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SEC Judge Rules AEP-CSW Merger Violated PUHCA

Lawyers from Miller, Balis & O'Neil, P.C., successfully argued to a Securities and Exchange Commission administrative law judge that the merger of American Electric Power Company (AEP) and Central and South West Corporation (CSW) violated the Public Utility Holding Company Act (PUHCA).

In June 2000, AEP acquired CSW to create a holding company spanning 11 states. AEP, based in Columbus, Ohio, already operated utilities in Ohio, Indiana, Kentucky, Michigan, Tennessee, Virginia and West Virginia, while CSW, based in Dallas, operated in Arkansas, Louisiana, Oklahoma and Texas. The two systems are separated by hundreds of miles and exchange energy over the transmission lines of intervening utilities.

Although the SEC originally approved the merger, the National Rural Electric Cooperative Association and the American Public Power Association appealed the decision to the U.S. Court of Appeals for the District of Columbia Circuit. In 2002, the court vacated the approval because the SEC had not shown that the merged company met PUHCA's requirements that the utilities be "physically interconnected or capable of physical interconnection" and operate in a "single area or region." After a two-year delay, the SEC ordered a hearing, where MBO again represented the two associations.

On May 2, 2005, SEC administrative law judge Robert Mahony denied the merger application, adopting the associations' position that the combined AEP-CSW system did not operate in a "single area or region" as PUHCA requires.

AEP has announced it will appeal the decision to the full SEC. Unless the decision is overturned or AEP obtains legislative relief, however, it appears that AEP will have to divest most if not all of the assets it acquired from CSW.

The MBO team consisted of Randy Elliott, Barry Cohen, and William "Skip" Benz.