ORIGINAL VIRGINIA OF WEST CHARLESTON At a session of the OF WEST VIRGINIA in the City of Charleston on the 16th day of December, 1997. CASE NO. 97-0872-ET-PC AEP COMMUNICATIONS, LLC., APPALACHIAN POWER COMPANY dba AMERICAN ELECTRIC POWER, and WHEELING POWER COMPANY dba AMERICAN ELECTRIC POWER. Joint petition for Commission consent and approval of affiliate transactions and contracts pursuant to the provisions of 34 of the Public Utilities Holding Company Act of 1935, as amended by 103 of the Telecommunications Act of 1996, and pursuant to W. Va. Code 24-2-12. COMMISSION ORDER On July 7, 1997, AEP Communications, LLC. (AEPC), Appalachian Power Company dba American Electric Power (APCO), and Wheeling Power Company dba American Electric Power (WPCO) filed a joint petition seeking Commission consent and approval, pursuant to (1) the Public Utility Holding Company Act of 1935 (PUHCA), as amended by 103 of the Telecommunications Act of 1996 (TA96) and (2) W. Va. Code 24-2-12, of a series of transactions relating to the provision of telecommunications services by AEPC to the APCO and WPCO (collectively, the Utilities) and, ultimately, to competing providers of local exchange telecommunications service. By way of factual background, the petitioners point out that AEPC is a Virginia limited liability company, whose sole member is AEP Communications, Inc. AEP Communications, Inc., in turn is a wholly owned subsidiary of American Electric Power Company, Inc. (AEP), as are the OF WEST
Utilities. The petitioners note that AEP Communications, Inc. has been designated as an exempt telecommunications company (ExTC) pursuant to a July 17, 1996 order of the Federal Communications Commission (FCC). See 11 FCC Rcd 8268 (July 18, 1996). AEPC has apparently also applied for ExTC status and, pending a decision its application, is deemed an ExTC. See PUHCA 34(a). A. The Initial Petition. To make a long story short, AEPC wants to get into the business of marketing fiber optic and other telecommunications facilities and services to sundry telecommunications carriers, the Utilities and perhaps other AEP affiliates. Specifically, AEPC intends to provide fiber capacity to carriers requiring dedicated non-switched service and to buy land, such Greenfield Sites and other assets from the Utilities for the purpose of constructing and operating towers for Personal Communications Services (PCS), cellular and other wireless providers. To this end, the petitioners seek Commission approval of five (5) separate transactions: Approval of a lease from APCO to AEPC, pursuant to a Fiber Optic Agreement, of fiber facilities on an existing Columbus, OH to Charleston, WV fiber optic line. This agreement also contemplates the construction of a new fiber optic line between Charleston, WV and Roanoke, VA, as well as future fiber transactions among the Utilities and AEPC. The petitioners seek approval pursuant to PUHCA 34(b) and W. Va. Code 24-2-12(c) of this agreement. Commission approval of a services agreement by which the Utilities provide certain services to AEPC in connection with new fiber construction and the maintenance of new and existing fiber optic lines. Approval is sought pursuant to W. Va. Code 24-2-12(f). 2 OF WEST VIRGINIA
(3) Approval of a services agreement under which AEPC will provide telecommunications and related services to the Utilities. PUHCA 34(i) and W. Va. Code 24-2-12(f) are cited as the statutory provisions under which approval of this agreement is sought. (4) Approval of a methodology governing the transfer of assets, including Greenfield Sites, from the Utilities to AEPC. The petitioners cited PUHCA 34(b) and W. Va. Code 24-2-12(c) as the basis for Commission-approval of the proposed methodology. (5) Approval of a proposed procedure dealing with the annual submission of a report of affiliate transactions between the utilities and AEPC, including the filing of advance notice to the Commission of asset transfers exceeding $1 million per transaction. The details of each element set forth in the petition, as well as Commission Staff s (Staff) response and the petitioners replies thereto, set forth below. In addition, the petitioners requested more minor forms of relief. Specifically, the petitioners requested that the Commission waive Rules 10.9 and 21 of the Commission s Rules of Practice and Procedure, 150 C.S.R. Series 1 (Procedural Rules) which requires the submission of statements of the financial condition of the Utilities and AEPC. Petition, at 3. In addition, the petitioners requested that the Utilities be exempted the from requirement that they provide copies of their articles of incorporation -- although a copy of AEPC s articles were attached. Id. 1. The Fiber Optic Agreement. Under this agreement (Exhibit B to the petition), AEPC will enter into 3 SERVICE COMMISSION OF WEST VIRGINIA
a long-term lease of 10 dark fibers on the 210-mile, 20 fiber line from Columbus to Charleston which was apparently built between 1988 and 1993 by AEP and its affiliates. The line is contained primarily the in groundwire running between the tops of high voltage utility transmission towers. These facilities were in AEP s rate base as of December 19, 1995. The lease will be a 25-year, capital lease, with a 5-year renewal option. Annual lease payments to APCO and the other Utilities will be to equal the annual depreciation charged on 10 fibers, plus cost of capital, such that the present value of the lease payments will be equivalent to approxi $3.8 million -- the prorated current net book value the of 10 fibers as of March 31, 1997. In addition, as further compensation for use of AEP s facilities, AEPC will make an in-kind facilities fee payment of one DS-3 private line equivalent to 672 voice-grade circuits, for high-speed, long haul service, which has a present value over the of the life lease of up to $2.4 million. The Fiber Optic Agreement also contemplates AEPC s compensating APCO for its temporary use 1 of DS-3 of capacity along the Columbus - Charleston line during a 3-month trial basis, beginning June 30, 1997. This involves the short-term, interim use of 2 dark fibers and ancillary electronics. The petitioners indicate that compensation will be for the consideration ultimately approved by the Commission. At a minimum, AEPC will reimburse The term dark fiber refers to unused fiber capacity in a fiber optic cable. PUHCA $34(b) requires state approval of the sale of assets to an ExTC by an affiliated public utility if the assets were in the utility s rate base as of December 19, 1995. 4 I OF WEST
APCO for all costs that it incurs. In addition, the Fiber Optic Agreement provides for the constructio of a new, 150-mile fiber optic line and related facilities between Charleston, WV and Roanoke, VA. Under the agreement, APCO will install a new optical ground wire containing a 48-fiber loop and AEPC will leas 48 fibers through a 25-year capital lease, with a 5-year renewal option. The lease payment for the Charleston - Roanoke fiber line will consist of a one-time payment by AEPC to APCO of the actual cost of construction, estimated at $7.8 million, together with an in-kind facilities fee payment to APCO in the form of dark fiber and transmission capacity that is need for core utility communications. Specifically, AEPC will provide 4 fibers for utility telecommunications services (such as low-speed, short haul traffic) and up to 1 DS-3 private line for high-speed, long haul service. The value of this in-kind payment is estimated to have a present value of $3.15 million. Under the Fiber Optic Agreement, APCO will provide construction- related services (design, engineering, project management, etc.). Once the Charleston - Roanoke facilities becomes operational, the agreement contemplates APCO providing construction, maintenance, repair and network outage, as well as management services. APCO will also provide space for the location of regeneration facilities (shelters housing electronics to light and power the line). Petition, at 10-13. 2. Utilities Services Agreement. 5 OF WEST
Under this agreement (attached to the petition as Exhibit C), services that the Utilities provide to third parties will be to provided AEPC at the same rate at which those services are provided to such third parties. Where services are provided by the Utilities exclusively to AEP-affiliates, those services will be provided at fully allocated cost. Petition, at 13. 3. AEPC Services Agreement. This agreement (Exhibit D to the petition) will govern the Utilities purchase of certain telecommunications, information and related services and capacity from AEPC beyond the free fiber and capacity being prov in-kind compensation under the Fiber Optic Agreement. Under the agreement, AEPC proposes to provide various telecommunications and information services to the Utilities at the prevailing market rate. Petition, at 13-4. Proposed Methodology for Sales or Leases of Utilities Assets to AEPC. In order to realize AEPC s plan to market antennae and buildout support to existing and new wireless providers, the petitioners suggest a methodology for the Commission to use in approving, pursuant to W. Va. Code 24-2-12(c), affiliate asset transfers. The petitioners argue that the purpose of such a methodology is to protect ratepayers without burdening the Commission, and the petitioners, with the need to commence a new proceeding each time the Utilities seek to sell or lease an asset to AEPC. The petitioners contend that the Commission has authority, under W. Va. Code 24-2-12, to approve such a methodology by either granting consent its 6 OF COMMISSION
to such asset transfers in advance or by exempting parties from the requirements of that section regarding the submission of each affiliate contract or arrangement for approval. Where prevailing market price for assets may not be readily determined, the petitioners propose to transfer assets at a price equal to the average of two (2) independent appraisals, using the net book value of the assets as a floor. Petition, 14-15. at 5. Annual Reporting. The petitioners propose an annual reporting mechanism as a corolla to their proposed methodology for dealing with affiliate asset transfers and the provision of services among the Utilities and AEPC, ostensibly protect ratepayers. First, the petitioners propose that they submit an annual report to the Commission listing all transactions between AEPC an theutilitiesfortheprecedingyear.second,forassettransfers exceeding $1 million per transaction, the petitioners propose that AEPC and the Utilities provide the Commission with advance notice. Unless the Commission initiates an inquiry into the transaction within 20-days the of filing of such notice, the parties may close the transaction. Petition, at 15-16. B. Staff s Responses and the Petitioners Replies. Staff filed several memoranda in this proceeding. On August 12, 1997, Staff filed its Initial Joint Staff Memorandum. In its initial memorandum, Staff recommended that this proceeding should be referred to the ALJ 7 PUBLIC SERVICE OF WEST
Division. Staff further noted that it believed thatwo (2) issues were presented by the petition: first, AEPC s request to be designated an ExTC under PUHCA 34(a); and second, an examination to determine whether APCO or WPCO s rate payers are subsidizing AEPC s operations. Subsequently, on September 10, 1997, Staff filed its Final Joint Staff Memorandum. After completing its investigation, Staff recommended approval of the proposed transactions with several modifications. First, with respect to the Columbus - Charleston fiber optic line, Staff recommended that APCO should be compensated for AEPC s short-term use of the reque capacity at the market price or cost -- whichever is higher. For the Charleston - Roanoke line, Staff recommended that AEPC pay APCO for the cost of design, engineering, project management, and the cost of repair maintenance associated with the new facilities. Second, Staff recommended approval of the Utilities Service Agreement without approving the specific terms and conditions of the agreement. Third, with respect to the AEPC Service Agreement, Staff suggested that AEPC s compensation the be standard market price or cost, whichever is lower. Fourth, Staff recommended that all transfers of assets among the Utilities and AEPC should or above be at book value and that the excess above-book value be accounted for ab 1 ine. Lastly, regarding the petitioners annual reporting, Staff expressed its dissatisfaction with the petitioners proposals to provide annual submittals and to provide advance notice of transactions exceeding $1 million per transaction. Staff initially noted that the petitioners 8 OF WEST
correctly identify the Commission s key concern in such transactions that is rate payers are not harmed by the dealings among the Utilities and AEPC. However, Staff states that it believes Commission processing of asset transfers has been efficient and not unduly burdensome and that it is important for the Commission to review and approve such transactions in advance. Therefore, Staff recommended that the Commission reject the petitioners request that certain asset transfers be exempted from appr under W. Va. Code $24-2-12, and if the petitioners require expedited treatment of their filings, they can request accelerated decision. On September 22, 1997, the petitioners filed a reply to Staff s Final Joint Staff Memorandum. The petitioners objected to two of Staff s recommendations: first, Staff s recommendation that AEPC be compensated for services to the Utilities at the lower of market or cost rate; second, and Staff s recommendation that there should be no exemption from advance n 3 of proposed affiliate transfers. With respect to the first issue, the petitioners reiterated their position that the compensation AEPC receives for services the Utilities to should be based on prevailing market rate, in order to ensure that the Utilities will not subsidize AEPC and that AEPC will not be put at a competitive disadvantage by being forced to sell its services to Utilities at below market prices. The petitioners assert that the lower of market ³Put another way, the petitioners acceded to Staff s position regarding: (1) compensation for the fiber optic facilities; and (2) that all transfers of assets among the Utilities and AEPC should be at or above book value and that the excess above-book value be accounted for above-the-line. I OF WEST VIRGINIA 9
or cost rate does not make sense when an affiliate is providing its services in a competitive market and when a substantial portion of the affiliate s income comes from unaffiliated entities. Further, the marketplace discourages affiliates setting artificially high prices sinc any revenue from sales of service to affiliates would be off set by lo sales in the competitive market. Lastly, the petitioners noted that this principle was recognized by the FCC in its Accounting Safeguards Order, since the FCC required market-based pricing between affiliates and indicated that when a prevailing price exists for a service, that price should apply. Noting that the FCC concluded that a true prevailing price is established when 50% or more of the affiliate s sales to unaffiliated are third parties, the petitioners suggest that this 50% approach should be applied to pricing AEPC s services. The petitioners accordingly suggest that if AEPC sells more than 50% of the services it offers to third parties, prevailing market rate should apply; if AEPC sells than less 50% of its services to third parties, then the petitioners concede that the lower of market or cost approach would apply. As for the second issue, the petitioners altered their position by agreeing to a $750,000 threshold for asset transfers requiring advance notice as a way to satisfy both AEPC s need to be able to move quic a competitive market, and to allow the Commission to follow its exist policy of requiring pre-notification only for material transactions. Petitioners First Reply, at 6 (original emphasis). The petitioners then cite a 1956 Commission ruling in Appalachian Power Company, Case No. 4456, in which the Commission granted a blanket exemption from the pre- 10 OF WEST
notificationrequirements of W. Va.Code 24-2-12 withrespect to individual transactions between APCO and other entities, utility or not, affiliated or not, provided that no transaction involved property of an aggregate value in excess of $50,000. Id. at 6-7. The petitioners claim that a $750,000 threshold is appropriate, in light of both inflation and the fact thathe threshold applies on a going forward basis. On September 30, 1997, Staff filed a Second Final Joint Staff Memorandum. In this memorandum, Staff modified its position by agreeing that the pricing for the services provided by AEPC to the Utilities s be priced at the cost for the Utilities to provide the service or at the lowest market price similar services are being offered to a third party. However, Staff rejected the petitioners offer to modify the advance notice threshold on asset transfers. Staff then urged the Commission to rule expeditiously on the contents of the pleadings, without requiring a hearing. On October 7, 1997, the petitioners filed a reply to Staff s Second Final Joint Staff Memorandum. In this reply, the petitioners agreed Staff s recommendation regarding the price for AEPC services to to the Utilities, assuming AEPC can provide such services at market prices, as long as it is priced at the lowest market price at which such are services provided to a third party and further, that if such services are not provided to a third party, then they should be priced at AEPC s cost. W respect to the asset transfer issue, however, the petitioners continue to disagree with Staff s position. 11 OF WEST
DISCUSSION Having considered all the pleadings and arguments, the Commission concludes as follows: A. The Fiber Optic Agreement. The Fiber Optic Agreement, attached as Exhibit B to the petition, should be approved, without Commission approval of the specific terms and conditions of that agreement. There does not appear to be any dispute between the parties with respect to this issue. However, Staff's suggestion regarding compensation to APCO for both the existing and as the yet unbuilt lineshouldbeadoptedsincethepetitionershaveagreedtothis recommendation. B. The Utilities Service Agreement. With respect to the Utilities Service Agreement, attached as Exhib C to the petition, the Commission concludes that the agreement should be approved without approving the specific terms and conditions of that agreement. C. The AEPC Service Agreement. AEPC's Service Agreement, attached to the petition as Exhibit D, should be approved, subject to the following modification. AEPC can provide the 12 SERVICE COMMISSION OF WEST VIRGINIA
services contemplated in the agreement at market price, so long as those services are priced at the lowest market price at which such are services provided to a third party and provided that more 50% than of AEPC s revenues are attributable to the sale of services to third parties, whether utilities or not. If 50% or less of AEPC s services are sold to third parties, or if AEPC does not sell a particular service to a third party, then the price for that service shall be the lower of market or AEPC s price cost. This modification fairly reflects whathe petitioners agreed to in reply to Staff s first memorandum. The petitioners should be directed to file with the Commission a revised agreement reflecting this modification within forty-five (45) days after entry hereof. D. Methodology for the Sale or Lease of Assets from the Utilities to AEPC Proposed by the Petitioners. The Commission rejects the petitioners proposed methodology valuing assets sold or leased by the Utilities to AEPC. As set forth below, the Commission is rejecting the petitioners proposal that transf falling below a $750,000 threshold not be subject to advance notice and approval by the Commission. Since the Commission will require all asset transfers to be filed with it for review and approval, the Commission does not believe that approval of the petitioners methodology for valuing a transferred among AEP affiliates is necessary. Having said this, the Commission notes that it had several concerns with the petitioners prop methodology for valuing assets, in light of their requested exemption from for advance notice and Commission approval. One concern was a lack of information regarding who chooses an independent appraiser to determine 13
prevailing market price and how the appraiser is selected. Another concern was a lack of information regarding who decides that the market price may not be readily determined and how is that determination is These concerns are merely illustrative; this is not an exhaustive list the Commission s concerns. E. Exemption From Advance Notice and Consent for Certain Asset Transfers. The Commission rejects the petitioners request that AEPC and the Utilities be exempted from the requirement that they provide advance no of all asset transfers between affiliates, unless the value of the asse transferred exceeds $750,000 per transaction. The Commission agrees with Staff s position on this point, set forth in its final memoranda. the While Commission is not insensitive to the petitioners concerns the about burden imposed or the Commission s ability to timely act on such asset transfer the Commission s interest in protecting ratepayers against transactions th may detrimentally impact their rates overrides the petitioners concerns. Moreover, the Commission agrees with Staff that asset transfers can be approved expeditiously -- and the Commission undertakes to do so -- in order to limit the impact of Commission oversight on AEPC s ability to provide competitive telecommunication service and facilities. The Commission notes that it has generally approved asset transfers between affiliates within thirty (30) days from the date of filing. In addition, the Commission is not convinced that the pressures of competition for the types of services and facilities being provided by 14 PUBLIC SERVICE
necessitates exempting certain asset transfers from advance notice and approval. To-date, no competitive provider of local telecommunications service has entered the local market in the State -- through resold service, let alone facilities-based service. Lastly, as previously discussed, the Commission had concerns about the methods proposed for valuing assets being transferred which helped it decide against the petitioners on this issue. F. Valuing Transfers Among the Utilities and AEPC. The Commission further concludes that it is reasonable to adopt Sta recommendation that all transfers of assets among the Utilities and AEPC should be required to be at or above book value and the excess that above- book value be accounted for above-the-line. The petitioners acceded to this recommendation by Staff. G. Informational Requirements of Procedural Rules 10.9 and 21. The petitioners request for a waiver of the informational requirem of Procedural Rules 10.9 and 21 is reasonable and should be granted. H. Provision of the Utilities Articles of Incorporation. Likewise, the Commission concludes that it is reasonable to waive the requirement that the Utilities provide the Commission with a copy of t articles of incorporation. 15
FINDINGS OF FACT 1. On July 7, 1997, AEP Communications, LLC. (AEPC), Appalachian Power Company dba American Electric Power (APCO), and Wheeling Power Company dba American Electric Power (WPCO) filed a joint petition seek Commission consent and approval, pursuant (1) to the Public Utility Holding Company Act of 1935 (PUHCA), as amended $103 by of the Telecommunications Act of 1996 (TA96)and (2) W.Va.Code 24-2-12, of a series of transactions relating to the provision of telecommunications services by AEPC to the APCO and WCO (collectively, the Utilities) and, ultimately, to competing providers of local exchange telecommunications service. 2. AEPC is a Virginia limited liability company, whose sole member is AEP Communications, Inc. AEP Communications, Inc., in turn is a wholly owned subsidiary of American Electric Power Company, Inc. (AEP), as are the Utilities. 3. AEP Communications,Inc.hasbeendesignatedas an exempt telecommunications company (ExTC) pursuant to a 17, July 1996 order of the Federal Communications Commission (FCC). See 11 FCC Rcd 8268 (July 18, 1996). AEPC has also applied for ExTC status and, pending a decision its application, is deemed an ExTC. See PUHCA 34(a). 4. AEPC intends to provide fiber capacity to carriers requiring dedicated non-switched service and to buy land, such as Greenfield Sites and other assets from the Utilities for the purpose of constructing and 16 OF WEST
operating towers for Personal Communications Services (PCS), cellular and other wireless providers. 5. The petitioners seek Commission approval of five (5) separate transactions: Approval of a lease from APCO to AEPC, pursuant to a Fiber Optic Agreement, of fiber facilities on an existing Columbus, OH to Charleston, WV fiber optic line. This agreement also contemplates the construction of new a fiber optic line between Charleston, WV and Roanoke, VA, as well as future fiber transactions among the Utilities and AEPC. The petitioners seek approval pursuant to PUHCA 34(b) and W. Va. Code 24-2-12(c) of this agreement. Commission approval of a services agreement by which the Utilities provide certain services to AEPC in connection with new fiber construction and the maintenance of new and existing fiber optic lines. Approval is sought pursuant to W. Va. Code 24-2-12(f). Approval of a services agreement under which AEPC will provide telecommunications and related services to the Utilities. PUHCA 34(i) and W. Va. Code 24-2-12( f) are cited as the statutory provisions under which approval of this agreement is sought. Approval of a methodology governing the transfer of assets, including Greenfield Sites, from the Utilities to AEPC. The petitioners cited PUHCA 34(b) and W. Va. Code 24-2-12(c) as the basis for Commission-approval of the proposed methodology. Approval of a proposed procedure dealing with the annual submission of a report of affiliate transactions between the utilities and AEPC, including the filing of advance notice to the Commission of asset transfers exceeding $1 million per transaction. 6. 10.9 and The petitioners also requested that the Commission waive Rules 21 of the Commission s Rules of Practice and Procedure, 150 C.S.R. Series 1 (Procedural Rules), and tha the Utilities be exempted from the requirement that they provide copies of their articles of incorporation 17 WEST
although a copy of AEPC s articles were attached. 7. On August 12, 1997, Staff filed its Initial Joint Staff Memorandum, recommending that this proceeding should be referred to the ALJ Division. 8. On September 10, 1997, Staff filed its Final Joint Staff Memorandum. After completing its investigation, Staff recommended approval of the proposed transactions with several modifications. 9. On September 22, 1997, the petitioners filed a reply to Staff s Final Joint Staff Memorandum. The petitioners objected to two of Staff s recommendations: first, Staff s recommendation that AEPC be compensated for services to the Utilities at the lower of market or cost rate; and second, Staff s recommendation that there should be no exemption from advance n of proposed affiliate transfers. 10. ThepetitionersaccededtoStaff spositionregarding: (1) compensation for the fiber optic facilities; and (2) that all transfers of assets among the Utilities and AEPC should be at or above book value and that the excess above-book value be accounted for above-the-line. 11. In response to Staff sseptember 22, 1997 memorandum, the petitioners altered their position by agreeing to a $750,000 threshold for asset transfers requiring advance notice as a way to satisfy both AEPC s need to be able to move quickly in a competitive market, and to the allow 18 OF WEST VIRGINIA
Commission to follow its existing policy of requiring pre-notification for material transactions. 12. On September 30, 1997, Staff filed a Second Final Joint Staff Memorandum, modifying its position by agreeing that the pricing for the services provided by AEPC to the Utilities should be at priced the cost for the Utilities to provide the service or at the lowest market price similar services are being offered to a third party but rejecting the petitioners offer to modify the advance notice threshold on asset transfers. 13. On October 7, 1997, the petitioners filed a reply to Staff s September 30, 1997 memorandum, generally agreeing to Staff s recommendation regarding the price for AEPC services to the Utilities, but disagreeing with Staff s position with respect to the issue of advance notice of asset transfers. CONCLUSIONS OF LAW 1. The Fiber Optic Agreement, attached as Exhibit B to the petition, should be approved, without Commission approval of the specific terms conditions of that agreement. Staff s suggestion regarding compensation to APCO for both the existing and the as yet unbuilt line should be adopted since the petitioners have agreed to this recommendation. 2. The Utilities Service Agreement, attached as Exhibit C to the petition, should be approved approving the specific terms and conditions of 19 SERVICE COMMISSION OF WEST
that agreement. 3. The AEPC Service Agreement, attached to the petition as Exhibit D, should be approved, subject to the following modification. AEPC can provide the services contemplated in the agreement at price, market so long as those services are priced at the lowest market price at which such services are provided to a third party and provided that more 50% than of AEPC s revenues are attributable to the sale of services to third parties, whether utilities or not. If 50% or less of AEPC s services are sold to third parties, or if AEPC does not sell a particular service to a third party, then the price for that service shall be the lower of market price or AEPC s cost. The petitioners should be directed to file with the Commission a revised agreement reflecting this modification within forty- five (45) days after entry hereof. 4. The Commission rejects the petitioners proposed methodology for valuing assets sold or leased by the Utilities to AEPC. 5. Since the Commission will require all asset transfers to be filed with it for review and approval, the Commission does not believe that approval of the petitioners methodology for valuing assets transferred among AEP affiliates is necessary. 6. The Commission rejects the petitioners request that AEPC and the Utilities be exempted from the requirement that they provide advance notice of all asset transfers between affiliates, unless the value the assets of 20 OF WEST VIRGINIA
transferred exceeds $750,000 per transaction. The Commission agrees with Staff s position on this point, set forth in its final memoranda. 7. It is reasonable to adopt Staff s recommendation that all transfers of assets among the Utilities and AEPC should be required be to at or above book value and that the excess above-book value be accounted for above-the-line. The petitioners acceded to this recommendation by Staff. 8. The petitioners request for a waiver of the informational requirements of Procedural Rules 10.9 and 21 is reasonable and should be granted. 9. It is reasonable to waive the requirement that the Utilities provide the Commission with a copy of their articles of incorporation. ORDER IT IS, THEREFORE, ORDERED that the joint petition, filed with the Commission on July 7, 1997 by AEP Communications, LLC., Appalachian Power Company dba American Electric Power, and Wheeling Power Company dba American Electric Power (WPCO), seeking Commission consent and approval, pursuant to (1) the Public Utility Holding Company of Act 1935 (PUHCA), as amended by 103 of the Telecommunications Act of 1996 (TA96) and (2) W. Va. Code 24-2-12, of a series of transactions relating to the provision of telecommunications services by AEPC to APCO the and WPCO (collectively, the 21 SERVICE COMMISSION OF WEST
Utilities) and, ultimately, to competing providers of local exchange telecommunications service, should be, and hereby is, approved as modified herein. IT IS FURTHER ORDERED that the Fiber Optic Agreement, attached as Exhibit B to the petition, should be approved, without Commission approva of the specific terms and conditions of that agreement. Provided, however, that the Fiber Optic Agreement shall be revised to incorporate Staff s suggestion regarding compensation to APCO for both the existing and the as yet unbuilt line. IT IS FURTHER ORDERED that the petitioners shall an executed file copy of the revised Fiber Optic Agreement with the Commission within forty (45) days after the date of entry hereof. IT IS FURTHER ORDERED that the Utilities Service Agreement, attache as Exhibit C to the petition, is approved without approving the specific terms and conditions of that agreement. IT IS FURTHER ORDERED that the AEPC Service Agreement, attached to the petition as Exhibit D, is approved, subject to the following modification. AEPC can provide the services contemplated in the agreement at market price, so long as those services are priced at the lowest market price which such services are provided to a third party and provided that more than 50% of AEPC s revenues are attributable to the sale of services to third parties, whether utilities or not. If 50% or less of AEPC s services 22 PUBLIC SERVICE
are sold to third parties, or if AEPC does not sell a particular service to a third party, then the price for that service shall be the lower of price or AEPC s cost. IT IS FURTHER ORDERED that the petitioners file an executed of copy the revised AEPC Service Agreement with the Commission within forty-five (45) days after the date of entry hereof. IT IS FURTHER ORDERED that the petitioners proposed methodology for valuing assets sold or leased by the Utilities to AEPC is rejected. IT IS FURTHER ORDERED that the petitioners request that AEPC the and Utilities be exempted from the requirement that they provide notice advance of all asset transfers between affiliates, unless the value of the asset transferred exceeds $750,000 per transaction, is rejected. IT IS FURTHER ORDERED that all transfers of assets among the Utili and AEPC should be required to be at or above book value and that the excess above-book value be accounted for above-the-line. IT IS FURTHER ORDERED that the petitioners request for of a the waiver informational requirements of Procedural Rules 10.9 and 21 is granted. IT IS FURTHER ORDERED that the petitioners request for a waiver of the requirement that the Utilities provide the Commission with a of copy their articles of incorporation is granted. 23
IT IS FURTHER ORDERED that the Commission's Executive Secretary serve a copy of this Order upon all parties of record by United States Class Mail and upon Commission Staff by hand delivery. First OTIS D. CASTO, COMMISSIONER CHARLOTTE R. LANE, CHAIRMAN 24