financing Subsidiary or the Public Utility 
Subsidiaries may, without counting against their borrowing limits, 
maintain back up lines of credit in connection with a commercial paper 
program in an aggregate amount not to exceed the amount of authorized 
commercial paper.
    AEP, AEP Utilities, any Financing Subsidiaries and the Public 
Utility Subsidiaries state that they require flexibility in the types 
of short-term debt issued externally to take advantage of new products 
being offered in the short-term securities market, including but not 
limited to, the extendible commercial notes program currently being 
offered by certain commercial paper dealers, and other new products to 
provide alternate backup liquidity for commercial paper and short-term 
notes.
    AEP, AEP Utilities, any Financing Subsidiary and the Public Utility 
Subsidiaries propose to engage in other types of short-term financing 
generally available to borrowers with comparable credit ratings as each 
individual entity may deem appropriate in light of its needs and market 
conditions at the time of issuance, including making borrowings from 
AEP, AEP Utilities or any Financing Subsidiary.

C. Public Utility Subsidiaries' Financing

    Kingsport, SWEPCO, TCC, TNC, and Wheeling seek authority to issue 
secured or unsecured long-term debt in an amount not to exceed $50 
million, $600 million, $600 million, $250 million, and $50 million, 
respectively, including the issuance of long-term debt to AEP, and to 
enter into hedging transactions.\1\ This authorization would include 
any new pollution control financing by SWEPCO. Kingsport, SWEPCO, TCC, 
TNC, and Wheeling seek authorization to issue long-term debt to AEP at 
a rate designed to parallel AEP's effective cost of capital. Any long-
term debt would have such designations, aggregate principal amount, 
maturity, interest rate(s) or methods of determining the same, interest 
payment terms, redemption provisions, non-refunding provisions, sinking 
fund terms, conversion or put terms and other terms and conditions in 
accordance with the Financing Parameters set forth in Section II.
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    \1\ The Public Utility Subsidiaries must seek the authority of 
the public utility commission in the states of Indiana, Virginia, 
Tennessee, Ohio, Oklahoma and Kentucky for the issuance of long-term 
securities. Therefore, rule 52(a) provides an exemption from this 
Commission for the issuances of long term debt securities by all of 
AEP's public utility subsidiaries except: Kingsport, TCC, SWEPCO, 
TNC and Wheeling.
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    The Public Utility Subsidiaries seek authority to issue short-term 
debt to the extent of the borrowing limits as set forth below in 
Section II through the Utility Money Pool, which is more fully 
described below, through external borrowings, or from AEP or a 
Financing Subsidiary.

D. AEP Utilities' Financing

    AEP Utilities seeks authority to issue unsecured short-term debt in 
an amount up to $100,000,000 from external

[[Page 23830]]

sources or from its parent AEP for its general corporate purposes under 
the terms described in Section II. This authority would not be used to 
fund the Utility Money Pool. AEP Utilities will not borrow from either 
the Utility Money Pool or the Nonutility Money Pool.

E. Financing Subsidiaries

    AEP and the Subsidiaries request authority to acquire, directly or 
indirectly, the equity securities of one or more Financing 
Subsidiaries. Financing Subsidiaries may be corporations, trusts, 
partnerships or other entities created specifically for the purpose of 
facilitating the financing of the authorized and exempt activities 
(including exempt and authorized acquisitions) of AEP and the 
Subsidiaries through the issuance of long-term debt, short-term debt, 
including commercial paper, or Preferred Securities, to third parties 
and the transfer of the proceeds of such financings to AEP or such 
Subsidiaries in the case of the transfer of proceeds to the respective 
participants in the Nonutility Money Pool and Utility Money Pool. AEP 
and the Subsidiaries request authorization to issue their subordinated 
unsecured notes (``Subordinated Notes'') to any Financing Subsidiary to 
evidence the transfer of financing proceeds by a Financing Subsidiary 
to its respective parent company. The amount of securities issued by 
any Financing Subsidiary to third parties under the authorization 
requested will be included in the overall external financing 
limitation, if any, authorized for the parent company of such Financing 
Subsidiary. However, the amount of Subordinated Notes issued by a 
parent company to its Financing Subsidiary will not be counted against 
such external financing limitation.
    AEP or a Subsidiary may, if required, guarantee or enter into 
support or expense agreements in respect of the obligations of any such 
Financing Subsidiaries. Subsidiaries may also provide guarantees and 
enter into support or expense agreements, if required, on behalf of 
such entities. However, to avoid double counting, the guarantees of 
securities issued by Financing Subsidiaries shall not be counted 
against the limitation on AEP guarantees and subsidiary guarantees.

F. Credit Enhancement

    Applicants request authority to obtain credit enhancement for the 
securities covered by this Application, which could include insurance, 
a letter of credit or a liquidity facility, if they were to issue 
floating rate securities, whereas the credit enhancement would be a 
purely economical decision for fixed rate securities. Applicants 
anticipate that they would be required to pay a premium or fee to 
obtain the credit enhancement, but a net benefit through a reduced 
interest rate would be realized. Applicants would obtain credit 
enhancement only if it is economically beneficial to do so taking into 
consideration the fees required.

G. Guarantees

    AEP requests authorization to directly or indirectly through one or 
more Financing Subsidiaries to enter into guarantees, obtain letters of 
credit, enter into support or expense agreements, or otherwise provide 
credit support with respect to debt securities or other contractual 
obligations of any subsidiary from time to time through the 
Authorization Period on behalf of any of its direct or indirect 
Subsidiaries up to $5 billion, provided however, that the amount of any 
parent guarantees in respect of obligations of any subsidiaries shall 
also be subject to the limitations of rule 53(a)(1) or rule 58(a)(i), 
as applicable. AEP also requests authority to guarantee the obligations 
of its direct or indirect subsidiaries as may be appropriate or 
necessary to enable the subsidiaries to carry on the ordinary course of 
their businesses.
    AEP Utilities seeks authority to provide guarantees and other 
credit support with respect to its direct or indirect subsidiaries in 
an amount not to exceed $1,000,000,000 outstanding at any one time.
    Each of the Public Utility Subsidiaries seeks authorization to 
enter into guarantees and other credit support with respect to 
obligations of each of its subsidiaries in an aggregate amount not to 
exceed $125,000,000 outstanding at any one time.
    Nonutility Subsidiaries also request authority for each Nonutility 
Subsidiary to provide guarantees of indebtedness or contractual 
obligations and other forms of credit support to other Nonutility 
Subsidiaries in an aggregate principal amount not to exceed an 
aggregate of $2 billion outstanding at any one time, exclusive of any 
guarantees and other forms of credit support that are exempt pursuant 
to rule 45(b) and rule 52(b), provided however, that the amount of 
Nonutility Subsidiary guarantees in respect of obligations of any Rule 
58 Companies shall remain subject to the limitations of rule 58(a)(i).
    Certain of the guarantees referred to above may be in support of 
the obligations of subsidiaries which are not capable of exact 
quantification. In such cases, AEP will determine the exposure of the 
instrument for purposes of measuring compliance with the total 
guarantee limit by appropriate means including estimation of exposure 
based on loss experience or projected potential payment amounts. If 
appropriate, these estimates will be made in accordance with Generally 
Accepted Accounting Principles (``GAAP'') and these estimates will be 
re-evaluated periodically. Any guarantee that is outstanding at the end 
of the Authorization Period shall remain in force until it expires or 
terminates in accordance with its terms. AEP or a subsidiary issuing a 
guarantee, as the case may be, proposes to charge each subsidiary a fee 
for each guarantee provided on its behalf that is not greater than the 
costs, if any, of obtaining the liquidity necessary to perform the 
guarantee for the period of time the guarantee remains outstanding.
    The aggregate amount of the guarantees will not exceed $8.125 
billion (not taking into account obligations exempt pursuant to rule 45 
and under other outstanding Commission orders).

H. Hedges

    AEP and the subsidiaries seek authority to enter into and perform 
interest rate hedging transactions (``Interest Rate Hedges''). 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., 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 the swap or option payments) in 
connection with an Interest Rate Hedge will not exceed

[[Page 23831]]

those generally obtainable in competitive markets for parties of 
comparable credit quality.
    Interest rate hedging transactions with respect to anticipated debt 
offerings (``Anticipatory Hedges'') and subject to certain limitations 
and restrictions as set forth 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 (``Forward Sale''); (ii) the purchase 
of put options on U.S. Treasury obligations (``Put Options Purchase''); 
(iii) a Put Options Purchase in combination with the sale of call 
options on U.S. Treasury obligations (``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 GAAP. The Applicants will comply with 
Statement of Financial Accounting Standard (``SFAS'') 133 (Accounting 
for Derivative Instruments and Hedging Activities) and SFAS 138 
(Accounting for Certain Derivative Instruments and Certain Hedging 
Activities) or other standards relating to accounting for derivative 
transactions as are adopted and implemented by the Financial Accounting 
Standards Board (``FASB''). The Applicants will also comply with any 
future FASB financial disclosure requirements associated with hedging 
transactions.

III. Intrasystem Financing Requests

    AEP and the participants in each of the money pools request 
authorization to (A) continue to participate in the money pools and (B) 
establish Financing Subsidiaries to fund the money pools under the 
following terms during the Authorization Period.

A. Money Pool Operations

    Participants in either the utility money pool (``Utility Money 
Pool'') or the nonutility money pool (``Nonutility Money Pool'') will 
make unsecured short-term borrowings from its applicable money pool, 
contribute surplus funds to its applicable money pool and lend to and 
or extend credit to other participants in its applicable money pool. 
All short-term borrowing needs of the participants may be met by funds 
in the money pools to the extent such funds are available. The money 
pools are composed from time to time of funds from the following 
sources: (i) Surplus funds of AEP; (ii) surplus funds of any of the 
participants; or (iii) short-term borrowings by AEP, any Financing 
Subsidiary or, in the case of the Utility Money Pool, AEP Utilities, 
Inc. All debt issued in connection with the money pools will be 
unsecured. AEP funds made available to the money pools will be used 
first to fund the Utility Money Pool and thereafter to fund the 
Nonutility Money Pool.
    Each participant shall have the right to borrow from the respective 
money pool from time to time, subject to the availability of funds and 
the applicable borrowing limits set forth in orders of the Commission 
and other regulatory authorities, and agreements binding upon such 
participant. Each participant may borrow from the Utility Money Pool to 
the extent of its borrowing limits for short-term debt. Participants in 
the Nonutility Money Pool will not engage in lending and borrowing 
transactions with participants in the Utility Money Pool. Neither money 
pool will borrow from the other money pool. No participant shall be 
obligated to borrow from the money pool if lower cost funds can be 
obtained from its own external borrowing. Neither AEP nor AEP Utilities 
will borrow funds from either of the money pools or any participant. 
From the date of any order issued in this file, EWG's and FUCO's, which 
are participants in the Nonutility Money Pool, will only be lenders to, 
not borrowers from, the Nonutility Money Pool. Currently the following 
EWG's and/or FUCO's have outstanding loans from the Nonutility Money 
Pool (``EWG and FUCO Borrowers''): \2\
---------------------------------------------------------------------------

    \2\ The prior EWG and FUCO Borrowers represent that they will 
repay these outstanding loans in full. Such repayment will be 
reported on the appropriate Quarterly Rule 24 Report.

------------------------------------------------------------------------
                        Company                          Amount borrowed
------------------------------------------------------------------------
AEP Desert Sky LP, LLC.................................      $19,703,899
AEP Delaware Investment Co.............................              883
AEP Energy Services Ltd (UK)...........................      245,278,195
------------------------------------------------------------------------

    Each participant will borrow pro rata from each funding source in 
the same proportion that the amount of funds provided by that funding 
source bears to the total amount of short-term funds available to the 
money pool.
    Funds which are loaned from participants into the applicable money 
pool which are not required to satisfy borrowing needs of other 
participants will be invested on the behalf of the respective money 
pool in one or more short-term instruments, including: (i) Interest-
bearing accounts with banks; (ii) obligations issued or guaranteed by 
the U.S. government and/or its agencies and instrumentalities, 
including obligations under repurchase agreements; (iii) obligations 
issued or guaranteed by any state or political subdivision thereof, 
provided that such obligations are rated not less than ``A'' by a 
nationally recognized rating agency; (iv) commercial paper rated not 
less than ``A-1'' or ``P-1'' or their equivalent by a nationally 
recognized rating agency; (v) money market funds; (vi) bank 
certificates of deposit, (vii) Eurodollar funds; (viii) short-term debt 
securities rated AA or above by Standard & Poor's, Aa or above by 
Moody's Investors Service, or AA or above by Fitch Ratings; (ix) short-
term debt securities issued or guaranteed by an entity rated AA or 
above by Standard & Poor's, Aa or above by Moody's Investors Service, 
or AA or above by Fitch Ratings; and (x) such other investments as are 
permitted by Section 9(c) of the Act and Rule 40 thereunder. No funds 
from the Utility Money Pool or Nonutility Money Pool will be invested 
in EWG's or FUCO's.
    The interest rate applicable on any day to then outstanding loans 
through the money pools will be the composite weighted average daily 
effective cost incurred by AEP, AEP Utilities, Inc. or any Financing 
Subsidiary for short-term borrowings from external sources for that 
money pool. If there are no borrowings outstanding then the rate would 
be the certificate of deposit yield equivalent of the 30-day Federal 
Reserve ``A2/P2'' Non Financial Commercial Paper Composite Rate 
(``Composite''), or if no composite is established for that day then 
the applicable rate will be the Composite for the next preceding day 
for which the Composite is established.

[[Page 23832]]

If the Composite shall cease to exist, then the rate would be the 
composite which then most closely resembles the Composite and/or most 
closely mirrors the pricing AEP would expect if it had external 
borrowings.
    Each participant receiving a loan shall repay the principal amount 
of such loan, together with all interest accrued thereon, on demand and 
in any event not later than the expiration date of the authorization 
for the operation of the money pool. All loans made through the 
applicable money pool may be prepaid by the borrower without premium or 
penalty. If the money pool is in an invested position, interest income 
related to external investments will be calculated daily and allocated 
back to lending parties on the basis of their relative contribution to 
the investment pool funds on that date.
    AEPSC, a rule 88 subsidiary service company, will be the 
administrative agent of the money pools. AEPSC will administer the 
money pools on an ``at cost'' basis and will maintain separate records 
for each Money Pool. Each participant, any Financing Subsidiary and AEP 
will determine the amount of funds it has available for contribution to 
the money pools. The determination of whether a participant or AEP at 
any time has surplus funds, or shall lend such funds to the money pool, 
will be made by such participant's treasurer, or by a designee thereof, 
on the basis of cash flow projections and other relevant factors, in 
such participant's sole discretion. Each participant may withdraw any 
of its funds at any time upon notice to AEPSC.

B. Financing Subsidiaries To Fund Money Pools

    AEP proposes to create two Financing Subsidiaries one to fund the 
Utility Money Pool (``Utility Money Pool FS'') and a separate 
subsidiary to fund the Nonutility Money Pool (``Nonutility Money Pool 
FS''). Both the Utility Money Pool FS and the Nonutility Money Pool FS 
will be limited liability corporate subsidiaries of AEP formed under 
Delaware law. Each Financing Subsidiary will have a separate bank 
account for the separate money pool it funds. Any funds transferred to 
the money pools will flow through this Financing Subsidiary bank 
account.
    AEP states it seeks to modify its corporate borrowing program to 
more fully separate the operations of the Utility Money Pool and the 
Nonutility Money Pool to further assure that there can be no cross-
subsidization. This new structure will facilitate a separate external 
borrowing program for the Utility Money Pool.
    The Financing Subsidiary formed to fund the Utility Money Pool may 
obtain funds from external sources or from AEP or AEP Utilities. It is 
anticipated that the Financing Subsidiary in the Utility Money Pool 
will have the ability to establish an external commercial paper program 
supported by the Public Utility Subsidiaries and should therefore 
obtain a higher credit rating than the AEP program currently has. AEP's 
current credit rating for commercial paper is A2/P3/F2--and it is 
anticipated that the Utility Money Pool Financing Subsidiary should 
initially be rated A2/P2/F2. This will result in lower financing costs 
depending on the market conditions.
    When the Financing Subsidiary directly issues commercial paper to 
dealers to fund the Utility Money Pool, each Public Utility Subsidiary 
that borrows from the Financing Subsidiary must maintain comparable 
debt ratings equal to or greater than the Financing Subsidiary and 
maintain requisite backup facilities with one or more financial 
institutions. Each Public Utility Subsidiary will pay all liabilities 
incurred by the Financing Subsidiary relating to the offer and sale of 
the commercial paper the proceeds of which were used to make loans to 
that Public Utility Subsidiary and its pro rata share of other expenses 
and administrative costs of the Financing Subsidiary in connection with 
its funding of the Utility Money Pool. No Public Utility Subsidiary 
will be liable for the borrowings of any other affiliate under the 
Money Pool. The proceeds from the borrowings of the Financing 
Subsidiary will be used to repay its borrowings or be invested to 
continue funding the Utility Money Pool. The proceeds of borrowings by 
the Financing Subsidiary will not be loaned to AEP.
    The Financing Subsidiaries that fund the Money Pools would be 
solely financial conduits. They will not have any business purpose 
other than to fund the Money Pools. Commission approval will be sought 
if other types of transactions are contemplated.
    AEP will continue to fund the Nonutility Money Pool with the sale 
of commercial paper. If it is determined that AEP can borrow money at a 
cheaper rate than that obtained by the Financing Subsidiary that is 
funding the Utility Money Pool then AEP will fund the Utility Money 
Pool directly.
    AEPSC administers the Money Pools by matching up, to the extent 
possible, short-term cash surpluses and loan requirements of AEP and 
the various participants. Participants' requests for short-term loans 
are met first from surplus funds of other participants which are 
available to the applicable money pool and then from AEP corporate 
funds to the extent available. To the extent that participant 
contributions of surplus funds to the applicable money pool are 
insufficient to meet participant requests for short-term loans, 
borrowings are made from outside the system.

C. Nonutility Money Pool Participants

    In Exhibit A to this file, AEP lists the Prior Nonutility Money 
Pool Participants, which request to continue to participate in the 
Nonutility Money Pool. The following entities are no longer 
participants because they have been removed, dissolved, or sold: AEP 
Retail Energy LLC; AEP Credit, Inc.; Industry and Energy Associates 
LLC; AEP Gas Power Systems LLC; AEP Resource Services LLC; Mid-Texas 
Pipeline Company; Eastex Cogeneration LP; CSW Eastex LP I Inc.; 
Enershop Mutual Energy CPL LP; Mutual Energy CPL LP; Mutual Energy WTU 
LP; Mutual Energy Service Co., LLC; AEP Ohio Commercial & Industrial 
Retail Company LLC; and Universal Supercapacitors, LIG, Inc., LIG 
Pipeline Company, Tuscaloosa Pipeline Company, LIG Liquids Company, 
L.L.C., Louisiana Intrastate Gas Company, L.L.C., LIG Chemical Company. 
The New Nonutility Money Pool Participants seek authorization to 
participate in the Nonutility Money Pool.

D. Utility Money Pool Participants

    Dolet Hills Lignite Company, currently a participant in the 
Nonutility Money Pool seeks to become a participant in the Utility 
Money Pool, which currently includes the Public Utilities, Coal 
Companies, and Real Estate Companies. Dolet Hills Lignite Company, a 
subsidiary of SWEPCO, seeks to become a participant in the Utility 
Money Pool because it is a mining company similar to the other mining 
companies, which are currently in the Utility Money Pool. It would no 
longer be a participant in the Nonutility Money Pool.

IV. Other Matters

A. Pollution Control Bonds

    The following Public Utility Subsidiaries seek authority to refund 
and reissue currently outstanding pollution control revenue bonds as 
follows: TCC $450,000,000, TNC $45,000,000, and SWEPCO $185,000,000. 
Pollution control revenue bonds may be sold either currently or in 
forward refundings where the price of

[[Page 23833]]

the securities is established currently for delivery at a future date.

B. Payments of Dividends Out of Capital or Unearned Surplus

    AEP and the Nonutility Subsidiaries hereby request authority for 
the direct and indirect Nonutility Subsidiaries to pay dividends out of 
capital or unearned surplus to the fullest extent of the law, provided, 
however, that without further approval of the Commission, no Nonutility 
Subsidiary will declare or pay any dividend out of capital or unearned 
surplus if such Nonutility Subsidiary derives any material part of its 
revenues from the sale of goods, services or electricity to any Public 
Utility Subsidiary. In addition, the Nonutility Subsidiary will not 
declare any dividend out of capital or unearned surplus unless it:
    (i) Has received excess cash as a result of the sale of assets;
    (ii) Has engaged in a reorganization; and/or
    (iii) Is returning capital to an associate company.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-9788 Filed 4-29-04; 8:45 am]
BILLING CODE 8010-01-P