[Federal Register Volume 70, Number 41 (Thursday, March 3, 2005)]
[Notices]
[Pages 10422-10425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-853]



[[Page 10422]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27948]


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

February 25, 2005.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission under 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 March 22, 2005, 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 March 22, 2005, 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. (70-10283)

Order Authorizing Solicitation of Proxies; Notice of Request To 
Distribute Securities Under Proposed Amended and Restated American 
Electric Power System 2000 Long-Term Incentive Plan

    American Electric Power Company, Inc. (``AEP''), 1 Riverside Plaza, 
Columbus, Ohio, 43215, a registered holding company has filed a 
declaration (``Declaration'') under sections 6(a), 7 and 12(e) of the 
Act and rules 23, 42, 54, 62 and 65 under the Act.

I. Requested Authority

    AEP requests authority to: (1) Solicit proxies with respect to the 
Amended and Restated American Electric Power System 2000 Long-Term 
Incentive Plan (``Plan'') from the holders of its outstanding common 
stock for action at the annual meeting of AEP's shareholders scheduled 
to be held on April 26, 2005; and (2) issue securities under the Plan, 
if it is approved by shareholders, including up to 19,200,000 shares of 
common stock (``Common Stock'').

II. Order for Solicitation of Proxies

    AEP has requested that an order be issued authorizing commencement 
of the solicitation of proxies from the holders of the outstanding 
shares of its common stock with respect to the Plan.
    AEP is authorized to issue up to 15,700,000 shares of common stock 
under the current Long-Term Incentive Plan (``Current Plan''). AEP has 
issued all but 3,754,150 shares of common stock under the Current Plan. 
AEP shareholders will be asked to approve the following amendments to 
the Current Plan: (1) The provision of an additional 15,445,850 shares 
of Common Stock for awards (which when added to the 3,754,150 shares 
still available for issuance under the Current Plan establishes a new 
limit of 19,200,000 shares of Common Stock that will be available for 
issuance under the Plan); (2) an increase in the maximum number of 
options and stock appreciation rights that may be awarded to a 
participant during any three calendar year period from 1,650,000 to 
2,000,000; (3) an increase in the maximum number of restricted shares 
that may be awarded to a participant during any one calendar year from 
330,000 to 400,000; (4) an increase in the maximum amount of 
compensation that may be payable to a participant during any one 
calendar year under a performance-based award from $8,260,000 to 
$15,000,000; (5) an increase in the maximum number of performance share 
units that may be earned by a participant during any one calendar year 
from 330,000 to 400,000; and (6) revised performance criteria.
    AEP states that the Plan is designed to allow for the grant of 
certain types of awards that conform to the requirements for tax 
deductible ``performance-based'' compensation under Section 162(m) of 
the Internal Revenue Code (``Code''). Shareholder approval of the Plan 
is needed in order to maximize the deductibility of the payments under 
the Plan to AEP's chief executive officer and other four most highly 
compensated officers under the provisions of Section 162(m), and to 
comply with the requirements of the regulations issued by the Internal 
Revenue Service governing the deductibility of individual compensation 
amounts in excess of $1,000,000.
    Approval of the proposed amendments will require the affirmative 
vote of a majority of the votes cast at the annual meeting.

III. Description of the Plan and Securities Issuable Under the Plan

A. Purpose of Plan
    The purpose of the Plan is to promote the interests of AEP and its 
shareholders by strengthening AEP's ability to attract, motivate and 
retain employees and directors, to align further the interests of AEP's 
management with the shareholders, and to provide an additional 
incentive for employees and directors to promote the financial success 
and growth of AEP. The Plan provides for the grant of stock options, 
including incentive stock options and nonqualified stock options, stock 
appreciation rights, restricted stock, performance share awards, 
phantom stock, and dividend equivalents to employees and non-employee 
Directors.
B. Reservation of Shares and Administration of the Plan
    The Common Stock that will be issuable under the Plan will be made 
available from authorized but unissued shares and/or shares reacquired 
by AEP. If any shares of Common Stock awarded under the Plan are not 
issued and cease to be issuable for any reason, the shares will no 
longer be charged against the maximum share limitation and may again be 
made subject to awards under the Plan. If certain corporate 
reorganizations, recapitalizations, or any similar corporate 
transactions affecting AEP or the Common Stock, or stock splits, stock 
dividends or other distribution with respect to the Common Stock occur, 
proportionate adjustments may be made to the number of shares available 
for grant under the Plan, the applicable maximum share limitations 
under the Plan, and the number of shares and prices under outstanding 
awards at the time of the event.
    The Plan will be administered by the Human Resources Committee of 
AEP's Board of Directors (``Committee''). However, for awards granted 
to non-employee Directors, all rights, powers and authorities vested in 
the Committee under the Plan will be instead exercised by the Board. 
Subject to limitations set forth in the Plan, the Committee has the 
authority to determine the persons to whom awards are granted, the 
type, timing, vesting and duration of the awards, the number of shares, 
units or other rights awarded and the exercise, base or purchase price 
of an award.
    The Plan has no fixed expiration date, but no awards may be granted 
after April 26, 2015. The Board may amend

[[Page 10423]]

the Plan, except that shareholder approval is required for amendments 
that would either: (1) Increase the number of shares of Common Stock 
reserved for issuance under the Plan; or (2) allow the grant of options 
at an exercise price below fair market value or allow the repricing of 
options.
C. Stock Options
    The Plan authorizes the grant of nonqualified and incentive stock 
options. Nonqualified stock options may be granted to employees and 
non-employee Directors, but incentive stock options may only be granted 
to employees. The exercise price of an option may be determined by the 
Committee, provided that the exercise price per share of an option may 
not be less than 100% of the fair market value of a share of Common 
Stock on the date of grant. The exercise price of an option is payable 
by the participant in cash, or at the discretion of the Committee, in 
shares of Common Stock, or by any other method approved by the 
Committee. The terms of any Incentive Stock Option shall comply with 
the provisions of the Code. The maximum number of shares of Common 
Stock that may be granted under stock options to any one participant 
during any three calendar year period shall be limited to 2 million 
shares.
D. Stock Appreciation Rights
    A stock appreciation right entitles the holder, upon exercise, to 
receive a payment based on the difference between the base price of the 
stock appreciation right and the fair market value of a share of Common 
Stock on the date of exercise, multiplied by the number of shares as to 
which the stock appreciation right will have been exercised. A stock 
appreciation right may be granted either separately or in tandem with 
an option. If the stock appreciation right is granted in tandem with an 
option it will have a base price per share equal to the per share 
exercise price of the option, will be exercisable only at the same time 
the related option is exercisable, and will expire no later than when 
the related option expires. Exercise of the option or the stock 
appreciation right results in the cancellation of the same number of 
shares under the tandem right. A stock appreciation right granted 
without relationship to an option will be exercisable as determined by 
the Committee. The base price assigned to a stock appreciation right 
granted without relationship to an option shall not be less than 100% 
of the fair market value of a share of Common Stock on the date of 
grant. The maximum number of shares of Common Stock that may be subject 
to stock appreciation rights granted to any one participant during any 
three calendar year period shall be limited to 2,000,000 shares. Stock 
appreciation rights are payable in cash, restricted or unrestricted 
shares of Common Stock, or a combination thereof, in the discretion of 
the Committee.
E. Performance Awards
    Performance awards are units denominated in shares of Common Stock 
or specified dollar amounts (``Performance Units''). Performance awards 
are payable upon the achievement of performance criteria established by 
the Committee at the beginning of the performance period. At the time 
of grant, the Committee establishes the number of units, the duration 
of the performance period, the applicable performance criteria, and in 
the case of Performance Units, the target unit value or range of unit 
values for the award. Performance awards are payable in cash, 
restricted or unrestricted shares of Common Stock, phantom stock or 
options, or a combination thereof, in the discretion of the Committee. 
The maximum amount of compensation that may be payable in any one 
calendar year to any one participant designated to receive an award 
intended to qualify under Section 162(m) of the Code is $15,000,000. 
The maximum number of performance share units that may be earned in any 
one calendar year by any one participant intended to qualify under 
Section 162(m) of the Code is 400,000 units.
F. Restricted Stock
    An award of restricted stock represents shares of Common Stock that 
are issued subject to restrictions on transfer and on incidents of 
ownership and to forfeiture upon the occurrence of certain events 
deemed appropriate by the Committee. The Committee may, in connection 
with an award of restricted stock, require the payment of a specified 
purchase price. During the period of restriction, the participant will 
have the rights of a shareholder of AEP, including all voting and 
dividend rights, unless otherwise determined by the Committee. The 
maximum number of shares of Common Stock that may be subject to 
restricted stock awards intended to qualify under Section 162(m) of the 
Code granted to any one participant during any calendar year is limited 
to 400,000 shares.
G. Phantom Stock
    An award of phantom stock gives the participant the right to 
receive payment at the end of a fixed vesting period based on the value 
of a share of Common Stock at the time of vesting. Phantom stock units 
are subject to restrictions and conditions to payment as the Committee 
determines are appropriate. An award of phantom stock may be granted, 
at the discretion of the Committee, together with an award of dividend 
equivalent rights for the same number of shares. Phantom stock awards 
are payable in cash, restricted or unrestricted shares of Common Stock, 
options or a combination thereof.
H. Dividend Equivalents
    Dividend equivalent awards entitle the holder to a right to receive 
cash, shares of Common Stock, or other property equal in value to 
dividends paid with respect to a specified number of shares of Common 
Stock. Dividend equivalents may be awarded on a free-standing basis or 
in connection with another award, and may be paid currently or on a 
deferred basis. The Committee may provide that the dividend equivalent 
award shall be paid when accrued or shall be deemed to have been 
reinvested in additional shares of Common Stock or other investment 
vehicles as the Committee may specify, provided that dividend 
equivalent awards (other than free-standing dividend equivalent awards) 
shall be subject to all conditions and restrictions of the underlying 
awards to which they relate.

IV. Rule 54 Analysis

    The proposed transactions are subject to rule 54. Rule 54 provides 
that, in determining whether to approve the issue or sale of any 
securities for purposes other than the acquisition of any ``exempt 
wholesale generator'' (``EWG'') or ``foreign utility company'' 
(``FUCO'') or other transactions unrelated to EWGs or FUCOs, the 
Commission shall not consider the effect of the capitalization or 
earnings of subsidiaries of a registered holding company that are EWGs 
or FUCOs if the requirements of Rule 53(a), (b) and (c) are satisfied. 
Under rule 53(a), the Commission shall not make certain specified 
findings under Section 7 and 12 of the Act in connection with a 
proposal by a holding company to issue securities for the purpose of 
acquiring the securities of, or other interest in, an EWG or to 
guarantee the securities of an EWG, if each of the conditions in 
paragraphs (a)(1) through (a)(4) are met, provided that none of the 
conditions specified in paragraph (b)(1) through (b)(3) of rule 53 
exists.
    AEP currently meets all of the conditions of rule 53(a). At 
September

[[Page 10424]]

30, 2004, AEP's ``aggregate investment,'' as defined in rule 53(a)(1), 
in EWGs and FUCOs was approximately $332 million or about 19.9% of 
AEP's ``consolidated retained earnings,'' also as defined in rule 
53(a)(1), for the four quarters ended September 30, 2004 ($1.675 
billion).\1\
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    \1\ With respect to rule 53(a)(1), however, the Commission has 
determined that AEP's financing of investments in EWGs and FUCOs in 
an amount greater than the amount that would otherwise be allowed by 
rule 53(a)(1) would not have either of the adverse effects set forth 
in rule 53(c). By order dated June 14, 2000 (Holding Company Act 
Release No. 27186), the Commission authorized AEP to invest up to 
100% of its consolidated retained earnings, with consolidated 
retained earnings to be calculated on the basis of the combined 
consolidated retained earnings of AEP and Central and South West 
Corporation (``CSW'')(``Rule 53(c) Order''). The Rule 53(c) Order 
also authorized the merger of AEP and CSW.
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    AEP has complied and will continue to comply with the record-
keeping requirements of rule 53(a)(2), the limitation under rule 
53(a)(3) on the use of operating company personnel to render services 
to EWGs and FUCOs, and the requirements of rule 53(a)(4) concerning the 
submission of copies of certain filings under the Act to retail rate 
regulatory commissions. Further, none of the circumstances described in 
rule 53(b)(1) or (3) has occurred or is continuing. AEP states that it 
meets the requirements of Rule 53(c).
    The circumstances described in rule 53(b)(2) have occurred. As a 
result of the recording of a loss with respect to impairment 
charges,\2\ AEP's consolidated retained earnings declined. The average 
consolidated retained earnings of AEP for the four quarterly periods 
ended September 30, 2004, was $1.695 billion, or a decrease of 
approximately 24.8% from AEP's average consolidated retained earnings 
for the four quarterly periods ended September 30, 2003, of $2.226 
billion. In addition, AEP's ``aggregate investment'' in EWGs and FUCOs 
as of September 30, 2004, exceeded 2% of the total capital invested in 
utility operations.
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    \2\ In the fourth quarter of 2003 AEP recorded pre-tax 
impairments of assets (including goodwill) and investments totaling 
$1.4 billion that reflected downturns in energy trading markets, 
projected long-term decreases in electricity prices, and other 
factors. The impairments consisted of $650 million related to asset 
impairments, $70 million related to investment value and other 
impairment losses, and $711 million related to discontinued 
operations. Of the discontinued operations, $577 million was 
attributable to the impairment of the fixed-asset carrying value of 
AEP's two coal-fired generation plants in the United Kingdom. AEP 
recorded a pre-tax impairment of $70 million on certain qualifying 
facilities as defined under the Public Utility Regulatory Policies 
Act of 1978, as amended in the third quarter of 2003.
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    AEP states that if the effect of the capitalization and earnings of 
its EWGs and FUCOs upon its holding company system were considered, 
there would be no basis for the Commission to withhold or deny approval 
for the authority sought in the Declaration. AEP states that the 
proposed transactions would not, by themselves or even considered in 
conjunction with the effect of the capitalization and earnings of AEP's 
EWGs and FUCOs, have a material adverse effect on the financial 
integrity of the AEP system, or an adverse impact on AEP's utility 
subsidiaries,\3\ their customers or the ability of state commissions to 
protect the public utility customers. The Rule 53(c) Order was 
predicated, in part, upon an assessment of AEP's overall financial 
condition which took into account, among other factors, AEP's 
consolidated capitalization ratio and the growth trend in AEP's 
retained earnings.
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    \3\ AEP's utility subsidiaries are: Appalachian Power Company, 
Columbus Southern Power Company, Indiana Michigan Power Company, 
Kentucky Power Company, Ohio Power Company, AEP Texas Central 
Company, Public Service Company of Oklahoma, Southwestern Electric 
Power Company, and AEP Texas North Company (collectively, ``Utility 
Subsidiaries'').
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    Since the date of the Rule 53(c) Order, there has been an increase 
in AEP's consolidated equity capitalization ratio. As of December 31, 
1999, the most recent period for which financial statement information 
was evaluated in the Rule 53(c) Order, AEP's consolidated 
capitalization (including CSW on a pro forma basis) consisted of 61.3% 
debt, 37.3% common and preferred equity, and 1.4% of certain subsidiary 
obligated mandatorily redeemable preferred securities of subsidiary 
trusts holding solely junior subordinated debentures of the 
subsidiaries (or $335 million principal amount). However, as of 
September 30, 2004, AEP's consolidated capitalization consisted of 
60.4% debt, and 39.6% common and preferred equity (consisting of common 
stock representing 39%, and preferred stock representing 0.6% (or $133 
million principal amount).
    In addition, the Utility Subsidiaries, which will have a 
significant influence on the determination of the AEP corporate rating, 
continue to show strong financial statistics as measured by the rating 
agencies. As of December 31, 1999 and September 30, 2004 Standard and 
Poor's (``S&P'') rating of secured debt for AEP's Utility Subsidiaries 
was as follows:

------------------------------------------------------------------------
                                       12 / 31 / 99       9 / 30 / 04
------------------------------------------------------------------------
Appalachian Power Company.........  A                  BBB
Columbus Southern Power Company...  A-                 BBB
Indiana Michigan Power Company....  A-                 BBB
Kentucky Power Company............  A                  BBB
Ohio Power Company................  A-                 BBB
AEP Texas Central Company.........  A                  BBB
Public Service Company of Oklahoma  AA-                BBB
Southwestern Electric Power         AA-                BBB
 Company.
AEP Texas North Company...........  A                  BBB
------------------------------------------------------------------------

    AEP did not have a long-term debt rating as of December 31, 1999. 
As of September 30, 2004, S&P's rating of AEP's unsecured debt was BBB.

V. Conclusion

    AEP states that no State or other Federal regulatory authority has 
jurisdiction over the proposed transactions. AEP states that the fees, 
commissions and expenses to be paid or incurred directly or indirectly, 
by it in connection with the proposed transactions are estimated to be 
as follows, except as otherwise indicated:

[[Page 10425]]



 
 
 
Printing Costs..............................................     $75,000
Transfer Agent and Brokerage Fees and Expenses..............         \1\
                                                                 450,000
Estimated Commission Filing Fee Related to 1933 Act               80,000
 Registration...............................................
                                                             -----------
    Total...................................................   $605,000
 
\1\ This represents the total amount of expenses that AEP estimates it
  will incur in connection with the solicitation of proxies for the 2005
  annual meeting, including with respect to the Plan. AEP states that it
  does not have enough data to make a reasonable estimate of the
  incremental costs associated with the solicitation of proxies in
  regard to the Plan, but believes that the incremental costs would not
  represent more than approximately 10% of the estimated amounts
  indicated.

    Other expenses for legal, financial, accounting, and clerical 
services will be billed at cost by the American Electric Power Service 
Corporation. These expenses are estimated not to exceed $5,000. In 
addition, if AEP considers it desirable to do so it may employ 
professional proxy solicitors for additional fees estimated not to 
exceed $92,000.
    It appears to the Commission that AEP's Declaration regarding the 
proposed solicitation of proxies should be permitted to become 
effective immediately under rule 62(d).
    It is ordered, under rule 62 of the Act, that the Declaration 
regarding the proposed solicitation of proxies from the holders of 
outstanding shares of AEP Common Stock become effective immediately, 
subject to the terms and conditions of rule 24 under the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-853 Filed 3-2-05; 8:45 am]
BILLING CODE 8010-01-P