File No. 70-9729
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
TO
FORM U-1
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APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
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(Name of company or companies filing this statement
and address of principal executive office)
* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1Riverside Plaza, Columbus, Ohio 43215
(Name of top registered holding company
parent of each applicant or declarant)
* * *
A. A. Pena, Senior Vice President and Treasurer
American Electric Power Service Corporation
1 Riverside Plaza, Columbus, Ohio 43215
Susan Tomasky, General Counsel
American Electric Power Service Corporation
1 Riverside Plaza, Columbus, Ohio 43215
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(Names and addresses of agents for service)
American Electric Power Company, Inc., a registered holding company under
the Public Utility Holding Company Act of 1935, hereby amends its Application or
Declaration on Form U-1 in File No. 70-9729 as follows:
1. By adding the following sentence to the end of the first paragraph
of Item 1:
Additionally, AEP's forecasted cash flow analysis and capitalization
forecast for the next two years (attached hereto as Exhibit C), which forecasts
assume the issuance of $1 billion principal amount of long-term indebtedness out
of the $1.5 billion total financing authority requested herein, indicate that it
is expected that AEP's common equity will remain above 30% of its consolidated
capitalization for each time period set forth in Exhibit C.
2. By restating paragraph 1.11 of Item 1:
1.11 AEP proposes that, in addition to, or as an alternative to, any
Preferred Securities financing as described hereinabove, AEP and/or the
Financing Subsidiary may issue and sell Notes directly to public or private
investors without an intervening Special Purpose Subsidiary. It is proposed that
any Notes so issued will be unsecured, may be either senior or subordinated
obligations of AEP or the Financing Subsidiary, as the case may be, may be
convertible or exchangeable into common stock of AEP or Preferred Securities,
may have the benefit of a sinking fund, may have a term of up to 50 years, may
have fixed or adjustable rates of interest which may be reset by predetermined
methods such as auction, remarketing and/or other put or call features and
otherwise will have terms and provisions substantially as described hereinabove
(the "Debt Securities"). Debt Securities of the Financing Subsidiary will have
the benefit of a guarantee or other credit support by AEP. AEP will not issue
the Debt Securities, either directly or through the Financing Subsidiary, unless
it has evaluated all relevant financial considerations (including, without
limitation, the cost of equity capital) and has determined that to do so is
preferable to issuing common stock or short-term debt. Current market conditions
suggest the costs for issuing long-term indebtedness with a three to five year
maturity are less than or equal to the costs for issuing short-term indebtedness
over the same time period.
3. By restating paragraph 1.16 of Item 1:
1.16 The proceeds of any financing by the Financing Subsidiary or any
Special Purpose Subsidiary will be remitted, paid as a dividend, loaned or
otherwise transferred to AEP or its designee. The proceeds of the Preferred
Securities, Debt Securities, Stock Purchase Contracts and Stock Purchase Units
will be used to acquire the securities of associate companies and interests in
other businesses, including interests in "exempt wholesale generators" ("EWGs")
and "foreign utility companies" ("FUCOs"), or in any transactions permitted
under the Act and for other general corporate purposes, including the reduction
of short-term indebtedness. No proceeds will be used to purchase generation
assets currently owned by AEP or any affiliate unless such purchase has been
approved by order of this Commission pursuant to File No. 70-9785 or other
similar applications. AEP had approximately $2.3 billion outstanding short-term
indebtedness as of September 30, 2000. AEP represents that no financing proceeds
will be used to acquire the equity securities of any company or any interest in
other businesses unless such acquisition has been approved by the Commission in
this proceeding or in File No. 70-9353 or is in accordance with an available
exemption under Sections 32, 33 and 34 of the Act or Rule 58 under the Act. AEP
does not seek in this proceeding any increase in the amount it is permitted to
invest in EWGs and FUCOs. Notwithstanding any other provision of this
application, as amended, AEP requests this Commission to reserve jurisdiction
over the use of financing proceeds authorized in this proceeding to invest in
EWGs and FUCOs.
4. By restating paragraph (1) of Item 3:
ITEM 3. APPLICABLE STATUTORY PROVISIONS
(1) Rule 54 Compliance.
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The proposed transactions are subject to Rule 54, which provides that, in
determining whether to approve an application which does not relate to any EWG
or FUCO, the Commission shall not consider the effect of the capitalization or
earnings of any such EWG or FUCO which is a subsidiary of a registered holding
company if the requirements of Rule 53(a), (b) and (c) are satisfied.
AEP consummated the merger with Central and South West Corporation ("CSW")
on June 15, 2000 pursuant to an order dated June 14, 2000 (HCAR No. 27186),
which further 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 CSW (as extended pursuant
to HCAR No. 27316, December 26, 2000, the "Rule 53(c) Order").
AEP currently meets all of the conditions of Rule 53(a), except for clause
(1). At December 31, 2000, AEP's "aggregate investment", as defined in Rule
53(a)(1), in EWGs and FUCOs was approximately $1.773 billion, or about 52.5% of
AEP's "consolidated retained earnings", also as defined in Rule 53(a)(1), for
the four quarters ended December 31, 2000 ($3.375 billion). 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). See the Rule 53(c) Order. If AEP used the
proceeds from the financings authorized in this File to invest in EWGs and
FUCOs, AEP's "aggregate investment" would be approximately $3.273 billion, or
about 97.0% of AEP's "consolidated retained earnings". AEP was authorized to
invest up to 100% of its consolidated retained earnings by order dated June 14,
2000 (HCAR No. 27186), as extended pursuant to order dated December 26, 2000
(HCAR No. 27316).
In addition, 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. On April
17, 2001, AEP submitted a copy of this Form U-1 for filing with each of the
eleven state retail rate regulatory commissions having jurisdiction over the
retail rates of AEP's utility operating companies. Further, none of the
circumstances described in Rule 53(b) has occurred.
Moreover, even if the effect of the capitalization and earnings of EWGs
and FUCOs in which AEP has an ownership interest upon the AEP holding company
system were considered, there would be no basis for the Commission to withhold
or deny approval for the proposal made in this Application-Declaration. The
action requested in the instant filing would not, by itself, 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 public-utility subsidiaries, their
customers, or the ability of State commissions to protect such 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 recent growth trend in AEP's
retained earnings.
As of December 31, 1999, the most recent period for which financial
statement information was evaluated in the 100% Order, AEP's consolidated
capitalization (including CSW on a pro forma basis) consisted of 37.3% common
and preferred equity and 62.7% debt. As of December 31, 2000, AEP's consolidated
capitalization consisted of 63.8% debt and 34.8% common and preferred equity
(consisting of 331,019,146 shares of common stock representing 34.1% and $161
million principal amount of preferred stock representing 0.7%) and $334 million
principal amount of certain subsidiary obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely junior subordinated
debentures of such subsidiaries ("Trust Preferred Securities") representing
1.4%.
If AEP issued $1.5 billion of Debt Securities and applied the proceeds to
refund existing indebtedness, the foregoing ratios would not change on a pro
forma basis as of December 31, 2000. If AEP issued $1.5 billion of Debt
Securities and applied none of the proceeds to refund existing indebtedness,
AEP's consolidated capitalization on a pro forma basis as of December 31, 2000
would consist of 66.0% debt and 32.7% common and preferred equity (consisting of
331,019,146 shares of common stock representing 32.0% and $161 million principal
amount of preferred stock representing .7%) and $334 million principal amount of
Trust Preferred Securities representing 1.3%.1 AEP's interests in EWGs and FUCOs
have contributed positively to its consolidated earnings since the date of the
Rule 53(c) Order.
Since the date of the Rule 53(c) Order, there has been a reduction in
AEP's consolidated equity capitalization ratio; however, it remains within
acceptable ranges and limits of rating agencies for strong investment grade
corporate credit ratings. In addition, the Operating 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, Standard & Poor's rating of secured debt for
AEP's Operating Subsidiaries was as follows: Appalachian Power Company ("APCo"),
A; Columbus Southern Power Company ("CSP"), A-; Indiana Michigan Power Company
("I&M"), A-; Kentucky Power Company ("KPCo"), A; and Ohio Power Company
("OPCo"), A-. As of December 31, 1999, Standard & Poor's rating of secured debt
for CSW's Operating Subsidiaries was as follows: Central Power and Light Company
("CPL") A; Public Service Company of Oklahoma ("PSO"), AA-; Southwestern
Electric Power Company ("SWEPCo"), AA-; and West Texas Utilities Company
("WTU"), A.
As of December 31, 2000, Standard & Poor's rating of secured debt for
AEP's Operating Subsidiaries was as follows: APCo, A; CSP, A-; I&M, A-; KPCo, A-
and OPCo, A-. As of December 31, 2000, Standard & Poor's rating of secured debt
for CSW's Operating Subsidiaries was as follows: CPL, A-; PSO, A; SWEPCo, A; and
WTU, A-.
AEP's consolidated retained earnings decreased on average approximately
1.32% per year over the last five years. In 2000, consolidated retained earnings
decreased $540 million, or 14.9%. AEP's interests in EWGs and FUCOs have made a
positive contribution to earnings over the four calendar years ending after the
Rule 53(c) Order. Accordingly, since the date of the Rule 53(c) Order, the
capitalization and earnings attributable to AEP's investments in EWGs and FUCOs
has not had an adverse impact on AEP's financial integrity.
4. By filing Exhibit C, Cash flow analysis and capitalization forecast with a
request for confidential treatment.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this statement to be signed on its
behalf by the undersigned thereunto duly authorized.
AMERICAN ELECTRIC POWER COMPANY, INC.
By: /s/ Thomas G. Berkemeyer__
Thomas G. Berkemeyer
Assistant Secretary
Dated: April 18, 2001
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1 If AEP issued $1.5 billion of Preferred Securities and applied the proceeds to
refund existing indebtedness, the foregoing ratios would change on a pro forma
basis as of December 31, 2000 as follows: debt would fall to 57.5%, common and
preferred equity would remain constant at 34.8% and Trust Preferred Securities
would increase to 7.7%. If AEP issued $1.5 billion of Preferred Securities and
applied none of the proceeds to refund existing indebtedness, AEP's consolidated
capitalization on a pro forma basis as of December 31, 2000 would consist of
60.0% debt and 32.7% common and preferred equity (consisting of 331,019,146
shares of common stock representing 32.0% and $161 million principal amount of
preferred stock representing .7%) and $1,834 million principal amount of Trust
Preferred Securities representing 7.3%.