-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EMCBcHeDPiKL4DdWKVf4uTBKoDXxXyD/JElnKfQu+Kk/QJdNSuI1GM5evgOpAi7n /biCKKJg9wnyOTn1tul1Ew== 0000004904-96-000059.txt : 19960518 0000004904-96-000059.hdr.sgml : 19960518 ACCESSION NUMBER: 0000004904-96-000059 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960516 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ELECTRIC POWER COMPANY INC CENTRAL INDEX KEY: 0000004904 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 134922640 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: 1935 Act SEC FILE NUMBER: 070-08779 FILM NUMBER: 96568389 BUSINESS ADDRESS: STREET 1: 1 RIVERSIDE PLZ CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142231000 FORMER COMPANY: FORMER CONFORMED NAME: KINGSPORT UTILITIES INC DATE OF NAME CHANGE: 19660906 U-1/A 1 File No. 70-8779 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________ AMENDMENT NO. 3 TO FORM U-1 __________________________________ APPLICATION OR DECLARATION under the PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 * * * AMERICAN ELECTRIC POWER COMPANY, INC. 1 Riverside Plaza, Columbus, Ohio 43215 AMERICAN ELECTRIC POWER SERVICE CORPORATION 1 Riverside Plaza, Columbus, Ohio 43215 APPALACHIAN POWER COMPANY 40 Franklin Road, Roanoke, Virginia 24022 COLUMBUS SOUTHERN POWER COMPANY 215 North Front Street, Columbus, Ohio 43215 INDIANA MICHIGAN POWER COMPANY One Summit Square, Fort Wayne, Indiana 46801 KENTUCKY POWER COMPANY 1701 Central Avenue, Ashland, Kentucky 41101 KINGSPORT POWER COMPANY 422 Broad Street, Kingsport, Tennessee 37660 OHIO POWER COMPANY 339 Cleveland Avenue, S.W., Canton, Ohio 44702 WHEELING POWER COMPANY 51 - 16th Street, Wheeling, West Virginia 26003 (Name of company or companies filing this statement and addresses of principal executive offices) * * * AMERICAN ELECTRIC POWER COMPANY, INC. 1 Riverside Plaza, Columbus, Ohio 43215 (Name of top registered holding company parent of each applicant or declarant) * * * G. P. Maloney, Executive Vice President AMERICAN ELECTRIC POWER SERVICE CORPORATION 1 Riverside Plaza, Columbus, Ohio 43215 John F. Di Lorenzo, Jr., Associate General Counsel AMERICAN ELECTRIC POWER SERVICE CORPORATION 1 Riverside Plaza, Columbus, Ohio 43215 (Names and addresses of agents for service) American Electric Power Company, Inc. ("American"), a holding company registered under the Public Utility Holding Company Act of 1935 ("1935 Act"), and American Electric Power Service Corporation ("AEPSC"), Appalachian Power Company ("APCo"), Columbus Southern Power Company ("CSPCo"), Kentucky Power Company ("KPCo"), Kingsport Power Company ("KgpCo"), Indiana Michigan Power Company ("I&M"), Ohio Power Company ("OPCo") and Wheeling Power Company ("WPCo") (sometimes collectively referred to herein as "Applicants") hereby amend their Application or Declaration on Form U-1 in File No. 70- 8779, as follows: 1. By amending and restating Sections A, B and C of Item 1. Description of Proposed Transaction to read as follows: "A. New Business The New Subsidiaries propose to engage in the businesses of brokering and marketing Energy Commodities. Energy Commodities include natural and manufactured gas, electric power, emission allowances, coal, oil, refined petroleum, refined petroleum products and natural gas liquids. Their brokering business will involve arranging the sale and purchase, transportation, transmission and storage of Energy Commodities for a commission. Their marketing business will involve entering into contracts to sell, purchase, exchange, pool, transport, transmit, distribute, store and otherwise deal in Energy Commodities. The New Subsidiaries may from time to time have an inventory of Energy Commodities; however, they will not own or operate facilities used for the production, generation, processing, storage, transmission, transportation, or distribution of Energy Commodities. The New Subsidiaries propose to broker and market Energy Commodities to retail and wholesale customers. Under applicable state law, retail sales of electric power by marketers is not generally permitted and retail sales of natural gas by marketers is permitted only in limited circumstances. Therefore, Applicants request that jurisdiction be reserved over the brokering and marketing of electric power and natural gas at retail pending completion of the file with respect to the permissibility of such sales. In order to manage the risk associated with brokering and marketing Energy Commodities, the New Subsidiaries may enter into futures, forwards, swaps and options contracts relating to Energy Commodities. See the discussion under Section E. Risk Management below. No New Subsidiary will be a public utility company under the 1935 Act. B. Service Agreements with New Subsidiaries The New Subsidiaries propose to enter into Service Agreements with American Electric Power Service Corporation ('AEPSC') and the operating company subsidiaries of American ('Operating Subsidiaries'), pursuant to which personnel and other resources of AEPSC and the Operating Subsidiaries may be made available to the New Subsidiaries, upon request, to support the New Subsidiaries in connection with their authorized activities. The Service Agreements will require that AEPSC and the Operating Subsidiaries provide, account for and bill their services to the New Subsidiaries, utilizing a work order system, on a full cost reimbursement basis in accordance with Rules 90 and 91 under the 1935 Act. The reimbursed cost of services identified through the work order system will include all direct charges and a prorated share of other related costs. The Service Agreements also will provide that AEPSC and the Operating Subsidiaries make warranties of due care and compliance with applicable laws to the New Subsidiaries concerning the performance of the services requested, but failure to meet these obligations will not subject them to any claim or liability, other than to reperform the work at cost in accordance with the work order. Likewise, AEPSC and the Operating Subsidiaries will be indemnified by the New Subsidiaries against liabilities to or claims of third parties arising out of the performance of work on behalf of the New Subsidiaries. Under the Service Agreements, AEPSC and each Operating Subsidiary will make available personnel or resources requested by the New Subsidiaries, if it has or can have available such personnel or resources. AEPSC and each Operating Subsidiary will determine the availability of its personnel and resources. Initially, the New Subsidiaries are not expected to have employees. They will use the personnel and resources of AEPSC and of the Operating Subsidiaries to broker and market Energy Commodities on their behalf and to administer their businesses. No more than 2% of the total employees of AEPSC and the Operating Subsidiaries will, at any one time, directly or indirectly render services to the New Subsidiaries. C. Initial Capitalization of New Subsidiaries and Guaranties by American As the initial capitalization, a New Subsidiary is expected to issue and sell up to 100 shares of Common Stock for approximately $100 to American, or if the New Subsidiary is an indirect subsidiary of American, to a subsidiary of American. Under Rule 52, the issuance of additional securities by the New Subsidiaries as well as their acquisition is exempt from prior Commission approval under the 1935 Act. Rule 45(b)(4) exempts the making of cash capital contributions to New Subsidiaries from prior Commission approval. American does not expect to invest more than $100 million in the New Subsidiaries prior to December 31, 2000, either by acquisition of securities or making capital contributions, both of which are exempt from Commission approval under Rules 45(b)(4) and 52. American requests authority through December 31, 2000 to guarantee the debt and other obligations of the New Subsidiaries. The maximum amount of debt that American proposes to guarantee is $50 million. The maximum amount of other obligations that American proposes to guarantee is $200 million. Debt financing of the New Subsidiaries which is guaranteed by American will not (i) exceed a term of 15 years or (ii)(a) bear a rate equivalent to a floating interest rate in excess of 2.0% over the prime rate, London Interbank Offered Rate or other appropriate index, in effect from time to time or (b) bear a fixed rate in excess of 2.50% above the yield at the time of issuance of United State Treasury obligations of a comparable maturity. Any commitment and other fees on the debt will not exceed 50 basis points per annum on the total amount of debt financing. Obligations of the New Subsidiaries (other than debt guaranteed by American) may take the form of bid bonds or performance or other direct or indirect guarantees of contractual or other obligations. Such arrangements may be necessary in order for the New Subsidiaries to satisfy a customer that they have the support for their contractual obligations. American will not seek recovery through higher rates to customers of its utility subsidiaries in order to compensate American for any possible losses that it may sustain on its investment in the New Subsidiaries." 2. By adding Section E at the end of Item 1. Description of Proposed Transaction: "E. Risk Management Generally, the New Subsidiaries will strive to match their portfolio of contracts for sales of Energy Commodities with a portfolio of contracts for purchases with similar terms. For instance, long-term firm sales contracts with variable or indexed prices will be matched with long-term supply contracts with variable or indexed prices. Financial instruments, such as futures, forwards, swaps and option contracts, will be needed only to reduce risk with respect to that small portion of their total sales contract portfolio which is not matched with appropriate supply contracts. For example, a one year, fixed price sales contract might not be matched; protection against price risk in such a short-term contract could be provided by proper hedging tools. In its use of hedging tools, the New Subsidiaries will not engage in speculative trading. Hedging activity will be limited to no more than the total volume of the New Subsidiaries' commodities that are subject to market price fluctuation." 3. By amending and restating Item 3. Applicable Statutory Provisions to read as follows: "ITEM 3. APPLICABLE STATUTORY PROVISIONS American considers that: (i) Sections 9(a), 9(c)(3) and 10 of the 1935 Act are applicable to the proposed initial acquisition of securities of the New Subsidiaries by American; (ii) Sections 6, 7 and 12(b) of the 1935 Act and Rule 45 thereunder are applicable to the proposed guarantee by American of the debt and other obligations of the New Subsidiaries; (iii) Rule 52 is applicable to the issuance of debt by the New Subsidiaries; and (iv) Section 13(b) is applicable to the services proposed to be provided by AEPSC and the Operating Subsidiaries to the New Subsidiaries. LEGAL ANALYSIS UNDER SECTIONS 9 AND 10 Section 9(a) of the 1935 Act provides that without prior approval from the Commission under Section 10, 'it shall be unlawful -- for any registered holding company or any subsidiary company thereof...to acquire, directly or indirectly, any securities or utility assets or any other interest in any business.' Section 10 requires among other things that the acquisition not be detrimental to the carrying out of the provisions of Section 11. Finally, Section 11(b)(1) limits American to a single integrated public-utility system and such other businesses as are reasonably incidental, or economically necessary or appropriate to the operations of such integrated public-utility system. The last sentence of Section 11(b)(1) states that the Commission may permit as reasonably incidental, or economically necessary or appropriate to the operations of one or more integrated public-utility systems the retention of an interest in any business which the Commission shall find necessary or appropriate in the public interest or for the protection of investors or consumers and not detrimental to the proper functioning of such system or systems. In view of the rapidly changing nature of the energy markets in North America, brokering and marketing of electric power, natural gas and other Energy Commodities is incidental and appropriate to the operations of the American Electric Power System. A substantial portion of the business of the New Subsidiaries will consist of power marketing. The portions of the business which do not involve electric power directly will involve forms of energy which can be converted into power and will accordingly involve power indirectly. Energy markets are converging due to the interchangeability of energy forms and the desire of customers to have a single energy supplier. These markets are making the classification of companies as solely gas or electric obsolete. It is for these reasons that the businesses of the New Subsidiaries are incidental and appropriate to the existing operations of the American Electric Power System. In its Memorandum Opinion and Order dated April 30, 1996 with respect to Consolidated Natural Gas Company, the Commission acknowledged these changes, stating, 'It appears that the restructuring of the electric industry now underway will dramatically affect all United States energy markets as a result of the growing interdependence of natural gas transmission and electric generation, and the interchangeability of different forms of energy, particularly gas and electricity.'(1) In its background discussion concerning proposed Rule 58, the Commission noted that 'the utility industry is evolving toward a broadly based energy- related business that is no longer focused solely on the traditional, regulated, production and distribution functions of a utility.'(2) The Commission has acknowledged that a national policy to promote competitive energy markets has developed and that this policy should satisfy the public interest standard of Section 11(b)(1). Again in the CNG Order, the Commission said: The Commission has recognized the national policy to promote efficient and competitive energy markets. The proposed partnership among CNG, Noverco and Hydro-Quebec represents an alliance among gas and electric companies in this regard. A number of subsidiary companies of various exempt holding companies, as well as unregulated companies, are currently engaged in marketing and brokering gas and electric energy. The participation of registered system companies in these activities should promote greater competition and thus further the public interest in a sound electric and gas utility industry.(3) [Footnotes omitted] This national policy to promote competitive natural gas and electric power markets is shown by the recent history of federal legislative and regulatory activities, demonstrating that the proposed activities of the New Subsidiaries are appropriate in the public interest. 1. Natural Gas In 1938, Congress enacted the Natural Gas Act ('NGA') to regulate the sale for resale in interstate commerce of natural gas.(4) Under the NGA, the producers would sell their natural gas to the interstate pipelines at regulated rates. The pipelines would transport their purchased gas and their own production to the city gate for sale to the local distribution company at regulated rates, which recovered both the pipelines' cost of gas and cost of transmission. In addition, the pipelines would sell gas to end- users in nonjurisdictional sales. Producer sales to local distribution companies or end-users with the pipeline providing only the transportation were rare. In 1978, Congress responded to the natural gas shortages of the 1970's by enacting the Natural Gas Policy Act of 1978 ('NGPA') to increase the flow of gas into the interstate market. The NGPA created new statutory rates for the wholesale gas market, for so- called 'first sales' of natural gas. As part of the new rate structure, the NGPA initiated the process of decontrolling wellhead prices of natural gas. The NGPA's aim was to develop a competitive wellhead market where market forces play a more significant role. Congress and the Federal Energy Regulatory Commission ('FERC') have continued to encourage competition in the sale of natural gas. In 1985, the FERC issued Order No. 436, which instituted open- access, non-discriminatory transportation.(5) The Order was intended to facilitate direct sales between gas producers and local distribution companies. Competition in sale of natural gas proceeded further under the Natural Gas Wellhead Decontrol Act of 1989, pursuant to which the FERC implemented full producer deregulation, effective January 1, 1993. In 1990, Congress enacted the Gas Related Activities Act ('GRAA'), which permitted registered holding companies owning gas utilities to acquire significant production and transportation assets that do not directly serve the needs of their retail distribution systems. In 1992, the FERC issued Order No. 636, which required pipelines to offer a variety of transportation services to their shippers under a system that treats all gas equally, whether sold or merely transported by the pipeline companies.(6) FERC also issued Order No. 547, which issued blanket certificates of public convenience and necessity allowing certificate holders to make gas sales for resale at negotiated market rates.(7) In tandem with Order 636, this Order was intended to 'foster a truly competitive market for natural gas sales for resale, giving purchasers of natural gas access to multiple sources of natural gas and the opportunity to make gas purchasing decisions in accord with market conditions.'(8) These legislative and regulatory actions demonstrate a clear federal policy promoting competition among sellers and marketers of natural gas. As a result, the sale and purchase of natural gas has developed into an active, competitive commodity market. 2. Electric Power Electric power has traditionally been provided by mostly vertically integrated electric utilities, in which generation, transmission and distribution facilities were owned by a single entity and sold as a bundled service to wholesale and retail customers.(9) The price of electric power was regulated by state commissions in the case of retail sales and by the FERC in the case of wholesale sales and transmission services. In 1978, Congress enacted the Public Utility Regulatory Policies Act of 1978 ('PURPA'), which established qualifying cogeneration or small power production facilities ('QF'). These facilities had to satisfy certain efficiency standards and received certain benefits, such as the obligation of the local electric utility to purchase power and sell backup power. QFs were subject to reduced regulation, including exemption from being electric utility companies under Section 2(a)(3) of the 1935 Act.(10) In 1985 and 1986, Congress allowed registered holding companies to invest in qualifying cogeneration facilities without having to satisfy the integration and other requirements of Section 11(b)(1) of the 1935 Act.(11) PURPA was Congress' initial action to provide for greater efficiencies in energy markets through reducing regulation of electric generation by the 1935 Act. Competition in the wholesale electric markets in the United States was enhanced by enactment of the Energy Policy Act of 1992 ('EPA'). The EPA was designed, among other things, to foster competition in the wholesale market (a) through amendments to the 1935 Act, facilitating the ownership and operation of generating facilities by exempt wholesale generators and (b) through amendments to the Federal Power Act, enabling the FERC under certain conditions to order utilities which own transmission facilities to provide wholesale transmission services for other utilities and entities generating electric power. On April 24, 1996, the FERC issued Orders 888 and 889 requiring all utilities subject to its regulation to file open- access tariffs.(12) The Orders also require establishment of an Open Access Same-time Information System ('OASIS'), an electronic bulletin board-type system in which the transmission provider must post information in connection with available transmission capacity, prices and other pertinent transmission information. The Orders further require a separation of a transmitting utility's employees involved in transmission functions from its merchant employees (those involved in selling power). The goal of the FERC in issuing these Orders is to ensure that customers have the benefit of competitively priced generation, again evidencing a federal policy favoring competition in electric power generation. 3. Previous SEC Orders Based upon this national policy to promote competitive energy markets, the Commission authorized (i) Consolidated Natural Gas Company to invest in a partnership which will buy and sell electric power, natural gas and other fuels(13); (ii) Eastern Utilities Associates to acquire a 30% ownership interest in a limited liability company which will among other things buy, sell and broker electric power(14); and (iii) Northeast Utilities' operating utility subsidiaries and Northeast Utilities Service Company to expand their business activities to include the marketing and brokering of power to non-affiliates both within and outside the operating companies' service territory.(15) The Commission also has authorized registered gas holding companies to engage in a wide range of gas power marketing activities in the past.(16) Finally, a number of other registered holding companies have entered into the power marketing business through their subsidiary exempt wholesale generators.(17) 4. Conclusion Overall, authorization for the New Subsidiaries to engage in marketing of Energy Commodities will aid in the development of a more competitive energy marketplace. Participation by power and other energy marketers such as the New Subsidiaries will increase the likelihood that new products and services will develop as market needs are identified and that, as a result, customer choice will increase. Accordingly, American should be permitted to engage in competitive energy marketing activities through the New Subsidiaries, which will then allow the New Subsidiaries to compete on the same basis as other companies." NOTES (1) Consolidated Natural Gas Company, HCAR No. 26512 (April 30, 1995), pp. 11-12 (the 'CNG Order'). (2) HCAR No. 26313 (June 20, 1995), 60 Fed. Reg. 33642 (the 'Release'), at p. 33643. (3) CNG Order, at p. 12. (4) For background on the natural gas industry, see The Regulation of Public-Utility Holding Companies, Report of the Division of Investment Management, Securities and Exchange Commission (June 1995), pp. 25-31 (the 'Report') and FERC Order 636 (April 8, 1992), 57 Fed. Reg. 13267, pp. 13270-13272. (5) 50 Fed. Reg. 42408 (October 18, 1985). (6) 57 Fed. Reg. 13267 (April 8, 1992). (7) 57 Fed. Reg. 57952 (November 30, 1992). (8) Id., at 57953. (9) For background on the electric power industry, see the Report, pp. 12-25, and FERC Order 888, 61 Fed. Reg. 21540 (April 24, 1996), pp. 21543-21550. (10) 18 C.F.R., Pt. 292.602. (11) P.L. 99-186 (December 18, 1985) and P.L. 99-553 (October 27, 1986). (12) 61 Fed. Reg. 21540 and 61 Fed Reg. 21737. (13) CNG Order. (14) Eastern Utilities Associates, HCAR No. 26493 (March 14, 1996). (15) Northeast Utilities Service Company, HCAR No. 26359 (August 18, 1995). (16) Consolidated Natural Gas Co., HCAR No. 24329 (February 27, 1987); The Columbia Gas System, Inc., HCAR No. 25802 (April 22, 1993). (17) See, e.g., CNG Power Services Corporation, 71 FERC para. 61,378 (June 21, 1995); Southern Energy Marketing, Inc., 71 FERC para. 61,376 (June 21, 1995); and Entergy Power Marketing Corporation, 73 FERC para. 61,063 (October 12, 1995). 3. By amending and restating Item 4. Regulatory Approval: "ITEM 4. REGULATORY APPROVAL In addition to the Securities and Exchange Commission, the following commissions have jurisdiction over aspects of the proposed businesses of the New Subsidiaries: (1) Marketing, but not brokering, of electric power at wholesale is subject to the jurisdiction of the FERC under the Federal Power Act; (2) Marketing, but not brokering, of natural gas at wholesale is subject to the jurisdiction of the FERC under the Natural Gas Act; and (3) Marketing and brokering of electric power at retail is subject to the jurisdiction of the state commissions. Transactions between APCo and the New Subsidiaries are subject to the jurisdiction of the West Virginia Public Service Commission ('WVPSC') and State Corporation Commission of Virginia ('VSCC') and transactions between WPCo and the New Subsidiaries are subject to the jurisdiction of the WVPSC. No other commissions have jurisdiction over the proposed transactions. An application to market electric power at wholesale will be filed with the FERC together with a request for the waiver of certain provisions of the Federal Power Act and the rules thereunder. A copy will be filed by amendment as Exhibit D-1. In 18 C.F.R. Pt. 284.402, FERC has granted to any person who is not an interstate pipeline a blanket certificate of public convenience and necessity authorizing the holder to make sales for resale at negotiated rates in interstate commerce of any category of gas that is subject to the FERC's Natural Gas Act jurisdiction. Applications for approval of affiliate transactions will be filed with the WVPSC and VSCC. Copies will be filed by amendment as Exhibits D-2, D-3 and D-4, respectively." 4. By amending and restating the second paragraph of Item 5. Procedure: "American agrees to file the following: (1) Quarterly, within 60 days after the end of each quarter: (a) charter and bylaws of each New Subsidiary formed during the quarter; (b) a quarter-end balance sheet and three-month and twelve-month income and cash flow statements for each New Subsidiary; (c) a listing of any guarantees or assumption of liabilities by American on behalf of the New Subsidiaries; and (d) a description of services obtained from associate companies, specifying the type of service, the number of personnel from each associate company providing services during the quarter and the total dollar value of such services. 5. By amending and restating Item 6. Exhibits and Financial Statements: "ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS Exhibit B-1 Proposed form of Service Agreement between New Subsidiaries and AEPSC Exhibit B-2 Proposed form of Service Agreement between New Subsidiaries and Operating Subsidiaries Exhibit D-1 Application to the FERC relating to power marketing (to be filed by amendment) Exhibit D-2 Application of APCo to the State Corporation Commission of Virginia (to be filed by amendment) Exhibit D-3 Application of APCo to the West Virginia Public Service Commission (to be filed by amendment) Exhibit D-4 Application of WPCo to the West Virginia Public Service Commission (to be filed by amendment) Exhibit D-5 Order of FERC relating to power marketing (to be filed by amendment) Exhibit D-6 Order of State Corporation Commission of Virginia (to be filed by amendment) Exhibit D-7 Order of West Virginia Public Service Commission as to APCo (to be filed by amendment) Exhibit D-8 Order of West Virginia Public Service Commission as to WPCo (to be filed by amendment) Exhibit F Opinion of Counsel Exhibit G Proposed Form of Notice (previously filed) It is believed that financial statements are not necessary or relevant to the disposition of this proceeding." SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this statement to be signed on their behalf by the undersigned thereunto duly authorized. AMERICAN ELECTRIC POWER COMPANY, INC. AMERICAN ELECTRIC POWER SERVICE CORPORATION APPALACHIAN POWER COMPANY COLUMBUS SOUTHERN POWER COMPANY KENTUCKY POWER COMPANY KINGSPORT POWER COMPANY INDIANA MICHIGAN POWER COMPANY OHIO POWER COMPANY WHEELING POWER COMPANY By /s/ A. A. Pena Treasurer Dated: May 15, 1996 Exhibit B-1 AGREEMENT BETWEEN AMERICAN ELECTRIC POWER SERVICE CORPORATION and ____________________________ THIS AGREEMENT, made and entered into as of ________________, by and between AMERICAN ELECTRIC POWER SERVICE CORPORATION, a corporation organized under the laws of the State of New York (hereinafter sometimes referred to as "Service Company") and ____________________, a corporation organized under the laws of the State of __________ (hereinafter sometimes referred to as "Client Company"). W I T N E S S E T H : WHEREAS, both the Service Company and the Client Company are associate companies in the American Electric Power System (hereinafter called the "System"), which is comprised of American Electric Power Company, Inc. (hereinafter called "American") and its subsidiary companies; and the Service Company, which is a wholly-owned subsidiary of American, is approved by the Securities and Exchange Commission (hereinafter called the "Commission") as a subsidiary service company pursuant to the provisions of Section 13 of the Public Utility Holding Company Act of 1935, as amended (hereinafter called the "1935 Act"), and maintains an organization of employees who are experienced in the problems and operations of public utilities and related businesses, together with appropriate facilities and equipment, through which it is prepared to furnish services, as hereinafter provided to the Client Company and to other member companies in the System (the Client together with such other member companies are hereinafter referred to collectively as "Client Companies"); and WHEREAS, in the performance of past and future services for the Client Companies, Service Company has acquired and will acquire certain properties and other resources; and WHEREAS, Client Company is authorized under the 1935 Act by order of the Commission dated ____________________ to broker and market energy commodities; and WHEREAS, economies and increased efficiencies will result from the performance by Service Company of services for Client Company and the provision of certain property and resources to Client Company as herein provided; and WHEREAS, subject to the terms and conditions herein described, Service Company is willing, upon request by Client Company, to render such services to Client Company at cost, determined in accordance with applicable rules, regulations and orders of the Commission under the 1935 Act; NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein, the parties hereto hereby agree as follows: ARTICLE I. AGREEMENT TO FURNISH SERVICES A. Upon its receipt of Client Company's work order or other request therefor, Service Company will, if it has or can have available the personnel and resources needed to fill the work order or request, furnish to Client Company upon the terms and conditions hereinafter set forth services, for such periods and in such manner as Client Company may from time to time request (the "Services"); provided, however, that the determination of whether Service Company has the available personnel and resources to perform in accordance with the work order or request will be entirely within the discretion of Service Company, and Service Company may at its option elect not to perform any requested Services, except that, once having agreed to perform pursuant to a work order or request, Service Company cannot withdraw or depart from such performance without the consent of Client Company. B. The provision of Services by Service Company pursuant to this Agreement shall in all cases and notwithstanding anything herein contained to the contrary be subject to any limitations contained in authorizations, rules or regulations of those governmental agencies, if any, having jurisdiction over Service Company, Client Company, or such provision of Services. ARTICLE II. PROVISION OF PERSONNEL When specifically requested by Client Company, Service Company may loan its employees to Client Company. In that event, such loaned employees will be under the sole supervision and control of Client Company for such period or periods of time as are necessary to complete the work to be performed by such employees. Such employees may be withdrawn by Service Company from tasks assigned by Client Company only with the consent of Client Company, which consent will not be unreasonably withheld in the event of a demonstrable emergency requiring the use of such employees in another capacity for Service Company. Client Company will be responsible for the actions and activities of such employees while engaged in the performance of the work to the same degree as though such persons were employees of Client Company; provided that such persons shall remain the employees of Service Company and nothing herein shall be construed as creating the employer-employee relationship between Client Company and such persons. Accordingly, as part of Services, Service Company, during periods when such employees are loaned to Client Company, will continue to provide to such employees those same payroll, pension, savings, tax withholding, unemployment, bookkeeping and other personnel support services then being utilized by Service Company in connection with compensating and benefiting such employees. ARTICLE III. COMPENSATION OF SERVICE COMPANY As compensation for Services actually requested by Client Company and rendered to it by Service Company, Client Company hereby agrees to pay to Service Company the cost of such services computed in accordance with applicable rules and regulations (including Rules 90 and 91 under the 1935 Act) and accounting standards. As soon as practicable after the close of each month, Service Company will issue to Client Company an invoice and detail of charges, and all amounts so billed shall be paid by Client Company within thirty days after receipt thereof. The cost of Services to be paid by Client Company shall include direct charges and Client Company's pro rata share of certain of Service Company's costs, determined as set forth below: A. Direct Charges. To the extent that the costs incurred by Service Company in connection with Services rendered by it to Client Company can be identified and related to a particular transaction, direct charges will be made by Service Company to Client Company. B. Prorated Charges. Such costs incurred by Service Company in connection with rendering Services to Client Company as cannot be identified and related to a particular transaction will be charged to Client Company in a fair and equitable manner in accordance with the Service Company's then effective applicable methods of allocation filed with the Commission. ARTICLE IV. WORK ORDERS The Services will be performed in accordance with work orders or requests issued or made by or on behalf of Client Company and accepted by Service Company, and all services will be assigned an applicable work order number to enable specific work to be properly allocated by project or other appropriate basis. Work orders shall be as specific as practicable in defining the Services requested to be performed. Client Company shall have the right from time to time to amend, alter or rescind any work order, provided that (i) any such amendment or alteration which results in a material change in the scope of the work to be performed or equipment to be provided is agreed to by Service Company; (ii) the costs for the Services covered by the work order will include any expense incurred by Service Company as a direct result of such amendment, alteration or rescission of the work order, and (iii) no amendment, alteration or rescission of a work order will release Client Company from liability for all costs already incurred or contracted for by Service Company pursuant to the work order, regardless of whether the work associated with such costs has been completed. ARTICLE V. LIMITATION OF LIABILITY AND INDEMNIFICATION A. In performing the Services hereunder (except to the extent such services are being performed by employees loaned to and under the supervision of Client Company), Service Company will exercise due care to assure that the Services are performed in a workmanlike manner, meet the standards and specifications set forth in the applicable work order or request with respect to such services, and comply with applicable standards of law and regulation. However, failure to meet these obligations shall in no event subject Service Company to any claims or liabilities other than to reperform this Service at cost so that it fully complies with the work order, request or standard, as the case may be. Service Company makes no other warranty with respect to its performance of the Services, and Client Company agrees to accept such Services without further warranty of any nature. The Client Company shall indemnify and agree to save harmless and defend Service Company from the payment of any sum or sums of money on account of, or resulting from, claims or suits growing out of (i) injuries to or the death of any person; (ii) damage to or loss of any property; and/or (iii) other damages in any way attributable to or arising out of the performance of any Service, whether or not the same results or allegedly results from the claimed or actual negligence or breach of warranty of, or willful conduct by, Client Company or of its employees, agents or subcontractors or any combination thereof. Further, Client Company shall indemnify and agree to save harmless and defend Service Company (a) from any and all liens, garnishments, attachments, claims, suits, costs, attorneys' fees, cost of investigation and of defense resulting from, incurred in connection with, or relating to any such claims; (b) from the payment of any such sum or sums of money; and (c) from the payment of any penalties, fines, damages, suits or claims (and any liens or attachments asserted in connection therewith) arising out of (i) any alleged or actual violation of law, court order, or governmental agency rule or regulation committed by or existing with respect to Client Company or its employees, agents or subcontractors (except Service Company when not performing Services hereunder); (ii) any alleged or actual breaches of contract by Client Company; (iii) any claims made by or on account of any employee, agent or subcontractor (except Service Company when not performing Services hereunder or an employee or agent of Service Company where such claim does not arise specifically in connection with the performance of Services hereunder) of Client Company; or for (iv) services or labor performed, materials, provisions or supplies furnished or board of men which have been purchased or allegedly contracted for by or on behalf of the Client Company, its employees, agents or sub-contractors (except Service Company when not performing services hereunder). B. The Service Company shall within five business days after it receives notice of any claims, action, damages or liability against which it will expect to be indemnified pursuant to Article V(A), notify Client Company of such claims, actions, damages or liabilities. Thereafter, Client Company may at its own expense, upon notice to Service Company, defend or participate in the defense of such action or claim or any negotiation for settlement of such action or claim, provided that unless Client Company proceeds promptly and in good faith to pay or defend such action or claim, then Service Company shall have the right (but not the obligation), in good faith, upon ten days' notice to Client Company, to pay, settle, compromise or proceed to defend any such action or claim without the further participation by Client Company. Client Company will immediately pay (or reimburse Service Company, as the case may be) any payments, settlements, compromises, judgments, costs or expenses made or incurred by Service Company in or resulting from the pursuit by Service Company of such right. If any judgment is rendered against Service Company in any action defended by Client Company or from which Service Company is otherwise entitled to indemnification under Article V(A), or any lien attached to the assets of Service Company in connection therewith, Client Company immediately upon such entry or attachment shall pay the judgment in full or discharge any such lien unless, at its expense and direction, appeal shall be taken under which the execution of the judgment or satisfaction of the lien is stayed. If and when a final and unappealable judgment is rendered against Service Company in any such action, Client Company shall forthwith pay such judgment or discharge such lien prior to the time that Service Company would be legally held to do so. C. Client Company shall maintain at all times adequate levels of insurance to discharge financially its obligations under this Article V. ARTICLE VI. MISCELLANEOUS This Agreement shall be binding upon the successors and assigns of the parties hereto, provided that Service Company shall not be entitled to assign or subcontract out any of its obligations under this Agreement or under any purchase order or work order issued hereunder without the prior written approval of Client Company. This Agreement may not be modified or amended in any respect except in writing executed by the parties hereto. This Agreement shall be construed and enforced under and in accordance with the laws of the State of Ohio. This Agreement may be executed in counterparts, each one of which when fully executed shall be deemed to have the same dignity, force and effect as if the original. No provision of this Agreement shall be deemed waived nor breach of this Agreement consented to unless waiver or consent is set forth in writing and executed by the party hereto making such waiver or consent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. AMERICAN ELECTRIC POWER SERVICE CORPORATION By: By: Exhibit B-2 AGREEMENT BETWEEN APPALACHIAN POWER COMPANY and __________________________ THIS AGREEMENT, made and entered into as of _________________, by and between APPALACHIAN POWER COMPANY, a corporation organized under the laws of the Commonwealth of Virginia (hereinafter sometimes referred to as "Operating Company") and _____________________, a corporation organized under the laws of the State of __________ (hereinafter sometimes referred to as "Client Company"). W I T N E S S E T H : WHEREAS, both the Operating Company and the Client Company are associate companies in the American Electric Power System (hereinafter called the "System"), which is comprised of American Electric Power Company, Inc. (hereinafter called "American") and its subsidiary companies; and the Operating Company, which is a wholly-owned subsidiary of American, is an electric utility company within the meaning of Section 2(a)(3) of the Public Utility Holding Company Act of 1935 (hereinafter called the "1935 Act"), and maintains an organization of employees who are experienced in the problems and operations of public utilities and related businesses, together with appropriate facilities and equipment, and, in the course of its operations as an electric utility company, has acquired and will acquire certain properties and other resources; and WHEREAS, Client Company is authorized under the 1935 Act by order of the Securities and Exchange Commission dated _______________, to utilize those services, properties and resources of Operating Company, as well as those provided by other members of the American System, to sell to broker and market energy commodities; and WHEREAS, economies and increased efficiencies will result from the performance by Operating Company of services for Client Company and the provision of certain property and resources to Client Company as herein provided; and WHEREAS, subject to the terms and conditions herein described, Operating Company is willing, upon request by Client Company, to render such services and provide such property and resources to Client Company at cost, determined in accordance with applicable rules, regulations and orders of the Commission under the 1935 Act; NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein, the parties hereto hereby agree as follows: ARTICLE I. AGREEMENT TO FURNISH SERVICES A. Upon its receipt of Client Company's work order or other request therefor, Operating Company will, if it has or can have available the personnel and resources needed to fill the work order or request, furnish to Client Company upon the terms and conditions hereinafter set forth services, for such periods and in such manner as Client Company may from time to time request (the "Services"); provided, however, that the determination of whether Operating Company has the available personnel and resources to perform in accordance with the work order or request will be entirely within the discretion of Operating Company, and Operating Company may at its option elect not to perform any requested Services, except that, once having agreed to perform pursuant to a work order or request, Operating Company cannot withdraw or depart from such performance without the consent of Client Company. B. The provision of Services by Operating Company pursuant to this Agreement shall in all cases and notwithstanding anything herein contained to the contrary be subject to any limitations contained in authorizations, rules or regulations of those governmental agencies, if any, having jurisdiction over Operating Company, Client Company, or such provision of Services. ARTICLE II. PROVISION OF PERSONNEL When specifically requested by Client Company, Operating Company may loan its employees to Client Company. In that event, such loaned employees will be under the sole supervision and control of Client Company for such period or periods of time as are necessary to complete the work to be performed by such employees. Such employees may be withdrawn by Operating Company from tasks assigned by Client Company only with the consent of Client Company, which consent will not be unreasonably withheld in the event of a demonstrable emergency requiring the use of such employees in another capacity for Operating Company. Client Company will be responsible for the actions and activities of such employees while engaged in the performance of the work to the same degree as though such persons were employees of Client Company; provided that such persons shall remain the employees of the Operating Company and nothing herein shall be construed as creating the employer-employee relationship between Client Company and such persons. Accordingly, as part of Services, Operating Company, during periods when such employees are loaned to Client Company, will continue to provide to such employees those same payroll, pension, savings, tax withholding, unemployment, bookkeeping and other personnel support services then being utilized by Operating Company in connection with compensating and benefiting such employees. ARTICLE III. COMPENSATION OF OPERATING COMPANY As compensation for services actually requested by Client Company and rendered to it by Operating Company, Client Company hereby agrees to pay to Operating Company the cost of such services computed in accordance with applicable rules and regulations (including Rules 90 and 91 under the 1935 Act) and accounting standards. As soon as practicable after the close of each month, Operating Company will issue to Client Company an invoice and detail of charges, and all amounts so billed shall be paid by Client Company within thirty days after receipt thereof. The cost of Services to be paid by Client Company shall include direct charges and Client Company's pro rata share of certain of Operating Company's costs, determined as set forth below: A. Direct Charges. To the extent that the costs incurred by Operating Company in connection with Services rendered by it to Client Company can be identified and related to a particular transaction, direct charges will be made by Operating Company to Client Company. B. Prorated Charges. Such costs incurred by Operating Company in connection with rendering Services to Client Company as cannot be identified and related to a particular transaction will be charged to Client Company in a fair and equitable manner. ARTICLE IV. WORK ORDERS The Services will be performed in accordance with work orders or requests issued or made by or on behalf of Client Company and accepted by Operating Company, and all services will be assigned an applicable work order number to enable specific work to be properly allocated by project or other appropriate basis. Work orders shall be as specific as practicable in defining the Services requested to be performed. Client Company shall have the right from time to time to amend, alter or rescind any work order, provided that (i) any such amendment or alteration which results in a material change in the scope of the work to be performed or equipment to be provided is agreed to by Operating Company; (ii) the costs for the Services covered by the work order will include any expense incurred by Operating Company as a direct result of such amendment, alteration or rescission of the work order; and (iii) no amendment, alteration or rescission of a work order will release Client Company from liability for all costs already incurred or contracted for by Operating Company pursuant to the work order, regardless of whether the work associated with such costs has been completed. ARTICLE V. LIMITATION OF LIABILITY AND INDEMNIFICATION A. In performing the Services hereunder (except to the extent such services are being performed by employees loaned to and under the supervision of Client Company), Operating Company will exercise due care to assure that the Services are performed in a workmanlike manner, meet the standards and specifications set forth in the applicable work order or request with respect to such services, and comply with applicable standards of law and regulation. However, failure to meet these obligations shall in no event subject Operating Company to any claims or liabilities other than to reperform the Services at cost so that they fully comply with the work order, request or standard, as the case may be. Operating Company makes no other warranty with respect to its performance of the Services, and Client Company agrees to accept such Services without further warranty of any nature. The Client Company shall indemnify and agree to save harmless and defend Operating Company from the payment of any sum or sums of money on account of, or resulting from, claims or suits growing out of (i) injuries to or the death of any person, (ii) damage to or loss of any property, and/or (iii) other damages in any way attributable to or arising out of the performance of any Service, whether or not the same results or allegedly results from the claimed or actual negligence or breach of warranty of, or wilful conduct by, Client Company or of its employees, agents or subcontractors or any combination thereof. Further, Client Company shall indemnify and agree to save harmless and defend Operating Company (a) from any and all liens, garnishments, attachments, claims, suits, costs, attorneys' fees, cost of investigation and of defense resulting from, incurred in connection with, or relating to any such claims; (b) from the payment of any such sum or sums of money; and (c) from the payment of any penalties, fines, damages, suits or claims (and any liens or attachments asserted in connection therewith) arising out of (i) any alleged or actual violation of law, court order, or governmental agency rule or regulation committed by or existing with respect to Client Company or its employees, agents or subcontractors (except Operating Company when not performing Services hereunder); (ii) any alleged or actual breaches of contract by Client Company; (iii) any claims made by or on account of any employee, agent or subcontractor (except Operating Company when not performing Services hereunder or an employee or agent of Operating Company where such claim does not arise specifically in connection with the performance of Services hereunder) of Client Company; or for (iv) services or labor performed, materials, provisions or supplies furnished or board of men which have been purchased or allegedly contracted for by or on behalf of the Client Company, its employees, agents or sub-contractors (except Operating Company when not performing services hereunder). B. The Operating Company shall within five business days after it receives notice of any claims, action, damages or liability against which it will expect to be indemnified pursuant to Article V(A), notify Client Company of such claims, actions, damages or liabilities. Thereafter, Client Company may at its own expense, upon notice to Operating Company, defend or participate in the defense of such action or claim or any negotiation for settlement of such action or claim, provided that unless Client Company proceeds promptly and in good faith to pay or defend such action or claim, then Operating Company shall have the right (but not the obligation), in good faith, upon ten days' notice to Client Company, to pay, settle, compromise or proceed to defend any such action or claim without the further participation by Client Company. Client Company will immediately pay (or reimburse Operating Company, as the case may be) any payments, settlements, compromises, judgments, costs or expenses made or incurred by Operating Company in or resulting from the pursuit by Operating Company of such right. If any judgment is rendered against Operating Company in any action defended by Client Company or from which Operating Company is otherwise entitled to indemnification under Article V(A), or any lien attached to the assets of Operating Company in connection therewith, Client Company immediately upon such entry or attachment shall pay the judgment in full or discharge any such lien unless, at its expense and direction, appeal shall be taken under which the execution of the judgment or satisfaction of the lien is stayed. If and when a final and unappealable judgment is rendered against Operating Company in any such action, Client Company shall forthwith pay such judgment or discharge such lien prior to the time that Operating Company would be legally held to do so. C. Client Company shall maintain at all times adequate levels of insurance to discharge financially its obligations under this Article V. ARTICLE VI. MISCELLANEOUS This Agreement shall be binding upon the successors and assigns of the parties hereto, provided that Operating Company shall not be entitled to assign or subcontract out any of its obligations under this Agreement or under any purchase order or work order issued hereunder without the prior written approval of Client Company. This Agreement may not be modified or amended in any respect except in writing executed by the parties hereto. This Agreement shall be construed and enforced under and in accordance with the laws of the State of Ohio. This Agreement may be executed in counterparts, each one of which when fully executed shall be deemed to have the same dignity, force and effect as if the original. No provision of this Agreement shall be deemed waived nor breach of this Agreement consented to unless waiver or consent is set forth in writing and executed by the party hereto making such waiver or consent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. APPALACHIAN POWER COMPANY By: ____________________ _________________________ By: _____________________ Exhibit F 614/223-1632 Securities and Exchange Commission Office of Public Utility Regulation 450 Fifth Street, N.W. Washington, D.C. 20549 May 15, 1996 Re: American Electric Power Company, Inc. ("AEP") SEC File No. 70-8779 Gentlemen: Regarding the transactions proposed and described in the Application or Declaration on Form U-1 filed by AEP with this Commission in the captioned proceeding in connection with the formation of one or more direct or indirect subsidiaries (the "New Subsidiaries") to engage in the business of brokering and marketing energy commodities, and subject to the assumptions in the following paragraph, I am of the opinion that: (a) all state laws applicable to the proposed formation of the New Subsidiaries will have been complied with; (b) the New Subsidiaries, when incorporated and organized, will be validly organized and duly existing; (c) stock issued by the New Subsidiaries to AEP will be validly issued, fully paid and nonassessable, and AEP will be entitled to the rights and privileges appertaining thereto set forth in the charter or other document defining such rights and privileges; (d) AEP will legally acquire the stock issued by the New Subsidiaries; and (e) formation of the New Subsidiaries will not violate the legal rights of the holders of any securities issued by AEP or any associate company thereof. In rendering my opinion above, I have assumed that the following will take place: 1. due incorporation and organization of the New Subsidiaries and appropriate action by the Board of Directors of AEP and the New Subsidiaries with respect to the transactions described in said Application or Declaration; 2. appropriate action by the Securities and Exchange Commission with respect to the formation of the New Subsidiaries as described in said Application or Decla- ration; 3. execution and delivery of any agreement pursuant to which the stock will be issued; and 4. issuance of the stock of the New Subsidiaries to AEP in accordance with the governmental and corporate authorizations aforesaid. I hereby consent to the filing of this opinion as an exhibit to the above-mentioned Application or Declaration. Very truly yours, /s/ John M. Adams, Jr. John M. Adams, Jr. Counsel for American Electric Power Company, Inc. -----END PRIVACY-ENHANCED MESSAGE-----