SecProbe.io

CORRESP
1
filename1.htm

AEP SEC Letter Response

Securities
and Exchange Commission

450 Fifth
Street NW

Washington,
DC 20549

April 14,
2005

RE:  American
Electric Power Company, Inc., File No. 1-3525

    AEP
Generating Company, File No. 0-18135

AEP Texas Central Company, File No. 0-346

AEP Texas North Company, File No. 0-340

Appalachian Power Company, File No. 1-3457

Columbus Southern Power Company, File No. 1-2680

Indiana Michigan Power Company, File No. 1-3570

Kentucky Power Company, File No. 1-6858

Ohio Power Company, File No. 1-6543

Public Service Company of Oklahoma, File No. 0-343

Southwestern Electric Power Company, File No. 1-3146

Form 10-K for the fiscal year ended December 31, 2004

Filed March 2, 2005

Responses
to the comment letter dated March 30, 2005 from the staff (the “Staff”) of the
Securities and Exchange Commission (the “Commission”) regarding the
above-captioned Report are provided herewith, including the text of the Staff’s
comments.

Form
10-K for the fiscal year ended December 31, 2004

General

1. Unless
otherwise indicated, where a comment below requests additional disclosures or
other revisions to be made, these revisions should be included in your future
filings, as applicable. Although each comment has been issued only once, the
comments below may be applicable to each registrant reviewed.

2. We note
references throughout the filing regarding coal reserves; however, you do not
disclose reserve quantity estimates or any information about the reserves. We
note you sold AEP Coal, Inc. in March 2004. As such, if you do not continue to
own any interests in coal reserves, please clarify in future filings. Otherwise,
please supplementally tell us the location of any interests in coalmines or
properties for each affiliate, including quantities of estimated reserves. Also
provide an analysis of the materiality of any mineral property holdings relative
to your total assets, revenues and income for the past three years for each
registrant. Finally, explain to us how coal sales to affiliates are treated for
ratemaking purposes.

RESPONSE:

In
response to the Staff’s comment, following are the estimated recoverable coal
and lignite reserves as of 12/31/04 by registrant:

      Registrant

      Location
      of Reserves

      (State)

      Tons

      (in
      thousands)

      Recorded

      Value
      at

      12/31/04

      ($
      millions)

      Total
      Assets at 12/31/04

      ($
      billions)

      Status
      at 12/31/04

      Appalachian
      Power Company

      IN/WV

      229,672

      10.1

      5.2

      Inactive

      Indiana
      Michigan Power Company

      IN/UT

      208,984

      19.7

      4.9

      Inactive

      Ohio
      Power Company

      IN/OH/WV

      223,754

      11.7

      5.6

      Inactive

      Columbus
      Southern Power Company

      OH

      57,158

      9.7

      3.0

      Inactive

      Kentucky
      Power Company

      IN

      31,078

      1.1

      1.2

      Inactive

      Southwestern
      Electric Power Company

      LA,
      TX

      Lignite
      Reserves

      37,767

      8.0

      2.6

      Active

The above
reserves have not been actively mined for over three years with the exception of
SWEPCo’s lignite reserves. SWEPCo’s reserves are mined and used solely for fuel
at plants owned by SWEPCo and are included in the appropriate jurisdictional
fuel clause. All of the registrants’ reserves are immaterial as there are no
associated sales revenues and the net book value is less than 1% of total
assets.

As
described in our 2004 10-K on page L-86, the only coal fuel stock supplied to a
registrant by an affiliate was from AEP Coal Inc. to Columbus Southern Power
Company (CSPCo). This affiliate transaction ended during the second quarter of
2004 after the divestiture of AEP Coal Inc. There was no impact on rate making
because CSPCo fuel costs were not subject to a rate making process.

* *
*

Item
9A. Controls and Procedures

3. Please
amend your Form 10-K to incorporate the following changes to your Item 9A.,
Contro1s and Procedures:

(a) We note
your disclosure that your disclosure contro1s and procedures have been designed
to ensure that “this information is recorded, processed, summarized, evaluated,
and reported, as applicable, within the time periods specified in the SEC’s
rules and forms.”
As you
have included a portion of the definition of disclosure contro1s and procedures
in your disclosure, you must include the entire definition. As such, revise to
clarify, if true, that your disclosure contro1s and procedures are also designed
to ensure that information required to be disclosed in the reports that you file
or submit under the Exchange Act is accumulated and communicated to your
management, including your CEO and CFO, to allow timely decisions regarding
required disclosure. See Exchange Act Rule 13a-15(e).

(b) Please
revise to provide an unqualified conclusion as to whether there were any changes
in your internal control over financial reporting during your most recent fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, your internal control over financial reporting. Your current conclusion,
which includes qualifying language, is not sufficient in this regard. Further,
you state that there were no significant
changes
in your internal contro1s that have materially affected these contro1s
subsequent to the date of your evaluation. However, Item 308(c) of Regulation
S-K requires that you disclose any
change in your
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during your last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, your internal control over financial
reporting. Revise your disclosures accordingly. Finally, refer to internal
control over financial reporting defined in Exchange Act Rules 13a-15(f) and
15d-15(f), rather than the incorrect location you refer to now. See Item 308 of
Regulation S-K.

RESPONSE:

In
response to Staff comments 3(a) and (b), we will amend our Form 10-K to restate
Item 9A., Controls and Procedures as follows:

During
2004, management, including the principal executive officer and principal
financial officer of AEP, AEPGCo, APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo,
TCC and TNC (collectively, the “Registrants”), evaluated the Registrants’
disclosure controls and procedures. Disclosure controls and procedures are
defined as controls and other procedures of the Registrants that are designed to
ensure that information required to be disclosed by the Registrants in the
reports that they file or submit under the Act are recorded, processed,
summarized and reported within the time periods specified in the Commission’s
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Registrants in the reports that they file or submit under the
Act is accumulated and communicated to the Registrants’ management, including
the principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.

As of
December 31, 2004, these officers concluded that the disclosure controls and
procedures in place are effective and provide reasonable assurance that the
disclosure controls and procedures accomplished their objectives. The
Registrants continually strive to improve their disclosure controls and
procedures to enhance the quality of their financial reporting and to maintain
dynamic systems that change as events warrant.

The only
change in AEP’s internal control over financial reporting (as such term is
defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fourth quarter of 2004 that materially affected, or is reasonably likely to
materially affect, AEP’s internal controls over financial reporting, relates to
AEP’s and AEP’s East Zone public utility subsidiaries’ integration with PJM on
October 1, 2004, which resulted in our implementing and modifying a number of
business processes and controls to facilitate participation in, and resultant
settlement within, the PJM market.

* *
*

2004
Annual Reports

AEP
Generating Company

Management’s
Narrative Financial Discussion and Analysis

Contractual
Cash Obligations

4. Please
revise your table of contractual cash obligations to include long-term debt as
required by Item 303(a)(5) of Regulation S-K. Further, we note per review of
your balance sheet that you have approximately $12.5 million in capital lease
obligations as of December 31, 2004. However, your table of contractual cash
obligations includes total obligations of $22.9 million. Please supplementally
reconcile this difference. Finally, consider revising your table to include the
following:

    (a)
    Estimated interest payments on your debt;

    (b)
    Estimated payments under interest rate swap agreements;
and

      (c)

      Planned
      funding of pension and other postretirement benefit obligations. Because
      the table is aimed at increasing transparency of cash flow, we believe
      these payments could be included in the table. If you choose not to
      include these payments, a footnote to the table should clearly identify
      the excluded items and provide any additional information that is material
      to an understanding of your cash requirements. See Section IV.A and
      footnote 46 to the Commission’s MD&A Guidance issued December 19,
      2003, available at www.sec.gov.

RESPONSE:

We have
reflected long-term debt in the Contractual Cash Obligations table (“Obligations
Table”) in our Form 10-K for all registrants except AEP Generating Company
(AEPGCo). We inadvertently omitted AEPGCo’s long-term debt from its Obligations
Table. AEPGCo’s long-term debt of $44.8 million due 2006 is fully disclosed on
the Schedule of Long-Term Debt and the Balance Sheet on pages B-8 and B-6,
respectively. Commencing with the 2005 Form 10-K, where the Obligations Table is
presented, we will include long-term debt in AEPGCo’s table.

For each
registrant, we include notes to the Contractual Obligations Table describing
what is included and excluded in the tables and we will continue to review these
notes for clarity and inclusion of pertinent information.

Consistent
with the presentation on all registrants, the difference between total capital
lease obligations presented on the balance sheet versus the Obligations Table
relates to the interest component of the capital lease obligations. The interest
component is not included on the balance sheet in accordance with Statement of
Financial Accounting Standards (SFAS) 13, Accounting for Leases; however, the
full lease payment obligation is included in the Obligations Table. The
Obligations Table contains a footnote referencing the reader to footnote 15 for
registrant subsidiaries and footnote 16 for AEP where the capital lease interest
component difference is shown. For AEPGCo, the table on page L-75 reconciles the
$22.9 million to the $12.5 million, with the reconciling difference being the
interest component.

For each
registrant except AEPGCo, we disclosed in footnotes to the Obligations Table
that the long-term debt represents principal only and excludes interest.
Commencing with the 2005 Form 10-K, for all of our registrants, we will include
estimated interest payments associated with our existing fixed-rate debt.
Estimated interest payments on our variable rate debt are based on future market
conditions and are difficult to project. Therefore, we will provide a footnote
to the table that indicates the variable rate debt is excluded and we will
disclose the nature and terms of the variable rate debt in the
footnote.

The fair
value of AEP’s estimated payments under interest rate swap agreements as of
December 31, 2004 was $6.1 million, which includes the following amounts
related to the registrant subsidiaries. Because the amounts are not material at
the registrant level, these amounts have not been separately disclosed on their
obligations tables:

Appalachian
Power Company
    $ 76,000

Indiana
Michigan Power Company
    237,000

Kentucky
Power Company   (614,000)
(asset balance at year-end)

Please
note that AEPGCo’s pension obligations are zero because it has no employees. As
it relates to the remaining registrant subsidiaries, as disclosed immediately
following the AEP Obligations Table on page A-25 we refer the reader to footnote
11 (Benefit Plans) and indicated that our minimum pension funding requirements
are not included in the table as such amounts are discretionary based on the
status of the trust. As it relates to our other registrant subsidiaries, we did
not include any disclosure of or reference to pension obligations relating to
the Obligations Table, as pension matters are determined at the AEP parent
company level. Commencing with the 2005 Form 10-K, we will include a footnote to
the Obligations Table of the registrant subsidiaries referring the reader to the
benefit plan footnote for further information regarding projected future
contributions. The discretionary funding of benefit plans is discussed on page
M-10 in the combined MD&A of the registrant subsidiaries.

* *
*

Balance
Sheets

5. You
enumerate the registrant subsidiaries that have cost-based rate regulated
operations in Note 1, Revenue Recognition-Regulatory Accounting, and AEPGCo is
not included. It is not clear whether AEPGCo has cost-based rate regulated
operations based on this disclosure. Your description of the FERC approved
agreements suggests recovery of costs including a return. We assume since you
present both regulatory assets and liabilities on the balance sheet, AEPGCo
applies SFAS 71. Please explain in
detail how you
meet the scope criteria of paragraph 5 of SFAS 71. Further, using the guidance
provided in paragraphs 9 and 11, please explain why you concluded these
regulatory assets and liabilities exist. Finally, if AEPGCo is cost-based rate
regulated, explain to us why the achieved rate of return appears low. You may
want to give us a background along with the actual “FERC approved rate of
return” and the achieved rate of return for the past 3 years.

RESPONSE:

AEPGCo is
a cost-based rate regulated company. In the Management’s Narrative Financial
Discussion and Analysis for AEPGCo on page B-2, we state that AEPGCo’s unit
power agreements provide for a FERC approved rate of return on common equity, a
return on other capital, and recovery of costs.

We also
state that the Registrant Subsidiaries are cost-based rate regulated companies
in Footnote 1 under the subheading “Accounting for the Effects of Cost-Based
Regulation” on page L-2. The first sentence of that paragraph states: “As
cost-based rate-regulated electric public utility companies, the Registrant
Subsidiaries’ financial statements reflect the actions of regulators that result
in the recognition of revenues and expenses in different time periods than
enterprises that are not rate-regulated.” Registrant Subsidiaries is a defined
term in the Glossary and this definition includes AEPGCo.

Commencing
with the 2005 Form 10-K, we will also list AEPGCo as a cost-based rate-regulated
company in Footnote 1 under the subheading, Revenue Recognition - Regulatory
Accounting.

Paragraph
5 of SFAS 71 requires that three criteria be met to apply SFAS 71. AEPGCo meets
those criteria as shown below:

    ·

      Paragraph
      5a states that the rates for regulated services be established by an
      independent, third-party regulator. The Federal Energy Regulatory
      Commission (FERC) regulates AEPGCo’s wholesale energy sales under the
      authority of the Federal Power Act. AEPGCo’s tariffs and cont