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The U.S. Court of Appeals for the D.C. Circuit on Friday vacated a Securities and Exchange Commission order approving the 15-month-old, $3.5 billion merger of American Electric Power Co. and Central and South West Corp. In a ruling that could have important ramifications for energy industry consolidation, the court found that the SEC did not properly apply the controversial Public Utility Holding Company Act of 1935 when the merger came under review in June 2000. PUHCA bars non-utilities from owning utilities outright and prohibits holding companies from owning utilities in different parts of the country. In effect, its critics say, the law restricts investment in the power industry and limits mergers between power companies. The SEC’s review of utility mergers is limited to determining if they comply with PUHCA. As part of the court’s order Friday, the AEP-CSW merger has been remanded back to the SEC for further proceedings. “We’re reviewing the order now, and we feel confident that our merger complies with PUHCA requirements,” said David Hagelin, a spokesman for Columbus, Ohio-based AEP. “We will be working with the staff of the SEC to provide the necessary documentation to supplement our records.” The SEC is reviewing the court order, an agency spokesman said, declining further comment. AEP and Dallas-based CSW announced their plans to merge in December 1997. The deal was completed in October 2000 after nearly three years of regulatory review by all of the necessary agencies. The merger at the time made AEP the largest electricity provider in the U.S., with 4.8 million customers in 11 states. The American Public Power Association and the National Rural Electric Cooperative Association filed a joint brief with the appeals court in May challenging the SEC’s approval of the merger and charging the regulator with avoiding its PUHCA-mandated responsibilities. NRECA and APPA, which represent not-for-profit, locally owned and controlled electric utilities, contend the AEP-CSW merger is bad for consumers, as is any repeal of PUHCA. PUHCA affects only the 30 or so utilities that are registered as holding companies with the SEC, but they serve about 32 percent of all electricity customers and include 13 of the nation’s 25 largest utilities. PUHCA was instituted in 1935 to halt abuses by utility holding companies, including inadequate financial disclosure, unsound accounting and excessive debt issuance. The SEC later assumed regulatory oversight for the act. Lawmakers, the SEC and the Federal Energy Regulatory Commission all favor a repeal of PUHCA. The Bush administration also wants to abolish the law. But any repeal is expected to trigger a wave of mergers. “It is very difficult, if not impossible, to effectively regulate large multistate entities without PUHCA,” said Richard Meyer, senior regulatory counsel for the NRECA. “We assume the SEC will be conducting another review [of the merger]. The SEC will need to take a harder look at this, and perhaps AEP and CSW will do those things necessary that would give them a better chance of passing review.” Copyright (c)2002 TDD, LLC. All rights reserved.

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