[Federal Register Volume 70, Number 172 (Wednesday, September 7, 2005)]
[Notices]
[Pages 53259-53260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4850]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-28024]


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

August 31, 2005.
    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 September 26, 2005, to the Secretary, Securities and 
Exchange Commission, 100 F Street, NE., Washington, DC 20549-9303, 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 September 26, 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., et al. (70-10313)

    American Electric Power Company, Inc. (``AEP''), a registered 
holding company, and its wholly owned indirect nonutility subsidiary 
AEP Credit, Inc. (``AEP Credit''), both at 1 Riverside Plaza, Columbus, 
Ohio 43215, have filed an application with the Commission under 
sections 9(a) and 10 of the Act and rule 54 under the Act.

I. Background

    By order dated June 14, 2000 (Holding Company Act Release No. 
27186), the Commission authorized AEP to acquire all of the issued and 
outstanding common stock of Central and South West Corporation 
(``CSW''), a registered holding company, and all of its subsidiaries, 
including CSW Credit, Inc. (``CSW Credit''). On August 21, 2000, CSW 
Credit was renamed AEP Credit, and continued to operate under various 
grants of authority, some of which are described below.

A. Prior Orders

    By order dated July 19, 1985 (Holding Company Act Release No. 
23767, ``Original Order''), the Commission authorized AEP Utilities, 
Inc. (``AEP Utilities''), formerly known as Central and South West 
Corporation, to organize a special-purpose entity, CSW Credit, to

[[Page 53260]]

factor the accounts receivable of AEP's public-utility company 
subsidiaries. The Commission also authorized CSW Credit to issue debt 
securities to finance its accounts receivable purchases and AEP 
Utilities to make equity investments in CSW Credit. See Original Order.
    By order dated July 31, 1986, (Holding Company Act Release No. 
24157, ``1986 Order''), the Commission authorized, among other things, 
CSW Credit to expand the scope of the activities to include the 
factoring receivables of non-associate utilities. As a condition of the 
1986 Order, CSW Credit was required to limit its acquisition of utility 
receivables from non-associate utilities (``Non-Associate Limit''). 
Later, as a condition of granting CSW Credit temporary relief from the 
Non-Associate Limit, the Commission imposed upon the company a 
quarterly reporting requirement (``Rule 24 Reporting Requirement''). 
See Holding Co. Act Release No. 26684 (March 11, 1997).
    The Commission required that CSW Credit maintain the percentage of 
its debt to equity at not less than 5% debt and 95% equity (``Debt-
Equity Requirement''). See Holding Company Act Release No. 25138 
(August 30, 1990).
    Most recently, the Commission authorized AEP Credit to continue to 
factor the accounts receivable of associate and non-associate utility 
companies, subject to certain conditions, through September 30, 2005.

B. AEP Credit's Current Operations

    AEP Credit has entered into agreements to purchase accounts 
receivable from the following public-utility company subsidiaries of 
AEP: Appalachian Power Company, Columbus Southern Power Company, 
Indiana Michigan Power Company, Kentucky Power Company, Kingsport Power 
Company, Ohio Power Company, Public Service Company of Oklahoma, 
Southwestern Electric Company, and Wheeling Power Company 
(collectively, ``Operating Companies''). AEP Credit no longer purchases 
accounts receivable from non-associate public-utility companies.
    Purchases of accounts receivable are at a discount, based on AEP 
Credit's cost of funds and collection history.\1\ AEP Credit then sells 
the accounts receivable to third party financial institutions. 
Applicants state that transactions between AEP Credit and the Operating 
Companies comply with the ``at cost'' rules under the Act and, 
consequently, there is no cross-subsidization.
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    \1\ Currently, there are two components of the discount 
calculation: (1) A financing cost component; and (2) a bad debt 
component. The financing cost component (``Carrying Charge'') is 
based on AEP Credit's actual weighted average cost of funds. It 
includes the actual cost of amounts borrowed from the external 
markets (currently bank conduits), a return on equity contribution 
from Credit's parent and actual costs of any amounts borrowed 
through the subordinated loan from AEP. Credit's actual cost of 
equity is the State authorized return on common equity of each 
individual Operating Company. AEP Credit's interest charges to the 
Operating Companies used in the Carrying Charge have always been and 
are anticipated to be less than the ``prime rate of interest,'' as 
that term is normally used. The bad debt component is based on AEP 
Credit's actual bad debt charge-offs for the receivable pool. It is 
calculated as a rolling average of the actual historical charge-off 
statistics for the receivable pools of each Operating Company.
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    AEP Credit has entered into agency agreements with each of the 
Operating Companies. Those agreements provide that the Operating 
Companies act as a collection agent for the receipt of customer 
payments and collection and remit these payments to AEP Credit. The 
amount of the receivables bought by AEP Credit varies from month to 
month, based on the electric usage by the Operating Company's 
customers.
    These sales are on a non-recourse basis to the Operating Companies. 
The Operating Companies are not required to sell their accounts 
receivable to AEP Credit for any specified period of time; an Operating 
Company may terminate its relationship with AEP Credit on 30 days 
notice.
    AEP Credit funds its purchases of the receivables using funds it 
obtains under a receivables purchase agreement (``RPA''). Under the 
RPA, AEP Credit sells a certain undivided ownership interest in the 
accounts receivable on a revolving basis to a group of financial 
institutions, mentioned above. The RPA also provides that American 
Electric Power Service Corporation (``AEP Service''), a service company 
subsidiary of AEP, administers the collections received by AEP Credit 
and reports information regarding the receivables and collections to 
the agent of the financial institutions. AEP Service is reimbursed for 
all costs and expenses it incurs in connection with the services it 
provides under the agreement.
    In addition to the funds obtained under the RPA, AEP Credit obtains 
funds to purchase receivables through equity contributions by AEP and a 
subordinated revolving loan by AEP.
    Sales of the accounts receivable by the Operating Companies qualify 
for treatment as true sales of assets under Financial Accounting 
Standards Board Statement No. 140 (rather than as a loan secured by the 
receivables). AEP Credit is intended to be bankruptcy remote to isolate 
the receivables from the creditors of the Operating Companies.
    Applicants state that the factoring program allows the Operating 
Companies to reduce their working capital needs by accelerating the 
receipt of cash from the collection of customer accounts receivable 
thereby reducing the dependence of the Operating Companies upon more 
costly sources of working capital. Credit, as a special-purpose 
financing entity, can borrow money more cheaply than the Operating 
Companies can individually. Through the use of Credit, the Operating 
Companies are able to consolidate their accounts receivable into a 
larger pool and eliminate duplicate administrative costs in 
administering the program.

II. Requested Authority

    Applicants request (1) authority for AEP to retain AEP Credit, 
whose business consists solely of factoring the accounts receivable of 
associate public-utility companies; (2) request that the Commission 
eliminate the Rule 24 Reporting Requirement; and (3) that the 
Commission eliminate the Debt-Equity Requirement.

    For the Commission by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. E5-4850 Filed 9-6-05; 8:45 am]
BILLING CODE 8010-01-P