A federal appeals court on Friday directed a review of the $4.37 billion acquisition of Central South West Power Corp. by Ohio-based American Electric Power, a merger that was completed 18 months ago.

The three-judge panel ordered the Securities and Exchange Commission, which approved the merger in June 2000, to review the matter further and justify that it complied with a 1935 law aimed at protecting consumers and stockholders.

The merger created a utility holding company whose affiliates serve 4.8 million customers in 11 states from Michigan to Texas. The combination had been challenged by municipal and rural electric power companies because of its size and potential market power.

Pat Hemlepp, a spokesman for AEP in Columbus, Ohio, said that the company was still reviewing the court's decision, but that it was not expected to threaten the new company.

"We're confident that the merger does meet the requirements (of the 1935 law) and we will be working with the SEC staff to provide them with the necessary documentation and information to address any deficiencies," said Hemlepp.

The company has been operating as a single entity since June, 15, 2000, a day after the SEC's approval, said Hemlepp.

Critics of the Public Utility Holding Company Act said the court ruling demonstrates why Congress should repeal the 1935 law, which they view as outdated as the electricity industry becomes more competitive.

Legislation is before Congress calling for the law's repeal and President Bush's energy plan also calls for scuttling the law. But some consumer advocates argue the law should not be repealed unless Congress enacts separate safeguards for consumers against growing consolidation in the power industry.

The merger made AEP one of the country's largest power companies with 5 percent of the market. Because of the new company's wide reach across 11 states, it took 2 1/2 years to get approval in all the states and in Washington.

AEP has said that the business combination will save $2 billion over 10 years by eliminating jobs and increasing purchasing power. Central South West Power had been based in Dallas.

The three-judge panel of the U.S. Circuit Court of Appeals said that the SEC had failed to adequately explain its conclusion that the merger met the requirement of the Public Utilities Holding Act.

The law, enacted to protect against abuses by large utility holding companies, requires that such companies must be physically interconnected and comprise a single integrated system in order to merge.

The lawsuit, filed by the American Public Power Association and the National Rural Electric Cooperative Association, claimed the AEP-CSW merger did not meet those tests.

"AEP and CSW's systems are neither contiguous nor physically interconnected. ... At their closest point they are separated by hundreds of miles," agreed Judge David Tatel, who wrote the opinion.

The combined company created by the AEP-CSW merger serves customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. The company also has 4 million customers outside the United States through holdings in Australia, Brazil, Britain and China.