Amendment No. 2 to Form U-1, AEP Credit and American Electric Power Company
File
No.
70-10313
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________________________
Amendment
No. 2
to
FORM
U-1
_______________________________
APPLICATION
OR DECLARATION
under
the
PUBLIC
UTILITY HOLDING COMPANY ACT OF 1935
*
*
*
AEP
CREDIT, INC.
1
Riverside
Plaza, Columbus, Ohio 43215
(Name
of
company or companies filing this statement
and
address of principal executive office)
*
*
*
AMERICAN
ELECTRIC POWER COMPANY, INC.
1
Riverside Plaza, Columbus, Ohio 43215
(Name
of
top registered holding company
parent
of
each applicant or declarant)
*
*
*
Stephen
P. Smith, Senior Vice President and Treasurer
American
Electric Power Service Corporation
1
Riverside Plaza, Columbus, Ohio 43215
Thomas
G.
Berkemeyer, 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. ("AEP"), a New York corporation and a registered
holding company under the Public Utility Holding Company Act of 1935, as amended
(the "1935 Act"), and AEP Credit, Inc., (which changed its name from CSW Credit,
Inc. on August 21, 2000), a Delaware corporation, an indirect subsidiary of
AEP
and a wholly-owned nonutility subsidiary of AEP Utilities, Inc., formerly known
as Central and South West Corporation ("AEP Utilities"), hereby file this
Amendment No. 2 to the Form U-1 Application-Declaration in this File.
By
the
Application/Declaration, as amended, in its entirety to read as
follows:
ITEM
1. DESCRIPTION OF PROPOSED TRANSACTIONS
Previous
Commission Orders:
By
order
dated July 19, 1985 in File No. 70-7113 (HCAR No. 23717) (the "Original Order"),
the Commission authorized AEP Utilities to organize CSW Credit, Inc. (now known
as AEP Credit, Inc.) ("Credit") for the purposes of factoring the accounts
receivable of its Operating Companies through December 31, 1986. Pursuant to
the
Original Order, Credit was authorized to borrow up to $320 million to finance
its purchases and AEP Utilities was authorized to make equity investments in
Credit up to $80 million.
By
order
dated July 31, 1986 in File No. 70-7218 (HCAR No. 24157) (the "1986 Order"),
the
Commission authorized the expansion of the scope of Credit's permissible
activities to include the factoring of receivables of non-associate utilities.
To finance these transactions, the Commission authorized Credit to borrow up
to
an additional $160 million and permitted CSW to make additional equity
investments in Credit of up to $40 million to maintain Credit's equity-to-debt
capitalization ratio. The 1986 Order also provided that Credit would limit
its
acquisition of utility receivables from non-associate utilities so that the
average amount of such receivables for the preceding 12-month period outstanding
as of the end of any calendar month would be less than the average amount of
receivables acquired from associated companies outstanding as of the end of
each
calendar month during the preceding 12-month period (the "50%
Restriction").
By
order
dated February 8, 1988 in File Nos. 70-7218 and 70-7113 (HCAR No. 24575), the
provisions of the Original Order and the 1986 Order were extended through
December 31, 1989, with specified authorized levels of borrowings and related
equity investments. Specifically, the Commission authorized Credit to factor
accounts receivable of non-associate gas or electric utility companies and
borrow up to $320 million and $304 million to finance the factoring of associate
and non-associate receivables, respectively. AEP Utilities was authorized to
make equity investments in Credit of up to an aggregate of $80 million and
$76
million in connection with the factoring of associate and non-associate
receivables, respectively.
By
order
dated December 27, 1989 in File Nos. 70-7218 and 70-7113 (HCAR No. 25009),
the
Commission authorized a reduction in Credit's equity-to-debt capitalization
from
approximately 20% to not less than 15%. In all other respects the previously
granted authority was extended through December 31, 1990.
By
order
dated August 30, 1990 in File Nos. 70-7218 and 70-7113 (HCAR No. 25138) (the
"1990 Order"), the Commission authorized a further reduction in the
equity-to-debt capitalization to not less than 5%.
By
order
dated December 21, 1990 in File Nos. 70-7218 and 70-7113 (HCAR No. 25228),
the
Commission extended Credit's existing authority through December 31,
1991.
By
order
dated December 24, 1991 in File Nos. 70-7218 and 70-7113 (HCAR No. 25443),
the
Commission authorized Credit to borrow up to an additional $200 million to
finance the factoring of associate receivables. In all other respects, the
previously granted authority was extended through December 31,
1992.
By
order
dated December 9, 1992 in File Nos. 70-7218 and 70-7113 (HCAR No. 25698), the
Commission extended Credit's existing authority through December 31,
1993.
By
order
dated December 21, 1993 in File Nos. 70-7218 and 70-7113 (HCAR No. 25959),
the
Commission extended Credit's existing authority through December 31,
1994.
By
order
dated December 16, 1994 in File Nos. 70-7218 and 70-7113 (HCAR No. 26190),
the
Commission extended Credit's existing authority through December 31,
1995.
By
order
dated December 22, 1995 in File Nos. 70-7218 and 70-7113 (HCAR No. 26437),
the
Commission extended Credit's existing authority through December 31,
1996.
By
order
dated December 13, 1996 in File Nos. 70-7218 and 70-7113 (HCAR No. 26627),
the
Commission extended Credit's existing authority through December 31,
2000.
By
order
dated March 11, 1997 in File Nos. 70-7281 and 70-7113 (HCAR No. 26684), the
Commission granted limited, temporary relief from the 50% Restriction through
December 31, 2000. This order imposed a detailed quarterly Rule 24 Report (the
“Rule 24 Report”).
By
order
dated June 14, 2000 in File No. 70-9381 (HCAR No. 27186) in which the Commission
approved the acquisition of AEP Utilities by AEP, the Commission authorized
Credit to continue to factor accounts receivable, consistent with all the terms
and conditions of the foregoing orders and subject to the following: (1) AEP
Utilities shall transfer, and AEP shall assume, AEP Utilities’ equity investment
authorizations in Credit, and (2) purchases of accounts receivable of AEP's
electric utility operating subsidiaries by Credit shall be deemed to be
purchases of accounts receivable from affiliates.
By
order
dated December 21, 2000 in File Nos. 70-7218 and 70-7113 (HCAR 35-27314), the
Commission granted Credit an extension through September 30, 2005 of the
previously granted authority to (i) factor the accounts receivable of the
electric utility operating subsidiaries of AEP and (ii) factor the accounts
receivable of non-associate utilities subject to the 50%
Restriction.
Current
Factoring Program:
Under
the
current factoring program as previously authorized by this Commission, Credit
purchases accounts receivable from the following AEP System Operating Companies:
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 (each, an “Operating Company” and collectively, the
“Operating Companies”) pursuant to separate purchase agreements with each of the
AEP Operating Companies. Credit was formed solely to purchase and sell accounts
receivable. It is intended to be bankruptcy remote in order to isolate the
receivables from the creditors of the Operating Companies.
Benefits. The
benefits of such programs have long been recognized by the Commission which
has
approved programs for Allegheny Power System, Inc.[HCAR No. 26401, October
27,
1995]; New Century Energies [HCAR No. 26748, August 1, 1997]; Connecticut Power
& Light [HCAR No. 26761, September 29, 1997]; Western Massachusetts Electric
Company, [HCAR No. 26710, File 70-8959, April 25, 1997]. The AEP System
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.
Discount. The
Operating Company’s sales to Credit are made at a discount based on Credit’s
actual cost of funds and the actual collection history of that Operating
Company’s receivable pool. Credit then resells the accounts receivable to third
party financial institutions. Credit complies with the “at cost” rules under the
35 Act and as a result there is no cross-subsidization between Credit and the
individual Operating Companies. The Operating Companies do benefit from the
Credit’s lower financing costs.
There
are
currently two components of the Operating Company discount calculation: (i)
a
financing cost component and (ii) a bad debt component. The financing cost
component (“Carrying Charge”)is based on 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. The bad debt component
is
based on 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.
Credit
has also entered into an agency agreement with each of the Operating Companies
which provides that each Operating Company will act as a collection agent for
the receipt of customer payments and collection and remit these payments to
Credit.
The
amount of the receivables sold varies from month to month based on the electric
usage by the Operating Company’s customers.
The
sale
of the accounts receivable by each Operating Company qualifies for treatment
as
a true sale of assets under Financial Accounting Standards Board Statement
No.
140 rather than as a loan secured by the receivables.
Credit
periodically purchases the accounts receivable from each Operating Company.
These sales are on a nonrecourse basis to the Operating Companies. There is
no
contractual requirement that any Operating Company continue factoring for a
specified period of time and any Operating Company may terminate its
relationship with Credit on 30 days notice. Credit has stipulated that its
interest charges to the Operating Companies used in the Carrying Charge has
always been, and is anticipated to be, less than the “prime rate of interest” as
that term is normally used.
Credit
funds its purchase of the receivables using funds it obtains under a receivables
purchase agreement (“RPA”), among Credit, American Electric Power Service
Corporation (“Service Corp.”), as Servicer, and a group of commercial paper
funding conduits. Pursuant to the RPA, Credit sells a certain undivided
ownership interest in the accounts receivable on a revolving basis to a group
of
financial institutions, as mentioned above. Service Corp, a Rule 88 subsidiary
service company, as the servicer under the RPA, administers the collections
received by Credit and reports information regarding the receivables and the
collections relating thereto to the agent for the funding conduits. As such
servicer, Service Corp. is reimbursed, as full compensation for its servicing
activities, for any cost or expense incurred by it in connection with its
services under the agreement.
Cross-subsidization:
Credit
is a special purpose entity whose sole purpose is to purchase the electric
and
electric-related receivables from the Operating Companies. There is no
cross-subsidization involved in the purchase of the receivables. Credit enters
into separate purchase agreements with each Operating Company. Credit finances
its purchase of these receivables currently by (i) using funds obtained from
a
group of commercial paper funding conduits under a receivables purchase
agreement (“RPA”); (ii) equity contributions from AEP; and (iii) proceeds of a
subordinated revolving loan by AEP. Each Operating Company pays a discount
based
on its actual costs as described above for each purchase. Therefore, there
is no
opportunity for each Operating Company to pay more or less than the actual
costs
associated with its pool of receivables.
Request
for Authority:
Credit
has been successfully factoring receivables of public utility subsidiary
affiliates for 20 years. Since 1986 Credit has been authorized to factor
receivables of nonassociates up to 50% of the amount of factored receivables
[HCAR. No. 24157, July 31, 1986]. Credit’s current authority to factor
receivables expires on September 30, 2005.
1.) AEP
proposes to retain Credit whose operations are described above. Credit hereby
affirms that it does not currently factor accounts receivable of nonassociates
and has no intention of doing so without Commission approval. No authority
is
requested herein to factor accounts receivable of nonassociates and therefore
the previously imposed 50% Restriction is no longer applicable.
2.) When
this
Commission granted Credit an exemption from the 50% Restriction by its Order
dated March 11, 1997 [HCAR Release No. 26684; File No. 70-7218], it imposed
a
detailed Rule 24 report which is not required of other companies who have
received authorization to factor receivables.1
Credit
hereby requests that the detailed quarterly Rule 24 Report be
eliminated.
3.) By
order
dated August 30, 1990 in File Nos. 70-7218 and 70-7113 (HCAR No. 25138) (the
"1990 Order"), the Commission authorized a reduction in the equity-to-debt
capitalization of Credit to not less than 5%. Credit hereby requests that this
5% requirement be eliminated. It is proposed that Credit will be capitalized
with any combination of debt or equity sufficient to meet its needs and to
retain the true sale treatment it currently has, if applicable. [see Columbia
Energy Group, et al. HCAR Release No. 35-27899; File 70-9421 dated October
1,
2004].
Rule
52(b) exempts the issuance of securities by Credit and Rule 45(b) exempts the
contributions of capital to Credit; therefore, the borrowing and equity
investment limits stated in previous orders are no longer applicable. The amount
of borrowings and equity investments were effectively limited by the 50%
Restriction stated in the 1986 Order and the capitalization ratio requirements
set forth in the 1990 Order.
4.) Credit
currently purchases receivables from each Operating Company on a daily basis.
Credit proposes to make such purchases daily, weekly or at some other period
that is agreed to by Credit and each Operating Company.
AEP
and
Credit hereby request authority to continue to factor the accounts receivable
of
its Operating Company affiliates as set forth above.
Compliance
with Rule 54:
The
proposed transaction is also 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 Sections 7 and
12
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) thereof are met, provided that none of the conditions
specified in paragraphs (b)(1) through (b)(3) of Rule 53 exists. Set forth
below
is a discussion of the compliance with Rule 53 for AEP.
AEP
consummated the merger with Central and South West Corporation, now AEP
Utilities, Inc. (“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 (the “Rule 53(c) Order”).
AEP
currently meets all of the conditions of Rule 53(a). At June 30, 2005, AEP’s
“aggregate investment”, as defined in Rule 53(a)(1), in EWGs and FUCOs was
approximately $203 million, or about 9.5% of AEP’s “consolidated retained
earnings”, also as defined in Rule 53(a)(1), for the four quarters ended June
30, 2005 ($2.14 billion).
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. Further, none
of
the circumstances described in Rule 53(b) has occurred or is
continuing.
Applicant
respectfully submits that AEP meets the requirements of Rule 53(c). 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 growth trend in AEP retained
earnings.
As
of
December 31, 1999, the most recent period for which financial statement
information was evaluated in the 53(c) Order, AEP’s consolidated capitalization
(including CSW on a pro forma basis) consisted of 37.3% common and preferred
equity, 61.3% debt and $335 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%.
As
of
June 30, 2005, AEP’s consolidated capitalization consisted of 58.6% debt, 41.4%
common and preferred equity (consisting of common stock representing 41.1%
and
$61 million principal amount of preferred stock representing 0.3%).
None
of
AEP’s Utility Subsidiaries or their customers will be adversely impacted by the
requested relief.
The
ratio
of common equity to total capitalization, net of securitization debt, of each
of
the Utility Subsidiaries will continue to be maintained at not less than 30%
(except for TCC which will maintain 25% so long as securitization bonds are
outstanding). In addition, each of the Utility Subsidiaries is subject to
regulation by one or more state commissions that are able to protect utility
customers within their respective states.
Since
the
date of the Rule 53(c) Order, there has been an increase in AEP’s consolidated
equity capitalization ratio. In addition, the Public 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, Standard and Poor’s (“S&P”) rating of secured debt for
AEP’s operating subsidiaries was as follows: Appalachian Power Company, A;
Columbus Southern Power Company,
A-;
Indiana Michigan Power Company, A-; Kentucky Power Company, A; Ohio Power
Company, A-; AEP Texas Central Company (formerly Central Power and Light
Company), A; Public Service Company of Oklahoma, AA-; Southwestern Electric
Power Company, AA-; and AEP Texas North Company, A. AEP did not have a long-term
debt rating as of December 31, 1999.
As
of
June 30, 2005, S&P’s rating of unsecured debt for AEP’s operating
subsidiaries was as follows: Appalachian Power Company, BBB; Columbus Southern
Power Company, BBB; Indiana Michigan Power Company, BBB; Kentucky Power Company,
BBB, Ohio Power Company, BBB, AEP Texas Central Company (formerly Central Power
and Light Company), BBB; Public Service Company of Oklahoma, BBB; Southwestern
Electric Power Company, BBB; and AEP Texas North Company (formerly, West Texas
Utilities Company), BBB. S&P’s rating of AEP’s unsecured debt was BBB as of
June 30, 2005.
ITEM
2. FEES,
COMMISSIONS AND EXPENSES:
The
fees,
commissions and expenses incurred or to be incurred in connection with the
preparation and filing of this Application/Declaration are estimated not to
exceed $2,000.
ITEM
3. APPLICABLE
STATUTORY PROVISIONS:
Sections
6(a), 7, 9(a), 10 and 12 and Rules 45, 52 and 54 thereunder are or may be
applicable to the proposed transactions. The borrowings by, and the notes issued
by, Credit to AEP and the acquisition of the notes are exempt under Sections
6(a) and 9(a) under Rule 52(b) and (d) because the interest rates and maturity
dates of those notes are
designed to parallel the cost of capital of AEP and the notes are being issued
solely to finance Credit’s existing business. The intercompany loan are exempt
under Section 12(b) by Rule 45(b)(1). To the extent any other sections of the
Act may be applicable to the proposed transactions, the Applicants hereby
request appropriate orders thereunder.
ITEM
4. REGULATORY
APPROVAL:
No
state
or federal regulatory authority, other than as described below, has jurisdiction
over the proposed transactions. The Virginia State Corporation Commission
(“VSCC”) approved the factoring by Appalachian Power Company in Virginia in
2000.
The
West
Virginia Public Service Commission has jurisdiction over affiliate transactions
for Appalachian Power Company and Wheeling Power Company in West Virginia.
Applicants request that the Commission reserve jurisdiction over authority
of
Credit to factor in West Virginia pending completion of the record.
ITEM
5. PROCEDURE:
The
Commission is requested to publish a notice under Rule 23 with respect to the
filing of this Application/Declaration as soon as practicable. The Applicant
requests that the Commission’s order be issued as soon as practicable after the
notice period and in any event not later than September 30, 2005 in order to
accommodate the financing needs of the Company. The Applicants further request
that there should not be a 30-day waiting period between issuance of the
Commission’s order and the date on which the order is to become effective,
hereby waives a recommended decision by a hearing officer or any other
responsible officer of the Commission, and consents to the assistance of the
Division of Investment Management in the preparation of the Commission’s
decision and/or order, unless the Division of Investment Management opposes
the
matters proposed herein.
ITEM
6. EXHIBITS
AND FINANCIAL STATEMENTS:
A. Exhibits.
D
Opinion
of Counsel
E
Form
of
Federal Register Notice
B. Financial
Statements.
Consolidated
balance sheet and statements of income and cash flows of AEP at December 31,
2004 are incorporated herein by reference to AEP’s Form 10-K for the period
ended December 31, 2004, File No. 1-3525).
ITEM
7. INFORMATION
AS TO ENVIRONMENTAL EFFECTS:
None
of
the matters that are the subject of this Application/Declaration involves a
“major federal action” nor do such matters “significantly affect the quality of
the human environment” as those terms are used in section 102(2)(C) of the
National Environmental Policy Act. The transaction that is the subject of this
Application/Declaration will not result in changes in the operation of the
Applicant that will have an impact on the environment. The Applicant is not
aware of any federal agency that has prepared or is preparing an environmental
impact statement with respect to the transaction that is the subject of this
Application/Declaration.
SIGNATURE
Pursuant
to the requirements of the Public Utility Holding Company Act of 1935, the
undersigned companies have duly caused this Amendment No. 2 to its Form U-1
in
this file to be signed on their behalf by the undersigned thereunto duly
authorized.
|
AMERICAN
ELECTRIC POWER COMPANY, INC.
|
|
AEP
CREDIT, INC.
|
|
|
|
|
By:
|
/s/
Stephan T. Haynes
|
|
|
Assistant
Treasurer
|
Dated: September
27, 2005
1 See,
Alliant Energy Corporation, HCAR No. 35-27368, 70-9597, March 20,
2001; Metropolitan Edison Company, et al., HCAR No. 35-27820 70-10192,
March 24,
2004; Columbia Energy Group, HCAR. No. 35-27899, October 1, 2004; Connecticut
Light and Power Company, et al., HCAR 35-27873, 70-9905, July 6, 2004];
Western
Massachusetts Electric Company, [HCAR No. 26710, File 70-8959, April 25,
1997.
EXHIBIT
D
September
__, 2005
Securities
and Exchange Commission
450
Fifth
Street, N.W.
Washington,
DC 20549
Re:
American
Electric Power Company, Inc. (“AEP”)
AEP
Credit, Inc. (“Credit”)
File No. 70-10313
Ladies
and Gentlemen:
I
am an
attorney employed by American Electric Power Service Corporation, a subsidiary
of American Electric Power, Inc. (“AEP”) and have acted as counsel for AEP and
AEP Credit, Inc. (“Credit”) in connection with the filing of the
Application-Declaration on Form U-1, File No. 70-10313, as amended (the
“Application”), filed under the Public Utility Holding Company Act of 1935, as
amended (the “Act”), by AEP a registered holding company, and Credit
.
I
have
examined originals, or copies certified to my satisfaction, of such corporate
records of Service Corporation and other documents as I have deemed necessary
to
require as a basis for the opinions hereafter expressed. In such examination,
I
have assumed the genuineness of all signatures and the authenticity of all
documents submitted to me as originals and the conformity with the originals
of
all documents submitted to us as copies.
Based
upon the foregoing, and having regard to legal considerations which I deem
relevant, I am of the opinion that, in the event that the proposed transactions
are consummated in accordance with the Application, and subject to the
assumptions and conditions set forth below:
1. |
AEP
and Credit are validly organized and duly existing under the laws
of their
states of incorporation.
|
2. |
All
state laws applicable to the proposed transactions as described
in the
Application will have been complied
with.
|
3. |
Consummation
of the proposed transactions as described in the Application will
not
violate the legal rights of the holders of any securities issued
by AEP or
Credit or any “associate” company thereof, as such term is defined in the
Act.
|
I
hereby
consent to the use of this opinion as an exhibit to the
Application.
|
Very
truly yours,
|
|
|
|
|
|
Ann
B. Graf
|
|
Counsel
to American Electric Power Company, Inc. and AEP Credit,
Inc.
|
Exhibit
F
UNTITED
STATES OF AMERICA
Before
the
SECURITITES
AND EXCHANGE COMMISSION
PUBLIC
UTILITY HOLDING COMPANY ACT OF 1935
Release
No. __________ / August ___, 2005
In
the
Matter of
American
Electric Power Company, Inc. and AEP Credit, Inc.
1
Riverside Plaza
Columbus,
OH 43215
(70-10313)
Notice
is
hereby given that American Electric Power Company, Inc. ("AEP"), a New
York
corporation and a registered holding company under the Public Utility Holding
Company Act of 1935, as amended (the "Act"), and AEP Credit, Inc., (which
changed its name from CSW Credit, Inc. on August 21, 2000), a Delaware
corporation, an indirect subsidiary of AEP and a wholly-owned nonutility
subsidiary of AEP Utilities, Inc., formerly known as Central and South
West
Corporation ("AEP Utilities"), have filed an Application-Declaration with
the
Commission under sections 9(a) and 10 of the Act and rule 54 under the
Act.
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 named AEP Credit, and continued to operate under
the
various grants of authority, some of which are described below.
A.
Prior
Orders
By
order
dated July 19, 1985 in File No. 70-7113 (HCAR No. 23717) (the "Original
Order"),
the Commission authorized AEP Utilities to organize CSW Credit, Inc. (now
known
as AEP Credit, Inc.) ("Credit") for the purposes of factoring the accounts
receivable of its Operating Companies through December 31, 1986. Pursuant
to the
Original Order, Credit was authorized to borrow up to $320 million to finance
its purchases and AEP Utilities was authorized to make equity investments
in
Credit up to $80 million.
By
order
dated July 31, 1986 in File No. 70-7218 (HCAR No. 24157) (the "1986 Order"),
the
Commission authorized, among other things, CSW to expand the scope of Credit's
permissible activities to include the factoring of receivables of non-associate
utilities. As a condition of the 1986 Order, Credit was required to limit
its
acquisition of utility receivables from non-associate utilities (“Non-Associate
Limit”).
By
order
dated December 21, 2000 in File Nos. 70-7218 and 70-7113 (HCAR 35-27314),
the
Commission granted Credit an extension through September 30, 2005 of the
previously granted authority to factor the accounts receivable of the electric
utility operating subsidiaries of AEP.
B. Credit’s
Current Operations.
Under
the
current factoring program as previously authorized by this Commission,
Credit
purchases accounts receivable from the following AEP System Operating Companies:
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 (each, an “Operating Company” and collectively, the
“Operating Companies”) pursuant to separate purchase agreements with each of the
AEP Operating Companies. Credit no longer factors accounts receivable from
non-associate public utility companies.
The
Operating Company’s sales to Credit are made at a discount based on Credit’s
actual cost of funds and the actual collection history of that Operating
Company’s receivable pool. Credit then resells the accounts receivable to third
party financial institutions. Credit complies with the “at cost” rules under the
35 Act and as a result there is no cross-subsidization between Credit and
the
individual Operating Companies. The Operating Companies do benefit from
the
Credit’s lower financing costs.
Credit
has also entered into an agency agreement with each of the Operating Companies
which provides that each Operating Company will act as a collection agent
for
the receipt of customer payments and collection and remit these payments
to
Credit.
The
amount of the receivables sold varies from month to month based on the
electric
usage by the Operating Company’s customers.
The
sale
of the accounts receivable by each Operating Company qualifies for treatment
as
a true sale of assets under Financial Accounting Standards Board Statement
No.
140 rather than as a loan secured by the receivables.
Credit
periodically purchases the accounts receivable from each Operating Company.
These sales are on a nonrecourse basis to the Operating Companies. There
is no
contractual requirement that any Operating Company continue factoring for
a
specified period of time and any Operating Company may terminate its
relationship with Credit on 30 days notice. Credit has stipulated that
its
interest charges to the Operating Companies used in the Carrying Charge
has
always been, and is anticipated to be, less than the “prime rate of interest” as
that term is normally used.
Credit
funds its purchase of the receivables using funds it obtains under a receivables
purchase agreement (“RPA”), among Credit, American Electric Power Service
Corporation (“Service Corp.”), as Servicer, and a group of commercial paper
funding conduits. Pursuant to the RPA, Credit sells a certain undivided
ownership interest in the accounts receivable on a revolving basis to a
group of
financial institutions, as mentioned above. Service Corp, a Rule 88 subsidiary
service company, as the servicer under the RPA, administers the collections
received by Credit and reports information regarding the receivables and
the
collections relating thereto to the agent for the funding conduits. As
such
servicer, Service Corp. is reimbursed, as full compensation for its servicing
activities, for any cost or expense incurred by it in connection with its
services under the agreement.
Request
Authority
1.) AEP
proposes to retain Credit whose operations are described above.
2.) When
this
Commission granted Credit an exemption from the 50% Restriction by its
Order
dated March 11, 1997 [HCAR Release No. 26684; File No. 70-7218], it imposed
a
detailed Rule 24 report which is not required of other companies who have
received authorization to factor receivables, Credit requests that the
detailed
quarterly Rule 24 Report be eliminated.
3.) By
order
dated August 30, 1990 in File Nos. 70-7218 and 70-7113 (HCAR No. 25138)
(the
"1990 Order"), the Commission authorized a reduction in the equity-to-debt
capitalization of Credit to not less than 5%. Credit requests that this
5%
requirement be eliminated.
4.) Credit
currently purchases receivables from each Operating Company on a daily
basis.
Credit proposes to make such purchases daily, weekly or at some other period
that is agreed to by Credit and each Operating Company.