-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, eKSWrB0HSQSAtQhbMdzG4tQHXSh27TJiIretDapXE3EXXkhvUot57DpLA8UuO40j 3mtNEt+M7hoZ+5nYaw8eZA== 0000006879-95-000005.txt : 199507120000006879-95-000005.hdr.sgml : 19950711 ACCESSION NUMBER: 0000006879-95-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950328 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPALACHIAN POWER CO CENTRAL INDEX KEY: 0000006879 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 540124790 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03457 FILM NUMBER: 95523929 BUSINESS ADDRESS: STREET 1: 40 FRANKLIN RD SW CITY: ROANOKE STATE: VA ZIP: 24011 BUSINESS PHONE: 7039852300 MAIL ADDRESS: STREET 1: 1 RIVERSIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43215 10-K405 1 APCO 1994 10-K _________________________________________________________________ ----------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ---------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1994 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to ___________ --------------
I.R.S. EMPLOYER COMMISSION REGISTRANT; STATE OF INCORPORATION; IDENTIFICATION FILE NUMBER ADDRESS; AND TELEPHONE NUMBER NO. ----------- ----------------------------------- ------------- 1-3525 American Electric Power Company, Inc. 13-4922640 (A New York Corporation) 1 Riverside Plaza Columbus, Ohio 43215 Telephone (614) 223-1000 0-18135 AEP Generating Company 31-1033833 (An Ohio Corporation) 1 Riverside Plaza Columbus, Ohio 43215 Telephone (614) 223-1000 1-3457 Appalachian Power Company 54-0124790 (A Virginia Corporation) 40 Franklin Road, S.W. Roanoke, Virginia 24011 Telephone (703) 985-2300 1-2680 Columbus Southern Power Company 31-4154203 (An Ohio Corporation) 215 North Front Street Columbus, Ohio 43215 Telephone (614) 464-7700 1-3570 Indiana Michigan Power Company 35-0410455 (An Indiana Corporation) One Summit Square P. O. Box 60 Fort Wayne, Indiana 46801 Telephone (219) 425-2111 1-6858 Kentucky Power Company 61-0247775 (A Kentucky Corporation) 1701 Central Avenue Ashland, Kentucky 41101 Telephone (800) 572-1113 1-6543 Ohio Power Company 31-4271000 (An Ohio Corporation) 301 Cleveland Avenue, S.W. Canton, Ohio 44702 Telephone (216) 456-8173
--------------- AEP Generating Company, Columbus Southern Power Company and Kentucky Power Company meet the conditions set forth in General Instruction J(1)(a) and (b) of Form 10-K and are therefore filing this Form 10-K with the reduced disclosure format specified in General Instruction J(2) to such Form 10-K. --------------- Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X . No X . --- --- Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE REGISTRANT TITLE OF EACH CLASS ON WHICH REGISTERED ---------- ------------------- --------------------- AEP Generating Company None American Electric Common Stock, Power Company, $6.50 par value ..... New York Stock Inc. Exchange Appalachian Power Cumulative Preferred Stock, Company Voting, no par value: 4-1/2% ............ Philadelphia Stock Exchange 4.50% ............. Philadelphia Stock Exchange 7.40% ............. New York Stock Exchange Columbus Southern None Power Company Indiana Michigan Cumulative Preferred Stock, Power Company Non-Voting, $100 par value: 4-1/8% ............ Chicago Stock Exchange 7.08% ............. New York Stock Exchange Kentucky Power None Company Ohio Power Cumulative Preferred Stock, Company Voting, $100 par value: 7.60% ............. New York Stock Exchange 7-6/10% ........... New York Stock Exchange 8.04% ............. New York Stock Exchange
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ---- SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
REGISTRANT TITLE OF EACH CLASS ---------- ------------------- AEP Generating Company None American Electric Power Company, Inc. None Appalachian Power Company None Columbus Southern Power Company None Indiana Michigan Power Company None Kentucky Power Company None Ohio Power Company 4-1/2% Cumulative Preferred Stock, Voting, $100 par value
AGGREGATE MARKET VALUE NUMBER OF SHARES OF VOTING STOCK HELD OF COMMON STOCK BY NON-AFFILIATES OF OUTSTANDING OF THE REGISTRANTS AT THE REGISTRANTS AT FEBRUARY 3, 1995 FEBRUARY 3, 1995 ---------------------- ------------------ AEP Generating None 1,000 Company ($1,000 par value) American Electric $6,621,000,000 185,235,000 Power Company, Inc. ($6.50 par value) Appalachian Power $38,000,000 13,499,500 Company (no par value) Columbus Southern None 16,410,426 Power Company (no par value) Indiana Michigan None 1,400,000 Power Company (no par value) Kentucky Power None 1,009,000 Company ($50 par value) Ohio Power Company $129,000,000 27,952,473 (no par value)
NOTE ON MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES All of the common stock of AEP Generating Company, Appalachian Power Company, Columbus Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company and Ohio Power Company is owned by American Electric Power Company, Inc. (see Item 12 herein). The voting stock owned by non-affiliates of (i) Appalachian Power Company consists of 553,848 shares of Cumulative Preferred Stock, no par value; and (ii) Ohio Power Company consists of 1,712,403 shares of Cumulative Preferred Stock, $100 par value. Some of the series of Cumulative Preferred Stock are not regularly traded. The aggregate market value of the Cumulative Preferred Stock is based on the average of the high and low prices on the closest trading date to February 3, 1995 for series traded on the New York or Philadelphia Stock Exchange, or the most recent reported bid prices for those series not recently traded. Where recent market price information was not available with respect to a series, the market price for such series is based on the price of a recently traded series with an adjustment related to any difference in the current yields of the two series. DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH DOCUMENT DESCRIPTION IS INCORPORATED ----------- ----------------- Portions of Annual Reports of the following companies for the fiscal year ended December 31, 1994: Part II AEP Generating Company American Electric Power Company, Inc. Appalachian Power Company Columbus Southern Power Company Indiana Michigan Power Company Kentucky Power Company Ohio Power Company Portions of Proxy Statement of American Electric Power Company, Inc., dated March 9, 1995, for Annual Meeting of Shareholders Part III Portions of Information Statements of the following companies for 1995 Annual Meeting of Shareholders, to be filed within 120 days after December 31, 1994: Part III Appalachian Power Company Ohio Power Company
--------------- THIS COMBINED FORM 10-K IS SEPARATELY FILED BY AEP GENERATING COMPANY, AMERICAN ELECTRIC POWER COMPANY, INC., APPALACHIAN POWER COMPANY, COLUMBUS SOUTHERN POWER COMPANY, INDIANA MICHIGAN POWER COMPANY, KENTUCKY POWER COMPANY AND OHIO POWER COMPANY. INFORMATION CONTAINED HEREIN RELATING TO ANY INDIVIDUAL REGISTRANT IS FILED BY SUCH REGISTRANT ON ITS OWN BEHALF. EXCEPT FOR AMERICAN ELECTRIC POWER COMPANY, INC., EACH REGISTRANT MAKES NO REPRESENTATION AS TO INFORMATION RELATING TO THE OTHER REGISTRANTS. ________________________________________________________________ ---------------------------------------------------------------- TABLE OF CONTENTS
PAGE NUMBER ------ Glossary of Terms ....................................... i Part I Item 1. Business .................................... 1 Item 2. Properties .................................. 29 Item 3. Legal Proceedings ........................... 33 Item 4. Submission of Matters to a Vote of Security Holders .......................... 35 Executive Officers of the Registrants ................. 35 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................. 38 Item 6. Selected Financial Data ...................... 38 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 38 Item 8. Financial Statements and Supplementary Data .. 39 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 39 Part III Item 10. Directors and Executive Officers of the Registrants ................................ 40 Item 11. Executive Compensation ....................... 41 Item 12. Security Ownership of Certain Beneficial Owners and Management ..................... 45 Item 13. Certain Relationships and Related Transactions ............................... 45 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................... 46 Signatures .............................................. 48 Index to Financial Statement Schedules .................. S-1 Independent Auditors' Report ............................ S-2 Exhibit Index ........................................... E-1 /TABLE GLOSSARY OF TERMS When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below.
TERM MEANING ---- ------- AEGCo .................... AEP Generating Company, an electric utility subsidiary of AEP. AEP ...................... American Electric Power Company, Inc. AEP System or the System . The American Electric Power System, an integrated electric utility system, owned and operated by AEP's electric utility subsidiaries. AFUDC .................... Allowance for funds used during construction. Defined in regulatory systems of accounts as the net cost of borrowed funds used for construction and a reasonable rate of return on other funds when so used. APCo ..................... Appalachian Power Company, an electric utility subsidiary of AEP. Buckeye .................. Buckeye Power, Inc., an unaffiliated corporation. CCD Group ................ CSPCo, CG&E and DP&L. CG&E ..................... The Cincinnati Gas & Electric Company, an unaffiliated utility company. Cook Plant ............... The Donald C. Cook Nuclear Plant, owned by I&M. CSPCo .................... Columbus Southern Power Company, an electric utility subsidiary of AEP. DOE ...................... United States Department of Energy. DP&L ..................... The Dayton Power and Light Company, an unaffiliated utility company. Federal EPA .............. United States Environmental Protection Agency. FERC ..................... Federal Energy Regulatory Commission (an independent commission within the DOE). I&M ...................... Indiana Michigan Power Company, an electric utility subsidiary of AEP. IURC ..................... Indiana Utility Regulatory Commission. KEPCo .................... Kentucky Power Company, an electric utility subsidiary of AEP. KPSC ..................... Kentucky Public Service Commission. MPSC ..................... Michigan Public Service Commission. NEIL ..................... Nuclear Electric Insurance Limited. NPDES .................... National Pollutant Discharge Elimination System. NRC ...................... Nuclear Regulatory Commission. Ohio EPA ................. Ohio Environmental Protection Agency. OPCo ..................... Ohio Power Company, an electric utility subsidiary of AEP. OVEC ..................... Ohio Valley Electric Corporation, an electric utility company in which AEP and CSPCo own a 44.2% equity interest. PCB's .................... Polychlorinated biphenyls. PFBC ..................... Pressurized fluidized-bed combustion, a process in which sulfur is removed during coal combustion and nitrogen oxide formation is minimized. PUCO ..................... The Public Utilities Commission of Ohio. PUHCA .................... Public Utility Holding Company Act of 1935, as amended. RCRA ..................... Resource Conservation and Recovery Act of 1976, as amended. Rockport Plant ........... A generating plant, consisting of two 1,300,000-kilowatt coal-fired generating units, near Rockport, Indiana. SEC ...................... Securities and Exchange Commission. Service Corporation ...... American Electric Power Service Corporation, a service subsidiary of AEP. TVA ...................... Tennessee Valley Authority. VEPCo .................... Virginia Electric and Power Company, an unaffiliated utility company. Virginia SCC ............. State Corporation Commission of Virginia. West Virginia PSC ........ Public Service Commission of West Virginia. Zimmer or Zimmer Plant ... Wm. H. Zimmer Generating Station, commonly owned by CSPCo, CG&E and DP&L. /TABLE PART I ---------------------------------------------------------- Item 1. BUSINESS ----------------------------------------------------------------- GENERAL AEP was incorporated under the laws of the State of New York in 1906 and reorganized in 1925. It is a public utility holding company which owns, directly or indirectly, all of the outstanding common stock of its operating electric utility subsidiaries. Substantially all of the operating revenues of AEP and its subsidiaries are derived from the furnishing of electric service. The service area of AEP's electric utility subsidiaries covers portions of the states of Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. The generating and transmission facilities of AEP's subsidiaries are physically interconnected, and their operations are coordinated, as a single integrated electric utility system. Transmission networks are interconnected with extensive distribution facilities in the territories served. At December 31, 1994, the subsidiaries of AEP had a total of 19,660 employees. AEP, as such, has no employees. The principal operating subsidiaries of AEP are: APCo (organized in Virginia in 1926) is engaged in the generation, purchase, transmission and distribution of electric power to approximately 848,000 retail customers in the southwestern portion of Virginia and southern West Virginia, and in supplying electric power at wholesale to other electric utility companies and municipalities in those states and in Tennessee. At December 31, 1994, APCo and its wholly owned subsidiaries had 4,637 employees. A generating subsidiary of APCo, Kanawha Valley Power Company, which owns and operates under Federal license three hydroelectric generating stations located on Government lands adjacent to Government-owned navigation dams on the Kanawha River in West Virginia, sells its net output to APCo. Kanawha Valley Power Company has requested regulatory approval to merge into APCo. Among the principal industries served by APCo are coal mining, primary metals, chemicals, textiles, paper, stone, clay, glass, concrete products, rubber, plastic products and furniture. In addition to its AEP System interconnections, APCo also is interconnected with the following unaffiliated utility companies: Carolina Power & Light Company, Duke Power Company and VEPCo. A comparatively small part of the properties and business of APCo is located in the northeastern end of the Tennessee Valley. APCo has several points of interconnection with TVA and has entered into agreements with TVA under which APCo and TVA interchange and transfer electric power over portions of their respective systems. CSPCo (organized in Ohio in 1937, the earliest direct predecessor company having been organized in 1883) is engaged in the generation, purchase, transmission and distribution of electric power to approximately 588,000 customers in Ohio, and in supplying electric power at wholesale to other electric utilities and to municipally owned distribution systems within its service area. At December 31, 1994, CSPCo had 2,323 employees. CSPCo's service area is comprised of two areas in Ohio, which include portions of twenty-five counties. One area includes the City of Columbus and the other is a predominantly rural area in south central Ohio. Approximately 80% of CSPCo's retail revenues are derived from the Columbus area. Among the principal industries served are food processing, chemicals, primary metals, electronic machinery and paper products. In addition to its AEP System interconnections, CSPCo also is interconnected with the following unaffiliated utility companies: CG&E, DP&L and Ohio Edison Company. I&M (organized in Indiana in 1925) is engaged in the generation, purchase, transmission and distribution of electric power to approximately 531,000 customers in northern and eastern Indiana and southwestern Michigan, and in supplying electric power at wholesale to other electric utility companies, rural electric cooperatives and municipalities. At December 31, 1994, I&M had 3,817 employees. Among the principal industries served are primary metals, transportation equipment, fabricated metal products, electrical and electronic machinery, rubber and miscellaneous plastic products and chemicals and allied products. Since 1975, I&M has leased and operated the assets of the municipal system of the City of Fort Wayne, Indiana. In addition to its AEP System interconnections, I&M also is interconnected with the following unaffiliated utility companies: Central Illinois Public Service Company, CG&E, Commonwealth Edison Company, Consumers Power Company, Illinois Power Company, Indianapolis Power & Light Company, Louisville Gas and Electric Company, Northern Indiana Public Service Company, PSI Energy Inc. and Richmond Power & Light Company. KEPCo (organized in Kentucky in 1919) is engaged in the generation, purchase, transmission and distribution of electric power to approximately 163,000 customers in an area in eastern Kentucky, and in supplying electric power at wholesale to other utilities and municipalities in Kentucky. At December 31, 1994, KEPCo had 823 employees. In addition to its AEP System interconnections, KEPCo also is interconnected with the following unaffiliated utility companies: Kentucky Utilities Company and East Kentucky Power Cooperative Inc. KEPCo is also interconnected with TVA. Kingsport Power Company (organized in Virginia in 1917) provides electric service to approximately 41,000 customers in Kingsport and eight neighboring communities in northeastern Tennessee. Kingsport Power Company has no generating facilities of its own. It purchases electric power distributed to its customers from APCo. At December 31, 1994, Kingsport Power Company had 104 employees. OPCo (organized in Ohio in 1907 and reincorporated in 1924) is engaged in the generation, purchase, transmission and distribution of electric power to approximately 662,000 customers in the northwestern, east central, eastern and southern sections of Ohio, and in supplying electric power at wholesale to other electric utility companies and municipalities. At December 31, 1994, OPCo and its wholly owned subsidiaries had 5,404 employees. Among the principal industries served by OPCo are primary metals, rubber and plastic products, stone, clay, glass and concrete products, petroleum refining, chemicals and electrical and electronic machinery. In addition to its AEP System interconnections, OPCo also is interconnected with the following unaffiliated utility companies: CG&E, The Cleveland Electric Illuminating Company, DP&L, Duquesne Light Company, Kentucky Utilities Company, Monongahela Power Company, Ohio Edison Company, The Toledo Edison Company and West Penn Power Company. Wheeling Power Company (organized in West Virginia in 1883 and reincorporated in 1911) provides electric service to approximately 41,000 customers in northern West Virginia. Wheeling Power Company has no generating facilities of its own. It purchases electric power distributed to its customers from OPCo. At December 31, 1994, Wheeling Power Company had 141 employees. Another principal electric utility subsidiary of AEP is AEGCo, which was organized in Ohio in 1982 as an electric generating company. AEGCo sells power at wholesale to I&M, KEPCo and VEPCo. AEGCo has no employees. See Item 2 for information concerning the properties of the subsidiaries of AEP. The Service Corporation provides accounting, administrative, computer, engineering, financial, legal and other services at cost to the AEP System companies. The executive officers of AEP are all employees of the Service Corporation. REGULATION General AEP and its subsidiaries are subject to the broad regulatory provisions of PUHCA administered by the SEC. The public utility subsidiaries' retail rates and certain other matters are subject to regulation by the public utility commissions of the states in which they operate. Such subsidiaries are also subject to regulation by the FERC under the Federal Power Act in respect of rates for interstate sale at wholesale and transmission of electric power, accounting and other matters and construction and operation of hydroelectric projects. I&M is subject to regulation by the NRC under the Atomic Energy Act of 1954, as amended, with respect to the operation of the Cook Plant. Possible Change to PUHCA The provisions of PUHCA, administered by the SEC, regulate all aspects of a registered holding company system, such as the AEP System. PUHCA requires that the operations of a registered holding company system be limited to a single integrated public utility system and such other businesses as are incidental or necessary to the operations of the system. In addition, PUHCA governs, among other things, financings, sales or acquisitions of assets and intra-system transactions. On November 8, 1994, the SEC issued a release in which it discussed the need to modernize PUHCA, particularly in light of increasing competition in the electric utility industry (see Competition). It also requested comments on a broad range of issues, including whether PUHCA should be repealed or some of its restrictions eliminated. AEP filed comments indicating its belief that PUHCA is unnecessary and should be repealed. If PUHCA is repealed or amended to remove some restrictions, registered holding company systems, including the AEP System, will be able to compete in the changing industry without the constraints of PUHCA. Management of AEP believes that removal of these constraints would be beneficial to the AEP System. On December 28, 1994, the SEC also proposed revisions to its rules governing transactions between associated companies in a registered holding company system. PUHCA and the rules and orders of the SEC currently require that these transactions be performed at cost with limited exceptions. Over the years, the AEP System has developed numerous affiliated service, sales and construction relationships and, in some cases, invested significant capital and developed significant operations in reliance upon the ability to recover its full costs under these provisions. These proposed revisions to the rules would price transactions governed by SEC rules at a market-based price if it is lower than cost. Because prices charged in most AEP intra-system transactions are governed by SEC orders relating specifically to such transactions, not general SEC rules, the proposed revisions would not apply to them. However, the SEC could modify or amend the orders governing AEP intra-system transactions. In addition, proposals have been made for Congress to repeal PUHCA or modify its provisions governing intra-system transactions. The effect of possible SEC revisions of these cost provisions or the repeal or amendment of PUHCA on AEP's intra-system transactions depends on whether the assurance of full cost recovery is eliminated immediately or phased-in and whether it is eliminated for all intra-system transactions or only some. If the cost recovery assurance is eliminated immediately for all intra-system transactions, it could have a material adverse effect on results of operations and financial condition of AEP and OPCo. Conflict of Regulation Public utility subsidiaries of AEP can be subject to regulation of the same subject matter by two or more jurisdictions. In such situations, it is possible that the decisions of such regulatory bodies may conflict or that the decision of one such body may affect the cost of providing service and so the rates in another jurisdiction. In a recent case involving OPCo, the U.S. Court of Appeals for the District of Columbia held that the determination of costs to be charged to associated companies by the SEC under PUHCA precluded the FERC from determining that such costs were unreasonable for ratemaking purposes. The U.S. Supreme Court also has held that a state commission may not conclude that a FERC approved wholesale power agreement is unreasonable for state ratemaking purposes. Certain actions that would overturn these decisions or otherwise affect the jurisdiction of the SEC and FERC are under consideration by the U.S. Congress and these regulatory bodies. Such conflicts of jurisdiction often result in litigation and if resolved adversely to a public utility subsidiary of AEP could have a material adverse effect on the results of operations or financial condition of such subsidiary or AEP. CLASSES OF SERVICE The principal classes of service from which the major electric utility subsidiaries of AEP derive revenues and the amount of such revenues (from kilowatt-hour sales) during the year ended December 31, 1994 are as follows:
AEP AEGCo APCo CSPCo I&M KEPCo OPCo System (a) (in thousands) Retail Residential Without Electric Heating . . $ -- $ 233,540 $ 305,189 $ 227,358 $ 42,613 $ 251,382 $1,079,865 With Electric Heating . . . . -- 312,508 109,086 107,523 58,047 132,799 755,577 Total Residential . . . . . -- 546,048 414,275 334,881 100,660 384,181 1,835,442 Commercial . . . . . . . . . . . -- 275,262 361,947 247,938 55,899 241,566 1,217,921 Industrial . . . . . . . . . . . -- 367,130 144,722 291,527 92,993 619,055 1,578,579 Miscellaneous . . . . . . . . . . -- 30,821 15,433 6,316 832 8,079 64,668 Total Retail . . . . . . . . -- 1,219,261 936,377 880,662 250,384 1,252,881 4,696,610 Wholesale (sales for resale) . . . 235,974 291,412 78,820 352,889 53,785 452,146 714,076 Total from KWH Sales . . . . 235,974 1,510,673 1,015,197 1,233,551 304,169 1,705,027 5,410,686 Provision for Revenue Refunds . . . -- 5,560 -- -- -- -- 5,560 Total Net of Provision for Revenue Refunds . . . . . . 235,974 1,516,233 1,015,197 1,233,551 304,169 1,705,027 5,416,246 Other Operating Revenues . . . . . 67 19,267 15,954 17,758 3,274 33,699 88,424 Total Electric Operating Revenues . . . . . $236,041 $1,535,500 $1,031,151 $1,251,309 $307,443 $1,738,726 $5,504,670 _______________ (a) Includes revenues of other subsidiaries not shown and elimination of intercompany transactions.
AEP SYSTEM POWER POOL AND OFF-SYSTEM POWER SALES AEP's electric utility subsidiaries operate their generating plants and transmission lines as a single interconnected and coordinated electric utility system. APCo, CSPCo, I&M, KEPCo and OPCo are parties to the Interconnection Agreement, dated July 6, 1951, as amended (the Interconnection Agreement), defining how they share the costs and benefits associated with the System's generating plants. This sharing is based upon each company's "member-load-ratio," which is calculated monthly on the basis of each company's maximum peak demand in relation to the sum of the maximum peak demands of all five companies during the preceding 12 months. The following table shows the net credits or (charges) allocated among the parties under the Interconnection Agreement during the years ended December 31, 1992, 1993 and 1994:
1992 1993 1994 ---------- ---------- ---------- (IN THOUSANDS) APCo ........................ $(243,000) $(260,000) $(254,000) CSPCo ....................... (118,000) (141,000) (105,000) I&M ......................... 71,000 183,000 107,000 KEPCo ....................... 26,000 1,000 12,000 OPCo ........................ 264,000 217,000 240,000
In July 1994, APCo, CSPCo, I&M, KEPCo and OPCo entered into the AEP System Interim Allowance Agreement (IAA). Reference is made to Environmental and Other Matters -- Clean Air Act Amendments of 1990 for a discussion of emission allowances. The IAA provides for and governs the terms of the following allowance transactions among the parties beginning January 1, 1995: (1) an annual reallocation of certain allowances initially allocated by the Federal EPA to OPCo's Gavin Plant; (2) transfer of allowances associated with energy transactions among the members of the AEP Power Pool; (3) a monthly cash settlement for allowances consumed in connection with power sales to non-affiliated electric utilities; and (4) transfers of allowances for current and future period compliance. The IAA does not provide for the allocation of costs and proceeds related to the sale or purchase of allowances to or from non-affiliated companies. The IAA was accepted by the FERC on December 30, 1994. AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo also sell electric power on a wholesale basis to non-affiliated electric utilities. Such sales are either made by the AEP System and then allocated among APCo, CSPCo, I&M, KEPCo and OPCo based on member-load- ratios or made by individual companies pursuant to various long- term power agreements. The following table shows the amounts contributed to operating income of the various companies from such sales during the years ended December 31, 1992, 1993 and 1994:
1992(A) 1993(A) 1994(A) -------- -------- -------- (IN THOUSANDS) AEGCo (b) ................ $ 33,000 $ 32,500 $ 30,800 APCo (c) ................. 18,100 23,600 25,000 CSPCo (c) ................ 9,100 12,000 11,700 I&M (c)(d) ............... 31,300 35,300 34,600 KEPCo (c) ................ 3,700 4,900 4,800 OPCo (c) ................. 15,700 20,700 20,000 -------- -------- -------- Total System .......... $110,900 $129,000 $126,900 ======== ======== ========
--------------- (a) Such sales do not include wholesale sales to full/partial requirement customers of AEP System companies. See the discussion below. (b) All amounts for AEGCo are from sales made pursuant to a long-term power agreement. See AEGCo -- Unit Power Agreements. (c) All amounts, except for I&M, are from System sales which are allocated among APCo, CSPCo, I&M, KEPCo and OPCo based upon member-load-ratio. All System sales made in 1992, 1993 and 1994 were made on a short-term basis, except that $11,500,000, $16,800,000 and $21,800,000, respectively, of the contribution to operating income for the total System were from long-term System sales. (d) In addition to its allocation of System sales, the 1992, 1993 and 1994 amounts for I&M include $20,800,000, $21,600,000 and $21,600,000 from a long-term agreement to sell 250 megawatts of power scheduled to terminate in 2009. The AEP System has long-term system agreements to sell 100 megawatts of electric power through 1997 and to sell at times up to 200 megawatts of peaking power through March 1997 to unaffiliated utilities. In addition, commencing January 1996, the AEP System will be supplying 205 megawatts of electric power to an unaffiliated utility for 15 years. The AEP System continues to seek appropriate long-term wholesale power agreements and will sell available power on a short-term basis. The future results of operations of AEP and its operating companies will be affected by their ability to make cost- effective wholesale sales or, if such sales are reduced, their ability to timely raise retail rates. In addition to System sales, APCo, CSPCo, I&M, KEPCo and OPCo serve wholesale customers that are full/partial requirement customers. The aggregate maximum demand for these customers in 1994 was 485, 83, 420, 17 and 125 megawatts for APCo, CSPCo, I&M, KEPCo and OPCo, respectively. Although the terms of the contracts with these customers vary, they generally can be terminated by the customer upon one to four years' notice. In June 1993, certain municipal customers of APCo filed an application with the FERC for transmission service in order to reduce by 50 megawatts the power these customers purchase under existing 10-year Electric Service Agreements (ESAs) and purchase power from a third party. APCo maintains that its agreements with these customers are full-requirements contracts which preclude the customers from purchasing power from third parties. On December 1, 1993, the administrative law judge issued an initial decision that the ESAs are not full requirements contracts and that the ESAs give these municipal wholesale customers the option of substituting alternative sources of power for energy purchased from APCo. On February 10, 1994, the FERC issued an order affirming, in part, the administrative law judge's initial decision. On May 24, 1994, APCo appealed the February 10, 1994 order of the FERC to the U.S. Court of Appeals for the District of Columbia Circuit. On July 1, 1994, the FERC ordered the requested transmission service and granted a complaint filed by the municipal customers directing certain modifications to the ESAs in order to accommodate their power purchases from the third party. On August 1, 1994, AEP System companies filed petitions for rehearing of these FERC orders. Effective August 1, 1994, these municipal customers reduced their purchases by 40 megawatts. Certain of these customers also have notified APCo that they intend to reduce their purchases by an additional 21 megawatts effective February 1996. AEP SYSTEM TRANSMISSION POOL AND OFF-SYSTEM TRANSMISSION APCo, CSPCo, I&M, KEPCo and OPCo are parties to the Transmission Agreement, dated April 1, 1984, as amended (the Transmission Agreement), defining how they share the costs associated with their relative ownership of the extra-high- voltage transmission system (facilities rated 345 kv and above) and certain facilities operated at lower voltages (138 kv and above). Like the Interconnection Agreement, this sharing is based upon each company's "member-load-ratio." See AEP System Power Pool and Off-System Power Sales. The following table shows the net credits or (charges) allocated among the parties to the Transmission Agreement during the years ended December 31, 1992, 1993 and 1994:
1992 1993 1994 -------- -------- -------- (IN THOUSANDS) APCo ..................... $ (8,000) $ (3,200) $(10,200) CSPCo .................... (29,900) (31,200) (30,100) I&M ...................... 48,200 47,400 50,300 KEPCo .................... 4,200 3,800 4,300 OPCo ..................... (14,500) (16,800) (14,300)
APCo, CSPCo, I&M, KEPCo, OPCo and other System companies also provide transmission services for non-affiliated companies. The following table shows the amounts contributed to operating income of the various companies from such services during the years ended December 31, 1992, 1993 and 1994:
1992 1993 1994 -------- -------- -------- (IN THOUSANDS) APCo ..................... $ 3,000 $ 2,900 $ 4,100 CSPCo .................... 2,500 2,500 3,100 I&M ...................... 6,500 7,700 6,700 KEPCo .................... 600 600 800 OPCo ..................... 10,000 9,900 15,700 ------- ------- ------- Total System ............. $22,600 $23,600 $30,400 ======= ======= =======
The Energy Policy Act of 1992 amended the Federal Power Act to authorize 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. Effective August 1, 1994 and under a FERC order, the AEP System began to provide transmission services for 40 megawatts of power delivered to certain municipal customers of APCo as discussed above under AEP System Power Pool and Off- System Power Sales. FERC Transmission Access Filing: On April 12, 1993, APCo, CSPCo, I&M, KEPCo and OPCo and two other AEP System companies filed a transmission tariff with the FERC under which these AEP System companies would provide limited transmission service to any "eligible utility." The tariff covers the terms and conditions of the service, as well as the price which "eligible utilities" pay to wheel power on the AEP transmission system, regardless of the source of electric power generation. On September 3, 1993, the FERC issued an order accepting the transmission service tariff for filing, with the tariff becoming effective on September 7, 1993, subject to refund. On May 11, 1994, the FERC issued an order on rehearing and indicated that an open access tariff should offer third parties access to the transmission system on the same or comparable basis, and under the same or comparable terms and conditions, as the transmission provider's access to its system. On August 26, 1994, AEP System companies submitted to the FERC their comparability filing supplementing the April 12 filing, following the guidelines stated in the May 11 FERC ruling. They indicated their willingness to offer network transmission service under terms and conditions comparable to those enjoyed by members of the AEP System. Network users could import and export power through the network, with power deliveries occurring without separate arrangements for each transmission delivery point. Network users would participate in transmission planning and share transmission costs proportionately. In addition, the supplemental filing would expand the availability of point-to- point transmission service, including permitting such services to be offered at a discounted rate on an hourly, nondiscriminatory basis. A FERC hearing began in February 1995 and was recessed until April 24, 1995 for settlement discussions. OVEC AEP, CSPCo and several unaffiliated utility companies jointly own OVEC, which supplies the power requirements of a uranium enrichment plant near Portsmouth, Ohio owned by the DOE. The aggregate equity participation of AEP and CSPCo in OVEC is 44.2%. The DOE demand under OVEC's power agreement, which is subject to change from time to time, is 1,878,000 kilowatts and is scheduled to remain at about that level through the remaining term of the contract. The proceeds from the sale of power by OVEC, aggregating $308,000,000 in 1994, are designed to be sufficient for OVEC to meet its operating expenses and fixed costs and to provide a return on its equity capital. APCo, CSPCo, I&M and OPCo, as sponsoring companies, are entitled to receive from OVEC, and are obligated to pay for, the power not required by DOE in proportion to their power participation ratios, which averaged 42.1% in 1994. The power agreement with DOE terminates on December 31, 2005, subject to early termination by DOE on not less than three years notice. The power agreement among OVEC and the sponsoring companies expires by its terms on March 12, 2006. BUCKEYE Contractual arrangements among OPCo, Buckeye and other investor-owned electric utility companies in Ohio provide for the transmission and delivery, over facilities of OPCo and of other investor-owned utility companies, of power generated by the two units at the Cardinal Station owned by Buckeye and back-up power to which Buckeye is entitled from OPCo under such contractual arrangements, to facilities owned by 27 of the rural electric cooperatives which operate in the State of Ohio at 299 delivery points. Buckeye is entitled under such arrangements to receive, and is obligated to pay for, the excess of its maximum one-hour coincident peak demand plus a 15% reserve margin over the 1,226,500 kilowatts of capacity of the generating units which Buckeye currently owns in the Cardinal Station. Such demand, which occurred on January 18, 1994, was recorded at 1,146,933 kilowatts. CERTAIN INDUSTRIAL CUSTOMERS Ravenswood Aluminum Corporation and Ormet Corporation operate major aluminum reduction plants in the Ohio River Valley at Ravenswood, West Virginia, and in the vicinity of Hannibal, Ohio, respectively. OPCo supplies all of the power requirements of these plants pursuant to long-term contracts with such companies which, subject to certain curtailment provisions, terminate in 1997 in the case of Ormet and 1998 in the case of Ravenswood. The power requirements of such plants presently aggregate approximately 880,000 kilowatts. OPCo is currently negotiating with Ormet and Ravenswood regarding the extension of their contracts. See Legal Proceedings for a discussion of litigation involving Ormet. AEGCO Since its formation, AEGCo's business has consisted of the ownership and financing of its 50% interest in the Rockport Plant and, more recently, leasing of its 50% interest in Unit 2 of the Rockport Plant. The operating revenues of AEGCo are derived from the sale of capacity and energy associated with its interest in the Rockport Plant to I&M, KEPCo and VEPCo, pursuant to unit power agreements. Pursuant to these unit power agreements, AEGCo is entitled to recover its full cost of service from the purchasers and will be entitled to recover future increases in such costs, including increases in fuel and capital costs. See Unit Power Agreements. Pursuant to a capital funds agreement, AEP has agreed to provide cash capital contributions, or in certain circumstances subordinated loans, to AEGCo, to the extent necessary to enable AEGCo, among other things, to provide its proportionate share of funds required to permit continuation of the commercial operation of the Rockport Plant and to perform all of its obligations, covenants and agreements under, among other things, all loan agreements, leases and related documents to which AEGCo is or becomes a party. See Capital Funds Agreement. Unit Power Agreements A unit power agreement between AEGCo and I&M (the I&M Power Agreement) provides for the sale by AEGCo to I&M of all the power (and the energy associated therewith) available to AEGCo at the Rockport Plant. I&M is obligated, whether or not power is available from AEGCo, to pay as a demand charge for the right to receive such power (and as an energy charge for any associated energy taken by I&M) such amounts, as when added to amounts received by AEGCo from any other sources, will be at least sufficient to enable AEGCo to pay all its operating and other expenses, including a rate of return on the common equity of AEGCo as approved by FERC, currently 12.16%. The I&M Power Agreement will continue in effect until the date that the last of the lease terms of Unit 2 of the Rockport Plant has expired unless extended in specified circumstances. Pursuant to an assignment between I&M and KEPCo, and a unit power agreement between KEPCo and AEGCo, AEGCo sells KEPCo 30% of the power (and the energy associated therewith) available to AEGCo from both units of the Rockport Plant. KEPCo has agreed to pay to AEGCo in consideration for the right to receive such power the same amounts which I&M would have paid AEGCo under the terms of the I&M Power Agreement for such entitlement. The KEPCo unit power agreement expires on December 31, 1999, unless extended. A unit power agreement among AEGCo, I&M, VEPCo, and APCo provides for, among other things, the sale of 70% of the power and energy available to AEGCo from Unit 1 of the Rockport Plant to VEPCo by AEGCo from January 1, 1987 through December 31, 1999. VEPCo has agreed to pay to AEGCo in consideration for the right to receive such power those amounts which I&M would have paid AEGCo under the terms of the I&M Power Agreement for such entitlement. Approximately 36% of AEGCo's operating revenue in 1994 was derived from its sales to VEPCo. Capital Funds Agreement AEGCo and AEP have entered into a capital funds agreement pursuant to which, among other things, AEP has unconditionally agreed to make cash capital contributions, or in certain circumstances subordinated loans, to AEGCo to the extent necessary to enable AEGCo to (i) maintain such an equity component of capitalization as required by governmental regulatory authorities, (ii) provide its proportionate share of the funds required to permit commercial operation of the Rockport Plant, (iii) enable AEGCo to perform all of its obligations, covenants and agreements under, among other things, all loan agreements, leases and related documents to which AEGCo is or becomes a party (AEGCo Agreements), and (iv) pay all indebtedness, obligations and liabilities of AEGCo (AEGCo Obligations) under the AEGCo Agreements, other than indebtedness, obligations or liabilities owing to AEP. The Capital Funds Agreement will terminate after all AEGCo Obligations have been paid in full. INDUSTRY PROBLEMS The electric utility industry, including the operating subsidiaries of AEP, has encountered at various times in the last 15 years significant problems in a number of areas, including: delays in and limitations on the recovery of fuel costs from customers; proposed legislation, initiative measures and other actions designed to prohibit construction and operation of certain types of power plants under certain conditions and to eliminate or reduce the extent of the coverage of fuel adjustment clauses; inadequate rate increases and delays in obtaining rate increases; jurisdictional disputes with state public utilities commissions regarding the interstate operations of integrated electric systems; requirements for additional expenditures for pollution control facilities; increased capital and operating costs; construction delays due, among other factors, to pollution control and environmental considerations and to material, equipment and fuel shortages; the economic effects on net income (which when combined with other factors may be immediate and adverse) associated with placing large generating units and related facilities in commercial operation, including the commencement at that time of substantial charges for depreciation, taxes, maintenance and other operating expenses, and the cessation of AFUDC with respect to such units; uncertainties as to conservation efforts by customers and the effects of such efforts on load growth; depressed economic conditions in certain regions of the United States; increasingly competitive conditions in the wholesale and retail markets; proposals to deregulate certain portions of the industry, revise the rules and responsibilities under which new generating capacity is supplied and open access to an electric utility's transmission system; and substantial increases in construction costs and difficulties in financing due to high costs of capital, uncertain capital markets, charter and indenture limitations restricting conventional financing, and shortages of cash for construction and other purposes. SEASONALITY Sales of electricity by the AEP System tend to increase and decrease because of the use of electricity by residential and commercial customers for cooling and heating and relative changes in temperature. FRANCHISES The operating companies of the AEP System hold franchises to provide electric service in various municipalities in their service areas. These franchises have varying provisions and expiration dates. In general, the operating companies consider their franchises to be adequate for the conduct of their business. COMPETITION Retail The public utility subsidiaries of AEP generally have the exclusive right to sell electric power at retail within their service areas. However, they do compete with self-generation and with distributors of alternative sources of energy, such as natural gas, fuel oil and coal, within their service areas. The primary factors in such competition are price, reliability of service and the capacity of customers to utilize sources of energy other than electric power. With respect to self- generation, the public utility subsidiaries of AEP believe that they maintain a favorable competitive position on the basis of all of these factors. With respect to alternative sources of energy, the public utility subsidiaries of AEP believe that the reliability of their service and the limited ability of customers to substitute other cost-effective sources for electric power place them in a favorable competitive position, even though their prices may be higher than the costs of some alternative sources of energy. Significant changes in the global economy in recent years have led to increased price competition for industrial companies in the United States, including those served by the AEP System. Such industrial companies have requested price reductions from their suppliers, including their suppliers of electric power. In addition, industrial companies which are downsizing or reorganizing often close a facility based upon its costs, which may include, among other things, the cost of electric power. The public utility subsidiaries of AEP cooperate with such customers to meet their business needs through, for example, various off- peak or interruptible supply options and believe that, as low cost suppliers of electric power, they should be less likely to be materially adversely affected by this competition and may be benefitted by attracting new industrial customers to their service territories. The legislatures and/or the regulatory commissions in several states have considered or are considering "retail wheeling" which, in general terms, means the transmission by an electric utility of energy produced by another entity over its transmission and distribution system to a retail customer in such utility's service territory. A requirement to transmit directly to retail customers would have the result of permitting retail customers to purchase electric power, at the election of such customers, not only from the electric utility in whose service area they are located but from any other electric utility or independent power producer. The MPSC began a proceeding on September 11, 1992 to investigate a proposal by certain industrial companies for an experiment in retail wheeling in certain service territories in Michigan, not including those of I&M. On April 11, 1994, the MPSC approved an experimental five-year retail wheeling program and ordered Consumers Power Company and Detroit Edison Company, unaffiliated utilities, to make transmission services available to a group of industrial customers, to be limited to 60 megawatts and 90 megawatts, respectively, of retail delivery capacity. The MPSC remanded to the administrative law judge the issue of determining appropriate rates and charges for retail delivery service. The experiment seeks, as its goal, to determine whether a retail wheeling program best serves the public interest in a manner that promotes retail competition in a non-discriminatory fashion. During the experiment, the MPSC will collect information regarding the effects of retail wheeling. In August 1994, Detroit Edison filed a declaratory judgment complaint in the U.S. District Court, Western District of Michigan, challenging the jurisdiction of the MPSC to order retail wheeling. On April 15, 1994, the Ohio Energy Strategy Task Force released its final report. The report contains seven broad implementation strategies along with 53 specific initiatives to be undertaken by government and the private sector. One strategy recommends continuing to encourage competition in the electric utility industry in a manner which maximizes benefits and efficiencies for all customers. An initiative under this strategy recommends facilitating informal roundtable discussions on issues concerning competition in the electric utility industry and promoting increased competitive options for Ohio businesses that do not unduly harm the interests of utility company shareholders or ratepayers. The PUCO has begun such discussions. In addition, a retail wheeling bill was introduced in the Ohio House of Representatives in February 1994. Because adoption of retail wheeling would require resolution of complex issues, such as who would pay for the unused generating plant of the utility wheeling such power, it is not clear what effects will flow from its adoption in any state. However, if retail wheeling is adopted, the public utility subsidiaries of AEP believe that they have a favorable competitive position because of their relatively low costs. Wholesale The public utility subsidiaries of AEP, like the electric industry generally, face increasing competition to sell available power on a wholesale basis, primarily to other public utilities. The Energy Policy Act of 1992 was designed, among other things, to foster competition in the wholesale market (a) through amendments to PUHCA, facilitating the ownership and operation of generating facilities by "exempt wholesale generators" (which may include independent power producers as well as affiliates of electric utilities) and (b) through amendments to the Federal Power Act, authorizing 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. The principal factors in competing for such sales are price (including fuel costs), availability of capacity and reliability of service. The public utility subsidiaries of AEP believe that they maintain a favorable competitive position on the basis of all of these factors. However, because of the availability of capacity of other utilities and the lower fuel prices in recent years, price competition has been, and is expected for the next few years to be, particularly important. Upon resolution of the issues regarding the transmission access filing before the FERC (discussed under AEP System Transmission Pool and Off-System Transmission), the public utility subsidiaries of AEP expect to be able to satisfy FERC criteria to obtain approval to sell wholesale power at market rates. On June 29, 1994, the FERC issued a proposed rulemaking to provide the regulatory framework for dealing with utility assets that are stranded as a result of the transition to a competitive electric industry. Stranded costs are those costs incurred by a utility when a customer stops buying power from the utility and, instead, purchases transmission services from that utility to obtain power purchased from another supplier. If stranded costs are not recovered from customers, the AEP System, like all electric utilities, will be required by existing accounting standards to recognize stranded investment losses. The write-off of such stranded investment, which could include regulatory assets, would materially adversely affect results of operations and financial condition. New Generation When the AEP System needs new generation, the public utility subsidiaries of AEP which wish to provide it may have to compete with exempt wholesale generators, independent power producers and other utilities. Although the specific guidelines for such competition have not yet been developed and may vary from jurisdiction to jurisdiction (see the discussion below), significant factors will include price and reliability. AEP and its subsidiaries believe that they can be competitive as to both of these factors. However, no additional generating capacity is expected to be needed by the AEP System until about the year 2000. See Construction and Financing Program. Indiana: In August 1994, the IURC reissued a notice of proposed rulemaking for integrated resource planning guidelines, including consideration of resource bidding and independent power producers, and for demand-side management. Michigan: The MPSC has adopted guidelines governing the acquisition of new capacity by large Michigan electric utilities. The guidelines do not apply to I&M. Ohio: On December 17, 1992, the PUCO issued an order proposing rules for competitive bidding for new generating capacity, including transmission access for winning bidders. The proposed rules would establish a rebuttable presumption of prudence where new generating capacity is acquired through competitive bidding and provide other incentives to use competitive bidding. The proposed rules also contain procedures to ensure that bidders for a utility's new capacity will have open access to certain transmission facilities and prohibit the utility acquiring new capacity from withholding Clean Air Act emission allowances from potential bidders. CSPCo and OPCo filed comments on the proposed rules generally supporting promulgation of rules governing competitive bidding but stating that the rules should not address access to transmission facilities or emission allowances, because existing federal laws address such concerns. Virginia: The Virginia SCC has adopted minimum requirements for any electric utility that elects to acquire new generation through a bidding program. An electric utility is not required to use the bidding process and may participate in the bidding process. West Virginia: On October 8, 1993, the West Virginia PSC issued an order proposing rules that generally require electric utilities to procure competitively all new sources of generation. APCo and Wheeling Power Company filed comments stating that the rules should not require competitive bidding and should permit the utility to participate in the bidding process. Possible Strategic Responses In response to the competitive forces and regulatory changes being faced by AEP and its public utility subsidiaries, as discussed under this heading and under Regulation, AEP and its public utility subsidiaries have from time to time considered, and expect to continue to consider, various strategies designed to enhance their competitive position and to increase their ability to adapt to and anticipate changes in their utility business. These strategies may include business combinations with other companies, internal restructurings involving the complete or partial separation of their wholesale and retail businesses, acquisitions of related or unrelated businesses, and additions to or dispositions of portions of their franchised service territories. AEP and its public utility subsidiaries may from time to time be engaged in preliminary discussions, either internally or with third parties, regarding one or more of these potential strategies. No assurances can be given as to whether any potential transaction of the type described above may actually occur, or as to its ultimate effect on the financial condition or competitive position of AEP and its public utility subsidiaries. NEW BUSINESS DEVELOPMENT AEP continues to consider new business opportunities, particularly those which allow use of its expertise. These endeavors began in 1982 and are conducted through AEP Energy Services, Inc. (AEPES) and AEP Resources, Inc. (Resources). Resources' primary business is development of, and investment in, exempt wholesale generators, foreign utility companies, qualifying cogeneration facilities and other power projects. Resources currently does not have an interest in any power projects. Resources, however, is involved in preliminary development of some projects, has submitted jointly with a non- affiliate a bid to provide power through an exempt wholesale generator, and has entered into a letter of intent which may result in the development of two 1,300-megawatt generating stations in China. In addition, AEP and Resources have received approval from the SEC under PUHCA to finance up to $300,000,000 for investment in exempt wholesale generators and foreign utility companies. AEPES offers consulting services using AEP System expertise both domestically and internationally. AEPES contracts with other public utilities, commercial concerns and government agencies for the rendition of services and the licensing of intellectual property. These continuing efforts to invest in and develop new business opportunities offer the potential of earning returns which may exceed those of rate-regulated operations. However, they also involve a higher degree of risk which must be carefully considered and assessed. AEP may make substantial investments in these and other new businesses. CONSTRUCTION AND FINANCING PROGRAM The AEP System companies are engaged in a continuing construction program, involving assessment of needs, selection of sites, design and acquisition of equipment, and installation of the generating, transmission, distribution and other facilities necessary to provide for growing demands for electric service. At the present time, there are no specific commitments for new capacity additions on the AEP System. Size, technology, type, ownership (among AEP operating companies), means of acquisition and precise timing of future capacity additions on the AEP System have not yet been determined. However, AEP's current resource plan indicates no need for new generation until about the year 2000. Initial future capacity additions will most likely be short lead time, simple-cycle, gas-fired combustion turbines. The current resource plan indicates no need for new coal-fired baseload generation until sometime after the year 2005. The size of any new coal-fired generation will most likely be significantly smaller than the 1,300-megawatt units recently added to the AEP System, to better match projected load growth. From time to time, as the System companies have encountered the industry problems described above, such companies also have encountered limitations on their ability to secure the capital necessary to finance construction expenditures. The System construction program is reviewed continuously and is revised from time to time in response to changes in estimates of customer demand, business and economic conditions, the cost and availability of capital, environmental requirements and other factors. The extent and timing of construction expenditures and the nature of future financing activities may be dependent on, among other things, the timing and amount of additional rate relief received. See Competition -- New Generation and Rates. PFBC Projects Tidd Plant: In November 1990, OPCo began operating a 70,000- kilowatt PFBC demonstration plant at the deactivated Tidd Plant on the Ohio River at Brilliant, Ohio. The Tidd Plant was built and operated to demonstrate that the combined-cycle PFBC technology is a cost-effective, reliable, and environmentally superior alternative to conventional coal-fired electric power generation with a flue-gas desulfurization system. Through December 31, 1994, the Tidd Plant achieved 10,297 hours of coal- fired operation while demonstrating the viability of the PFBC process in the reduction of targeted sulfur dioxide and nitrogen oxide emissions. See Environmental and Other Matters for information regarding restrictions on sulfur dioxide and nitrogen oxide emissions from coal-fired power plants in the AEP System. The Tidd Plant operated for a four-year period, which is expected to conclude not later than March 31, 1995. The plant is planned to be deactivated at the conclusion of the test program. Total Tidd Plant construction costs (including PFBC development costs) and total Tidd operating costs incurred through December 31, 1994 were $182,489,000 and $36,497,000, respectively. At such date, OPCo had received funding from DOE and the State of Ohio in the aggregate amounts of $65,232,000 and $11,336,000, respectively, and had recovered $125,543,000 from its retail customers. PFBC Utility Demonstration Project: DOE is cost sharing with APCo development of a 340,000-kilowatt commercial-size PFBC plant adjacent to APCo's Mountaineer Plant in New Haven, West Virginia. DOE has agreed to continue funding the design of the plant through at least January 1996; however, the program can be terminated sooner with mutual consent of the parties. The present four-year effort to refine the PFBC design extends through January 1996. The ultimate decision to proceed with the construction of the commercial PFBC plant will hinge on the confirmation of the need for new coal-fired baseload capacity, the readiness of PFBC technology, and other applicable market conditions. Construction Expenditures The following table shows the construction expenditures by AEGCo, APCo, CSPCo, I&M, KEPCo, OPCo and the AEP System and their respective consolidated subsidiaries during 1992, 1993 and 1994 and their current estimate of 1995 construction expenditures, in each case including AFUDC but excluding nuclear fuel and other assets acquired under leases. The construction expenditures for the years 1992-1994 were applied, and it is anticipated that the estimated construction expenditures for 1995 will be applied, approximately as follows to construction of the following classes of assets:
1992 1993 1994 1995 Actual Actual Actual Estimate -------- -------- -------- -------- (in thousands) AEGCO Generating plant and facilities .. $ 3,600 $ 3,100 $ 3,900 $ 4,600 -------- -------- -------- -------- TOTAL ......................... $ 3,600 $ 3,100 $ 3,900 $ 4,600 ======== ======== ======== ======== APCO Generating plant and facilities (a) ................ $ 34,400 $ 51,200 $ 65,600 $ 58,600 Transmission lines and facilities 54,200 36,700 38,700 38,300 Distribution lines and facilities 91,600 98,200 116,500 103,100 General plant and other facilities 11,500 4,800 9,500 14,600 -------- -------- -------- -------- TOTAL ......................... $191,700 $190,900 $230,300 $214,600 ======== ======== ======== ======== CSPCO Generating plant and facilities .. $ 21,900 $ 33,300 $ 24,800 $ 38,700 Transmission lines and facilities 11,600 10,100 3,600 9,000 Distribution lines and facilities 40,800 40,700 50,800 50,000 General plant and other facilities 1,100 2,200 2,300 10,200 -------- -------- -------- -------- TOTAL ......................... $ 75,400 $ 86,300 $ 81,500 $107,900 ======== ======== ======== ======== I&M Generating plant and facilities .. $ 66,400 $ 50,200 $ 49,700 $ 59,000 Transmission lines and facilities 17,300 10,100 20,300 30,300 Distribution lines and facilities 39,200 41,300 42,300 44,900 General plant and other facilities 3,500 6,700 2,200 7,300 -------- -------- -------- -------- TOTAL ......................... $126,400 $108,300 $114,500 $141,500 ======== ======== ======== ======== KEPCO Generating plant and facilities .. $ 4,100 $ 8,100 $ 22,600 $ 8,600 Transmission lines and facilities 8,700 6,700 6,400 8,500 Distribution lines and facilities 17,500 20,300 23,700 22,200 General plant and other facilities 1,500 0 500 4,300 -------- -------- -------- -------- TOTAL ......................... $ 31,800 $ 35,100 $ 53,200 $ 43,600 ======== ======== ======== ======== OPCO Generating plant and facilities (b)(c) ............. $124,900 $112,700 $ 83,800 $ 35,900 Transmission lines and facilities 18,900 28,600 15,300 28,300 Distribution lines and facilities 42,800 46,000 45,200 48,000 General plant and other facilities 5,900 10,500 4,700 14,700 -------- -------- -------- -------- TOTAL ......................... $192,500 $197,800 $149,000 $126,900 ======== ======== ======== ======== AEP SYSTEM (d) Generating plant and facilities (a)(b)(c) .......... $255,300 $258,600 $250,400 $205,400 Transmission lines and facilities 111,900 92,800 85,400 120,700 Distribution lines and facilities 237,700 252,300 286,900 276,100 General plant and other facilities 23,700 24,400 19,400 52,000 -------- -------- -------- -------- TOTAL ......................... $628,600 $628,100 $642,100 $654,200 ======== ======== ======== ========
---------- (a) Excludes expenditures for PFBC Utility Demonstration Project. See PFBC Projects. (b) Includes expenditures for Tidd Plant. See PFBC Projects. (c) Excludes expenditures associated with flue-gas desulfurization system which was constructed by a non- affiliate at the Gavin Plant and is being leased by OPCo. Actual expenditures for 1992, 1993 and 1994 and the current estimate for 1995 are $93,653,000, $256,673,000, $176,220,000 and $129,771,000, respectively. See Environmental and Other Matters -- CAAA-AEP System Compliance Plan. (d) Includes expenditures of other subsidiaries not shown. Reference is made to the footnotes to the financial statements entitled Commitments and Contingencies incorporated by reference in Item 8, for further information with respect to the construction plans of AEP and its operating subsidiaries for the next three years. If the System receives adequate rate relief in future periods, and is able to finance additional construction expenditures, and if the loads which are served by the System increase above the levels currently projected, additional expenditures may be incurred in subsequent years in amounts which would be substantial but which cannot be accurately predicted at this time. Changes in construction schedules and costs, and in estimates and projections of needs for additional facilities, as well as variations from currently anticipated levels of net earnings, Federal income and other taxes, and other factors affecting cash requirements, may increase or decrease the estimates of capital requirements for the System's construction program. Proposed Transmission Facilities: On March 23, 1990, APCo and VEPCo announced plans, subject to regulatory approval, for major new transmission facilities. APCo will construct approximately 115 miles of 765,000-volt line from APCo's Wyoming station in southern West Virginia to APCo's Cloverdale station near Roanoke, Virginia. VEPCo will construct approximately 102 miles of 500,000-volt line from APCo's Joshua Falls station east of Lynchburg, Virginia to VEPCo's Ladysmith station north of Richmond, Virginia. The construction of the transmission lines and related station improvements will provide needed reinforcement for APCo's internal load, reinforce the ability to exchange electric energy between the two companies and relieve present constraints on the transmission of electric energy from potential independent power producers in the APCo service area to VEPCo. APCo's cost is estimated at $245,000,000 while VEPCo's cost is estimated at $164,000,000. Completion of the project is presently scheduled for 2000 but the actual service date will be dependent upon the time necessary to meet various regulatory requirements. Hearings before the Virginia SCC were concluded in September 1993. A report was issued by the hearing examiner in December 1993 which recommended that the Virginia SCC grant APCo approval to construct the proposed 765,000-volt line. A decision by the Virginia SCC is pending. APCo refiled with the West Virginia PSC in February 1993 its application for certification. An application filed in June 1992 was withdrawn at the request of the West Virginia PSC to permit additional time for review by the West Virginia PSC. The West Virginia PSC rejected APCo's application for certification in May 1993, directing APCo to supplement its line siting information. APCo intends to refile its application with the West Virginia PSC. Hearings are expected to be held in late 1995 or early 1996, with a decision expected in 1996. The Jefferson National Forest (JNF) is directing the preparation of an Environmental Impact Statement (EIS) which will be required prior to the granting of special use permits for crossing Federal lands. The present schedule of the JNF calls for completion of the draft EIS in October 1995 and the final EIS in 1996. Environmental Expenditures: Expenditures related to compliance with air and water quality standards, included in the gross additions to plant of the System, during 1992, 1993 and 1994 and the current estimate for 1995 are shown below. Substantial expenditures in addition to the amounts set forth below may be required by the System in future years in connection with the modification and addition of facilities at generating plants for environmental quality controls in order to comply with air and water quality standards which may have been or may be adopted.
1992 1993 1994 1995 Actual Actual Actual Estimate ------ ------ ------ -------- (in thousands) AEGCo ............... $ 0 $ 0 $ 0 $ 0 APCo (a) ............ 11,200 16,800 32,000 15,000 CSPCo ............... 6,500 15,800 13,700 12,100 I&M ................. 0 0 0 1,800 KEPCo ............... 100 1,000 9,500 3,300 OPCo (b)(c) ......... 61,600 31,600 8,000 300 ------- ------- ------- ------- AEP System (a)(b)(c) $79,400 $65,200 $63,200 $32,500 ======= ======= ======= =======
--------------- (a) Excludes expenditures for PFBC Utility Demonstration Project. See PFBC Projects. (b) Includes expenditures for Tidd Plant which have been or are expected to be funded through Federal/state grants and the fuel clause mechanism. See PFBC Projects. (c) Excludes expenditures associated with flue-gas desulfurization system which was constructed by a non- affiliate at the Gavin Plant and is being leased by OPCo. Actual expenditures for 1992, 1993 and 1994 and the current estimate for 1995 are $93,653,000, $256,673,000, $176,220,000 and $129,771,000, respectively. See Environmental and Other Matters -- CAAA-AEP System Compliance Plan. Financing It has been the practice of AEP's operating subsidiaries to finance current construction expenditures in excess of available internally generated funds by initially issuing unsecured short- term debt, principally commercial paper and bank loans, at times up to levels authorized by regulatory agencies, and then to reduce the short-term debt with the proceeds of subsequent sales by such subsidiaries of long-term debt securities and preferred stock, and cash capital contributions by AEP to the subsidiaries. It has been the practice of AEP, in turn, to finance cash capital contributions to the common stock equities of the operating subsidiaries by issuing unsecured short-term debt, principally commercial paper, and then to sell additional shares of Common Stock of AEP for the purpose of retiring the short-term debt previously incurred. In 1994, AEP issued 700,000 shares of Common Stock pursuant to its Dividend Reinvestment and Stock Purchase Plan. Although prevailing interest costs of short-term bank debt and commercial paper generally have been lower than prevailing interest costs of long-term debt securities, whenever interest costs of short-term debt exceed costs of long-term debt, the companies might be adversely affected by reliance on the use of short-term debt to finance their construction and other capital requirements. During the period 1992-1994, external funds from financings and capital contributions by AEP amounted, with respect to APCo, CSPCo and KEPCo to approximately 37%, 1.6% and 37%, respectively, of the aggregate construction expenditures shown above. During this same period, the amount of funds used to retire long-term and short-term debt and preferred stock of AEGCo, I&M and OPCo exceeded the amount of funds from financings and capital contributions by AEP. The ability of AEP and its operating subsidiaries to issue short-term debt is limited by regulatory restrictions and, in the case of most of the operating subsidiaries, by provisions contained in their charters and in certain debt and other instruments. The approximate amounts of short-term debt which the companies estimate that they were permitted to issue under the most restrictive such restriction, at January 1, 1995, and the respective amounts of short-term debt outstanding on that date, on a corporate basis, are shown in the following tabulation:
TOTAL AEP SHORT-TERM DEBT AEP AEGCO APCO CSPCO I&M KEPCO OPCO SYSTEM (A) --------------- ---- ----- ---- ----- ---- ----- ---- ---------- (IN MILLIONS) Amount authorized .. $150 $40 $213 $163 $130 $100 $218 $1,080 ==== === ==== ==== ==== ==== ==== ====== Amount outstanding: Notes payable ... $ -- $ 7 $ -- $ -- $ -- $ 21 $ -- $ 43 Commercial paper 52 -- 120 -- 51 34 17 274 ---- --- ---- ---- ---- ---- ---- ------ $ 52 $ 7 $120 $ -- $ 51 $ 55 $ 17 $ 317 ==== === ==== ==== ==== ==== ==== ======
(a) Includes short-term debt of other subsidiaries not shown. Reference is made to the footnotes to the financial statements incorporated by reference in Item 8 for further information with respect to unused short-term bank lines of credit. In order to issue additional long-term debt and preferred stock, it is necessary for APCo, CSPCo, I&M, KEPCo and OPCo to comply with earnings coverage requirements contained in their respective mortgages, debenture indentures and charters. The most restrictive of these provisions in each instance generally requires (1) for the issuance of additional long-term debt by APCo, I&M and OPCo, for purposes other than the refunding of outstanding long-term debt securities, a minimum, before income tax, earnings coverage of twice the pro forma annual interest charges on long-term debt, (2) for the issuance of first mortgage bonds by CSPCo and KEPCo for purposes other than the refunding of outstanding first mortgage bonds, a minimum, before income tax, earnings coverage of twice the pro forma annual interest charges on first mortgage bonds and (3) for the issuance of additional preferred stock by APCo, I&M and OPCo, a minimum, after income tax, gross income coverage of one and one-half times pro forma annual interest charges and preferred stock dividends, in each case for a period of twelve consecutive calendar months within the fifteen calendar months immediately preceding the proposed new issue. In computing such coverages, the companies include as a component of earnings revenues collected subject to refund (where applicable) and, to the extent not limited by the instrument under which the computation is made, AFUDC, including amounts positioned and classified as an allowance for borrowed funds used during construction. These coverage provisions have from time to time restricted the ability of one or more of the above subsidiaries of AEP to issue senior securities. The respective long-term debt and preferred stock coverages of APCo, CSPCo, I&M, KEPCo and OPCo under their respective debenture indenture, mortgage and charter provisions, calculated on the foregoing basis and in accordance with the respective amounts then recorded in the accounts of the companies, assuming the respective short-term debt of the companies at those dates were to remain outstanding for a twelve-month period at the respective rates of interest prevailing at those dates, were at least those stated in the following table:
December 31, ---------------------- 1992 1993 1994 ---- ---- ---- APCo Debt coverage .............. 3.50 3.62 3.10 Preferred stock coverage ... 1.99 2.04 1.65 CSPCo Mortgage coverage .......... 2.16 2.91 3.64 I&M Debt coverage .............. 3.55 4.59 5.08 Preferred stock coverage ... 2.06 2.48 2.74 KEPCo Mortgage coverage .......... 3.34 2.19 2.60 OPCo Debt coverage .............. 3.36 4.65 4.55 Preferred stock coverage ... 2.22 2.88 2.58
Although certain other subsidiaries of AEP either are not subject to any coverage restrictions or are not subject to restrictions as constraining as those to which APCo, CSPCo, I&M, KEPCo and OPCo are subject, their ability to finance substantial portions of their construction programs may be subject to market limitations and other constraints unless other assurances are furnished. AEP believes that the ability of its operating subsidiaries to issue short- and long-term debt securities and preferred stock in the amounts required to finance their respective construction programs may depend upon the timely approval of rate increase applications. If one or more of the operating subsidiaries are unable to continue the issuance and sale of securities on an orderly basis, such company or companies will be required to consider the use of alternative financing arrangements, if available, which may be more costly or the curtailment of construction and other outlays. AEP's subsidiaries have also utilized, and expect to continue to utilize, additional financing arrangements, such as leasing arrangements, including the leasing of utility assets, coal mining and transportation equipment and facilities and nuclear fuel. Pollution control revenue bonds have been used in the past and may be used in the future in connection with the construction of pollution control facilities; however, Federal tax law has limited the utilization of this type of financing except for purposes of certain financing of solid waste disposal facilities and of certain refunding of outstanding pollution control revenue bonds issued before August 16, 1986. Shares of AEP Common Stock may be sold by AEP from time to time at prices below the then current book value per share and repurchased by AEP at prices above book value. Such sales or purchases, if any, would have a dilutive effect on the book value of then outstanding shares but are not expected to have a material adverse effect on AEP's business including its future financing plans or capabilities and pending construction projects. CONSERVATION AND LOAD MANAGEMENT For some years, the AEP System has put in place a series of customer programs for encouraging electric conservation and load management (CLM). The CLM programs also are referred to in the electric utility industry as "demand-side management" programs (DSM) since they affect the demand for electricity as opposed to electricity supply. The AEP System utilizes integrated resource planning and has in place a detailed analysis procedure in which effective demand-side and supply-side options are both considered in order to determine the least cost approach to provide reliable electric service for its customers, taking into account environmental and other considerations. Recovery of demand-side program expenditures through rates is being reviewed by AEP's respective regulatory commissions. RATES General In recent years the operating subsidiaries of AEP have filed a series of rate increase applications with their respective state commissions and the FERC and expect that they will continue to do so as competitive conditions permit, whenever necessary, as increases in operating, construction and capital costs exceed increases in revenues resulting from previously granted rate increases and increased customer demand. All of the seven states served by the AEP System, as well as the FERC, either permit the incorporation of fuel adjustment clauses in a utility company's rates and tariffs, which are designed to permit upward or downward adjustments in revenues to reflect increases or decreases in fuel costs above or below the designated base cost of fuel set forth in the particular rate or tariff, or permit the inclusion of specified levels of fuel costs as part of such rate or tariff. AEP cannot predict the timing or probability of approvals regarding applications for additional rate changes, the outcome of action by regulatory commissions or courts with respect to such matters, or the effect thereof on the earnings and business of the AEP System. APCo FERC: On February 14, 1992, APCo filed with the FERC applications for an increase in its wholesale rates to Kingsport Power Company and non-affiliated customers in the amounts of approximately $3,933,000 and $4,759,000, respectively. APCo began collecting the rate increases, subject to refund, on September 15, 1992. In addition, the Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions (SFAS 106), which requires employers, beginning in 1993, to accrue for the costs of retiree benefits other than pensions. These rates include the higher level of SFAS 106 costs. On November 9, 1993, the administrative law judge issued an initial decision recommending, among other things, the higher level of postretirement benefits other than pensions under SFAS 106. FERC action on APCo's applications is pending. Virginia: On June 27, 1994, the Virginia SCC issued a final order granting APCo an increase in annual revenues of $17,900,000. APCo had requested to increase its Virginia retail rates by $31,400,000 annually and, on May 4, 1993, implemented the rates, subject to refund, based on an interim order. As a result of the final order, APCo made a revenue refund including interest to its Virginia customers in August 1994 of $15,800,000. As a result of certain significant fuel cost reductions, on November 15, 1994, APCo implemented a net decrease in rates charged to its Virginia retail customers of $13,200,000, subject to final approval by the Virginia SCC. The net decrease consisted of a $28,900,000 decrease in the fuel component of its rates offset, in part, by an increase of $15,700,000 in base rates. On December 19, 1994, the Virginia SCC issued an order approving the decrease in the fuel factor component of rates. APCo proposes in the base rate proceeding to amortize Virginia deferred storm damage expenses of $23,900,000 related to two major ice storms in February and March 1994 over a three-year period, consistent with the amortization of previous storm damage expense deferrals approved in a 1992 rate case. The ultimate recovery of the entire deferred storm damage costs is subject to Virginia SCC approval. If not approved, results of operations could be adversely affected. A hearing has been scheduled to begin in July 1995. CSPCo Zimmer Plant: The Zimmer Plant was placed in commercial operation as a 1,300-megawatt coal-fired plant on March 30, 1991. CSPCo owns 25.4% of the Zimmer Plant with the remainder owned by two unaffiliated companies, CG&E (46.5%) and DP&L (28.1%). Zimmer Plant -- Rate Recovery: In May 1992, the PUCO issued an order providing for a phased-in rate increase of $123,000,000 for the Zimmer Plant to be implemented in three steps over a two- year period and disallowed $165,000,000 of Zimmer Plant investment. CSPCo appealed the PUCO ordered Zimmer disallowance and phase-in plan to the Ohio Supreme Court. In November 1993, the Supreme Court issued a decision on CSPCo's appeal affirming the disallowance and finding that the PUCO did not have statutory authority to order phased-in rates. The court instructed the PUCO to fix rates to provide gross annual revenue in accordance with the law and to provide a mechanism to recover the revenues deferred under the phase-in order. As a result of the ruling, 1993 net income was reduced by $144,500,000 after tax to reflect the disallowance and in January 1994, the PUCO approved a 7.11% or $57,167,000 rate increase effective February 1, 1994. The increase is comprised of a 3.72% base rate increase and a temporary 3.39% surcharge, which will be in effect until the phase-in plan deferrals are recovered, estimated to be 1998. In 1994, $18,500,000 of net phase-in deferrals were collected through the surcharge which reduced the deferrals from $93,900,000 at December 31, 1993 to $75,400,000 at December 31, 1994. In 1993 and 1992, $47,900,000 and $46,000,000, respectively, were deferred under the phase-in plan. The recovery of amounts deferred under the phase-in plan and the increase in rates to the full rate level did not affect net income. From the in-service date of March 1991 until rates went into effect in May 1992, deferred carrying charges of $43,000,000 were recorded on the Zimmer Plant investment. Recovery of the deferred carrying charges will be sought in the next PUCO base rate proceeding in accordance with the PUCO accounting order that authorized the deferral. Other Ohio Regulatory Matters: Reference is made to Environmental and Other Matters -- Clean Air Act Amendments of 1990 for a discussion of emission allowances. On March 25, 1993, the PUCO issued its final guidelines concerning emission allowances. The final guidelines state that the PUCO expects that Ohio utilities will take advantage of the allowance trading market, and encourages all trades that can be economically justified. The final guidelines include the proposed guideline that gains or losses on transactions involving emission allowances created by rate base assets should generally flow through to ratepayers. The final guidelines also provide that allowance plans, procedures, practices, trading activity, and associated costs should be reviewed annually in the electric fuel component since the cost of these allowances are part of the acquisition and delivery costs of fuel. Reference is made to the caption Environmental and Other Matters -- Clean Air Amendments of 1990 -- AEP System Compliance Plan for information regarding AEP's compliance plan which has been filed with the PUCO. On September 3, 1992, the PUCO began an investigation into incentive based ratemaking under Ohio's existing ratemaking statutes. Joint comments were filed in November 1992 by CSPCo and OPCo. I&M FERC: In October 1987, a wholesale customer filed a complaint with the FERC for a refund based on the reasonableness of coal costs pursuant to a seven-year contract, beginning in 1986, from an unaffiliated supplier who has leased a Utah mining operation from I&M. In February 1993, the FERC dismissed the complaint. The wholesale customer has appealed the FERC order to the U.S. Court of Appeals for the District of Columbia Circuit. KEPCo FERC: On October 28, 1993, KEPCo filed an application to begin serving the City of Vanceburg as a full requirements customer, effective January 1, 1994, which will yield annual revenues of $1,448,000. On June 9, 1994, the FERC issued a letter order accepting for filing KEPCo's application. On July 24, 1992, the KPSC began an investigation into the feasibility of implementing demand-side management cost recovery and incentive mechanisms. A Kentucky law enacted in April 1994 provides the KPSC with authority to establish cost recovery mechanisms outside of base rate cases. On July 14, 1994, the KPSC issued an order stating that Kentucky utilities should pursue cost-effective DSM. OPCo Reference is made to Rates -- CSPCo regarding generic proceedings by the PUCO relating to emission allowance trading and incentive-based ratemaking. In April 1991, the municipal wholesale customers of OPCo filed a complaint with the FERC seeking refunds back to 1982 for alleged overcharges for certain affiliated fuel costs. The complaint contends that the price of coal from two of OPCo's affiliated mines violated the FERC's market price requirement for affiliate coal pricing. In February 1993, the FERC issued an order dismissing the complaint and, in January 1995, the U.S. Court of Appeals for the Sixth Circuit affirmed the FERC's order, ending the matter. An application was filed by OPCo in July 1994 with the PUCO seeking a $152,500,000 annual base retail rate increase to recover, among other things, the costs associated with the Gavin Plant's flue gas desulfurization systems (scrubbers). In February 1995, OPCo and certain other parties to the proceeding entered into a settlement agreement to resolve, among other issues, the pending base rate case and the current electric fuel component (EFC) proceeding. On March 23, 1995, the PUCO issued an order approving the settlement agreement, with certain minor exceptions. Under the terms of the settlement agreement, effective March 23, 1995, base rates increase by $66,000,000 annually which includes recovery of the annual cost of the scrubbers; the EFC rate is fixed at 1.465 cents per kwh from June 1, 1995 through November 30, 1998; OPCo is provided with the opportunity to recover its Ohio jurisdictional share of the investment in, and the liabilities and future shutdown costs of, all affiliated mines as well as any fuel costs incurred above the fixed rate; and OPCo may proceed with its Clean Air Act Amendments of 1990 compliance plan as filed with the PUCO (discussed under Environmental and Other Matters -- Clean Air Act Amendments of 1990 -- AEP System Compliance Plan). Based on a stipulation agreement approved by the PUCO in November 1992, beginning December 1, 1994, the cost of coal burned at the Gavin Plant is subject to a 15-year predetermined price of $1.575 per million Btus with quarterly escalation adjustments. As discussed above, the PUCO-approved settlement agreement fixes the EFC factor at 1.465 cents per kwh for the period June 1995 through November 1998. After November 2009, the price that OPCo can recover for coal from its affiliated Meigs mine which supplies the Gavin Plant will be limited to the lower of cost or the then-current market price. The predetermined Gavin Plant price agreement, in conjunction with the above- referenced settlement agreement, provide OPCo with an opportunity to recover any operating losses incurred under the predetermined or fixed price, as well as its investment in, and liabilities and closing costs associated with, its affiliated mining operations attributable to its Ohio jurisdiction, to the extent the actual cost of coal burned at the Gavin Plant is below the predetermined price. Based on the estimated future cost of coal burned at Gavin Plant, management believes that the Ohio jurisdictional portion of the investment in, and liabilities and closing costs of, the affiliated mining operations will be recovered under the terms of the predetermined price agreement. In November 1992, the municipal wholesale customers of OPCo filed a complaint with the SEC requesting an investigation of the sale of the Martinka mining operation to an unaffiliated company and an investigation into the pricing of OPCo's affiliated coal purchases back to 1986. OPCo has filed a response with the SEC seeking to dismiss this complaint. FUEL SUPPLY The following table shows the sources of power generated by the AEP System:
1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- Coal ...................... 90% 86% 93% 86% 91% Nuclear ................... 9% 13% 6% 13% 8% Hydroelectric and other ... 1% 1% 1% 1% 1%
Variations in the generation of nuclear power are primarily related to refueling outages and, in 1992, a forced outage at Cook Plant Unit 2. See Cook Nuclear Plant. Coal The Clean Air Act Amendments of 1990 provide for the issuance of annual allowance allocations covering sulfur dioxide emissions at levels below historic emission levels for many coal-fired generating units of the AEP System. Phase I of this program began in 1995 and Phase II begins in 2000, with both phases requiring significant changes in coal supplies and suppliers. The full extent of such changes, particularly in regard to Phase II, however, has not been determined. See Environmental and Other Matters -- Air Pollution Control -- CAAA-AEP System Compliance Plan for the current compliance plan. In order to meet emission standards for existing and new emission sources, the AEP System companies will, in any event, have to obtain coal supplies, in addition to coal reserves now owned by System companies, through the acquisition of additional coal reserves and/or by entering into additional supply agreements, either on a long-term or spot basis, at prices and upon terms which cannot now be predicted. No representation is made that any of the coal rights owned or controlled by the System will, in future years, produce for the System any major portion of the overall coal supply needed for consumption at the coal-fired generating units of the System. Although AEP believes that in the long run it will be able to secure coal of adequate quality and in adequate quantities to enable existing and new units to comply with emission standards applicable to such sources, no assurance can be given that coal of such quality and quantity will in fact be available. No assurance can be given either that statutes or regulations limiting emissions from existing and new sources will not be further revised in future years to specify lower sulfur contents than now in effect or other restrictions. See Environmental and Other Matters herein. The FERC has adopted regulations relating, among other things, to the circumstances under which, in the event of fuel emergencies or shortages, it might order electric utilities to generate and transmit electric energy to other regions or systems experiencing fuel shortages, and to rate-making principles by which such electric utilities would be compensated. In addition, the Federal Government is authorized, under prescribed conditions, to allocate coal and to require the transportation thereof, for the use of power plants or major fuel-burning installations. System companies have developed programs to conserve coal supplies at System plants which involve, on a progressive basis, limitations on sales of power and energy to neighboring utilities, appeals to customers for voluntary limitations of electric usage to essential needs, curtailment of sales to certain industrial customers, voltage reductions and, finally, mandatory reductions in cases where current coal supplies fall below minimum levels. Such programs have been filed and reviewed with officials of Federal and state agencies and, in some cases, the state regulatory agency has prescribed actions to be taken under specified circumstances by System companies, subject to the jurisdiction of such agencies. The mining of coal reserves is subject to Federal requirements with respect to the development and operation of coal mines, and to state and Federal regulations relating to land reclamation and environmental protection, including Federal strip mining legislation enacted in August 1977. Continual evaluation and study is given to possible closure of existing coal mines and divestiture or acquisition of coal properties in light of Federal and state environmental and mining laws and regulations which may affect the System's need for or ability to mine such coal. Western coal purchased by System companies is transported by rail to a terminal on the Ohio River for transloading to barges for delivery to generating stations on the river. Subsidiaries of AEP lease approximately 3,763 coal hopper cars to be used in unit train movements, as well as 14 towboats, 295 jumbo barges and 185 standard barges. Subsidiaries of AEP also own or lease coal transfer facilities at various locations on the river. The System generating companies procure coal from coal reserves which are owned or mined by subsidiaries of AEP, and through purchases pursuant to long-term contracts, or on a spot purchase basis, from unaffiliated producers. The following table shows the amount of coal delivered to the AEP System during the past five years, the proportion of such coal which was obtained either from coal-mining subsidiaries, from unaffiliated suppliers under long-term contracts or through spot or short-term purchases, and the average delivered price of spot coal purchased by System companies:
1990 1991 1992 1993 1994 ------ ------ ------ ------ ------ Total coal delivered to AEP operated plants (thousands of tons) ...... 52,087 45,232 44,738 40,561 49,024 Sources (percentage): Subsidiaries ............. 25% 28% 25% 20% 15% Long-term contracts ...... 58% 62% 65% 66% 65% Spot or short-term purchases ............. 17% 10% 10% 14% 20% Average price per ton of spot-purchased coal ...... $26.75 $25.40 $23.88 $23.55 $23.00
The average cost of coal consumed during the past five years by all AEP System companies, AEGCo, APCo, CSPCo, I&M, KEPCo and OPCo is shown in the following tables:
1990 1991 1992 1993 1994 ------ ------ ------ ------ ------ Dollars per ton AEP System Companies ....... $35.23 $35.16 $34.31 $33.57 $33.95 AEGCo ...................... 21.05 20.65 20.11 17.74 18.59 APCo ....................... 39.77 41.99 43.00 42.65 39.89 CSPCo ...................... 37.01 35.18 33.87 33.87 32.80 I&M ........................ 27.18 25.57 24.23 23.80 22.85 KEPCo ...................... 30.71 31.38 30.24 27.08 26.83 OPCo ....................... 40.13 40.18 38.36 38.12 41.10 Cents per Million Btu's AEP System Companies ....... 158.10 158.88 154.41 150.89 152.41 AEGCo ...................... 126.21 123.33 120.90 107.71 112.06 APCo ....................... 160.94 169.48 173.05 173.32 161.37 CSPCo ...................... 159.83 152.55 143.94 143.66 140.45 I&M ........................ 143.43 139.16 135.11 129.39 123.62 KEPCo ...................... 129.72 132.25 126.92 113.90 113.40 OPCo ....................... 171.10 171.65 163.89 161.25 173.51
The coal supplies at AEP System plants vary from time to time depending on various factors, including customers' usage of electric energy, space limitations, the rate of consumption at particular plants, labor unrest and weather conditions which may interrupt deliveries. At December 31, 1994, the System's coal inventory was approximately 65 days of normal System usage. This estimate assumes that the total supply would be utilized by increasing or decreasing generation at particular plants. The following tabulation shows the total consumption during 1994 of the coal-fired generating units of AEP's principal operating subsidiaries, coal requirements of these units over the remainder of their useful lives and the average sulfur content of coal delivered in 1994 to these units. Reference is made to Environmental and Other Matters for information concerning current emissions limitations in the AEP System's various jurisdictions and the effects of the Clean Air Act Amendments.
ESTIMATED TOTAL REQUIREMENTS AVERAGE SULFUR CONTENT CONSUMPTION FOR REMAINDER OF DELIVERED COAL DURING 1994 OF USEFUL LIVES ---------------------------- (IN THOUSANDS (IN MILLIONS POUNDS OF SO/2/ OF TONS) OF TONS)(A) BY WEIGHT PER MILLION BTU'S ------------- --------------- --------- ----------------- AEGCo (b) ..... 5,377 258 0.3% 0.7 APCo .......... 9,455 406 0.7% 1.2 CSPCo (c) ..... 6,137 253 3.2% 5.5 I&M (d) ....... 6,865 295 0.6% 1.3 KEPCo ......... 2,315 89 1.3% 2.1 OPCo .......... 17,613 627 2.5% 4.1
--------------- (a) Preliminary estimates of the effects of the Clean Air Act Amendments of 1990 are included. (b) Reflects AEGCo's 50% interest in the Rockport Plant. (c) Includes coal requirements for CSPCo's interest in Beckjord, Stuart and Zimmer Plants. (d) Includes I&M's 50% interest in the Rockport Plant. AEGCo: See Fuel Supply -- I&M for a discussion of the coal supply for the Rockport Plant. APCo: APCo, or its subsidiaries formerly engaged in coal mining, control coal reserves in the State of West Virginia which contain approximately 42,000,000 tons of clean recoverable coal, ranging in sulfur content between 1.0% and 3.5% sulfur by weight (weighted average, 2.6% sulfur by weight). Substantially all of the coal consumed at APCo's generating plants is obtained from unaffiliated suppliers under long-term contracts or on a spot purchase basis. The average sulfur content by weight of the coal received by APCo at its generating stations approximated 0.7% during 1994, whereas the maximum sulfur content permitted, for emission standard purposes, for existing plants in the regions in which APCo's generating stations are located ranged between 0.78% and 2% by weight depending in some circumstances on the calorific value of the coal which can be obtained for some generating stations. CSPCo: CSPCo owns an undivided one-half interest in 24,000,000 tons of clean recoverable deep-mineable coal in the State of Ohio which is located in the vicinity of its decommissioned Poston Plant and has an average sulfur content of 2.4% by weight. Peabody Coal Company (Peabody), which owns the remaining one-half interest, has the right to mine and sell all of the jointly owned coal to any party on terms negotiated by Peabody. CSPCo has an option and right of first refusal (exercisable within a specified period after tender by Peabody) which will permit it to purchase this coal on the same terms as those of any contract which Peabody may negotiate with a third party. In the event that CSPCo does not exercise such right, it is entitled to receive a royalty on the coal from this reserve which Peabody sells to others. However, in such a case, this coal will not be available for CSPCo's use. CSPCo also owns coal reserves in eastern and southeastern Ohio which contain approximately 46,000,000 tons of clean recoverable coal with a sulfur content of approximately 4.5% sulfur by weight and reserves that contain approximately 10,000,000 tons of clean recoverable coal with a sulfur content of approximately 2.4% sulfur by weight. CSPCo has a coal supply agreement with an unaffiliated supplier for the delivery of 1,272,000 tons of coal per year through March 1999. Such coal contains approximately 4% sulfur by weight and is washed to improve its quality and consistency for use principally at Unit 4 of the Conesville Plant. CSPCo has been informed by CG&E and DP&L that, with respect to the CCD Group units partly owned but not operated by CSPCo, sufficient coal has been contracted for or is believed to be available for the approximate lives of the respective units operated by them. Under the terms of the operating agreements with respect to CCD Group units, each operating company is contractually responsible for obtaining the needed fuel. I&M: I&M has acquired surface ownership interest in lands in Wyoming which, it is estimated, are underlaid by approximately 730,000,000 tons of clean recoverable coal with an average sulfur content by weight of approximately 0.5%. Federal and state coal leases which would provide the rights and authorization to extract this coal have not been obtained. I&M is attempting to sell its interest in these lands. I&M has entered into coal supply agreements with unaffiliated suppliers pursuant to which the suppliers are delivering low sulfur coal from surface mines in Wyoming, principally for consumption by the Rockport Plant. Under these agreements, the suppliers will sell to I&M, for consumption by I&M at the Rockport Plant or consignment to other System companies, coal with an average sulfur content not exceeding 1.2 pounds of sulfur dioxide per million Btu's of heat input. A contract with remaining deliveries of 72,500,000 tons expires on December 31, 2014 and a contract with remaining deliveries of 60,000,000 tons expires on December 31, 2004. I&M or its subsidiaries own or control coal reserves in Carbon County, Utah, which are estimated to contain 227,000,000 tons of clean recoverable coal with an average sulfur content by weight of approximately 0.5% sulfur. In 1986, I&M and its two subsidiaries signed agreements under which certain of such coal rights, land, and related mining and preparation equipment and facilities were leased or subleased on a long-term basis to unaffiliated interests. In 1993, the remainder of those land and coal rights containing approximately 108,000,000 tons of clean recoverable coal were leased on a long-term basis to unaffiliated interests. Mining operations in Carbon County formerly conducted by I&M were suspended in 1984. KEPCo: Substantially all of the coal consumed at KEPCo's Big Sandy Plant is obtained from unaffiliated suppliers under long- term contracts or on a spot purchase basis. KEPCo has entered into coal supply agreements with unaffiliated suppliers pursuant to which KEPCo will receive approximately 2,718,000 tons of coal in 1995. To the extent that KEPCo has additional coal requirements, it may purchase coal from the spot market and/or suppliers under contract to supply other System companies. OPCo: OPCo and certain of its coal-mining subsidiaries own or control coal reserves in the State of Ohio which contain approximately 218,000,000 tons of clean recoverable coal, which ranges in sulfur content between 3.4% and 4.5% sulfur by weight (weighted average, 3.8%), which can be recovered based upon existing mining plans and projections and employing current mining practices and techniques. OPCo and certain of its mining subsidiaries own an additional 113,000,000 tons of clean recoverable coal in Ohio which ranges in sulfur content between 2.4% and 3.4% sulfur by weight (weighted average 2.7%). Recovery of this coal would require substantial development. OPCo and certain of its coal-mining subsidiaries also own or control coal reserves in the State of West Virginia which contain approximately 107,000,000 tons of clean recoverable coal ranging in sulfur content between 1.4% and 3.3% sulfur by weight (weighted average, 2.0%) of which approximately 30,000,000 tons can be recovered based upon existing mining plans and projections and employing current mining practices and techniques. Nuclear I&M has made commitments to meet certain of the nuclear fuel requirements of the Cook Plant. The nuclear fuel cycle consists of the mining and milling of uranium ore to uranium concentrates; the conversion of uranium concentrates to uranium hexafluoride; the enrichment of uranium hexafluoride; the fabrication of fuel assemblies; the utilization of nuclear fuel in the reactor; and the reprocessing or other disposition of spent fuel. Steps currently are being taken, based upon the planned fuel cycles for the Cook Plant, to review and evaluate I&M's requirements for the supply of nuclear fuel beyond the existing contractual commitments shown in the following table. I&M has made and will make purchases of uranium in various forms in the spot market until it decides that deliveries under long-term supply contracts are warranted. The following table shows the year through which contracts have been entered into to provide the requirements of the units for the various segments of the nuclear fuel cycle.
URANIUM CONCENTRATES CONVERSION ENRICHMENT (1) FABRICATION REPROCESSING (2) ------------ ---------- -------------- ----------- ---------------- Unit 1 .... --- --- 2000 1998 --- Unit 2 .... --- --- 2000 1998 ---
--------------- 1) I&M has a requirements-type contract with DOE. I&M has partially terminated the contract, subject to revocation of the termination, so that it may procure enrichment services cost-effectively from the spot market. I&M also has a contract with Cogema, Inc. for the supply of enrichment services through 1995, depending on market conditions. 2) No reprocessing facility in the United States currently is in operation. I&M has contracted for reprocessing services at a facility on which construction has been halted. Lack of reprocessing services has resulted in the need to increase on-site storage capacity for spent fuel. For purposes of the storage of high-level radioactive waste in the form of spent nuclear fuel, I&M has completed modifications to its spent nuclear fuel storage pool to permit normal operations through 2010. I&M's costs of nuclear fuel consumed do not assume any residual or salvage value for residual plutonium and uranium. Nuclear Waste and Decommissioning The Nuclear Waste Policy Act of 1982, as amended, establishes Federal responsibility for the permanent off-site disposal of spent nuclear fuel and high-level radioactive waste. Disposal costs are paid by fees assessed against owners of nuclear plants and deposited into the Nuclear Waste Fund created by the Act. In 1983, I&M entered into a contract with DOE for the disposal of spent nuclear fuel. Under terms of the contract, for the disposal of nuclear fuel consumed after April 6, 1983 by I&M's Cook Plant, I&M is paying to the fund a fee of one mill per kilowatt-hour, which I&M is currently recovering from customers. For the disposal of nuclear fuel consumed prior to April 7, 1983, I&M must pay the U.S. Treasury a fee estimated at approximately $71,964,000, exclusive of interest of $82,013,000 at December 31, 1994. This amount has been recorded as long-term debt with an offsetting regulatory asset. The regulatory asset at December 31, 1994 of $8,400,000 is being amortized as rate recovery occurs. Because of the current uncertainties surrounding DOE's program to provide for permanent disposal of spent nuclear fuel, I&M has not yet paid any of this fee. At December 31, 1994, funds collected from customers to dispose of spent nuclear fuel and related earnings totaled $145,600,000. On June 20, 1994, a group of 14 unaffiliated utilities owning and operating nuclear plants and a group of states each filed a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit requesting that the court issue a declaration that the Nuclear Waste Policy Act of 1982 imposes on DOE an unconditional obligation to begin acceptance of spent nuclear fuel and high level radioactive waste by January 31, 1998. DOE has indicated in its Notice of Inquiry of May 25, 1994 that its preliminary view is that it has no statutory obligation to begin to accept spent nuclear fuel beginning in 1998 in the absence of an operational repository. Studies completed in 1994 estimate decommissioning and low- level radioactive waste disposal costs to range from $634,000,000 to $988,000,000 in 1993 dollars. The wide range is caused by variables in assumptions, including the estimated length of time spent nuclear fuel must be stored at the Cook Plant subsequent to ceasing operations, which depends on future developments in the federal government's spent nuclear fuel disposal program. I&M is recovering decommissioning costs in its three rate-making jurisdictions based on at least the lower end of the range in the most recent respective decommissioning study available at the time of the rate proceeding (the study range utilized in the Indiana and Michigan rate cases was $588,000,000 to $1.102 billion in 1991 dollars). I&M records decommissioning costs in other operation expense and records a noncurrent liability equal to the decommissioning cost recovered in rates which was $26,000,000 in 1994, $13,000,000 in 1993 and $12,000,000 in 1992. At December 31, 1994, I&M had recognized a decommissioning liability of $212,000,000. I&M will continue to reevaluate periodically the cost of decommissioning and to seek regulatory approval to revise its rates as necessary. Funds recovered through the rate-making process for disposal of spent nuclear fuel consumed prior to April 7, 1983 and for nuclear decommissioning have been segregated and deposited in external funds for the future payment of such costs. Trust fund earnings decrease the amount to be recovered from ratepayers. The ultimate cost of radiological decommissioning may be materially different from the amounts derived from the estimates contained in the site-specific study as a result of (a) the type of decommissioning plan selected, (b) the escalation of various cost elements (including, but not limited to, general inflation), (c) the further development of regulatory requirements governing decommissioning, (d) limited experience to date in decommissioning such facilities and (e) the technology available at the time of decommissioning differing significantly from that assumed in these studies. Accordingly, management is unable to provide assurance that the ultimate cost of decommissioning the Cook Plant will not be significantly greater than current projections. In 1994, the Financial Accounting Standards Board (FASB) added Accounting for Nuclear Decommissioning Liabilities to its agenda. Among the topics to be studied by the FASB is the question of when future decommissioning liabilities should be recognized. I&M and the electric utility industry accrue such costs over the service life of their nuclear facilities as recovered in rates. A new requirement from the FASB could cause the annual provisions for decommissioning to increase should the estimate of the remaining unaccrued decommissioning costs be greater than the regulators' allowed recovery level. Management believes that the industry's life of the plant accrual accounting method is appropriate and should be accepted by the FASB. Until the FASB completes its study and reaches a conclusion, the impact, if any, on results of operations and financial condition cannot be determined. The Low-Level Waste Policy Act of 1980 (LLWPA) mandates that the responsibility for the disposal of low-level waste rests with the individual states. Low-level radioactive waste consists largely of ordinary trash and other items that have come in contact with radioactive materials. To facilitate this approach, the LLWPA authorized states to enter into regional compacts for low-level waste disposal subject to Congressional approval. The LLWPA also specified that, beginning in 1986, approved compacts may prohibit the importation of low-level waste from other regions, thereby providing a strong incentive for states to enter into compacts. As 1986 approached it became apparent that no new disposal facilities would be operational, and enforcement of the LLWPA would leave no disposal capacity for the majority of the low-level waste generated in the United States. Congress, therefore, passed the Low-Level Waste Policy Amendments Act of 1985. Michigan was a member of the Midwest Compact, but its membership was revoked in 1991. Michigan is responsible for developing a disposal site for the low-level waste generated in Michigan. In 1990, Nevada, South Carolina and Washington, the three states with operating disposal sites, determined that Michigan was out of compliance with milestones established by the LLWPA which were designed to force development of new disposal sites by the end of 1992. Failure of a state or compact region to have met a milestone could result in denial of access to operating sites for waste generators within the state. Since November 1990, the Cook Plant has been denied access to these operating sites. The Cook Plant's low-level radioactive waste is currently being stored on-site. I&M has an on-site radioactive material storage facility at the Cook Plant for temporary preshipment storage of the plant's low-level radioactive waste. The facility can hold as much low-level waste as the Cook Plant is expected to produce through approximately 2001, and the building could be expanded to accommodate the storage of such waste through approximately 2017. Currently, the Cook Plant produces less than 7,000 cubic feet of low-level waste annually. In 1994, Michigan amended its law regarding disposal sites to provide for allowing a volunteer to host a facility. Although progress has been made, the site selection process is very long and management is unable to predict when a permanent disposal site for Michigan low-level waste will be available. Energy Policy Act -- Nuclear Fees The Energy Policy Act of 1992 (Energy Act), contains a provision to fund the decommissioning and decontamination of DOE's existing uranium enrichment facilities from a combination of sources including assessments against electric utilities which purchased enrichment services from DOE facilities. I&M's remaining estimated liability is $48,598,000, subject to inflation adjustments, and is payable in annual assessments over the next 12 years. I&M recorded a regulatory asset concurrent with the recording of the liability. The payments are being recorded and recovered as fuel expense. ENVIRONMENTAL AND OTHER MATTERS AEP's subsidiaries are subject to regulation by Federal, state and local authorities with regard to air and water-quality control and other environmental matters, and are subject to zoning and other regulation by local authorities. It is expected that costs related to environmental requirements will eventually be reflected in the rates of AEP's operating subsidiaries and that, in the long term, AEP's operating subsidiaries will be able to provide for such environmental controls as are required. However, some customers may curtail or cease operations as a consequence of higher energy costs. There can be no assurance that all such costs will be recovered. Except as noted herein, AEP's subsidiaries which own or operate generating facilities generally are in compliance with pollution control laws and regulations. Air Pollution Control Clean Air Act Amendments of 1990: For the AEP System, compliance with the Clean Air Act Amendments of 1990 (CAAA) is requiring substantial expenditures for which management is seeking recovery through increases in the rates of AEP's operating subsidiaries. OPCo is incurring a major portion of such costs. There can be no assurance that all such costs will be recovered. See Construction and Financing Program -- Construction Expenditures. The CAAA create an emission allowance program pursuant to which utilities are authorized to emit a designated quantity of sulfur dioxide, measured in tons per year, on a system wide or aggregate basis. A utility or utility system will be deemed to operate in compliance with the legislation if its aggregate annual emissions do not exceed the total number of allowances that are allocated to the utility or utility system by the federal government and net acquisitions through purchases. Effective January 1, 2000, the legislation establishes a maximum national aggregate ceiling on allowances allocated to fossil fuel-fired units larger than 25 megawatts. The allowance cap is set at 8.95 million tons. Emission reductions are required by virtue of the establishment of annual allowance allocations at a level below historical emission levels for many utility units. For units that emitted sulfur dioxide above a rate of 2.5 pounds per million Btu heat input in 1985, the CAAA establish sulfur dioxide allowance limitations (caps or ceilings on emissions) premised upon sulfur dioxide emissions at a rate of 2.5 pounds per million Btu heat input as of the Phase I deadline of January 1, 1995. The following AEP System units are Phase I-affected units: I&M's Breed Plant and Tanners Creek Unit 4; CSPCo's Beckjord Unit 6, Conesville Units 1-4 and Picway Unit 5; and OPCo's Gavin Units 1- 2, Muskingum River Units 1-5, Cardinal Unit 1, Mitchell Units 1-2 and Kammer Units 1-3. The CAAA contemplate four general methods of compliance: (i) fuel switching; (ii) technological methods of control such as scrubbers; (iii) capacity utilization adjustments; and (iv) acquisition of allowances to cover anticipated emissions levels. The AEP System permit application and compliance plan filings reflect, to some extent, each method of compliance. On January 11, 1993, Federal EPA published final regulations in the Federal Register which cover the Acid Rain Permit Program, Allowance System, Continuous Emission Monitoring, Excess Emissions Penalties and Offset Plans and Appeal Procedures. These regulations included allocation of allowances for Phase I sources. On March 12, 1993, several environmental groups, the State of New York and a number of utilities (including APCo, CSPCo, I&M, KEPCo and OPCo) filed petitions in the U.S. Court of Appeals for the District of Columbia Circuit seeking a review of the regulations. The parties have settled a number of issues, including those relating to Substitution Unit, Compensation Unit and Reduced Utilization plans. Oral argument has not been scheduled for the remaining issues. Phase I permits have been issued for all Phase I-affected units in the AEP System. All fossil fuel-fired generating units with capacity greater than 25 megawatts are affected in Phase II of the acid rain control program. All Phase II-affected units are allocated allowances with which compliance must be accomplished beginning January 1, 2000. The basis for Phase II allowance allocation depends on 1985 sulfur dioxide emission rates -- if a unit emitted sulfur dioxide in 1985 at a rate in excess of 1.2 pounds per million Btu heat input, the allowance allocation is premised upon an emission rate of 1.2 pounds as of the Phase II deadline of January 1, 2000; if a unit emitted sulfur dioxide in 1985 at a rate of less than 1.2 pounds, the allowance allocation is in most instances premised upon the actual 1985 emission rate. The acid rain title also contains provisions concerning nitrogen oxides emissions. In March 1994, Federal EPA issued final regulations governing nitrogen oxides emissions from tangentially fired and dry bottom wall-fired boilers at Phase I units. These regulations were appealed to the U.S. Court of Appeals for the District of Columbia Circuit by APCo, CSPCo, I&M, KEPCo and OPCo and a group of unaffiliated utilities based on the failure of Federal EPA to correctly define low NOx burner technology. On November 29, 1994, the court remanded the rules to Federal EPA. On December 16, 1994, OPCo and CSPCo filed appeals seeking the suspension of NOx limits contained in acid rain permits for Conesville, Picway and Mitchell plants pending the reissuance of NOx regulations. On February 7, 1995, Federal EPA published a notice in the Federal Register advising that the NOx limitations contained in the permits for these plants were suspended pending the remanded rulemaking. For wet bottom wall-fired boilers, cyclone boilers, units applying cell burner technology and all other types of boilers, emission limitations comparable in cost to the controls applicable to tangentially fired boilers and non-cell burner dry bottom wall-fired boilers are to be adopted no later than January 1, 1997. The 1997 nitrogen oxides emission limitations are required to be met by Phase II-affected sources as of January 1, 2000. The CAAA contain additional provisions, other than the acid rain title, which could require reductions in emissions of nitrogen oxides from fossil fuel-fired power plants. Title I, dealing generally with nonattainment of ambient air quality standards, establishes a tiered system for classifying degrees of nonattainment with air quality standards for ozone and mandates that Federal EPA in cooperation with the states issue, within 240 days of enactment, ozone "attainment" or "nonattainment" designations for airsheds throughout the country. Depending upon the severity of nonattainment within a given nonattainment area, reductions in nitrogen oxides emissions from fossil fuel-fired power plants may be required as part of a state's plan for achieving attainment with ozone air quality standards. The deadlines for submission of new state plans and the accomplishment of mandated emission reductions, as well as the nature of stationary source nitrogen oxides control requirements, also depend upon the severity of a given airshed's nonattainment. While ozone nonattainment is largely restricted to urban areas, several AEP System generating stations could be determined to be affecting ozone concentrations and may therefore eventually be required to reduce nitrogen oxides emissions pursuant to Title I. In addition, certain environmental organizations and northeastern states have filed comments with Federal EPA contending that NOx emissions from the midwest must be reduced in order to achieve the National Ambient Air Quality Standard for ozone in the northeast. Plants currently located in areas being evaluated for imposition of additional emission controls include Zimmer and Beckjord Unit 6 (both partially owned by CSPCo), I&M's Tanners Creek Plant, KEPCo's Big Sandy Plant, OPCo's Gavin Plant and APCo's Amos, Sporn, Kanawha River and Mountaineer plants. On February 25, 1994, the West Virginia Division of Environmental Protection issued a consent order for APCo's Amos Units 1 and 2, requiring reductions in nitrogen oxides emissions from these units after June 1, 1995. The reduction in nitrogen oxides emissions will be less than that required under Title IV of the CAAA but will be required at an earlier time. On September 6, 1994, Federal EPA officially redesignated Putnam, Wood and Kanawha counties to ozone attainment. West Virginia does not plan to impose NOx reduction requirements under Title I of the CAAA as part of its ozone maintenance plan in any of the five former moderate ozone non-attainment counties, barring any other mandate from Federal EPA to do so. Utility boilers are potentially subject to additional control requirements under Title III of the CAAA governing hazardous air pollutant emissions. Federal EPA is directed to conduct studies concerning the potential public health impacts of pollutants identified by the legislation as hazardous in connection with their emission from electric utility steam generating units. Federal EPA was required to report the results of this study to Congress by November 1993 and is required to regulate emissions of these pollutants from electric utility steam generating units if it is determined that such regulation is necessary and appropriate, based on the results of the study. Federal EPA informed Congress that completion of this study has been delayed significantly beyond the November 1993 deadline. Federal EPA has received a court order to complete the study and submit it by November 1995. Additionally, Federal EPA is directed to study the deposition of hazardous pollutants to the Great Lakes, the Chesapeake Bay, Lake Champlain and other coastal waters. As part of this assessment, Federal EPA is authorized to adopt regulations by November 1995 to prevent serious adverse effects to public health and serious or widespread environmental effects. It is possible that emissions from electric utility generating units may be regulated under this water body deposition assessment program. The CAAA expand the enforcement authority of the Federal government by increasing the range of civil and criminal penalties for violations of the Clean Air Act and enhancing administrative civil provisions, adding a citizens suit provision and imposing a national operating permit system, emission fee program and enhanced monitoring, record keeping and reporting requirements for existing and new sources. CAAA-AEP System Compliance Plan: In 1992, the PUCO approved a systemwide Phase I CAAA compliance plan. The AEP System's compliance plan centers around the compliance method selected for OPCo's two-unit 2,600-megawatt Gavin Plant which has emitted about 25% of the System's total sulfur dioxide emissions. Under an Ohio law, utilities could obtain advance PUCO approval of a least-cost compliance plan which would be deemed prudent in subsequent PUCO rate proceedings. The PUCO approved least-cost plan set forth compliance measures for the System's affected generating units, which included (i) installing leased flue gas desulfurization equipment (scrubbers) to burn Ohio high-sulfur coal at Gavin and (ii) designating Gavin's coal supply sources to include the affiliated Meigs mine at a reduced operating capacity and under predetermined prices, new long-term contracts with unaffiliated sources and spot market purchases. Pursuant to a settlement agreement approved by the PUCO in connection with OPCo's rate case discussed in Rates -- OPCo, the PUCO reaffirmed its approval of the compliance plan, which does not seek to fuel switch Cardinal Unit 1 or Muskingum River Units 1-4 to low-sulfur coal at the beginning of Phase I of the CAAA. Under the terms of the compliance plan, OPCo's Muskingum River Unit 5 has been switched to low-sulfur coal. CSPCo's Conesville Units 1-3 are being modified to enable these units to burn coal or natural gas to comply. Actual fuel choice will depend on the cost and availability of gas. Although the compliance plan originally contemplated that CSPCo's Picway Unit 5 also would be modified to enable this unit to burn coal or natural gas to comply, this proposed modification has been indefinitely deferred. Beckjord Unit 6 (owned with CG&E and DP&L) has been switched to moderate sulfur coal. I&M's Tanners Creek Unit 4 has also been switched to moderate sulfur coal and I&M's Breed Plant was retired in 1994. Eight additional units are subject to Phase I rules, but no operating or fuel changes are planned, because they will hold allowances sufficient for compliance. Fuel switching is planned for Muskingum River Units 1-4 in 2000 and Cardinal Unit 1 in 2001 for Phase II compliance. Since the approved plan reflects fuel switching to comply at OPCo's Muskingum River Plant and Cardinal Unit 1, mining operations at OPCo's wholly-owned coal-mining subsidiaries, Central Ohio Coal Company and Windsor Coal Company, could be shut down resulting in substantial costs. Central Ohio Coal Company and Windsor Coal Company supply coal to Muskingum River Plant and Cardinal Plant, respectively. Central Ohio Coal Company reduced its operating level by approximately 50% in 1994. Windsor Coal Company has also reduced its operating level to comply with the CAAA. As a result of the aforementioned PUCO approval of OPCo's least-cost compliance plan, OPCo entered into an agreement in 1992 for construction and lease of the Gavin Plant scrubbers with JMG Funding, Limited Partnership (JMG), an unaffiliated entity. Management currently expects that the cost of the leased scrubbers will be approximately $675,000,000. See Construction and Financing Program -- Construction Expenditures. The scrubbers on Gavin Units 1 and 2 commenced operation in December 1994 and March 1995, respectively. On March 15, 1995, OPCo began to lease the scrubbers from JMG. The lease term is for 34 years, subject to certain termination provisions. OPCo may purchase the scrubbers during the last 19 years of the lease term and may renew the lease for an additional 20 years. Rent will be payable quarterly and will reflect, among other factors, amortization of the final cost of the scrubbers and the costs of JMG's equity and debt capital. OPCo's rental obligation under the lease has been pledged by JMG as security for the debt portion of its financing. Recovery of compliance costs is being and will be sought through the rate-making process. The aforementioned OPCo settlement agreement provides, among other things, for OPCo to recover the annual lease cost of the scrubbers and other compliance costs and provides OPCo with an opportunity to recover its Ohio jurisdictional share of its investment in and the liabilities and closing costs of the affiliated Central Ohio and Windsor mining operations to the extent the actual cost of coal burned at the Gavin Plant is below a predetermined price. AEP intends to also seek timely recovery of all compliance costs, including mine shutdown costs, from its non-Ohio jurisdictional customers. There can be no assurance that regulators will provide for recovery of all CAAA compliance costs. Compliance with the CAAA, including potential mine closure costs, could have an adverse effect on results of operations and possibly financial condition unless the costs can be recovered from ratepayers and/or from asset dispositions. Global Climate Change: Increasing concentrations of "greenhouse gases," including carbon dioxide (CO/2/), in the atmosphere have led to concerns about the potential for the earth's climate to change. As a result of the AEP System's historical practice of using low-cost indigenous coal supplies to produce electricity, AEP System power plants are significant sources of CO/2/ emissions. The proponents of the theory of global climate change maintain that the increasing concentrations of man-made greenhouse gases will cause some of the sun's energy that is normally radiated back into space to be trapped in the atmosphere and that, as a result, the global temperature will increase. Management is working to support further efforts to properly study the issue of global climate change to define the extent, if any, to which it poses a threat to the environment before new restrictions are imposed. Management is concerned that new laws may be passed or new regulations promulgated without sufficient scientific study and support. At the Earth Summit in Rio de Janeiro, Brazil in June 1992, over 150 nations, including the United States, signed a global climate change treaty. Each country that ratifies the treaty commits itself to a process of achieving the aim of reducing greenhouse gas emissions, including CO/2/, to their 1990 level by the year 2000. On October 7, 1992, the U.S. Senate ratified the treaty. The treaty went into effect on March 21, 1994. In accordance with the obligations set forth in the global climate change treaty, on April 21, 1993, President Clinton committed the United States to reducing greenhouse gas emissions to 1990 levels by the year 2000. On October 19, 1993, the President unveiled the Administration's Climate Change Action Plan for meeting this emission reduction target. The plan emphasizes reductions in fossil fuel use, the largest source of CO/2/ emissions, primarily through reliance on voluntary energy efficiency programs and voluntary partnerships between the Federal government and U.S. industry. One such collaboration is between the electric utility industry and DOE. Known as the Utility Climate Challenge, this initiative is intended to identify voluntary, cost-effective measures to reduce, avoid or sequester future greenhouse gas emissions. AEP System companies joined with nearly 800 investor-owned, municipal, rural electric cooperative and Federal utilities in a voluntary agreement signed with DOE on April 20, 1994 that is intended to lead to reductions in future greenhouse gas emissions through cost-effective actions. On February 3, 1995, the AEP System entered into the Climate Challenge Participation Accord with DOE. The Accord contains a wide diversity of supply-side, demand-side and forest management/tree planting activities that will be undertaken on the AEP System between now and the year 2000. Since the AEP System is a major emitter of carbon dioxide, its financial condition and results of operations could be materially adversely affected by the imposition of severe command-and- control limitations on carbon dioxide emissions if the compliance costs incurred are not fully recovered from ratepayers. In addition, any such severe program to stabilize or reduce carbon dioxide emissions could impose substantial costs on industry and society and seriously erode the economic base that AEP's operations serve. Ohio: On July 29, 1988, Federal EPA issued a notice of violation alleging that OPCo's Muskingum River Plant operated in violation of Ohio EPA's regulation governing visible emissions during 1987. At a November 1988 enforcement conference pursuant to Clean Air Act Section 113, OPCo representatives presented evidence to Federal EPA indicating that the notice of violation was not supported by factual evidence nor by law. Federal EPA has yet to take further action. West Virginia: The West Virginia Air Pollution Control Commission promulgated sulfur dioxide limitations which Federal EPA approved in February 1978. The emission limitations for the Mitchell Plant have been approved by Federal EPA for primary ambient air quality (health-related) standards only. The West Virginia Air Pollution Control Commission is obliged to reanalyze sulfur dioxide emission limits for the Mitchell Plant with respect to secondary ambient air quality (welfare-related) standards. Because the Clean Air Act provides no specific deadline for approval of emission limits to achieve secondary ambient air quality standards, it is not certain when Federal EPA will take dispositive action regarding the Mitchell Plant. West Virginia has also had a request to increase the sulfur dioxide emission limitation for Kammer pending before Federal EPA for many years, although the change has not been acted upon by Federal EPA. On August 4, 1994, however, Federal EPA issued a Notice of Violation to OPCo alleging that Kammer Plant was operating in violation of the applicable federally enforceable sulfur dioxide emission limit. See Item 3. Legal Proceedings -- Kammer Plant. A portion of the Notice of Violation relating to compliance has been resolved and separate proceedings have been initiated by OPCo with both the West Virginia Division of Environmental Protection and Region III, Federal EPA in an effort to obtain approval for utilization of the existing fuel supply beyond September 1, 1995. The outcome of this initiative cannot be predicted at this time. Stack Height Regulations: On June 27, 1985, Federal EPA issued stack height regulations pursuant to an order of the United States Court of Appeals for the District of Columbia Circuit. These regulations were appealed by a number of states, environmental groups and investor-owned electric utilities (including APCo, CSPCo, I&M, KEPCo and OPCo), along with three electric utility trade associations. OPCo also filed a separate petition for review to raise issues unique to its Kammer Plant. Various petitions for reconsideration filed with and denied by Federal EPA were also appealed. This litigation was consolidated into a single case. On January 22, 1988, the U.S. Court of Appeals issued a decision in part upholding the June 1985 stack height rules and remanding certain of the June 1985 rules to Federal EPA for further consideration. With respect to Kammer Plant, the January 1988 court decision rejected OPCo's appeal, holding that Federal EPA acted lawfully in revoking stack height credit previously granted for Kammer Plant in October 1982. As discussed above, OPCo is in the process of initiating administrative proceedings under the 1985 stack height rules with the State of West Virginia and Federal EPA in an effort to preserve stack height credit for Kammer Plant. While it is not possible to state with particularity the ultimate impact of the final rules on AEP System operations, at present it appears that the most likely AEP System plants at which the final rules could possibly result in substantially more stringent emission limitations are CSPCo's Conesville Plant, AEGCo's and I&M's Rockport Plant, I&M's Tanners Creek Plant and OPCo's Gavin and Kammer plants. Gavin and Rockport plants were not affected by Federal EPA's stack height rules as issued in June 1985. However, the provision exempting these plants was remanded to Federal EPA in the January 1988 court decision. Accordingly, the ultimate impact of the stack height rules on Gavin and Rockport plants will not be known until Federal EPA completes administrative proceedings on remand and reissues final stack height rules. OPCo and AEGCo and I&M intend to participate in the remand rulemaking affecting Gavin and Rockport plants, respectively. State air pollution control agencies will be required to implement the stack height rules by revising emission limitations for sources subject to the rules and submitting such revisions to Federal EPA. On June 1, 1989, Ohio EPA adopted a rule concerning CSPCo's Conesville Plant in response to Federal EPA's stack height rules adopted in 1985. Under Federal EPA policy published in January 1988, emission reductions required by the stack height rules may be obtained at plants other than the plant directly affected by the rules, and thereafter credited to the directly affected plant. Under Ohio EPA's June 1 rule, the sulfur dioxide emission limitations for Conesville Units 5 and 6 remain at 1.2 pounds sulfur dioxide per million Btu heat input as long as the emission rate at CSPCo's retired Poston Units 1-4 remains at 0.0 pounds sulfur dioxide per million Btu heat input. Federal EPA has yet to take action concerning Ohio EPA's June 1 rule. Administrative Developments Regarding Sulfur Dioxide: On November 15, 1994, Federal EPA published a notice in the Federal Register proposing to retain the present 24-hour national ambient air quality standard for sulfur dioxide. Federal EPA also sought comment on the need to adopt additional regulations to address short-term exposures to sulfur dioxide. Federal EPA is soliciting comments on three alternatives, including the adoption of a short-term standard averaged over a five-minute period. Adoption of any of these proposed approaches could require substantial reductions in sulfur dioxide emissions from the System's coal-fired generating plants which would entail substantial capital and operating costs. In a related action, Federal EPA, on March 7, 1995, proposed requirements for implementing strategies to reduce short-term (five-minute) peak concentrations of sulfur dioxide in order to reduce health risks to exercising asthmatics. The effect on AEP operations of Federal EPA's proposed risk-based targeting strategies for further regulating sulfur dioxide emissions, if finalized, cannot be predicted, but may be significant. Life Extension: On July 21, 1992, Federal EPA published final regulations in the Federal Register governing application of new source rules to generating plant repairs and pollution control projects undertaken to comply with the Clean Air Act Amendments of 1990. Generally, the rule provides that plants undertaking pollution control projects will not trigger new source review requirements. The Natural Resource Defense Council and a group of utilities, including five AEP System companies, have filed petitions in the U.S. Court of Appeals for the District of Columbia Circuit seeking a review of the regulations. Water Pollution Control Under the Clean Water Act, effluent limitations requiring application of the best available technology economically achievable are to be applied, and those limitations require that no pollutants be discharged if Federal EPA finds elimination of such discharges is technologically and economically achievable. The Clean Water Act provides citizens with a cause of action to enforce compliance with its pollution control requirements. Since 1982, many such actions against NPDES permit holders have been filed. To date, no AEP System plants have been named in such actions. All System Plants are operating with NPDES permits. Under EPA's regulations, operation under an expired NPDES permit is authorized provided an application is filed at least 180 days prior to expiration. Renewal applications are being prepared or have been filed for renewal of NPDES permits which expire in 1995. The NPDES permits generally require that certain thermal impact study programs be undertaken. These studies have been completed for all System plants. Thermal variances are in effect for all plants with once-through cooling water. Recently renewed thermal variances for Conesville and Muskingum River plants were more stringent in their controls, but the cost impacts are not expected to be significant. Certain mining operations conducted by System companies as discussed under Fuel Supply are also subject to Federal and state water pollution control requirements, which may entail substantial expenditures for control facilities, not included at present in the System's construction cost estimates set forth herein. See Item 3. Legal Proceedings -- Meigs Mine with respect to litigation regarding certain discharges from OPCo's Meigs 31 mine. The Federal Water Quality Act of 1987 requires states to adopt stringent water quality standards for a large category of toxic pollutants and to identify specialized control measures for dischargers to waters where water quality standards are not being met. Implementation of these provisions could result in significant costs to the AEP System if biological monitoring requirements and water quality-based effluent limits are placed in NPDES permits. In March 1995, Federal EPA finalized a set of rules which establish minimum water quality standards, anti-degradation policies and implementation procedures for more stringently controlling releases of toxic pollutants into the Great Lakes system. This regulatory package is called the Great Lakes Water Quality Initiative (GLWQI). The most direct compliance cost impact could be related to I&M's Cook Plant. Management cannot presently determine whether the GLWQI would have a significant adverse impact on AEP operations. The significance of such impact will depend on the outcome of Federal EPA's policy on intake credits and site specific variables as well as Michigan's implementation strategy. If Indiana and Ohio eventually adopt the GLWQI criteria for statewide application, AEP System plants located in those states could also be affected. Hazardous Substances and Wastes Section 311 of the Clean Water Act imposes substantial penalties for spills of Federal EPA-listed hazardous substances into water and for failure to report such spills. The Comprehensive Environmental Response, Compensation, and Liability Act expanded the reporting requirements to cover the release of hazardous substances generally into the environment, including water, land and air. AEP's subsidiaries store and use some of these hazardous substances, including PCB's contained in certain capacitors and transformers, but the occurrence and ramifications of a spill or release of such substances cannot be predicted. The Comprehensive Environmental Response, Compensation, and Liability Act provides governmental agencies with the authority to require clean-up of hazardous waste sites and releases of hazardous substances into the environment. Since liability under this Act is strict and can be applied retroactively, AEP System companies which previously disposed of PCB-containing electrical equipment and other hazardous substances may be required to participate in remedial activities at such disposal sites should environmental problems result. AEP System companies are presently identified as parties responsible for clean-up at eight federal sites, including I&M at four sites, KEPCo at one site, OPCo at two sites and Wheeling Power Company at one site. I&M also has been named as a party responsible for clean-up at one state site. The companies' share of clean-up costs, however, is not expected to be significant. AEP System companies, including I&M and OPCo, also have been named as defendants in contribution lawsuits for two additional sites. Regulations issued by Federal EPA under the Toxic Substances Control Act govern the use, distribution and disposal of PCBs, including PCBs in electrical equipment. Deadlines for removing certain PCB-containing electrical equipment from service have been met. In addition to handling hazardous substances, the System companies generate solid waste associated with the combustion of coal, the vast majority of which is fly ash, bottom ash and flue gas desulfurization wastes. These wastes presently are considered to be non-hazardous under RCRA and applicable state law and the wastes are treated and disposed in surface impoundments or landfills in accordance with state permits or authorization or beneficially utilized. As required by RCRA, EPA evaluated whether high volume coal combustion wastes (such as fly ash, bottom ash and flue gas desulfurization wastes) should be regulated as hazardous waste. In August, 1993 EPA issued a regulatory determination that such high volume coal combustion wastes should not be regulated as hazardous waste. For low volume coal combustion wastes, such as metal and boiler cleaning wastes, Federal EPA will gather additional information and make a regulatory determination by April 1998. Until that time, these low volume wastes are provisionally excluded from regulation under the hazardous waste provisions of RCRA. All presently generated hazardous waste is being disposed of at permitted off- site facilities in compliance with applicable Federal and state laws and regulations. For System facilities which generate such wastes, System companies have filed the requisite notices and are complying with RCRA and applicable state regulations for generators. Nuclear waste produced at the Cook Plant is excluded from regulation under RCRA. Federal EPA's technical requirements for underground storage tanks containing petroleum will require retrofitting or replacement of an appreciable number of tanks. Compliance costs for tank replacement and site remediation have not been significant to date. Electric and Magnetic Fields (EMF) EMF is found everywhere there is electricity. Electric fields are created by the presence of electric charges. Magnetic fields are produced by the flow of those charges. This means that EMF is created by electricity flowing in transmission and distribution lines, or being used in household wiring and appliances. A number of studies in the past several years have examined the possibility of adverse health effects from EMF. While some of the epidemiological studies have indicated some association between exposure to EMF and health effects, the majority of studies have indicated no such association. The epidemiological studies that have received the most public attention reflect a weak correlation between surrogate or indirect estimates of EMF exposure and certain cancers. Studies using direct measurements of EMF exposure show no such association. There were three epidemiological studies of EMF and utility workers published from 1993 through early 1995 -- each with results that contradicted the others. One reported a weak association between EMF and a type of adult leukemia, but not brain cancer; while another reported a weak association with brain cancer, but not leukemia. However, the third found no evidence of increased deaths from cancer, including leukemia and brain cancer. A conclusion cannot be drawn from these three studies. The researchers are collaborating to reexamine their data collection techniques, exposure assessments, and statistical analyses to possibly reconcile their conflicting findings by looking at the three studies together. In addition, the research has not shown any causal relationship between EMF exposure and cancer, or any other adverse health effects. Additional studies, which are intended to provide a better understanding of the subject, are continuing. Federal EPA is currently studying whether exposure to EMF is associated with cancer in humans. In 1990, Federal EPA issued a draft report on EMF, received interagency review and public comment, and is in the process of preparing its final report. A December 1992 brochure from Federal EPA, Questions And Answers About Electric And Magnetic Fields (EMFs), states at page 3, "The bottom line is that there is no established cause and effect relationship between EMF exposure and cancer or other disease." The Energy Policy Act of 1992 established a coordinated Federal EMF research program. The program funding is $65,000,000 over five years, half of which is to be provided by private parties including utilities. AEP has committed to contribute $446,571 over the five-year period. AEP's participation is a continuation of its efforts to support further research and to communicate with its customers and employees about this issue. Its operating company subsidiaries provide their residential customers with information and field measurements on request, although there is no scientific basis for interpreting such measurements. A number of lawsuits based on EMF-related grounds have been filed in recent years against electric utilities. A suit was filed on May 23, 1990 against I&M involving claims that EMF from a 345 KV transmission line caused adverse health effects. No specific amount has been requested for damages in this case and no trial date has been set. Some states have enacted regulations to limit the strength of magnetic fields at the edge of transmission line rights-of-way. No state which the AEP System serves has done so. In March 1993, The Ohio Power Siting Board issued its amended rules providing for additional consideration of the possible effects of EMF in the certification of electric transmission facilities. Under the amended EMF rules, persons seeking approval to build electric transmission lines have to provide estimates of EMF from transmission lines under a variety of conditions. In addition, applicants are required to address possible health effects and discuss the consideration of design alternatives with respect to EMF. In April 1993, the State of Indiana enacted a law which provides that the IURC shall determine, based on the preponderance of evidence in the scientific literature, whether rules are necessary to protect the public health from EMF. If the IURC determines that such rules are necessary, the IURC is required to adopt rules that reasonably protect the public health from EMF. Management cannot predict the ultimate impact of the question of EMF exposure and adverse health effects. If further research shows that EMF exposure contributes to increased risk of cancer or other health problems, or if the courts conclude that EMF exposure harms individuals and that utilities are liable for damages, or if states limit the strength of magnetic fields to such a level that the current electricity delivery system must be significantly changed, then the results of operation and financial condition of AEP and its operating subsidiaries could be materially adversely affected unless these costs can be recovered from rate payers. RESEARCH AND DEVELOPMENT AEP and its subsidiaries are involved in a number of research projects which are directed toward developing more efficient methods of burning coal, reducing the contaminants resulting from combustion of coal, and improving the efficiency and reliability of power transmission, distribution and utilization, including load management. See Construction and Financing Program -- PFBC Projects. AEP System operating companies have elected to join the Electric Power Research Institute (EPRI), a nonprofit organization that manages research and development on behalf of the U.S. electric utility industry. EPRI, founded in 1973, manages technical research and development programs for its members to improve power production, delivery and use. Approximately 700 utilities are members. EPRI has agreed to a membership program with AEP whereby dues will be phased in from 1994 through 1996. AEP's operating companies are seeking recovery of these dues through rates, which recovery is anticipated to closely relate to each company's membership date. Total research and development expenditures by AEP and its subsidiaries were approximately $7,700,000 for the year ended December 31, 1994, $13,800,000 for the year ended December 31, 1993 and $14,200,000 for the year ended December 31, 1992, including $2,200,000, $10,900,000 and $12,000,000, respectively, for Tidd Plant and related PFBC costs. 1994 expenditures also included $3,200,000 for EPRI dues. Item 2. PROPERTIES ----------------------------------------------------------------- At December 31, 1994, subsidiaries of AEP owned (or leased where indicated) generating plants with the net power capabilities (winter rating) shown in the following table:
NET KILOWATT OWNER, PLANT TYPE AND NAME LOCATION (NEAR) CAPABILITY -------------------------- --------------- ------------ AEP Generating Company: Steam -- Coal-Fired: Rockport Plant (AEGCo share) Rockport, Indiana 1,300,000(a) ---------- Appalachian Power Company: Steam -- Coal-Fired: John E. Amos, Units 1 & 2 St. Albans, West Virginia 1,600,000 John E. Amos, Unit 3 (APCo share) St. Albans, West Virginia 433,000(b) Clinch River Carbo, Virginia 705,000 Glen Lyn Glen Lyn, Virginia 335,000 Kanawha River Glasgow, West Virginia 400,000 Mountaineer New Haven, West Virginia 1,300,000 Philip Sporn, Units 1 & 3 New Haven, West Virginia 308,000 Hydroelectric -- Conventional: Buck Ivanhoe, Virginia 10,000 Byllesby Byllesby, Virginia 20,000 Claytor Radford, Virginia 76,000 Leesville Leesville, Virginia 40,000 Niagara Roanoke, Virginia 3,000 Reusens Lynchburg, Virginia 12,000 Hydroelectric -- Pumped Storage: Smith Mountain Penhook, Virginia 565,000 ---------- 5,807,000 ---------- Columbus Southern Power Company: Steam -- Coal-Fired: Beckjord, Unit 6 New Richmond, Ohio 53,000(c) Conesville, Units 1-3, 5 & 6 Coshocton, Ohio 1,165,000 Conesville, Unit 4 Coshocton, Ohio 339,000(c) Picway, Unit 5 Columbus, Ohio 100,000 Stuart, Units 1-4 Aberdeen, Ohio 608,000(c) Zimmer Moscow, Ohio 330,000(c) ---------- 2,595,000 ---------- Indiana Michigan Power Company: Steam -- Coal-Fired: Rockport Plant (I&M share) Rockport, Indiana 1,300,000(a) Tanners Creek Lawrenceburg, Indiana 995,000 Steam -- Nuclear: Donald C. Cook Bridgman, Michigan 2,110,000 Gas Turbine: Fourth Street Fort Wayne, Indiana 18,000(d) Hydroelectric -- Conventional: Berrien Springs Berrien Springs, Michigan 3,000 Buchanan Buchanan, Michigan 2,000 Constantine Constantine, Michigan 1,000 Elkhart Elkhart, Indiana 1,000 Mottville Mottville, Michigan 1,000 Twin Branch Mishawaka, Indiana 3,000 ---------- 4,434,000 ---------- Kanawha Valley Power Company: Hydroelectric -- Conventional: London Montgomery, West Virginia 16,000(e) Marmet Marmet, West Virginia 16,000(e) Winfield Winfield, West Virginia 19,000(e) ---------- 51,000 ---------- Kentucky Power Company: Steam -- Coal-Fired: Big Sandy Louisa, Kentucky 1,060,000 ---------- Ohio Power Company: Steam -- Coal-Fired: John E. Amos, Unit 3 (OPCo share) St. Albans, West Virginia 867,000(b) Cardinal, Unit 1 Brilliant, Ohio 600,000 General James M. Gavin Cheshire, Ohio 2,600,000(f) Kammer Captina, West Virginia 630,000 Mitchell Captina, West Virginia 1,600,000 Steam -- Coal-Fired: Muskingum River Beverly, Ohio 1,425,000 Philip Sporn, Units 2, 4 & 5 New Haven, West Virginia 742,000 Hydroelectric -- Conventional: Racine Racine, Ohio 48,000 ---------- 8,512,000 ---------- Total Generating Capability 23,759,000 ========== Summary: Total Steam -- Coal-Fired 20,795,000 Nuclear 2,110,000 Total Hydroelectric -- Conventional 271,000 Pumped Storage 565,000 Other 18,000 ---------- Total Generating Capability 23,759,000 ==========
--------------- (a) Unit 1 of the Rockport Plant is owned one-half by AEGCo and one-half by I&M. Unit 2 of the Rockport Plant is leased one-half by AEGCo and one-half by I&M. The leases terminate in 2022 unless extended. (b) Unit 3 of the John E. Amos Plant is owned one-third by APCo and two-thirds by OPCo. (c) Represents CSPCo's ownership interest in generating units owned in common with CG&E and DP&L. (d) Leased from the City of Fort Wayne, Indiana. Since 1975, I&M has leased and operated the assets of the municipal system of the City of Fort Wayne, Indiana under a 35-year lease with a provision for an additional 15-year extension at the election of I&M. (e) Kanawha Valley Power Company has requested regulatory approval to merge into APCo. (f) The scrubber facilities at the Gavin Plant are leased. The lease terminates in 2029 unless extended or terminated earlier. See Item 1 under Fuel Supply, for information concerning coal reserves owned or controlled by subsidiaries of AEP. The following table sets forth the total circuit miles of transmission and distribution lines of the AEP System, APCo, CSPCo, I&M, KEPCo and OPCo and that portion of the total representing 765,000-volt lines:
TOTAL CIRCUIT MILES OF TRANSMISSION AND CIRCUIT MILES OF DISTRIBUTION LINES 765,000-VOLT LINES ------------------- ------------------ AEP System (a) ...... 124,251(b) 2,022 APCo ................ 48,532 641 CSPCo (a) ........... 14,050 --- I&M ................. 20,688 614 KEPCo ............... 9,854 258 OPCo ................ 28,082 509
--------------- (a) Includes 766 miles of 345,000-volt jointly owned lines. (b) Includes lines of other AEP System companies not shown. TITLES The AEP System's electric generating stations are generally located on lands owned in fee simple. The greater portion of the transmission and distribution lines of the System has been constructed over lands of private owners pursuant to easements or along public highways and streets pursuant to appropriate statutory authority. The rights of the System in the realty on which its facilities are located are considered by it to be adequate for its use in the conduct of its business. Minor defects and irregularities customarily found in title to properties of like size and character may exist, but such defects and irregularities do not materially impair the use of the properties affected thereby. System companies generally have the right of eminent domain whereby they may, if necessary, acquire, perfect or secure titles to or easements on privately-held lands used or to be used in their utility operations. Substantially all the physical properties of APCo, CSPCo, I&M, KEPCo and OPCo are subject to the lien of the mortgage and deed of trust securing the first mortgage bonds of each such company. SYSTEM TRANSMISSION LINES AND FACILITY SITING Legislation in the states of Indiana, Kentucky, Michigan, Ohio, Virginia, and West Virginia requires prior approval of sites of generating facilities and/or routes of high-voltage transmission lines. Delays and additional costs in constructing facilities have been experienced as a result of proceedings conducted pursuant to such statutes, as well as in proceedings in which operating companies have sought to acquire rights-of-way through condemnation, and such proceedings may result in additional delays and costs in future years. PEAK DEMAND The AEP System is interconnected through 119 high-voltage transmission interconnections with 29 neighboring electric utility systems. The all-time and 1994 one-hour peak System demand was 25,940,000 kilowatts (which included 7,314,000 kilowatts of scheduled deliveries to unaffiliated systems which the System might, on appropriate notice, have elected not to schedule for delivery) and occurred on June 17, 1994. The net dependable capacity to serve the System load on such date, including power available under contractual obligations, was 23,457,000 kilowatts. The all-time and 1994 one-hour internal peak demand was 19,236,000 kilowatts and occurred on January 19, 1994. The net dependable capacity to serve the System load on such date, including power dedicated under contractual arrangements, was 23,995,000 kilowatts. The all-time one-hour integrated and internal net system peak demands and 1994 peak demands for AEP's generating subsidiaries are shown in the following tabulation:
ALL-TIME ONE-HOUR INTEGRATED 1994 ONE-HOUR INTEGRATED NET SYSTEM PEAK DEMAND NET SYSTEM PEAK DEMAND ---------------------------- -------------------------- (IN THOUSANDS) NUMBER OF NUMBER OF KILOWATTS DATE KILOWATTS DATE --------- ---------------- --------- ---------------- APCo .......... 8,203 January 19, 1994 8,203 January 19, 1994 CSPCo ......... 4,172 June 17, 1994 4,172 June 17, 1994 I&M ........... 5,027 June 17, 1994 5,027 June 17, 1994 KEPCo ......... 1,575 January 19, 1994 1,575 January 19, 1994 OPCo .......... 7,291 June 17, 1994 7,291 June 17, 1994 ALL-TIME ONE-HOUR INTEGRATED 1994 ONE-HOUR INTEGRATED NET INTERNAL PEAK DEMAND NET INTERNAL PEAK DEMAND ---------------------------- --------------------------- (IN THOUSANDS) NUMBER OF NUMBER OF KILOWATTS DATE KILOWATTS DATE --------- ---------------- --------- ---------------- APCo .......... 6,887 January 19, 1994 6,887 January 19, 1994 CSPCo ......... 3,179 June 20, 1994 3,179 June 20, 1994 I&M ........... 3,605 June 16, 1994 3,605 June 16, 1994 KEPCo ......... 1,363 February 9, 1995 1,309 January 19, 1994 OPCo .......... 5,436 January 21, 1994 5,436 January 21, 1994
HYDROELECTRIC PLANTS Licenses for hydroelectric plants, issued under the Federal Power Act, reserve to the United States the right to take over the project at the expiration of the license term, to issue a new license to another entity, or to relicense the project to the existing licensee. In the event that a project is taken over by the United States or licensed to a new licensee, the Federal Power Act provides for payment to the existing licensee of its "net investment" plus severance damages. Licenses for six System hydroelectric plants expired in 1993 and applications for new licenses for these plants were filed in 1991. The existing licenses for these plants were extended on an annual basis and will be renewed automatically until new licenses are issued. No competing license applications were filed. Four new licenses were issued in 1994. COOK NUCLEAR PLANT Unit 1 of the Cook Plant, which was placed in commercial operation in 1975, has a nominal net electric rating of 1,020,000 kilowatts. Unit 1's availability factor was 71.0% during 1994 and 100% during 1993. Unit 2, of slightly different design, has a nominal net electrical rating of 1,090,000 kilowatts and was placed in commercial operation in 1978. Unit 2's availability factor was 54.3% during 1994 and 96.6% during 1993. The availability of Units 1 and 2 was affected in 1994 by outages to refuel. Units 1 and 2 are licensed by the NRC to operate at 100% of rated thermal power to October 25, 2014 and December 23, 2017, respectively. Costs associated with the operation, maintenance and retirement of nuclear plants have continued to increase and become less predictable, in large part due to changing regulatory requirements and safety standards and experience gained in the construction and operation of nuclear facilities. I&M may also incur costs and experience reduced output at its Cook Plant because of the design criteria prevailing at the time of construction and the age of the plant's systems and equipment. In addition, for economic or other reasons, operation of the Cook Plant for the full term of its now assumed life cannot be assured. Nuclear industry-wide and Cook Plant initiatives have contributed to slowing the growth of operating and maintenance costs. However, the ability of I&M to obtain adequate and timely recovery of costs associated with the Cook Plant, including replacement power and retirement costs, is not assured. Nuclear Incident Liability The Price-Anderson Act limits public liability for a nuclear incident at any licensed reactor in the United States to $8.9 billion. I&M has insurance coverage for liability from a nuclear incident at its Cook Plant. Such coverage is provided through a combination of private liability insurance, with the maximum amount available of $200,000,000, and mandatory participation for the remainder of the $8.9 billion liability, in an industry retrospective deferred premium plan which would, in case of a nuclear incident, assess all licensees of nuclear plants in the U.S. Under the deferred premium plan, I&M could be assessed up to $158,600,000 payable in annual installments of $20,000,000 in the event of a nuclear incident at Cook or any other nuclear plant in the U.S. There is no limit on the number of incidents for which I&M could be assessed these sums. I&M also has property damage, decontamination and decommissioning insurance for loss resulting from damage to the Cook Plant facilities in the amount of $3.6 billion. Energy Insurance Bermuda (EIB), Nuclear Mutual Limited (NML) and Nuclear Electric Insurance Limited (NEIL) provide $2.75 billion of coverage and nuclear insurance pools provide the remainder. If EIB's, NML's and NEIL's losses exceed their available resources, I&M would be subject to a total retrospective premium assessment of up to $34,000,000. NRC regulations require that, in the event of an accident, whenever the estimated costs of reactor stabilization and site decontamination exceed $100,000,000, the insurance proceeds must be used, first, to return the reactor to, and maintain it in, a safe and stable condition and, second, to decontaminate the reactor and reactor station site in accordance with a plan approved by the NRC. The insurers then would indemnify I&M for property damage up to $3.35 billion less any amounts used for stabilization and decontamination. The remaining $250,000,000, as provided by NEIL (reduced by any stabilization and decontamination expenditures over $3.35 billion), would cover decommissioning costs in excess of funds already collected for decommissioning. See Fuel Supply -- Nuclear Waste. NEIL's extra-expense program provides insurance to cover extra costs resulting from a prolonged accidental outage of a nuclear unit. I&M's policy insures against such increased costs up to approximately $3,500,000 per week (starting 21 weeks after the outage) for one year, $2,800,000 per week for the second and third years, or 80% of those amounts per unit if both units are down for the same reason. If NEIL's losses exceed its available resources, I&M would be subject to a total retrospective premium assessment of up to $7,900,000. POTENTIAL UNINSURED LOSSES Some potential losses or liabilities may not be insurable or the amount of insurance carried may not be sufficient to meet potential losses and liabilities, including liabilities relating to damage to the Cook Plant and costs of replacement power in the event of a nuclear incident at the Cook Plant. Future losses or liabilities which are not completely insured, unless allowed to be recovered through rates, could have a material adverse effect on results of operation and the financial condition of AEP, I&M and other AEP System companies. Item 3. LEGAL PROCEEDINGS ----------------------------------------------------------------- In February 1990, the Supreme Court of Indiana overturned an order of the IURC, affirmed by the Indiana Court of Appeals, which had awarded I&M the right to serve a General Motors Corporation light truck manufacturing facility located in Fort Wayne. In August 1990, the IURC issued an order transferring the right to serve the GM facility to an unaffiliated local distribution utility. In October 1990, the local distribution utility sued I&M in Indiana under a provision of Indiana law that allows the local distribution utility to seek damages equal to the gross revenues received by a utility that renders retail service in the designated service territory of another utility. On November 30, 1992, the DeKalb Circuit Court granted I&M's motion for summary judgment to dismiss the local distribution utility's complaint. The local distribution utility has appealed the decision to the Indiana Court of Appeals. I&M received revenues of approximately $29,000,000 from serving the GM facility. It is not clear whether the plaintiffs claim will be upheld on appeal because the service was rendered in accordance with an IURC order I&M believed in good faith to be valid. On April 4, 1991, then Secretary of Labor Lynn Martin announced that the U.S. Department of Labor (DOL) had issued a total of 4,710 citations to operators of 847 coal mines who allegedly submitted respirable dust sampling cassettes that had been altered so as to remove a portion of the dust. The cassettes were submitted in compliance with DOL regulations which require systematic sampling of airborne dust in coal mines and submission of the entire cassettes (which include filters for collecting dust particulates) to the Mine Safety and Health Administration (MSHA) for analysis. The amount of dust contained on the cassette's filter determines an operator's compliance with respirable dust standards under the law. OPCo's Meigs No. 2, Meigs No. 31, Martinka, and Windsor Coal mines received 16, 3, 15 and 2 citations, respectively. MSHA has assessed civil penalties totalling $56,900 for all these citations. OPCo's samples in question involve about 1 percent of the 2,500 air samples that OPCo submitted over a 20-month period from 1989 through 1991 to the DOL. OPCo is contesting the citations before the Federal Mine Safety and Health Review Commission. An administrative hearing was held before an administrative law judge with respect to all affected coal operators. On July 20, 1993, the administrative law judge rendered a decision in this case holding that the Secretary of Labor failed to establish that the presence of a "white center" on the dust sampling filter indicated intentional alteration. In the case of an unaffiliated mine, the administrative law judge ruled on April 20, 1994, that there was not an intentional alteration of the dust sampling filter. The Secretary of Labor has appealed to the Mine Safety and Health Review Commission the July 20, 1993 and April 20, 1994 administrative law judge decisions. All remaining cases, including the citations involving OPCo's mines, have been stayed. On October 4, 1993, I&M was served with a complaint issued by Region V, Federal EPA which alleged violations by Breed Plant of the Clean Water Act and proposed a penalty of $70,000, which demand was subsequently reduced to $40,000. On September 30, 1994, Federal EPA served APCo and Global Power Company, an independent contractor retained by APCo, with a complaint alleging violations of the Clean Air Act. The complaint is based on alleged violations of the National Emission Standard for Asbestos related to an asbestos abatement project at APCo's Kanawha River Plant. The complaint seeks a civil administrative penalty of $167,500. On October 27, 1994, APCo and Global jointly filed an answer to this complaint and requested both a formal hearing and informal settlement conference. On February 28, 1994, Ormet Corporation filed a complaint in the U.S. District Court, Northern District of West Virginia, against AEP, OPCo, the Service Corporation and two of its employees, Federal EPA and the Administrator of Federal EPA. Ormet is the operator of a major aluminum reduction plant in Ohio and is a customer of OPCo. See Certain Industrial Contracts. Pursuant to the Clean Air Act Amendments of 1990, OPCo received sulfur dioxide emission allowances for its Kammer Plant. See Environmental and Other Matters. Ormet's complaint seeks a declaration that it is the owner of approximately 89% of the Phase I and Phase II allowances issued for use by the Kammer Plant. On May 2, 1994, AEP, OPCo and AEP Service Corporation and its two employee defendants filed a motion seeking to dismiss the complaint filed by Ormet Corporation. On May 2, 1994, the Federal EPA defendants also filed a motion to dismiss. OPCo believes that since it is the owner and operator of Kammer Plant and Ormet is a contract power customer, Ormet is not entitled to any of the allowances attributable to the Kammer Plant. See Item 1 for a discussion of certain environmental and rate matters. Meigs Mine -- On July 11, 1993, water from an adjoining sealed and abandoned mine owned by Southern Ohio Coal Company (SOCCo), a mining subsidiary of OPCo, entered Meigs 31 mine, one of two mines currently being operated by SOCCo. Ohio EPA approved a plan to pump water from the mine to certain Ohio River tributaries under stringent conditions for biological and water quality monitoring and restoring the streams after pumping. On July 30, pumping commenced in accordance with the Ohio EPA approved plan and, after all water was removed from the mine, the mine was returned to service in February 1994. In April 1994, the U.S. Court of Appeals for the Sixth Circuit reversed the judgement of the U.S. District Court for the Southern District of Ohio which had granted a preliminary injunction to SOCCo preventing Federal EPA and the Federal Office of Surface Mining, Reclamation and Enforcement (OSM) from interfering with the removal of water from SOCCo's Meigs 31 mine. The West Virginia Division of Environmental Protection (West Virginia DEP) had proposed fining SOCCo $1,800,000 for violations of West Virginia Water Quality Standards and permitting requirements alleged to have resulted from the release of mine water into the Ohio River. As a result of the West Virginia DEP proposing to fine SOCCo, SOCCo filed an action on June 1, 1994 in the U.S. District Court for the Southern District of West Virginia seeking a determination that the state of West Virginia has no jurisdiction to impose penalties with respect to the mine water discharges. On July 27, 1994, West Virginia filed an answer to SOCCo's complaint disputing SOCCo's entitlement to a declaratory judgement and asserting a counterclaim seeking an award of $2,550,000 in civil penalties, reimbursement of monitoring costs and compensation for unspecified natural resources damage. On October 27, 1994, SOCCo filed a motion for summary judgement or alternatively to dismiss West Virginia's counterclaim. SOCCo is currently negotiating a resolution of federal and West Virginia claims. The resolution of these legal actions is not expected to have a material adverse impact on results of operations. Kammer Plant -- In August 1994, Federal EPA issued a Notice of Violation (NOV) to OPCo alleging that its Kammer Plant has been operating in violation of applicable federally enforceable air pollution control requirements for sulfur dioxide since January 1, 1989. The Clean Air Act provides that Federal EPA may commence a civil action for injunctive relief and/or civil penalties of up to $25,000 per day for each day of violation. On November 15, 1994, a civil complaint containing the allegations included in the NOV was filed by Federal EPA against OPCo in the U.S. District Court for the Northern District of West Virginia. At that time, a consent decree entered into by Federal EPA and OPCo specifying compliance by the Kammer Plant with the federally enforceable sulfur dioxide emission limit by September 1, 1995 was lodged with the court. On January 23, 1995, the consent decree was entered by the court. The portion of the NOV relating to penalties will be addressed independently. At this time, management is unable to estimate the amount of any civil penalties that may be imposed by Federal EPA. It is not anticipated that the ultimate resolution of this matter will have a material adverse impact on results of operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ----------------------------------------------------------------- AEP, APCO, I&M AND OPCO. None. AEGCO, CSPCO AND KEPCO. Omitted pursuant to Instruction J(2)(c). -------------------- EXECUTIVE OFFICERS OF THE REGISTRANTS AEP The following persons are, or may be deemed, executive officers of AEP. Their ages are given as of March 15, 1995.
NAME AGE OFFICE (A) ------ --- ------------ E. Linn Draper, Jr. ... 53 Chairman of the Board, President and Chief Executive Officer of AEP and of the Service Corporation Peter J. DeMaria ...... 60 Treasurer of AEP; Executive Vice President- Administration and Chief Accounting Officer of the Service Corporation William J. Lhota ...... 55 Executive Vice President of the Service Corporation Charles A. Ebetino, Jr. 42 Senior Vice President-Fuel Supply of the Service Corporation Gerald P. Maloney ..... 62 Vice President and Secretary of AEP; Executive Vice President-Chief Financial Officer of the Service Corporation James J. Markowsky .... 50 Executive Vice President-Engineering & Construction of the Service Corporation
---------- (a) All of the executive officers listed above have been employed by the Service Corporation or System companies in various capacities (AEP, as such, has no employees) during the past five years, except E. Linn Draper, Jr. who was Chairman of the Board, President and Chief Executive Officer of Gulf States Utilities Company from 1987 until 1992 when he joined AEP and the Service Corporation. All of the above officers are appointed annually for a one-year term by the board of directors of AEP, the board of directors of the Service Corporation, or both, as the case may be. APCO The names of the executive officers of APCo, the positions they hold with APCo, their ages as of March 15, 1995, and a brief account of their business experience during the past five years appears below. The directors and executive officers of APCo are elected annually to serve a one-year term.
NAME AGE POSITION (A) PERIOD ------ --- ------------ ------ E. Linn Draper, Jr. ... 53 Director 1992-Present Chairman of the Board and Chief Executive Officer 1993-Present Vice President 1992-1993 Chairman of the Board, President and Chief Executive Officer of AEP and the Service Corporation 1993-Present President of AEP 1992-1993 President and Chief Operating Officer of the Service Corporation 1992-1993 Chairman of the Board, President and Chief Executive Officer of Gulf States Utilities Company 1987-1992 Joseph H. Vipperman ... 54 Director 1985-Present President and Chief Operating Officer 1990-Present Executive Vice President 1989-1990 Peter J. DeMaria ...... 60 Director 1988-Present Vice President 1991-Present Treasurer 1978-Present Treasurer of AEP 1978-Present Executive Vice President- Administration and Chief Accounting Officer of the Service Corporation 1984-Present Treasurer of the Service Corporation 1989-1990 William J. Lhota 55 Director 1990-Present Vice President 1989-Present Executive Vice President of the Service Corporation 1993-Present Executive Vice President- Operations of the Service Corporation 1989-1993 Gerald P. Maloney ..... 62 Director and Vice President 1970-Present Vice President of AEP 1974-Present Secretary of AEP 1994-Present Executive Vice President-Chief Financial Officer of the Service Corporation 1991-Present Senior Vice President-Finance of the Service Corporation 1974-1990 James J. Markowsky .... 50 Director 1993-Present Executive Vice President- Engineering and Construction of the Service Corporation 1993-Present Senior Vice President and Chief Engineer of the Service Corporation 1988-1993 Charles A. Ebetino, Jr. 42 Senior Vice President-Fuel Supply of the Service Corporation 1993-Present Vice President-Fuel Procurement and Transportation of the Service Corporation 1990-1993 Managing Director-Coal Procurement of the Service Corporation 1986-1990
--------------- (a) Positions are with APCo unless otherwise indicated. OPCO The names of the executive officers of OPCo, the positions they hold with OPCo, their ages as of March 15, 1995, and a brief account of their business experience during the past five years appear below. The directors and executive officers of OPCo are elected annually to serve a one-year term.
NAME AGE POSITION (A) PERIOD ------ --- ------------ ------ E. Linn Draper, Jr. ... 53 Director 1992-Present Chairman of the Board and Chief Executive Officer 1993-Present Vice President 1992-1993 Chairman of the Board, President and Chief Executive Officer of AEP and the Service Corporation 1993-Present President of AEP 1992-1993 President and Chief Operating Officer of the Service Corporation 1992-1993 Chairman of the Board, President and Chief Executive Officer of Gulf States Utilities Company 1987-1992 Carl A. Erikson ....... 44 Director, President and Chief Operating Officer 1993-Present Vice President 1990-1992 President and Chief Operating Officer of CSPCo 1993-Present Vice President of the Service Corporation and Executive Assistant to E. Linn Draper, Jr. 1992-1994 Assistant to Executive Vice President-Operations of the Service Corporation 1989-1990 Peter J. DeMaria ...... 60 Director and Treasurer 1978-Present Vice President 1991-Present Treasurer of AEP 1978-Present Executive Vice President- Administration and Chief Accounting Officer of the Service Corporation 1984-Present Treasurer of the Service Corporation 1989-1990 William J. Lhota ...... 55 Director and Vice President 1989-Present Executive Vice President of the Service Corporation 1993-Present Executive Vice President- Operations of the Service Corporation 1989-1993 Gerald P. Maloney ..... 62 Director 1973-Present Vice President 1970-Present Vice President of AEP 1974-Present Secretary of AEP 1994-Present Executive Vice President-Chief Financial Officer of the Service Corporation 1991-Present Senior Vice President-Finance of the Service Corporation 1974-1990 James J. Markowsky .... 50 Director 1989-Present Executive Vice President- Engineering and Construction of the Service Corporation 1993-Present Senior Vice President and Chief Engineer of the Service Corporation 1988-1993 Charles A. Ebetino, Jr. 42 Senior Vice President-Fuel Supply of the Service Corporation 1993-Present Vice President-Fuel Procurement and Transportation of the Service Corporation 1990-1993 Managing Director-Coal Procurement of the Service Corporation 1986-1990
--------------- (a) Positions are with OPCo unless otherwise indicated. PART II --------------------------------------------------------- Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ----------------------------------------------------------------- AEP. AEP Common Stock is traded principally on the New York Stock Exchange. The following table sets forth for the calendar periods indicated the high and low sales prices for the Common Stock as reported on the New York Stock Exchange Composite Tape and the amount of cash dividends paid per share of Common Stock.
PER SHARE ----------------- MARKET PRICE ----------------- QUARTER ENDED HIGH LOW DIVIDEND(1) ------------- -------- ------- ----------- March 1993 ............ $37 $32 $.60 June 1993 ............. 38-1/2 33-3/8 .60 September 1993 ........ 40-3/8 37-1/4 .60 December 1993 ......... 39-5/8 34-5/8 .60 March 1994 ............ 37-3/8 29-7/8 .60 June 1994 ............. 32-7/8 27-1/4 .60 September 1994 ........ 31-3/4 28 .60 December 1994 ......... 33-5/8 30-1/8 .60
--------------- (1) See Note 5 of the Notes to the Consolidated Financial Statements of AEP for information regarding restrictions on payment of dividends. At December 31, 1994, AEP had approximately 183,000 shareholders of record. AEGCO, APCO, CSPCO, I&M, KEPCO AND OPCO. The information required by this item is not applicable as the common stock of all these companies is held solely by AEP. Item 6. SELECTED FINANCIAL DATA ----------------------------------------------------------------- AEGCO. Omitted pursuant to Instruction J(2)(a). AEP. The information required by this item is incorporated herein by reference to the material under Selected Consolidated Financial Data in the AEP 1994 Annual Report (for the fiscal year ended December 31, 1994). APCO. The information required by this item is incorporated herein by reference to the material under Selected Consolidated Financial Data in the APCo 1994 Annual Report (for the fiscal year ended December 31, 1994). CSPCO. Omitted pursuant to Instruction J(2)(a). I&M. The information required by this item is incorporated herein by reference to the material under Selected Consolidated Financial Data in the I&M 1994 Annual Report (for the fiscal year ended December 31, 1994). KEPCO. Omitted pursuant to Instruction J(2)(a). OPCO. The information required by this item is incorporated herein by reference to the material under Selected Consolidated Financial Data in the OPCo 1994 Annual Report (for the fiscal year ended December 31, 1994). Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ----------------------------------------------------------------- AEGCO. Omitted pursuant to Instruction J(2)(a). Management's narrative analysis of the results of operations and other information required by Instruction J(2)(a) is incorporated herein by reference to the material under Management's Narrative Analysis of Results of Operations in the AEGCo 1994 Annual Report (for the fiscal year ended December 31, 1994). AEP. The information required by this item is incorporated herein by reference to the material under Management's Discussion and Analysis of Results of Operations and Financial Condition in the AEP 1994 Annual Report (for the fiscal year ended December 31, 1994). APCO. The information required by this item is incorporated herein by reference to the material under Management's Discussion and Analysis of Results of Operations and Financial Condition in the APCo 1994 Annual Report (for the fiscal year ended December 31, 1994). CSPCO. Omitted pursuant to Instruction J(2)(a). Management's narrative analysis of the results of operations and other information required by Instruction J(2)(a) is incorporated herein by reference to the material under Management's Narrative Analysis of Results of Operations in the CSPCo 1994 Annual Report (for the fiscal year ended December 31, 1994). I&M. The information required by this item is incorporated herein by reference to the material under Management's Discussion and Analysis of Results of Operations and Financial Condition in the I&M 1994 Annual Report (for the fiscal year ended December 31, 1994). KEPCO. Omitted pursuant to Instruction J(2)(a). Management's narrative analysis of the results of operations and other information required by Instruction J(2)(a) is incorporated herein by reference to the material under Management's Narrative Analysis of Results of Operations in the KEPCo 1994 Annual Report (for the fiscal year ended December 31, 1994). OPCO. The information required by this item is incorporated herein by reference to the material under Management's Discussion and Analysis of Results of Operations and Financial Condition in the OPCo 1994 Annual Report (for the fiscal year ended December 31, 1994). Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ----------------------------------------------------------------- AEGCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein. AEP. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein. APCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein. CSPCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein. I&M. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein. KEPCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein. OPCO. The information required by this item is incorporated herein by reference to the financial statements and supplementary data described under Item 14 herein. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------------------------------------- AEGCO, AEP, APCO, CSPCO, I&M, KEPCO AND OPCO. None. PART III -------------------------------------------------------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ----------------------------------------------------------------- AEGCO. Omitted pursuant to Instruction J(2)(c). AEP. The information required by this item is incorporated herein by reference to the material under Nominees for Director and Share Ownership of Directors and Executive Officers of the definitive proxy statement of AEP, dated March 9, 1995, for the 1995 annual meeting of shareholders. Reference also is made to the information under the caption Executive Officers of the Registrants in Part I of this report. APCO. The information required by this item is incorporated herein by reference to the material under Election of Directors of the definitive information statement of APCo for the 1995 annual meeting of stockholders, to be filed within 120 days after December 31, 1994. Reference also is made to the information under the caption Executive Officers of the Registrants in Part I of this report. CSPCO. Omitted pursuant to Instruction J(2)(c). I&M. The names of the directors and executive officers of I&M, the positions they hold with I&M, their ages as of March 15, 1995, and a brief account of their business experience during the past five years appear below. The directors and executive officers of I&M are elected annually to serve a one-year term.
NAME AGE POSITION (A)(B)(C) PERIOD ------ --- ------------------ ---------- E. Linn Draper, Jr. ... 53 Director 1992-Present Chairman of the Board and Chief Executive Officer 1993-Present Vice President 1992-1993 Chairman of the Board, President and Chief Executive Officer of AEP and of the Service Corporation 1993-Present President of AEP 1992-1993 President and Chief Operating Officer of the Service Corporation 1992-1993 Chairman of the Board, President and Chief Executive Officer of Gulf States Utilities Company 1987-1992 Richard C. Menge ...... 59 Director 1976-Present President and Chief Operating Officer 1989-Present Mark A. Bailey ........ 42 Director and Vice President 1989-Present Peter J. DeMaria ...... 60 Director 1992-Present Vice President 1991-Present Treasurer 1978-Present Treasurer of AEP 1978-Present Executive Vice President- Administration and Chief Accounting Officer of the Service Corporation 1984-Present Treasurer of the Service Corporation 1989-1990 William N. D'Onofrio .. 47 Director and Vice President 1984-Present William J. Lhota ...... 55 Director and Vice President 1989-Present Executive Vice President of the Service Corporation 1993-Present Executive Vice President- Operations of the Service Corporation 1989-1993 Gerald P. Maloney ..... 62 Director 1978-Present Vice President 1970-Present Vice President of AEP 1974-Present Secretary of AEP 1994-Present Executive Vice President-Chief Financial Officer of the Service Corporation 1991-Present Senior Vice President-Finance of the Service Corporation 1974-1990 James J. Markowsky ... 50 Director 1995-Present Vice President 1993-Present Executive Vice President- Engineering & Construction of the Service Corporation 1993-Present Senior Vice President and Chief Engineer of the Service Corporation 1988-1993 A. H. Potter .......... 47 Director 1994-Present Transmission and Distribution Director 1987-Present D. M. Trenary ......... 58 Director 1994-Present Indiana Region Manager 1994-Present Division Manager 1989-1994 W. E. Walters ......... 47 Director 1991-Present Michiana Region Manager 1994-Present Executive Assistant to President 1987-1994 Charles A. Ebetino, Jr. 42 Senior Vice President-Fuel Supply of the Service Corporation 1993-Present Vice President-Fuel Procurement & Transportation of the Service Corporation 1990-1993 Managing Director-Coal Procurement of the Service Corporation 1986-1990
(a) Positions are with I&M unless otherwise indicated. (b) Dr. Draper is a director of VECTRA Technologies, Inc., Mr. Lhota is a director of Huntington Bancshares Incorporated and Mr. Menge is a director of Fort Wayne National Corporation. (c) Drs. Draper and Markowsky and Messrs. DeMaria, Lhota and Maloney are directors of AEGCo, APCo, CSPCo, KEPCo and OPCo. Dr. Draper and Messrs. DeMaria and Maloney are also directors of AEP. KEPCO. Omitted pursuant to Instruction J(2)(c). OPCO. The information required by this item is incorporated herein by reference to the material under the heading Election of Directors of the definitive information statement of OPCo for the 1995 annual meeting of shareholders, to be filed within 120 days after December 31, 1994. Reference also is made to the information under the caption Executive Officers of the Registrants in Part I of this report. Item 11. EXECUTIVE COMPENSATION ----------------------------------------------------------------- AEGCO. Omitted pursuant to Instruction J(2)(c). AEP. The information required by this item is incorporated herein by reference to the material under Compensation of Directors, Executive Compensation and the performance graph of the definitive proxy statement of AEP, dated March 9, 1995, for the 1995 annual meeting of shareholders. APCO. The information required by this item is incorporated herein by reference to the material under Executive Compensation of the definitive information statement of APCo for the 1995 annual meeting of stockholders, to be filed within 120 days after December 31, 1994. CSPCO. Omitted pursuant to Instruction J(2)(c). KEPCO. Omitted pursuant to Instruction J(2)(c). OPCO. The information required by this item is incorporated herein by reference to the material under Executive Compensation of the definitive information statement of OPCo for the 1995 annual meeting of shareholders, to be filed within 120 days after December 31, 1994. I&M. Certain executive officers of I&M are employees of the Service Corporation. The salaries of these executive officers are paid by the Service Corporation and a portion of their salaries has been allocated and charged to I&M. The following table shows for 1994, 1993 and 1992 the compensation earned from all AEP System companies by the chief executive officer and four other most highly compensated executive officers (as defined by regulations of the SEC) of I&M at December 31, 1994. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ___________________ __________________ PAYOUTS ALL OTHER SALARY BONUS ------------------ COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) LTIP PAYOUTS($)(2) ($)(3) --------------------------- ---- ------- -------- ------------------ ------------ E. LINN DRAPER, JR. -- chairman of the board and 1994 620,000 209,436 137,362 29,385 and chief executive officer of I&M; chairman of 1993 538,333 148,742 18,180 the board, president and chief executive officer 1992 395,833 8,730 63,700 of AEP and the Service Corporation; chairman and chief executive officer of other AEP System subsidiaries PETER J. DEMARIA -- vice president, treasurer and 1994 305,000 103,029 59,032 18,750 director of I&M; treasurer and director of AEP; 1993 280,000 77,364 17,811 executive vice president -- administration and 1992 273,000 6,021 15,576 chief accounting officer and director of the Service Corporation; vice president, treasurer and director of other AEP System subsidiaries G. P. MALONEY -- vice president and director of 1994 300,000 101,340 58,094 19,745 I&M; vice president, secretary and director of 1993 269,000 74,325 18,000 AEP; executive vice president -- chief financial 1992 261,000 5,757 17,036 officer and director of the Service Corporation; vice president and director of other AEP System subsidiaries WILLIAM J. LHOTA -- vice president and director of 1994 280,000 94,584 54,409 19,185 I&M; executive vice president and director of the 1993 249,000 68,799 17,160 Service Corporation; vice president and director 1992 230,000 5,073 15,116 of other AEP System subsidiaries JAMES J. MARKOWSKY -- vice president and director 1994 267,000 90,193 51,930 14,755 of I&M; executive vice president -- engineering 1993 247,000 65,259 11,165 and construction and director of the Service 1992 219,000 4,497 7,020 Corporation; vice president and director of other AEP System subsidiaries
--------------- (1) Reflects payments under the Management Incentive Compensation Plan (MICP). Amounts for 1994 are estimates but should not change significantly. For 1994 and 1993, these amounts include both cash paid and a portion deferred in the form of restricted stock units. These units are paid out in cash after three years based on the price of AEP Common Stock at that time. Dividend equivalents are paid during the three-year period. At December 31, 1994, the deferred amounts (included in the above table) and accrued dividends for Dr. Draper, Messrs. DeMaria, Maloney and Lhota and Dr. Markowsky were equivalent to 2,204, 1,109, 1,080, 1,004 and 956 units having values of $72,456, $36,458, $35,505, $33,006 and $31,428, respectively, based upon a $32-7/8 per share closing price of AEP's Common Stock as reported on the New York Stock Exchange. For 1992, MICP payments were made entirely in cash. (2) Reflects payments under the Performance Share Incentive Plan (which became effective January 1, 1994) for the one-year transition performance period ending December 31, 1994. Dr. Draper, Messrs. DeMaria, Maloney and Lhota and Dr. Markowsky received 2,050, 881, 867, 812 and 775 shares of AEP Common Stock, respectively, representing one-half of their payments. See the discussion below for additional information. (3) For 1994, includes (i) employer matching contributions under the AEP System Employees Savings Plan: $4,500 for each of the named executive officers; (ii) employer matching contributions under the AEP System Supplemental Savings Plan (which became effective January 1, 1994), a non-qualified plan designed to supplement the AEP Savings Plan: Dr. Draper, $14,100; Mr. DeMaria, $4,650; Mr. Maloney, $4,500; Mr. Lhota, $3,900; and Dr. Markowsky, $3,510; and (iii) subsidiary companies director fees: Dr. Draper, $10,785; Mr. DeMaria, $9,600; Mr. Maloney, $10,745; Mr. Lhota, $10,785; and Dr. Markowsky, $6,745. Long-Term Incentive Plans -- Awards In 1994 Each of the awards set forth below constitutes a grant of performance share units, which represent units equivalent to shares of AEP Common Stock, pursuant to AEP's Performance Share Incentive Plan. Since it is not possible to predict future dividends and the price of AEP Common Stock, credits of performance share units in amounts equal to the dividends that would have been paid if the performance share units were granted in the form of shares of AEP Common Stock are not included in the table. The ability to earn performance share units is tied to achieving specified levels of total shareowner return (TSR) relative to the S&P Electric Utility Index. Notwithstanding AEP's TSR ranking, no performance share units are earned unless AEP shareowners realize a positive TSR over the relevant three-year performance period. The Human Resources Committee may, at its discretion, reduce the number of performance share units otherwise earned. In accordance with the performance goals established for the periods set forth below, the threshold, target and maximum awards are equal to 25%, 100% and 200%, respectively, of the performance share units held. No payment will be made for performance below the threshold. Payment of awards earned for the one-year transition performance period ending December 31, 1994 were made 50% in cash and 50% in AEP Common Stock. For subsequent performance periods, payments of earned awards are deferred in the form of restricted stock units (equivalent to shares of AEP Common Stock) until the officer has met the equivalent stock ownership target. Once officers meet and maintain their respective targets, they may elect either to continue to defer or to receive further earned awards in cash and/or AEP Common Stock.
ESTIMATED FUTURE PAYOUTS OF PERFORMANCE SHARE UNITS UNDER PERFORMANCE NON-STOCK PRICE-BASED PLAN NUMBER OF PERIOD UNTIL ----------------------------- PERFORMANCE MATURATION THRESHOLD TARGET MAXIMUM NAME SHARE UNITS OR PAYOUT (#) (#) (#) ---------------------- ----------- ------------ --------- -------- --------- E. L. Draper, Jr. .... 2,235 1994 (1) (1) (1) 4,470 1994-1995 1,118 4,470 8,940 6,705 1994-1996 1,676 6,705 13,410 P. J. DeMaria ......... 960 1994 (1) (1) (1) 1,920 1994-1995 480 1,920 3,840 2,885 1994-1996 721 2,885 5,770 G. P. Maloney ......... 945 1994 (1) (1) (1) 1,890 1994-1995 473 1,890 3,780 2,840 1994-1996 710 2,840 5,680 W. J. Lhota ........... 885 1994 (1) (1) (1) 1,770 1994-1995 443 1,770 3,540 2,650 1994-1996 663 2,650 5,300 J. J. Markowsky ....... 845 1994 (1) (1) (1) 1,690 1994-1995 423 1,690 3,380 2,525 1994-1996 631 2,525 5,050
--------------- (1) For the 1994 transition performance period, the actual number of performance share units earned was: Dr. Draper 4,100; Mr. DeMaria 1,761; Mr. Maloney 1,734; Mr. Lhota 1,624; and Dr. Markowsky 1,550 (see Summary Compensation Table for the cash value of these payouts). Retirement Benefits The American Electric Power System Retirement Plan provides pensions for all employees of AEP System companies (except for employees covered by certain collective bargaining agreements), including the executive officers of I&M. The Retirement Plan is a noncontributory defined benefit plan. The following table shows the approximate annual annuities under the Retirement Plan that would be payable to employees in certain higher salary classifications, assuming retirement at age 65 after various periods of service. The amounts shown in the table are the straight life annuities payable under the Plan without reduction for the joint and survivor annuity. Retirement benefits listed in the table are not subject to any deduction for Social Security or other offset amounts. The retirement annuity is reduced 3% per year in the case of retirement between ages 60 and 62 and further reduced 6% per year in the case of retirement between ages 55 and 60. If an employee retires after age 62, there is no reduction in the retirement annuity. Pension Plan Table
YEARS OF ACCREDITED SERVICE HIGHEST AVERAGE -------------------------------------------------------------- ANNUAL EARNINGS 15 20 25 30 35 40 --------------- -------- -------- -------- -------- -------- -------- $250,000 ...... $ 58,065 $ 77,420 $ 96,775 $116,130 $135,485 $152,110 350,000 ...... 82,065 109,420 136,775 164,130 191,485 214,760 450,000 ...... 106,065 141,720 176,775 212,130 247,485 277,410 600,000 ...... 142,065 189,420 236,775 284,130 331,485 371,385 750,000 ...... 178,065 237,420 296,775 356,130 415,485 465,360
Compensation upon which retirement benefits are based consists of the average of the 36 consecutive months of the employee's highest salary, as listed in the Summary Compensation Table, out of the employee's most recent 10 years of service. As of December 31, 1994, the number of full years of service credited under the Retirement Plan to each of the executive officers of the Company named in the Summary Compensation Table were as follows: Dr. Draper, two years; Mr. DeMaria, 35 years; Mr. Maloney, 39 years; Mr. Lhota, 30 years; and Dr. Markowsky, 23 years. Dr. Draper's employment agreement described below provides him with a supplemental retirement annuity that credits him with 24 years of service in addition to his years of service credited under the Retirement Plan less his actual pension entitlement under the Retirement Plan and any pension entitlements from prior employers. AEP has determined to pay supplemental retirement benefits to 23 AEP System employees (including Messrs. DeMaria, Maloney and Lhota and Dr. Markowsky) whose pensions may be adversely affected by amendments to the Retirement Plan made as a result of the Tax Reform Act of 1986. Such payments, if any, will be equal to any reduction occurring because of such amendments. Assuming retirement in 1995 of the executive officers named in the Summary Compensation Table, none would be eligible to receive supplemental benefits. AEP made available a voluntary deferred-compensation program in 1982 and 1986, which permitted certain executive employees of AEP System companies to defer receipt of a portion of their salaries. Under this program, an executive was able to defer up to 10% or 15% annually (depending on the terms of the program offered), over a four-year period, of his or her salary, and receive supplemental retirement or survivor benefit payments over a 15-year period. The amount of supplemental retirement payments received is dependent upon the amount deferred, age at the time the deferral election was made, and number of years until the executive retires. The following table sets forth, for the executive officers named in the Summary Compensation Table, the amounts of annual deferrals and, assuming retirement at age 65, annual supplemental retirement payments under the 1982 and 1986 programs.
1982 PROGRAM 1986 PROGRAM --------------------------- -------------------------- ANNUAL ANNUAL AMOUNT OF ANNUAL ANNUAL AMOUNT OF AMOUNT SUPPLEMENTAL AMOUNT SUPPLEMENTAL DEFERRED RETIREMENT DEFERRED RETIREMENT (4-YEAR PAYMENT (4-YEAR PAYMENT NAME PERIOD) (15-YEAR PERIOD) PERIOD) (15-YEAR PERIOD) ---- -------- ---------------- -------- ---------------- P. J. DeMaria ...... $10,000 $52,000 $13,000 $53,300 G. P. Maloney ...... 15,000 67,500 16,000 56,400
Employment Agreement Dr. Draper has a contract with AEP and the Service Corporation which provides for his employment for an initial term from no later than March 15, 1992 until March 15, 1997. Dr. Draper commenced his employment with AEP and the Service Corporation on March 1, 1992. AEP or the Service Corporation may terminate the contract at any time and, if this is done for reasons other than cause and other than as a result of Dr. Draper's death or permanent disability, the Service Corporation must pay Dr. Draper's then base salary through March 15, 1997, less any amounts received by Dr. Draper from other employment. --------------- Directors of I&M receive a fee of $100 for each meeting of the Board of Directors attended in addition to their salaries. --------------- The AEP System is an integrated electric utility system and, as a result, the member companies of the AEP System have contractual, financial and other business relationships with the other member companies, such as participation in the AEP System savings and retirement plans and tax returns, sales of electricity, transportation and handling of fuel, sales or rentals of property and interest or dividend payments on the securities held by the companies' respective parents. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ----------------------------------------------------------------- AEGCO. Omitted pursuant to Instruction J(2)(c). AEP. The information required by this item is incorporated herein by reference to the material under Share Ownership of Directors and Executive Officers of the definitive proxy statement of AEP, dated March 9, 1995, for the 1995 annual meeting of shareholders. APCO. The information required by this item is incorporated herein by reference to the material under Share Ownership of Directors and Executive Officers in the definitive information statement of APCo for the 1995 annual meeting of stockholders, to be filed within 120 days after December 31, 1994. CSPCO. Omitted pursuant to Instruction J(2)(c). I&M. All 1,400,000 outstanding shares of Common Stock, no par value, of I&M are directly and beneficially held by AEP. Holders of the Cumulative Preferred Stock of I&M generally have no voting rights, except with respect to certain corporate actions and in the event of certain defaults in the payment of dividends on such shares. The table below shows the number of shares of AEP Common Stock that were beneficially owned, directly or indirectly, as of December 31, 1994, by each director and nominee of I&M and each of the executive officers of I&M named in the summary compensation table, and by all directors and executive officers of I&M as a group. It is based on information provided to I&M by such persons. No such person owns any shares of any series of the Cumulative Preferred Stock of I&M. Unless otherwise noted, each person has sole voting power and investment power over the number of shares of AEP Common Stock set forth opposite his name. Fractions of shares have been rounded to the nearest whole share.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP (A) ------------------------ Mark A. Bailey ............ 1,050 Peter J. DeMaria .......... 6,105(b)(c) William N. D'Onofrio ...... 3,811(b) E. Linn Draper, Jr. ....... 1,492(b) William J. Lhota .......... 7,414(b)(c) Gerald P. Maloney ......... 4,249(b)(c) James J. Markowsky ........ 4,861(b) Richard C. Menge .......... 3,011(b) A. H. Potter .............. 2,795(b) D. M. Trenary ............. 206 W. E. Walters ............. 4,242 All directors and executive officers as a group (12 persons) ............ 127,621(c)(d)
--------------- (a) The amounts include shares held by the trustee of the AEP Employees Savings Plan, over which directors, nominees and executive officers have voting power, but the investment/disposition power is subject to the terms of such Plan, as follows: Mr. Bailey, 1,005 shares; Mr. DeMaria, 2,398 shares; Mr. D'Onofrio, 3,251 shares; Mr. Lhota, 5,986 shares; Mr. Maloney, 2,464 shares; Mr. Menge, 2,925 shares; Mr. Potter, 2,741 shares; Mr. Trenary, 165 shares; Mr. Walters, 4,197 shares; and all directors and executive officers as a group, 33,608 shares. Messrs. Bailey's, DeMaria's, D'Onofrio's, Lhota's, Maloney's, Menge's, Potter's, Trenary's and Walter's holdings include 44, 83, 59, 60, 85, 62, 41, 41 and 45 shares, respectively; and the holdings of all directors and executive officers as a group include 633 shares, each held by the trustee of the AEP Employee Stock Ownership Plan, over which shares such persons have sole voting power, but the investment/disposition power is subject to the terms of such Plan. (b) Includes shares with respect to which such directors, nominees and executive officers share voting and investment power as follows: Mr. DeMaria, 3,624 shares; Mr. D'Onofrio, 500 shares; Dr. Draper, 124 shares; Mr. Lhota, 1,368 shares; Mr. Maloney, 1,700 shares; Mr. Menge, 24 shares; and Mr. Potter, 13 shares; and all directors and executive officers as a group, 4,956 shares. Mr. DeMaria disclaims beneficial ownership of 2,392 shares. (c) 85,231 shares in the American Electric Power System Educational Trust Fund, over which Messrs. DeMaria, Lhota and Maloney share voting and investment power as trustees (they disclaim beneficial ownership of such shares), are not included in their individual totals, but are included in the group total. (d) Represents less than 1 percent of the total number of shares outstanding on December 31, 1994. KEPCO. Omitted pursuant to Instruction J(2)(c). OPCO. The information required by this item is incorporated herein by reference to the material under Share Ownership of Directors and Executive Officers in the definitive information statement of OPCo for the 1995 annual meeting of shareholders, to be filed within 120 days after December 31, 1994. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ----------------------------------------------------------------- AEP. The information required by this item is incorporated herein by reference to the material under Transactions With Management of the definitive proxy statement of AEP, dated March 9, 1995, for the 1995 annual meeting of shareholders. APCO, I&M AND OPCO. None. AEGCO, CSPCO, AND KEPCO. Omitted pursuant to Instruction J(2)(c). PART IV -------------------------------------------------------- Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ----------------------------------------------------------------- (a) The following documents are filed as a part of this report:
1. Financial Statements: PAGE ---- The following financial statements have been incorporated herein by reference pursuant to Item 8. AEGCo: Independent Auditors' Report; Statements of Income for the years ended December 31, 1994, 1993 and 1992; Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992; Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992; Balance Sheets as of December 31, 1994 and 1993; Notes to Financial Statements. AEP and its subsidiaries consolidated: Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992; Consolidated Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992; Consolidated Balance Sheets as of December 31, 1994 and 1993; Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992; Notes to Consolidated Financial Statements; Schedule of Consolidated Cumulative Preferred Stocks of Subsidiaries at December 31, 1994 and 1993; Schedule of Consolidated Long-term Debt of Subsidiaries at December 31, 1994 and 1993; Independent Auditors' Report. APCo: Independent Auditors' Report; Consolidated Statements of Income for the years ended December 31, 1994, 1994 and 1993; Consolidated Balance Sheets as of December 31, 1994 and 1993; Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992; Consolidated Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992; Notes to Consolidated Financial Statements. CSPCo: Independent Auditors' Report; Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992; Consolidated Balance Sheets as of December 31, 1994 and 1993; Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992; Consolidated Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992; Notes to Consolidated Financial Statements. I&M: Independent Auditors' Report; Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992; Consolidated Balance Sheets as of December 31, 1994 and 1993; Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992; Consolidated Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992; Notes to Consolidated Financial Statements. KEPCo: Independent Auditors' Report; Statements of Income for the years ended December 31, 1994, 1993 and 1992; Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992; Balance Sheets as of December 31, 1994 and 1993; Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992; Notes to Financial Statements. OPCo: Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992; Consolidated Balance Sheets as of December 31, 1994 and 1993; Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992; Consolidated Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992; Notes to Consolidated Financial Statements; Independent Auditors' Report. 2. Financial Statement Schedules: Financial Statement Schedules are listed in the Index to Financial Statement Schedules (Certain schedules have been omitted because the required information is contained in the notes to financial statements or because such schedules are not required or are not applicable.) S-1 Independent Auditors' Report S-2 3. Exhibits: Exhibits for AEGCo, AEP, APCo, CSPCo, I&M, KEPCo and OPCo are listed in the Exhibit Index and are incorporated herein by reference E-1
(b) No Reports on Form 8-K were filed during the quarter ended December 31, 1994. SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF. AEP Generating Company By: /s/ G. P. Maloney ---------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF. SIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER: *E. Linn Draper, Jr. President, Chief Executive Officer and Director (II) PRINCIPAL FINANCIAL OFFICER: /s/ G. P. Maloney Vice President March 23, 1995 ----------------------- and Director (G. P. MALONEY) (III) PRINCIPAL ACCOUNTING OFFICER: /s/ P. J. DeMaria Vice President, March 23, 1995 ----------------------- Treasurer and (P. J. DEMARIA) Director (IV) A MAJORITY OF THE DIRECTORS: *Henry Fayne *John R. Jones, III *Wm. J. Lhota *James J. Markowsky *By: /s/ G. P. Maloney March 23, 1995 ----------------------- (G. P. MALONEY, ATTORNEY-IN-FACT) SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. American Electric Power Company, Inc. By: /s/ G. P. Maloney ---------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER: *E. Linn Draper, Jr. Chairman of the Board, President, Chief Executive Officer and Director (II) PRINCIPAL FINANCIAL OFFICER: /s/ G. P. Maloney Vice President, March 23, 1995 ----------------------- Secretary and (G. P. MALONEY) Director (III) PRINCIPAL ACCOUNTING OFFICER: /s/ P. J. DeMaria Treasurer and March 23, 1995 ----------------------- Director (P. J. DEMARIA) (IV) A MAJORITY OF THE DIRECTORS: *Robert M. Duncan *Arthur G. Hansen *Lester A. Hudson, Jr. *Angus E. Peyton *Toy F. Reid *Donald G. Smith *Linda Gillespie Stuntz *Morris Tanenbaum *Ann Haymond Zwinger *By: /s/ G. P. Maloney March 23, 1995 ----------------------- (G. P. MALONEY, ATTORNEY-IN-FACT) SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF. Appalachian Power Company By: /s/ G. P. Maloney ---------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF. SIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER: *E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director (II) PRINCIPAL FINANCIAL OFFICER: /s/ G. P. Maloney Vice President March 23, 1995 ----------------------- and Director (G. P. MALONEY) (III) PRINCIPAL ACCOUNTING OFFICER: /s/ P. J. DeMaria Vice President, March 23, 1995 ----------------------- Treasurer and (P. J. DEMARIA) Director (IV) A MAJORITY OF THE DIRECTORS: *Henry Fayne *Luke M. Feck *Wm. J. Lhota *James J. Markowsky *J. H. Vipperman *By: /s/ G. P. Maloney March 23, 1995 ----------------------- (G. P. MALONEY, ATTORNEY-IN-FACT) SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF. Columbus Southern Power Company By: /s/ G. P. Maloney ---------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF. SIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER: *E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director (II) PRINCIPAL FINANCIAL OFFICER: /s/ G. P. Maloney Vice President March 23, 1995 ----------------------- and Director (G. P. MALONEY) (III) PRINCIPAL ACCOUNTING OFFICER: /s/ P. J. DeMaria Vice President, March 23, 1995 ----------------------- Treasurer and (P. J. DEMARIA) Director (IV) A MAJORITY OF THE DIRECTORS: *C. A. Erikson *Henry Fayne *Wm. J. Lhota *James J. Markowsky *By: /s/ G. P. Maloney March 23, 1995 ----------------------- (G. P. MALONEY, ATTORNEY-IN-FACT) SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF. Indiana Michigan Power Company By: /s/ G. P. Maloney ---------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF. SIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER: *E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director (II) PRINCIPAL FINANCIAL OFFICER: /s/ G. P. Maloney Vice President March 23, 1995 ----------------------- and Director (G. P. MALONEY) (III) PRINCIPAL ACCOUNTING OFFICER: /s/ P. J. DeMaria Vice President, March 23, 1995 ----------------------- Treasurer and (P. J. DEMARIA) Director (IV) A MAJORITY OF THE DIRECTORS: *Mark A. Bailey *W. N. D'Onofrio *Wm. J. Lhota *James J. Markowsky *Richard C. Menge *A. H. Potter *D. M. Trenary *W. E. Walters *By: /s/ G. P. Maloney March 23, 1995 ----------------------- (G. P. MALONEY, ATTORNEY-IN-FACT) SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF. Kentucky Power Company By: /s/ G. P. Maloney ---------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF. SIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER: *E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director (II) PRINCIPAL FINANCIAL OFFICER: /s/ G. P. Maloney Vice President March 23, 1995 ----------------------- and Director (G. P. MALONEY) (III) PRINCIPAL ACCOUNTING OFFICER: /s/ P. J. DeMaria Vice President, March 23, 1995 ----------------------- Treasurer and (P. J. DEMARIA) Director (IV) A MAJORITY OF THE DIRECTORS: *C. R. Boyle, III *Wm. J. Lhota *James J. Markowsky *Ronald A. Petti *By: /s/ G. P. Maloney March 23, 1995 ----------------------- (G. P. MALONEY, ATTORNEY-IN-FACT) SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. THE SIGNATURE OF THE UNDERSIGNED COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF. Ohio Power Company By: /s/ G. P. Maloney ---------------------------- (G. P. MALONEY, VICE PRESIDENT) Date: March 23, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. THE SIGNATURE OF EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING REFERENCE TO THE ABOVE-NAMED COMPANY AND ANY SUBSIDIARIES THEREOF. SIGNATURE TITLE DATE --------- ----- ---- (I) PRINCIPAL EXECUTIVE OFFICER: *E. Linn Draper, Jr. Chairman of the Board, Chief Executive Officer and Director (II) PRINCIPAL FINANCIAL OFFICER: /s/ G. P. Maloney Vice President March 23, 1995 ----------------------- and Director (G. P. MALONEY) (III) PRINCIPAL ACCOUNTING OFFICER: /s/ P. J. DeMaria Vice President, March 23, 1995 ----------------------- Treasurer and (P. J. DEMARIA) Director (IV) A MAJORITY OF THE DIRECTORS: *C. A. Erikson *Henry Fayne *Wm. J. Lhota *James J. Markowsky *By: /s/ G. P. Maloney March 23, 1995 ----------------------- (G. P. MALONEY, ATTORNEY-IN-FACT)
INDEX TO FINANCIAL STATEMENT SCHEDULES PAGE ---- INDEPENDENT AUDITORS' REPORT .............................. S-2 The following financial statement schedules for the years ended December 31, 1994, 1993 and 1992 are included in this report on the pages indicated.
AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES Schedule II -- Valuation and Qualifying Accounts and Reserves S-3 APPALACHIAN POWER COMPANY AND SUBSIDIARIES Schedule II -- Valuation and Qualifying Accounts and Reserves S-3 COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES Schedule II -- Valuation and Qualifying Accounts and Reserves S-3 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES Schedule II -- Valuation and Qualifying Accounts and Reserves S-4 KENTUCKY POWER COMPANY Schedule II -- Valuation and Qualifying Accounts and Reserves S-4 OHIO POWER COMPANY AND SUBSIDIARIES Schedule II -- Valuation and Qualifying Accounts and Reserves S-4
INDEPENDENT AUDITORS' REPORT American Electric Power Company, Inc. and Subsidiaries: We have audited the consolidated financial statements of American Electric Power Company, Inc. and its subsidiaries and the financial statements of certain of its subsidiaries, listed in Item 14 herein, as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, and have issued our reports thereon dated February 21, 1995; such financial statements and reports are included in your respective 1994 Annual Report to Shareowners and are incorporated herein by reference. Our audits also included the financial statement schedules of American Electric Power Company, Inc. and its subsidiaries and of certain of its subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the respective Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the corresponding basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche Deloitte & Touche LLP Columbus, Ohio February 21, 1995 AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period (in thousands) Deducted from Assets: Accumulated Provision for Uncollectible Accounts: Year Ended December 31, 1994. . . . . . . . . . . . $ 4,048 $20,265 $(3,556)(a) $16,701(b) $ 4,056 Year Ended December 31, 1993. . . . . . . . . . . . $ 7,287 $14,237 $ 4,163(a) $21,639(b) $ 4,048 Year Ended December 31, 1992. . . . . . . . . . . . $ 9,599 $12,888 $ 4,096(a) $19,296(b) $ 7,287 (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off.
APPALACHIAN POWER COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period (in thousands) Deducted from Assets: Accumulated Provision for Uncollectible Accounts: Year Ended December 31, 1994. . . . . . . . . . . . . $ 1,344 $2,297 $ 596(a) $3,407(b) $ 830 Year Ended December 31, 1993. . . . . . . . . . . . . $ 724 $3,392 $ 627(a) $3,399(b) $ 1,344 Year Ended December 31, 1992. . . . . . . . . . . . . $ 987 $1,810 $ 672(a) $2,745(b) $ 724 (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off.
COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period (in thousands) Deducted from Assets: Accumulated Provision for Uncollectible Accounts: Year Ended December 31, 1994. . . . . . . . . $ 991 $ 6,181 $2,778(a) $8,182(b) $1,768 Year Ended December 31, 1993. . . . . . . . . $1,332 $ 4,167 $2,106(a) $6,614(b) $ 991 Year Ended December 31, 1992. . . . . . . . . $1,134 $ 4,593 $1,981(a) $6,376(b) $1,332 (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off. /TABLE INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period (in thousands) Deducted from Assets: Accumulated Provision for Uncollectible Accounts: Year Ended December 31, 1994. . . . . . . . . . . . $ 504 $ 774 $ 707(a) $ 1,864(b) $ 121 Year Ended December 31, 1993. . . . . . . . . . . . $562 $1,380 $ 624(a) $ 2,062(b) $ 504 Year Ended December 31, 1992. . . . . . . . . . . . $629 $1,736 $ 650(a) $ 2,453(b) $ 562 (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off.
KENTUCKY POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period (in thousands) Deducted from Assets: Accumulated Provision for Uncollectible Accounts: Year Ended December 31, 1994. . . . . . . . . . . . . $ 208 $ 600 $ 84(a) $ 632(b) $ 260 Year Ended December 31, 1993. . . . . . . . . . . . . $ 248 $ 390 $ 179(a) $ 609(b) $ 208 Year Ended December 31, 1992. . . . . . . . . . . . . $ 352 $ 630 $ 106(a) $ 840(b) $ 248 (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off.
OHIO POWER COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E Additions Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period (in thousands) Deducted from Assets: Accumulated Provision for Uncollectible Accounts: Year Ended December 31, 1994. . . . . . . . . . . . $ 960 $10,087 $(7,785)(a) $ 2,243(b) $ 1,019 Year Ended December 31, 1993. . . . . . . . . . . . $ 4,353 $ 4,812 $ 549(a) $ 8,754(b) $ 960 Year Ended December 31, 1992. . . . . . . . . . . . $ 4,815 $ 4,084 $ 618(a) $ 5,164(b) $ 4,353 (a) Recoveries on accounts previously written off. (b) Uncollectible accounts written off. /TABLE EXHIBIT INDEX Certain of the following exhibits, designated with an asterisk(*), are filed herewith. The exhibits not so designated have heretofore been filed with the Commission and, pursuant to 17 C.F.R. Section 201.24 and Section 240.12b-32, are incorporated herein by reference to the documents indicated in brackets following the descriptions of such exhibits. Exhibits, designated with a dagger (+), are management contracts or compensatory plans or arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report. AEGCO
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3(a) -- Copy of Articles of Incorporation of AEGCo [Registration Statement on Form 10 for the Common Shares of AEGCo, File No. 0-18135, Exhibit 3(a)]. 3(b) -- Copy of the Code of Regulations of AEGCo [Registration Statement on Form 10 for the Common Shares of AEGCo, File No. 0-18135, Exhibit 3(b)]. 10(a) -- Copy of Capital Funds Agreement dated as of December 30, 1988 between AEGCo and AEP [Registration Statement No. 33-32752, Exhibit 28(a)]. 10(b)(1) -- Copy of Unit Power Agreement dated as of March 31, 1982 between AEGCo and I&M, as amended [Registration Statement No. 33-32752, Exhibits 28(b)(1)(A) and 28(b)(1)(B)]. 10(b)(2) -- Copy of Unit Power Agreement, dated as of August 1, 1984, among AEGCo, I&M and KEPCo [Registration Statement No. 33-32752, Exhibit 28(b)(2)]. 10(b)(3) -- Copy of Agreement, dated as of October 1, 1984, among AEGCo, I&M, APCo and Virginia Electric and Power Company [Registration Statement No. 33-32752, Exhibit 28(b)(3)]. 10(c) -- Copy of Lease Agreements, dated as of December 1, 1989, between AEGCo and Wilmington Trust Company, as amended [Registration Statement No. 33-32752, Exhibits 28(c)(1)(C), 28(c)(2)(C), 28(c)(3)(C), 28(c)(4)(C), 28(c)(5)(C) and 28(c)(6)(C); Annual Report on Form 10-K of AEGCo for the fiscal year ended December 31, 1993, File No. 0-18135, Exhibits 10(c)(1)(B), 10(c)(2)(B), 10(c)(3)(B), 10(c)(4)(B), 10(c)(5)(B) and 10(c)(6)(B)]. *13 -- Copy of those portions of the AEGCo 1994 Annual Report (for the fiscal year ended December 31, 1994) which are incorporated by reference in this filing. *24 -- Power of Attorney. *27 -- Financial Data Schedules. AEP++ 3(a) -- Copy of Restated Certificate of Incorporation of AEP, dated April 26, 1978 [Registration Statement No. 2- 62778, Exhibit 2(a)]. 3(b)(1) -- Copy of Certificate of Amendment of the Restated Certificate of Incorporation of AEP, dated April 23, 1980 [Registration Statement No. 33-1052, Exhibit 4(b)]. 3(b)(2) -- Copy of Certificate of Amendment of the Restated Certificate of Incorporation of AEP, dated April 28, 1982 [Registration Statement No. 33-1052, Exhibit 4(c)]. 3(b)(3) -- Copy of Certificate of Amendment of the Restated Certificate of Incorporation of AEP, dated April 25, 1984 [Registration Statement No. 33-1052, Exhibit 4(d)]. 3(b)(4) -- Copy of Certificate of Change of the Restated Certificate of Incorporation of AEP, dated July 5, 1984 [Registration Statement No. 33-1052, Exhibit 4(e)]. 3(b)(5) -- Copy of Certificate of Amendment of the Restated Certificate of Incorporation of AEP, dated April 27, 1988 [Registration Statement No. 33-1052, Exhibit 4(f)]. 3(c) -- Composite copy of the Restated Certificate of Incorporation of AEP, as amended [Registration Statement No. 33-1052, Exhibit 4(g)]. 3(d) -- Copy of By-Laws of AEP, as amended through July 26, 1989 [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1989, File No. 1-3525, Exhibit 3(d)]. 10(a) -- Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, OPCo and I&M and with the Service Corporation, as amended [Registration Statement No. 2- 52910, Exhibit 5(a); Registration Statement No. 2-61009, Exhibit 5(b); and Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1990, File No. 1- 3525, Exhibit 10(a)(3)]. 10(b) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); and Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit 10(b)(2)]. +10(c)(1) -- AEP Deferred Compensation Agreement for certain executive officers [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1- 3525, Exhibit 10(e)]. +10(c)(2) -- Amendment to AEP Deferred Compensation Agreement for certain executive officers [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1986, File No. 1-3525, Exhibit 10(d)(2)]. +10(d) -- AEP Deferred Compensation Agreement for directors, as amended, effective October 24, 1984 [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1984, File No. 1-3525, Exhibit 10(e)]. +10(e) -- AEP Accident Coverage Insurance Plan for directors [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(g)]. +10(f) -- AEP Retirement Plan for directors [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1986, File No. 1-3525, Exhibit 10(g)]. +10(g)(1)(A) -- Excess Benefits Plan [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1993, File No. 1- 3525, Exhibit 10(g)(1)(A)]. +10(g)(1)(B) -- Guaranty by AEP of the Service Corporation Excess Benefits Plan [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1990, File No. 1-3525, Exhibit 10(h)(1)(B)]. +10(g)(2) -- AEP System Supplemental Savings Plan (Non-Qualified) [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1993, File No. 1-3525, Exhibit 10(g)(2)]. +10(g)(3) -- Service Corporation Umbrella Trust for Executives [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1993, File No. 1-3525, Exhibit 10(g)(3)]. +10(h)(1) -- Employment Agreement between E. Linn Draper, Jr. and AEP and the Service Corporation [Annual Report on Form 10-K of AEGCo for the fiscal year ended December 31, 1991, File No. 0-18135, Exhibit 10(g)(3)]. *+10(i)(1) -- AEP Management Incentive Compensation Plan. *+10(i)(2) -- American Electric Power System Performance Share Incentive Plan, as Amended and Restated through January 1, 1995. 10(j) -- Copy of Lease Agreements, dated as of December 1, 1989, between AEGCo or I&M and Wilmington Trust Company, as amended [Registration Statement No. 33-32752, Exhibits 28(c)(1)(C), 28(c)(2)(C), 28(c)(3)(C), 28(c)(4)(C), 28(c)(5)(C) and 28(c)(6)(C); Registration Statement No. 33-32753, Exhibits 28(a)(1)(C), 28(a)(2)(C), 28(a)(3)(C), 28(a)(4)(C), 28(a)(5)(C) and 28(a)(6)(C); and Annual Report on Form 10-K of AEGCo for the fiscal year ended December 31, 1993, File No. 0-18135, Exhibits 10(c)(1)(B), 10(c)(2)(B), 10(c)(3)(B), 10(c)(4)(B), 10(c)(5)(B) and 10(c)(6)(B); Annual Report on Form 10-K of I&M for the fiscal year ended December 31, 1993, File No. 1-3570, Exhibits 10(e)(1)(B), 10(e)(2)(B), 10(e)(3)(B), 10(e)(4)(B), 10(e)(5)(B) and 10(e)(6)(B)]. 10(k)(1) -- Copy of Agreement for Lease, dated as of September 17, 1992, between JMG Funding, Limited Partnership and OPCo [Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1992, File No. 1-6543, Exhibit 10(l)]. 10(k)(2) -- Lease Agreement between Ohio Power Company and JMG Funding, Limited, dated January 20, 1995 [Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1994, File No. 1-6543, Exhibit 10(l)(2)]. 10(l) -- Interim Allowance Agreement, dated July 28, 1994, among APCo, CSPCo, I&M, KEPCo, OPCo and the Service Corporation [Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1994, File No. 1-3457, Exhibit 10(d)]. *13 -- Copy of those portions of the AEP 1994 Annual Report (for the fiscal year ended December 31, 1994) which are incorporated by reference in this filing. *21 -- List of subsidiaries of AEP. *23 -- Consent of Deloitte & Touche LLP. *24 -- Power of Attorney. *27 -- Financial Data Schedules. APCO++ 3(a) -- Copy of Restated Articles of Incorporation of APCo, and amendments thereto to November 4, 1993 [Registration Statement No. 33-50163, Exhibit 4(a); Registration Statement No. 33-53805, Exhibits 4(b) and 4(c)]. *3(b) -- Copy of Articles of Amendment to the Restated Articles of Incorporation of APCo, dated June 6, 1994. *3(c) -- Composite copy of the Restated Articles of Incorporation of APCo, as amended. 3(d) -- Copy of By-Laws of APCo [Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1990, File No. 1-3457 Exhibit 3(d)]. 4(a) -- Copy of Mortgage and Deed of Trust, dated as of December 1, 1940, between APCo and Bankers Trust Company and R. Gregory Page, as Trustees, as amended and supplemented [Registration Statement No. 2-7289, Exhibit 7(b); Registration Statement No. 2-19884, Exhibit 2(1); Registration Statement No. 2-24453, Exhibit 2(n); Registration Statement No. 2-60015, Exhibits 2(b)(2), 2(b)(3), 2(b)(4), 2(b)(5), 2(b)(6), 2(b)(7), 2(b)(8), 2(b)(9), 2(b)(10), 2(b)(12), 2(b)(14), 2(b)(15), 2(b)(16), 2(b)(17), 2(b)(18), 2(b)(19), 2(b)(20), 2(b)(21), 2(b)(22), 2(b)(23), 2(b)(24), 2(b)(25), 2(b)(26), 2(b)(27) and 2(b)(28); Registration Statement No. 2-64102, Exhibit 2(b)(29); Registration Statement No. 2-66457, Exhibits (2)(b)(30) and 2(b)(31); Registration Statement No. 2-69217, Exhibit 2(b)(32); Registration Statement No. 2-86237, Exhibit 4(b); Registration Statement No. 33-11723, Exhibit 4(b); Registration Statement No. 33-17003, Exhibit 4(a)(ii), Registration Statement No. 33-30964, Exhibit 4(b); Registration Statement No. 33-40720, Exhibit 4(b); Registration Statement No. 33-45219, Exhibit 4(b); Registration Statement No. 33-46128, Exhibits 4(b) and 4(c); Registration Statement No. 33-53410, Exhibit 4(b); Registration Statement No. 33-59834, Exhibit 4(b); Registration Statement No. 33-50229, Exhibits 4(b) and 4(c); Annual Report on Form 10-K of APCo for the fiscal year ending December 31, 1993, File No. 1-3457, Exhibit 4(b)]. *4(b) -- Copy of Indentures Supplemental, dated August 15, 1994, October 1, 1994 and March 1, 1995, to Mortgage and Deed of Trust. 10(a)(1) -- Copy of Power Agreement, dated October 15, 1952, between OVEC and United States of America, acting by and through the United States Atomic Energy Commission, and, subsequent to January 18, 1975, the Administrator of the Energy Research and Development Administration, as amended [Registration Statement No. 2-60015, Exhibit 5(a); Registration Statement No. 2-63234, Exhibit 5(a)(1)(B); Registration Statement No. 2-66301, Exhibit 5(a)(1)(C); Registration Statement No. 2-67728, Exhibit 5(a)(1)(D); Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1989, File No. 1-3457, Exhibit 10(a)(1)(F); and Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(1)(B)]. 10(a)(2) -- Copy of Inter-Company Power Agreement, dated as of July 10, 1953, among OVEC and the Sponsoring Companies, as amended [Registration Statement No. 2-60015, Exhibit 5(c); Registration Statement No. 2-67728, Exhibit 5(a)(3)(B); and Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1992, File No. 1- 3457, Exhibit 10(a)(2)(B)]. 10(a)(3) -- Copy of Power Agreement, dated July 10, 1953, between OVEC and Indiana-Kentucky Electric Corporation, as amended [Registration Statement No. 2-60015, Exhibit 5(e)]. 10(b) -- Copy of Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, OPCo and I&M and with the Service Corporation, as amended [Registration Statement No. 2-52910, Exhibit 5(a); Registration Statement No. 2- 61009, Exhibit 5(b); Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1990, File No. 1- 3525, Exhibit 10(a)(3)]. 10(c) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit 10(b)(2)]. *10(d) -- Copy of AEP System Interim Allowance Agreement, dated July 28, 1994, among APCo, CSPCo, I&M, KEPCo, OPCo and the Service Corporation. +10(e)(1) -- AEP Deferred Compensation Agreement for certain executive officers [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1- 3525, Exhibit 10(e)]. +10(e)(2) -- Amendment to AEP Deferred Compensation Agreement for certain executive officers [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1986, File No. 1-3525, Exhibit 10(d)(2)]. +10(f)(1) -- Management Incentive Compensation Plan [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1994, File No. 1-3525, Exhibit 10(i)(1)]. +10(f)(2) -- American Electric Power System Performance Share Incentive Plan [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1994, File No. 1- 3525, Exhibit 10(i)(2)]. +10(g)(1) -- Excess Benefits Plan [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1993, File No. 1- 3525, Exhibit 10(g)(1)(A)]. +10(g)(2) -- AEP System Supplemental Savings Plan (Non-Qualified) [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1993, File No. 1-3525, Exhibit 10(g)(2)]. +10(g)(3) -- Umbrella Trust for Executives [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1993, File No. 1-3525, Exhibit 10(g)(3)]. +10(h)(1) -- Employment Agreement between E. Linn Draper, Jr. and AEP and the Service Corporation [Annual Report on Form 10-K of AEGCo for the fiscal year ended December 31, 1991, File No. 0-18135, Exhibit 10(g)(3)]. *12 -- Statement re: Computation of Ratios. *13 -- Copy of those portions of the APCo 1994 Annual Report (for the fiscal year ended December 31, 1994) which are incorporated by reference in this filing. 21 -- List of subsidiaries of APCo [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1994, File No. 1-3525, Exhibit 21]. *23 -- Consent of Deloitte & Touche LLP. *24 -- Power of Attorney. *27 -- Financial Data Schedules. CSPCO++ 3(a) -- Copy of Amended Articles of Incorporation of CSPCo, as amended to March 6, 1992 [Registration Statement No. 33- 53377, Exhibit 4(a)]. *3(b) -- Copy of Certificate of Amendment to Amended Articles of Incorporation of CSPCo, dated May 19, 1994. *3(c) -- Composite copy of Amended Articles of Incorporation of CSPCo, as amended. 3(d) -- Copy of Code of Regulations and By-Laws of CSPCo [Annual Report on Form 10-K of CSPCo for the fiscal year ended December 31, 1987, File No. 1-2680, Exhibit 3(d)]. 4(a) -- Copy of Indenture of Mortgage and Deed of Trust, dated September 1, 1940, between CSPCo and City Bank Farmers Trust Company (now Citibank, N.A.), as trustee, as supplemented and amended [Registration Statement No. 2- 59411, Exhibits 2(B) and 2(C); Registration Statement No. 2-80535, Exhibit 4(b); Registration Statement No. 2- 87091, Exhibit 4(b); Registration Statement No. 2-93208, Exhibit 4(b); Registration Statement No. 2-97652, Exhibit 4(b); Registration Statement No. 33-7081, Exhibit 4(b); Registration Statement No. 33-12389, Exhibit 4(b); Registration Statement No. 33-19227, Exhibits 4(b), 4(e), 4(f), 4(g) and 4(h); Registration Statement No. 33-35651, Exhibit 4(b); Registration Statement No. 33-46859, Exhibits 4(b) and 4(c); Registration Statement No. 33-50316, Exhibits 4(b) and 4(c); Registration Statement No. 33-60336, Exhibits 4(b), 4(c) and 4(d); Registration Statement No. 33- 50447, Exhibits 4(b) and 4(c); Annual Report on Form 10- K of CSPCo for the fiscal year ended December 31, 1993, File No. 1-2680, Exhibit 4(b)]. 10(a)(1) -- Copy of Power Agreement, dated October 15, 1952, between OVEC and United States of America, acting by and through the United States Atomic Energy Commission, and, subsequent to January 18, 1975, the Administrator of the Energy Research and Development Administration, as amended [Registration Statement No. 2-60015, Exhibit 5(a); Registration Statement No. 2-63234, Exhibit 5(a)(1)(B); Registration Statement No. 2-66301, Exhibit 5(a)(1)(C); Registration Statement No. 2-67728, Exhibit 5(a)(1)(B); Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1989, File No. 1-3457, Exhibit 10(a)(1)(F); and Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(1)(B)]. 10(a)(2) -- Copy of Inter-Company Power Agreement, dated July 10, 1953, among OVEC and the Sponsoring Companies, as amended [Registration Statement No. 2-60015, Exhibit 5(c); Registration Statement No. 2-67728, Exhibit 5(a)(3)(B); and Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1992, File No. 1- 3457, Exhibit 10(a)(2)(B)]. 10(a)(3) -- Copy of Power Agreement, dated July 10, 1953, between OVEC and Indiana-Kentucky Electric Corporation, as amended [Registration Statement No. 2-60015, Exhibit 5(e)]. 10(b) -- Copy of Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, OPCo and I&M and the Service Corporation, as amended [Registration Statement No. 2- 52910, Exhibit 5(a); Registration Statement No. 2-61009, Exhibit 5(b); and Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1990, File No. 1- 3525, Exhibit 10(a)(3)]. 10(c) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo, and with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); and Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit 10(b)(2)]. 10(d) -- Copy of Interim Allowance Agreement [Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1994, File No. 1-3457, Exhibit 10(d)]. *12 -- Statement re: Computation of Ratios. *13 -- Copy of those portions of the CSPCo 1994 Annual Report (for the fiscal year ended December 31, 1994) which are incorporated by reference in this filing. 21 -- List of subsidiaries of CSPCo [Annual Report on Form 10- K of AEP for the fiscal year ended December 31, 1994, File No. 1-3525, Exhibit 21]. *23 -- Consent of Deloitte & Touche LLP. *24 -- Power of Attorney. *27 -- Financial Data Schedules. I&M++ 3(a) -- Copy of the Amended Articles of Acceptance of I&M and amendments thereto [Annual Report on Form 10-K of I&M for fiscal year ended December 31, 1993, File No. 1- 3570, Exhibit 3(a)]. 3(b) -- Composite Copy of the Amended Articles of Acceptance of I&M, as amended [Annual Report on Form 10-K of I&M for fiscal year ended December 31, 1993, File No. 1-3570, Exhibit 3(b)]. 3(c) -- Copy of the By-Laws of I&M [Annual Report on Form 10-K of I&M for the fiscal year ended December 31, 1990, File No 1-3570, Exhibit 3(d)]. 4(a) -- Copy of Mortgage and Deed of Trust, dated as of June 1, 1939, between I&M and Irving Trust Company (now The Bank of New York) and various individuals, as Trustees, as amended and supplemented [Registration Statement No. 2- 7597, Exhibit 7(a); Registration Statement No. 2-60665, Exhibits 2(c)(2), 2(c)(3), 2(c)(4), 2(c)(5), 2(c)(6), 2(c)(7), 2(c)(8), 2(c)(9), 2(c)(10), 2(c)(11), 2(c)(12), 2(c)(13), 2(c)(14), 2(c)(15), (2)(c)(16), and 2(c)(17); Registration Statement No. 2-63234, Exhibit 2(b)(18); Registration Statement No. 2-65389, Exhibit 2(a)(19); Registration Statement No. 2-67728, Exhibit 2(b)(20); Registration Statement No. 2-85016, Exhibit 4(b); Registration Statement No. 33-5728, Exhibit 4(c); Registration Statement No. 33-9280, Exhibit 4(b); Registration Statement No. 33-11230, Exhibit 4(b); Registration Statement No. 33-19620, Exhibits 4(a)(ii), 4(a)(iii), 4(a)(iv) and 4(a)(v); Registration Statement No. 33-46851, Exhibits 4(b)(i), 4(b)(ii) and 4(b)(iii); Registration Statement No. 33-54480, Exhibits 4(b)(i) and 4(b)(ii); Registration Statement No. 33-60886, Exhibit 4(b)(i); Registration Statement No. 33-50521, Exhibits 4(b)(i), 4(b)(ii) and 4(b)(iii); Annual Report on Form 10-K of I&M for fiscal year ended December 31, 1993, File No. 1-3570, Exhibit 4(b)]. *4(b) -- Copy of Indenture Supplemental dated May 1, 1994 to Mortgage and Deed of Trust. 10(a)(1) -- Copy of Power Agreement, dated October 15, 1952, between OVEC and United States of America, acting by and through the United States Atomic Energy Commission, and, subsequent to January 18, 1975, the Administrator of the Energy Research and Development Administration, as amended [Registration Statement No. 2-60015, Exhibit 5(a); Registration Statement No. 2-63234, Exhibit 5(a)(1)(B); Registration Statement No. 2-66301, Exhibit 5(a)(1)(C); Registration Statement No. 2-67728, Exhibit 5(a)(1)(D); Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1989, File No. 1-3457, Exhibit 10(a)(1)(F); and Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(1)(B)]. 10(a)(2) -- Copy of Inter-Company Power Agreement, dated as of July 10, 1953, among OVEC and the Sponsoring Companies, as amended [Registration Statement No. 2-60015, Exhibit 5(c); Registration Statement No. 2-67728, Exhibit 5(a)(3)(B); Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(2)(B)]. 10(a)(3) -- Copy of Power Agreement, dated July 10, 1953, between OVEC and Indiana-Kentucky Electric Corporation, as amended [Registration Statement No. 2-60015, Exhibit 5(e)]. 10(b) -- Copy of Interconnection Agreement, dated July 6, 1951, between APCo, CSPCo, KEPCo, I&M, and OPCo and with the Service Corporation, as amended [Registration Statement No. 2-52910, Exhibit 5(a); Registration Statement No. 2- 61009, Exhibit 5(b); and Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1990, File No. 1-3525, Exhibit 10(a)(3)]. 10(c) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); and Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit 10(b)(2)]. 10(d) -- Copy of Interim Allowance Agreement [Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1994, File No. 1-3457, Exhibit 10(d)]. 10(e) -- Copy of Nuclear Material Lease Agreement, dated as of December 1, 1990, between I&M and DCC Fuel Corporation [Annual Report on Form 10-K of I&M for the fiscal year ended December 31, 1993, File No. 1-3570, Exhibit 10(d)]. 10(f) -- Copy of Lease Agreements, dated as of December 1, 1989, between I&M and Wilmington Trust Company, as amended [Registration Statement No. 33-32753, Exhibits 28(a)(1)(C), 28(a)(2)(C), 28(a)(3)(C), 28(a)(4)(C), 28(a)(5)(C) and 28(a)(6)(C); Annual Report on Form 10-K of I&M for the fiscal year ended December 31, 1993, File No. 1-3570, Exhibits 10(e)(1)(B), 10(e)(2)(B), 10(e)(3)(B), 10(e)(4)(B), 10(e)(5)(B) and 10(e)(6)(B)]. *12 -- Statement re: Computation of Ratios *13 -- Copy of those portions of the I&M 1994 Annual Report (for the fiscal year ended December 31, 1994) which are incorporated by reference in this filing. 21 -- List of subsidiaries of I&M [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1994, File No. 1-3525, Exhibit 21]. *23 -- Consent of Deloitte & Touche LLP. *24 -- Power of Attorney. *27 -- Financial Data Schedules. KEPCO 3(a) -- Copy of Restated Articles of Incorporation of KEPCo [Annual Report on Form 10-K of KEPCo for the fiscal year ended December 31, 1991, File No. 1-6858, Exhibit 3(a)]. *3(b) -- Copy of By-Laws of KEPCo. 4(a) -- Copy of Mortgage and Deed of Trust, dated May 1, 1949, between KEPCo and Bankers Trust Company, as supplemented and amended [Registration Statement No. 2-65820, Exhibits 2(b)(1), 2(b)(2), 2(b)(3), 2(b)(4), 2(b)(5), and 2(b)(6); Registration Statement No. 33-39394, Exhibits 4(b) and 4(c); Registration Statement No. 33- 53226, Exhibits 4(b) and 4(c); Registration Statement No. 33-61808, Exhibits 4(b) and 4(c), Registration Statement No. 33-53007, Exhibits 4(b), 4(c) and 4(d)]. 10(a) -- Copy of Interconnection Agreement, dated July 6, 1951, among APCo, CSPCo, KEPCo, I&M and OPCo and with the Service Corporation, as amended [Registration Statement No. 2-52910, Exhibit 5(a); Registration Statement No. 2- 61009, Exhibit 5(b); and Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1990, File No. 1-3525, Exhibit 10(a)(3)]. 10(b) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and with the Service Corporation as agent, as amended [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1-3525, Exhibit 10(b); and Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1-3525, Exhibit 10(b)(2)]. 10(c) -- Copy of Interim Allowance Agreement [Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1994, File No. 1-3457, Exhibit 10(d)]. *12 -- Statement re: Computation of Ratios. *13 -- Copy those portions of the KEPCo 1994 Annual Report (for the fiscal year ended December 31, 1994) which are incorporated by reference in this filing. *23 -- Consent of Deloitte & Touche LLP. *24 -- Power of Attorney. *27 -- Financial Data Schedules. OPCO++ 3(a) -- Copy of Amended Articles of Incorporation of OPCo, and amendments thereto to December 31, 1993 [Registration Statement No. 33-50139, Exhibit 4(a); Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1993, File No. 1-6543, Exhibit 3(b)]. *3(b) -- Certificate of Amendment to Amended Articles of Incorporation of OPCo, dated May 3, 1994. *3(c) -- Composite copy of the Amended Articles of Incorporation of OPCo, as amended. 3(d) -- Copy of Code of Regulations of OPCo [Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1990, File No. 1-6543, Exhibit 3(d)]. 4(a) -- Copy of Mortgage and Deed of Trust, dated as of October 1, 1938, between OPCo and Manufacturers Hanover Trust Company (now Chemical Bank), as Trustee, as amended and supplemented [Registration Statement No. 2-3828, Exhibit B-4; Registration Statement No. 2-60721, Exhibits 2(c)(2), 2(c)(3), 2(c)(4), 2(c)(5), 2(c)(6), 2(c)(7), 2(c)(8), 2(c)(9), 2(c)(10), 2(c)(11), 2(c)(12), 2(c)(13), 2(c)(14), 2(c)(15), 2(c)(16), 2(c)(17), 2(c)(18), 2(c)(19), 2(c)(20), 2(c)(21), 2(c)(22), 2(c)(23), 2(c)(24), 2(c)(25), 2(c)(26), 2(c)(27), 2(c)(28), 2(c)(29), 2(c)(30), and 2(c)(31); Registration Statement No. 2-83591, Exhibit 4(b); Registration Statement No. 33-21208, Exhibits 4(a)(ii), 4(a)(iii) and 4(a)(vi); Registration Statement No. 33-31069, Exhibit 4(a)(ii); Registration Statement No. 33-44995, Exhibit 4(a)(ii); Registration Statement No. 33-59006, Exhibits 4(a)(ii), 4(a)(iii) and 4(a)(iv); Registration Statement No. 33-50373, Exhibits 4(a)(ii), 4(a)(iii) and 4(a)(iv); Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1993, File No. 1-6543, Exhibit 4(b)]. 10(a)(1) -- Copy of Power Agreement, dated October 15, 1952, between OVEC and United States of America, acting by and through the United States Atomic Energy Commission, and, subsequent to January 18, 1975, the Administrator of the Energy Research and Development Administration, as amended [Registration Statement No. 2-60015, Exhibit 5(a); Registration Statement No. 2-63234, Exhibit 5(a)(1)(B); Registration Statement No. 2-66301, Exhibit 5(a)(1)(C); Registration Statement No. 2-67728, Exhibit 5(a)(1)(D); Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1989, File No. 1-3457, Exhibit 10(a)(1)(F); Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1992, File No. 1- 3457, Exhibit 10(a)(1)(B)]. 10(a)(2) -- Copy of Inter-Company Power Agreement, dated July 10, 1953, among OVEC and the Sponsoring Companies, as amended [Registration Statement No. 2-60015, Exhibit 5(c); Registration Statement No. 2-67728, Exhibit 5(a)(3)(B); Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1992, File No. 1-3457, Exhibit 10(a)(2)(B)]. 10(a)(3) -- Copy of Power Agreement, dated July 10, 1953, between OVEC and Indiana-Kentucky Electric Corporation, as amended [Registration Statement No. 2-60015, Exhibit 5(e)]. 10(b) -- Copy of Interconnection Agreement, dated July 6, 1951, between APCo, CSPCo, KEPCo, I&M and OPCo and with the Service Corporation, as amended [Registration Statement No. 2-52910, Exhibit 5(a); Registration Statement No. 2- 61009, Exhibit 5(b); Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1990, File 1- 3525, Exhibit 10(a)(3)]. 10(c) -- Copy of Transmission Agreement, dated April 1, 1984, among APCo, CSPCo, I&M, KEPCo, OPCo and with the Service Corporation as agent [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1- 3525, Exhibit 10(b); Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1988, File No. 1- 3525, Exhibit 10(b)(2)]. 10(d) -- Copy of Interim Allowance Agreement [Annual Report on Form 10-K of APCo for the fiscal year ended December 31, 1994, File No. 1-3457, Exhibit 10(d)]. 10(e) -- Copy of Agreement, dated June 18, 1968, between OPCo and Kaiser Aluminum & Chemical Corporation (now known as Ravenswood Aluminum Corporation) and First Supplemental Agreement thereto [Registration Statement No. 2-31625, Exhibit 4(c); Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1986, File No. 1-6543, Exhibit 10(d)(2)]. 10(f) -- Copy of Power Agreement, dated November 16, 1966, between OPCo and Ormet Generating Corporation and First Supplemental Agreement thereto [Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1993, File No. 1-6543, Exhibit 10(e)]. 10(g) -- Copy of Amendment No. 1, dated October 1, 1973, to Station Agreement dated January 1, 1968, among OPCo, Buckeye and Cardinal Operating Company, and amendments thereto [Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1993, File No. 1-6543, Exhibit 10(f)]. +10(h)(1) -- AEP Deferred Compensation Agreement for certain executive officers [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1985, File No. 1- 3525, Exhibit 10(e)]. +10(h)(2) -- Amendment to AEP Deferred Compensation Agreement for certain executive officers [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1986, File No. 1-3525, Exhibit 10(d)(2)]. +10(i)(1) -- Management Incentive Compensation Plan [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1994, File No. 1-3525, Exhibit 10(i)(1)]. +10(i)(2) -- American Electric Power System Performance Share Incentive Plan, as Amended and Restated through January 1, 1995 [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1994, File No. 1-3525, Exhibit 10(i)(2)]. +10(j)(1) -- Excess Benefits Plan [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1993, File No. 1- 3525, Exhibit 10(g)(1)(A)]. +10(j)(2) -- AEP System Supplemental Savings Plan (Non-Qualified) [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1993, File No. 1-3525, Exhibit 10(g)(2)]. +10(j)(3) -- Umbrella Trust for Executives [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1993, File No. 1-3525, Exhibit 10(g)(3)]. +10(k)(1) -- Employment Agreement between E. Linn Draper, Jr. and AEP and the Service Corporation [Annual Report on Form 10-K of AEGCo for the fiscal year ended December 31, 1991, File No. 0-18135, Exhibit 10(g)(2)]. 10(l)(1) -- Agreement for Lease dated as of September 17, 1992 between JMG Funding, Limited Partnership and OPCo [Annual Report on Form 10-K of OPCo for the fiscal year ended December 31, 1992, File No. 1-6543, Exhibit 10(l)]. *10(l)(2) -- Lease Agreement dated January 20, 1995 between OPCo and JMG Funding, Limited Partnership, and amendment thereto (confidential treatment requested). *12 -- Statement re: Computation of Ratios. *13 -- Copy of those portions of the OPCo 1994 Annual Report (for the fiscal year ended December 31, 1994) which are incorporated by reference in this filing. 21 -- List of subsidiaries of OPCo [Annual Report on Form 10-K of AEP for the fiscal year ended December 31, 1994, File No. 1-3525, Exhibit 21]. *23 -- Consent of Deloitte & Touche LLP. *24 -- Power of Attorney. *27 -- Financial Data Schedules.
--------------- ++Certain instruments defining the rights of holders of long-term debt of the registrants included in the financial statements of registrants filed herewith have been omitted because the total amount of securities authorized thereunder does not exceed 10% of the total assets of registrants. The registrants hereby agree to furnish a copy of any such omitted instrument to the SEC upon request. EX-3 2 APCO 10-K EX-3(B) ARTICLES OF AMENDMENT Exhibit 3(b) APPALACHIAN POWER COMPANY ARTICLES OF AMENDMENT to the RESTATED ARTICLES OF INCORPORATION, AS AMENDED 1. The name of the corporation is APPALACHIAN POWER COMPANY. 2. The amendment is to create a new Series of 300,000 shares of Cumulative Preferred Stock, without par value, consisting of shares of such Cumulative Preferred Stock with designation, description and terms as follows: (a) The distinctive serial designation of such series shall be "6.85% Cumulative Preferred Stock". (b) The annual dividend rate for such series shall be 6.85% per share per annum, which dividend shall be calculat- ed, per share, at such percentage multiplied by $100, and the date from which dividends on all shares of said series issued prior to the record date for the dividend payable August 1, 1994, shall be cumulative, shall be the date of original issuance of the shares of such series. (c) Such series shall not be subject to redemption except as provided in subparagraph (e) below. (d) The preferential amounts to which the holders of shares of such series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall be $100 per share, plus accrued and unpaid dividends. (e)(1) A sinking fund shall be established for the retirement of the shares of such series. So long as there shall remain outstanding any shares of such series, the Corporation shall, to the extent not prohibited by law, on August 1 of each year commencing with the year 2000, redeem as and for a sinking fund requirement, 60,000 shares of the 6.85% Cumulative Preferred Stock at a sinking fund redemp- tion price of $100 per share plus accrued unpaid dividends to the date of redemption. The sinking fund requirement shall be cumulative so that if on any such August 1 the sinking fund requirement shall not have been met, then such sinking fund requirement, to the extent not met, shall become an additional sinking fund requirement for the next succeeding August 1 on which such redemption may be effected. (2) The Corporation shall have the non-cumulative option, on any sinking fund date as provided in subparagraph (e)(1), to redeem at the sinking fund redemption price of $100 per share plus accrued and unpaid dividends to the date of redemption up to an additional 60,000 shares of such series. No redemption made pursuant to this subparagraph (e)(2) shall be deemed to fulfill any sinking fund redemp- tion established pursuant to subparagraph (e)(1). (3) The Corporation shall be entitled, at its election, to credit against the sinking fund requirement due on August 1 of any year pursuant to subparagraph (e)(1) shares of such series theretofore purchased or otherwise acquired by the Corporation (other than pursuant to the option provided by subparagraph (e)(2)) and not previously credited against any such sinking fund requirement. (f) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or any other securities, or have any special rights other than those specified herein. 3. The amendment was adopted on June 2, 1994. 4. The amendment was duly adopted by the Board of Directors of the Corporation without shareholder action and shareholder action was not required. 5. The amendment, and the certificate issued by the Virginia State Corporation Commission related thereto, shall be effective on June 14, 1994. APPALACHIAN POWER COMPANY By__/s/ Jeffrey D. Cross_ (Jeffrey D. Cross) Assistant Secretary June 6, 1994 2 EX-3 3 APCO 10-K EX-3(C) COMPOSITE RESTATED ARTICLES/INC Exhibit 3(c) [COMPOSITE] RESTATED ARTICLES OF INCORPORATION OF APPALACHIAN POWER COMPANY (a Virginia Public Service Corporation) ARTICLE I NAME The name of the Corporation is: APPALACHIAN POWER COMPANY ARTICLE II PURPOSE The purpose of the Corporation is to conduct business as a public service company for the generation, transmission, distribution and sale of electricity within and without the Commonwealth of Virginia, with all the rights, powers and privileges of such companies conferred by the constitution and laws of the Commonwealth of Virginia as they now or may hereafter exist. The Corporation shall have the power to conduct any business in any place, other than the Commonwealth of Virginia, authorized or permitted by the laws thereof. ARTICLE III Directors The number of Directors shall be fixed by the By-Laws. In the absence of a By-Law establishing the number of Directors, the number of Directors shall be ten. ARTICLE IV Common Stock The Corporation shall have authority to issue 30,000,000 shares of Common Stock without par value. No holder of Common Stock shall have any pre-emptive right to acquire unissued shares of the Corporation or to acquire any securities convertible into or exchangeable for such shares or to acquire any options, warrants or rights to purchase such shares. ARTICLE V Cumulative Preferred Stock The Corporation shall have authority to issue 8,000,000 shares of Cumulative Preferred Stock without par value, except that the aggregate involuntary liquidation price for all shares of Cumulative Preferred Stock outstanding may not exceed $300,000,000. Subject to the provisions of the following paragraphs (1) through (11) hereof, the Board of Directors is hereby empowered to cause the Cumulative Preferred Stock to be issued in series with such variations as may be determined by the Board of Directors prior to the issue thereof. (1) The shares of the Cumulative Preferred Stock of different series may vary as to: (a) the distinctive serial designations; (b) the rate of dividends and the dates from which dividends shall be cumulative as provided in paragraph (2); (c) the price or prices at and the terms and conditions on which such shares may be redeemed; (d) the amount or amounts payable upon such shares in event of involuntary liquidation; (e) the amount or amounts payable upon such shares in event of voluntary liquidation; (f) sinking fund provisions (if any) for the redemption or purchase of such shares; and (g) the terms and conditions (if any) on which such shares may be converted. The shares of all series of the Cumulative Preferred Stock shall in all other respects be equal, except for the right to vote as provided herein. No shares of the Cumulative Preferred Stock shall be entitled to any right of partici- pation. (2) The holders of each series of the Cumulative Pre- ferred Stock at the time outstanding shall be entitled to receive, but only when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative preferential dividends, at the annual dividend rate for the particular series fixed therefor as herein provided, payable quarter-yearly on the first days of February, May, August and November in each year, to stockholders of record on the respective dates, not exceeding fifty (50) days and not less than ten (10) days preceding such dividend payment dates, fixed for the purpose by the Board of Directors. The shares of any series of 2 Cumulative Preferred Stock issued by the Corporation prior to June 1, 1977, for which the annual dividend rate is designated as a specified percentage per annum, shall be entitled to receive such dividends, calculated, per share, at the percentage specified for such series multiplied by $100. No dividends shall be declared on any series of the Cumulative Preferred Stock in respect of any quarter-yearly dividend period unless there shall likewise be declared on all shares of all series of the Cumulative Preferred Stock at the time outstanding, like proportionate dividends, ratably, in proportion to the respective annual dividend rates fixed therefor, in respect of the same quarter-yearly dividend period, to the extent that such shares are entitled to receive dividends for such quarter-yearly dividend period. The dividends on shares of all series of the Cumulative Preferred Stock shall be cumulative. Dividends on shares of any series shall be cumulative from the date or dates fixed by the Board of Directors, or, if not so fixed, from the date of the initial issuance of such shares. All dividends declared payable to the holders of record of the Cumulative Preferred Stock of any series as of a date on which shares of the Cumulative Preferred Stock of such series are owned by the Corporation shall be deemed to have been paid in respect of such shares owned by the Corporation on such date. Unless dividends on all outstanding shares of each series of the Cumulative Preferred Stock, at the annual dividend rate and from the dates for accumulation thereof fixed as herein provided shall have been paid for all past quarter-yearly dividend periods, but without interest on cumulative dividends, no dividends shall be paid or declared and no other distribution shall be made on the Common Stock, and no Common Stock shall be purchased or otherwise acquired for value by the Corporation. The holders of the Cumulative Preferred Stock of any series shall not be entitled to receive any dividends thereon other than the dividends referred to in this paragraph (2). (3) The Corporation, by action of its Board of Directors, may redeem the whole or any part of any series of the Cumulative Preferred Stock, at any time or from time to time, by paying in cash the redemption price of the shares of the particular series fixed therefor as herein provided, together with a sum in the case of each share of each series so to be redeemed, computed at the annual dividend rate for the series of which the particular share is a part from the date from which dividends on such share became cumulative to the date fixed for such redemption, less the aggregate of the dividends theretofore or on such redemption date paid thereon. Notice of every such redemption shall be given by publication at least once in one daily newspaper printed in the English language and of general circulation in Roanoke, Virginia, and in one daily newspaper printed in the English language and of general circulation in the Borough of Manhattan, The City of New York, the first publication in such newspapers to be at least thirty (30) days and not more than ninety (90) days prior to the date fixed for such redemption. At least thirty (30) days' and not more than ninety (90) days' previous notice of every such redemption 3 shall also be mailed to the holders of record of the shares of the Cumulative Preferred Stock so to be redeemed, at their respective addresses as the same shall appear on the books of the Corporation; but no failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of the Cumulative Preferred Stock so to be redeemed. In case of the redemption of a part only of any series of the Cumulative Preferred Stock at the time outstanding, the Corporation shall select by lot, or in such other manner as the Board of Directors may determine, the shares so to be redeemed. The Board of Directors shall have full power and authority, subject to the limitations and provisions herein contained, to prescribe the manner in which, and the terms and conditions upon which, the shares of the Cumulative Preferred Stock shall be redeemed from time to time. If such notice of redemption shall have been duly given by publication, and if on or before the redemption date specified in such notice all funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the account of the holders of the shares to be redeemed, so as to be and continue to be available therefor, then, notwithstanding that any certificate for such shares so called for redemption shall not have been surrendered for cancellation, from and after the date fixed for redemption, the shares represented thereby shall no longer be deemed outstanding, the right to receive dividends thereon shall cease to accrue and all rights with respect to such shares so called for redemption shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive, out of the funds so set aside in trust, the amount payable upon redemption thereof, without interest; provided, however, that the Corporation may, after giving notice by publication of any such redemption as hereinbefore provided or after giving to the bank or trust company hereinafter referred to irrevocable authorization to give such notice by publication, and at any time prior to the redemption date specified in such notice, deposit in trust, for the account of the holders of the shares to be redeemed, funds necessary for such redemption with a bank or trust company in good standing, organized under the laws of the United States of America or of the State of New York, doing business in the Borough of Manhattan, The City of New York, and having capital, surplus and undivided profits aggregating at least $50,000,000, or organized under the laws of the Commonwealth of Virginia, doing business in the City of Richmond, Virginia, and having capital, surplus and undivided profits aggregating at least $10,000,000, designated in such notice of redemption, and, upon such deposit in trust, all shares with respect to which such deposit shall have been made shall no longer be deemed to be outstanding, and all rights with respect to such shares shall forthwith cease and terminate, except only the right of the holders thereof to receive, out of the funds so deposited in trust, from and after the date of such deposit, the amount payable upon the redemption thereof, without interest. Nothing herein contained shall limit any right of 4 the Corporation to purchase or otherwise acquire any shares of the Cumulative Preferred Stock; provided, however, that the Corporation shall not, if and when dividends payable on the Cumulative Preferred Stock shall be in default, purchase or otherwise acquire for value any shares of the Cumulative Preferred Stock (except by redemption of all outstanding shares of each series of the Cumulative Preferred Stock) unless such purchase or acquisition shall have been ordered, approved, or permitted by the Securities and Exchange Commission or any successor commission under the provisions of the Public Utility Holding Company Act of 1935 as at the time in effect. (4) Before any amount shall be paid to, or any assets distributed among, the holders of the Common Stock upon any liquidation, dissolution or winding up of the Corporation, and after paying or providing for the payment of all creditors of the Corporation, the holders of each series of the Cumulative Preferred Stock at the time outstanding shall be entitled to be paid in cash the amount for the particular series fixed therefor as herein provided, together with a sum in the case of each such share of each series, computed at the annual dividend rate for the series of which the particular share is a part, from the date from which dividends on such share became cumulative to the date fixed for the payment of such distributive amount, less the aggregate of the dividends theretofore or on such date paid thereon; but no payments on account of such distributive amounts shall be made to the holders of any series of the Cumulative Preferred Stock unless there shall likewise be paid at the same time to the holders of each other series of the Cumulative Preferred Stock at the time outstanding like proportionate distributive amounts, ratably, in proportion to the full distributive amounts to which they are respectively entitled as herein provided. The holders of the Cumulative Preferred Stock of any series shall not be entitled to receive any amounts with respect thereto upon any liquidation, dissolution or winding up of the Corporation other than the amounts referred to in this paragraph. Neither the consolidation or merger of the Corporation with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, shall be deemed to be a liquidation, dissolution or winding up of the Corporation. (5) Whenever the full dividends on all series of the Cumulative Preferred Stock at the time outstanding for all past quarter-yearly dividend periods shall have been paid or declared and set apart for payment, then, subject to the provisions of subparagraph (7)(B)(c) hereof, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on the Common Stock, but only out of funds legally available for the payment of dividends; provided, however, that so long as any shares of the Cumulative Preferred Stock of any series are outstanding, the Corporation shall not declare or pay any dividends on the Common Stock of the Corporation except as follows: 5 (a) If and so long as the Common Stock Equity at the end of the calendar month immediately preceding the date on which a dividend on the Common Stock is declared is, or as a result of such dividend would become, less than 20% of total capitalization, the Corporation shall not declare such dividends in an amount which, together with all other dividends on the Common Stock paid within the year ending with and including the date on which such dividend is payable, exceeds 50% of the net income of the Corporation available for dividends on the Common Stock for the twelve full calendar months immediately preceding the calendar month in which such dividends are declared, except in an amount not exceeding the aggregate of dividends on the Common Stock which could have been, but have not been, declared under this clause (a); and (b) If and so long as the Common Stock Equity at the end of the calendar month immediately preceding the date on which a dividend on the Common Stock is declared is, or as a result of such dividend would become, less than 25% but not less than 20% of total capitalization, the Corporation shall not declare such dividends in an amount which, together with all other dividends on the Common Stock paid within the year ending with and including the date on which such dividend is payable, exceeds 75% of the net income of the Corporation available for dividends on the Common Stock for the twelve full calendar months immediately preceding the calendar month in which such dividends are declared, except in an amount not exceeding the aggregate of dividends on the Common Stock which could have been, but have not been, declared under clause (a) above and this clause (b). (c) At any time when the Common Stock Equity is 25% or more of total capitalization, the Corporation may not declare dividends on shares of the Common Stock which would reduce the Common Stock Equity below 25% of total capitalization, except to the extent provided in clauses (a) and (b) above. For purposes of this paragraph (5): (i) The term "Common Stock" shall mean any stock of the Corporation ranking junior to the Cumulative Preferred Stock as to dividends or assets; the term "dividends" shall mean any dividend or distribution on the Common Stock (other than in shares of Common Stock) or any purchase or acquisition for value of any shares of Common Stock; and the term "Common Stock Equity" shall mean the aggregate of the par value of, or stated capital represented by, the outstanding shares of Common Stock, all earned surplus and capital surplus, and any premiums on the Common Stock then carried on the books of the Corporation, less 6 (I) the excess, if any, of the aggregate amount payable on involuntary liquidation of the Corporation upon all outstanding shares of the Cumulative Preferred Stock of the Corporation of all series (including any stock of the Corporation ranking prior to or on a parity with the Cumulative Preferred Stock) over the sum of the aggregate stated capital attributable to such shares and any premiums thereon; (II) any amounts on the books of the Corporation known, or estimated if not known, to represent the excess, if any, of recorded value over original cost of used or useful utility plant; and (III) any intangible items set forth on the asset side of the balance sheet of the Corporation as the result of accounting convention, such as unamortized debt discount and expense; provided, however, that no deductions shall be required to be made in respect of items referred to in subdivision (II) and (III) of this subparagraph (i) in cases in which such items are being amortized or are provided for, or are being provided for, by reserves. (ii) The term "total capitalization" shall mean the aggregate of (I) the principal amount of all outstanding indebtedness of the Corporation maturing more than twelve months after the date of issue thereof, and (II) the stated capital represented by, and any premiums carried on the books of the Corporation in respect of, the outstanding shares of all classes of the capital stock of the Corporation, earned surplus and capital surplus, less any amounts required to be deducted pursuant to subdivisions (II) and (III) of subparagraph (i) above in the determination of Common Stock Equity. (6) In the event of any liquidation, dissolution or winding up of the Corporation, all assets and funds of the Corporation remaining after paying or providing for the payment of all creditors of the Corporation and after paying or providing for the payment to the holders of shares of all series of the Cumulative Preferred Stock of the full distributive amounts to which they are respectively entitled as herein provided, shall be divided among and paid to the holders of the Common Stock according to their respective rights and interests. 7 (7)(A) So long as any shares of the Cumulative Preferred Stock of any series are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose) of the holders of more than two-thirds of the total number of votes which holders of the outstanding shares of the Cumulative Preferred Stock of all series are entitled to cast: (a) Increase the total authorized amount of the Cumulative Preferred Stock; or (b) Create or authorize any series of stock (other than a series of the Cumulative Preferred Stock) ranking prior to or on a parity with Cumulative Preferred Stock as to assets or dividends, or create or authorize any obligation or security convertible into shares of stock of any such series, or issue any shares of any such stock ranking prior to the Cumulative Preferred Stock (other than upon the conversion of any such convertible obligation or security), or issue any such convertible obligation or security, more than twelve months in the case of any such issuance after the date as of which the Corporation was empowered to create or authorize such prior ranking stock or such convertible obligation or security; or (c) Amend, alter, change or repeal any of the express terms of the Cumulative Preferred Stock or of any series of the Cumulative Preferred Stock then outstanding in a manner prejudicial to the holders thereof; provided, however, that if any such amendment, alteration, change or repeal would be prejudicial to the holders of one or more, but not all, of the series of the Cumulative Preferred Stock at the time outstanding, such consent of the holders of two-thirds of the total number of votes which holders of the shares of each series prejudicially affected are entitled to cast shall be required. (B) So long as any shares of the Cumulative Preferred Stock of any series are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose) of the holders of a majority of the total number of votes which holders of the outstanding shares of the Cumulative Preferred Stock of all series are entitled to cast, unless the consent of the holders of shares having some greater proportion of the total vote is required: (a) Merge or consolidate with or into any other corporation or corporations, or sell or otherwise dispose of all or substantially all of its assets, unless such merger, consolidation, sale or disposition, or the issuance and assumption of all securities to be issued or assumed in connection with any such transaction, shall have been ordered, approved, or permitted by the Securities and Exchange Commission or any successor commission under the provisions of the 8 Public Utility Holding Company Act of 1935 as at the time in effect; provided that the provisions of this clause (a) shall not apply to a purchase or other acquisition by the Corporation of franchises or assets of another corporation in any manner which does not involve a merger or consolidation; or (b) Issue or assume any evidences of indebtedness, secured or unsecured, other than bonds or other securities representing indebtedness of the character described hereafter in (1), (2), (3), (4), (5) and (6) of this clause (b), for purposes other than the refunding or renewing of outstanding evidences of indebtedness theretofore issued or assumed by the Corporation resulting in equal or longer maturities or redeeming or otherwise retiring all outstanding shares of the Cumulative Preferred Stock, if, immediately after such issue or assumption, (I) the total principal amount of all such indebtedness issued or assumed by the Corporation and then outstanding (including the evidences of indebtedness then to be issued or assumed) would exceed twenty per centum (20%) of the aggregate of (i) the total principal amount of all bonds or other securities representing indebtedness of the character described hereafter in (1), (2), (3), (4), (5) and (6) of this clause (b), issued or assumed by the Corporation and then to be outstanding, and (ii) the stated capital and surplus of the Corporation as then to be stated on the books of account of the Corporation, unless such evidences of indebtedness are (1) bonds of the Corporation issued under the Mortgage of the Corporation to Bankers Trust Company and R. Gregory Page, as Trustees, dated as of December 1, 1940 (hereinafter referred to as the "bonds of the Corporation"), or (2) any bonds issued under a new mortgage replacing said Mortgage, dated as of December 1, 1940, or (3) any bonds issued under any other new mortgage of the Corporation provided that said Mortgage, dated as of December 1, 1940, or any mortgage replacing it, shall have been irrevocably closed against the authentication of additional bonds thereunder, or (4) any indebtedness secured by bonds of the Corporation or by bonds issued under any such new mortgage, in either case in a principal amount not in excess of the principal amount of such pledged bonds, or (5) any indebtedness secured by bonds issued under a mortgage existing at the time of acquisition on property acquired by the Corporation, whether by consolidation, merger, exchange, purchase, lease, or in any other way whatsoever, provided that said mortgage, or any mortgage replacing it, shall be irrevocably closed against the authentication of additional bonds thereunder, or (6) obligations to pay the purchase price of material or equipment made in the ordinary course of the Corporation's business, or (II) the total outstanding principal amount of all unsecured notes, debentures or other securities representing unsecured debt of the Corporation (other than obligations of the 9 character described in (6) of this clause (b)) would thereby exceed twenty per centum (20%) of the aggregate of (i) the total principal amount of all bonds or other secured indebtedness of the Corporation, and (ii) the stated capital and surplus of the Corporation as then to be stated on the books of account of the Corporation, or (III) the total outstanding principal amount of all unsecured notes, debentures or other securities representing unsecured indebtedness of the Corporation (other than obligations of the character described in (6) of this clause (b) of maturities of less than 10 years would thereby exceed then per centum (10%) of the aggregate of (i) the total principal amount of all bonds or other secured indebtedness of the Corporation, and (ii) the stated capital and surplus of the Corporation as then to be stated on the books of account of the Corporation; provided that, for the purposes of this clause (b) only, the payment due upon the maturity of unsecured debt having an original single maturity of 10 or more years or the payment due upon the final maturity of any unsecured serial debt which had original maturities of 10 or more years shall not be regarded as unsecured debt of a maturity of less than 10 years until such payment shall be required to be made within 3 years; or (c) Issue any additional shares, or reissue any reacquired shares, of Cumulative Preferred Stock or of any other class of stock ranking on a parity with the outstanding shares of the Cumulative Preferred Stock as to dividends or assets for any purpose other than to refinance an amount of outstanding Cumulative Preferred Stock, or stock ranking prior to or on a parity with the Cumulative Preferred Stock as to dividends or assets, having an aggregate involuntary liquidation price equal to the aggregate involuntary liquidation price of such issued or reissued shares, unless (i) the net income of the Corporation, determined in accordance with generally accepted accounting principles to be available for the payment of dividends for a period of twelve consecutive calendar months within the fifteen calendar months immediately preceding the calendar month of such issuance, is equal to at least twice the annual dividend requirements on the Cumulative Preferred Stock (including dividend requirements on any class of stock ranking prior to or on a parity with the shares to be issued as to dividends or assets), which will be outstanding immediately after the issuance of such shares; (ii) the gross income of the Corporation for said period, determined in accordance with generally accepted accounting principles (but in any event after all taxes including taxes based on income), is equal to at least one and one-half times the aggregate of the annual interest charges 10 on indebtedness of the Corporation (excluding interest charges on indebtedness to be retired by the application of the proceeds from the issuance of such shares) and the annual dividend require- ments on the Cumulative Preferred Stock (including dividend requirements on any class of stock ranking prior to or on a parity with the shares to be issued as to dividends or assets), which will be outstanding immediately after the issuance of such shares; and (iii) the aggregate of the Common Stock Equity (the words "Common Stock" and "Common Stock Equity" having, for the purposes of this subpara- graph (7)(B)(c), the respective meanings defined in paragraph (5)(i) hereof) is at least equal to the aggregate amount payable in connection with an involuntary liquidation of the Corporation with respect to all shares of the Cumulative Preferred Stock and all shares of stock, if any, ranking prior thereto or on a parity therewith as to dividends or assets, which will be outstanding immediately after the issuance of such shares of Cumulative Preferred Stock or stock ranking prior to or on a parity therewith. If for the purposes of meeting the require- ments of subdivision (iii) of clause (c), it shall have been necessary to take into consideration any earned surplus of the Corporation, the Corporation shall not thereafter pay any dividends on or make any distributions in respect of, or purchase or otherwise acquire for value, Common Stock which would result in reducing the Common Stock Equity to an amount less than the amount payable on involuntary liquidation of the Corporation with respect to all shares of the Cumulative Preferred Stock and all shares ranking prior to or on a parity with the Cumulative Preferred Stock as to dividends or assets, at the time outstanding. If during the period as of which gross income is to be determined for the purposes set forth in clause (c), the amount, if any, required to be expended by the Corporation for property additions pursuant to a renewal and replacement fund or similar fund established under its mortgage indenture shall exceed the amount deducted in the determination of such gross income on account of depreciation and amortization of electric plant acquisition adjustments, such excess shall also be deducted in determining such gross income. (8) No holder of Cumulative Preferred Stock shall have any pre-emptive right to acquire unissued shares of the Corporation or to acquire any securities convertible into or exchangeable for such shares or to 11 acquire any options, warrants or rights to purchase such shares. (9)(A) Every holder of any series of Cumulative Preferred Stock issued by the Corporation prior to June 1, 1977, shall be entitled to vote together with the holders of the Common Stock (every holder of Common Stock having one vote for each share of stock held) for the election of Directors and upon all other matters, except as otherwise provided in this paragraph (9) or in para-graph (7) hereof or as otherwise required by law. Every holder of any series of Cumulative Preferred Stock issued by the Corporation on or after June 1, 1977, shall be entitled to vote only as provided in paragraph (7), as provided in subparagraphs (B) through (F) of this para-graph (9) or as otherwise required by law. (B) On any matter on which the holders of any series of the Cumulative Preferred Stock shall be entitled to vote, each share shall entitle the holder thereof to a vote equal to the fraction of which the involuntary liquidation price fixed for such share as herein provided is the numerator and $100 is the denominator. (C) If and when dividends payable on the Cumulative Preferred Stock shall be in default in an amount equivalent to four (4) full quarter-yearly dividends on all shares of all series of the Cumulative Preferred Stock at the time outstanding, and until all dividends in default on the Cumulative Preferred Stock shall have been paid, the holders of all shares of the Cumulative Preferred Stock, voting separately as one class, shall be entitled to elect the smallest number of Directors necessary to constitute a majority of the full Board of Directors, and the holders of the Common Stock, voting separately as a class, shall be entitled to elect the remaining Directors of the Corporation. The terms of office of all persons who may be Directors of the Corporation at the time shall terminate upon the election of a majority of the Board of Directors by the holders of the Cumulative Preferred Stock, whether or not the holders of the Common Stock shall then have elected the remaining Directors of the Corporation. (D) If and when all dividends then in default on the Cumulative Preferred Stock at the time outstanding shall be paid (and such dividends shall be declared and paid out of any funds legally available therefor as soon as reasonably practicable), the Cumulative Preferred Stock shall thereupon be divested of any special right with respect to the election of Directors provided in subparagraph (C) hereof, and the voting power of the Cumulative Preferred Stock and the Common Stock shall revert to the status existing before the occurrence of such default; but always subject to the same provisions for vesting such special rights in 12 the Cumulative Preferred Stock in case of further like default or defaults in dividends thereon. Upon the termination of any such special right upon payment of all accumulated and defaulted dividends on such stock, the terms of office of all persons who may have been elected Directors of the Corporation by vote of the holders of the Cumulative Preferred Stock, as a class, pursuant to such special right shall forthwith terminate. (E) In case of any vacancy in the Board of Directors occurring among the Directors elected by the holders of the Cumulative Preferred Stock, as a class, pursuant to subparagraph (C) hereof, the holders of the Cumulative Preferred Stock then outstanding and entitled to vote may elect a successor to hold office for the unexpired term of the Director whose place shall be vacant. In case of a vacancy in the Board of Directors occurring among the Directors elected by the holders of the Common Stock, as a class, pursuant to subparagraph (C) hereof, the holders of the Common Stock then out-standing and entitled to vote may elect a successor to hold office for the unexpired term of the Director whose place shall be vacant. In all other cases, any vacancy occurring among the Directors shall be filled by the vote of a majority of the remaining Directors. (F) Whenever the holders of the Cumulative Preferred Stock, as a class, become entitled to elect Directors of the Corporation pursuant to either sub- paragraph (C) or (E) hereof, or whenever the holders of the Common Stock, as a class, become entitled to elect Directors of the Corporation pursuant to either sub- paragraph (C) or (E) hereof, a meeting of the holders of the Cumulative Preferred Stock or of the Common Stock, as the case may be, shall be held at any time thereafter upon call by the holders of shares of the Cumulative Preferred Stock or of the Common Stock, as the case may be, entitling them to cast at least 1,000 votes for such purpose, or upon call by the Secretary of the Corporation at the request in writing of any stockholder addressed to him at the principal office of the Corporation. At all meetings of stockholders held for the purpose of electing Directors during such times as the holders of shares of the Cumulative Preferred Stock shall have the special right, voting separately as one class, to elect Directors pursuant to either subparagraph (C) or (E) hereof, the presence in person or by proxy of the holders of a majority of the outstanding shares of the Common Stock shall be required to constitute a quorum of such class for the election of Directors, and the presence in person or by proxy of the holders of a majority of the total number of votes which holders of the outstanding shares of all series of the Cumulative Preferred Stock are entitled to cast shall be required to constitute a quorum of such class for the election of Directors; provided, 13 however, that the absence of a quorum of the holders of stock of either such class shall not prevent the election at any such meeting or adjournment thereof of Directors by the other such class if the necessary quorum of the holders of stock of such other class is present in person or by proxy at such meeting; and provided further that in the absence of a quorum of the holders of stock of either such class, the holders of a majority of the votes which holders of the stock of such class who are present in person or by proxy are entitled to cast shall have power to adjourn the election of the Directors to be elected by such class from time to time without notice other than announcement at the meeting until the holders of the requisite number of shares of such class shall be present in person or by proxy. (G) Except when some mandatory provision of law shall be controlling and except as otherwise provided in clause (c) of paragraph (7)(A) hereof and, as regards the special rights of any series of the Cumulative Preferred Stock, as provided in the terms determined for such series, whenever shares of two or more series of the Cumulative Preferred Stock are outstanding, no particular series of the Cumulative Preferred Stock shall be entitled to vote as a separate series on any matter and all shares of the Cumulative Preferred Stock of all series shall be deemed to constitute but one class for any purpose for which a vote of the stockholders of the Corporation by classes may now or hereafter be required. (10) The Corporation may, at any time and from time to time, issue and dispose of any of the authorized and unissued shares of the Cumulative Preferred Stock and Common Stock for such consideration as may be fixed by the Board of Directors, subject to any provisions of law then applicable, and subject to the provisions of any resolutions of the stockholders of the Corporation relating to the issue and disposition of such shares; provided, however, that, in the case of the Cumulative Preferred Stock, such consideration shall have a value not less than the aggregate preferential amount, fixed as herein provided, payable upon such shares in the event of involuntary liquidation. (11) As of June 1, 1977, 1,079,307 shares of the Cumulative Preferred Stock are issued and designated in series; and the Corporation has determined and fixed the designations, descriptions and terms of such series as follows: DIVISION A 4-1/2% Cumulative Preferred Stock 14 300,000 shares of Cumulative Preferred Stock are designated "4-1/2% Cumulative Preferred Stock." The description and terms of the shares of such series, and the respects in which they shall vary from other shares of Cumulative Preferred Stock, are as follows: (a) The annual dividend rate for such series shall be 4-1/2% per annum; (b) The redemption price for such series shall be $110 per share; (c) The amounts which shall be paid to the holders of shares of such series upon any liquidation, dissolution or winding up of the Corporation shall be $110 per share, upon any voluntary liquidation, dissolution or winding up of the Corporation, except that if such voluntary liquidation, dissolution or winding up of the Corporation shall have been approved by the vote in favor thereof of the holders of a majority of the total number of shares of the 4-1/2% Cumulative Preferred Stock then out-standing, given at a meeting called for that purpose, the amount so payable on such voluntary liquidation, dissolution, or winding up shall be $100 per share; or $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Corporation; (d) There shall not be any sinking fund provided for the purchase or redemption of shares of the 4-1/2% Cumulative Preferred Stock; and (e) The shares of the 4-1/2% Cumulative Preferred Stock shall not have any rights to convert the same into and/or purchase stock of any other series or class or other securities, or any special rights other than those specified herein. DIVISION B 4.50% Cumulative Preferred Stock 29,307 shares of Cumulative Preferred Stock are designated "4.50% Cumulative Preferred Stock." The description and terms of the shares of such series, and the respects in which they shall vary from other shares of Cumulative Preferred Stock, are as follows: (a) The annual dividend rate for such series shall be 4.50% per annum; (b) The regular redemption price for such series shall be $102 per share; the shares of such series 15 shall be redeemable for the sinking fund provided for such series, or for any other sinking fund applicable to the shares of such series, at $100 per share (hereinafter referred to as the "sinking fund redemption price"); (c) The amounts which shall be paid to the holders of shares of such series upon any liquidation, dissolution or winding up of the Corporation shall be: $104 per share upon any voluntary liquidation, dissolution or winding up of the Corporation, except that if such voluntary liquidation, dissolution or winding up of the Corporation shall have been approved by the vote in favor thereof of the holders of a majority of the total number of shares of such series then outstanding given at a meeting called for that purpose, the amount so payable on such voluntary liquidation, dissolution or winding up shall be $100 per share; or $100 per share upon any involuntary liquidation, dissolution or winding up of the Corporation; (d) There shall be a sinking fund for the benefit of the shares of such series. So long as there shall remain outstanding any shares of such series, the Corporation, after the full dividends on all series of the Cumulative Preferred Stock at the time outstanding for all past quarter-yearly dividend periods shall have been paid or declared and set apart for payment, shall, on or before November 30 in each year, set aside out of funds legally available therefor as the sinking fund requirement for such year an amount in cash sufficient to redeem, at the sinking fund redemption price provided in (b) above, two per cent (2%) of the maximum number of shares of the 4.50% Cumulative Preferred Stock which shall theretofore have been issued and outstanding at any one time (75,000 shares), provided, however, that against the sinking fund requirement for any calendar year the Corporation may credit an amount equal to the sinking fund redemption price in respect of any shares of such series which it may have purchased for retirement or redeemed otherwise than through the sinking fund and not theretofore credited against any sinking fund require-ment. Unless the sinking fund requirement for such series for all past sinking fund periods shall have been set aside, no dividends shall be paid or declared and no other distribution shall be made on the Common Stock, and no Common Stock shall be purchased or otherwise acquired for value by the Corporation. The Corporation may apply any cash set aside for sinking fund purposes to the purchase or redemption and cancellation of shares of such series. Any balance of cash so set aside remaining after 90 days from November 30th of each year 16 shall be applied promptly to the redemption and cancellation of shares of such series. All shares to be redeemed through the sinking fund shall be selected by lot in such manner as the Board of Directors of the Corporation may determine. Notwithstanding the foregoing, the cancellation of shares of such series so purchased or redeemed shall not retire such shares or decrease capital except upon compliance with the provisions of Section 13.1-63 of the Code of Virginia as at the time in effect; and (e) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or other securities, or any special rights other than those specified herein. DIVISION C 8.12% Cumulative Preferred Stock 300,000 shares of Cumulative Preferred Stock are designated "8.12% Cumulative Preferred Stock." The description and terms of the shares of such series, and the respects in which they shall vary from other shares of Cumulative Preferred Stock, are as follows: (a) The annual dividend rate for such series shall be 8.12% per annum; (b) The redemption price for such series shall be $107.59 per share prior to September 1, 1981; $105.56 per share on and after September 1, 1981 but prior to September 1, 1986; $103.53 per share on and after September 1, 1986 but prior to September 1, 1991; and $102.31 per share on September 1, 1991 and thereafter; (c) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Corporation shall be the redemption price in effect at the date of any voluntary liquidation, dissolution or winding up of the Corporation; or $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Corporation; (d) There shall not be any sinking fund provided for the purchase or redemption of shares of such series; and (e) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or any other securities, or any special rights other than those specified herein. 17 DIVISION D 7.40% Cumulative Preferred Stock 250,000 shares of Cumulated Preferred Stock are designated "7.40% Cumulative Preferred Stock." The description and terms of the shares of such series, and the respects in which they shall vary from other shares of Cumulative Preferred Stock, are as follows: (a) The annual dividend rate for such series shall be 7.40% per annum; (b) The redemption price for such series shall be $106.92 per share prior to February 1, 1982; $105.07 per share on and after February 1, 1982 but prior to February 1, 1987; $103.22 per share on and after February 1, 1987 but prior to February 1, 1992; and $102.11 per share on February 1, 1992 and thereafter; (c) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Corporation shall be the redemption price in effect at the date of any voluntary liquidation, dissolution or winding up of the Corporation; or $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Corporation; (d) There shall not be any sinking fund provided for the purchase or redemption of shares of such series; and (e) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or any other securities, or any special rights other than those specified herein. DIVISION E 8.52% Cumulative Preferred Stock 200,000 shares of Cumulative Preferred Stock are designated "8.52% Cumulative Preferred Stock." The description and terms of the shares of such series, and the respects in which they shall vary from other shares of Cumulative Preferred Stock, are as follows: (a) The annual dividend rate for such series shall be 8.52% per annum; (b) The redemption price for such series shall be $109.52 per share prior to March 1, 1979; $107.39 per share on and after March 1, 1979 but prior to March 1, 1984; $105.26 per share on and after March 1, 1984 but prior to March 1, 1989; $103.13 per share on and after March 1, 1989 but prior to March 1, 1994; and $101.86 18 per share on March 1, 1994 and thereafter, provided, however, that no share of such series shall be redeemed prior to March 1, 1979 if such redemption is for the purpose or in anticipation of refunding such share, directly or indirectly, through the incurring of debt, or through the issuance of capital stock ranking equally with or prior to the shares of said series as to dividends or assets, if such debt has an effective interest cost to the Corporation (computed in accordance with generally accepted financial practice), or such capital stock has an effective dividend cost to the Corporation (so computed) of less than 8.52% per annum; (c) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Corporation shall be the redemption price in effect at the date of any voluntary liquidation, dissolution or winding up of the Corporation; or $100 per share, in the event of any voluntary liquidation, dissolution or winding up of the Corporation; (d) There shall not be any sinking fund provided for the purchase or redemption of shares of such series; and (e) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or any other securities, or any special rights other than those specified herein. DIVISION F 9% Cumulative Preferred Stock 600,000 shares of Cumulative Preferred Stock are designated "9% Cumulative Preferred Stock." The description and terms of the shares of such series, and the respects in which they shall vary from other shares of Cumulative Preferred Stock, are as follows: (a) The distinctive serial designation of such series shall be "9% Cumulative Preferred Stock"; (b) The annual dividend rate for such series shall be 9% per share per annum, which dividend shall be calculated, per share, at such percentage multiplied by $100, and the date from which dividends on all shares of said series issued prior to the record date for the dividend payable November 1, 1987, shall be cumulative, shall be the date of issuance of the shares of such series; (c) The regular redemption price for such series shall be $109.00 per share on or prior to August 31, 1992 and thereafter shall be as follows: 19 If Redeemed Regular During 12 Months Redemption Period Ending Price August 31 Per Share 1993 $106.75 1994 106.30 1995 105.85 1996 105.40 1997 104.95 1998 104.50 1999 104.05 2000 103.60 2001 103.15 2002 102.70 2003 102.25 2004 101.80 2005 101.35 2006 100.90 2007 100.45 and thereafter the regular redemption price per share of such series shall be $100 per share; provided, however, that no share of such series shall be redeemed prior to September 1, 1992 if such redemption is for the purpose or in anticipation of refunding such share, directly or indirectly, through the incurring of debt, or through the issuance of capital stock ranking equally with or prior to the shares of said series as to dividends or assets, if such debt has an effective interest cost to the Corporation (computed in accordance with generally accepted financial practice), or such capital stock has an effective dividend cost to the Corporation (so computed) of less than 9.10% per annum; (d) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Corporation shall be the redemption price in effect at the date of any voluntary liquidation, dissolution or winding up of the Corporation; or $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Corporation; (e)(1) A sinking fund shall be established for the retirement of the shares of such series. So long as there shall remain outstanding any shares of such series, the Corporation shall, to the extent permitted by law on November 1 in each year commencing with the year 1992, redeem as and for a sinking fund requirement, out of funds legally available therefor, a number of shares equal to 5% of the total number of shares classified as 9% Cumulative Preferred Stock in these Articles of Amendment at a redemption price of $100 per share. The sinking fund requirement shall be cumulative so that if on any such November 1 the sinking fund requirement shall not have been met, then 20 such sinking fund requirement, to the extent not met, shall become an additional sinking fund requirement for the next succeeding November 1 on which such redemption may be effected. (2) The Corporation shall have the non- cumulative option, on any sinking fund date as provided in subparagraph (e)(1) hereof, to redeem at a redemption price of $100 per share, an additional number of shares equal to 5% of the total number of shares classified as 9% Cumulative Preferred Stock in these Articles of Amendment. No redemption made pursuant to this subparagraph (e)(2) shall be deemed to fulfill any sinking fund requirement established pursuant to subparagraph (e)(1). (3) The Corporation shall be entitled, at its election, to credit against the sinking fund requirement due on November 1 of any year pursuant to subparagraph (e)(1) shares of such series theretofore purchased or otherwise acquired by the Corporation and not previously credited against any sinking fund requirement. (f) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or any other securities, or any special rights other than those specified herein. DIVISION G 7.80% Cumulative Preferred Stock 500,000 shares of Cumulative Preferred Stock are designated "7.80% Cumulative Preferred Stock." The description and terms of the shares of such series, and the respects in which they shall vary from other shares of Cumulative Preferred Stock, are as follows: (a) The distinctive serial designation of such series shall be "7.80% Cumulative Preferred Stock". (b) The annual dividend rate for such series shall be 7.80% per share per annum, which dividend shall be calculated, per share, at such percentage multiplied by $100, and the date from which dividends on all shares of said series issued prior to the record date for the dividend payable May 1, 1992, shall be cumulative, shall be the date of initial issuance of the shares of such series. (c) The regular redemption price for such series shall be $107.80 per share on or prior to March 31, 1997 and thereafter shall be as follows: Regular Redemption 21 Price Redemption Date (Dates Inclusive) Per Share April 1, 1997 to March 31, 1998 $105.20 April 1, 1998 to March 31, 1999 104.68 April 1, 1999 to March 31, 2000 104.16 April 1, 2000 to March 31, 2001 103.64 April 1, 2001 to March 31, 2002 103.12 April 1, 2002 to March 31, 2003 102.60 April 1, 2003 to March 31, 2004 102.08 April 1, 2004 to March 31, 2005 101.56 April 1, 2005 to March 31, 2006 101.04 April 1, 2006 to March 31, 2007 100.52 and thereafter the regular redemption price per share shall be $100 per share, plus an amount in each case equal to accrued unpaid dividends to the date of redemption; provided, however, that no share of such series shall be redeemed prior to April 1, 1997 if such redemption is for the purpose or in anticipation of refunding such share, directly or indirectly, through the incurring of debt, or through the issuance of shares of capital stock ranking equally with or prior to the shares of said series as to dividends or assets, if such debt has an effective interest cost to the Corporation (computed in accordance with generally accepted financial practice), or such shares of capital stock have an effective dividend cost to the Corporation (so computed), of less than 7.88% per annum. (d) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Corporation shall be the regular redemption price in effect at the date of any voluntary liquidation, dissolution or winding up of the Corporation; or $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Corporation. (e)(1) A sinking fund shall be established for the retirement of the shares of such series. So long as there shall remain outstanding any shares of such series, the Corporation shall, to the extent permitted by law, on May 1 in each year commencing with the year 1998, redeem as and for a sinking fund requirement, out of funds legally available therefor, a number of shares equal to 5% of the total number of shares initially classified as 7.80% Cumulative Preferred Stock in these Articles of Amendment at a sinking fund redemption price of $100 per share plus accrued unpaid dividends to the date of redemption. The sinking fund requirement shall be cumulative so that if on any such May 1 the sinking fund requirement shall not have been met, then such sinking fund requirement, to the extent not met, shall become an additional sinking fund requirement for the next succeeding May 1 on which such redemption may be effected. 22 (2) The Corporation shall have the non-cumulative option, on any sinking fund date as provided in subparagraph (e)(1) hereof, to redeem at a sinking fund redemption price of $100 per share, an additional number of shares equal to not more than 5% of the total number of shares initially classified as 7.80% Cumulative Preferred Stock in these Articles of Amendment. No redemption made pursuant to this subparagraph (e)(2) shall be deemed to fulfill any sinking fund requirement established pursuant to subparagraph (e)(1). (3) The Corporation shall be entitled, at its election, to credit against the sinking fund requirement due on May 1 of any year pursuant to subparagraph (e)(1) shares of such series theretofore purchased or otherwise acquired by the Corporation and not previously credited against any such sinking fund requirement. (f) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or any other securities, or any special rights other than those specified herein. DIVISION H 5.92% Cumulative Preferred Stock 600,000 shares of Cumulative Preferred Stock are designated "5.92% Cumulative Preferred Stock." The description and terms of the shares of such series, and the respects in which they shall vary from other shares of Cumulative Preferred Stock, are as follows: (a) The distinctive serial designation of such series shall be "5.92% Cumulative Preferred Stock". (b) The annual dividend rate for such series shall be 5.92% per share per annum, which dividend shall be calculated, per share, at such percentage multiplied by $100, and the date from which dividends on all shares of said series issued prior to the record date for the dividend payable February 1, 1994, shall be cumulative, shall be the date of initial issuance of the shares of such series. (c) Such series shall not be subject to redemption prior to October 1, 2003; the regular redemption price for shares of such series shall be $100 per share on or after October 1, 2003, plus an amount equal to accrued and unpaid dividends to the date of redemption. (d) The preferential amounts to which the holders of shares of such series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall be $100 per share, plus accrued and unpaid dividends. (e)(1) A sinking fund shall be established for the retirement of the shares of such series. So long as there 23 shall remain outstanding any shares of such series, the Corporation shall, to the extent not prohibited by law, on November 1, 2003, and on each November 1 thereafter to and including November 1, 2007, redeem as and for a sinking fund requirement, a number of shares equal to 5% of the total number of shares initially classified as 5.92% Cumulative Preferred Stock in these Articles of Amendment at a sinking fund redemption price of $100 per share plus accrued unpaid dividends to the date of redemption. The remaining shares of such series outstanding on November 1, 2008 will be redeemed as a final sinking fund requirement, to the extent not prohibited by law, on such date at a sinking fund redemption price of $100 per share plus accrued and unpaid dividends to the date of redemption. The sinking fund requirement shall be cumulative so that if on any such November 1 the sinking fund requirement shall not have been met, then such sinking fund requirement, to the extent not met, shall become an additional sinking fund requirement for the next succeeding November 1 on which such redemption may be effected. (2) The Corporation shall be entitled, at its election, to credit against the sinking fund requirement due on November 1 of any year pursuant to subparagraph (e)(1) shares of such series theretofore purchased or otherwise acquired by the Corporation and not previously credited against any such sinking fund requirement. (f) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or any other securities, or any special rights other than those specified herein. DIVISION I 5.90% Cumulative Preferred Stock 500,000 shares of Cumulative Preferred Stock are designated "5.90% Cumulative Preferred Stock." The description and terms of the shares of such series, and the respects in which they shall vary from other shares of Cumulative Preferred Stock, are as follows: (a) The distinctive serial designation of such series shall be "5.90% Cumulative Preferred Stock". (b) The annual dividend rate for such series shall be 5.90% per share per annum, which dividend shall be calculated, per share, at such percentage multiplied by $100, and the date from which dividends on all shares of said series issued prior to the record date for the dividend payable February 1, 1994, shall be cumulative, shall be the date of initial issuance of the shares of such series. (c) Such series shall not be subject to redemption prior to November 1, 2003; the regular redemption price for shares of such series shall be $100 per share on or after 24 November 1, 2003, plus an amount equal to accrued and unpaid dividends to the date of redemption. (d) The preferential amounts to which the holders of shares of such series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall be $100 per share, plus accrued and unpaid dividends. (e)(1) A sinking fund shall be established for the retirement of the shares of such series. So long as there shall remain outstanding any shares of such series, the Corporation shall, to the extent not prohibited by law, on November 1, 2003, and on each November 1 thereafter to and including November 1, 2007, redeem as and for a sinking fund requirement, a number of shares equal to 5% of the total number of shares initially classified as 5.90% Cumulative Preferred Stock in these Articles of Amendment at a sinking fund redemption price of $100 per share plus accrued unpaid dividends to the date of redemption. The remaining shares of such series outstanding on November 1, 2008 will be redeemed as a final sinking fund requirement, to the extent not prohibited by law, on such date at a sinking fund redemption price of $100 per share plus accrued and unpaid dividends to the date of redemption. The sinking fund requirement shall be cumulative so that if on any such November 1 the sinking fund requirement shall not have been met, then such sinking fund requirement, to the extent not met, shall become an additional sinking fund requirement for the next succeeding November 1 on which such redemption may be effected. (2) The Corporation shall be entitled, at its election, to credit against the sinking fund requirement due on November 1 of any year pursuant to subparagraph (e)(1) shares of such series theretofore purchased or otherwise acquired by the Corporation and not previously credited against any such sinking fund requirement. (f) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or any other securities, or any special rights other than those specified herein. DIVISION J 6.85% Cumulative Preferred Stock 300,000 shares of Cumulative Preferred Stock, without par value, are designated "6.85% Cumulative Preferred Stock," consisting of shares of such Cumulative Preferred Stock with designation, description and terms as follows: (a) The distinctive serial designation of such series shall be "6.85% Cumulative Preferred Stock". (b) The annual dividend rate for such series shall be 6.85% per share per annum, which dividend shall be 25 calculated, per share, at such percentage multiplied by $100, and the date from which dividends on all shares of said series issued prior to the record date for the dividend payable August 1, 1994, shall be cumulative, shall be the date of original issuance of the shares of such series. (c) Such series shall not be subject to redemption except as provided in subparagraph (e) below. (d) The preferential amounts to which the holders of shares of such series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation shall be $100 per share, plus accrued and unpaid dividends. (e)(1) A sinking fund shall be established for the retirement of the shares of such series. So long as there shall remain outstanding any shares of such series, the Corporation shall, to the extent not prohibited by law, on August 1 of each year commencing with the year 2000, redeem as and for a sinking fund requirement, 60,000 shares of the 6.85% Cumulative Preferred Stock at a sinking fund redemption price of $100 per share plus accrued unpaid dividends to the date of redemption. The sinking fund requirement shall be cumulative so that if on any such August 1 the sinking fund requirement shall not have been met, then such sinking fund requirement, to the extent not met, shall become an additional sinking fund requirement for the next succeeding August 1 on which such redemption may be effected. (2) The Corporation shall have the non-cumulative option, on any sinking fund date as provided in subparagraph (e)(1), to redeem at the sinking fund redemption price of $100 per share plus accrued and unpaid dividends to the date of redemption up to an additional 60,000 shares of such series. No redemption made pursuant to this subparagraph (e)(2) shall be deemed to fulfill any sinking fund redemption established pursuant to subparagraph (e)(1). (3) The Corporation shall be entitled, at its election, to credit against the sinking fund requirement due on August 1 of any year pursuant to subparagraph (e)(1) shares of such series theretofore purchased or otherwise acquired by the Corporation (other than pursuant to the option provided by subparagraph (e)(2)) and not previously credited against any such sinking fund requirement. (f) The shares of such series shall not have any rights to convert the same into and/or purchase stock of any other series or class or any other securities, or have any special rights other than those specified herein. 26 EX-4 4 APCO 10-K EX-4(B) INDENTURES SUPPLEMENTAL Exhibit 4(b) [CONFORMED COPY] Indenture Supplemental TO Mortgage and Deed of Trust (Dated as of December 1, 1940) Executed by APPALACHIAN POWER COMPANY formerly Appalachian Electric Power Company TO BANKERS TRUST COMPANY, As Trustee Dated as of August 15, 1994 $21,000,000 First Mortgage Bonds, Designated Secured Medium Term Notes, 7.70% Series due September 1, 2004 TABLE OF CONTENTS* PAGE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS Execution of Mortgage. . . . . . . . . . . . . . . . . . 1 Execution of supplemental indentures . . . . . . . . . . 1 Termination of Individual Trustee. . . . . . . . . . . . 1 Provision for issuance of bonds in one or more series. . 1 Right to execute supplemental indenture. . . . . . . . . 2 First Mortgage Bonds heretofore issued . . . . . . . . . 2 Issue of new First Mortgage Bonds of the 54th Series . . 3 First 1994 Supplemental Indenture . . . . . . . . . . . 3 Compliance with legal requirements . . . . . . . . . . . 4 GRANTING CLAUSES. . . . . . . . . . . . . . . . . . . . . . . 4 DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . 4 APPURTENANCES, ETC. . . . . . . . . . . . . . . . . . . . . . 4 HABENDUM. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 PRIOR LEASEHOLD ENCUMBRANCES. . . . . . . . . . . . . . . . . 5 GRANT IN TRUST. . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 1. Supplement to Original Indenture by adding Section 20AAA. . . . . . . . . . . . . . . . . 6 SECTION 2. Initial Issuance of the Bonds of the 54th Series. 9 SECTION 3. Provision for record date for meetings of Bondholders . . . . . . . . . . . . . . . . 9 SECTION 4. Original Indenture and First 1994 Supplemental Indenture same instrument. . . . . . . . . . . 9 SECTION 5. Limitation of rights. . . . . . . . . . . . . . . 9 SECTION 6. Execution in counterparts . . . . . . . . . . . . 9 i *The Table of Contents shall not be deemed to be any part of the Indenture Supplemental to Mortgage and Deed of Trust. ii PAGE TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . 10 SIGNATURES AND SEALS. . . . . . . . . . . . . . . . . . . . . 10 ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . 12 SCHEDULE I. . . . . . . . . . . . . . . . . . . . . . . . . . I-1 iii SUPPLEMENTAL INDENTURE, dated as of the fifteenth day of August in the year One Thousand Nine Hundred and Ninety-four, made and entered into by and between APPALACHIAN POWER COMPANY, a corporation of the Commonwealth of Virginia, the corporate title of which was, prior to April 17, 1958, APPALACHIAN ELECTRIC POWER COMPANY (hereinafter sometimes called the "Company"), a transmitting utility (as such term is defined in Section 46-9- 105(1)(n) of the West Virginia Code), party of the first part, and BANKERS TRUST COMPANY, a corporation of the State of New York (hereinafter sometimes called the "Corporate Trustee" or "Trustee"), as Trustee, party of the second part. WHEREAS, the Company has heretofore executed and delivered its Mortgage and Deed of Trust (hereinafter sometimes referred to as the "Mortgage"), dated as of December 1, 1940, to the Trustee for the security of all bonds of the Company outstanding thereunder, and by said Mortgage conveyed to the Trustee, upon certain trusts, terms and conditions, and with and subject to certain provisos and covenants therein contained, all and singular the property, rights and franchises which the Company then owned or should thereafter acquire, excepting any property expressly excepted by the terms of the Mortgage; and WHEREAS, the Company has heretofore executed and delivered to the Trustee supplements and indentures supplemental to the Mortgage, dated as of December 1, 1943, December 2, 1946, December 1, 1947, March 1, 1950, June 1, 1951, October 1, 1952, December 1, 1953, March 1, 1957, May 1, 1958, October 2, 1961, April 1, 1962, June 1, 1965, September 2, 1968, December 1, 1968, October 1, 1969, June 1, 1970, October 1, 1970, September 1, 1971, February 1, 1972, December 1, 1972, July 1, 1973, March 1, 1974, April 1, 1975, May 1, 1975, December 1, 1975, April 1, 1976, September 1, 1976, November 1, 1977, May 1, 1979, August 1, 1979, February 1, 1980, November 1, 1980, April 1, 1982, October 1, 1983, February 1, 1987, September 1, 1987, November 1, 1989, December 1, 1990, August 1, 1991, February 1, 1992, May 1, 1992, August 1, 1992, November 15, 1992, April 15, 1993, May 15, 1993, October 1, 1993 and November 1, 1993 (hereinafter referred to as the "Fourth 1993 Supplemental Indenture"), respectively, amending and supplementing the Mortgage in certain respects (the Mortgage, as so amended and supplemented, being hereinafter called the "Original Indenture") and conveying to the Trustee, upon certain trusts, terms and conditions, and with and subject to certain provisos and covenants therein contained, certain property rights and property therein described; and WHEREAS, effective October 7, 1988, pursuant to Section 115 of the Original Indenture, the Individual Trustee resigned and all powers of the Individual Trustee then terminated, as did the Individual Trustee's right, title or interest in and to the trust estate, and without appointment of a new trustee as successor to the Individual Trustee, all the right, title and powers of the Trustee thereupon devolved upon the Corporate Trustee and its successors alone; and WHEREAS, the Original Indenture provides that bonds issued thereunder may be issued in one or more series and further provides that, with respect to each series, the rate or rates of interest, the date or dates of maturity, the dates for the payment of interest, the terms and rates of optional redemption, and other terms and conditions not inconsistent with the Original Indenture may be established, prior to the issue of bonds of such series, by an indenture supplemental to the Original Indenture; and WHEREAS, Section 132 of the Original Indenture provides that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Original Indenture, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and that the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued under the Original Indenture and provide that a breach thereof shall be equivalent to a default under the Original Indenture, or the Company may cure any ambiguity or correct or supplement any defective or inconsistent provisions contained in the Original Indenture or in any indenture supplemental to the Original Indenture, by an instrument in writing, executed and acknowledged, and that the Trustee is authorized to join with the Company in the execution of any such instrument or instruments; and WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Mortgage, as amended and supplemented as of the respective dates thereof, bonds of the series (which are outstanding), entitled and designated as hereinafter set forth, in the respective original aggregate principal amounts indicated: Series Amount First Mortgage Bonds, 7-1/2% Series due 1998. . . $45,000,000 First Mortgage Bonds, 7.00% Series due 1999. . . 30,000,000 First Mortgage Bonds, 7-5/8% Series due 2002. . . 50,000,000 First Mortgage Bonds, 7.95% Series due 2002. . . 60,000,000 First Mortgage Bonds, 7.38% Series due 2002. . . 50,000,000 First Mortgage Bonds, 7.40% Series due 2002. . . 30,000,000 First Mortgage Bonds, 7-1/2% Series due 2002. . . 70,000,000 First Mortgage Bonds, 6.65% Series due 2003. . . 40,000,000 First Mortgage Bonds, 6.85% Series due 2003. . . 30,000,000 First Mortgage Bonds, 6.00% Series due 2003. . . 30,000,000 First Mortgage Bonds, 9-1/8% Series due 2019. . . 50,000,000 First Mortgage Bonds, 9-7/8% Series due 2020. . . 50,000,000 First Mortgage Bonds, 9.35% Series due 2021. . . 50,000,000 First Mortgage Bonds, 8.75% Series due 2022. . . 50,000,000 2 First Mortgage Bonds, 8.70% Series due 2022. . . 40,000,000 First Mortgage Bonds, 8.43% Series due 2022. . . 50,000,000 First Mortgage Bonds, 8.50% Series due 2022. . . 70,000,000 First Mortgage Bonds, 7.80% Series due 2023. . . 40,000,000 First Mortgage Bonds, 7.90% Series due 2023. . . 30,000,000 First Mortgage Bonds, 7.15% Series due 2023. . . 30,000,000 First Mortgage Bonds, 7.125% Series due 2024. . . 50,000,000 and WHEREAS, the Company, by appropriate corporate action in conformity with the terms of the Original Indenture, has duly determined to create a series of bonds under the Original Indenture to be designated as "First Mortgage Bonds, Designated Secured Medium Term Notes, 7.70% Series due September 1, 2004" (hereinafter sometimes referred to as the "bonds of the 54th Series"); and WHEREAS, each of the bonds of the 54th Series is to be substantially in the form set forth in Schedule I to this Supplemental Indenture (hereinafter sometimes referred to as the "First 1994 Supplemental Indenture"); and WHEREAS, the Company, in the exercise of the powers and authorities conferred upon and reserved to it under and by virtue of the provisions of the Original Indenture, and pursuant to resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a supplemental indenture, in the form hereof, for the purposes herein provided; and WHEREAS, all conditions and requirements necessary to make this First 1994 Supplemental Indenture a valid, binding and legal instrument in accordance with its terms, have been done, performed and fulfilled, and the execution and delivery thereof have been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That Appalachian Power Company, in consideration of the premises and of the purchase and acceptance of the bonds by the holders thereof and of the sum of One Dollar ($1.00) and other good and valuable consideration paid to it by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in order to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under and secured by the Original Indenture and this First 1994 Supplemental Indenture, according to their tenor and effect, and the performance of all the provisions of the Original Indenture and this First 1994 Supplemental Indenture (including any further indenture or indentures supplemental to the Original Indenture 3 and any modification or alteration made as in the Original Indenture provided) and of said bonds, has granted, bargained, sold, released, conveyed, transferred, mortgaged, pledged, set over and confirmed, and by these presents does grant, bargain, sell, release, convey, assign, transfer, mortgage, pledge, set over and confirm unto Bankers Trust Company, as Trustee, and to its respective successor or successors in the trust hereby created, and to its and their assigns, all the following described properties of the Company, that is to say: All property, real, personal and mixed, tangible and intangible, and all franchises owned by the Company on the date of the execution hereof, acquired since the execution of the Fourth 1993 Supplemental Indenture (except any hereinafter expressly excepted from the lien and operation of this First 1994 Supplemental Indenture). TOGETHER WITH all and singular the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 63 of the Original Indenture) the tolls, rents, revenues, issues, earnings, income, product and profits thereof and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof. Provided that, in addition to the reservations and exceptions herein elsewhere contained, the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of the Original Indenture and this First 1994 Supplemental Indenture, viz.: (1) cash, shares of stock, and obligations (including bonds, notes and other securities) not hereinafter or in the Original Indenture specifically pledged, deposited or delivered hereunder or thereunder or hereinafter or therein covenanted so to be; (2) any goods, wares, merchandise, equipment, materials or supplies acquired for the purpose of sale or resale in the usual course of business or for consumption in the operation of any properties of the Company and automobiles and trucks; (3) all judgments, accounts, and choses in action, the proceeds of which the Company is not obligated as hereinafter provided or as provided in the Original Indenture to deposit with the Trustee hereunder and thereunder; provided, however, that the property and rights expressly excepted from the lien and operation of the Original Indenture and this First 1994 Supplemental Indenture in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted, in the event that the Trustee or a receiver or trustee shall enter upon and take possession of the 4 mortgaged and pledged property in the manner provided in Article XIV of the Original Indenture by reason of the occurrence of a completed default, as defined in said Article XIV. TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto the Trustee and its successors in the trust; SUBJECT, HOWEVER, to the reservations, exceptions, conditions, limitations and restrictions contained in the several deeds, leases, servitudes, franchises and contracts or other instruments through which the Company acquired and/or claims title to and/or enjoys the use of the aforesaid properties; and subject also to encumbrances of the character defined in Section 6 of the Original Indenture as "excepted encumbrances" in so far as the same may attach to any of the property embraced herein. Inasmuch as the Company holds certain of said lands, rights of way and other property under leases, power agreements and other contracts which provide that the Company's interest therein shall not be mortgaged without the consent of the respective lessors or other parties to said agreements and contracts, and such lessors and parties have either given such consent or have waived the requirement of such consent, it is hereby expressly agreed and made a condition upon which this First 1994 Supplemental Indenture is executed and delivered, that the lien of this First 1994 Supplemental Indenture and the estate, rights and remedies of the Trustee hereunder, and the rights and remedies of the holders of the bonds secured hereby and by the Original Indenture in so far as they may affect such lands, rights of way and other property now held or to be hereafter acquired by the Company under such leases, contracts or agreements, shall be subject and subordinate in all respects to the rights and remedies of the respective lessors or other parties thereto. And it is hereby expressly covenanted and agreed as follows: (a) That the rights of the Trustee hereunder, and of every person or corporation whatsoever claiming by reason of this First 1994 Supplemental Indenture any right, title or interest, legal or equitable, in the property covered by any such lease, power agreement or other contract, are and at all times hereafter shall be subject in the same manner and degree as the rights of the Company might or would at all times be subject, had this First 1994 Supplemental Indenture not been made, to all terms, provisions, conditions, covenants, stipulations, and agreements, and to all exceptions, reservations, limitations, restrictions, and 5 forfeitures contained in any such lease, power agreement or other contract; (b) That any right, claim, condition or forfeiture which might at any time be asserted against the party in possession under the provisions of any such lease, power agreement or other contract, had this First 1994 Supplemental Indenture not been made, may be asserted with the same force and effect against any and all persons or corporations at any time claiming any right, title or interest in any such property under or by reason of this First 1994 Supplemental Indenture or of any bond hereby and by the Original Indenture secured; and (c) That such consent or waiver of the requirement of such consent given by the lessor under any such lease or party to any such power agreement or other contract is intended and shall be construed to be solely for the purpose of permitting the Company to mortgage its property generally without violating the express covenant contained in such lease, power agreement or other contract, and that such consent or waiver of the requirement of such consent confers upon the Trustee hereunder and the holders of bonds secured hereby and by the Original Indenture no rights in addition to such as they would have had, respectively, if such consent or waiver of the requirement of such consent had not been given. IN TRUST NEVERTHELESS, upon the terms and trusts in the Original Indenture and this First 1994 Supplemental Indenture set forth, for the equal and pro rata benefit and security of those who shall hold the bonds and coupons issued and to be issued hereunder and under the Original Indenture, in accordance with the terms of the Original Indenture and of this First 1994 Supplemental Indenture, without preference, priority or distinction as to lien of any of said bonds or coupons over any other thereof by reason of priority in the time of issuance or negotiation thereof, or otherwise howsoever, subject, however, to the conditions, provisions and covenants set forth in the Original Indenture and in this First 1994 Supplemental Indenture. AND THIS INDENTURE FURTHER WITNESSETH: That in further consideration of the premises and for the considerations aforesaid, the Company, for itself and it successors and assigns, hereby covenants and agrees to and with the Trustee, and its successor or successors in such trust, under the Original Indenture, as follows: Section 1. The Original Indenture is hereby supplemented by adding immediately after Section 20ZZ, a new Section 20AAA, as follows: 6 SECTION 20AAA. The Company hereby creates a fifty- fourth series of bonds to be issued under and secured by this Indenture, to be designated and to be distinguished from the bonds of all other series by the title "First Mortgage Bonds, Designated Secured Medium Term Notes, 7.70% Series due September 1, 2004" (herein sometimes referred to as the "bonds of the 54th Series"). The form of the bonds of the 54th Series shall be substantially as set forth in Schedule I to the First 1994 Supplemental Indenture. Bonds of the 54th Series shall mature on the date specified in their title. Unless otherwise determined by the Company, the bonds of the 54th Series shall be issued in fully registered form without coupons in denominations of $1,000 and in integral multiples thereof; the principal of and premium (if any) and interest on each said bond to be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in lawful money of the United States of America, provided that at the option of the Company interest may be mailed to registered owners of the bonds at their respective addresses that appear on the register thereof; and the rate of interest shall be the rate per annum specified in the title thereof, payable semi- annually on the first days of May and November of each year (commencing November 1, 1994) and on their maturity date. The person in whose name any bond of the 54th Series is registered at the close of business on any record date (as hereinbelow defined) with respect to any regular semi-annual interest payment date (other than interest payable upon redemption) shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such bond of the 54th Series upon any registration of transfer or exchange thereof (including any exchange effected as an incident to a partial redemption thereof) subsequent to the record date and prior to such interest payment date, except, if and to the extent that the Company shall default in the payment of the interest due on such interest payment date, then the registered owners of bonds of the 54th Series on such record date shall have no further right to or claim in respect of such defaulted interest as such registered owners on such record date, and the persons entitled to receive payment of any defaulted interest thereafter payable or paid on any bonds of the 54th Series shall be the registered owners of such bonds of the 54th Series (or any bond or bonds issued, directly or after intermediate transactions upon transfer or exchange or in substitution thereof) on the date of payment of such defaulted interest. Interest payable upon redemption or maturity shall be payable to the person to whom the principal is paid. The term "record date" as used in this Section 20AAA, and in the form of the bonds of the 54th 7 Series, with respect to any regular semi-annual interest payment date (other than interest payable upon redemption) applicable to the bonds of the 54th Series, shall mean the April 15 next preceding a May 1 interest payment date or the October 15 next preceding a November 1 interest payment date, as the case may be, or, if such April 15 or October 15 is not a Business Day (as defined hereinbelow), the next preceding Business Day. The term "Business Day" with respect to any bond of the 54th Series shall mean any day, other than a Saturday or Sunday, which is not a day on which banking institutions or trust companies in The City of New York, New York or the city in which is located any office or agency maintained for the payment of principal of or premium, if any, or interest on such bond of the 54th Series are authorized or required by law, regulation or executive order to remain closed. Every registered bond of the 54th Series shall be dated the date of authentication ("Issue Date") and shall bear interest computed on the basis of a 360-day year consisting of twelve 30-day months from its Issue Date or from the latest semi-annual interest payment date to which interest has been paid on the bonds of the 54th Series preceding the Issue Date, unless such Issue Date be an interest payment date to which interest is being paid on the bonds of the 54th Series, in which case it shall bear interest from its Issue Date or unless the Issue Date be the record date for the interest payment date first following the date of original issuance of bonds of the 54th Series (the "Original Issue Date"), or a date prior to such record date, then from the Original Issue Date; provided that, so long as there is no existing default in the payment of interest on said bonds, the owner of any bond authenticated by the Corporate Trustee between the record date for any regular semi-annual interest payment date and such interest payment date shall not be entitled to the payment of the interest due on such interest payment date (other than interest payable upon redemption) and shall have no claim against the Company with respect thereto; provided further, that, if and to the extent the Company shall default in the payment of the interest due on such interest payment date, then any such bond shall bear interest from the May 1 or November 1, as the case may be, next preceding its Issue Date, to which interest has been paid or, if the Company shall be in default with respect to the interest payment date first following the Original Issue Date, then from the Original Issue Date. If any semi-annual interest payment date, redemption date, or the maturity date is not a Business Day, payment of amounts due on such date may be made on the next succeeding Business Day, and, if such payment is made or duly provided 8 for on such Business Day, no interest shall accrue on such amounts for the period from and after such interest payment date, redemption date or the maturity date, as the case may be, to such Business Day. Notwithstanding the provisions of Section 14 of this Indenture, the bonds of the 54th Series shall be executed on behalf of the Company by its Chairman of the Board, by its President or by one of its Vice Presidents or by one of its officers designated by the Board of Directors of the Company for such purpose, whose signature may be a facsimile, and its corporate seal shall be thereunto affixed or printed thereon and attested by its Secretary or one of its Assistant Secretaries, and the provisions of the penultimate sentence of said Section 14 shall be applicable to such bonds of the 54th Series. The bonds of the 54th Series are not redeemable prior to their maturity. The Company shall not be required to make transfers or exchanges of bonds of the 54th Series for a period of fifteen days next preceding any selection of bonds of the 54th Series to be redeemed or to make transfers or exchanges of any bonds of the 54th Series designated in whole or in part for redemption. Notwithstanding the provisions of Section 12 of this Indenture, the Company shall not be required to make transfers or exchanges of bonds of the 54th Series for a period of fifteen days next preceding any interest payment date. Registered bonds of the 54th Series shall be transferable upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and at such other office or agency of the Company as the Company may from time to time designate, by the registered owners thereof, in person or by duly authorized attorney, in the manner and upon payment, if required by the Company, of the charges prescribed in this Indenture. In the manner and upon payment, if required by the Company, of the charges prescribed in this Indenture, registered bonds of the 54th Series may be exchanged for a like aggregate principal amount of registered bonds of the 54th Series of other authorized denominations, upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at such other office or agency of the Company as the Company may from time to time designate. Section 2. Initial Issuance of the Bonds of the 54th Series: 9 In accordance with and upon compliance with such provisions of the Original Indenture as shall be selected for such purpose by the officers of the Company duly authorized to take such action, bonds of the 54th Series, in an aggregate principal amount not exceeding $21,000,000, shall forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company (without awaiting the filing and recording of this First 1994 Supplemental Indenture except to the extent required by subdivision (10) of Section 29 of the Original Indenture). Section 3. At any meeting of bondholders held as provided for in Article XX of the Original Indenture at which owners of bonds of the 54th Series are entitled to vote, all owners of bonds of the 54th Series at the time of such meeting shall be entitled to vote thereat; provided, however, that the Trustee may, and upon request of the Company or of a majority of the bondowners of the 54th Series, shall, fix a day not exceeding ninety days preceding the date for which the meeting is called as a record date for the determination of owners of bonds of the 54th Series, entitled to notice of and to vote at such meeting and any adjournment thereof and only such registered owners who shall have been such registered owners on the date so fixed, and who are entitled to vote such bonds of the 54th Series at the meeting, shall be entitled to receive notice of such meeting. Section 4. As supplemented by this First 1994 Supplemental Indenture, the Original Indenture is in all respects ratified and confirmed and the Original Indenture and this First 1994 Supplemental Indenture shall be read, taken and construed as one and the same instrument. The bonds of the 54th Series are the original debt secured by this First 1994 Supplemental Indenture and the Original Indenture, and this First 1994 Supplemental Indenture and the Original Indenture shall be, and shall be deemed to be, the original lien instrument securing the bonds of the 54th Series. Section 5. Nothing contained in this First 1994 Supplemental Indenture shall, or shall be construed to, confer upon any person other than the owners of bonds issued under the Original Indenture and this First 1994 Supplemental Indenture, the Company and the Trustee, any right to avail themselves of any benefit of any provision of the Original Indenture or of this First 1994 Supplemental Indenture. Section 6. This First 1994 Supplemental Indenture may be simultaneously executed in several counterparts and all such counterparts executed and delivered, each as an original, shall constitute one and the same instrument. IN WITNESS WHEREOF, APPALACHIAN POWER COMPANY, party of the first part, has caused this instrument to be signed in its name 10 and behalf by its President, a Vice President or an Assistant Treasurer, and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, and BANKERS TRUST COMPANY, party of the second part, in token of its acceptance hereof, has caused this instrument to be signed in its name and behalf by a Vice President or an Assistant Vice President and its corporate seal to be hereunto affixed and attested by its Secretary, an Assistant Secretary or an Assistant Treasurer. Executed and delivered as of the date and year first above written. APPALACHIAN POWER COMPANY [SEAL] By: /s/ B. M. Barber B. M. Barber Assistant Treasurer Attest: /s/ Jeffrey D. Cross Jeffrey D. Cross Assistant Secretary In the presence of: /s/ T. G. Berkemeyer T. G. Berkemeyer /s/ A. A. Pena A. A. Pena 11 BANKERS TRUST COMPANY [SEAL] By /s/ Robert Caporale Robert Caporale Vice President Attest: /s/ Scott Thiel Scott Thiel Assistant Treasurer Executed by BANKERS TRUST COMPANY in the presence of: /s/ M. Waters M. Waters /s/ Denise Mitchell Denise Mitchell 12 STATE OF OHIO ) ) SS: COUNTY OF FRANKLIN ) On this 22nd day of August, 1994, personally appeared before me, a Notary Public within and for said County in the State aforesaid, B. M. BARBER and JEFFREY D. CROSS, to me known and known to me to be respectively an Assistant Treasurer and Assistant Secretary of APPALACHIAN POWER COMPANY, one of the corporations named in and which executed the foregoing instrument, who severally acknowledged that they did sign and seal said instrument as such Assistant Treasurer and Assistant Secretary for and on behalf of said corporation and that the same is their free act and deed as such Assistant Treasurer and Assistant Secretary, respectively, and the free and corporate act and deed of said corporation. In Witness Whereof, I have hereunto set my hand and notarial seal this 22nd day of August, 1994. [Notarial Seal] /s/ Mary M. Soltesz MARY M. SOLTESZ Notary Public, State of Ohio My Commission Expires July 12, 1999 13 STATE OF NEW YORK ) ) SS: COUNTY OF NEW YORK ) I, PATRICIA M. CARILLO, a Notary Public, duly qualified, commissioned and sworn, and acting in and for the County and State aforesaid, hereby certify that on this 23rd day of August, 1994: ROBERT CAPORALE and SCOTT THIEL, whose names are signed to the writing above, bearing a date as of the 15th day of August, 1994, as Vice President and Assistant Treasurer, respectively, of BANKERS TRUST COMPANY, have this day acknowledged the same before me in my County aforesaid. ROBERT CAPORALE, who signed the writing above and hereto annexed for BANKERS TRUST COMPANY, a corporation, bearing a date as of the 15th day of August, 1994, has this day in my said County before me acknowledged the said writing to be the act and deed of said corporation. Before me appeared ROBERT CAPORALE and SCOTT THIEL to me personally known, who, being by me duly sworn, did say that they are Vice President and Assistant Treasurer, respectively, of BANKERS TRUST COMPANY, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation, by authority of its Board of Directors and said ROBERT CAPORALE acknowledged said instrument to be the free act and deed of said corporation. SCOTT THIEL personally came before me this day and acknowledged that he is an Assistant Treasurer of BANKERS TRUST COMPANY, a corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by an Assistant Treasurer, sealed with its corporate seal, and attested by himself as an Assistant Treasurer. IN WITNESS WHEREOF, I have hereunto set my hand and official notarial seal, in the County and State of New York, this 23rd day of August, 1994. /s/ Patricia M. Carillo PATRICIA M. CARILLO Notary Public, State of New York No. 41-4747732 Qualified in Queens County Certificate filed in New York County Commission expires May 31, 1995 [SEAL] 14 The foregoing instrument was prepared by Jeffrey D. Cross, 1 Riverside Plaza, Columbus, Ohio 43215. 15 I-1 SCHEDULE I APPALACHIAN POWER COMPANY FIRST MORTGAGE BOND, DESIGNATED SECURED MEDIUM TERM NOTE, 7.70% SERIES DUE SEPTEMBER 1, 2004 Bond No. Original Issue Date: August 30, 1994 Principal Amount: Semi-annual Interest Payment Dates: May 1 and November 1 Record Dates: April 15 and October 15 CUSIP No: 03774B AS2 APPALACHIAN POWER COMPANY, a corporation of the Commonwealth of Virginia (hereinafter called the "Company"), for value received, hereby promises to pay to ____________, or registered assigns, the Principal Amount set forth above on the maturity date specified in the title of this bond in lawful money of the United States of America, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and to pay to the registered owner hereof interest on said sum from the date of authentication of this bond (herein called the "Issue Date") or latest semi-annual interest payment date to which interest has been paid on the bonds of this series preceding the Issue Date, unless the Issue Date be an interest payment date to which interest is being paid, in which case from the Issue Date or unless the Issue Date be the record date for the interest payment date first following the Original Issue Date set forth above or a date prior to such record date, then from the Original Issue Date (or, if the Issue Date is between the record date for any interest payment date and such interest payment date, then from such interest payment date, provided, however, that if and to the extent that the Company shall default in the payment of the interest due on such interest payment date, then from the next preceding semi-annual interest payment date to which interest has been paid on the bonds of this series, or if such interest payment date is the interest payment date first following the Original Issue Date set forth above, then from the Original Issue Date), until the principal hereof shall have become due and payable, at the rate per annum specified in the title of this bond, payable on May 1 and November 1 of each year (commencing November 1, 1994) and on the maturity date specified in the title of this bond; provided that, at the option of the Company, such interest may be paid by check, mailed to the registered owner of this bond at such owner's address appearing on the register hereof. I-2 This bond is one of a duly authorized issue of bonds of the Company, issuable in series, and is one of a series known as its First Mortgage Bonds, of the series designated in its title, all bonds of all series issued and to be issued under and equally secured (except in so far as any sinking fund, established in accordance with the provisions of the Mortgage hereinafter mentioned, may afford additional security for the bonds of any particular series and except as provided in Section 73 of the Mortgage) by a Mortgage and Deed of Trust (herein, together with all indentures supplemental thereto, called the Mortgage), dated as of December 1, 1940, executed by APPALACHIAN ELECTRIC POWER COMPANY (the corporate title of which was changed to APPALACHIAN POWER COMPANY) to BANKERS TRUST COMPANY, as Trustee, to which Mortgage reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds and of the Trustee in respect thereof, the duties and immunities of the Trustee, and the terms and conditions upon which the bonds are secured. With the consent of the Company and to the extent permitted by and as provided in the Mortgage, the rights and obligations of the Company and/or of the holders of the bonds and/or coupons and/or the terms and provisions of the Mortgage and/or of any instruments supplemental thereto may be modified or altered by affirmative vote of the holders of at least seventy-five per centum (75%) in principal amount of the bonds affected by such modification or alteration, then outstanding under the Mortgage (excluding bonds disqualified from voting by reason of the Company's interest therein as provided in the Mortgage); provided that, without the consent of the owner hereof no such modification or alteration shall permit the extension of the maturity of the principal of or interest on this bond or the reduction in the rate of interest hereon or any other modification in the terms of payment of such principal or interest or the creation of a lien on the mortgaged and pledged property ranking prior to or on a parity with the lien of the Mortgage or the deprivation of the owner hereof of a lien upon such property or reduce the above percentage. As provided in said Mortgage, said bonds may be for various principal sums and are issuable in series, which may mature at different times, may bear interest at different rates and may otherwise vary as therein provided, and this bond is one of a series entitled "First Mortgage Bonds, Designated Secured Medium Term Notes, 7.70% Series due September 1, 2004 (herein called "bonds of the 54th Series") created by an Indenture Supplemental to Mortgage and Deed of Trust dated as of August 15, 1994 (the "First 1994 Supplemental Indenture"), as provided for in said Mortgage. The interest payable on any May 1 or November 1 (other than interest payable upon redemption) will, subject to certain I-3 exceptions provided in said First 1994 Supplemental Indenture, be paid to the person in whose name this bond is registered at the close of business on the record date, which shall be the April 15 or October 15, as the case may be, next preceding such interest payment date, or, if such April 15 or October 15 is not a Business Day (as hereinbelow defined), the next preceding Business Day. Interest payable upon redemption or maturity shall be payable to the person to whom the principal is paid. The term "Business Day" means any day, other than a Saturday or Sunday, which is not a day on which banking institutions or trust companies in The City of New York, New York or the city in which is located any office or agency maintained for the payment of principal or premium, if any, or interest on bonds of the 54th Series are authorized or required by law, regulation or executive order to remain closed. If any semi-annual interest payment date, redemption date or the maturity date is not a Business Day, payment of amounts due on such date may be made on the next succeeding Business Day, and, if such payment is made or duly provided for on such Business Day, no interest shall accrue on such amounts for the period from and after such interest payment date, redemption date or the maturity date, as the case may be, to such Business Day. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of principal or (subject to the provisions hereof) interest hereon and for all other purposes and the Company and the Trustee shall not be affected by any notice to the contrary. The Company shall not be required to make transfers or exchanges of bonds of the 54th Series for a period of fifteen days next preceding any interest payment date, or next preceding any selection of bonds of the 54th Series to be redeemed, and the Company shall not be required to make transfers or exchanges of any bonds of the 54th Series designated for redemption in whole or in part. The bonds of the 54th Series are not redeemable by the Company prior to their maturity. The principal hereof may be declared or may become due prior to the express date of the maturity hereof on the conditions, in the manner and at the time set forth in the Mortgage, upon the occurrence of a completed default as in the Mortgage provided. This bond is transferable as prescribed in the Mortgage by the registered owner hereof in person, or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and at such other office or I-4 agency of the Company as the Company may designate, upon surrender and cancellation of this bond and upon payment, if the Company shall require it, of the transfer charges prescribed in the Mortgage, and, thereupon, a new registered bond or bonds of authorized denominations of the same series for a like principal amount will be issued to the transferee in exchange herefor as provided in the Mortgage. In the manner and upon payment, if the Company shall require it, of the charges prescribed in the Mortgage, registered bonds of the 54th Series may be exchanged for a like aggregate principal amount of registered bonds of other authorized denominations of the same series, upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at such other office or agency of the Company as the Company may from time to time designate. No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future stockholder, officer or director, as such, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, stockholders, officers and directors, as such, being waived and released by the holder or owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Mortgage. This bond shall not become valid or obligatory for any purpose until BANKERS TRUST COMPANY, the Trustee under the Mortgage, or its successor thereunder, shall have signed the form of Authentication Certificate endorsed hereon. In Witness Whereof, Appalachian Power Company has caused this bond to be executed in its name by the signature of its Chairman of the Board, its President or one of its Vice Presidents and its corporate seal, or a facsimile thereof, to be impressed or imprinted hereon and attested by the signature of its Secretary or one of its Assistant Secretaries. Dated: APPALACHIAN POWER COMPANY By________________________ Vice President I-5 (SEAL) Attest:___________________ Assistant Secretary TRUSTEE'S AUTHENTICATION CERTIFICATE This bond is one of the bonds, of the series herein designated, described in the within-mentioned Mortgage. BANKERS TRUST COMPANY, as Trustee, By______________________________ Authorized Officer I-6 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE) _______________________________________ ________________________________________________________________ ________________________________________________________________ (PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ________________________________________________________________ ASSIGNEE) the within Bond and all rights thereunder, hereby ________________________________________________________________ irrevocably constituting and appointing such person attorney to ________________________________________________________________ transfer such Bond on the books of the Issuer, with full power of ________________________________________________________________ substitution in the premises. Dated: ______________________ ____________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. [CONFORMED COPY] Indenture Supplemental TO Mortgage and Deed of Trust (Dated as of December 1, 1940) Executed by APPALACHIAN POWER COMPANY formerly Appalachian Electric Power Company TO BANKERS TRUST COMPANY, As Trustee Dated as of October 1, 1994 $50,000,000 First Mortgage Bonds, Designated Secured Medium Term Notes, 7.85% Series due November 1, 2004 I-i TABLE OF CONTENTS* PAGE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS Execution of Mortgage. . . . . . . . . . . . . . . . . . 1 Execution of supplemental indentures . . . . . . . . . . 1 Termination of Individual Trustee. . . . . . . . . . . . 1 Provision for issuance of bonds in one or more series. . 2 Right to execute supplemental indenture. . . . . . . . . 2 First Mortgage Bonds heretofore issued . . . . . . . . . 2 Issue of new First Mortgage Bonds of the 55th Series . . 3 Second 1994 Supplemental Indenture . . . . . . . . . . . 3 Compliance with legal requirements . . . . . . . . . . . 3 GRANTING CLAUSES. . . . . . . . . . . . . . . . . . . . . . . 3 DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . 4 APPURTENANCES, ETC. . . . . . . . . . . . . . . . . . . . . . 4 HABENDUM. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 PRIOR LEASEHOLD ENCUMBRANCES. . . . . . . . . . . . . . . . . 5 GRANT IN TRUST. . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 1. Supplement to Original Indenture by adding Section 20BBB. . . . . . . . . . . . . . . . . 7 SECTION 2. Initial Issuance of the Bonds of the 55th Series. 10 SECTION 3. Provision for record date for meetings of Bondholders . . . . . . . . . . . . . . . . 10 *The Table of Contents shall not be deemed to be any part of the Indenture Supplemental to Mortgage and Deed of Trust. i I-ii SECTION 4. Original Indenture and Second 1994 Supplemental Indenture same instrument. . . . . . . . . . . 10 PAGE SECTION 5. Limitation of rights . . . . . . . . . . . . . . 10 SECTION 6. Execution in counterparts . . . . . . . . . . . . 11 TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . 11 SIGNATURES AND SEALS. . . . . . . . . . . . . . . . . . . . . 11 ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . 13 SCHEDULE I. . . . . . . . . . . . . . . . . . . . . . . . . . I-1 ii SUPPLEMENTAL INDENTURE, dated as of the first day of October in the year One Thousand Nine Hundred and Ninety-four, made and entered into by and between APPALACHIAN POWER COMPANY, a corporation of the Commonwealth of Virginia, the corporate title of which was, prior to April 17, 1958, APPALACHIAN ELECTRIC POWER COMPANY (hereinafter sometimes called the "Company"), a transmitting utility (as such term is defined in Section 46-9- 105(1)(n) of the West Virginia Code), party of the first part, and BANKERS TRUST COMPANY, a corporation of the State of New York (hereinafter sometimes called the "Corporate Trustee" or "Trustee"), as Trustee, party of the second part. WHEREAS, the Company has heretofore executed and delivered its Mortgage and Deed of Trust (hereinafter sometimes referred to as the "Mortgage"), dated as of December 1, 1940, to the Trustee for the security of all bonds of the Company outstanding thereunder, and by said Mortgage conveyed to the Trustee, upon certain trusts, terms and conditions, and with and subject to certain provisos and covenants therein contained, all and singular the property, rights and franchises which the Company then owned or should thereafter acquire, excepting any property expressly excepted by the terms of the Mortgage; and WHEREAS, the Company has heretofore executed and delivered to the Trustee supplements and indentures supplemental to the Mortgage, dated as of December 1, 1943, December 2, 1946, December 1, 1947, March 1, 1950, June 1, 1951, October 1, 1952, December 1, 1953, March 1, 1957, May 1, 1958, October 2, 1961, April 1, 1962, June 1, 1965, September 2, 1968, December 1, 1968, October 1, 1969, June 1, 1970, October 1, 1970, September 1, 1971, February 1, 1972, December 1, 1972, July 1, 1973, March 1, 1974, April 1, 1975, May 1, 1975, December 1, 1975, April 1, 1976, September 1, 1976, November 1, 1977, May 1, 1979, August 1, 1979, February 1, 1980, November 1, 1980, April 1, 1982, October 1, 1983, February 1, 1987, September 1, 1987, November 1, 1989, December 1, 1990, August 1, 1991, February 1, 1992, May 1, 1992, August 1, 1992, November 15, 1992, April 15, 1993, May 15, 1993, October 1, 1993, November 1, 1993 and August 15, 1994 (hereinafter referred to as the "First 1994 Supplemental Indenture"), respectively, amending and supplementing the Mortgage in certain respects (the Mortgage, as so amended and supplemented, being hereinafter called the "Original Indenture") and conveying to the Trustee, upon certain trusts, terms and conditions, and with and subject to certain provisos and covenants therein contained, certain property rights and property therein described; and WHEREAS, effective October 7, 1988, pursuant to Section 115 of the Original Indenture, the Individual Trustee resigned and all powers of the Individual Trustee then terminated, as did the Individual Trustee's right, title or interest in and to the trust I-2 estate, and without appointment of a new trustee as successor to the Individual Trustee, all the right, title and powers of the Trustee thereupon devolved upon the Corporate Trustee and its successors alone; and WHEREAS, the Original Indenture provides that bonds issued thereunder may be issued in one or more series and further provides that, with respect to each series, the rate or rates of interest, the date or dates of maturity, the dates for the payment of interest, the terms and rates of optional redemption, and other terms and conditions not inconsistent with the Original Indenture may be established, prior to the issue of bonds of such series, by an indenture supplemental to the Original Indenture; and WHEREAS, Section 132 of the Original Indenture provides that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Original Indenture, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and that the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued under the Original Indenture and provide that a breach thereof shall be equivalent to a default under the Original Indenture, or the Company may cure any ambiguity or correct or supplement any defective or inconsistent provisions contained in the Original Indenture or in any indenture supplemental to the Original Indenture, by an instrument in writing, executed and acknowledged, and that the Trustee is authorized to join with the Company in the execution of any such instrument or instruments; and WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Mortgage, as amended and supplemented as of the respective dates thereof, bonds of the series (which are outstanding), entitled and designated as hereinafter set forth, in the respective original aggregate principal amounts indicated: Series Amount First Mortgage Bonds, 7-1/2% Series due 1998. . . $45,000,000 First Mortgage Bonds, 7.00% Series due 1999. . . 30,000,000 First Mortgage Bonds, 7-5/8% Series due 2002. . . 50,000,000 First Mortgage Bonds, 7.95% Series due 2002. . . 60,000,000 2 I-3 First Mortgage Bonds, 7.38% Series due 2002. . . 50,000,000 First Mortgage Bonds, 7.40% Series due 2002. . . 30,000,000 First Mortgage Bonds, 7-1/2% Series due 2002. . . 70,000,000 First Mortgage Bonds, 6.65% Series due 2003. . . 40,000,000 First Mortgage Bonds, 6.85% Series due 2003. . . 30,000,000 First Mortgage Bonds, 6.00% Series due 2003. . . 30,000,000 First Mortgage Bonds, 7.70% Series due 2004. . . 21,000,000 First Mortgage Bonds, 9-1/8% Series due 2019. . . 50,000,000 First Mortgage Bonds, 9-7/8% Series due 2020. . . 50,000,000 First Mortgage Bonds, 9.35% Series due 2021. . . 50,000,000 First Mortgage Bonds, 8.75% Series due 2022. . . 50,000,000 First Mortgage Bonds, 8.70% Series due 2022. . . 40,000,000 First Mortgage Bonds, 8.43% Series due 2022. . . 50,000,000 First Mortgage Bonds, 8.50% Series due 2022. . . 70,000,000 First Mortgage Bonds, 7.80% Series due 2023. . . 40,000,000 First Mortgage Bonds, 7.90% Series due 2023. . . 30,000,000 First Mortgage Bonds, 7.15% Series due 2023. . . 30,000,000 First Mortgage Bonds, 7.125% Series due 2024. . . 50,000,000 and WHEREAS, the Company, by appropriate corporate action in conformity with the terms of the Original Indenture, has duly determined to create a series of bonds under the Original Indenture to be designated as "First Mortgage Bonds, Designated Secured Medium Term Notes, 7.85% Series due November 1, 2004" (hereinafter sometimes referred to as the "bonds of the 55th Series"); and WHEREAS, each of the bonds of the 55th Series is to be substantially in the form set forth in Schedule I to this Supplemental Indenture (hereinafter sometimes referred to as the "Second 1994 Supplemental Indenture"); and WHEREAS, the Company, in the exercise of the powers and authorities conferred upon and reserved to it under and by virtue of the provisions of the Original Indenture, and pursuant to resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a supplemental indenture, in the form hereof, for the purposes herein provided; and WHEREAS, all conditions and requirements necessary to make this Second 1994 Supplemental Indenture a valid, binding and legal instrument in accordance with its terms, have been done, performed and fulfilled, and the execution and delivery thereof have been in all respects duly authorized; 3 I-4 NOW, THEREFORE, THIS INDENTURE WITNESSETH: That Appalachian Power Company, in consideration of the premises and of the purchase and acceptance of the bonds by the holders thereof and of the sum of One Dollar ($1.00) and other good and valuable consideration paid to it by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in order to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under and secured by the Original Indenture and this Second 1994 Supplemental Indenture, according to their tenor and effect, and the performance of all the provisions of the Original Indenture and this Second 1994 Supplemental Indenture (including any further indenture or indentures supplemental to the Original Indenture and any modification or alteration made as in the Original Indenture provided) and of said bonds, has granted, bargained, sold, released, conveyed, transferred, mortgaged, pledged, set over and confirmed, and by these presents does grant, bargain, sell, release, convey, assign, transfer, mortgage, pledge, set over and confirm unto Bankers Trust Company, as Trustee, and to its respective successor or successors in the trust hereby created, and to its and their assigns, all the following described properties of the Company, that is to say: All property, real, personal and mixed, tangible and intangible, and all franchises owned by the Company on the date of the execution hereof, acquired since the execution of the First 1994 Supplemental Indenture (except any hereinafter expressly excepted from the lien and operation of this Second 1994 Supplemental Indenture). TOGETHER WITH all and singular the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 63 of the Original Indenture) the tolls, rents, revenues, issues, earnings, income, product and profits thereof and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof. Provided that, in addition to the reservations and exceptions herein elsewhere contained, the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, 4 I-5 set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of the Original Indenture and this Second 1994 Supplemental Indenture, viz.: (1) cash, shares of stock, and obligations (including bonds, notes and other securities) not hereinafter or in the Original Indenture specifically pledged, deposited or delivered hereunder or thereunder or hereinafter or therein covenanted so to be; (2) any goods, wares, merchandise, equipment, materials or supplies acquired for the purpose of sale or resale in the usual course of business or for consumption in the operation of any properties of the Company and automobiles and trucks; (3) all judgments, accounts, and choses in action, the proceeds of which the Company is not obligated as hereinafter provided or as provided in the Original Indenture to deposit with the Trustee hereunder and thereunder; provided, however, that the property and rights expressly excepted from the lien and operation of the Original Indenture and this Second 1994 Supplemental Indenture in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted, in the event that the Trustee or a receiver or trustee shall enter upon and take possession of the mortgaged and pledged property in the manner provided in Article XIV of the Original Indenture by reason of the occurrence of a completed default, as defined in said Article XIV. TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto the Trustee and its successors in the trust; SUBJECT, HOWEVER, to the reservations, exceptions, conditions, limitations and restrictions contained in the several deeds, leases, servitudes, franchises and contracts or other instruments through which the Company acquired and/or claims title to and/or enjoys the use of the aforesaid properties; and subject also to encumbrances of the character defined in Section 6 of the Original Indenture as "excepted encumbrances" in so far as the same may attach to any of the property embraced herein. Inasmuch as the Company holds certain of said lands, rights of way and other property under leases, power agreements and other contracts which provide that the Company's interest therein shall not be mortgaged without the consent of the respective lessors or other parties to said agreements and contracts, and such lessors and parties have either given such consent or have waived the requirement of such consent, it is hereby expressly agreed and made a condition upon which this Second 1994 5 I-6 Supplemental Indenture is executed and delivered, that the lien of this Second 1994 Supplemental Indenture and the estate, rights and remedies of the Trustee hereunder, and the rights and remedies of the holders of the bonds secured hereby and by the Original Indenture in so far as they may affect such lands, rights of way and other property now held or to be hereafter acquired by the Company under such leases, contracts or agreements, shall be subject and subordinate in all respects to the rights and remedies of the respective lessors or other parties thereto. And it is hereby expressly covenanted and agreed as follows: (a) That the rights of the Trustee hereunder, and of every person or corporation whatsoever claiming by reason of this Second 1994 Supplemental Indenture any right, title or interest, legal or equitable, in the property covered by any such lease, power agreement or other contract, are and at all times hereafter shall be subject in the same manner and degree as the rights of the Company might or would at all times be subject, had this Second 1994 Supplemental Indenture not been made, to all terms, provisions, conditions, covenants, stipulations, and agreements, and to all exceptions, reservations, limitations, restrictions, and forfeitures contained in any such lease, power agreement or other contract; (b) That any right, claim, condition or forfeiture which might at any time be asserted against the party in possession under the provisions of any such lease, power agreement or other contract, had this Second 1994 Supplemental Indenture not been made, may be asserted with the same force and effect against any and all persons or corporations at any time claiming any right, title or interest in any such property under or by reason of this Second 1994 Supplemental Indenture or of any bond hereby and by the Original Indenture secured; and (c) That such consent or waiver of the requirement of such consent given by the lessor under any such lease or party to any such power agreement or other contract is intended and shall be construed to be solely for the purpose of permitting the Company to mortgage its property generally without violating the express covenant contained in such lease, power agreement or other contract, and that such consent or waiver of the requirement of such consent confers upon the Trustee hereunder and the holders of bonds secured 6 I-7 hereby and by the Original Indenture no rights in addition to such as they would have had, respectively, if such consent or waiver of the requirement of such consent had not been given. IN TRUST NEVERTHELESS, upon the terms and trusts in the Original Indenture and this Second 1994 Supplemental Indenture set forth, for the equal and pro rata benefit and security of those who shall hold the bonds and coupons issued and to be issued hereunder and under the Original Indenture, in accordance with the terms of the Original Indenture and of this Second 1994 Supplemental Indenture, without preference, priority or distinction as to lien of any of said bonds or coupons over any other thereof by reason of priority in the time of issuance or negotiation thereof, or otherwise howsoever, subject, however, to the conditions, provisions and covenants set forth in the Original Indenture and in this Second 1994 Supplemental Indenture. AND THIS INDENTURE FURTHER WITNESSETH: That in further consideration of the premises and for the considerations aforesaid, the Company, for itself and it successors and assigns, hereby covenants and agrees to and with the Trustee, and its successor or successors in such trust, under the Original Indenture, as follows: Section 7. The Original Indenture is hereby supplemented by adding immediately after Section 20AAA, a new Section 20BBB, as follows: SECTION 20BBB. The Company hereby creates a fifty- fifth series of bonds to be issued under and secured by this Indenture, to be designated and to be distinguished from the bonds of all other series by the title "First Mortgage Bonds, Designated Secured Medium Term Notes, 7.85% Series due November 1, 2004" (herein sometimes referred to as the "bonds of the 55th Series"). The form of the bonds of the 55th Series shall be substantially as set forth in Schedule I to the Second 1994 Supplemental Indenture. Bonds of the 55th Series shall mature on the date specified in their title. Unless otherwise determined by the Company, the bonds of the 55th Series shall be issued in fully registered form without coupons in denominations of $1,000 and in integral multiples thereof; the principal of and premium (if any) and interest on each said bond to be 7 I-8 payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in lawful money of the United States of America, provided that at the option of the Company interest may be mailed to registered owners of the bonds at their respective addresses that appear on the register thereof; and the rate of interest shall be the rate per annum specified in the title thereof, payable semi- annually on the first days of May and November of each year (commencing May 1, 1995) and on their maturity date. The person in whose name any bond of the 55th Series is registered at the close of business on any record date (as hereinbelow defined) with respect to any regular semi-annual interest payment date (other than interest payable upon repayment or maturity) shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such bond of the 55th Series upon any registration of transfer or exchange thereof (including any exchange effected as an incident to a partial repayment thereof) subsequent to the record date and prior to such interest payment date, except, if and to the extent that the Company shall default in the payment of the interest due on such interest payment date, then the registered owners of bonds of the 55th Series on such record date shall have no further right to or claim in respect of such defaulted interest as such registered owners on such record date, and the persons entitled to receive payment of any defaulted interest thereafter payable or paid on any bonds of the 55th Series shall be the registered owners of such bonds of the 55th Series (or any bond or bonds issued, directly or after intermediate transactions upon transfer or exchange or in substitution thereof) on the date of payment of such defaulted interest. Interest payable upon repayment or maturity shall be payable to the person to whom the principal is paid. The term "record date" as used in this Section 20BBB, and in the form of the bonds of the 55th Series, with respect to any regular semi-annual interest payment date (other than interest payable upon repayment or maturity) applicable to the bonds of the 55th Series, shall mean the April 15 next preceding a May 1 interest payment date or the October 15 next preceding a November 1 interest payment date, as the case may be, or, if such April 15 or October 15 is not a Business Day (as defined hereinbelow), the next preceding Business Day. The term "Business Day" with respect to any bond of the 55th Series shall mean any day, other than a Saturday or Sunday, which is not a day on which banking institutions or trust companies in The City of 8 I-9 New York, New York or the city in which is located any office or agency maintained for the payment of principal of or premium, if any, or interest on such bond of the 55th Series are authorized or required by law, regulation or executive order to remain closed. Every registered bond of the 55th Series shall be dated the date of authentication ("Issue Date") and shall bear interest computed on the basis of a 360-day year consisting of twelve 30-day months from its Issue Date or from the latest semi-annual interest payment date to which interest has been paid on the bonds of the 55th Series preceding the Issue Date, unless such Issue Date be an interest payment date to which interest is being paid on the bonds of the 55th Series, in which case it shall bear interest from its Issue Date or unless the Issue Date be the record date for the interest payment date first following the date of original issuance of bonds of the 55th Series (the "Original Issue Date"), or a date prior to such record date, then from the Original Issue Date; provided that, so long as there is no existing default in the payment of interest on said bonds, the owner of any bond authenticated by the Corporate Trustee between the record date for any regular semi-annual interest payment date and such interest payment date shall not be entitled to the payment of the interest due on such interest payment date (other than interest payable upon repayment or maturity) and shall have no claim against the Company with respect thereto; provided further, that, if and to the extent the Company shall default in the payment of the interest due on such interest payment date, then any such bond shall bear interest from the May 1 or November 1, as the case may be, next preceding its Issue Date, to which interest has been paid or, if the Company shall be in default with respect to the interest payment date first following the Original Issue Date, then from the Original Issue Date. If any semi-annual interest payment date or the repayment date or maturity date is not a Business Day, payment of amounts due on such date may be made on the next succeeding Business Day, and, if such payment is made or duly provided for on such Business Day, no interest shall accrue on such amounts for the period from and after such interest payment date or the repayment date or maturity date, as the case may be, to such Business Day. 9 I-10 Notwithstanding the provisions of Section 14 of this Indenture, the bonds of the 55th Series shall be executed on behalf of the Company by its Chairman of the Board, by its President or by one of its Vice Presidents or by one of its officers designated by the Board of Directors of the Company for such purpose, whose signature may be a facsimile, and its corporate seal shall be thereunto affixed or printed thereon and attested by its Secretary or one of its Assistant Secretaries, and the provisions of the penultimate sentence of said Section 14 shall be applicable to such bonds of the 55th Series. The bonds of the 55th Series are not redeemable prior to their maturity. The bonds of the 55th Series are subject to repayment on November 1, 1999 at the option of the holder as set forth in the form of bond contained in Schedule I to the Second 1994 Supplemental Indenture. Notwithstanding the provisions of Section 12 of this Indenture, the Company shall not be required to make transfers or exchanges of bonds of the 55th Series for a period of fifteen days next preceding any interest payment date. Registered bonds of the 55th Series shall be transferable upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and at such other office or agency of the Company as the Company may from time to time designate, by the registered owners thereof, in person or by duly authorized attorney, in the manner and upon payment, if required by the Company, of the charges prescribed in this Indenture. In the manner and upon payment, if required by the Company, of the charges prescribed in this Indenture, registered bonds of the 55th Series may be exchanged for a like aggregate principal amount of registered bonds of the 55th Series of other authorized denominations, upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at such other office or agency of the Company as the Company may from time to time designate. Section 8. Initial Issuance of the Bonds of the 55th Series: 10 I-11 In accordance with and upon compliance with such provisions of the Original Indenture as shall be selected for such purpose by the officers of the Company duly authorized to take such action, bonds of the 55th Series, in an aggregate principal amount not exceeding $50,000,000, shall forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company (without awaiting the filing and recording of this Second 1994 Supplemental Indenture except to the extent required by subdivision (10) of Section 29 of the Original Indenture). Section 9. At any meeting of bondholders held as provided for in Article XX of the Original Indenture at which owners of bonds of the 55th Series are entitled to vote, all owners of bonds of the 55th Series at the time of such meeting shall be entitled to vote thereat; provided, however, that the Trustee may, and upon request of the Company or of a majority of the bondowners of the 55th Series, shall, fix a day not exceeding ninety days preceding the date for which the meeting is called as a record date for the determination of owners of bonds of the 55th Series, entitled to notice of and to vote at such meeting and any adjournment thereof and only such registered owners who shall have been such registered owners on the date so fixed, and who are entitled to vote such bonds of the 55th Series at the meeting, shall be entitled to receive notice of such meeting. Section 10. As supplemented by this Second 1994 Supplemental Indenture, the Original Indenture is in all respects ratified and confirmed and the Original Indenture and this Second 1994 Supplemental Indenture shall be read, taken and construed as one and the same instrument. The bonds of the 55th Series are the original debt secured by this Second 1994 Supplemental Indenture and the Original Indenture, and this Second 1994 Supplemental Indenture and the Original Indenture shall be, and shall be deemed to be, the original lien instrument securing the bonds of the 55th Series. Section 11. Nothing contained in this Second 1994 Supplemental Indenture shall, or shall be construed to, confer upon any person other than the owners of bonds issued under the Original Indenture and this Second 1994 Supplemental Indenture, the Company and the Trustee, any right to avail themselves of any benefit of any provision of the Original Indenture or of this Second 1994 Supplemental Indenture. 11 I-12 Section 12. This Second 1994 Supplemental Indenture may be simultaneously executed in several counterparts and all such counterparts executed and delivered, each as an original, shall constitute one and the same instrument. IN WITNESS WHEREOF, APPALACHIAN POWER COMPANY, party of the first part, has caused this instrument to be signed in its name and behalf by its President, a Vice President or an Assistant Treasurer, and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, and BANKERS TRUST COMPANY, party of the second part, in token of its acceptance hereof, has caused this instrument to be signed in its name and behalf by a Vice President or an Assistant Vice President and its corporate seal to be hereunto affixed and attested by its Secretary, an Assistant Secretary, Assistant Treasurer or Assistant Vice President. Executed and delivered as of the date and year first above written. APPALACHIAN POWER COMPANY [SEAL] By: /s/ B. M. Barber B. M. Barber Assistant Treasurer Attest: /s/ Jeffrey D. Cross Jeffrey D. Cross Assistant Secretary In the presence of: /s/ T. G. Berkemeyer T. G. Berkemeyer /s/ A. A. Pena A. A. Pena BANKERS TRUST COMPANY [SEAL] By /s/ Robert Caporale 12 I-13 Robert Caporale Vice President Attest: /s/ M. Lisa Morrone M. Lisa Morrone Assistant Vice President Executed by BANKERS TRUST COMPANY in the presence of: /s/ M. Waters M. Waters /s/ K. O'Brien K. O'Brien 13 I-14 STATE OF OHIO ) ) SS: COUNTY OF FRANKLIN ) On this 13th day of October, 1994, personally appeared before me, a Notary Public within and for said County in the State aforesaid, B. M. BARBER and JEFFREY D. CROSS, to me known and known to me to be respectively an Assistant Treasurer and Assistant Secretary of APPALACHIAN POWER COMPANY, one of the corporations named in and which executed the foregoing instrument, who severally acknowledged that they did sign and seal said instrument as such Assistant Treasurer and Assistant Secretary for and on behalf of said corporation and that the same is their free act and deed as such Assistant Treasurer and Assistant Secretary, respectively, and the free and corporate act and deed of said corporation. In Witness Whereof, I have hereunto set my hand and notarial seal this 13th day of October, 1994. [Notarial Seal] /s/ Mary M. Soltesz MARY M. SOLTESZ Notary Public, State of Ohio My Commission Expires July 12, 1999 14 I-15 STATE OF NEW YORK ) ) SS: COUNTY OF NEW YORK ) I, PATRICIA M. CARILLO, a Notary Public, duly qualified, commissioned and sworn, and acting in and for the County and State aforesaid, hereby certify that on this 14th day of October, 1994: ROBERT CAPORALE and M. LISA MORRONE, whose names are signed to the writing above, bearing a date as of the 1st day of October, 1994, as Vice President and Assistant Vice President, respectively, of BANKERS TRUST COMPANY, have this day acknowledged the same before me in my County aforesaid. ROBERT CAPORALE, who signed the writing above and hereto annexed for BANKERS TRUST COMPANY, a corporation, bearing a date as of the 1st day of October, 1994, has this day in my said County before me acknowledged the said writing to be the act and deed of said corporation. Before me appeared ROBERT CAPORALE and M. LISA MORRONE to me personally known, who, being by me duly sworn, did say that they are Vice President and Assistant Vice President, respectively, of BANKERS TRUST COMPANY, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation, by authority of its Board of Directors and said ROBERT CAPORALE acknowledged said instrument to be the free act and deed of said corporation. M. LISA MORRONE personally came before me this day and acknowledged that she is an Assistant Vice President of BANKERS TRUST COMPANY, a corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by an Assistant Vice President, sealed with its corporate seal, and attested by herself as an Assistant Vice President. IN WITNESS WHEREOF, I have hereunto set my hand and official notarial seal, in the County and State of New York, this 14th day of October, 1994. /s/ Patricia M. Carillo PATRICIA M. CARILLO Notary Public, State of New York No. 41-4747732 Qualified in Queens County 15 I-16 Certificate filed in New York County Commission expires May 31, 1995 [SEAL] The foregoing instrument was prepared by Jeffrey D. Cross, 1 Riverside Plaza, Columbus, Ohio 43215. SCHEDULE I APPALACHIAN POWER COMPANY FIRST MORTGAGE BOND, DESIGNATED SECURED MEDIUM TERM NOTE, 7.85% SERIES DUE NOVEMBER 1, 2004 Bond No. Original Issue Date: October 21, 1994 Principal Amount: Semi-annual Interest Payment Dates: May 1 and November 1 Record Dates: April 15 and October 15 CUSIP No: 03774B AT0 APPALACHIAN POWER COMPANY, a corporation of the Commonwealth of Virginia (hereinafter called the "Company"), for value received, hereby promises to pay to ____________, or registered assigns, the Principal Amount set forth above on the maturity date specified in the title of this bond in lawful money of the United States of America, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and to pay to the registered owner hereof interest on said sum from the date of authentication of this bond (herein called the "Issue Date") or latest semi-annual interest payment date to which interest has been paid on the bonds of this series preceding the Issue Date, unless the Issue Date be an interest payment date to which interest is being paid, in which case from the Issue Date or unless the Issue Date be the record date for the interest payment date first following the Original Issue Date set forth above or a date prior to such record date, then from the Original Issue Date (or, if the Issue Date is between the record date for any interest payment date and such interest payment date, then from such interest payment date, provided, however, that if and to the extent that the Company shall default in the payment of the interest due on such interest payment date, then from the next preceding semi-annual interest payment date to which interest has been paid on the bonds of this series, or if such interest 1 I-2 payment date is the interest payment date first following the Original Issue Date set forth above, then from the Original Issue Date), until the principal hereof shall have become due and payable, at the rate per annum specified in the title of this bond, payable on May 1 and November 1 of each year (commencing May 1, 1995) and on the maturity date specified in the title of this bond; provided that, at the option of the Company, such interest may be paid by check, mailed to the registered owner of this bond at such owner's address appearing on the register hereof. I-3 This bond is one of a duly authorized issue of bonds of the Company, issuable in series, and is one of a series known as its First Mortgage Bonds, of the series designated in its title, all bonds of all series issued and to be issued under and equally secured (except in so far as any sinking fund, established in accordance with the provisions of the Mortgage hereinafter mentioned, may afford additional security for the bonds of any particular series and except as provided in Section 73 of the Mortgage) by a Mortgage and Deed of Trust (herein, together with all indentures supplemental thereto, called the Mortgage), dated as of December 1, 1940, executed by APPALACHIAN ELECTRIC POWER COMPANY (the corporate title of which was changed to APPALACHIAN POWER COMPANY) to BANKERS TRUST COMPANY, as Trustee, to which Mortgage reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds and of the Trustee in respect thereof, the duties and immunities of the Trustee, and the terms and conditions upon which the bonds are secured. With the consent of the Company and to the extent permitted by and as provided in the Mortgage, the rights and obligations of the Company and/or of the holders of the bonds and/or coupons and/or the terms and provisions of the Mortgage and/or of any instruments supplemental thereto may be modified or altered by affirmative vote of the holders of at least seventy-five per centum (75%) in principal amount of the bonds affected by such modification or alteration, then outstanding under the Mortgage (excluding bonds disqualified from voting by reason of the Company's interest therein as provided in the Mortgage); provided that, without the consent of the owner hereof no such modification or alteration shall permit the extension of the maturity of the principal of or interest on this bond or the reduction in the rate of interest hereon or any other modification in the terms of payment of such principal or interest or the creation of a lien on the mortgaged and pledged property ranking prior to or on a parity with the lien of the Mortgage or the deprivation of the owner hereof of a lien upon such property or reduce the above percentage. As provided in said Mortgage, said bonds may be for various principal sums and are issuable in series, which may mature at different times, may bear interest at different rates and may otherwise vary as therein provided, and this bond is one of a series entitled "First Mortgage Bonds, Designated Secured Medium Term Notes, 7.85% Series due November 1, 2004 (herein called "bonds of the 55th Series") created by an Indenture Supplemental to Mortgage and Deed of Trust dated as of October 1, 1994 (the "Second 1994 Supplemental Indenture"), as provided for in said Mortgage. The interest payable on any May 1 or November 1 (other than interest payable upon repayment or maturity) will, subject to I-4 certain exceptions provided in said Second 1994 Supplemental Indenture, be paid to the person in whose name this bond is registered at the close of business on the record date, which shall be the April 15 or October 15, as the case may be, next preceding such interest payment date, or, if such April 15 or October 15 is not a Business Day (as hereinbelow defined), the next preceding Business Day. Interest payable upon repayment or maturity shall be payable to the person to whom the principal is paid. The term "Business Day" means any day, other than a Saturday or Sunday, which is not a day on which banking institutions or trust companies in The City of New York, New York or the city in which is located any office or agency maintained for the payment of principal or premium, if any, or interest on bonds of the 55th Series are authorized or required by law, regulation or executive order to remain closed. If any semi-annual interest payment date or the repayment date or maturity date is not a Business Day, payment of amounts due on such date may be made on the next succeeding Business Day, and, if such payment is made or duly provided for on such Business Day, no interest shall accrue on such amounts for the period from and after such interest payment date or the repayment date or maturity date, as the case may be, to such Business Day. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of principal or (subject to the provisions hereof) interest hereon and for all other purposes and the Company and the Trustee shall not be affected by any notice to the contrary. The Company shall not be required to make transfers or exchanges of bonds of the 55th Series for a period of fifteen days next preceding any interest payment date. The bonds of the 55th Series are not redeemable by the Company prior to their maturity. This bond is repayable on November 1, 1999, at the option of the registered owner or owners hereof, at 100% of its principal amount together with accrued and unpaid interest payable to the date of repayment. The repayment option may be exercised by the registered owner or owners of this bond for less than the entire principal amount of this bond, provided the principal amount which is to be repaid to such holder is equal to $1,000 or an integral multiple of $1,000. Such election by the registered owner or owners to tender this bond for repayment will be irrevocable. The Company must receive at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at such other office or agency of the Company as the Company may designate, during the period from and including September 1, 1999 I-5 to and including October 1, 1999 or, if October 1, 1999 is not a Business Day, the next succeeding Business Day, the bond to be repaid with the form entitled "Option to Elect Repayment" below duly completed. All questions as to the validity, eligibility (including time of receipt) and acceptance of any bond for repayment will be determined by the Company, whose determination shall be final and binding. The principal hereof may be declared or may become due prior to the express date of the maturity hereof on the conditions, in the manner and at the time set forth in the Mortgage, upon the occurrence of a completed default as in the Mortgage provided. This bond is transferable as prescribed in the Mortgage by the registered owner hereof in person, or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and at such other office or agency of the Company as the Company may designate, upon surrender and cancellation of this bond and upon payment, if the Company shall require it, of the transfer charges prescribed in the Mortgage, and, thereupon, a new registered bond or bonds of authorized denominations of the same series for a like principal amount will be issued to the transferee in exchange herefor as provided in the Mortgage. In the manner and upon payment, if the Company shall require it, of the charges prescribed in the Mortgage, registered bonds of the 55th Series may be exchanged for a like aggregate principal amount of registered bonds of other authorized denominations of the same series, upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at such other office or agency of the Company as the Company may from time to time designate. No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future stockholder, officer or director, as such, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, stockholders, officers and directors, as such, being waived and released by the holder or owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Mortgage. This bond shall not become valid or obligatory for any purpose until BANKERS TRUST COMPANY, the Trustee under the Mortgage, or its successor thereunder, shall have signed the form of Authentication Certificate endorsed hereon. I-6 In Witness Whereof, Appalachian Power Company has caused this bond to be executed in its name by the signature of its Chairman of the Board, its President or one of its Vice Presidents and its corporate seal, or a facsimile thereof, to be impressed or imprinted hereon and attested by the signature of its Secretary or one of its Assistant Secretaries. Dated: APPALACHIAN POWER COMPANY By________________________ Vice President (SEAL) Attest:___________________ Assistant Secretary TRUSTEE'S AUTHENTICATION CERTIFICATE This bond is one of the bonds, of the series herein designated, described in the within-mentioned Mortgage. BANKERS TRUST COMPANY, as Trustee, By______________________________ Authorized Officer I-7 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE) _______________________________________ ________________________________________________________________ ________________________________________________________________ (PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ________________________________________________________________ ASSIGNEE) the within Bond and all rights thereunder, hereby ________________________________________________________________ irrevocably constituting and appointing such person attorney to ________________________________________________________________ transfer such Bond on the books of the Issuer, with full power of ________________________________________________________________ substitution in the premises. Dated: ______________________ ____________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. I-8 [FORM OF OPTION TO ELECT REPAYMENT] OPTION TO ELECT REPAYMENT The undersigned hereby irrevocably requests and instructs the Company to repay the First Mortgage Bond, Designated Secured Medium Term Note, 7.85% Series due November 1, 2004, Bond No. ______, in the principal amount of $____________, of Appalachian Power Company (or portion thereof specified below) pursuant to its terms at a price equal to the principal amount thereof, together with accrued and unpaid interest to the repayment date, to the undersigned, at _______________________________________________________________ _______________________________________________________________ (Please Print or Typewrite Name, Address and Tax Identification Number of the Undersigned) If less than the entire principal amount of the bond is to be repaid, specify the portion thereof (which shall be $1,000 or an integral multiple of $1,000) which the holder elects to have repaid: $____________. Specify the denomination or denominations (which shall be $1,000 or an integral multiple of $1,000 in excess of $1,000) of the bond or bonds to be issued to the registered owner or owners for the amount of the portion of the bond not being repaid (in the absence of any such specification, one such bond will be issued for the portion not being repaid): $____________. _________________________ Signature NOTICE: The signature on this Option to Elect Repayment must correspond with the name as written upon the face of the bond in every particular without alteration or enlargement or any other change. The undersigned also must furnish any required certifications for federal or state tax purposes. [CONFORMED COPY] I-9 Indenture Supplemental TO Mortgage and Deed of Trust (Dated as of December 1, 1940) Executed by APPALACHIAN POWER COMPANY formerly Appalachian Electric Power Company TO BANKERS TRUST COMPANY, As Trustee Dated as of March 1, 1995 $50,000,000 First Mortgage Bonds, Designated Secured Medium Term Notes, 8.00% Series due May 1, 2005 I-i TABLE OF CONTENTS* PAGE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS Execution of Mortgage. . . . . . . . . . . . . . . . . . 1 Execution of supplemental indentures . . . . . . . . . . 1 Termination of Individual Trustee. . . . . . . . . . . . 1 Provision for issuance of bonds in one or more series. . 2 Right to execute supplemental indenture. . . . . . . . . 2 First Mortgage Bonds heretofore issued . . . . . . . . . 2 Issue of new First Mortgage Bonds of the 56th Series . . 3 First 1995 Supplemental Indenture . . . . . . . . . . . 3 Compliance with legal requirements . . . . . . . . . . . 4 GRANTING CLAUSES. . . . . . . . . . . . . . . . . . . . . . . 4 DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . 4 APPURTENANCES, ETC. . . . . . . . . . . . . . . . . . . . . . 4 HABENDUM. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 PRIOR LEASEHOLD ENCUMBRANCES. . . . . . . . . . . . . . . . . 5 GRANT IN TRUST. . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 1. Supplement to Original Indenture by adding Section 20CCC. . . . . . . . . . . . . . . . . 7 SECTION 2. Initial Issuance of the Bonds of the 56th Series. 9 SECTION 3. Provision for record date for meetings of Bondholders . . . . . . . . . . . . . . . . 10 SECTION 4. Original Indenture and First 1995 Supplemental Indenture same instrument. . . . . . . . . . . 10 i I-ii *The Table of Contents shall not be deemed to be any part of the Indenture Supplemental to Mortgage and Deed of Trust. PAGE SECTION 5. Limitation of rights. . . . . . . . . . . . . . . 10 SECTION 6. Execution in counterparts . . . . . . . . . . . . 10 TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . 11 SIGNATURES AND SEALS. . . . . . . . . . . . . . . . . . . . . 11 ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . 13 SCHEDULE I. . . . . . . . . . . . . . . . . . . . . . . . . . I-1 ii SUPPLEMENTAL INDENTURE, dated as of the first day of March in the year One Thousand Nine Hundred and Ninety-five, made and entered into by and between APPALACHIAN POWER COMPANY, a corporation of the Commonwealth of Virginia, the corporate title of which was, prior to April 17, 1958, APPALACHIAN ELECTRIC POWER COMPANY (hereinafter sometimes called the "Company"), a transmitting utility (as such term is defined in Section 46-9- 105(1)(n) of the West Virginia Code), party of the first part, and BANKERS TRUST COMPANY, a corporation of the State of New York (hereinafter sometimes called the "Corporate Trustee" or "Trustee"), as Trustee, party of the second part. WHEREAS, the Company has heretofore executed and delivered its Mortgage and Deed of Trust (hereinafter sometimes referred to as the "Mortgage"), dated as of December 1, 1940, to the Trustee for the security of all bonds of the Company outstanding thereunder, and by said Mortgage conveyed to the Trustee, upon certain trusts, terms and conditions, and with and subject to certain provisos and covenants therein contained, all and singular the property, rights and franchises which the Company then owned or should thereafter acquire, excepting any property expressly excepted by the terms of the Mortgage; and WHEREAS, the Company has heretofore executed and delivered to the Trustee supplements and indentures supplemental to the Mortgage, dated as of December 1, 1943, December 2, 1946, December 1, 1947, March 1, 1950, June 1, 1951, October 1, 1952, December 1, 1953, March 1, 1957, May 1, 1958, October 2, 1961, April 1, 1962, June 1, 1965, September 2, 1968, December 1, 1968, October 1, 1969, June 1, 1970, October 1, 1970, September 1, 1971, February 1, 1972, December 1, 1972, July 1, 1973, March 1, 1974, April 1, 1975, May 1, 1975, December 1, 1975, April 1, 1976, September 1, 1976, November 1, 1977, May 1, 1979, August 1, 1979, February 1, 1980, November 1, 1980, April 1, 1982, October 1, 1983, February 1, 1987, September 1, 1987, November 1, 1989, December 1, 1990, August 1, 1991, February 1, 1992, May 1, 1992, August 1, 1992, November 15, 1992, April 15, 1993, May 15, 1993, October 1, 1993, November 1, 1993, August 15, 1994 and October 1, 1994 (hereinafter referred to as the "Second 1994 Supplemental Indenture"), respectively, amending and supplementing the Mortgage in certain respects (the Mortgage, as so amended and supplemented, being hereinafter called the "Original Indenture") and conveying to the Trustee, upon certain trusts, terms and conditions, and with and subject to certain provisos and covenants therein contained, certain property rights and property therein described; and WHEREAS, effective October 7, 1988, pursuant to Section 115 of the Original Indenture, the Individual Trustee resigned and all powers of the Individual Trustee then terminated, as did the Individual Trustee's right, title or interest in and to the trust estate, and without appointment of a new trustee as successor to the Individual Trustee, all the right, title and powers of the I-2 Trustee thereupon devolved upon the Corporate Trustee and its successors alone; and WHEREAS, the Original Indenture provides that bonds issued thereunder may be issued in one or more series and further provides that, with respect to each series, the rate or rates of interest, the date or dates of maturity, the dates for the payment of interest, the terms and rates of optional redemption, and other terms and conditions not inconsistent with the Original Indenture may be established, prior to the issue of bonds of such series, by an indenture supplemental to the Original Indenture; and WHEREAS, Section 132 of the Original Indenture provides that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Original Indenture, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and that the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued under the Original Indenture and provide that a breach thereof shall be equivalent to a default under the Original Indenture, or the Company may cure any ambiguity or correct or supplement any defective or inconsistent provisions contained in the Original Indenture or in any indenture supplemental to the Original Indenture, by an instrument in writing, executed and acknowledged, and that the Trustee is authorized to join with the Company in the execution of any such instrument or instruments; and WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Mortgage, as amended and supplemented as of the respective dates thereof, bonds of the series (which are outstanding), entitled and designated as hereinafter set forth, in the respective original aggregate principal amounts indicated: SERIES AMOUNT First Mortgage Bonds, 7-1/2% Series due 1998. . . $45,000,000 First Mortgage Bonds, 7.00% Series due 1999. . . 30,000,000 First Mortgage Bonds, 7-5/8% Series due 2002. . . 50,000,000 First Mortgage Bonds, 7.95% Series due 2002. . . 60,000,000 First Mortgage Bonds, 7.38% Series due 2002. . . 50,000,000 First Mortgage Bonds, 7.40% Series due 2002. . . 30,000,000 First Mortgage Bonds, 7-1/2% Series due 2002. . . 70,000,000 First Mortgage Bonds, 6.65% Series due 2003. . . 40,000,000 2 I-3 First Mortgage Bonds, 6.85% Series due 2003. . . 30,000,000 First Mortgage Bonds, 6.00% Series due 2003. . . 30,000,000 First Mortgage Bonds, 7.70% Series due 2004. . . 21,000,000 First Mortgage Bonds, 7.85% Series due 2004. . . 50,000,000 First Mortgage Bonds, 9-1/8% Series due 2019. . . 50,000,000 First Mortgage Bonds, 9-7/8% Series due 2020. . . 50,000,000 First Mortgage Bonds, 9.35% Series due 2021. . . 50,000,000 First Mortgage Bonds, 8.75% Series due 2022. . . 50,000,000 First Mortgage Bonds, 8.70% Series due 2022. . . 40,000,000 First Mortgage Bonds, 8.43% Series due 2022. . . 50,000,000 First Mortgage Bonds, 8.50% Series due 2022. . . 70,000,000 First Mortgage Bonds, 7.80% Series due 2023. . . 40,000,000 First Mortgage Bonds, 7.90% Series due 2023. . . 30,000,000 First Mortgage Bonds, 7.15% Series due 2023. . . 30,000,000 First Mortgage Bonds, 7.125% Series due 2024. . . 50,000,000 and WHEREAS, the Company, by appropriate corporate action in conformity with the terms of the Original Indenture, has duly determined to create a series of bonds under the Original Indenture to be designated as "First Mortgage Bonds, Designated Secured Medium Term Notes, 8.00% Series due May 1, 2005" (hereinafter sometimes referred to as the "bonds of the 56th Series"); and WHEREAS, each of the bonds of the 56th Series is to be substantially in the form set forth in Schedule I to this Supplemental Indenture (hereinafter sometimes referred to as the "First 1995 Supplemental Indenture"); and WHEREAS, the Company, in the exercise of the powers and authorities conferred upon and reserved to it under and by virtue of the provisions of the Original Indenture, and pursuant to resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a supplemental indenture, in the form hereof, for the purposes herein provided; and WHEREAS, all conditions and requirements necessary to make this First 1995 Supplemental Indenture a valid, binding and legal instrument in accordance with its terms, have been done, performed and fulfilled, and the execution and delivery thereof have been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH: 3 I-4 That Appalachian Power Company, in consideration of the premises and of the purchase and acceptance of the bonds by the holders thereof and of the sum of One Dollar ($1.00) and other good and valuable consideration paid to it by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in order to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under and secured by the Original Indenture and this First 1995 Supplemental Indenture, according to their tenor and effect, and the performance of all the provisions of the Original Indenture and this First 1995 Supplemental Indenture (including any further indenture or indentures supplemental to the Original Indenture and any modification or alteration made as in the Original Indenture provided) and of said bonds, has granted, bargained, sold, released, conveyed, transferred, mortgaged, pledged, set over and confirmed, and by these presents does grant, bargain, sell, release, convey, assign, transfer, mortgage, pledge, set over and confirm unto Bankers Trust Company, as Trustee, and to its respective successor or successors in the trust hereby created, and to its and their assigns, all the following described properties of the Company, that is to say: All property, real, personal and mixed, tangible and intangible, and all franchises owned by the Company on the date of the execution hereof, acquired since the execution of the Second 1994 Supplemental Indenture (except any hereinafter expressly excepted from the lien and operation of this First 1995 Supplemental Indenture). TOGETHER WITH all and singular the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 63 of the Original Indenture) the tolls, rents, revenues, issues, earnings, income, product and profits thereof and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof. Provided that, in addition to the reservations and exceptions herein elsewhere contained, the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of the Original Indenture and this 4 I-5 First 1995 Supplemental Indenture, viz.: (1) cash, shares of stock, and obligations (including bonds, notes and other securities) not hereinafter or in the Original Indenture specifically pledged, deposited or delivered hereunder or thereunder or hereinafter or therein covenanted so to be; (2) any goods, wares, merchandise, equipment, materials or supplies acquired for the purpose of sale or resale in the usual course of business or for consumption in the operation of any properties of the Company and automobiles and trucks; (3) all judgments, accounts, and choses in action, the proceeds of which the Company is not obligated as hereinafter provided or as provided in the Original Indenture to deposit with the Trustee hereunder and thereunder; provided, however, that the property and rights expressly excepted from the lien and operation of the Original Indenture and this First 1995 Supplemental Indenture in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted, in the event that the Trustee or a receiver or trustee shall enter upon and take possession of the mortgaged and pledged property in the manner provided in Article XIV of the Original Indenture by reason of the occurrence of a completed default, as defined in said Article XIV. TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto the Trustee and its successors in the trust; SUBJECT, HOWEVER, to the reservations, exceptions, conditions, limitations and restrictions contained in the several deeds, leases, servitudes, franchises and contracts or other instruments through which the Company acquired and/or claims title to and/or enjoys the use of the aforesaid properties; and subject also to encumbrances of the character defined in Section 6 of the Original Indenture as "excepted encumbrances" in so far as the same may attach to any of the property embraced herein. Inasmuch as the Company holds certain of said lands, rights of way and other property under leases, power agreements and other contracts which provide that the Company's interest therein shall not be mortgaged without the consent of the respective lessors or other parties to said agreements and contracts, and such lessors and parties have either given such consent or have waived the requirement of such consent, it is hereby expressly agreed and made a condition upon which this First 1995 Supplemental Indenture is executed and delivered, that the lien of this First 1995 Supplemental Indenture and the estate, rights 5 I-6 and remedies of the Trustee hereunder, and the rights and remedies of the holders of the bonds secured hereby and by the Original Indenture in so far as they may affect such lands, rights of way and other property now held or to be hereafter acquired by the Company under such leases, contracts or agreements, shall be subject and subordinate in all respects to the rights and remedies of the respective lessors or other parties thereto. And it is hereby expressly covenanted and agreed as follows: (a) That the rights of the Trustee hereunder, and of every person or corporation whatsoever claiming by reason of this First 1995 Supplemental Indenture any right, title or interest, legal or equitable, in the property covered by any such lease, power agreement or other contract, are and at all times hereafter shall be subject in the same manner and degree as the rights of the Company might or would at all times be subject, had this First 1995 Supplemental Indenture not been made, to all terms, provisions, conditions, covenants, stipulations, and agreements, and to all exceptions, reservations, limitations, restrictions, and forfeitures contained in any such lease, power agreement or other contract; (b) That any right, claim, condition or forfeiture which might at any time be asserted against the party in possession under the provisions of any such lease, power agreement or other contract, had this First 1995 Supplemental Indenture not been made, may be asserted with the same force and effect against any and all persons or corporations at any time claiming any right, title or interest in any such property under or by reason of this First 1995 Supplemental Indenture or of any bond hereby and by the Original Indenture secured; and (c) That such consent or waiver of the requirement of such consent given by the lessor under any such lease or party to any such power agreement or other contract is intended and shall be construed to be solely for the purpose of permitting the Company to mortgage its property generally without violating the express covenant contained in such lease, power agreement or other contract, and that such consent or waiver of the requirement of such consent confers upon the Trustee hereunder and the holders of bonds secured hereby and by the Original Indenture no rights in addition to such as they would have had, respectively, if such 6 I-7 consent or waiver of the requirement of such consent had not been given. IN TRUST NEVERTHELESS, upon the terms and trusts in the Original Indenture and this First 1995 Supplemental Indenture set forth, for the equal and pro rata benefit and security of those who shall hold the bonds and coupons issued and to be issued hereunder and under the Original Indenture, in accordance with the terms of the Original Indenture and of this First 1995 Supplemental Indenture, without preference, priority or distinction as to lien of any of said bonds or coupons over any other thereof by reason of priority in the time of issuance or negotiation thereof, or otherwise howsoever, subject, however, to the conditions, provisions and covenants set forth in the Original Indenture and in this First 1995 Supplemental Indenture. AND THIS INDENTURE FURTHER WITNESSETH: That in further consideration of the premises and for the considerations aforesaid, the Company, for itself and it successors and assigns, hereby covenants and agrees to and with the Trustee, and its successor or successors in such trust, under the Original Indenture, as follows: Section 13. The Original Indenture is hereby supplemented by adding immediately after Section 20BBB, a new Section 20CCC, as follows: SECTION 20CCC. The Company hereby creates a fifty- sixth series of bonds to be issued under and secured by this Indenture, to be designated and to be distinguished from the bonds of all other series by the title "First Mortgage Bonds, Designated Secured Medium Term Notes, 8.00% Series due May 1, 2005" (herein sometimes referred to as the "bonds of the 56th Series"). The form of the bonds of the 56th Series shall be substantially as set forth in Schedule I to the First 1995 Supplemental Indenture. Bonds of the 56th Series shall mature on the date specified in their title. Unless otherwise determined by the Company, the bonds of the 56th Series shall be issued in fully registered form without coupons in denominations of $1,000 and in integral multiples thereof; the principal of and premium (if any) and interest on each said bond to be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in lawful money of the United States of America, provided that at the option 7 I-8 of the Company interest may be mailed to registered owners of the bonds at their respective addresses that appear on the register thereof; and the rate of interest shall be the rate per annum specified in the title thereof, payable semi- annually on the first days of May and November of each year (commencing May 1, 1995) and on their maturity date. The person in whose name any bond of the 56th Series is registered at the close of business on any record date (as hereinbelow defined) with respect to any regular semi-annual interest payment date (other than interest payable upon maturity) shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such bond of the 56th Series upon any registration of transfer or exchange thereof (including any exchange effected as an incident to a partial redemption thereof) subsequent to the record date and prior to such interest payment date, except, if and to the extent that the Company shall default in the payment of the interest due on such interest payment date, then the registered owners of bonds of the 56th Series on such record date shall have no further right to or claim in respect of such defaulted interest as such registered owners on such record date, and the persons entitled to receive payment of any defaulted interest thereafter payable or paid on any bonds of the 56th Series shall be the registered owners of such bonds of the 56th Series (or any bond or bonds issued, directly or after intermediate transactions upon transfer or exchange or in substitution thereof) on the date of payment of such defaulted interest. Interest payable upon maturity shall be payable to the person to whom the principal is paid. The term "record date" as used in this Section 20CCC, and in the form of the bonds of the 56th Series, with respect to any regular semi-annual interest payment date (other than interest payable upon maturity) applicable to the bonds of the 56th Series, shall mean the April 15 next preceding a May 1 interest payment date or the October 15 next preceding a November 1 interest payment date, as the case may be, or, if such April 15 or October 15 is not a Business Day (as defined hereinbelow), the next preceding Business Day. The term "Business Day" with respect to any bond of the 56th Series shall mean any day, other than a Saturday or Sunday, which is not a day on which banking institutions or trust companies in The City of New York, New York or the city in which is located any office or agency maintained for the payment of principal of or premium, if any, or interest on 8 I-9 such bond of the 56th Series are authorized or required by law, regulation or executive order to remain closed. Every registered bond of the 56th Series shall be dated the date of authentication ("Issue Date") and shall bear interest computed on the basis of a 360-day year consisting of twelve 30-day months from its Issue Date or from the latest semi-annual interest payment date to which interest has been paid on the bonds of the 56th Series preceding the Issue Date, unless such Issue Date be an interest payment date to which interest is being paid on the bonds of the 56th Series, in which case it shall bear interest from its Issue Date or unless the Issue Date be the record date for the interest payment date first following the date of original issuance of bonds of the 56th Series (the "Original Issue Date"), or a date prior to such record date, then from the Original Issue Date; provided that, so long as there is no existing default in the payment of interest on said bonds, the owner of any bond authenticated by the Corporate Trustee between the record date for any regular semi-annual interest payment date and such interest payment date shall not be entitled to the payment of the interest due on such interest payment date (other than interest payable upon maturity) and shall have no claim against the Company with respect thereto; provided further, that, if and to the extent the Company shall default in the payment of the interest due on such interest payment date, then any such bond shall bear interest from the May 1 or November 1, as the case may be, next preceding its Issue Date, to which interest has been paid or, if the Company shall be in default with respect to the interest payment date first following the Original Issue Date, then from the Original Issue Date. If any semi-annual interest payment date or the maturity date is not a Business Day, payment of amounts due on such date may be made on the next succeeding Business Day, and, if such payment is made or duly provided for on such Business Day, no interest shall accrue on such amounts for the period from and after such interest payment date or the maturity date, as the case may be, to such Business Day. Notwithstanding the provisions of Section 14 of this Indenture, the bonds of the 56th Series shall be executed on behalf of the Company by its Chairman of the Board, by its President or by one of its Vice Presidents or by one of its officers designated by the Board of Directors of the Company 9 I-10 for such purpose, whose signature may be a facsimile, and its corporate seal shall be thereunto affixed or printed thereon and attested by its Secretary or one of its Assistant Secretaries, and the provisions of the penultimate sentence of said Section 14 shall be applicable to such bonds of the 56th Series. The bonds of the 56th Series are not redeemable prior to their maturity. Notwithstanding the provisions of Section 12 of this Indenture, the Company shall not be required to make transfers or exchanges of bonds of the 56th Series for a period of fifteen days next preceding any interest payment date. Registered bonds of the 56th Series shall be transferable upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and at such other office or agency of the Company as the Company may from time to time designate, by the registered owners thereof, in person or by duly authorized attorney, in the manner and upon payment, if required by the Company, of the charges prescribed in this Indenture. In the manner and upon payment, if required by the Company, of the charges prescribed in this Indenture, registered bonds of the 56th Series may be exchanged for a like aggregate principal amount of registered bonds of the 56th Series of other authorized denominations, upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at such other office or agency of the Company as the Company may from time to time designate. Section 14. Initial Issuance of the Bonds of the 56th Series: In accordance with and upon compliance with such provisions of the Original Indenture as shall be selected for such purpose by the officers of the Company duly authorized to take such action, bonds of the 56th Series, in an aggregate principal amount not exceeding $50,000,000, shall forthwith be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered to or upon the order of the Company (without awaiting the filing and recording of this First 1995 Supplemental Indenture except to the extent required by subdivision (10) of Section 29 of the Original Indenture). 10 I-11 Section 15. At any meeting of bondholders held as provided for in Article XX of the Original Indenture at which owners of bonds of the 56th Series are entitled to vote, all owners of bonds of the 56th Series at the time of such meeting shall be entitled to vote thereat; provided, however, that the Trustee may, and upon request of the Company or of a majority of the bondowners of the 56th Series, shall, fix a day not exceeding ninety days preceding the date for which the meeting is called as a record date for the determination of owners of bonds of the 56th Series, entitled to notice of and to vote at such meeting and any adjournment thereof and only such registered owners who shall have been such registered owners on the date so fixed, and who are entitled to vote such bonds of the 56th Series at the meeting, shall be entitled to receive notice of such meeting. Section 16. As supplemented by this First 1995 Supplemental Indenture, the Original Indenture is in all respects ratified and confirmed and the Original Indenture and this First 1995 Supplemental Indenture shall be read, taken and construed as one and the same instrument. The bonds of the 56th Series are the original debt secured by this First 1995 Supplemental Indenture and the Original Indenture, and this First 1995 Supplemental Indenture and the Original Indenture shall be, and shall be deemed to be, the original lien instrument securing the bonds of the 56th Series. Section 17. Nothing contained in this First 1995 Supplemental Indenture shall, or shall be construed to, confer upon any person other than the owners of bonds issued under the Original Indenture and this First 1995 Supplemental Indenture, the Company and the Trustee, any right to avail themselves of any benefit of any provision of the Original Indenture or of this First 1995 Supplemental Indenture. Section 18. This First 1995 Supplemental Indenture may be simultaneously executed in several counterparts and all such counterparts executed and delivered, each as an original, shall constitute one and the same instrument. IN WITNESS WHEREOF, APPALACHIAN POWER COMPANY, party of the first part, has caused this instrument to be signed in its name and behalf by its President, a Vice President or an Assistant Treasurer, and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, and BANKERS TRUST COMPANY, party of the second part, in token of its 11 I-12 acceptance hereof, has caused this instrument to be signed in its name and behalf by a Vice President or an Assistant Vice President and its corporate seal to be hereunto affixed and attested by its Secretary, an Assistant Secretary, Assistant Vice President or Assistant Treasurer. Executed and delivered as of the date and year first above written. APPALACHIAN POWER COMPANY [SEAL] By: /s/ B. M. Barber B. M. Barber Assistant Treasurer Attest: /s/ Jeffrey D. Cross Jeffrey D. Cross Assistant Secretary In the presence of: /s/ T. G. Berkemeyer T. G. Berkemeyer /s/ A. A. Pena A. A. Pena 12 I-13 BANKERS TRUST COMPANY [SEAL] By /s/ Robert Caporale Robert Caporale Vice President Attest: /s/ Scott Thiel Scott Thiel Assistant Treasurer Executed by BANKERS TRUST COMPANY in the presence of: /s/ K. O'Brien K. O'Brien /s/ P. Dispenza P. Dispenza 13 I-14 STATE OF OHIO ) ) SS: COUNTY OF FRANKLIN ) On this 28th day of February, 1995, personally appeared before me, a Notary Public within and for said County in the State aforesaid, B. M. BARBER and JEFFREY D. CROSS, to me known and known to me to be respectively an Assistant Treasurer and Assistant Secretary of APPALACHIAN POWER COMPANY, one of the corporations named in and which executed the foregoing instrument, who severally acknowledged that they did sign and seal said instrument as such Assistant Treasurer and Assistant Secretary for and on behalf of said corporation and that the same is their free act and deed as such Assistant Treasurer and Assistant Secretary, respectively, and the free and corporate act and deed of said corporation. In Witness Whereof, I have hereunto set my hand and notarial seal this 28th day of February, 1995. [Notarial Seal] /s/ Mary M. Soltesz MARY M. SOLTESZ Notary Public, State of Ohio My Commission Expires July 12, 1999 14 I-15 STATE OF NEW YORK ) ) SS: COUNTY OF NEW YORK ) I, PATRICIA M. CARILLO, a Notary Public, duly qualified, commissioned and sworn, and acting in and for the County and State aforesaid, hereby certify that on this 3rd day of March, 1995: ROBERT CAPORALE and SCOTT THIEL, whose names are signed to the writing above, bearing a date as of the 1st day of March, 1995, as Vice President and Assistant Treasurer, respectively, of BANKERS TRUST COMPANY, have this day acknowledged the same before me in my County aforesaid. ROBERT CAPORALE, who signed the writing above and hereto annexed for BANKERS TRUST COMPANY, a corporation, bearing a date as of the 1st day of March, 1995, has this day in my said County before me acknowledged the said writing to be the act and deed of said corporation. Before me appeared ROBERT CAPORALE and SCOTT THIEL to me personally known, who, being by me duly sworn, did say that they are Vice President and Assistant Treasurer, respectively, of BANKERS TRUST COMPANY, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation, by authority of its Board of Directors and said ROBERT CAPORALE acknowledged said instrument to be the free act and deed of said corporation. SCOTT THIEL personally came before me this day and acknowledged that he is an Assistant Treasurer of BANKERS TRUST COMPANY, a corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by an Assistant Treasurer, sealed with its corporate seal, and attested by himself as an Assistant Treasurer. IN WITNESS WHEREOF, I have hereunto set my hand and official notarial seal, in the County and State of New York, this 3rd day of March, 1995. /s/ Patricia M. Carillo PATRICIA M. CARILLO Notary Public, State of New York No. 41-4747732 Qualified in Queens County 15 I-16 Certificate filed in New York County Commission expires May 31, 1995 [SEAL] 16 I-1 SCHEDULE I APPALACHIAN POWER COMPANY FIRST MORTGAGE BOND, DESIGNATED SECURED MEDIUM TERM NOTE, 8.00% SERIES DUE MAY 1, 2005 Bond No. Original Issue Date: March 15, 1995 Principal Amount: Semi-annual Interest Payment Dates: May 1 and November 1 Record Dates: April 15 and October 15 CUSIP No: 03774B AU7 APPALACHIAN POWER COMPANY, a corporation of the Commonwealth of Virginia (hereinafter called the "Company"), for value received, hereby promises to pay to ____________, or registered assigns, the Principal Amount set forth above on the maturity date specified in the title of this bond in lawful money of the United States of America, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and to pay to the registered owner hereof interest on said sum from the date of authentication of this bond (herein called the "Issue Date") or latest semi-annual interest payment date to which interest has been paid on the bonds of this series preceding the Issue Date, unless the Issue Date be an interest payment date to which interest is being paid, in which case from the Issue Date or unless the Issue Date be the record date for the interest payment date first following the Original Issue Date set forth above or a date prior to such record date, then from the Original Issue Date (or, if the Issue Date is between the record date for any interest payment date and such interest payment date, then from such interest payment date, provided, however, that if and to the extent that the Company shall default in the payment of the interest due on such interest payment date, then from the next preceding semi-annual interest payment date to which interest has been paid on the bonds of this series, or if such interest payment date is the interest payment date first following the Original Issue Date set forth above, then from the Original Issue Date), until the principal hereof shall have become due and payable, at the rate per annum specified in the title of this bond, payable on May 1 and November 1 of each year (commencing May 1, 1995) and on the maturity date specified in the title of this bond; provided that, at the option of the Company, such interest may be paid by check, mailed to the registered owner of I-2 this bond at such owner's address appearing on the register hereof. This bond is one of a duly authorized issue of bonds of the Company, issuable in series, and is one of a series known as its First Mortgage Bonds, of the series designated in its title, all bonds of all series issued and to be issued under and equally secured (except in so far as any sinking fund, established in accordance with the provisions of the Mortgage hereinafter mentioned, may afford additional security for the bonds of any particular series and except as provided in Section 73 of the Mortgage) by a Mortgage and Deed of Trust (herein, together with all indentures supplemental thereto, called the Mortgage), dated as of December 1, 1940, executed by APPALACHIAN ELECTRIC POWER COMPANY (the corporate title of which was changed to APPALACHIAN POWER COMPANY) to BANKERS TRUST COMPANY, as Trustee, to which Mortgage reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds and of the Trustee in respect thereof, the duties and immunities of the Trustee, and the terms and conditions upon which the bonds are secured. With the consent of the Company and to the extent permitted by and as provided in the Mortgage, the rights and obligations of the Company and/or of the holders of the bonds and/or coupons and/or the terms and provisions of the Mortgage and/or of any instruments supplemental thereto may be modified or altered by affirmative vote of the holders of at least seventy-five per centum (75%) in principal amount of the bonds affected by such modification or alteration, then outstanding under the Mortgage (excluding bonds disqualified from voting by reason of the Company's interest therein as provided in the Mortgage); provided that, without the consent of the owner hereof no such modification or alteration shall permit the extension of the maturity of the principal of or interest on this bond or the reduction in the rate of interest hereon or any other modification in the terms of payment of such principal or interest or the creation of a lien on the mortgaged and pledged property ranking prior to or on a parity with the lien of the Mortgage or the deprivation of the owner hereof of a lien upon such property or reduce the above percentage. As provided in said Mortgage, said bonds may be for various principal sums and are issuable in series, which may mature at different times, may bear interest at different rates and may otherwise vary as therein provided, and this bond is one of a series entitled "First Mortgage Bonds, Designated Secured Medium Term Notes, 8.00% Series due May 1, 2005 (herein called "bonds of the 56th Series") created by an Indenture Supplemental to I-3 Mortgage and Deed of Trust dated as of March 1, 1995 (the "First 1995 Supplemental Indenture"), as provided for in said Mortgage. The interest payable on any May 1 or November 1 (other than interest payable upon maturity) will, subject to certain exceptions provided in said First 1995 Supplemental Indenture, be paid to the person in whose name this bond is registered at the close of business on the record date, which shall be the April 15 or October 15, as the case may be, next preceding such interest payment date, or, if such April 15 or October 15 is not a Business Day (as hereinbelow defined), the next preceding Business Day. Interest payable upon maturity shall be payable to the person to whom the principal is paid. The term "Business Day" means any day, other than a Saturday or Sunday, which is not a day on which banking institutions or trust companies in The City of New York, New York or the city in which is located any office or agency maintained for the payment of principal or premium, if any, or interest on bonds of the 56th Series are authorized or required by law, regulation or executive order to remain closed. If any semi-annual interest payment date or the maturity date is not a Business Day, payment of amounts due on such date may be made on the next succeeding Business Day, and, if such payment is made or duly provided for on such Business Day, no interest shall accrue on such amounts for the period from and after such interest payment date or the maturity date, as the case may be, to such Business Day. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of principal or (subject to the provisions hereof) interest hereon and for all other purposes and the Company and the Trustee shall not be affected by any notice to the contrary. The Company shall not be required to make transfers or exchanges of bonds of the 56th Series for a period of fifteen days next preceding any interest payment date. The bonds of the 56th Series are not redeemable prior to their maturity. The principal hereof may be declared or may become due prior to the express date of the maturity hereof on the conditions, in the manner and at the time set forth in the Mortgage, upon the occurrence of a completed default as in the Mortgage provided. I-4 This bond is transferable as prescribed in the Mortgage by the registered owner hereof in person, or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York, and at such other office or agency of the Company as the Company may designate, upon surrender and cancellation of this bond and upon payment, if the Company shall require it, of the transfer charges prescribed in the Mortgage, and, thereupon, a new registered bond or bonds of authorized denominations of the same series for a like principal amount will be issued to the transferee in exchange herefor as provided in the Mortgage. In the manner and upon payment, if the Company shall require it, of the charges prescribed in the Mortgage, registered bonds of the 56th Series may be exchanged for a like aggregate principal amount of registered bonds of other authorized denominations of the same series, upon presentation and surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at such other office or agency of the Company as the Company may from time to time designate. No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future stockholder, officer or director, as such, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, stockholders, officers and directors, as such, being waived and released by the holder or owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Mortgage. This bond shall not become valid or obligatory for any purpose until BANKERS TRUST COMPANY, the Trustee under the Mortgage, or its successor thereunder, shall have signed the form of Authentication Certificate endorsed hereon. I-5 In Witness Whereof, Appalachian Power Company has caused this bond to be executed in its name by the signature of its Chairman of the Board, its President or one of its Vice Presidents and its corporate seal, or a facsimile thereof, to be impressed or imprinted hereon and attested by the signature of its Secretary or one of its Assistant Secretaries. Dated: APPALACHIAN POWER COMPANY By________________________ Vice President (SEAL) Attest:___________________ Assistant Secretary TRUSTEE'S AUTHENTICATION CERTIFICATE This bond is one of the bonds, of the series herein designated, described in the within-mentioned Mortgage. BANKERS TRUST COMPANY, as Trustee, By______________________________ Authorized Officer I-6 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE) _______________________________________ ________________________________________________________________ ________________________________________________________________ (PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ________________________________________________________________ ASSIGNEE) the within Bond and all rights thereunder, hereby ________________________________________________________________ irrevocably constituting and appointing such person attorney to ________________________________________________________________ transfer such Bond on the books of the Issuer, with full power of ________________________________________________________________ substitution in the premises. Dated: ______________________ ____________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. The foregoing instrument was prepared by Jeffrey D. Cross, 1 Riverside Plaza, Columbus, Ohio 43215. EX-10 5 APCO 10-K EX-10(D) AEP INTERIM ALLOWANCE AGMT Exhibit 10(d) AEP SYSTEM INTERIM ALLOWANCE AGREEMENT BY AND AMONG APPALACHIAN POWER COMPANY COLUMBUS SOUTHERN POWER COMPANY INDIANA MICHIGAN POWER COMPANY KENTUCKY POWER COMPANY OHIO POWER COMPANY AND WITH AMERICAN ELECTRIC POWER SERVICE CORPORATION AS AGENT Dated: JULY 28, 1994 CONTENTS PREAMBLE. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 1 - Definitions. . . . . . . . . . . . . . . . 4 ARTICLE 2 - Emission Allowance Management. . . . . . . 9 ARTICLE 3 - Agent's Responsibilities . . . . . . . . .10 ARTICLE 4 - Settlements. . . . . . . . . . . . . . . .11 ARTICLE 5 - Billings and Payments. . . . . . . . . . .15 ARTICLE 6 - Taxes. . . . . . . . . . . . . . . . . . .15 ARTICLE 7 - Modifications. . . . . . . . . . . . . . .16 ARTICLE 8 - Effective Date and Terms of this Agreement.16 ARTICLE 9 - Regulatory Authorities . . . . . . . . . . 17 ARTICLE 10 - Assignment . . . . . . . . . . . . . . . . 17 0.1 THIS AGREEMENT, made and entered into as of the 28th day of July, 1994 by and among APPALACHIAN POWER COMPANY (APCo), a Virginia corporation, COLUMBUS SOUTHERN POWER COMPANY (CSP), an Ohio corporation, INDIANA MICHIGAN POWER COMPANY (I&M), an Indiana corporation, KENTUCKY POWER COMPANY (KPCo), a Kentucky corporation, OHIO POWER COMPANY (OPCo), an Ohio corporation, said companies (herein sometimes called 'Members' when referred to collectively and 'Member' when referred to individually) being affiliated companies of the integrated public utility electric system known as the American Electric Power System (AEP), and AMERICAN ELECTRIC POWER SERVICE CORPORATION (Agent), a New York corporation, being a service company engaged solely in the business of furnishing essential services to the aforesaid companies and the other affiliated companies. W I T N E S S E T H T H A T: 0.2 WHEREAS, the Members own and operate electric facilities in the states herein indicated, (i) APCo in Virginia, West Virginia and Tennessee, (ii) CSP in Ohio, (iii) I&M in Indiana and Michigan, (iv) KPCo in Kentucky, and (v) OPCo in Ohio and West Virginia; and 0.3 WHEREAS, the Members have entered into an Interconnection Agreement, dated July 6, 1951, with modifications thereto, which provides for certain understandings, conditions, 1 and procedures designed to achieve the full benefits and advantages available through the coordinated planning and operation of their electric power supply facilities; and 0.4 WHEREAS, Congress in 1990 enacted amendments to the Clean Air Act, including Title IV, 104 Stat. 2584, 42 U.S.C.A. Section 7651, et seq. ("the 1990 Amendments") which limit emissions of sulfur dioxide (SO2) by electric utilities; and 0.5 WHEREAS, under the 1990 Amendments, compliance is to be achieved in two stages -- Phase I, which begins January 1, 1995 and Phase II which begins January 1, 2000; and reductions in sulfur dioxide emissions are to be effected by a system in which a limited number of "emission allowances" have been allocated by the United States Environmental Protection Agency (EPA) to individual utility generating units; and 0.6 WHEREAS, twenty-one (21) of the Members' generating units have been designated by the 1990 Amendments as Phase I affected units, and fifty-one (51) of the Members' generating units have been designated as Phase II affected units, and as such, have been awarded emission allowances by the EPA; and 0.7 WHEREAS, the Members may have ownership or entitlement to emission allowances through several means, including: (i) EPA-AWARDED ALLOWANCES based on emission levels experienced during a base-line period, (ii) EPA bonus allowances awarded for various compliance strategies, primarily through the installation of FGD systems, and (iii) the purchase of 2 allowances. Generally, Members are permitted to emit SO2 only to the extent they have allowances to cover such emissions. 0.8 WHEREAS, compliance with the 1990 Amendments has been and will continue to be planned by the Members on an integrated and coordinated basis, consistent with the integrated and coordinated planning and operation of the Members' electric systems; and 0.9 WHEREAS, the Members desire to arrive at an equitable methodology of allocating emission allowances and associated costs and benefits between and among the Members; and 0.10 WHEREAS, the Members, with input from affected state regulatory agencies, are considering alternatives for a permanent allowance agreement, but recognize the need to have in place, by the beginning of Phase I, an interim allowance agreement; and 0.11 WHEREAS, the Members believe that an agreement which provides for an equitable assignment of cost and benefits among the Members can best be realized if administered by a single clearing agent; and 0.12 WHEREAS, the Members believe that the Agent designated herein for such purpose is qualified to perform such services; 0.13 NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter contained, the parties hereto, hereby agree as follows: 3 ARTICLE 1 DEFINITIONS 1.1 The following terms and factors associated with settlements under this Agreement are defined in alphabetic order as follows: 1.2 CONTINGENCY BANK -- a minimum reserve of approx- imately 100,000 allowances in excess of projected consumption held by the Members to assure that sufficient allowances will be available for compliance with the 1990 Amendments each year. Agent shall have authority to adjust the level of the CONTINGENCY BANK as needed. A Member's share of the CONTINGENCY BANK is determined by its level of EPA-AWARDED ALLOWANCES in proportion to the total for all Members. 1.3 DELIVERING MEMBER -- a Member which sells PRIMARY ENERGY and/or ECONOMY ENERGY to the POOL. 1.4 ECONOMY ENERGY -- electric energy delivered to the POOL from the MEMBER PRIMARY CAPACITY of a particular Member to displace energy that otherwise would be supplied by less efficient MEMBER PRIMARY CAPACITY of another Member to meet its MEMBER LOAD OBLIGATION. 1.5 EPA-AWARDED ALLOWANCES -- the allowances awarded to each generating unit by the EPA as defined in Section 404(a) of the 1990 Amendments. 1.6 FERC -- the Federal Energy Regulatory Commission or any successor agency. 4 1.7 GAVIN BONUS ALLOWANCES -- 184.7, 184.0, 44.6, 44.6 and 44.6 thousand allowances, excluding transfer allowances, for the years 1995, 1996, 1997, 1998 and 1999, respectively, awarded by the EPA to OPCo's Gavin Plant pursuant to Section 404(d) of the 1990 Amendments. 1.8 GAVIN EPA-AWARDED ALLOWANCES -- the allowances awarded to the Gavin Plant by the EPA pursuant to Section 404(a) of the 1990 Amendments. 1.9 GAVIN SCRUBBER SO2 REDUCTION -- the difference between actual SO2 emissions at OPCo's Gavin Plant operating with scrubbers and GAVIN UNCONTROLLED EMISSIONS for a given year. 1.10 GAVIN UNCONTROLLED EMISSIONS -- an estimated amount of SO2 emissions that would result from operating the Gavin Plant without scrubbers. The estimate of GAVIN UNCONTROLLED EMISSIONS is calculated by dividing the scrubbed Gavin SO2 EMISSIONS by (1.00 minus the scrubber SO2 removal efficiency rate). 1.11 INTERCONNECTION AGREEMENT -- the Interconnection Agreement among the Members dated July 6, 1951, as amended. 1.12 MEMBER AFFECTED UNITS -- a Member's generating units that are required to meet the emission standards established by the 1990 Amendments. 1.13 MEMBER CAPACITY DEFICIT FACTOR -- for any Member, the average for the calendar year of its MEMBER PRIMARY CAPACITY DEFICIT divided by the sum of all members' average MEMBER PRIMARY CAPACITY DEFICITS. 5 1.14 MEMBER DEMAND -- MEMBER LOAD OBLIGATION determined on a clock-hour integrated kilowatt basis. 1.15 MEMBER GENERATION -- the total of a Member's net generation from its MEMBER PRIMARY CAPACITY. 1.16 MEMBER LOAD OBLIGATION -- a Member's internal load plus any firm power sales to Foreign Companies and to affiliated companies other than Members. 1.17 MEMBER LOAD RATIO -- the ratio of a particular Member's MEMBER MAXIMUM DEMAND in effect for a calendar month to the sum of the five MEMBER MAXIMUM DEMANDS in effect for such month. 1.18 MEMBER MAXIMUM DEMAND -- the MEMBER MAXIMUM DEMAND in effect for a calendar month for a particular Member shall be equal to the maximum MEMBER DEMAND experienced by said Member during the twelve consecutive calendar months next preceding such calendar month. 1.19 MEMBER PRIMARY CAPACITY -- the aggregate capacity of the electric power sources of a particular Member, in kilowatts, that is normally expected to be available to carry load. Such capacity shall include (i) the capacity installed at the generating stations owned by the Member and (ii) the capacity available to that Member through interconnection arrangements with affiliated companies or Foreign Companies. 1.20 MEMBER PRIMARY CAPACITY DEFICIT -- difference between the MEMBER PRIMARY CAPACITY and MEMBER PRIMARY CAPACITY RESERVATION of a particular Member, when such MEMBER PRIMARY 6 CAPACITY is less than such MEMBER PRIMARY CAPACITY RESERVATION. 1.21 MEMBER PRIMARY CAPACITY RESERVATION -- SYSTEM PRIMARY CAPACITY multiplied by the MEMBER LOAD RATIO of a particular Member. 1.22 OPCo CAPACITY SURPLUS FACTOR -- the weighted average for the calendar year of (OPCo's MEMBER PRIMARY CAPACITY minus OPCo's MEMBER PRIMARY CAPACITY RESERVATION) divided by OPCo's MEMBER PRIMARY CAPACITY. 1.23 OVER-COMPLIANCE -- the amount by which a Member's SO2 EMISSIONS are less than its EPA-AWARDED ALLOWANCES for the current year; provided, however, that in determining OPCo's OVER- COMPLIANCE, its emissions shall be deemed to include, in lieu of actual emissions from the Gavin Plant, 50% of GAVIN UNCONTROLLED EMISSIONS, and its allowances shall be deemed to include, in lieu of actual GAVIN EPA-AWARDED ALLOWANCES, only 50% of GAVIN EPA- AWARDED ALLOWANCES. 1.24 POOL -- electric energy delivered by one Member, from its MEMBER PRIMARY CAPACITY, to another Member shall be considered to be energy delivered to the POOL by the former Member and delivered from the POOL by the latter Member. 1.25 POWER SALES TO FOREIGN COMPANIES -- sales of electric power and energy to Foreign Companies, made by a Member on behalf of the System, where the revenue and cost of such sales are allocated to the Members in proportion to their respective MEMBER LOAD RATIOS. 1.26 PRIMARY AND ECONOMY ENERGY RECEIPT FACTOR -- the 7 ratio of PRIMARY ENERGY and ECONOMY ENERGY receipts by a receiving Member from a DELIVERING MEMBER to the total sales of PRIMARY ENERGY and ECONOMY ENERGY by the DELIVERING MEMBER. 1.27 PRIMARY AND ECONOMY ENERGY SUPPLY FACTOR -- the sum of the Member's PRIMARY ENERGY and ECONOMY ENERGY deliveries divided by the MEMBER'S GENERATION. 1.28 PRIMARY ENERGY -- electric energy delivered to the POOL from the MEMBER PRIMARY CAPACITY of a particular Member to meet another Member's deficiency in capacity. 1.29 RECEIVING MEMBER -- a Member which buys PRIMARY ENERGY and/or ECONOMY ENERGY from the POOL. 1.30 SO2 EMISSIONS -- the total of the Member's SO2 EMISSIONS from the MEMBER'S AFFECTED UNITS. 1.31 SURPLUS ALLOWANCES -- the excess of a Member's current year EPA-AWARDED ALLOWANCES, plus allowances transferred to the Member pursuant to Sections 4.1, 4.2 and 4.3 of this Agreement, over the Member's annual SO2 EMISSIONS and its share of the CONTINGENCY BANK. 1.32 SYSTEM COST OF COMPLIANCE -- for calendar year 1995 is $115.43/ton of SO2. For each subsequent year, the SYSTEM COST OF COMPLIANCE shall be $115.43/ton of SO2 escalated annually at a rate of 10.56%. 1.33 SYSTEM PRIMARY CAPACITY -- the sum of the MEMBER PRIMARY CAPACITY of all the Members. 1.34 UNDER-COMPLIANCE -- the amount by which a Member's SO2 EMISSIONS are greater than its EPA-AWARDED ALLOWANCES for the 8 current year; provided, however, that in determining OPCo's UNDER-COMPLIANCE, its emissions shall be deemed to include, in lieu of actual emissions from the Gavin Plant, 50% of GAVIN UNCONTROLLED EMISSIONS, and its allowances shall be deemed to include, in lieu of actual GAVIN EPA-AWARDED ALLOWANCES, only 50% of GAVIN EPA-AWARDED ALLOWANCES. ARTICLE 2 EMISSION ALLOWANCE MANAGEMENT 2.1 In determining the transfer of costs and benefits related to emission allowances among Members, settlements for the following transactions will be governed by this Agreement: 1) an annual reallocation of Gavin allowances, described in Section 4.1, 2) an annual cash settlement for the transfer of allowances associated with PRIMARY ENERGY and ECONOMY ENERGY, described in Section 4.2, 3) a monthly cash settlement for allowances consumed for POWER SALES TO FOREIGN COMPANIES, described in Section 4.3, 4) an annual transfer of allowances for current period compliance, described in Section 4.4, and 5) an annual transfer of allowances for future period compliance, described in Section 4.5. 2.2 Participation in the allowance market could involve either the sale or purchase of allowances to or from non- affiliated parties. The ownership of any allowances purchased or the entitlement to the proceeds from any such sales of allowances 9 are not addressed by this interim agreement, but are intended to be addressed in a subsequent allowance agreement which shall govern all such transactions, whether occurring before or after the effective date of such subsequent allowance agreement. During the interim period pending resolution of such issues in the subsequent allowance agreement, net proceeds from any such sales and the cost associated with any such purchases will be deferred, with a return accrued at the AEP System cost of capital, on the books of the Member involved. Nothing in this agreement shall be deemed to affect or preempt the right of state regulatory commissions to prescribe accounting treatment for the proceeds and costs associated with such transactions. 2.3 Agent shall have the authority to make any and all decisions relating to the use, management, purchase, sale and transfer of emission allowances. Except as provided in this Agreement or any superseding agreement, no other payment or compensation shall be made between or among the Members with respect to any such use, management, purchase, sale or transfer. ARTICLE 3 AGENT'S RESPONSIBILITIES 3.1 For the purpose of carrying out the provisions of this Agreement, the Members hereby delegate to Agent, and Agent hereby accepts, the responsibility of administration of this Agreement, and in furtherance thereof Agent hereby agrees: 3.11 To render to each Member as promptly as 10 possible after the end of each month a statement setting forth the settlements hereunder for such preceding calendar month, in such detail and with such segregation as may be needed for accounting, operating, or other proper purposes. 3.12 To carry out allowance transfer settlements under this Agreement. Settlement for the Gavin Allowance Reallocation shall be recorded annually in December for each calendar year. 3.13 To carry out cash settlements under this Agreement. Monthly settlements by the Members shall be determined for POWER SALES TO FOREIGN COMPANIES and annual settlements, in December of each calendar year, for allowance transfers for primary and economy energy transactions and for the transfers of allowances for current and future compliance through an account (hereby designated and hereinafter called the SYSTEM ALLOWANCE ACCOUNT) to be administered by Agent. Payments to or from such account shall be made to or by Agent as clearing agent of the account. The total amount of the payments made by the Members to the SYSTEM ALLOWANCE ACCOUNT each month shall be equal to the total amount of the payments made from the SYSTEM ALLOWANCE ACCOUNT for the same period. ARTICLE 4 11 SETTLEMENTS 4.1 GAVIN ALLOWANCE REALLOCATION - In December of 1995 and each subsequent calendar year, the allowance inventory accounts of the Members will be adjusted to recognize the Gavin Allowance Reallocation. The number of Gavin allowances available for reallocation is determined by multiplying the OPCo CAPACITY SURPLUS FACTOR by the sum of (i) GAVIN BONUS ALLOWANCES and (ii) 50% of the sum of the GAVIN EPA-AWARDED ALLOWANCES and the GAVIN SCRUBBER SO2 REDUCTION. The Gavin allowances available for reallocation shall be transferred, at zero cost, to the Members having a MEMBER PRIMARY CAPACITY DEFICIT. Each deficit Member's share of the Gavin Allowance Reallocation is determined by multiplying the Gavin Allowances to Reallocate by the MEMBER'S CAPACITY DEFICIT FACTOR. 4.2 ALLOWANCE TRANSFERS ASSOCIATED WITH PRIMARY AND ECONOMY ENERGY TRANSACTIONS - In December of each year, the DELIVERING MEMBERS shall transfer allowances to or receive allowances from the RECEIVING MEMBERS, according to this Section. A DELIVERING MEMBER shall be transferred allowances from a RECEIVING MEMBER if the DELIVERING MEMBER is in an UNDER- COMPLIANCE position. A DELIVERING MEMBER shall transfer allowances to a RECEIVING MEMBER if the DELIVERING MEMBER is in an OVER-COMPLIANCE position. Members supplying allowances shall be compensated by the Members receiving allowances based on the supplying Member's average allowance inventory cost. For the year, a Member may be both a DELIVERING MEMBER and a RECEIVING 12 MEMBER. 4.21 In December of each year, the Member's annual OVER-COMPLIANCE or UNDER-COMPLIANCE shall be determined. 4.22 The PRIMARY AND ECONOMY ENERGY SUPPLY FACTOR of each DELIVERING MEMBER shall be multiplied by that Member's over/(under) compliance to determine its incremental OVER-COMPLIANCE or incremental UNDER- COMPLIANCE position. The incremental over/(under) compliance position represents the total number of allowances to be transferred from or received by the DELIVERING MEMBER. 4.23 If the DELIVERING MEMBER is in an UNDER- COMPLIANCE position, the number of allowances to be transferred from the RECEIVING MEMBER is calculated by multiplying the DELIVERING MEMBER'S incremental UNDER- COMPLIANCE by the respective PRIMARY AND ECONOMY ENERGY RECEIPT FACTOR. If the DELIVERING MEMBER is in an OVER- COMPLIANCE position, the number of allowances to be transferred to the RECEIVING MEMBERS is calculated by multiplying the incremental OVER-COMPLIANCE of the DELIVERING MEMBER by the respective PRIMARY AND ECONOMY ENERGY RECEIPT FACTORS. 4.24 The net allowances transferred from the supplying Member during the year are priced at their individual weighted average inventory cost computed at 13 the end of December. The net allowances transferred to the receiving Members shall be based on the weighted average inventory cost of all Members supplying allowances. The average inventory cost of a supplying Member is computed by taking the total book cost of allowances available for transfer divided by the number of allowances availablefor transfer atthe end ofDecember. 4.3 ALLOWANCES CONSUMED FOR POWER SALES TO FOREIGN COMPANIES - Monthly, each Member shall be responsible for its MEMBER LOAD RATIO share of the allowances consumed in generating the energy for POWER SALES TO FOREIGN COMPANIES and unless the supplying company is otherwise compensated by the foreign company, shall be required to pay the supplying company for each such allowance at the SYSTEM COST OF COMPLIANCE. The method for determining the allowances consumed in generating the energy for POWER SALES TO FOREIGN COMPANIES is set forth in Appendix E to this Agreement. 4.4 TRANSFERS OF ALLOWANCES FOR CURRENT PERIOD COMPLIANCE - In December of each calendar year, a Member whose annual SO2 EMISSIONS exceed its available allowance inventory, after intercompany settlements described in Section 4.1, 4.2 and 4.3 of this Agreement, will purchase allowances to eliminate its shortfall in that calendar year and to provide for its share of the CONTINGENCY BANK. These purchases will be made from Members having SURPLUS ALLOWANCES and will be priced at the SYSTEM COST OF COMPLIANCE. If more than one Member has SURPLUS ALLOWANCES, 14 the buying Member will purchase a proportionate share from the surplus Members. 4.5 TRANSFERS OF ALLOWANCES FOR FUTURE PERIOD COMPLIANCE - In December of each calendar year, an estimate will be made of each Member's allowance requirements for the following twenty (20) years. Each Member with an estimated shortage will purchase allowances to the full extent of its estimated shortage, proportionately from the Member's estimated to have a surplus to the extent that sufficient SURPLUS ALLOWANCES are available. Such purchases shall be made at the SYSTEM COST OF COMPLIANCE. ARTICLE 5 BILLINGS AND PAYMENTS 5.1 All bills for amounts owing hereunder shall be due and payable on the fifteenth day of the month next following the month to which a settlement has been rendered, or on the tenth day following the receipt of the bill, whichever date is later. Interest on unpaid amounts shall accrue daily at the prime interest rate per annum in effect on the due date at Citibank, plus 2% per annum, from the due date until the date upon which payment is made. Unless otherwise agreed upon, the calendar month shall be the standard period for the purpose of settlements under this Agreement. If bills cannot be accurately determined at any time, they shall be rendered on an estimated basis and subsequently adjusted to conform to the terms of this Agreement. 15 ARTICLE 6 TAXES 6.1 If at any time during the duration of this Agreement there should be levied and/or assessed by any governmental authority against any Member any tax related to the receipt of settlements calculated pursuant to Article 5 of this Agreement (including, but not limited to sales, excise, etc.), the tax expense incurred by such Member that would not have been incurred were the allowance settlements hereunder not being made, such Member shall be entitled to reimbursement of the tax expense from the Member generating the tax expense. ARTICLE 7 MODIFICATIONS 7.1 Any Member, by written notice given to the other Members and Agent, may call for a reconsideration of the terms and conditions herein provided. If such reconsideration is called for, the Members shall take into account any changed conditions, any results from the application of said terms and conditions, and any other facts that might cause said terms and conditions to result in an inequitable sharing of costs and benefits under this Agreement. Any modification in terms and conditions agreed to by the Members shall be subject to appropriate regulatory approval and become effective the first day of the month following regulatory authorization. 16 ARTICLE 8 EFFECTIVE DATE AND TERMS OF THIS AGREEMENT 8.1 This Agreement shall become effective and shall become a binding obligation of the Parties on January 1, 1995, or such other effective date determined by FERC. 8.2 This Agreement shall continue in effect from the effective date until the effective date of any subsequent agreement. ARTICLE 9 REGULATORY AUTHORITIES 9.1 The Members recognize that this Agreement, and any tariff or rate schedule which shall embody or supersede this Agreement or any part thereof, are in certain respects subject to the jurisdiction of the FERC under the Federal Power Act, and are also subject to such lawful action as any regulatory authority having jurisdiction shall hereinafter take with respect thereto. The performance of any obligation of the Members shall be subject to the receipt of such authorizations, approvals or actions of regulatory authorities having jurisdiction as shall be required by law. 9.2 It is expressly understood that the Members shall be entitled, at any time unilaterally, to make application to the FERC for a change in the rates, charges, classification of service, or any rule, regulation or contract relating thereto, or to make any change in or supersede in whole or in part any 17 provision of the this Agreement, under Section 205 of the Federal Power Act and pursuant to the FERC's Rules and Regulations promulgated thereunder. ARTICLE 10 ASSIGNMENT 10.1 This Agreement shall accrue to the benefit of and be binding upon the successors and assigns of the respective parties. IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be executed in their respective corporate names and on their behalf by their proper officers thereunto duly authorized as of the day and year first above written. APPALACHIAN POWER COMPANY By__/s/ J. W. Vipperman__ COLUMBUS SOUTHERN POWER COMPANY OHIO POWER COMPANY By__/s/ Carl A. Erikson___ INDIANA MICHIGAN POWER COMPANY By__/s/ R. C. Menge_______ KENTUCKY POWER COMPANY By__/s/ C. R. Boyle, III__ AMERICAN ELECTRIC POWER SERVICE CORPORATION By__/s/ E. L. Draper, Jr._ EX-12 6 APCO 10-K EX-12 COMPUTATION OF RATIOS EXHIBIT 12 APPALACHIAN POWER COMPANY Computation of Consolidated Ratio of Earnings to Fixed Charges (in thousands except ratio data)
Year Ended December 31, 1990 1991 1992 1993 1994 Fixed Charges: Interest on First Mortgage Bonds. . . . . . . . . . . . . . $66,403 $ 72,800 $ 84,177 $ 80,472 $ 75,815 Interest on Other Long-term Debt. . . . . . . . . . . . . . 19,637 18,282 17,986 16,846 16,415 Interest on Short-term Debt . . . . . . . . . . . . . . . . 1,633 3,089 1,792 1,615 3,366 Miscellaneous Interest Charges. . . . . . . . . . . . . . . 1,999 3,011 2,617 2,954 3,913 Estimated Interest Element in Lease Rentals . . . . . . . . 5,300 5,700 6,700 7,900 7,700 Total Fixed Charges. . . . . . . . . . . . . . . . . . $94,972 $102,882 $113,272 $109,787 $107,209 Earnings: Net Income. . . . . . . . . . . . . . . . . . . . . . . . . $107,988 $140,419 $131,419 $125,132 $102,345 Plus Federal Income Taxes . . . . . . . . . . . . . . . . . 41,194 47,227 46,017 51,681 39,599 Plus State Income Taxes . . . . . . . . . . . . . . . . . . 5,878 3,650 2,649 8,887 5,910 Plus Fixed Charges (as above) . . . . . . . . . . . . . . . 94,972 102,882 113,272 109,787 107,209 Total Earnings . . . . . . . . . . . . . . . . . . . . $250,032 $294,178 $293,357 $295,487 $255,063 Ratio of Earnings to Fixed Charges. . . . . . . . . . . . . . 2.63 2.85 2.58 2.69 2.37
EX-13 7 APCO 10-K EX-13 1994 ANNUAL REPORT Selected Consolidated Financial Data
Year Ended December 31, 1994 1993 1992 1991 1990 (in thousands) INCOME STATEMENTS DATA: Operating Revenues $1,535,500 $1,519,104 $1,410,778 $1,378,706 $1,468,694 Operating Expenses 1,330,282 1,289,764 1,176,882 1,143,626 1,269,548 Operating Income 205,218 229,340 233,896 235,080 199,146 Nonoperating Income (Loss) (4,716) (3,353) 3,036 1,132 (2,492) Income Before Interest Charges 200,502 225,987 236,932 236,212 196,654 Interest Charges 98,157 100,855 105,513 95,793 88,666 Net Income 102,345 125,132 131,419 140,419 107,988 Preferred Stock Dividend Requirements 15,660 16,540 16,596 13,861 14,285 Earnings Applicable to Common Stock $ 86,685 $ 108,592 $ 114,823 $ 126,558 $ 93,703 Year Ended December 31, 1994 1993 1992 1991 1990 (in thousands) BALANCE SHEETS DATA: Electric Utility Plant $4,398,727 $4,193,700 $4,038,735 $3,884,833 $3,720,515 Accumulated Depreciation and Amortization 1,627,852 1,550,855 1,477,078 1,405,074 1,328,309 Net Electric Utility Plant $2,770,875 $2,642,845 $2,561,657 $2,479,759 $2,392,206 Regulatory Assets $ 403,906 $ 382,877 $ 64,157 $ 27,691 $ 21,739 Total Assets $3,584,488 $3,428,367 $3,094,091 $2,972,581 $2,825,522 Common Stock and Paid-in Capital $ 764,866 $ 755,292 $ 741,509 $ 742,107 $ 742,106 Retained Earnings 206,361 227,816 229,920 220,933 198,051 Total Common Shareowner's Equity $ 971,227 $ 983,108 $ 971,429 $ 963,040 $ 940,157 Cumulative Preferred Stock: Not Subject to Mandatory Redemption $ 55,000 $ 55,000 $ 105,000 $ 105,000 $ 105,000 Subject to Mandatory Redemption (a) 190,385 160,537 108,509 65,662 69,675 Total Cumulative Preferred Stock $ 245,385 $ 215,537 $ 213,509 $ 170,662 $ 174,675 Long-term Debt (a) $1,228,911 $1,215,168 $1,200,272 $1,100,626 $1,051,057 Obligations Under Capital Leases (a) $ 43,138 $ 29,973 $ 24,269 $ 19,801 $ 14,360 Total Capitalization and Liabilities $3,584,488 $3,428,367 $3,094,091 $2,972,581 $2,825,522 (a) Including portion due within one year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Net Income Net income decreased by $22.8 million in 1994 due to increased AEP System Power Pool (Power Pool) capacity costs, severe winter storm damage expenses, an increase in West Virginia business and occupation taxes resulting from increased generation at West Virginia plants, and increased charges under the AEP System transmission equalization agreement. Net income decreased by $6.3 million in 1993 due to a change in accounting for postretirement benefits other than pensions in accordance with a new accounting standard, planned generating unit repairs and storm damage expenditures. Revenues Increase Operating revenues increased 1% in 1994 and 8% in 1993 and can be analyzed as follows: Increase (Decrease) From Previous Year (dollars in millions) 1994 1993 Amount % Amount % Retail: Price variance . . . . $ 7.9 $ 1.3 Volume variance. . . . 2.6 36.4 Power Supply Costs . . (5.4) 35.0 5.1 0.4 72.7 6.4 Wholesale: Price variance . . . . 23.9 5.1 Volume variance. . . . (20.9) 36.9 Power Supply Costs . . (.8) (6.0) 2.2 0.8 36.0 14.3 Other Operating Revenues 9.1 (.4) Total . . . . . $ 16.4 1.1 $108.3 7.7 The slight increase in retail revenues in 1994 can be attributed to the effect of a May 1993 rate increase in the Virginia retail jurisdiction. Although wholesale energy sales decreased 7% in 1994, wholesale revenues increased primarily due to an increase in take-or-pay capacity charges to unaffiliated utilities. Take-or-pay capacity charges are to reserve a specified quantity of generating capacity and must be paid even when the energy is not taken. The decline in wholesale energy sales reflects lower energy sales by the Power Pool. While severe winter weather in January 1994 and hotter than normal weather in June increased the Power Pool's short-term wholesale sales in those months, the mild weather throughout the remainder of 1994, combined with increased competition in the wholesale market, reduced short-term sales for the year. The increase in retail revenues in 1993 was primarily due to a return to normal weather, increased recoveries of deferred power supply costs, and the May 1993 Virginia retail rate increase. In 1993 wholesale revenues increased 14% due to a 15% increase in sales as the Company's share of short-term wholesale sales made by the Power Pool increased reflecting the decreased availability of unaffiliated generating units and the return to normal hot summer weather. Operating Expenses Increase Operating expenses increased 3% in 1994 and 10% in 1993. Changes in the components of operating expenses were as follows: Increase (Decrease) From Previous Year (dollars in millions) 1994 1993 Amount % Amount % Fuel . . . . . . . . . $ 8.2 2.2 $ 30.9 8.8 Purchased Power. . . . 5.5 1.8 28.1 10.0 Other Operation. . . . 9.6 5.2 18.2 10.8 Maintenance. . . . . . 14.3 12.0 15.2 14.5 Depreciation and Amortization . . . . 4.9 4.0 5.8 4.9 Taxes Other Than Federal Icome Taxes. 6.7 6.0 7.4 7.0 Federal Income Taxes . (8.7) (16.1) 7.3 15.4 Total. . . . . . . . $40.5 3.1 $112.9 9.6 The increase in fuel expense in 1994 was primarily due to an increase in coal-fired generation partially offset by a reduction in the average cost of fuel consumed. The increase in generation resulted from fewer maintenance outages compared with last year at the Company's generating units and scheduled outages at an affiliate's nuclear power plant which required the Company to increase its generation for delivery to the Power Pool. Fuel expense increased in 1993 due primarily to the operation of the power supply cost recovery mechanism as previously deferred fuel costs were expensed concurrent with their recovery, partially offset by reduced coal-fired generation due to planned power plant maintenance outages. Although 1994 energy purchases from the Power Pool declined, reflecting an increase in the Company's generation, purchased power expense increased as a result of increased Power Pool capacity charges. The Power Pool allocates capacity costs to its members based on their relative peak demands in the prior twelve months. As a result of a new internal peak demand experienced in January 1994, the Company is being charged with a greater portion of the Power Pool's capacity charges which are recorded as purchased power expense. The increase in purchased power expense in 1993 reflects increased energy purchases from the Power Pool to meet increased sales and to replace power not generated as a result of maintenance outages. Other operation expense increased in 1994 primarily due to increased charges under the AEP System transmission equalization agreement. Transmission charges are allocated based on the relative peak demands in the prior twelve months. The increase in such charges reflects the Company's new peak demand. In 1993 a change in accounting method for postretirement benefits other than pensions from pay-as-you-go to accrual accounting in accordance with a new accounting standard was the principal reason other operation expense increased. A January 1994 snow storm, primarily in the West Virginia service territory and two major ice storms in February and March 1994, mainly in the Virginia service territory significantly increased 1994 maintenance expense. Storm damage expenditures in 1994 were $43.2 million of which $23.9 million was deferred in the Virginia retail jurisdiction for future recovery as a regulatory asset in accordance with a precedent established in a previous rate proceeding. Maintenance expense increased in 1993 principally due to planned generating unit repair and inspection outages as well as storm damage expenses from a March 1993 blizzard and June 1993 windstorm. Taxes other than federal income taxes increased in 1994 reflecting the effect on the generation-based West Virginia business and occupation tax of the increased generation at West Virginia plants. An increase in taxable income caused the 1993 increase in taxes other than federal income taxes. Federal income taxes attributable to operations decreased in 1994 primarily due to a decrease in pre-tax operating income. In 1993 federal income taxes attributable to operations increased primarily due to changes in certain book/tax differences accounted for on a flow-through basis and an increase in pre-tax operating income. Nonoperating Income Nonoperating income decreased in 1994 due to the adoption of SFAS 112, Employers' Accounting for Postemployment Benefits, by the Company's subsidiaries, which were formerly engaged in coal-mining, and the effect of a refund in 1993 of medical costs received by the inactive coal subsidiaries from surplus funds in the Black Lung Trust Fund. Nonoperating income decreased in 1993 principally because of interest income recorded in 1992 on tax refunds received from the IRS in connection with the settlement of audits of prior years' tax returns. Interest Charges Refinancing of long-term debt during 1993 and the early part of 1994 reduced the average interest rate on outstanding long-term debt as well as the average levels of long-term debt causing the decline in interest expense in 1994 and 1993. In the past two years management refinanced and retired $332 million of long-term debt. Construction Total plant and property additions were $253 million in 1994 and $201 million in 1993. Management estimates construction expenditures for the next three years to be $631 million including expenditures necessary to meet the requirements of the Clean Air Act Amendments of 1990. The funds for construction of new facilities and improvement of existing facilities will come from a combination of internally generated funds, short-term and long- term borrowings and investments in common equity by the Company's parent, American Electric Power Co., Inc. (AEP Co., Inc.). Approximately 75% of the construction expenditures for the next three years are expected to be fi- nanced internally. These estimated construction expenditures do not include any major new plant construction. Capital Resources The Company generally issues short-term debt to provide for interim financing of capital expenditures that exceed internally generated funds. At December 31, 1994, unused short-term lines of credit shared with other American Electric Power (AEP) System companies of $558 million were available; however, charter provisions limit short-term debt borrowing to $213 million. Short-term borrowings increased by $83 million in 1994. Periodic reductions of outstanding short-term debt are made through issuance of long-term debt, preferred stock and equity capital contributions by the parent company. The Company received or has requested regulatory approval to issue up to $204 million of long-term debt to retire short-term debt, refinance higher cost and maturing long-term debt, reacquire cumulative preferred stock and fund construction expenditures. The Company presently exceeds all minimum coverage requirements for issuance of preferred stock and long-term debt. At December 31, 1994, long- term debt and preferred stock coverage ratios were 3.10 and 1.65, respectively. Competition In exchange for the exclusive right to provide electric generation, transmission and distribution services within a designated service territory at cost-based regulated prices that provide the opportunity to earn a regulator-determined reasonable rate of return on shareholders' equity, electric utilities are obligated to serve all customers within such service territories. While the Company is a regulated monopoly, we have competed historically with self-generation and with distributors of alternative sources of energy, such as natural gas, fuel oil and coal, within our service area. In recent years regulated electric utilities have also competed with independent power producers for the right to build and operate new generating plant. The primary competitive factors have been price, reliability of service and the ability of customers to utilize sources of energy other than electric power. The lack of independent power producers and significant self generation in our service territory evidences our past ability to compete. With respect to alternative energy sources, management believes that the convenience and versatility of electricity and reliability of our service coupled with the limited ability of customers to substitute other energy sources for electric power have placed us in a favorable competitive position. However, we continue to work to improve the competitiveness, effectiveness and reliability of our product. The Company, for example, encourages customers to use high-efficiency heat pumps which lowers the cost of space heating and cooling. Competition in the wholesale market, that is the sale of bulk power to other public and municipal utilities, is not new and has been increasing for a number of years. This is particularly true in the short-term wholesale market. The National Energy Policy Act of 1992 (the Energy Act) facilitated competition in the short and long-term wholesale market since, among other things, it authorized the Federal Energy Regulatory Commission (FERC) to order transmission access for wholesale transactions. The principal factors in competing for wholesale sales are price including fuel costs, availability of capacity, transmission capability and cost, and reliability of service. Management believes that over the years the Company has generally maintained a favorable competitive position in these factors. However, due to the recent availability of additional capacity of other utilities and reduced fuel prices, price competition, particularly in the short-term wholesale market, has been, and is expected to be important in the future. With the passage of the Energy Act, the potential for retail wheeling, i.e., competition for retail sales, is getting considerable attention. While the Energy Act gave the FERC broad authority to mandate transmission access in the wholesale market, it prohibits the FERC from ordering retail wheeling. A number of state legislatures and state regulatory agencies have begun to study retail wheeling with encouragement from major industrial customers. If it occurs, increased competition may require the resolution of some complex issues, such as stranded investment and the obligation to serve. When a customer leaves a utility system there is an issue of who pays for regulatory assets, plant investment and commitments that are no longer needed. If a customer leaves its native electric supplier and later decides to return, the issue of whether the original local utility has an obligation to serve the returning customer must also be addressed. If not recovered directly from customers that choose another supplier and/or from the remaining regulated customers, the Company, like all electric utilities, will be required to address stranded investment losses that could result from any future loss of customers or reduced pricing from head-to-head competition. Management intends to seek recovery of any stranded investment, including regulatory assets, as an appropriate recovery of previously approved cost of service. Activity-based budgeting and cost management techniques are being currently developed to enable management to cost logical work activities and services. By examining our operations by logical work units, the cost of all major activities can be better controlled, identified and evaluated to prop- erly price our products and to eliminate unnecessary activities and their cost. Management believes these activities will enhance our ability to compete. The development of tools and training to enable management to better manage the costs of operations are only one of the options currently being pursued. In 1994 the Company's management team has been: - Reviewing and streamlining operations and staffing, - Reducing layers of supervision, - Expanding customer relations and service activities, - Expanding its ability to help customers adopt new electro-technologies to reduce their usage of electricity, and - Expanding strategic planning and management training activities. Management is committed to maintaining and enhancing the Company's core business. Management is moving in "new directions" to maintain and improve our competitive position. Whether competition expands or not, these efforts should serve to lower cost of service and rates and improve sales through economic development in our service territory. Environmental Concerns Clean Air Act The Clean Air Act Amendments (CAAA) of 1990 require, among other things, substantial reductions in sulfur dioxide and nitrogen oxide emissions from electric generating plants. The first phase of reductions in sulfur dioxide emissions (Phase I) began on January 1, 1995 and the second, more restrictive phase (Phase II) begins on January 1, 2000. The law also establishes a permanent nationwide cap on sulfur dioxide emissions after 1999. As a Power Pool member with insufficient generating capacity in relation to the Pool, the Company will share in the AEP System's Phase I compliance costs, which reflects various methods of compliance. The cornerstone of the compliance strategy is the installation of scrubbers at the two-unit 2,600 megawatt Gavin Plant owned by an affiliated Power Pool member, Ohio Power Company. The scrubbers for Gavin Unit 1 were completed in December 1994 and the Unit 2 scrubbers are expected to be completed in March 1995. Phase II of the CAAA will require further compliance actions and additional costs. Management intends to seek timely recovery of its share of the AEP System's additional compliance costs. Hazardous Material By-products from the generation of electricity include materials such as ash, slag and sludge. Coal combustion by-products, which constitute the overwhelming percentage of these materials, are typically disposed of or treated in captive disposal facilities or are beneficially utilized. In addition, the Company's generating plants and transmission and distribution facilities have used asbestos, polychlorinated biphenyls (PCBs) and other hazardous and non-hazardous materials. Substantial costs are currently being incurred to safely dispose of such substances, and additional costs could be incurred to comply with new laws and regulations if enacted. The Comprehensive Environmental Response Compensation and Liability Act (Superfund) addresses clean-up of hazardous substance disposal sites and authorizes the United States Environmental Protection Agency (Federal EPA) to administer the clean-up programs. The Company has been named by the Federal EPA as a "potentially responsible party" (PRP) for one site as of December 31, 1994. Liability has been settled for this site with no significant effect on results of operations. In addition, there are two sites for which the Company has received information requests or demand letters from the Federal EPA, which could lead to PRP designations. The State of Tennessee has also named the Company as a PRP at one site under analogous state cleanup laws. In all instances where the Company has been named a PRP or defendant, the disposal or recycling activity was in accordance with applicable laws and regulations. However Superfund does not recognize compliance as a defense, but imposes strict liability on parties who fall within its broad statutory categories. As a result, AEP has instituted a number of Systemwide policies that have raised the standard of care by going beyond regulatory requirements where appropriate. While the potential liability for each site must be evaluated separately, several general statements can be made regarding such potential liability. The disposal by the Company at a particular site is often unsubstantiated; the quantity of material disposed of at a site was generally small; and the nature of the material generally disposed of was non- hazardous. Typically, the Company is one of many parties named PRPs for a site and, although liability is joint and several, at least some of the other parties are financially sound enterprises. Therefore, present estimates do not anticipate material clean-up costs for identified disposal sites. However, if for unknown reasons, significant costs are incurred for cleanup, results of operations and possibly financial condition would be adversely affected unless the costs can be recovered from insurance proceeds and/or with regulatory approval from ratepayers. Global Climate Change Concern about global climate change, or "the greenhouse effect" has been the focus of intensive debate within the United States and around the world. Much of the uncertainty about what effects greenhouse gas concentrations will have on the global climate results from a myriad of factors that affect climate. Based on the terms of a 1992 United Nations treaty that pledged the United States to reduce greenhouse gas emissions, the Clinton Administration developed a voluntary plan to reduce greenhouse gas emissions to 1990 levels by the year 2000. As part of this plan, the AEP System is participating with the U.S. Department of Energy (DOE) and other electric utility companies in a climate change program to limit future greenhouse gas emissions. The climate change program applies a policy of proactive environmental stewardship, whereby actions are taken that make economic and environmental sense on their own merits, irrespective of the uncertain threat of global climate change. The plan includes energy conservation programs, improvements in fossil generation efficiency, increased use of nuclear capacity and forest management activities. However, should it be determined necessary to enact significant new measures to control the burning of coal, the cost of such measures if not recovered from ratepayers, could adversely impact results of operations and possibly financial condition. EMF The potential for electric and magnetic fields (EMF) from transmission and distribution facilities to adversely affect the public health is being extensively researched. The AEP System continues to support research to help determine the extent, if any, to which EMF may adversely impact public health. Our concern is that new laws imposing EMF limits may be passed or new regulations promulgated without sufficient scientific study and evidence to support them. As long as there is uncertainty about EMF, electric utilities will have difficulty finding acceptable sites for their facilities, which could hamper economic growth within our service area. If the present energy delivery system must be changed because of EMF concerns, or if the courts conclude that EMF exposure harms individuals and that utilities are liable for damages, then results of operations and financial condition could be adversely affected, unless the costs can be recovered from ratepayers. Litigation The Company is involved in a number of legal proceedings and claims. While we are unable to predict the outcome of such litigation, it is not expected that the resolution of these matters will have a material adverse effect on financial condition. Effects of Inflation Inflation affects the cost of replacing utility plant and the cost of operating and maintaining such plant. The rate-making process generally limits recovery to the historical cost of assets resulting in economic losses when inflation effects are not recovered from customers on a timely basis. However, economic gains that result from the repayment of long-term debt with inflated dollars partly offset such losses. INDEPENDENT AUDITORS' REPORT To the Shareowners and Board of Directors of Appalachian Power Company: We have audited the accompanying consolidated balance sheets of Appalachian Power Company and its subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Appalachian Power Company and its subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Columbus, Ohio February 21, 1995
Consolidated Statements of Income Year Ended December 31, 1994 1993 1992 (in thousands) OPERATING REVENUES $1,535,500 $1,519,104 $1,410,778 OPERATING EXPENSES: Fuel 390,864 382,633 351,750 Purchased Power 315,818 310,307 282,166 Other Operation 196,097 186,471 168,226 Maintenance 134,092 119,754 104,581 Depreciation and Amortization 128,192 123,306 117,513 Taxes Other Than Federal Income Taxes 119,458 112,739 105,377 Federal Income Taxes 45,761 54,554 47,269 Total Operating Expenses 1,330,282 1,289,764 1,176,882 OPERATING INCOME 205,218 229,340 233,896 NONOPERATING INCOME (LOSS) (4,716) (3,353) 3,036 INCOME BEFORE INTEREST CHARGES 200,502 225,987 236,932 INTEREST CHARGES 98,157 100,855 105,513 NET INCOME 102,345 125,132 131,419 PREFERRED STOCK DIVIDEND REQUIREMENTS 15,660 16,540 16,596 EARNINGS APPLICABLE TO COMMON STOCK $ 86,685 $ 108,592 $ 114,823 See Notes to Consolidated Financial Statements.
Consolidated Balance Sheets December 31, 1994 1993 (in thousands) ASSETS ELECTRIC UTILITY PLANT: Production $1,848,263 $1,781,005 Transmission 1,010,344 987,147 Distribution 1,315,915 1,225,436 General 160,752 140,942 Construction Work in Progress 63,453 59,170 Total Electric Utility Plant 4,398,727 4,193,700 Accumulated Depreciation and Amortization 1,627,852 1,550,855 NET ELECTRIC UTILITY PLANT 2,770,875 2,642,845 OTHER PROPERTY AND INVESTMENTS 48,928 51,551 CURRENT ASSETS: Cash and Cash Equivalents 5,297 4,626 Accounts Receivable: Customers 108,785 118,523 Affiliated Companies 10,980 9,565 Miscellaneous 4,327 4,118 Allowance for Uncollectible Accounts (830) (1,344) Fuel - at average cost 65,581 46,881 Materials and Supplies - at average cost 49,451 43,351 Accrued Utility Revenues 51,686 58,294 Prepayments 6,487 7,430 TOTAL CURRENT ASSETS 301,764 291,444 REGULATORY ASSETS 403,906 382,877 DEFERRED CHARGES 59,015 59,650 TOTAL $3,584,488 $3,428,367 See Notes to Consolidated Financial Statements.
December 31, 1994 1993 (in thousands) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common Stock - No Par Value: Authorized - 30,000,000 Shares Outstanding - 13,499,500 Shares $ 260,458 $ 260,458 Paid-in Capital 504,408 494,834 Retained Earnings 206,361 227,816 Total Common Shareowner's Equity 971,227 983,108 Cumulative Preferred Stock: Not Subject to Mandatory Redemption 55,000 55,000 Subject to Mandatory Redemption 190,300 160,450 Long-term Debt 1,228,911 1,215,124 TOTAL CAPITALIZATION 2,445,438 2,413,682 OTHER NONCURRENT LIABILITIES 66,156 55,865 CURRENT LIABILITIES: Short-term Debt 122,825 39,500 Accounts Payable - General 46,729 33,627 Accounts Payable - Affiliated Companies 46,983 34,531 Taxes Accrued 34,623 52,128 Customer Deposits 14,362 13,670 Interest Accrued 17,347 18,212 Other 77,236 71,259 TOTAL CURRENT LIABILITIES 360,105 262,927 DEFERRED FEDERAL INCOME TAXES 595,353 578,948 DEFERRED INVESTMENT TAX CREDITS 77,862 82,987 DEFERRED CREDITS 39,574 33,958 COMMITMENTS AND CONTINGENCIES (Note 4) TOTAL $3,584,488 $3,428,367
Consolidated Statements of Cash Flows Year Ended December 31, 1994 1993 1992 (in thousands) OPERATING ACTIVITIES: Net Income $ 102,345 $ 125,132 $ 131,419 Adjustments for Noncash Items: Depreciation and Amortization 130,694 125,847 120,056 Deferred Federal Income Taxes 17,355 (5,834) 29,132 Deferred Investment Tax Credits (5,492) (5,468) (5,096) Deferred Power Supply Costs (net) 9,356 22,100 (30,493) Provision for Rate Refunds (8,780) 18,654 (4,708) Storm Damage Expense Deferrals (net) (21,741) (3,371) - Changes in Certain Current Assets and Liabilities: Accounts Receivable (net) 7,600 (2,758) (8,906) Fuel, Materials and Supplies (24,800) 62,608 8,135 Accrued Utility Revenues 6,608 (11,598) (4,919) Accounts Payable 25,554 (20,018) (4,963) Taxes Accrued (17,505) 12,104 (14,419) Other (net) (3,192) 13,247 (23,713) Net Cash Flows From Operating Activities 218,002 330,645 191,525 INVESTING ACTIVITIES: Construction Expenditures (230,531) (189,767) (188,380) Other 948 1,806 1,884 Net Cash Flows Used For Investing Activities (229,583) (187,961) (186,496) FINANCING ACTIVITIES: Capital Contributions from Parent Company 10,000 15,000 - Issuance of Cumulative Preferred Stock 29,574 108,783 49,402 Issuance of Long-term Debt 70,443 286,486 493,447 Retirement of Cumulative Preferred Stock (152) (112,505) (7,153) Retirement of Long-term Debt (58,236) (277,704) (404,309) Change in Short-term Debt (net) 83,325 (40,350) (19,200) Dividends Paid on Common Stock (108,140) (110,696) (105,836) Dividends Paid on Cumulative Preferred Stock (14,562) (16,573) (15,330) Net Cash Flows From (Used For) Financing Activities 12,252 (147,559) (8,979) Net Increase (Decrease) in Cash and Cash Equivalents 671 (4,875) (3,950) Cash and Cash Equivalents January 1 4,626 9,501 13,451 Cash and Cash Equivalents December 31 $ 5,297 $ 4,626 $ 9,501 See Notes to Consolidated Financial Statements.
Consolidated Statements of Retained Earnings Year Ended December 31, 1994 1993 1992 (in thousands) Retained Earnings January 1 $227,816 $229,920 $220,933 Net Income 102,345 125,132 131,419 330,161 355,052 352,352 Deductions: Cash Dividends Declared: Common Stock 108,140 110,696 105,836 Cumulative Preferred Stock: 4-1/2% Series 1,350 1,350 1,350 4.50% Series 22 30 36 5.90% Series 2,950 713 - 5.92% Series 3,552 1,066 - 6.85% Series 1,296 - - 7.40% Series 1,850 1,850 1,850 7.80% Series 3,900 3,900 3,228 8.12% Series - 1,962 2,436 8.52% Series - 1,372 1,704 9% Series - 3,746 5,333 $2.65 Series - 22 193 Total Cash Dividends Declared 123,060 126,707 121,966 Other 740 529 466 Total Deductions 123,800 127,236 122,432 Retained Earnings December 31 $206,361 $227,816 $229,920 See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES: Organization Appalachian Power Company (the Company or APCo) is a wholly-owned subsidiary of American Electric Power Company, Inc. (AEP Co., Inc.), a public utility holding company. The Company is engaged in the generation, purchase, transmission and distribution of electric power in southwestern Virginia and southern West Virginia. As a member of the American Electric Power (AEP) System Power Pool (Power Pool) and a signatory company to the AEP Transmission Equalization Agreement, APCo's facilities are operated in conjunction with the facilities of certain other AEP affiliated utilities as an integrated utility system. The Company has five wholly-owned subsidiaries: Cedar Coal Co., Central Appalachian Coal Company and Southern Appalachian Coal Company (which were formerly engaged in coal mining and now lease their coal reserves to unaffiliated companies), Kanawha Valley Power Company (which owns and oper- ates hydroelectric generating units and sells electricity to APCo) and West Virginia Power Company (which is inactive). Regulation As a member of the AEP System, APCo is subject to the regulation of the Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935 (1935 Act). Retail rates are regulated by the Virginia State Corporation Commission (Virginia SCC) and the Public Service Commission of West Virginia (WVPSC). The Federal Energy Regulatory Commission (FERC) regulates wholesale rates. Principles of Consolidation The consolidated financial statements include APCo and its wholly-owned subsidiaries. Significant intercompany items are eliminated in consol- idation. Basis of Accounting As a cost-based rate-regulated entity, APCo's financial statements reflect the actions of regulators that result in the recognition of revenues and expenses in different time periods than enterprises that are not rate regulated. In accordance with Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, regulatory assets and liabilities are recorded and represent regulator approved deferred expenses and revenues, respectively, resulting from the rate-making process. Such deferrals are amortized commensurate with their inclusion in rates (revenues). Utility Plant Electric utility plant is stated at original cost and is generally subject to first mortgage liens. Additions, major replacements and betterments are added to the plant accounts. Retirements from the plant accounts and associated removal costs, net of salvage, are deducted from accumulated depreciation. The costs of labor, materials and overheads incurred to operate and maintain utility plant are included in operating expenses. Allowance for Funds Used During Construction (AFUDC) AFUDC is a noncash nonoperating income item that is recovered with regulator approval over the service life of utility plant through depreciation and represents the estimated cost of borrowed and equity funds used to finance construction projects. In the Virginia jurisdiction, con- struction work in progress is included in rate base in lieu of recording AFUDC. The average rates used to accrue AFUDC in the West Virginia and FERC jurisdictions were 4.5%, 3.5% and 4% in 1994, 1993 and 1992, respectively, and the amounts of AFUDC accrued were $1.4 million in 1994, $1 million in 1993 and $1.1 million in 1992. Depreciation and Amortization Depreciation is provided on a straight-line basis over the estimated useful lives of utility plant and is calculated largely through the use of composite rates by functional class as follows: Functional Class Composite of Property Annual Rates Production: Steam 3.6% Hydro 2.5% Transmission 2.2% Distribution 3.5% General 3.3% Amounts to be used for demolition of plant are recovered through deprecia- tion charges included in rates. Cash and Cash Equivalents Cash and cash equivalents include temporary cash investments with original maturities of three months or less. Operating Revenues Revenues include the accrual of electricity consumed but unbilled at month-end as well as billed revenues. Power Supply Costs and Fuel Costs The Company practices deferred accounting with respect to the over and under collection of certain fuel and power supply costs pursuant to the Virginia regulatory commission's fuel cost recovery mechanism. In the Virginia jurisdiction, changes in fuel costs and the fuel portion of purchased power costs are reviewed annually by the Virginia SCC. In the West Virginia jurisdiction deferral accounting is not being used for the over and under collection of certain power supply costs incurred from November 1993 through October 1996 as a result of a three-year freeze on fuel rates which is described in Note 3. Prior to November 1, 1993 deferred fuel accounting was practiced in the West Virginia jurisdiction. Wholesale jurisdictional fuel cost changes are expensed and billed as incurred. Income Taxes The Company follows the liability method of accounting for income taxes as prescribed by SFAS 109, Accounting for Income Taxes. Under the liability method, deferred income taxes are provided for all temporary differences be- tween book cost and tax basis of assets and liabilities which will result in a future tax consequence. Where the flow-through method of accounting for temporary differences is reflected in rates, regulatory assets and liabilities are recorded in accordance with SFAS 71. Investment Tax Credits The Company's policy was to account for invest-ment tax credits under the flow-through method except where regulatory commissions reflected investment tax credits in the rate-making process on a deferral basis. Commensurate with rate treatment deferred investment tax credits are being amortized over the life of the related plant investment. Debt and Preferred Stock Gains and losses on reacquired debt are deferred and amortized over the term of the reacquired debt in accordance with rate-making treatment. If the debt is refinanced the reacquisition costs are deferred and amortized over the term of the replacement debt commensurate with their recovery in rates. Debt discount or premium and debt issuance expenses are amortized over the term of the related debt, with the amortization included in interest charges. Redemption premiums paid to reacquire preferred stock are deferred and amortized in accordance with rate-making treatment. The excess of par value over costs of preferred stock reacquired to meet sinking fund requirements is credited to paid-in capital. Other Property and Investments Other property and investments are stated at cost. Reclassifications Certain prior-period amounts were reclassified to conform with current- period presentation. 2. EFFECTS OF REGULATION: The consolidated financial statements include assets and liabilities recorded in accordance with regulatory actions to match expenses and revenues in cost-based rates. Regulatory assets are expected to be recovered in future periods through the rate-making process and regulatory liabilities are expected to reduce future rate recoveries. The Company's regulatory assets and liabilities are comprised of the following: December 31, 1994 1993 (in thousands) Regulatory Assets: Amounts Due From Customers For Future Federal Income Taxes $319,160 $320,160 Unamortized Loss On Reacquired Debt 25,621 26,114 Deferred Storm Damages 25,112 3,371 Other 34,013 33,232 Total Regulatory Assets $403,906 $382,877 Regulatory Liabilities: Deferred Investment Tax Credits $77,862 $82,987 Other Regulatory Liabilities* 7,075 549 Total Regulatory Liabilities $84,937 $83,536 * Included in Deferred Credits on Consolidated Balance Sheets. 3. RATE MATTERS: On June 27, 1994 the Virginia SCC issued a final order granting the Company an increase in annual revenues of $17.9 million. The Company had requested to increase its Virginia retail rates by $31.4 million annually and on May 4, 1993, implemented the rates, subject to refund, based on an interim order. As a result of the final order, the Company made a revenue refund including interest to its Virginia customers in August 1994 of $15.8 million. As a result of certain significant fuel cost reductions, on November 15, 1994 the Company implemented a net decrease in rates charged to its Virginia retail customers of $13.2 million, subject to final approval by the Virginia SCC. The net decrease consisted of a $28.9 million decrease in the fuel component of its rates offset, in part, by an increase of $15.7 million in base rates. On December 19, 1994, the Virginia SCC issued an order approving the decrease in the fuel factor component of rates. The increase in base rates would, in part, recover over three years the costs of extensive repairs to facilities damaged by last winter's severe storms. The Company deferred $23.9 million of Virginia retail incremental storm damage expenses related to two major ice storms in February and March 1994. The Company proposes in this rate proceeding to amortize the deferred storm damage expenses over a three-year period, consistent with the amortization of previous storm damage expense deferrals approved in a 1992 rate case. The ultimate recovery of the entire deferred storm damage costs is subject to Virginia SCC approval. If not approved, results of operations would be adversely affected. A hearing has been scheduled to begin in July 1995. Under the terms of a 1993 settlement agreement, the Company agreed to a base rate freeze in the West Virginia jurisdiction and suspension of the WVPSC's Expanded Net Energy Cost (ENEC) re-covery mechanism until October 31, 1996. Deferral accounting will not be used for new ENEC cost variances incurred from November 1993 through October 1996. The ENEC actual under- recovery balance on October 31, 1993 of $13.3 million is being collected through a component of the revised ENEC rates over the three-year period ending October 31, 1996. At December 31, 1994 the unrecovered ENEC balance was $7.6 million. Effective September 15, 1992 the FERC authorized the Company to implement, subject to refund, an $8.7 million annual rate increase. The Company is awaiting a final order from the FERC in this matter. 4. COMMITMENTS AND CONTINGENCIES: Construction and Other Commitments Substantial construction commitments have been made. Such commitments do not include any expenditures for new generating capacity. The aggregate construction program expenditures for 1995-1997 are estimated to be $631 million. Long-term fuel supply contracts contain clauses that provide for periodic price adjustments. The Virginia jurisdiction has a fuel cost recovery mechanism that provides, with the regulators' review and approval, for de- ferral and subsequent recovery or refund of changes in the cost of fuel. The Company agreed to freeze the fuel cost recovery factor in the West Virginia jurisdiction for three years ending October 31, 1996. The Company will seek, after October 1996, reinstatement of a similar fuel cost recovery mechanism in its West Virginia jurisdiction. The contracts are for various terms, the longest of which extends to 2006, and contain various clauses that would release the Company from its obligation under certain force majeure conditions. Litigation The Company is involved in a number of legal proceedings and claims. While management is unable to predict the outcome of litigation, it is not expected that the resolution of these matters will have a material adverse effect on financial condition. Clean Air The Clean Air Act Amendments of 1990 require significant reductions in sulfur dioxide and nitrogen oxide emissions from various AEP System generat- ing plants. The first phase of reductions in sulfur dioxide emissions (Phase I) began on January 1, 1995 and the second, more restrictive phase (Phase II) begins on January 1, 2000. The law also established a permanent nationwide cap on sulfur dioxide emissions after 1999. The Company's plants are not affected by Phase I emissions requirements; however, the Company will incur a portion of the Phase I compliance costs of other AEP affiliates through the Power Pool (which is described in Note 6). The compliance plan for the AEP System's generating units affected by Phase I includes installation of flue gas desulfurization systems (scrubbers) at the two-unit 2,600 mw Gavin Plant owned by an affiliate, Ohio Power Company, and fuel switching at other affected affiliated plants. The Company will incur additional costs to comply with Phase II requirements at its generating plants and those of affiliated Power Pool members. If the Company is unable to recover its share of the AEP System costs of compliance, it will have an adverse impact on results of operations and financial condition. Other Environmental Matters The Company and its subsidiaries are regulated by federal, state and local authorities with respect to air and water quality and other environmental matters. Local authorities also regulate zoning. The generation of electricity produces non-hazardous and hazardous by-products. Asbestos, polychlorinated biphenyls (PCBs) and other hazardous materials have been used in the generating plants and transmission/distribution facilities. Substantial costs to store and dispose of hazardous materials have been incurred. Significant additional costs could be incurred in the future to meet the requirements of new laws and regulations and to clean up disposal sites under existing legislation. Management has no knowledge of any material clean up costs related to the Company's past disposal of hazardous and non-hazardous materials. 5. RELATED PARTY TRANSACTIONS: Benefits and costs of the System's generating plants are shared by members of the Power Pool. Under terms of the System Interconnection Agreement, capacity charges and credits are designed to allocate the cost of the System's capacity among the Power Pool members based on their relative peak demands and generating reserves. Power Pool members are also compensated for the out-of-pocket costs of energy delivered to the Power Pool and charged for energy received from the Power Pool. Operating revenues include $32.3 million in 1994, $33.4 million in 1993 and $22.2 million in 1992 for energy supplied to the Power Pool. Charges for Power Pool capacity reservation and energy received were included in purchased power expense as follows: Year Ended December 31, 1994 1993 1992 (in thousands) Capacity Charges $138,517 $111,335 $112,113 Energy Charges 147,655 182,205 152,585 Total $286,172 $293,540 $264,698 Power Pool members share in wholesale sales to unaffiliated utilities made by the Power Pool. The Company's share of the Power Pool's wholesale sales included in operating revenues were $103.8 million in 1994, $96.7 million in 1993 and $76.1 million in 1992. In addition, the Power Pool purchases power from unaffiliated companies for immediate resale to other unaffiliated utilities. The Company's share of these purchases was included in purchased power expense and totaled $27.5 million in 1994, $9 million in 1993 and $11.3 million in 1992. Revenues from these transactions are included in the above Power Pool wholesale operating revenues. Energy sold directly to Kingsport Power Company, an affiliated distribution utility that is not a member of the Power Pool, was included in operating revenues in the amounts of $61.1 million in 1994, $61.8 million in 1993 and $58.8 million in 1992. Purchased power expense includes $2.1 million in 1994, $7.8 million in 1993 and $6.1 million in 1992 of energy bought from the Ohio Valley Electric Corporation, an affiliated company that is not a member of the Power Pool. AEP System companies participate in a transmission equalization agreement. This agreement combines certain AEP System companies' investments in transmission facilities and shares the costs of ownership in proportion to the System companies' respective peak demands. Pursuant to the terms of the agreement, other operation expense includes equalization charges of $10.2 million, $3.2 million and $8 million in 1994, 1993 and 1992, respectively. The Company and an affiliate, Ohio Power Company, jointly own certain facilities at two power plants. The costs of operating these facilities are apportioned between the owners based on ownership interests. The Company's share of these costs is included in the appropriate expense accounts on the Consolidated Statement of Income. American Electric Power Service Corporation (AEPSC) provides certain managerial and professional services to AEP System companies. The costs of the services are billed by AEPSC on a direct-charge basis, to the extent practicable, and on reasonable bases of proration for indirect costs. The charges for services are made at cost and include no compensation for the use of equity capital, which is furnished to AEPSC by AEP Co., Inc. Billings from AEPSC are capitalized or expensed depending on the nature of the services rendered. AEPSC and its billings are subject to the regulation of the SEC under the 1935 Act. 6. BENEFIT PLANS: The Company and its subsidiaries participate in the AEP System pension plan, a trusteed, noncontributory defined benefit plan covering all employees meeting eligibility requirements. Benefits are based on service years and compensation levels. Pension costs are allocated by first charging each System company with its service cost and then allocating the remaining pension cost in proportion to its share of the projected benefit obligation. The funding policy is to make annual trust fund contributions equal to the net periodic pension cost up to the maximum amount deductible for federal income taxes, but not less than the minimum contribution required by the Employee Retirement Income Security Act of 1974. Net pension costs for the years ended December 31, 1994, 1993 and 1992 were $5.3 million, $5.1 million and $6.4 million, respectively. An employee savings plan is offered which allows participants to contribute up to 17% of their salaries into three investment alternatives, including AEP Co., Inc. common stock. An employer matching contribution, equaling one-half of the employees' contribution to the plan up to a maximum of 3% of the employees' base salary, is invested in AEP Co., Inc. common stock. The Company's annual contribution totaled $4.2 million in 1994, $3.9 million in 1993 and $3.7 million in 1992. Certain other benefits are provided for retired employees under an AEP System other postretirement benefit plan. Substantially all employees are eligible for postretirement health care and life insurance if they have at least 10 service years and are age 55 at retirement. Prior to 1993, net costs of these benefits were recognized as an expense when paid and totaled $5.3 million in 1992. SFAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, was adopted in January 1993 for the Company's aggregate liability for postretirement benefits other than pensions (OPEB). SFAS 106 requires the accrual during the employee's service years of the present value liability for OPEB costs. Costs for the accumulated postretirement benefits earned and not recognized at adoption are being recognized, in accordance with SFAS 106, as a transition obligation over 20 years. OPEB costs are determined by the application of AEP System actuarial assumptions to each operating company's employee complement. The Company's annual accrued costs for employees and retirees OPEBs required by SFAS 106, which includes the recognition of one-twentieth of the prior service transition obligation, were $19.4 million in 1994 and $18.6 million in 1993. In order to fund OPEB benefits the Company established a Voluntary Employees Beneficiary Association (VEBA) trust fund and a corporate owned life insurance (COLI) program. The insur-ance policies have a substantial cash surrender value which is recorded, net of equally substantial policy loans, as other property and investments. The amount contributed to the VEBA trust fund is the difference between the pay-as-you-go OPEB cost and SFAS 106 total OPEB cost. This contribution is funded by amounts collected from ratepayers plus net earnings from the COLI program. Contributions to the VEBA trust fund were $11.6 million in 1994 and $5.6 million in 1993. 7. FEDERAL INCOME TAXES: The details of federal income taxes as reported are as follows:
Year Ended December 31, 1994 1993 1992 (in thousands) Charged (Credited) to Operating Expenses (net): Current $28,779 $61,988 $21,991 Deferred 19,763 (4,664) 27,808 Deferred Investment Tax Credits (2,781) (2,770) (2,530) Total 45,761 54,554 47,269 Charged (Credited) to Nonoperating Income (net): Current (1,043) 995 (10) Deferred (2,408) (1,170) 1,324 Deferred Investment Tax Credits (2,711) (2,698) (2,566) Total (6,162) (2,873) (1,252) Total Federal Income Taxes as Reported $39,599 $51,681 $46,017
The following is a reconciliation of the difference between the amount of federal income taxes computed by multiplying book income before federal income taxes by the statutory tax rate, and the amount of federal income taxes reported.
Year Ended December 31, 1994 1993 1992 (in thousands) Net Income $102,345 $125,132 $131,419 Federal Income Taxes 39,599 51,681 46,017 Pre-tax Book Income $141,944 $176,813 $177,436 Federal Income Taxes on Pre-tax Book Income at Statutory Rate (35% in 1994 and 1993; 34% in 1992) $ 49,680 $ 61,885 $ 60,328 Increase (Decrease) in Federal Income Taxes Resulting From the Following Items: Depreciation 11,103 8,912 6,866 Corporate Owned Life Insurance (5,050) (6,170) (6,181) Removal Costs (4,200) (4,742) (4,145) Percentage Repair Allowance (2,813) (3,444) (3,307) Federal Income Tax Accrual Adjustments (3,100) (2,000) - Investment Tax Credits (net) (5,492) (5,468) (5,495) Other (529) 2,708 (2,049) Total Federal Income Taxes as Reported $ 39,599 $ 51,681 $ 46,017 Effective Federal Income Tax Rate 27.9% 29.2% 25.9%
The following tables show the elements of the net deferred tax liability and the significant temporary differences that gave rise to it: December 31, 1994 1993 (in thousands) Deferred Tax Assets $ 98,501 $ 98,440 Deferred Tax Liabilities (693,854) (677,388) Net Deferred Tax Liabilities $(595,353) $(578,948) Property Related Temporary Differences $(472,597) $(463,249) Amounts Due From Customers For Future Federal Income Taxes (111,706) (112,056) All Other (net) (11,050) (3,643) Total Net Deferred Tax Liabilities $(595,353) $(578,948) The Company and its subsidiaries join in the filing of a consolidated federal income tax return with their affiliated companies in the AEP System. The allocation of the AEP System's current consolidated federal income tax to the System companies is in accordance with SEC rules under the 1935 Act. These rules permit the allocation of the benefit of current tax losses to the System companies giving rise to them in determining their current tax expense. The tax loss of the System parent company, AEP Co., Inc., is allocated to its subsidiaries with taxable income. With the exception of the loss of the parent company, the method of allocation approximates a separate return result for each company in the consolidated group. The AEP System has settled with the Internal Revenue Service (IRS) all issues from the audits of the consolidated federal income tax returns for the years prior to 1988. Returns for the years 1988 through 1990 are presently being audited by the IRS. In the opinion of management, the final settlement of open years will not have a material effect on results of operations. 8. LEASES: Leases of property, plant and equipment are for periods up to 30 years and require payments of related property taxes, maintenance and operating costs. The majority of the leases have purchase or renewal options and will be renewed or replaced by other leases. Lease rentals are primarily charged to operating expenses in accordance with rate-making treatment. The components of rental costs are as follows: Year Ended December 31, 1994 1993 1992 (in thousands) Operating Leases $ 9,490 $11,068 $11,526 Amortization of Capital Leases 8,878 5,186 4,790 Interest on Capital Leases 4,585 4,165 2,886 Total Rental Cost $22,953 $20,419 $19,202 Properties under capital leases and related obligations recorded on the Consolidated Balance Sheets are as follows: December 31, 1994 1993 (in thousands) Electric Utility Plant: Production $ 9,180 $ 7,559 Transmission 34 34 General 59,748 42,204 Total Electric Utility Plant 68,962 49,797 Accumulated Amortization 25,824 19,824 Net Properties under Capital Leases $43,138 $29,973 Capital Lease Obligations: Noncurrent Liability $32,984 $24,288 Liability Due Within One Year 10,154 5,685 Total Capital Lease Obligations $43,138 $29,973 Properties under operating leases and related obligations are not included in the Consolidated Balance Sheets. Future minimum lease payments consisted of the following at December 31, 1994: Non- Cancelable Capital Operating Leases Leases (in thousands) 1995 $13,773 $ 4,707 1996 10,532 4,494 1997 10,855 3,917 1998 7,179 2,618 1999 6,984 2,111 Later Years 19,946 11,941 Total Future Minimum Lease Rentals 69,269 $29,788 Less Estimated Interest Element 26,131 Estimated Present Value of Future Minimum Lease Payments $43,138 9. CUMULATIVE PREFERRED STOCK: The authorized shares of no par value cumulative preferred stock is 8,000,000 shares. The aggregate involuntary liquidation price for all shares of cumulative preferred stock may not exceed $300 million. The unissued shares of the cumulative preferred stock may or may not possess mandatory redemption characteristics upon issuance. The cumulative preferred stock is callable at the price indicated plus accrued dividends. The involuntary liquidation preference is $100 per share. During 1993 the Company redeemed and cancelled the following entire series: 300,000 shares of 8.12% series; 200,000 shares of 8.52% series; 570,000 shares of 9% series; and 32,900 shares of $2.65 series. In 1992 the Company redeemed and cancelled 30,000 shares of the 9% series and 160,000 shares of the $2.65 series. Cumulative Preferred Stock Not Subject to Mandatory Redemption:
Call Price Shares Amount December 31, Outstanding December 31, Series 1994 December 31, 1994 1994 1993 (in thousands) 4-1/2% $110.00 300,000 $30,000 $30,000 7.40% 102.11 250,000 25,000 25,000 $55,000 $55,000 Cumulative Preferred Stock Subject to Mandatory Redemption: Call Price Shares Amount December 31, Number of Shares Redeemed Outstanding December 31, Series(a) 1994 Year Ended December 31, December 31, 1994 1994 1993 1994 1993 1992 (in thousands) 4.50% (b) $102.00 1,517 1,507 1,526 3,848 $ 385 $ 537 7.80% (c) 107.80 - - - 500,000 50,000 50,000 5.90% (d) (g) - - N/A 500,000 50,000 50,000 5.92% (e) (g) - - N/A 600,000 60,000 60,000 6.85% (f) (h) - N/A N/A 300,000 30,000 - $190,385 $160,537 N/A - Not applicable, shares were issued in a subsequent year. (a) The sinking fund provisions of series subject to mandatory redemption aggregate $85,000 in 1995, $150,000 in 1996, $85,000 in 1997, $2,500,000 in 1998 and $2,500,000 in 1999. (b) A sinking fund for the 4.50% cumulative preferred stock requires the purchase or redemption of 1,500 shares at $100 a share on or before November 30 in each year. In anticipation of future sinking fund requirements, 652 shares have been reacquired as of December 31, 1994. Unless all sinking fund provisions for this series have been made, no distribution may be made on the common stock. (c) Commencing in 1998, a sinking fund for the 7.80% cumulative preferred stock will require the redemption of 25,000 shares at $100 a share on or before May 1 in each year. The Company has the non-cumulative option to redeem up to 25,000 additional shares on any sinking fund date at a redemption price of $100 per share. (d) Shares issued November 1993. Commencing in 2003 and continuing through the year 2007, a sinking fund for the 5.90% cumulative preferred stock will require the redemption of 25,000 shares each year and the redemption of the remaining outstanding shares on November 1, 2008, in each case at $100 per share. (e) Shares issued October 1993. Commencing in 2003 and continuing through the year 2007, a sinking fund for the 5.92% cumulative preferred stock will require the redemption of 30,000 shares each year and the redemption of the remaining shares outstanding on November 1, 2008, in each case at $100 per share. (f) Shares issued June 1994. Commencing in 2000 and continuing through date of redemption, a sinking fund for the 6.85% cumulative perferred stock will require the redemption of 60,000 shares each year, in each case at $100 per share. The Company has the non-cumulative option to redeem up to 60,000 additional shares on any sinking fund date at a redemption price of $100 per share. (g) Not callable until after 2002. (h) Not callable until after 1999. /TABLE 10. LONG-TERM DEBT AND LINES OF CREDIT: Long-term debt by major category was outstanding as follows: December 31, 1994 1993 (in thousands) First Mortgage Bonds $ 987,949 $ 974,310 Installment Purchase Contracts 233,706 233,537 Sinking Fund Debentures 7,256 7,260 Other Long-term Debt - 61 1,228,911 1,215,168 Less Portion Due Within One Year - 44 Total $1,228,911 $1,215,124 First mortgage bonds outstanding were as follows: December 31, 1994 1993 (in thousands) % Rate Due 7-1/2 1998 - December 1 $ 45,000 $ 45,000 7.00 1999 - December 1 30,000 30,000 7-5/8 2002 - February 1 43,350 43,350 7.95 2002 - March 1 60,000 60,000 7.38 2002 - August 15 50,000 50,000 7-1/2 2002 - December 1 59,760 59,760 7.40 2002 - December 1 30,000 30,000 6.65 2003 - May 1 40,000 40,000 6.85 2003 - June 1 30,000 30,000 6.00 2003 - November 1 30,000 30,000 7.70 2004 - September 1 21,000 - 7.85 2004 - November 1 50,000 - 8-3/4 2017 - February 1 - 56,686 9-1/8 2019 - November 1 47,000 47,500 9-7/8 2020 - December 1 47,500 48,000 9.35 2021 - August 1 50,000 50,000 8.75 2022 - February 1 50,000 50,000 8.70 2022 - May 22 40,000 40,000 8.43 2022 - June 1 50,000 50,000 8.50 2022 - December 1 70,000 70,000 7.80 2023 - May 1 40,000 40,000 7.90 2023 - June 1 30,000 30,000 7.15 2023 - November 1 30,000 30,000 7.125 2024 - May 1 50,000 50,000 Unamortized Discount (net) (5,661) (5,986) Total $987,949 $974,310 Certain indentures relating to the first mortgage bonds contain improvement, maintenance and replacement provisions requiring the deposit of cash or bonds with the trustee, or in lieu thereof, certification of unfunded property additions. Installment purchase contracts have been entered into, in connection with the issuance of pollution control revenue bonds by governmental authorities as follows: % Rate Due December 31, 1994 1993 (in thousands) Industrial Development Authority of Russell County, Virginia: 7-1/4% 1998 - November 1 $ 19,500 $ 19,500 7.70% 2007 - November 1 17,500 17,500 Putnam County, West Virginia: 5.45% 2019 - June 1 40,000 40,000 6.60% 2019 - July 1 30,000 30,000 Mason County, West Virginia: 7-7/8% 2013 - November 1 10,000 10,000 7.40% 2014 - January 1 30,000 30,000 6.85% 2022 - June 1 40,000 40,000 6.60% 2022 - October 1 50,000 50,000 Unamortized Discount (3,294) (3,463) Total $233,706 $233,537 Under the terms of the installment purchase contracts, the Company is required to pay amounts sufficient to enable the payment of interest on and the principal (at stated maturities and upon mandatory redemptions) of related pollution control revenue bonds issued to finance the construction of pollution control facilities at certain plants. Sinking fund debentures outstanding were as follows: December 31, 1994 1993 (in thousands) 6% due 1996 - March 1 $7,251 $7,251 Unamortized Premium 5 9 Total $7,256 $7,260 Prior to December 31, 1994 sufficient principal amounts of debentures had been reacquired in anticipation of all future sinking fund requirements. The Company may elect to redeem additional amounts of debentures up to $600,000 annually. At December 31, 1994, annual long-term debt payments, excluding premium or discount, are as follows: Principal Amount (in thousands) 1995 $ - 1996 7,251 1997 - 1998 64,500 1999 30,000 Later Years 1,136,110 Total $1,237,861 Short-term debt borrowings are limited by provisions of the 1935 Act to $250 million and further limited by charter provisions to $213 million. Lines of credit are shared with other AEP System companies and at December 31, 1994 and 1993 were available in the amounts of $558 million and $537 million, respectively. Commitment fees of approximately 3/16 of 1% of the unused short-term line of credit are paid each year to the banks to maintain the lines of credit. Outstanding short-term debt consisted of: Balance Weighted Outstanding Average (in thousands) Interest Rate December 31, 1994: Notes Payable $ 2,425 6.3% Commercial Paper 120,400 6.2 Total $122,825 6.2 December 31, 1993: Notes Payable $ 3,400 3.6% Commercial Paper 36,100 3.4 Total $39,500 3.4 11. COMMON SHAREOWNER'S EQUITY: The Company received from AEP Co., Inc. cash capital contributions of $10 million and $15 million in 1994 and 1993, respectively, which were credited to paid-in capital. In 1994, 1993 and 1992 charges to paid-in capital of $426,000, $1,217,000 and $598,000, respectively, represented issuance expenses of cumulative preferred stock. There were no other material transactions affecting common stock and paid-in capital accounts in 1994, 1993 and 1992. Mortgage indentures, debentures, charter provisions and orders of regulatory authorities place various restrictions on the use of retained earnings for the payment of cash dividends on common stock. At December 31, 1994, $37 million of retained earnings were restricted. To pay dividends out of paid-in capital, the Company needs regulatory approval. 12. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate fair value because of the short-term maturity of these instruments. At December 31, 1994 and 1993 fair values for preferred stock subject to mandatory redemption were $169 million and $163 million and for long-term debt were $1,157 million and $1,310 million, respectively. The carrying amounts for preferred stock subject to mandatory redemption were $190 million and $160 million and for long-term debt were $1,229 million and $1,215 million at December 31, 1994 and 1993, respectively. Fair values are based on quoted market prices for the same or similar issues and the current dividend or interest rates offered for instruments of the same remaining maturities. 13. SUPPLEMENTARY INFORMATION: Year Ended December 31, 1994 1993 1992 (in thousands) Cash was paid for: Interest (net of capitalized amounts) $96,667 $103,387 $109,037 Income Taxes 48,872 62,305 41,811 Noncash Acquisitions Under Capital Leases were 22,883 11,403 9,736 14. UNAUDITED QUARTERLY FINANCIAL INFORMATION: Quarterly Periods Operating Operating Net Ended Revenues Income Income 1994 March 31 $438,095 $59,942 $32,532 June 30 369,862 48,662 24,008 September 30 371,842 50,846 25,731 December 31 355,701 45,768 20,074 1993 March 31 393,036 67,747 41,554 June 30 340,617 44,873 18,428 September 30 393,671 56,651 31,941 December 31 391,780 60,069 33,209 Net income for fourth quarter 1994 and 1993 includes favorable federal income tax accrual adjustments of $3.1 million and $2 million, respectively, related to the resolution of various issues with the IRS. EX-23 8 APCO 10-K EX-23 DELOITTE & TOUCHE CONSENT Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-50229 of Appalachian Power Company on Form S-3 of our reports dated February 21, 1995, appearing in and incorporated by reference in this Annual Report on Form 10-K of Appalachian Power Company for the year ended December 31, 1994. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Columbus, Ohio March 28, 1995 /PAGE EX-24 9 APCO 10-K EX-24 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY APPALACHIAN POWER COMPANY Annual Report on Form lO-K for the Fiscal Year Ended December 31, 1994 The undersigned directors of APPALACHIAN POWER COMPANY, a Virginia corporation (the "Company"), do hereby constitute and appoint E. LINN DRAPER, JR., G. P. MALONEY and P. J. DeMARIA, and each of them, their attorneys-in-fact and agents, to execute for them, and in their names, and in any and all of their capacities, the Annual Report of the Company on Form lO-K, pursuant to Section 13 of the Securities Exchange Act of 1934, for the fiscal year ended December 31, 1994, and any and all amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform every act and thing required or necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have signed these presents this 22nd day of February, 1995. /s/ P. J. DeMaria /s/ Wm. J. Lhota P. J. DeMaria Wm. J. Lhota /s/ E. Linn Draper, Jr. /s/ G. P. Maloney E. Linn Draper, Jr. G. P. Maloney /s/ Henry W. Fayne /s/ James J. Markowsky Henry W. Fayne James J. Markowsky /s/ Luke M. Feck /s/ J. H. Vipperman Luke M. Feck J. H. Vipperman /PAGE EX-27 10 ARTICLE UT FIN. DATA SCH. FOR 10-K
UT 0000006879 APPALACHIAN POWER COMPANY 1,000 12-MOS DEC-31-1994 DEC-31-1994 PER-BOOK 2,770,875 48,928 301,764 59,015 403,906 3,584,488 260,458 504,408 206,361 971,227 190,300 55,000 1,228,911 2,425 0 120,400 0 85 32,984 10,154 973,002 3,584,488 1,535,500 51,672 1,278,610 1,330,282 205,218 (4,716) 200,502 98,157 102,345 15,660 86,685 108,140 75,815 218,002 0 0 All common stock owned by parent company; no EPS required.
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