Ohio Approves AEP Ohio Transfer of Generating Assets

The Public Utilities Commission of Ohio approved AEP Ohio's corporate separation plan under which Ohio Power's generation will be transferred to a non-utility affiliate.

The transfer of the generating assets had been contemplated by PUCO's order in AEP Ohio's electric security plan.

Because Ohio Power (OP) seeks only to transfer its generating assets to an affiliate within the same parent corporation, in compliance with the mandate of Section 4928.17, Revised Code, PUCO agreed that it is appropriate for Ohio Power to transfer the assets at net book value, noting this approach is consistent with recent decisions.

PUCO expressly made no ruling, at this time, on a contract between Ohio Power and AEP Generation Resources Inc., which will receive the former utility assets, for the default service supply needed during the period after the effective date of corporate separation but prior to the use of competitive auctions to procure default supply.

PUCO did subject Ohio Power's corporate separation to the following conditions:

• Staff, or an independent auditor at the Commission's discretion, shall audit the terms and conditions of the transfer of the generating assets to ensure compliance with Section 4928.17, Revised Code, and Chapter 4901:1-37, O.A.C, and any successors to the rules in that chapter, to ensure that no subsidiary or affiliate of OP that owns competitive generating assets has any competitive advantage due to its affiliation with OP. OP may file an application with the Commission to seek approval of the recovery of the costs associated with an independent audit

• Staff shall be provided with access to all books, accounts, and records in compliance with Rule 4901:l-37-09(F), O.A.C.

• Following the transfer of the generating assets, OP shall not, without prior Commission approval, provide or loan funds to, provide any parental guarantee or other security for any financing for, and/or assume any liability or responsibility for any obligation of subsidiaries or affiliates that own generating assets; provided, however, that contractual obligations arising before the date of this finding and order shall be permitted to remain with OP, without prior Commission approval, for the remaining period of the contract, but only to the extent that assuming or transferring such obligations is prohibited, and can not be effectively negotiated by the terms of the contract or would result in substantially increased liabilities for OP if OP were to transfer such obligations to its subsidiary or affiliate and to the extent that AEPGenCo be made contractually responsible to OP for all costs resulting from such generation related liabilities. In order to facilitate verification of these obligations, OP shall identify such by October 31, 2013.

• OP shall ensure that all new contractual obligations have a successor-in-interest clause that transfers all of OP's responsibilities and obligations under such contracts and relieves OP from any performance or liability under the contracts upon the transfer of the generating assets to its subsidiary or affiliate.

• The above provisions do not restrict OP's ability to receive and pass through to the subsidiary or affiliate that owns the generating assets equity contributions from its parent that are in support of the generating assets, nor do they restrict OP's ability to receive dividends from the subsidiary or affiliate that owns the generating assets and pass through such dividends to its parent.

• Generation-related costs associated with implementing corporate separation shall not be recoverable from OP customers.

• Any subsidiary or affiliate of OP to which generating assets are transferred shall not use or rely upon the ratings from credit rating agencies for OP. If such subsidiary or affiliate currently does not maintain separate ratings from the credit rating agencies, then upon transfer of any of the generating assets, it shall either seek to establish such ratings or shall tie its credit ratings to AEP as soon as practicable but no later than six months following such transfer.

PUCO reiterated its directive in the modified ESP 2 Order that pollution control revenue bonds (PCRB) maturing post corporate separation shall not be a cost recoverable, directly or indirectly, from OP distribution ratepayers. Therefore, the Commission will not permit OP to fund the defeasance costs of the PCRB with proceeds from the securitized bonds that are the subject of its application in Case No. 12-1969-EL-ATS