Filings Under the Public Utility Holding Company Act of 1935, as Amended (“Act”), 4892-4900 [E5-356]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 19 (Monday, January 31, 2005)]
[Notices]
[Pages 4892-4900]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-356]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27941]


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

January 24, 2005.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by February 18, 2005, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declarant(s) at the address(es) specified below. 
Proof of service (by affidavit or, in the case of an attorney at law, 
by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the matter. After February 18, 2005, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Allegheny Energy, Inc., et al. (70-10251)

    Allegheny Energy, Inc. (``Allegheny''), a registered holding 
company, and Allegheny Energy Supply Company, LLC (``AE Supply,'' and 
together with Allegheny, ``Applicants''),\1\ a registered holding 
company and public-utility company subsidiary of Allegheny; Allegheny 
Energy Service Corp. (``AESC''), the system service company; the 
Allegheny wholly-owned public-utility subsidiaries, Monongahela Power 
Company (``Monongahela''), Mountaineer Gas Company 
(``Mountaineer''),\2\ The Potomac Edison Company (``Potomac Edison''), 
West Penn Power Company (``West Penn''), and Allegheny Generating 
Company (``AGC'') (Monongahela, Mountaineer, Potomac Edison, West Penn 
and AGC, collectively, ``Utility Applicants'', and along with AE Supply 
and Allegheny, collectively, ``Money Pool Applicants'')), and the 
current and future nonutility subsidiaries of Allegheny (``Nonutility 
Applicants''),\3\ 800 Cabin Hill Drive, Greensburg, Pennsylvania 15601, 
have filed an application-declaration (``Application'') under sections 
6, 7, 9(a), 10, 11, 12(b), 12(c), and 13 of the Act and rules 43, 45, 
46, 54, 86, 87, 90 and 91 under the Act.
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    \1\ AE Supply is a public utility company within the meaning of 
the Act, but it is not subject to state regulation. It is the 
principal electric generating company for the Allegheny system.
    \2\ On August 4, 2004, Allegheny announced it had entered into 
an agreement to sell Mountaineer and all of Allegheny's West 
Virginia gas assets to a partnership composed of IGS Utilities LLC, 
IGS Holdings LLC, and affiliates of ArcLight Capital Partners LLC. 
See SEC File No. 70-10270.
    \3\ Other than AE Supply and the Utility Applicants, the direct 
or indirect subsidiaries of Allegheny, whether existing or to be 
formed or acquired in the future, are referred to as the Nonutility 
Applicants. The current Nonutility Applicants are Allegheny Energy 
Solutions, Inc., Allegheny Ventures, Inc. (``Ventures''), 
Mountaineer Gas Services, Inc., and the West Virginia Power & 
Transmission Company (collectively, ``Existing Nonutility 
Subsidiaries'').
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    The Applicants request authority to engage in financing 
transactions necessary to their ongoing operations and those of their 
subsidiaries through November 30, 2007 (``Authorization Period'') as 
well as authority to engage in certain other transactions described 
below that are necessary to the overall operations of the Allegheny 
system. In addition, the Money Pool Applicants and AESC request 
authority to continue the current Allegheny system money pool (``Money 
Pool'').
    On December 31, 2001, the Commission issued an order \4\ 
authorizing the Applicants to engage in a broad range of financing 
transactions through July 31, 2005. The Applicants intend that the 
authority sought in this

[[Page 4893]]

Application replace all existing authority granted through orders 
issued in Commission File Nos. 70-7888, 70-9897 and 70-10100.
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    \4\ See Holding Co. Act Release No. 27486 (Dec. 31, 2001) 
(``2001 Financing Order''), as supplemented by Holding Co. Act 
Release No. 27521 (April 17, 2002), Holding Co. Act Release No. 
27579 (Oct. 17, 2002), and Holding Co. Act Release No. 27652 (Feb. 
21, 2003) (``Capitalization Order'').
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A. Summary of Requested Authority

    The following authority is sought:
    (1) Authority (i) for Allegheny to issue and sell directly, 
additional common stock or options, warrants, equity-linked securities 
or stock purchase contracts convertible into or exercisable for common 
stock, and preferred stock, or to buy or sell derivative securities to 
hedge these transactions; and (ii) for the Applicants to issue and sell 
directly, or indirectly through one or more Capital Corps, as defined 
below, forms of preferred securities other than preferred stock 
(including, without limitation, trust preferred securities or monthly 
income preferred securities (collectively, ``Preferred Securities''), 
all of which in the aggregate will not exceed $1.55 billion (``External 
Equity Cap'')).
    During the Authorization Period, Allegheny may issue common stock 
to the public in the amount of up to $350 million as previously 
authorized by the Commission.\5\ In addition, Allegheny may issue 
common stock in the following amounts for other purposes: (i) Up to 
$205 million in connection with Allegheny's employee pension plan, and 
(ii) up to $300 million in connection with the conversion of 
convertible trust preferred securities previously authorized by the 
Commission.\6\ The balance of the requested authority covered by the 
External Equity Cap would be used to issue equity securities other than 
common stock as warranted by circumstances;
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    \5\ See Allegheny Energy, Inc., Holding Co. Act Release No. 
27796 (Feb. 3, 2004).
    \6\ See Allegheny Energy, Inc., Holding Co. Act Release No. 
27701 (July 23, 2003).
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    (2) Authority for (i) Applicants, AGC, and the Nonutility 
Applicants to issue and sell to non-associated third parties short- and 
long-term debt, secured (except for Allegheny) and unsecured, and (ii) 
for Applicants and the Utility Applicants to engage in short-term debt 
financing in connection with the Money Pool and for general corporate 
purposes, all of which in the aggregate will not exceed $4.575 billion 
(``External Debt Cap'');
    (3) Authority (i) for Applicants and the Utility Applicants to 
enter into guarantees, obtain letters of credit, extend credit, enter 
into guarantee-type expense agreements or otherwise provide credit 
support and guarantees of contractual obligations with respect to the 
obligations of their direct or indirect subsidiaries, and (ii) for the 
Nonutility Applicants, to the extent not exempt under rules 45 or 52, 
to provide guarantees, on behalf or for the benefit of other Nonutility 
Applicants, in an aggregate amount not to exceed $3.0 billion any time 
outstanding;
    (4) Authority for the Applicants and, to the extent not exempt 
under rule 52, for the Utility Applicants and the Nonutility Applicants 
(i) to enter into hedging transactions with respect to the indebtedness 
of these companies in order to manage and minimize interest rate costs 
and (ii) to enter into hedging transactions with respect to 
anticipatory debt issuances in order to lock-in current interest rates 
and/or manage interest rate risk exposure;
    (5) Authority for Applicants and the Nonutility Applicants to 
engage in intra-system financings, to the extent not exempt under rules 
45 or 52, in an aggregate amount not to exceed $3.0 billion any time 
outstanding.
    (6) Authority for AE Supply, AGC, and the Nonutility Applicants to 
pay dividends out of capital and unearned surplus in an amount up to $2 
billion and for the Nonutility Applicants to acquire, retire, or redeem 
their securities that are held by any associate company, affiliate, or 
affiliate of an associate company, to the extent permitted under 
applicable law and the terms of any credit arrangements to which they 
may be parties;
    (7) Authority for Applicants to change the terms of the authorized 
capitalization of a Nonutility Applicant's capital stock or equivalent 
ownership interests;
    (8) Authority (to the extent not otherwise exempt) for Applicants 
to transfer securities or assets of existing and new direct or indirect 
Nonutility Applicants to other direct or indirect Nonutility Applicants 
or to liquidate or merge Nonutility Applicants;
    (9) To the extent not exempt under rule 90(d), authority for 
Nonutility Applicants to perform services for each other and to sell 
goods to each other at fair market prices, without regard to ``cost,'' 
as determined in accordance with rules 90 and 91; and
    (10) Authority for Allegheny, the Utility Applicants, and AESC to 
continue the utility money pool as discussed in further detail below.

B. Financing Parameters

    The financing transactions for which the Applicants, Utility 
Applicants and Nonutility Applicants seek authority would be subject to 
the following terms and conditions:
(1) Effective Cost of Money on Debt Securities and Borrowings Under 
Credit Agreements
    The effective cost of capital on any security issued by Allegheny 
or AE Supply will not exceed competitive market rates available at the 
time of issuance for securities having the same or reasonably similar 
terms and conditions issued by similar companies of reasonably 
comparable credit quality, provided that in no event will (a) the 
interest rate on any debt securities issued under a bank credit 
facility exceed the greater of (i) 500 basis points over the comparable 
term London Interbank Offered Rate of (ii) the sum of 8 percent plus 
the prime rate as announced by a nationally recognized money center 
bank and (b) the interest rate on any debt securities issued to any 
other financial investor exceed the sum of 10 percent plus the prime 
rate as announced by a nationally recognized money center bank.
(2) Maturities
    The maturity of long-term debt will be between one and 50 years 
after the issuance. Preferred Securities and equity-linked securities 
will be redeemed no later than 50 years after the issuance, unless 
converted into common stock. Preferred stock issued directly by 
Allegheny may be perpetual in duration.
(3) Issuance Expenses
    The underwriting fees, commissions, and other similar remuneration 
paid in connection with the issuance of any security will not, in the 
case of a competitive issuance, exceed prevailing market rates for 
similar companies of reasonably comparable credit quality, and, in the 
case of a non-competitive issuance, will not exceed the greater of (1) 
five percent of the principal or total amount of the securities being 
issued or (2) issuances expenses that are paid at the time in respect 
of the issuance of securities having the same or reasonably similar 
terms and conditions issued by similar companies of reasonably 
comparable credit quality.
(4) Use of Proceeds
    The proceeds from the sale of securities in external financing 
transactions will be added to the respective treasuries of the issuing 
parties and subsequently used principally for general corporate 
purposes including:
    (a) The financing of capital expenditures;
    (b) The financing of working capital requirements;

[[Page 4894]]

    (c) The repayment and/or refinancing of debt;
    (d) The acquisition, retirement, or redemption of securities 
previously issued by the issuing party;
    (e) To fund Allegheny's pension plan with common stock; and
    (f) Other lawful purposes, including direct or indirect investment 
in rule 58 companies, as defined below, by Allegheny, other 
subsidiaries approved by the Commission, exempt wholesale generators 
(``EWGs''), and foreign utility companies (``FUCOs'') in accordance 
with the provisions and commitments described below.\7\
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    \7\ In the 2001 Financing Order, Allegheny received authority to 
exceed the rule 53 aggregate investment limitation and to utilize a 
portion of the proceeds of the equity issuances, short-term debt, 
long-term debt and guarantees in any combination to increase its 
``aggregate investment'' (as defined in rule 53(a)) up to $2 billion 
in EWGs and FUCOs. As discussed in this Application, Allegheny's 
ability to invest in EWGs and FUCOs is subject to certain 
restrictions as long as its common equity is less than 30 percent of 
total capitalization.
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(5) Investment Grade Rating
    Reestablishing investment grade for all of the Applicants' debt 
securities is a part of Allegheny's overall plan for returning to 
financial health. Applicants have a goal of obtaining investment grade 
ratings for their debt by the end of 2007.
(6) Equity Ratio
    Applicants state that they do not have common equity ratios of at 
least 30 percent, which is the traditional Commission standard 
applicable to registered holding companies. As reflected in Allegheny's 
unaudited financial statements, as of September 30, 2004, Allegheny's 
common equity ratio was 17.4% \8\ and AE Supply's was 10.3%. Applicants 
request that the Commission adopt a flexible approach with regard to 
the common equity ratio standard. The Applicants state that they have 
experienced significant financial difficulties arising out of 
developments within the electric utility industry. They maintain that 
they have carefully analyzed their current situation and have made 
significant efforts to develop a systematic plan for returning to a 
financial condition that is consistent with the Commission's 
traditional standards. They maintain that the authorizations sought in 
this Application are essential to continuing their progress toward 
financial health.
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    \8\ For the third quarter of 2004, Allegheny recorded a $427.5 
million consolidated net loss from discontinued operations that 
includes a non-cash asset impairment charge of $209.4 million pre-
tax ($129.2 million after tax) from the previously announced sale of 
the Lincoln generating facility; a non-cash asset impairment charge 
of $35.1 million pre-tax ($20.7 million after tax) associated with 
the previously announced agreement to sell the West Virginia natural 
gas operations; and non-cash asset impairment charges of $445.4 
million pre-tax ($274.7 million after tax) as a result of the 
previously announced decision to sell the Gleason and Wheatland 
generating facilities. Discontinued operations also included an 
after-tax loss of $2.9 million from operating results at these 
units. As a result of these charges, the unaudited common equity 
ratios for Allegheny and AE Supply, respectively, will decrease to 
17.4 percent and 10.3 percent as of September 30, 2004. Allegheny 
notes, however, that its common equity ratio has improved somewhat 
since the recent issuance of approximately $152 million of Common 
Stock. The common equity ratios of the Operating Companies as of 
September 30, 2004, are as follows: West Penn, 57.6 percent; Potomac 
Edison, 49.5 percent; and Monongahela, 36.0 percent.
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    Allegheny commits that at any time its ratio of common equity to 
total capitalization is less than 30%, neither it nor any of its 
subsidiaries will invest or commit to invest any funds in any new 
projects that qualify as EWGs or FUCOs under the Act; provided, 
however, that Allegheny may increase its investment in EWGs as a result 
of the qualification of existing projects as EWGs, and Allegheny may 
make additional investments in an existing EWG to the extent necessary 
to complete any project or desirable to preserve or enhance the value 
of Allegheny's investment in the EWG. Allegheny requests that the 
Commission reserve jurisdiction over any additional investment by 
Allegheny and its subsidiaries in EWGs and FUCOs during the period that 
Allegheny's common equity ratio is below 30 percent.
    Allegheny commits that at any time its ratio of common equity to 
total capitalization is less than 30%, neither it nor any of its 
subsidiaries will invest or commit to invest any funds in any new 
energy-related company within the meaning of rule 58 under the Act 
(``Rule 58 Company''); provided, however, that Allegheny may increase 
its investment in an existing Rule 58 Company to the extent necessary 
to complete any project or desirable to preserve or enhance the value 
of Allegheny's investment in the company.\9\ In addition, Allegheny and 
AE Supply request authority to invest in one or more new Rule 58 
Companies which may be created in connection with the restructuring 
and/or reorganization of the existing energy trading business of AE 
Supply and its subsidiaries. Allegheny requests that the Commission 
reserve jurisdiction pending completion of the record over any 
additional investment by Allegheny and its subsidiaries in Rule 58 
Companies during the period that Allegheny's common equity ratio is 
below 30 percent.
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    \9\ See the Capitalization Order.
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C. Description of Proposed Securities Issuances and Related 
Transactions

    All external financing will be at rates or prices and under 
conditions based upon, or otherwise determined by, competitive capital 
markets.
(1) Common Stock
    Allegheny seeks authority to issue and sell common stock and to 
issue and sell options, warrants, equity-linked securities, or other 
stock purchase rights exercisable for common stock or to buy or sell 
derivative securities to hedge these transactions. Allegheny will not 
engage in speculative transactions. The aggregate amount of financing 
obtained by Allegheny during the Authorization Period from the issuance 
and sale of common stock will not cause Allegheny to exceed the 
External Equity Cap. Common stock financings may be effected through 
underwriting agreements of a type generally standard in the industry. 
Public distributions may be effected through private negotiation with 
underwriters, dealers, or agents as discussed below, or through 
competitive bidding among underwriters. In addition, sales may be made 
through private placements or other non-public offerings to one or more 
persons. All sales of common stock will be at rates or prices and under 
conditions negotiated or based upon, or otherwise determined by, 
competitive capital markets.
    During the Authorization Period, Allegheny may issue common stock 
to the public in the amount of up to $350 million.\10\ In addition, 
Allegheny may issue common stock in the following amounts for other 
purposes: (i) Up to $205 million in connection with Allegheny's 
employee pension plan,\11\ and (ii) up to $300 million in connection 
with the conversion of convertible trust preferred securities.\12\ The 
balance of the requested authority covered by the External Equity Cap 
would be used to issue equity securities other than common stock as 
warranted by circumstances.
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    \10\ The Commission previously authorized this amount in Holding 
Co. Act Release No. 27796 (Feb. 3, 2004).
    \11\ The requested authority is in addition to stock issuances 
authorized under Allegheny's employment compensation plans. See 
Holding Co. Act Release Nos. 27892 (Sept. 22, 2004), 27869 (June 30, 
2004), and 27858 (June 17, 2004).
    \12\ The Commission previously authorized this amount in Holding 
Co. Act Release No. 27701 (July 23, 2003).
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    Common stock may be offered to the public either through an 
underwriting syndicate (which may be represented by a managing 
underwriter or underwriters designated by Allegheny) or directly by

[[Page 4895]]

one or more underwriters acting alone. The aggregate price of the 
common stock being sold through any underwriter or dealer shall be 
calculated based on either the specified selling price to the public or 
the closing price of the common stock on the day the offering is 
announced. The offering would be effected under an underwriting 
agreement of a type generally standard in the industry, and Allegheny 
may grant the underwriters a ``green shoe'' option to purchase 
additional shares at the same price then offered to the public solely 
for the purpose of covering over-allotments (provided that the total 
number of shares offered initially, together with the number of shares 
issued under any option, shall not exceed the number of shares 
authorized for issuance by the Commission).\13\ It is also possible 
that common stock will be sold by Allegheny through dealers, agents, or 
directly to a limited number of purchasers or a single purchaser. If 
dealers are utilized in the sale of any common stock, Allegheny will 
sell that common stock to the dealers as principals. Any dealer may 
then resell the securities to the public at varying prices to be 
determined by the dealer at the time of resale.
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    \13\ The aggregate amount of the additional common stock for 
which authorization is sought also takes into account the permitted 
increase in the size of the offering that could occur under rule 
462(b) of the Securities Act of 1933 through an automatically 
effective amendment to an Allegheny registration statement.
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(2) Preferred Stock, Preferred Securities, and Equity Linked Securities
    Allegheny and AE Supply seek the flexibility to issue preferred 
stock and Preferred Securities directly or indirectly through one or 
more financing subsidiaries (``Capital Corps'') organized by them 
specifically for this purpose.\14\ The aggregate amount of financing 
obtained by Allegheny and AE Supply during the Authorization Period 
from the issuance and sale of preferred stock, Preferred Securities, 
and equity linked securities will not cause Allegheny and AE Supply to 
exceed the External Equity Cap.
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    \14\ Allegheny, AE Supply, and their subsidiaries, other than 
the Utility Applicants, were authorized in Holding Co. Act Release 
No. 27486 (Dec. 31, 2001) to form one or more Capital Corps as 
direct or indirect subsidiaries to serve as financing entities and 
to issue debt and equity securities, including trust preferred 
securities to third parties. In addition, Allegheny and AE Supply 
and the Nonutility Applicants received authorization: (a) To issue 
debentures or other evidences of indebtness to Capital Corps in 
return for the proceeds of the financing, (b) to acquire voting 
interests or equity securities issued by Capital Corps, and (c) to 
guarantee the obligations of Capital Corps.
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    Preferred stock or Preferred Securities may be issued in one or 
more series with the rights, preferences, and priorities as may be 
designated in the instrument creating each series, as determined by the 
board of directors of the Applicant undertaking the issuance. Dividends 
or distributions on preferred stock and Preferred Securities will be 
made periodically and to the extent funds are legally available for 
this purpose, but may be made subject to terms that allow the issuer to 
defer dividend payments for specified periods.
    Equity-linked securities, including units consisting of a 
combination of incorporated options, warrants, and/or forward equity 
purchase contracts with debt, preferred stock, or Preferred Securities, 
will be exercisable or exchangeable for or convertible into, either 
mandatorily or at the holder's option, common stock or indebtedness. 
Alternatively, equity linked securities will allow the holder to 
surrender to the issuer or apply the value of a security issued by 
Allegheny, as approved by the Commission, to the holder's obligation to 
make a payment on another security of Allegheny issued under Commission 
authorization.\15\ Any convertible or equity-linked securities will be 
convertible into or linked to common stock, Preferred Securities, or 
unsecured debt that Allegheny otherwise is authorized by Commission 
order to issue directly, or indirectly through Capital Corps.
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    \15\ For example, Allegheny may issue common stock or common 
stock warrants linked with debt securities. The holder will be 
obligated to pay to the issuer an additional amount of consideration 
at a specified date for the common stock but is authorized to 
surrender the linked debt security to or for the benefit of the 
issuer in lieu of the cash payment.
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(3) Long-Term Debt
    Applicants, on their own behalf and on behalf of the Nonutility 
Applicants and AGC, request Commission authorization to issue during 
the Authorization Period secured \16\ and unsecured long-term debt 
securities in an aggregate principal amount outstanding at any time 
that will not cause them to exceed the External Debt Cap. Applicants, 
the Nonutility Applicants, and AGC may issue unsecured long-term debt 
directly, or, in the case of Applicants and the Nonutility Applicants, 
through one or more Capital Corps, in the form of bonds, notes, medium-
term notes, or debentures under one or more indentures, or long-term 
indebtedness under agreements with banks or other institutional 
lenders. Each series of long-term debt issued directly by Applicants, 
the Nonutility Applicants, and AGC will have a designation, aggregate 
principal amount, maturity, interest rate(s) or methods of determining 
the same, terms of payment of interest, redemption provisions, sinking 
fund terms, and other terms and conditions as Applicants, the 
Nonutility Applicants, and AGC may determine at the time of issuance.
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    \16\ Allegheny does not seek authorization at this time to issue 
secured long-term debt securities. Applicants note, however, that 
the requested authority does include outstanding debt held by AE 
Supply that is secured by substantially all of its assets, including 
cash, utility assets, accounts receivables, and its power sales and 
lease agreements with the Utility Applicants.
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    If applicable, the terms of the long-term debt will be designed to 
parallel the terms of the security issued by any Capital Corp to which 
the long-term debt relates. Any long-term debt (a) may be convertible 
into any other securities of Allegheny, AE Supply, the Nonutility 
Applicants, or AGC; (b) will have maturities up to 50 years; (c) may be 
subject to optional and/or mandatory redemption, in whole or in part, 
at par or at a premium above the principal amount of them; (d) may be 
entitled to mandatory or optional sinking fund provisions; (e) may 
provide for reset of the coupon under a remarketing arrangement; (f) 
may be subject to tender or the obligation of the issuer to repurchase 
at the election of the holder or upon the occurrence of a specified 
event; (g) may be called from existing investors by a third party; and 
(h) may be entitled to the benefit of affirmative or negative financial 
or other covenants.
    The maturity dates, interest rates, redemption and sinking fund 
provisions, tender or repurchase and conversion features, if any, with 
respect to the long-term debt of a particular series, as well as any 
associated placement, underwriting or selling agent fees, commissions 
and discounts, if any, will be established by negotiation or 
competitive bidding. Allegheny, AE Supply, the Nonutility Applicants, 
and AGC will determine the specific terms of any long-term debt at the 
time of issuance and will comply in all regards with the financing 
parameters set forth above.
(4) Short-Term Debt
    Applicants and the Nonutility Applicants seek authority to issue 
directly, or indirectly through a Capital Corp, commercial paper, 
promissory notes and other forms of short-term indebtedness having 
varying maturities not to exceed one year, but which may be subject to 
extension to a final

[[Page 4896]]

maturity not to exceed 390 days \17\ (``Short-Term Debt'') in an 
aggregate amount that will not cause them to exceed the External Debt 
Cap, to make loans to subsidiaries, and for their own corporate 
purposes. Allegheny, AE Supply and the Utility Applicants, other than 
AGC, request authority to issue Short-Term Debt to fund the Money Pool. 
The Utility Applicants also seek authority to issue Short-Term Debt for 
general corporate purposes. In no case will the issuance of Short-Term 
Debt cause any of these companies to exceed the External Debt Cap. The 
Utility Applicants seek Short-Term Debt authority in amounts itemized 
further below. Maturities will be determined at the time of issuance by 
market conditions, the effective interest costs, and the issuer's 
anticipated cash flow, including the proceeds of other borrowings.
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    \17\ The ability to extend the maturity of commercial paper 
notes is a feature of an extendible commercial notes program. The 
maturity of commercial paper notes issued under an extendible 
commercial notes program is 365 days or less; however, if the 
principal of any commercial paper note is not paid at maturity, the 
maturity of the commercial paper note will be automatically extended 
to 390 days from the date of original issuance.
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    Commercial paper will be sold in established domestic or European 
commercial paper markets. It will be sold directly or to dealers at the 
discount rate or the coupon rate per annum prevailing at the date of 
issuance for commercial paper of comparable quality and maturities sold 
directly or to commercial paper dealers generally. Allegheny and AE 
Supply expect that the dealers acquiring commercial paper from them, 
any Capital Corp or the Nonutility Applicants will re-offer the paper 
at a discount to corporate and institutional investors. Institutional 
investors are expected to include commercial banks, insurance 
companies, pension funds, investment trusts, foundations, colleges and 
universities, finance companies, money market funds, and other funds.
    The Applicants propose that they, the Utility Applicants, the 
Nonutility Applicants, and any Capital Corp may establish and maintain 
back-up credit lines with banks or other institutional lenders to 
support their commercial paper program(s) and to establish other credit 
arrangements and/or borrowing facilities generally available to 
borrowers with comparable credit ratings, as each of them may deem 
appropriate in light of its needs and existing market conditions. 
Allegheny and AE Supply propose, in general, taking appropriate long 
and short-term considerations into account, to utilize the most 
economical means available at any time to meet their short-term 
financing requirements and will ensure that the Utility Applicants, the 
Nonutility Applicants, and any Capital Corp will do likewise.
    Applicants, the Utility Applicants, the Nonutility Applicants, and 
any Capital Corp propose to engage in other types of short-term 
financing generally available to borrowers with comparable credit 
ratings as each of them individually may deem appropriate in light of 
its needs and market conditions at the time of issuance.
    AE Supply, the Utility Applicants and the Nonutility Applicants 
also seek the flexibility to issue secured short-term debt as 
circumstances warrant to provide maximum flexibility for their 
financial operations. AE Supply currently has debt that is secured by 
substantially all of its assets, including cash, utility assets, 
accounts receivable, and power sales and lease agreements with the 
Utility Applicants. Any secured short-term debt issued by the Utility 
Applicants would similarly be secured by the respective Utility 
Applicant's cash, utility assets or accounts receivable.
(5) Credit Enhancement
    Applicants, the Utility Applicants, and the Nonutility Applicants 
may obtain credit enhancement for securities authorized by the 
Commission. This credit enhancement could include insurance, a letter 
of credit, or a liquidity facility. Applicants, the Utility Applicants, 
and the Nonutility Applicants anticipate they may be required to 
provide credit enhancement if they issue floating rate securities, 
while credit enhancement would be a purely economic decision for fixed 
rate securities. Applicants, the Utility Applicants, and the Nonutility 
Applicants anticipate that if they are required to pay a premium or fee 
to obtain credit enhancement, it is likely that they would realize a 
net benefit through a reduced interest rate on the new securities. 
Applicants, the Utility Applicants, and the Nonutility Applicants will 
obtain credit enhancement only if it is economically beneficial, taking 
into consideration fees required to obtain the product and market 
conditions.
(6) Hedging Transactions
    Applicants, the Utility Applicants, and the Nonutility Applicants 
may enter into interest rate hedging transactions with respect to 
existing indebtedness (``Interest Rate Hedges''), subject to the 
limitations and restrictions set forth here, in order to reduce or 
manage interest rate cost or risk. Interest Rate Hedges would only be 
entered into with counterparties (``Approved Counterparties'') with 
senior debt ratings, as published by Standard and Poor's Ratings Group 
(``Standard and Poor's''), equal to or greater than BBB, or an 
equivalent rating from Moody's Investors' Service (``Moody's'') or 
Fitch Investor Service (``Fitch''). Interest Rate Hedges will involve 
the use of financial instruments and derivatives commonly used in 
today's capital markets, such as interest rate swaps, options, caps, 
collars, floors, and structured notes (i.e., a debt instrument in which 
the principal and/or interest payments are indirectly linked to the 
value of an underlying asset or index), or transactions involving the 
purchase or sale, including short sales, of U.S. Treasury obligations 
(collectively, ``Instruments''). The transactions would be for fixed 
periods and stated notional amounts. In no case will the notional 
principal amount of any interest rate swap exceed that of the 
underlying debt instrument and related interest rate exposure. 
Applicants, the Utility Applicants, and the Nonutility Applicants will 
not engage in speculative transactions. Fees, commissions, and other 
amounts payable to the counterparty or exchange (excluding the swap or 
option payments) in connection with an Interest Rate Hedge will not 
exceed those generally obtainable in competitive markets for parties of 
comparable credit quality.
    Applicants, the Utility Applicants, and the Nonutility Applicants 
also propose to enter into interest rate hedging transactions with 
respect to anticipated debt offerings (``Anticipatory Hedges''). 
Applicants, the Utility Applicants, and the Nonutility Applicants would 
enter into these transactions only with Approved Counterparties and 
subject to certain limitations and restrictions as set forth here. 
Anticipatory Hedges would be used to fix and/or limit the interest rate 
risk associated with any new issuance through (i) a forward sale of 
exchange-traded U.S. Treasury futures contracts, U.S. Treasury 
obligations and/or a forward swap (each, ``Forward Sale''); (ii) the 
purchase of put options on U.S. Treasury obligations (``Put Options 
Purchase''); (iii) a Put Options Purchase in combination with the sale 
of call options on U.S. Treasury obligations (``Zero Cost Collar''); 
(iv) transactions involving the purchase or sale, including short 
sales, of U.S. Treasury obligations; or (v) some combination of a 
Forward Sale, Put Options Purchase,

[[Page 4897]]

Zero Cost Collar, and/or other derivative or cash transactions, 
including, but not limited to structured notes, options, caps, and 
collars, appropriate for the Anticipatory Hedges. Anticipatory Hedges 
may be executed on-exchange (``On-Exchange Trades'') with brokers 
through the opening of futures and/or options positions traded on the 
Chicago Board of Trade or the Chicago Mercantile Exchange, the opening 
of over-the-counter positions with one or more counterparties (``Off-
Exchange Trades''), or a combination of On-Exchange Trades and Off-
Exchange Trades. Each Applicant, Utility Applicant, or Nonutility 
Applicant will determine the optimal structure of each Anticipatory 
Hedge transaction at the time of execution and may decide to lock in 
interest rates and/or limit exposure to interest rate increases. 
Applicants and the Utility Applicants represent, and Applicants 
represent on behalf of the Nonutility Applicants, that each Interest 
Rate Hedge and Anticipatory Hedge will be treated for accounting 
purposes under generally accepted accounting principles. Applicants, 
the Utility Applicants, and the Nonutility Applicants will comply with 
Statement of Financial Accounting Standard (``SFAS'') 133 (Accounting 
for Derivative Instruments and Hedging Activities) and SFAS 138 
(Accounting for Certain Derivative Instruments and Certain Hedging 
Activities) or other standards relating to accounting for derivative 
transactions as are adopted and implemented by the Financial Accounting 
Standards Board (``FASB''). They also will comply with any future FASB 
financial disclosure requirements associated with hedging transactions.
(7) Guarantees
    Allegheny, AE Supply and the Utility Applicants request authority 
to enter, directly or, in the case of the Applicants, indirectly 
through one or more Capital Corps, into guarantees, obtain letters of 
credit, support or expense agreements, or otherwise to provide credit 
support with respect to debt securities or other contractual 
obligations of any of their direct or indirect subsidiaries from time 
to time through the Authorization Period (``Guarantees'') in an amount 
not to exceed $3 billion (``Aggregate Guarantee Limitation'') based on 
the amount at risk at any one time. The amount of any parent guarantees 
respecting the obligations of any subsidiaries also will be subject to 
the limitations of rule 53(a)(1) or rule 58(a)(i), as applicable. 
Allegheny, AE Supply and the Utility Applicants also request authority 
to guarantee the performance obligations of their direct or indirect 
subsidiaries as may be appropriate or necessary to enable the 
subsidiaries to carry on the ordinary course of their businesses. Any 
guarantees will be subject to the Aggregate Guarantee Limitation.
    Allegheny and AE Supply request authority for the Nonutility 
Applicants to enter, directly or indirectly through one or more Capital 
Corps, into guarantees, obtain letters of credit, support or expense 
agreements, or otherwise to provide credit support with respect to debt 
securities or other contractual obligations of other Nonutility 
Applicants from time to time through the Authorization Period in an 
aggregate principal amount that, together with the Guarantees will not 
exceed the Aggregate Guarantee Limitation at any one time, exclusive of 
any guarantees and other forms of credit support that are exempt under 
rule 45(b) and rule 52(b). The amount of Nonutility Applicant 
guarantees in respect of obligations of any Rule 58 Companies shall 
remain subject to the limitations of rule 58(a)(i). Allegheny and AE 
Supply also request authority for the Nonutility Applicants to 
guarantee the performance obligations of other Nonutility Applicants as 
may be appropriate or necessary to enable the company whose obligations 
are being guaranteed to carry on the ordinary course of its business. 
These guarantees will be subject to the Aggregate Guarantee Limitation.
    Applicants and the Utility Applicants anticipate that during the 
Authorization Period they may need to issue guarantees and obtain 
letters of credit for various purposes. One likely instance in which 
these issuances may occur is the posting of collateral in connection 
with participation in wholesale energy markets. Another likely issuance 
involves the expected divestiture of certain assets as part of the 
Applicants' overall plans for returning to financial health. The 
Application states that it may be necessary to issue certain guarantees 
in connection with those transactions. Applicants and the Utility 
Applicants are seeking an amount of guarantee authority they expect 
will be sufficient for these purposes and to have an appropriate amount 
of additional authority available to them to respond to unanticipated 
circumstances or opportunities.
    Certain of the guarantees for which authority is sought may be in 
support of the obligations of subsidiaries or associate companies that 
are not capable of exact quantification. In these cases, the company 
issuing the guarantee will determine the exposure of the instrument for 
purposes of measuring compliance with the Aggregate Guarantee 
Limitation by appropriate means, including estimation of exposure based 
on loss experience or projected potential payment amounts. With regard 
to financial guarantees, the terms of the securities of the 
subsidiaries or associate companies for which a guarantee is issued 
will comply with the financing parameters set forth above. If 
appropriate, these estimates will be made in accordance with GAAP, and 
these estimates will be re-evaluated periodically.
    A company issuing a guarantee authorized under this request may 
receive a fee for each guarantee from the company on whose behalf the 
guarantee was issued. This fee will not be greater than the costs, if 
any, of obtaining the liquidity necessary to perform the guarantee for 
the period of time the guarantee remains outstanding. Any guarantee 
that is outstanding at the end of the Authorization Period will remain 
in force until it expires or terminates in accordance with its terms.
(8) Intra-System Financing
    Applicants request authorization, consistent with the requirements 
of section 12(a) of the Act, to engage in intra-system financings with 
each other and the Existing Nonutility Subsidiaries, and for the 
Existing Nonutility Subsidiaries to engage in intra-system financings 
among themselves, in an aggregate amount not to exceed $3.0 billion 
outstanding at any time during the Authorization Period. Generally, 
Allegheny's and AE Supply's or the financing Nonutility Applicant's 
loans to, and purchase of capital stock from, the financed Nonutility 
Applicants will be exempt under rule 52, and capital contributions and 
open account advances without interest will be exempt under rule 45(b). 
Loans by Applicants or a Nonutility Applicant to a Nonutility Applicant 
generally will have interest rates and maturity dates that are designed 
to parallel the lending company's effective cost of capital, in 
accordance with rule 52(b). To the extent that any intra-system loans 
or extensions of credit are not exempt under rule 45(b) or rule 52, as 
applicable, the company making the loan or extending the credit may 
charge interest at the same effective rate of interest as the daily 
weighted average effective rate of commercial paper, revolving credit 
and/or other short-term borrowings of that company, including an 
allocated share of commitment fees and related expenses. If none of 
these borrowings are outstanding, then the interest rate shall be 
predicated on the

[[Page 4898]]

Federal Funds effective rate of interest as quoted daily by the Federal 
Reserve Bank of New York. In the limited circumstances where the 
Nonutility Applicant effecting the borrowing is not a direct or 
indirect wholly-owned subsidiary of Allegheny, authority is requested 
under the Act for the Applicants or Nonutility Applicant to make the 
loan to this Nonutility Applicant at an interest rate and maturity 
designed to provide a return to the lending company of not less than 
its effective cost of capital. If these loans are made to a Nonutility 
Applicant, that Nonutility Applicant will not provide any services to 
any associate Nonutility Applicant, except a company that meets one of 
the conditions for rendering of services on a basis other than at cost 
as described below Allegheny and AE Supply will comply with the 
requirements of rule 45(c) regarding tax allocations unless they 
receive further approval from the Commission to alter this requirement.
(9) Payment of Dividends and Certain Transactions Involving Affiliate 
and Associate Company Securities
    Applicants seek authority for AE Supply, the Utility Applicants and 
the Nonutility Applicants to pay through the Authorization Period, to 
the extent permitted under applicable corporate law, up to $2.0 billion 
in dividends out of capital or unearned surplus and to acquire, retire, 
or redeem any securities of these companies that are held by an 
associated company, an affiliate, or an affiliate of an associate 
company.
    There may be situations in which AE Supply, AGC, or a Nonutility 
Applicant will have unrestricted cash available for distribution in 
excess of current and retained earnings resulting from a disposition of 
assets, a restructuring or other accounting charge that eliminated 
retained earnings, or from its normal operations (excluding debt 
financing). For example, the Commission already has granted AGC 
authority to pay dividends out of capital and unearned surplus through 
December 31, 2005.\18\ As noted in the AGC Dividend Order, AGC is a 
single asset company with declining capital needs. Because AGC has only 
one asset, a 40 percent interest in a 2100 megawatt hydroelectric 
station, and other Allegheny public utility company subsidiaries take 
all of the capacity from that asset, the company, by design, has no 
growth opportunity. Cash received from revenues exceeds the cash 
requirements for operating expenses and return primarily because of the 
recovery of depreciation expense. AGC's owners, AE Supply and 
Monongahela Power, expect a return on, as well as a return of, their 
investment. By design, the annual dividends must exceed the annual 
earnings to avoid a cash buildup approximately equal to the annual 
depreciation. Similarly, the Commission granted AE Supply authority to 
pay dividends out of capital and unearned surplus through July 31, 2005 
in the Capitalization Order. As explained in that order, dividend 
payments were necessary to maintain debt repayment at the Allegheny 
level using funds generated from assets sales by AE Supply. The 
Commission has likewise authorized payment of dividends out of capital 
and unearned surplus for the Existing Nonutility Subsidiaries under 
certain circumstances.\19\
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    \18\ Holding Co. Act Release No. 27571 (Sept. 27, 2002) (``AGC 
Dividend Order''). An extension of this authority through the 
Authorization Period is sought to ensure that the system financing 
authority is consolidated into a single authorization period.
    \19\ Holding Co. Act. Release No. 27878 (July 27, 2004).
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    With respect to the remaining Utility Applicants, the requested 
dividend authority is intended only to permit Allegheny to comply with 
its obligations under an intercreditor agreement between Allegheny, AE 
Supply and their respective lenders. Specifically, when Allegheny and 
AE Supply restructured their debt in February 2003, the lenders 
required that Allegheny and AE Supply enter into an intercreditor 
agreement under which, if either company or any of their subsidiaries 
were to issue debt or equity, a percentage of the proceeds under 
certain circumstances would be paid as a dividend to Allegheny in the 
case where AE Supply (or one of its subsidiaries) is the issuer, or as 
a capital contribution to AE Supply if Allegheny (or one of its 
subsidiaries (other than AE Supply or its subsidiaries)) is the issuer. 
This intercreditor agreement continues in place until November 2007, 
when debt held by certain parties to the intercreditor agreement 
matures. Until then, should Allegheny or any of its subsidiaries issue 
debt or equity under the circumstances specified in the intercreditor 
agreement, an amount equal to the proceeds must be contributed to AE 
Supply. In order for Allegheny to accomplish this, if any of 
Allegheny's subsidiaries (other than AE Supply or its subsidiaries) is 
the issuer, it must pay dividends to Allegheny to provide Allegheny 
with sufficient funds to make the required contribution to AE Supply.
    The dividend authority requested for the remaining Utility 
Applicants, then, is intended solely to enable Allegheny to comply with 
the terms of the intercreditor agreement. Any amounts paid to Allegheny 
by these Utility Applicants will be immediately contributed back to the 
applicable Utility Applicant so the dividends will have no effect on 
the Utility Applicant's paid-in capital account. Simply put, although 
such payments technically constitute dividends, they do not have the 
effect on capitalization that dividends are normally understood to have 
as they do not result in any permanent shifts of capital from 
subsidiary to parent.\20\
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    \20\ As noted, the intercreditor agreement applies equally to 
other Allegheny subsidiaries as well, including AE Supply, AGC and 
the Non-Utility Subsidiaries. Accordingly, certain of the dividend 
authority requested for AE Supply, AGC, and the Non-Utility 
Subsidiaries may be used to satisfy obligations under the 
intercreditor agreement. As with the Utility Applicants, however, 
any dividends paid by these companies under the intercreditor 
agreement will have no effect on their paid-in capital accounts as 
any payments made are immediately returned. The structure of the 
intercreditor agreement has been previously explained in File No. 
70-10100.
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    Consistent with these considerations, Applicants request 
authorization for AE Supply, AGC, the Utility Applicants and the 
Nonutility Applicants to pay dividends out of capital and unearned 
surplus through the Authorization Period in the amounts specified 
above, provided, however, that, without further approval of the 
Commission, no Nonutility Applicant will declare or pay any dividend 
out of capital or unearned surplus if that Nonutility Applicant derives 
any material part of its revenues from the sale of goods, services or 
electricity to an Allegheny subsidiary that is a public utility company 
under the Act. In addition, none of AE Supply, AGC, or the Nonutility 
Applicants will declare or pay any dividend out of capital or unearned 
surplus unless it: (i) Has received excess cash as a result of the sale 
of its assets; (ii) has engaged in a restructuring or reorganization; 
and/or (iii) is returning capital to an associate company.
(10) Money Pool and Utility Applicant Short-Term Debt Limits
    In a series of prior orders,\21\ the Money Pool Applicants were

[[Page 4899]]

authorized, among other things, to establish and participate in the 
Money Pool. This authority currently exists through April 30, 2005. The 
Money Pool Applicants request authority to continue the Money Pool 
through the Authorization Period, subject to the same terms and 
conditions set forth in the Prior Money Pool Orders.\22\ The Money Pool 
Applicants request that the Commission authorize (i) Monongahela Power, 
Mountaineer, Potomac Edison, and West Penn to continue participation in 
the Money Pool as both lenders and borrowers to the extent not exempt 
under rule 52; (ii) AGC to continue participation in the Money Pool as 
a borrower only, to the extent not exempt under rule 52; (iii) 
Allegheny and AE Supply to continue participation as lenders only.
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    \21\ See orders dated January 29, 1992 (Holding Co. Act Release 
No. 25462), February 28, 1992 (Holding Co. Act Release No. 25481), 
July 14, 1992 (Holding Co. Act Release No. 22581), November 5, 1993 
(Holding Co. Act Release No. 25919), November 28, 1995 (Holding Co. 
Act Release No. 26418), April 18, 1996 (Holding Co. Act Release No. 
26506), December 23, 1997 (Holding Co. Act Release No. 26804), May 
19, 1999 (Holding Co. Act Release No. 27030), October 8, 1999 
(Holding Co. Act Release No. 27084), December 17, 2001 (Holding Co. 
Act Release No. 27475), October 24, 2002 (Holding Co. Act Release 
No. 27585), July 14, 2000 (Holding Co. Act Release No. 27199) 
(``Prior Money Pool Orders'').
    \22\ The Commission has authorized Mountaineer to participate in 
the Money Pool through December 31, 2005.
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    The Money Pool will continue to be administered on behalf of the 
Money Pool Applicants by AESC and under the direction of an officer of 
AESC. AESC will not be a participant in the Money Pool. The Money Pool 
will consist principally of surplus funds received from the Money Pool 
Applicants. In addition to surplus funds, funds borrowed by Allegheny, 
AE Supply, Monongahela, Potomac Edison, and West Penn through the 
issuance of short-term notes or other debt, or by the selling of 
commercial paper, as described above (``External Funds''), may be a 
source of funds for making loans or advances to companies borrowing 
from the Money Pool.
    The Money Pool Applicants do not propose any material changes to 
the operation of the Money Pool as currently authorized. Transactions 
under the Money Pool will be designed to match, on a daily basis, the 
surplus funds of the pool participants with the short-term borrowing 
requirements of the pool participants (other than the pool participants 
who are lenders only), thereby minimizing the need for short-term debt 
to be incurred by the pool participants from external sources. The 
Money Pool Applicants believe that the cost of the proposed borrowings 
through the Money Pool generally will be more favorable to the 
borrowing participants than the comparable cost of external short-term 
borrowings, and the yield to the participants contributing available 
funds to the Money Pool generally will be higher than the typical yield 
on short-term investments.
    The funds available through the Money Pool will be loaned on a 
short-term basis to those eligible pool participants that have short-
term debt requirements. If no such short-term requirements match the 
amount of funds that are available for the Money Pool for the period 
such funds are available, AESC will invest the funds, directly or 
indirectly, as described below and will allocate the interest earned on 
these investments among the pool participants providing the funds on a 
pro rata basis according to the amount of the funds provided:
    (1) Direct or indirect obligations of the United States Government;
    (2) Certificates of Deposit of commercial banks with assets 
exceeding $2.5 billion;
    (3) Bankers acceptances of commercial banks with assets exceeding 
$2.5 billion;
    (4) Commercial paper of companies having a minimum net worth of 
$150 million having a ``1'' commercial paper rating by at least two of 
the three recognized rating services (Moody's, Standard & Poor's, and 
Fitch);
    (5) Taxable or tax exempt institutional money market funds with 
assets of at least $500M which restrict investments to high quality 
money market instruments; and
    (6) Other investments as are permitted by section 9(c) of the Act 
and rule 40 under the Act.
    All borrowings from and contributions to the Money Pool will be 
documented and will be evidenced on the books of each pool participant 
that is borrowing from or contributing surplus funds to the Money Pool. 
Any pool participant contributing funds to the Money Pool may withdraw 
those funds at any time without notice to satisfy its daily need for 
funds. All short-term debt through the Money Pool (other than from 
External Funds) will be payable on demand, may be prepaid by any 
borrowing pool participant at any time without penalty, and will bear 
interest for both the borrower and lender. Interest income and expense 
will be calculated using the previous day's Fed Funds Effective 
Interest Rate (``Fed Funds Rate'') as quoted by the Federal Reserve 
Bank of New York, as long as this rate is at least, four basis points 
lower than the previous day's seven-day commercial paper rate as quoted 
by the same source. Whenever the Fed Funds Rate is not at least four 
basis points lower than the seven-day commercial paper rate, then the 
seven-day commercial paper rate minus four basis points should be used. 
Interest income and expense will be calculated daily and settled on a 
cash basis on the first business day of the following month. Each of 
the Utility Applicants may use the proceeds it borrows from the Money 
Pool (i) for the interim financing of its construction and capital 
expenditure programs; (ii) for its working capital needs; (iii) for the 
repayment, redemption, or refinancing of its debt and preferred stock; 
(iv) to meet unexpected contingencies, payment and timing differences, 
and cash requirements; and (v) to otherwise finance its own business 
and for other lawful general corporate purposes. Each of the following 
companies requests authority to borrow up to an amount at any one time 
outstanding from the Money Pool as set forth below: AGC, $100 million; 
Monongahela Power, $125 million; Mountaineer, $100 million; Potomac 
Edison, $150 million; and West Penn, $200 million.
    Allegheny, AE Supply and the Utility Applicants also request 
authority to raise External Funds through short-term borrowing, as 
discussed above. Any External Funds raised by the Utility Applicants 
will be in an amount equal to the Utility Applicant's authority to 
borrow from the Money Pool. Allegheny, AE Supply and the Utility 
Applicants, other than AGC, would use the External Funds received in 
this way either to make loans or advances to companies borrowing from 
the Money Pool or for general corporate purposes. AGC would use these 
External Funds for general corporate purposes only.

D. Changes in Capitalization and Internal Reorganizations of Nonutility 
Applicants

    Allegheny and AE Supply cannot ascertain at this time the portion 
of an individual Nonutility Applicant's aggregate financing to be 
effected through the sale of capital stock or equivalent interests in 
the form of limited liability company or general partnership interests 
during the Authorization Period under rule 52 or by order of the 
Commission. However, a proposed sale of capital stock or equivalent 
interests may in some cases exceed the capital stock or equivalent 
interests of a Nonutility Applicant authorized at that time. In 
addition, a Nonutility Applicant may elect to use capital stock with no 
par value, or convert from one form of business organization (e.g., a 
corporation) to another (e.g., a limited liability company). A 
Nonutility Applicant also may wish to undertake a reverse stock split 
in order to reduce franchise taxes or for other corporate purposes. 
Applicants, therefore, request authority to change the terms of any 
Nonutility Applicant's authorized capitalization, as needed to 
accommodate any proposed transactions and to provide for future 
issuances of securities, by an amount

[[Page 4900]]

the Applicants or another parent company deem appropriate, provided 
that the consent of all other shareholders or owners of equivalent 
interests to a change has been obtained if the Nonutility Applicant in 
question is not a direct or indirect wholly-owned subsidiary company of 
one of the Applicants. The requested authority would permit a 
Nonutility Applicant to increase the number of its authorized shares of 
capital stock or equivalent interests, change the par value of its 
capital stock, change between par value and no-par value stock, or 
convert from one form of business organization to another without 
additional Commission approval.
    In addition, to the extent that these transactions are not 
otherwise exempt under the Act or the Commission's rules under the Act, 
Applicants request approval to consolidate, sell, transfer, or 
otherwise reorganize all or any part of their direct and indirect 
ownership interests in Nonutility Applicants, as well as investment 
interests in entities that are not subsidiary companies. To effect any 
consolidation or other reorganization, Applicants may wish either to 
contribute the equity securities of one Nonutility Applicant to another 
Nonutility Applicant, including a newly formed intermediate company 
(``Intermediate Company''),\23\ or sell (or cause a Nonutility 
Applicant to sell) the equity securities or all or part of the assets 
of one Nonutility Applicant to another. These transactions also may 
occur through a Nonutility Applicant selling or transferring the equity 
securities of a subsidiary or all or part of the subsidiary's assets as 
a dividend to an Intermediate Company or to another Nonutility 
Applicant, and the acquisition, directly or indirectly, of the equity 
securities or assets of the subsidiary, either by purchase or by 
receipt of a dividend. The purchasing Nonutility Applicant in any 
transaction structured as an intra-system sale of equity securities or 
assets may execute and deliver its promissory note evidencing all or a 
portion of the consideration given. Allegheny and AE Supply also may 
liquidate or merge Nonutility Applicants.
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    \23\ The Commission previously authorized AE Supply to organize 
Intermediate Companies to facilitate development and consummation of 
investments in exempt activities (Holding Co. Act Release No. 27383 
(April 20, 2001)).
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E. Exemption of Certain Transactions From At-Cost Requirements

    Allegheny and AE Supply seek an exemption under rule 13(b) for the 
Nonutility Applicants to provide certain services in the ordinary 
course of their business to each other, in certain circumstances 
described below, including but not limited to cost or fair market 
prices.\24\ Any services provided by the Nonutility Applicants to the 
Operating Companies and Mountaineer will continue to be provided ``at 
cost'' consistent with rules 90 and 91. A Nonutility Applicant will not 
provide services at other than cost to any other Nonutility Applicant 
that, in turn, provides these services, directly or indirectly, to any 
other associate company that is not a Nonutility Applicant, except 
under the requirements of the Commission's rules and regulations under 
Section 13(b) or an exemption from those rules and regulations obtained 
from the Commission.
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