UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 19951997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
1-11377 CINERGY CORP. 31-1385023
(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-3543 PSI ENERGY, INC. 35-0594457
(An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(317) 839-9611
2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080
(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
Cinergy Corp. Common Stock New York Stock Exchange
The Cincinnati Gas Cumulative Preferred Stock
& Electric Company 4%, 4 3/4%, 7 3/8%, and
7 7/8% New York Stock Exchange
Junior Subordinated
Debentures 8.28% New York Stock Exchange
PSI Energy, Inc. Cumulative Preferred Stock
4.32%, 4.16%, 6 7/8%,
7.15%, and 7.44% New York Stock Exchange
First Mortgage Bonds
Series S and Y New York Stock Exchange
The Union Light, None
Heat and Power
Company
Securities registered pursuant to Section 12(g) of the Act for Cinergy Corp.,
The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light,
Heat and Power Company: None
Indicate by check mark whether all registrantseach registrant (1) havehas filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants weresuch
registrant was required to file such reports), and (2) havehas been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (x)( )
Requirements pursuant to Item 405 of Regulation S-K are not applicable for The
Union Light, Heat and Power Company.
The Union Light, Heat and Power Company meets the conditions set forth in
General Instruction J(1)I(1)(a) and (b) of Form 10-K and is therefore filing this
Form 10-K with the reduced disclosure format specified in General Instruction
J(2)I(2) of Form 10-K.
As of February 29, 1996,28, 1998, the aggregate market valuesvalue of the voting and nonvoting
common equity of Cinergy Corp. Common
Stock and PSI Energy, Inc. Cumulative Preferred Stock held by non-affiliates
were $4.7 billion and $186 million, respectively.nonaffiliates was $5.4 billion.
Cinergy Corp. is the sole owner of the Common Stock of each of PSI Energy, Inc.
and The Cincinnati Gas & Electric Company. The Union Light, Heat and Power
Company's Common Stock is wholly-owned by The Cincinnati Gas & Electric
Company.
As of February 29, 1996,28, 1998, shares of Common Stock outstanding for each registrant
were as listed:
Company Shares Cinergy Corp., par value $.01 per share 157,676,286157,764,020
The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086
PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701
The Union Light, Heat and Power Company, par value $15.00 per share 585,333
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement of Cinergy Corp. dated March 15, 1996,16, 1998, and the Information
Statement of PSI Energy, Inc. dated March 27, 1996,23, 1998, are incorporated by
reference into Part III of this report.
This combined Form 10-K is separately filed by Cinergy Corp., The Cincinnati Gas
& Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
TABLE OF CONTENTS
Item Page
Number Glossary of TermsNumber
PART I
1 Business
Organization . . . . . . . . . . . . . . . . . . . . . .
CG&E . . . . . . . . . . . . . . . . . . . . . . . . . .
ULH&P. . . . . . . . . . . . . . . . . . . . . . . . . .
PSI. . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments. . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . .
Customer, Sales, and Revenue Data. . . . . . . . . . . .
Financial Information by Business Segment. . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . .
RateRegulatory Matters . . . . . . . . . . . . . . . . . . . . . .
Power Supply . . . . . . . . . . . . . . . . . . . . . .
Fuel Supply. . . . . . . . . . . . . . . . . . . . . . .
Gas Supply . . . . . . . . . . . . . . . . . . . . . . .
Competition. . . . . . . . . . . . . . . . . . . . . . .
Capital Requirements . . . . . . . . . . . . . . . . . .
Environmental Matters. . . . . . . . . . . . . . . . . .
Employees. . . . . . . . . . . . . . . . . . . . . . . .
2 Properties . . . . . . . . . . . . . . . . . . . . . . . .
CG&E . . . . . . . . . . . . . . . . . . . . . . . . . .
PSI. . . . . . . . . . . . . . . . . . . . . . . . . . .
ULH&P. . . . . . . . . . . . . . . . . . . . . . . . . .
Other Utility Subsidiaries . . . . . . . . . . . . . . .
3 Legal Proceedings
Power International LitigationWVPA Settlement Agreement. . . . . . . . . . . . . . Merger Litigation.. .
Manufactured Gas Plant Claims. . . . . . . . . . . . . .
Skinner Landfill Remediation . . . . . . . . . . . . . .
United Scrap Lead Site . . . . . . . . . . . . . . . . .
Enertech Litigation. . .
Shareholder Litigation . . . . . . . . . . . . . . . . .
4 Submission of Matters to a Vote of Security Holders. . . .
Executive Officers of the Registrant . . . . . . . . . . .
PART II
5 Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . . . . .
6 Selected Financial Data. . . . . . . . . . . . . . . . . .
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . .
Index to Financial Statements and Financial Statement
Schedules. . . . . . . . . . . . . . . . . . . . . . . .
7A Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . . .
8 Financial Statements and Supplementary Data. . . . . . . .
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . .
PART III
10 Directors and Executive Officers of the Registrant . . . .
11 Executive Compensation . . . . . . . . . . . . . . . . . .
12 Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . .
13 Certain Relationships and Related Transactions . . . . . .
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Financial Statements and Schedules . . . . . . . . . .
Reports on Form 8-K. . . . . . . . . . . . . . . . . .
Exhibits . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . .
GLOSSARY OF TERMS
The following commonly used abbreviations or acronyms used in the text of this
combined Form 10-K are defined below:
TERM DEFINITION
Cinergy and Certain of its Subsidiaries:
Bruwabel Beheer-En Belegginsmaatschappij Bruwabel B.V., a
subsidiary of Power International
CG&E The Cincinnati Gas & Electric Company, an utility
subsidiary of Cinergy
Cinergy or Company Cinergy Corp.
Costanera Costanera Power Corp., a subsidiary of PSI Argentina,
Inc.
Enertech Enertech Associates International, Inc., a subsidiary
of Investments
Investments Cinergy Investments, Inc., a subsidiary of Cinergy
KO Transmission KO Transmission Company, a subsidiary of CG&E
Lawrenceburg Lawrenceburg Gas Company, an utility subsidiary of CG&E
PESCO Power Equipment Supply Co., a subsidiary of Investments
Power International Power International, Inc., a subsidiary of Investments
PSI PSI Energy, Inc., an utility subsidiary of Cinergy
Resources PSI Resources, Inc., PSI's previous parent holding
company
Services Cinergy Services, Inc., a subsidiary of Cinergy
ULH&P The Union Light, Heat and Power Company, a Kentucky
utility subsidiary of CG&E
Wholesale Power Wholesale Power Services, Inc., a subsidiary of
Investments
Certain of Cinergy's Generating Stations:
Gibson Gibson Generating Station
Woodsdale Woodsdale Generating Station
Zimmer William H. Zimmer Generating Station
Certain of Cinergy's Regulatory Orders:
April 1990 Order An IURC order issued in April 1990
August 1993 Order A PUCO order issued in August 1993
December 1993 Order An IURC order issued in December 1993
February 1995 An IURC order issued in February 1995
Order
June 1987 Order An IURC order issued in June 1987
May 1992 Order A PUCO order issued in May 1992
Merger Order The FERC's order approving the merger of CG&E and
Resources to form Cinergy
Regulatory Authorities:
CAAA Clean Air Act Amendments of 1990
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
EPA The Environmental Protection Agency
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
IDEM Indiana Department of Environmental Management
IURC Indiana Utility Regulatory Commission
KPSC Kentucky Public Service Commission
mega-NOPR FERC's Notice of Proposed Rulemaking Promoting Wholesale
Competition Through Open Access Non-discriminatory
Transmission Services by Public Utilities
Order 636 FERC order regarding gas purchases and transportation
PUCO Public Utilities Commission of Ohio
PUHCA Public Utility Holding Company Act of 1935
SEC Securities and Exchange Commission
Statement 71 Statement of Financial Accounting Standards No. 71,
Accounting for the Effects of Certain Types of
Regulation
Statement 87 Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions
Statement 121 Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of
Other Organizations:
AEP American Electric Power Company, Inc.
CFC National Rural Utilities Cooperative Finance
Corporation
East Kentucky East Kentucky Power Cooperative, Inc.
IBEW International Brotherhood of Electrical Workers
IGC Indiana Gas Company, Inc., formerly Indiana Gas and
Water Company, Inc.
IMPA Indiana Municipal Power Agency
IPALCO IPALCO Enterprises, Inc.
IUU Independent Utilities Union
Moody's Moody's Investors Service
NIPSCO Northern Indiana Public Service Company
RUS Rural Utilities Service, previously called the Rural
Electrification Administration
S&P Standard & Poor's
UCC The Indiana Office of the Utility Consumer Counselor
USWA United Steelworkers of America
WVPA Wabash Valley Power Association, Inc.
Miscellaneous Terms:
AFUDC Allowance for funds used during construction
APBO Accumulated Postretirement Benefit Obligation
Clean Coal Project Wabash River Clean Coal Project, a 262-megawatt clean
coal power generating facility, located at PSI's
Wabash River Generating Station
Committed Lines Unsecured lines of credit
CWIP Construction work in progress
DSM Demand-side management
kwh Kilowatt-hour
M&R Fund Maintenance and Replacement Fund
Mcf Thousand cubic feet
Merger Agreement Amended and Restated Agreement and Plan of
Reorganization
Merger Costs Merger transaction costs and costs to achieve merger
savings
MGP Manufactured gas plant
mw Megawatt
Non-fuel Merger Electric non-fuel operation and maintenance expense
Savings savings from the merger
PRP Potentially Responsible Party
Stock Option Plan Cinergy's Stock Option Plan
Uncommitted Lines Short-term borrowings with various banks on an "as
offered" basis
PART I
ITEM 1. BUSINESS
Cinergy, CG&E, PSI, and ULH&P
Organization
Cinergy Corp., a Delaware corporation (Cinergy or Company), is a registered
holding company under the PUHCA.Public Utility Holding Company Act of 1935 (PUHCA).
Cinergy was created in the October 1994 merger of PSI Resources, Inc.
(Resources) and CG&E.
The business combination was accounted for as a pooling of interests.Cincinnati Gas & Electric Company (CG&E). Following the
merger, Cinergy became the parent holding company of PSI Energy, Inc. (PSI),
previously Resources' utility subsidiary, CG&E, Cinergy Investments, Inc.
(Investments), and Services.Cinergy Services, Inc. (Services).
Cinergy's two utility subsidiaries, CG&E and PSI, account for substantially
allthe majority of
Cinergy's total operating revenues and Cinergy's total assets.
Cinergy, CG&E, and ULH&P
CG&E
CG&E, an Ohio corporation, is a combination electric and gas public utility
company with fourfive wholly-owned utility subsidiaries, ULH&P,The Union Light, Heat and
Power Company (ULH&P), Miami Power Corporation, an Indiana corporation (Miami),
The West Harrison Gas and Electric Company (West Harrison), an Indiana
corporation, KO Transmission Company (KO Transmission), and Lawrenceburg.Lawrenceburg Gas
Company (Lawrenceburg), an Indiana corporation. In addition, CG&E has twoone
wholly-owned non-
utility subsidiaries, KO Transmission andnon-utility subsidiary, Tri-State Improvement Company (Tri-
State)(Tri-State).
CG&E and its utility subsidiaries are engaged in the production, transmission,
distribution, and sale of electric energy and/or the sale and transportation of
natural gas in the southwestern portion of Ohio and adjacent areas in Kentucky
and Indiana. The area served with electricity, gas, or both covers approximately
3,000 square miles, has an estimated population of 1.8two million people, and
includes the cities of Cincinnati and Middletown in Ohio, Covington and Newport
in Kentucky, and Lawrenceburg in Indiana.
KO Transmission, a Kentucky corporation, will be used to acquireacquired an interest in an interstate
natural gas pipeline in June 1996, to which CG&E iswas entitled as a result of a
settlement with the Columbia Gas Transmission Corp. KO Transmission will beis engaged
in the transportation of natural gas in interstate commerce between Kentucky and
Ohio.
Tri-State, an Ohio corporation, is devoted to acquiring and holding property in
Ohio, Kentucky, and Indiana for substations, electric and gas rights of way,
office space, and other uses in CG&E's and its subsidiaries' utility
operations.
ULH&P
ULH&P, a Kentucky corporation, is engaged in the transmission, distribution, and
sale of electric energy and/orand the sale and transportation of natural gas in
northern Kentucky. The area served with electricity, gas, or both covers
approximately 500 square miles, has an estimated population of 292,000319 thousand
people, and includes the cities of Covington and Newport in Kentucky.
Cinergy and PSI
PSI
PSI, an Indiana corporation, is engaged in the production, transmission,
distribution, and sale of electric energy in north central, central, and
southern Indiana. It serves an estimated population of two2.1 million people
located in 69 of the state's 92 counties including the cities of Bloomington,
Columbus, Kokomo, Lafayette, New Albany, and Terre Haute.
PSI Energy Argentina, Inc. (PSI Energy Argentina), a wholly-owned subsidiary of
PSI and an Indiana corporation, was formed to invest in foreign utility
companies. PSI Energy Argentina is a member of a multinational consortium which
has controlling ownership of Edesur S.A. (Edesur). Edesur is an
electricity-distribution network serving the southern half of Buenos Aires,
Argentina. Edesur provides distribution services to 2.1 million customers. PSI
Energy Argentina owns a small equity interest in this project and provides
operating and consulting services.
South Construction Company, Inc. (South Construction), a wholly-owned subsidiary
of PSI and an Indiana corporation, has been used solely to hold legal title to
real estate and interests in real estate which are either not used and useful in
the conduct of PSI's business (such as undeveloped real estate of PSI abutting a
PSI office building) or which hashave some defect in title which is unacceptable to
PSI. Most of the real estate to which South Construction acquires title relates
to PSI's utility business.
Cinergy
Investments
Investments, a Delaware corporation, is a non-utility subholding company that
was formed to operate Cinergy's domestic non-utility and international
businesses and interests. Investments holds the following active non-utility
subsidiaries and interests, which are more fully described below: Cinergy-
Cadence, Inc.; Cinergy Capital & Trading, Inc. (Capital & Trading); Cinergy
Communications, Inc. (Communications); Cinergy Engineering, Inc. (Engineering);
Cinergy Global Power, International, formerly Enertech,
its direct subsidiary, Bruwabel, and its indirect subsidiaries, Power
International s.r.o. and Power Development s.r.o.Inc. (Cinergy Global); Cinergy Resources, Inc. (Cinergy Resources), formerly CG&E Resource Marketing,(CRI);
Cinergy Supply Network, Inc. (Supply); CGE ECK,Cinergy Solutions, Inc. (CGE ECK) and its interest in ECK s.r.o.(Solutions); PSI Recycling, Inc. (Recycling);
PESCO; Wholesale Power; PSI Argentina, Inc. (PSI Argentina) and its
subsidiary, Costanera;
Cinergy Technology, Inc. (Technology), formerly PSI
Environmental Corp.; Cinergy UK, Inc. (Cinergy UK); and
Enertech Associates, Inc. (Enertech).
Cinergy-Cadence, Inc., an Indiana corporation, is dedicated solely to holding
Investment's one-third ownership interest in Cadence Network LLC (Cadence).
Cadence was formed in the third quarter of 1997 as a joint venture with New
Century Energies, Inc. and Florida Progress Corporation to provide a single
source for both energy management services and products designed to lower energy
costs for national customers that operate in multiple locations across the
country. These services include consolidated billing, bill auditing, and usage
analysis. Cadence commenced operations in the third quarter of 1997.
Capital & Trading, an Indiana corporation, was formed to engage in the business
of marketing power, electricity futures, and trading related energy products and
services and to provide consulting services in the wholesale power-related
markets. In June 1997, Capital & Trading acquired the assets and personnel of
Greenwich Energy Partners, which specialized in energy risk management,
marketing, and proprietary arbitrage trading.
Communications, a Delaware corporation, is an exempt telecommunications company
engaged or planning to be engaged in a variety of telecommunications activities
including, but not limited to: right-of-way leasing, fiber installation, and
radio tower construction and leasing.
Engineering, an Ohio corporation, provides engineering designs and engineering
technical support in connection with various energy-related projects and
proposals.
Cinergy Global, a Delaware corporation, holds substantially all of the equity of
MPII (Zambia) B.V., a Netherlands company, which in turn, holds a 39% equity
interest in Copperbelt Energy Corporation PLC (CEC), a corporation organized
under the laws of the Republic of Zambia. CEC holds certain electric generation,
transmission, and distribution assets formerly held by the Republic of Zambia
through the Power Division of Zambia Consolidated Copper Mines Limited.
Cinergy Global also owns all of the equity of MPI International Limited (MPI
International), a United Kingdom (UK) company. During the third quarter of 1997,
MPI International assumed ownership of all of the projects in development and
all future projects of Midlands Power International, a subsidiary of Midlands
Electricity plc (Midlands) which is discussed below. Cinergy Global, through MPI
International, will acquire and/or develop energy projects throughout the world.
CRI, a Delaware corporation, was formed to hold CG&E's interest in U.S. Energy
Partners, a gas marketing partnership that was dissolved effective September 1,
1995. Upon dissolution, CRI took its portion of the partnership assets to
continue in the gas marketing business. CRI competes with traditional, regulated
local distribution companies by offering "merchant service" (i.e., acquiring
natural gas for resale to end-use customers) and brokers gas to industrial and
large commercial customers.
Recently, CRI expanded its business to include retail marketing of electricity.
CRI is participating in a pilot program in Pennsylvania under which electric
customers throughout the state will have the right to choose their electricity
supplier. CRI began delivering power to Pennsylvania customers in December 1997.
Solutions, a Delaware corporation, was formed to market an array of
energy-related products and services and develop, acquire, own, and operate
certain energy-related projects. Solutions holds a 50% interest in
Trigen-Cinergy Solutions LLC, a Delaware limited liability company
(Trigen-Cinergy). Trigen- Cinergy was formed to build, own, and operate
cogeneration and trigeneration facilities for industrial plants, office
buildings, shopping centers, hospitals, universities, and other major energy
users that can benefit from combined heat and power production economies.
Trigen-Cinergy will also provide energy and asset management services, including
fuel procurement, ancillary to its activities.
Solutions also holds a 51% interest in Trigen-Cinergy Solutions of Cincinnati
LLC, an Ohio limited liability company (Trigen-Cinergy Cincinnati), which was
formed in the third quarter of 1997. Effective August 1997, Cinergy Cooling
Corp. (CoolCo)was merged with and into Trigen-Cinergy Cincinnati, with Trigen-Cinergy
Cincinnati being the surviving company jointly owned by Solutions (51%) and
Trigen Solutions, Inc. (49%). Trigen-Cinergy Cincinnati has an exclusive
franchise from the City of Cincinnati which permits it to maintain and operate a
chilled water system in the downtown business district of Cincinnati, Ohio.
Supply, a Delaware corporation, was formed in January 1998 to broker
transmission and distribution materials and services and to provide underground
utility facilities location services.
Technology, an Indiana corporation, was created to manage certain existing
technology-related investments of Cinergy, assess the market potential for
technology-related product and service development opportunities, and form key
alliances for technology-related product development.
Cinergy UK, a Delaware corporation, was formed to hold Cinergy's 50% interest in
Avon Energy Partners Holdings, a UK unlimited liability company, and its wholly
owned subsidiary, Avon Energy Partners PLC, a UK limited liability company
(collectively, Avon Energy). During 1996, Avon Energy acquired all of the
outstanding common stock of Midlands, a UK regional electric company. Midlands
primarily distributes and supplies electricity to over 2.2 million industrial,
commercial, and residential customers. In addition, Midlands, together with its
subsidiaries, generates power, supplies natural gas to retail customers, and
performs electrical contracting services. (See Note 1(e) of the "Notes to
Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
Enertech was incorporated in Ohio in 1992 as a vehicle for CG&E to offer utility
management consulting services and to pursue investment opportunities in
energy-related areas, including DSMdemand-side management (DSM) services,
consulting, energy and fuel brokering, engineering services, construction and/or
operation of generation, cogeneration, independent power production facilities,
and project development. In July 1994, Enertech acquired Beheer-En
Belegginsmaatschappij Bruwabel B.V. (Bruwabel) and its subsidiaries for the
purpose of pursuing design, engineering, and development work involving energy
privatization projects, primarily in the Czech Republic. Subsequently, Enertech changedIn June 1996,
Investments sold what remained of its name to Power International. While an
officeinvestment in the Czech Republic is still being maintained, activities in the
Czech Republic and elsewhere have been reduced. Currently, Investments is
exploring opportunities to sell Bruwabel and its
subsidiaries and their assets, including the Vytopna Kromeriz Heating Plant
which was acquired by Power Development s.r.o. in 1995. (See Note 13(d)12(d) of the
"Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data".Data.")
Cinergy Resources, a Delaware corporation,PSI Recycling, Inc. (Recycling) was formed to hold CG&E's interest
in U.S. Energy Partners, a gas marketing partnership that was dissolved
effective September 1, 1995. Upon dissolution, Cinergy Resources took its
portion of the partnership assets to continue in the gas marketing business.
Cinergy Resources will compete with traditional, regulated local distribution
companies by offering "merchant service" (i.e., acquiring natural gas for
resale to end-use customers) and will broker gas to industrial and large
commercial customers.
CGE ECK, a Delaware corporation, was formed to hold an investment in ECK
s.r.o., a Czech limited liability company which owns and operates a generating
facility in the Czech Republic. At present, CGE ECK holds an approximate 3%
interest in ECK s.r.o. and intends to dispose of that interest.
Recycling is an Indiana corporation which recyclesrecycled metal
from CG&E and paper, metal, and other materials from PSI, its largest single
supplier, and other sources. Investments is actively pursuingsold the saleassets of Recycling.
PESCORecycling in August
1996. Recycling was dissolved effective December 31, 1997.
Power Equipment Supply Co. (PESCO) was incorporated in Indiana to sell equipment
and parts from a PSI generating plant which was canceled, the Marble Hill
Nuclear Project. PESCO also purchased equipment for resale, brokered equipment,
and sold equipment on consignment for others. In late 1995 andPESCO discontinued operations in
early 1996 PESCO sold its remaining
assets and is in the process of discontinuing operations.
Wholesale Power, an Indianawas dissolved effective December 31, 1997.
CGE ECK, Inc., a Delaware corporation (CGE ECK), was formedcreated to engage in the business
of brokering power, emission allowances, electricity futures, and related
products and services and to provide consulting services in the wholesale
power-related markets. In addition, Wholesale Power was formed to create,
market, and maintain the services of an "electronic bulletin board" for the
bulk power market. The use of the electronic bulletin board was limited in
1995 and is being phased out in 1996.
PSI Argentina was formed as an Indiana corporation to, among other things, own
foreign generating facilities. In 1995, Costanera, a wholly-owned subsidiary
of PSI Argentina, sold its equityhold CG&E's
one-third interest in a Czech electric utility company, ECK s.r.o. After the
Cinergy merger, CGE ECK reduced its only investment, the 1,260-
mw Costanera power plantownership interest in Buenos Aires, Argentina. Costanera had obtainedECK s.r.o. In mid-
1997, CGE ECK sold what remained of its interest in the plant as a member of a multi-national consortium which has
controlling ownership of the plant.
Technology, an Indiana corporation,ECK s.r.o. and was created to manage Cinergy's existing
non-regulated, technology-related investments, assess the market potential for
non-regulated product and service development opportunities, and form key
alliances for non-regulated product development.
CoolCo, incorporated in Ohio in February 1996, was formed to engage in the
district cooling business. The City of Cincinnati awarded a non-exclusive
franchise that will permit CoolCo to construct, install, maintain, and operate
a chilled water system in the downtown business district of Cincinnati, Ohio.
Construction of such system is expected to begin in the first half of 1996.dissolved
effective December 31, 1997.
Cinergy, CG&E, PSI, and ULH&P
Services
Services, a Delaware corporation, is the service company for the Cinergy system,
providing member companies with a variety of administrative, management, and
support services.
Cinergy, CG&E, PSI, and ULH&P
Customer, Sales, and Revenue Data
The number of customers served at year-end and the percent of operating revenues
derived from the sale of electricity and the sale and transportation of natural
gas for each registrant for 19951997 are as follows:
Operating
Customers Revenues
Registrant Electric Gas Electric Gas
Cinergy and subsidiaries 1,369,043 439,427 85% 13%1 412 552 456 651 88% 11%
CG&E and subsidiaries 719,227 439,427 77% 22%737 502 456 651 79% 20%
PSI 649,816675 052 N/A 98% N/A
ULH&P 113,874 73,680 72% 27%117 835 77 944 70% 29%
Cinergy's utilities' service territory spans 86 counties in Ohio, Indiana, and
Kentucky and includes approximately 840 cities, towns, unincorporated
communities, and adjacent rural areas, including municipal utilities and rural
electric cooperatives.
The service territory of CG&E and its utility subsidiaries, including ULH&P, is
heavily populated and characterized by a stable residential customer base and a
diverse mix of industrial customers. CG&E's and its utility subsidiaries'
service territory spans 19 counties in Ohio, Indiana, and Kentucky (of which
ULH&P serves six counties in Kentucky) and includes approximately 130 (44 for
ULH&P) cities, towns, unincorporated communities, and adjacent rural areas,
including municipal utilities and rural electric cooperatives. The area served
by PSI is a residential, agricultural, and widely diversified industrial
territory. PSI's service territory includes approximately 710 cities, towns,
unincorporated communities, and adjacent rural areas, including municipal
utilities and rural electric cooperatives. No one customer accounts for more
than 5%6% of operating revenues for PSI, 5% of electric or gas operating revenues
for CG&E and its utility subsidiaries, or 10% of electric or gas operating
revenues for ULH&P. Sales of electricity and gas sales and transportation are
affected by seasonal weather patterns, and, therefore, operating revenues and
associated operating expenses are not distributed evenly during the year.
Cinergy, CG&E, and ULH&P
Financial Information by Business Segment
For financial information by business segment, see Note 1615 of the "Notes to
Financial Statements" in "Item 8. Financial Statements and Supplementary
Data".Data." For a discussion of the potential divestiture of CG&E's, including
ULH&P's, gas operations, see Note 13(f)12(f) of the "Notes to Financial Statements"
in "Item 8. Financial Statements and Supplementary Data".Data."
Regulation
Cinergy, CG&E, PSI, and ULH&P
Cinergy, its utility subsidiaries, and certain of its non-utility subsidiaries
are subject to regulation by the SECSecurities and Exchange Commission (SEC) under
the PUHCA with respect to, among other things, issuances and sales of
securities, acquisitions and sales of certain utility properties, acquisitions
and retentions of interests in non-
utilitynon-utility businesses, intrasystem sales of
certain goods and services, the method of keeping accounts, and access to books
and records. In addition, the PUHCA generally limits registered holding
companies to a single "integrated" public utility system, which the SEC
traditionally has interpreted to prohibit a registered holding company, with
limited exceptions, from owning both gas and electric properties. (Refer to the
information appearing under the captions "Repeal of the PUHCA" in the
"Competitive Pressures" section and "Potential Divestiture of Gas Operations" in
the "Regulatory Matters" section in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations". and to Note 1(f) of
the "Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data.")
CG&E, ULH&P, Miami, and PSI are each subject to regulation by the FERCFederal Energy
Regulatory Commission (FERC) under the Federal Power Act with respect to the
classification of accounts, rates for wholesale sales of electricity,
interconnection agreements, and acquisitions and sales of certain utility
properties. In addition, services by KO Transmission will beare rendered in accordance
with terms and conditions and at rates contained in a gas tariff filed with the
FERC. Transportation of gas between CG&E and ULH&P by KO Transmission is subject
to regulation by the FERC under the Natural Gas Act.
Cinergy, CG&E, and ULH&P
CG&E, as a public utility under the laws of Ohio, is also subject to regulation
by the PUCOPublic Utilities Commission of Ohio (PUCO) as to retail electric and gas
rates, services, accounts, depreciation, issuance of securities, acquisitions
and sales of certain utility properties, and in other respects as provided by
Ohio law. Rates within municipalities in Ohio are subject to original regulation
by the municipalities. The Ohio Power Siting Board a division of the PUCO, has jurisdiction in Ohio over
the location, construction, and initial operation of new electric generating
facilities and certain electric and gas transmission lines presently utilizedused by
CG&E. As to retail rates and other matters, ULH&P is regulated by the KPSC,Kentucky
Public Service Commission, and West Harrison and Lawrenceburg are regulated by
the IURC.Indiana Utility Regulatory Commission (IURC).
Cinergy and PSI
PSI, as a public utility under the laws of Indiana, is also regulated by the
IURC as to its retail rates, services, accounts, depreciation, issuance of
securities, acquisitions and sales of certain utility properties, and in other
respects as provided by Indiana law. Prior to the construction, purchase, or
lease of a facility used for the generation of electricity, a public utility in
Indiana must obtain from the IURC a certificate of public convenience and
necessity.
Cinergy, CG&E, PSI, and ULH&P
RateRegulatory Matters
Refer to the information appearing under the caption "Regulatory Matters" in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations".Operations."
Power Supply
Cinergy, CG&E, PSI, and ULH&P
CG&E, PSI,Cinergy and 27 other electric utilities in an eight-state arearegion are participating in the
East Central Area Reliability Coordination Agreement for the purpose of
coordinating the planning and operation of generating and transmission
facilities to provide for maximum reliability of regional bulk power supply.
(Refer to the information appearing under the caption "Cinergy's Response to the Changing Competitive Environment""Midwest ISO" in the
"Competitive Pressures" section of "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a discussion of Cinergy's
involvement in a coalition for operation of a regional transmission system.)
In addition to thean intercompany tie between CG&E's and PSI's electric systems,
Cinergy's electric system, which is operated by Services, is interconnected with
the electric systems of Indiana Michigan Power Company, Columbus and
Southern Ohio ElectricPower
Company, Ohio Power Company (all doing business as AEP)American Electric Power
Company, Inc. (AEP)), Central Illinois Public Service Company, East Kentucky
Power Cooperative, Hoosier Energy Rural Electric Cooperative, Inc., Indianapolis
Power and Light Company, Kentucky Utilities Company, Louisville Gas & Electric
Company (LG&E), NIPSCO,Northern Indiana Public Service Company, Southern Indiana Gas
and Electric Company, The Dayton Power and Light Company, and Ohio Valley
Electric Corporation,Corporation.
Cinergy and Tennessee Valley Authority.
Cinergy, CG&E, and PSI
CG&E and East Kentucky have an agreement for the interchange of electric
power, subject to availability, during certain times of the year through March
2000. Under the agreement, CG&E, a summer peaking company, has the right to
obtain up to 150 mw of electricity through March 31, 1997, and up to 50 mw
from April 1, 1997, through March 31, 2000, from East Kentucky during the
months of June, July, and August. East Kentucky, a winter peaking company,
has the right to receive up to 150 mw through March 31, 1997, and up to 50 mw
from April 1, 1997, through March 31, 2000, from CG&E in December, January,
and February. In addition,
PSI has a power supply relationship with WVPAWabash Valley Power Association, Inc.
(WVPA) and IMPAIndiana Municipal Power Agency (IMPA) through power coordination
agreements. WVPA and IMPA are also parties with PSI to a joint transmission and
local facilities agreement.
Cinergy, CG&E, and ULH&P
ULH&P does not own or operate any electric generating facilities. Its
requirements for electric energy are purchased primarily from CG&E at rates
regulated by the FERC.
Fuel Supply
Cinergy
Cinergy purchases approximately 2325 million tons of coal annually for use by CG&E
and PSI, which historically would rank Cinergy as the sixth largest utility coal
purchaser in the United States.
Cinergy, CG&E, and PSI
A major portion of the coal required by CG&E and PSI is obtained through both
long- and short-term coal supply agreements, with the remaining requirements
purchased on the spot market. The prices to be paid under most of these
contracts are subject to adjustment. In addition, some of these agreements
include extension options and termination provisions pertaining to coal quality.
The coal delivered under these contracts is primarily from mines located in
Indiana, Illinois, Indiana,Pennsylvania, and PennsylvaniaWest Virginia for PSI and West Virginia,
Ohio, Kentucky,
West Virginia, and Pennsylvania for CG&E.
CG&E and PSI monitor alternative sources to assure a continuing availability of
economical fuel supplies. The companies intend to maintain the practice of
purchasing a portion of their coal requirements on the spot market and will
continue to investigate the least cost coal options in connection with their
compliance with the CAAA (seeClean Air Act Amendments of 1990. (See the information
appearing under the caption "Environmental Issues" in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"Operations.").
The companies believe they will be able to obtain sufficient coal to meet future
generating requirements. However, both CG&E and PSI are unable to predict the
extent to which coal availability and price may ultimately be affected by future
environmental requirements. Presently, CG&E and PSI expect the cost of coal to
rise in the long run as the supply of more accessible and higher-grade coal
diminishes and as mining, transportation, and other related costs continue an
upward trend.
Cinergy, CG&E, and ULH&P
Gas Supply
Order 636 restructured the operations of gas pipelines and the supply
portfolios of gas distribution companies. As gas pipelines unbundled their
historic service of supply aggregation, gas distribution companies are
entering into term (one year or more) contracts directly with producers and
marketers, diminishing the once prominent spot market (see the information
appearing under the caption "Order 636" in the "Competitive Pressures" section
of "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations").In 1997, CG&E and its utility subsidiaries, including ULH&P, now obtain the majoritypurchased 44% of
their natural gas supply (91%) from firm supply agreements, with remaining volumes
purchased in the spot market. These firm contracts feature dual levels of gas
supply: base load for continuous supply for CG&E's and its utility subsidiaries'
core requirements, and "swing" load, which is gas available on a daily basis to
accommodate changes in demand. While a premium
is paidCG&E pays reservation charges for firm base and
swing supplies. These charges guarantee delivery from the supplier during
extreme weather and protect the supplier from fluctuations in daily prices
associated with swing load,supplies.
As the usetrend of industry indices to price firmcustomers purchasing gas volumes on a monthly basis ensures that the pricedirectly from gas marketers (suppliers)
and using CG&E's facilities for transportation increases, CG&E and its
utility
subsidiaries pay remains economically competitive.seek to minimize contract commitment costs to firm suppliers, and
reduce the amount of reservation charges paid to suppliers for firm supply.
Accordingly, CG&E and its subsidiaries anticipate purchasing approximately 50%
of their gas supply in the spot market and 50% from firm supply agreements in
1998.
Gas purchased by CG&E and its subsidiaries is transported on interstate
pipelines either directly to CG&E's and its subsidiaries' distribution systems,
or it is injected into pipeline storage facilities for withdrawal and delivery
in the future. Most of CG&E's and its utility subsidiaries' gas supplies
are sourcedoriginate from the Gulf of Mexico coastal area.area of Texas and Louisiana. CG&E and
its subsidiaries have also obtained a limited supply sourcedoriginating from the
Appalachian region and the mid-continent (Arkansas - Oklahoma) basin, and from
methane gas recovered from an Ohio landfill. Over the long term,long-term, natural gas is
expected to retain its price competitiveness with alternative fuels;
however, the costs of discoveryfuels. However,
weather conditions, supply, demand, and development of new sources of supply,,
among other things, will influence prices.storage inventories can cause
significant price fluctuations.
Cinergy, CG&E, PSI, and ULH&P
Competition
Refer to the information appearing under the caption "Competitive Pressures" in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations".Operations."
Cinergy, CG&E, PSI, and ULH&P
Capital Requirements
Refer to the information appearing under the caption "Capital Requirements" in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations".Operations."
Cinergy, CG&E, and PSI
Environmental Matters
Environmental compliance construction expenditures for 19961998 for Cinergy and its
subsidiaries are forecasted to be as follows:
Registrant Expenditures
(in thousands)
CG&E and subsidiaries $309$3 742
PSI 513 387
Cinergy and subsidiaries $360$7 129
In addition, refer to the information appearing under the caption "Environmental
Issues" in "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations".Operations."
Employees
Cinergy
The number of employees of Cinergy and its subsidiaries at December 31, 1995,1997,
was 8,602,7,609, of whom 4,8594,312 belonged to bargaining units. These bargaining unit
employees were represented by labor agreements between CG&E and its
subsidiaries, including ULH&P, or PSI and the applicable union organization. Of
Cinergy's total employees, 3,2362,825 employees were represented by the IBEW,
466International
Brotherhood of Electrical Workers (IBEW), 407 were represented by the USWA,United
Steelworkers of America (USWA), and 1,1571,080 were represented by the IUU. (For
additional information, See Note 13(g) of the "Notes to Financial Statements"
in "Item 8. Financial Statements and Supplementary Data"Independent
Utilities Union (IUU).)
Employees assigned to Services at December 31, 1995,1997, totaled 2,739,3,028, of whom 922831
belonged to bargaining units. These bargaining unit employees were represented
by the labor agreements previously discussed. Of Services' total employees, 455540
were represented by the IUU, 1 was represented by the USWA, and 467290 were
represented by the IBEW (158(112 were represented by the agreement with PSI and 309178
were represented by the agreement with CG&E).
Employees assigned to Cinergy Resources at December 31, 1997, totaled 13
non-union employees.
Cinergy and CG&E
The number of employees of CG&E and its subsidiaries at December 31, 1995,1997, was
3,056,2,537, of whom CG&E employed 2,759,2,292, ULH&P employed 284,236, and Lawrenceburg
employed 13.9.
CG&E and its subsidiaries have collective bargaining agreements with several
union organizations. Of CG&E's and its subsidiaries' total employees, 702
employees540 were
represented by the IUU, 466406 were represented by the USWA, and 1,2141,177 were
represented by the IBEW. The current contract between CG&E and the IUU will
expire in March 1998.April 2001. CG&E and its subsidiaries have a three-year
contract with the USWA
expiring May 15, 1997.2002. The IBEW contract expires April 1, 1997.2001.
Cinergy and PSI
The number of employees of PSI at December 31, 1995,1997, was 2,807,2,030, of whom 1,5551,358
were represented by the IBEW.
PSI's collective bargaining agreement with the IBEW will expire at the end of
April 1996.1999.
Cinergy and ULH&P
The number of employees of ULH&P at December 31, 1995,1997, was 284,236, of whom 228209
belonged to bargaining units. These bargaining unit employees were represented
by the same labor agreements between CG&E and the applicable union organization.
Of ULH&P's total employees, 5861 employees were represented by the IBEW, 10491 were
represented by the USWA, and 6657 were represented by the IUU.
The current contract between ULH&P and the IUU will expire in March 1998.April 2001. ULH&P
has three-year agreements with the USWA and IBEW that will expire May 15, 1997,2002, and April
1, 1997,2001, respectively.
ITEM 2. PROPERTIES
Cinergy, CG&E, PSI, and ULH&P
Substantially all utility plant is subject to the lien of each applicable
company's first mortgage bond indenture.
In addition to the information discussed herein, refer to Note 1413 of the "Notes
to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data".Data."
Cinergy, CG&E, and PSI
At December 31, 1995,1997, the Cinergy utility subsidiaries owned electric generating
plants, or portions thereof in the case of jointly owned plants, with net
capabilities (winter ratings) as shown in the following table:
Net
Percent Principal Capability
Plant Name Location Ownership Fuel Source megawatts (mw)
CG&E
Steam Electric Generating Plants:
Miami Fort Station (Units 5&6) North Bend, Ohio 100.00% Coal 243
Miami Fort Station (Units 7&8) North Bend, Ohio 64.00 Coal 640
W.C. Beckjord Station (Units 1-5) New Richmond, Ohio 100.00 Coal 704
W.C. Beckjord Station (Unit 6) New Richmond, Ohio 37.50 Coal 158
J.M. Stuart Station Aberdeen, Ohio 39.00* Coal 913
Killen Station Adams County, Ohio 33.00* Coal 198
Conesville Station Conesville, Ohio 40.00* Coal 312
William H. Zimmer Generating
Station Moscow, Ohio 46.50 Coal 605
East Bend Station Boone County, Kentucky 69.00 Coal 414
Combustion Turbines:
Dicks Creek Station Middletown, Ohio 100.00 Gas 172
Miami Fort Gas Turbine Station North Bend, Ohio 100.00 Oil 20778
W.C. Beckjord Gas Turbine Station New Richmond, Ohio 100.00 Oil 245
Woodsdale Generating Station Butler County, Ohio 100.00 Gas 564
PSI
Steam Electric Generating Plants:
Gibson Generating Station:
(Units 1-4) Princeton, Indiana 100.00 Coal 2,533
Gibson2,532
(Unit 5) Princeton, Indiana 50.05 Coal 313
Wabash River Station Terre Haute, Indiana 100.00 Coal 668
Cayuga Station Cayuga, Indiana 100.00 Coal 1,005
R.A. Gallagher Station New Albany, Indiana 100.00 Coal 560
Edwardsport Station Edwardsport, Indiana 100.00 Coal 160
Noblesville Station Noblesville, Indiana 100.00 Coal 90
Combustion Turbines:
Cayuga Combustion Turbine Cayuga, Indiana 100.00 Gas 120
Wabash River Coal Gasification
Project Terre Haute, Indiana 100.00 Coal 262
Internal Combustion Units:
Connersville Peaking Station Connersville, Indiana 100.00 Oil 98
Miami-Wabash Peaking Station Wabash, Indiana 100.00 Oil 104
Cayuga Peaking Units Cayuga, Indiana 100.00 Oil 11
Wabash River Peaking Units Terre Haute, Indiana 100.00 Oil 8
Hydroelectric Generating Station:
Markland Generating Station Markland Dam, Ohio
River 100.00 Water 45
* Station is not operated by CG&E.
Cinergy and CG&E
CG&E
CG&E's 19951997 peak load (exclusive of off-system transactions), which occurred on
August 14 andJuly 28, was exclusive of off-
system transactions, was 4,5094,638 mw. For the period 19961998 through 2005,2007, peak load and
kwhkilowatt-hour (kwh) sales are each forecasted to have annual growth rates of 2%.
These forecasts reflect CG&E's load growth, alternative fuel choices, population
growth, and housing starts. These forecasts exclude an assessment
of DSM, non-firm power transactions
and any potential off-system, long-term firm power sales.
As of December 31, 1995,1997, CG&E's transmission system consisted of 388 circuit
miles of 345,000 volt line, 605618 circuit miles of 138,000 volt line, 512523 circuit
miles of 69,000 volt line, and 117116 circuit miles of lesser volt line, all within
the states of Ohio and Kentucky. In addition, as of December 31, 1995,1997, CG&E's
distribution system consisted of 14,55614,736 circuit miles, all within the state of
Ohio. As of the same date, CG&E's transmission substations had a combined
capacity of 14,845,00014,845,106 kilovolt-amperes, and the distribution substations had a
combined capacity of 5,964,0005,951,348 kilovolt-amperes. A portion of CG&E's total
transmission system is jointly owned, primarily in connection with its jointly
owned electric generating units.
During 1995,1997, almost all of the electricity generated by units owned by CG&E or
in which it has an ownership interest was produced by coal-fired generating
units. Those units generate most of the electric requirements of CG&E and its
utility subsidiaries.
CG&E owns two propane/air peakshaving plants. Associated with these plants are
two underground caverns, one with a seven million gallon capacity and one with
an eight million gallon capacity. Both plants and storage caverns are located in
Ohio and are used primarily to augment CG&E's supply of natural gas during
periods of peak demand and emergencies. CG&E also owns natural gas distribution
systems consisting of 5,5065,718 miles of mains and service lines in southwestern
Ohio.
Cinergy and PSI
PSI
PSI's 19951997 peak load (exclusive of off-system transactions), which occurred on
AugustJuly 14, and was exclusive of off-
system transactions, was 5,2745,313 mw. For the period 19961998 through 2005,2007, peak load and kwh sales
are each forecastedforecast to have annual growth rates of 2%. These forecasts reflect
PSI's load growth, alternative fuel choices, population growth, and housing
starts. These forecasts exclude an assessment
of DSM, non-firm power transactions and any potential
off-system, long-term firm power sales.
As of December 31, 1995,1997, PSI's transmission system consisted of 719 circuit
miles of 345,000 volt line, 656 circuit miles of 230,000 volt line, 1,595
circuit miles of 138,000 volt line, and 2,4272,429 circuit miles of 69,000 volt line,
all within the state of Indiana. In addition, as of December 31, 1995,1997, PSI's
distribution system consisted of 19,26419,707 circuit miles, all within the state of
Indiana. As of the same date, PSI's transmission substations had a combined
capacity of 21,608,00021,700,155 kilovolt-amperes, and the distribution substations had a
combined capacity of 6,142,0006,322,409 kilovolt-amperes.
During 1995,1997, almost all of PSI's kwh production was obtained from coal-fired and
hydroelectric generation.
Cinergy, CG&E, and ULH&P
ULH&P
As of December 31, 1995,1997, ULH&P owned 104105 circuit miles of 69,000 volt electric
transmission line, an electric distribution system consisting of 2,5042,516 circuit
miles, and a gas distribution system consisting of 1,2301,307 miles of mains and
service lines in northern Kentucky. ULH&P also owns a propane/air peakshaving
plant, a seven million gallon capacity underground cavern for the storage of
liquid propane, and related liquid propane feeder lines, located in northern
Kentucky and adjacent to one of the gas lines that transports natural gas to
CG&E. The propane/air plant and cavern are used primarily to augment CG&E's and
ULH&P's supply of natural gas during periods of peak demand and emergencies.
Cinergy and CG&E
Other Utility Subsidiaries
As of December 31, 1995,1997, Lawrenceburg owned a gas distribution system consisting
of 171172 miles of mains and service lines in Indiana adjacent to the western part
of CG&E's service area. Lawrenceburg is connected with and sells gas at
wholesale to the city of Aurora, Indiana, and is also connected within Indiana
with the lines of Texas Gas Transmission Corporation and Texas Eastern
Transmission Corporation.
As of December 31, 1995,1997, West Harrison owned a small electric distribution
system consisting of 10 circuit miles in Indiana adjacent to CG&E's service
area. As of the same date, Miami owned 40 miles of 138,000 volt transmission
line connecting the lines of LG&E with those of CG&E.
As of December 31, 1997, KO Transmission owned a 32.67% interest in a 90-mile
interstate natural gas pipeline and a 100% interest in a 2 1/4 mile natural gas
pipeline. KO Transmission transports gas from southeast Kentucky northward to
the service territories of CG&E and ULH&P, their primary customers.
ITEM 3. LEGAL PROCEEDINGS
Cinergy CG&E, and PSI
Power International LitigationWVPA Settlement Agreement
See Note 13(d)12(e) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".
Cinergy, CG&E, and PSI
Merger Litigation
In August 1995, AEP filed a petition in the United States Court of Appeals
for the District of Columbia Circuit for reviewData."
Manufactured Gas Plant Claims
See Note 12(b)(ii) of the FERC's Merger Order.
AEP has objected"Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data."
Cinergy and CG&E
Skinner Landfill Remediation
In the first quarter of 1998, CG&E was notified, by the Allocator in a
Court-mandated alternative dispute resolution (ADR) proceeding, that it had been
identified as a potentially responsible party (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) with respect to
the Merger Order alleging that the post-merger
operationsSkinner Landfill Superfund Site, which is located approximately 15 miles
north of Cinergy would require the use of AEP's transmission
facilities on a continuous basis without compensation. AEP contends that
the FERC, in issuing the Merger Order, did not adequately evaluate the
impact on AEP or whether the need to use AEP's transmission facilities
would interfere with Cinergy achieving merger benefits. In addition, AEP
claims that the FERC failed to evaluate the extent to which the merged
facilities' operations would be consistent with the integrated public
utility concept of the PUHCA. CG&E and PSI have intervened in this action
and have filed a Motion to Dismiss. At this time, Cinergy, CG&E, and PSI
cannot predict the outcome of the appeal.
Cinergy, CG&E, and PSI
Shareholder LitigationCincinnati, Ohio. In March 1993, in conjunction with a proposed tender offer for Resources,
IPALCO filed1997, the Plaintiffs from the underlying
CERCLA litigation brought suit in the United States District Court for the
Southern District of Indiana, IndianapolisOhio, Western Division (District(the Court), against Resources,over 80 PRPs.
In August 1997, the Court entered an order staying the litigation and requiring
all parties to engage in a non-binding, confidential ADR process. The Allocator,
which has been given authority by the Court to identify other parties that may
be responsible for response costs, has informed CG&E that it was identified by a
site owner, operator, or worker as one that had arranged for the disposal of
waste at the landfill and has concluded that a reasonable basis exists for
CG&E's participation in the ADR process. The plaintiffs claim to have expended
almost $2 million in initial response actions at the site and the Allocator has
indicated that the present value of the total site response costs is estimated
at approximately $14 million. CG&E is currently participating in the ADR
process. Based on information currently available, any potential liability
allocated to CG&E would not be material to its financial condition or results of
operations.
United Scrap Lead Site
See Note 12(c) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data."
Cinergy, PSI, CG&E, and James E. Rogers (at that time Mr. Rogers
was an officerPSI
Enertech Litigation
See Note 12(d) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and director of Resources and PSI). In addition, in the
weeks following, suits with claims similar to those of IPALCO were filed by
purported shareholders of Resources. IPALCO's claim was subsequently
dismissed in November 1993, and in November 1995, the District Court
dismissed the shareholders' claims in accordance with the terms of a
settlement agreement entered into by the parties.Supplementary Data."
ULH&P
ULH&P has no material pending legal proceedings.
Cinergy, CG&E, PSI, and ULH&P
In addition to the above litigation, see Notes 2, 13(b)"Regulatory Matters" in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Notes 12(b), 13(c), 13(e)12(c), and 13(f)12(f) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".Data."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Cinergy, CG&E, and PSI
None.
ULH&P
Omitted pursuant to instruction J(2)I(2)(c).
EXECUTIVE OFFICERS OF THE REGISTRANTS (at February 29, 1996)28, 1998)
Age at
Dec. 31,
Name 19951997 Office & Date Elected or in Job
Cinergy, CG&E, and PSI
Jackson H. Randolph 6567 Chairman of Cinergy, CG&E, and
PSI - 1995
Chairman and Chief Executive Officer
of Cinergy, CG&E, and PSI - 1994
Chairman, President, and Chief Executive
Officer of CG&E - 1993
President and Chief Executive Officer
of CG&E - 1986
James E. Rogers 4850 Vice Chairman, President, and Chief
Executive Officer of Cinergy - 1995
Vice Chairman and Chief Executive
Officer of CG&E and PSI - 1995
Vice Chairman, President, and Chief
Operating Officer of Cinergy - 1994
Vice Chairman and Chief Operating
Officer of CG&E and PSI - 1994
Chairman and Chief Executive Officer
of Resources - 1993
Chairman, President, and Chief Executive
Officer of PSI - 1990
Terry E. Bruck 50 Group Vice President, Transmission and
Distribution of Cinergy, CG&E, and
PSI - 1995
Group Vice President, Wholesale Power and
Transmission Operations of CG&E and
PSI - 1995
Group Vice President, Wholesale Power
and Transmission Operations of
Cinergy - 1994
Vice President, Electric Operations of
CG&E - 1988
Cheryl M. Foley 4850 Vice President, General Counsel, and
Secretary of CG&E - 1995
Vice President, General Counsel, and
Secretary of Cinergy - 1994
Vice President, General Counsel, and
Secretary of PSI and Resources - 1991
Donald B. Ingle, Jr. 48 Vice President of Cinergy, CG&E, and PSI 1/
- 1997
President, Energy Services Business Unit
(ESBU) of Cinergy 1/ - 1997
Contract Consultant - Investments - 1995
President and Chief Executive Officer -
CornerStone Industries, Inc. 3/ - 1992
Elizabeth K. Lanier 2/ 46 Vice President and General CounselChief of ResourcesStaff of
Cinergy, CG&E, and PSI - 19901996
Partner - Frost & Jacobs 3/ - 1984
J. Wayne Leonard 4547 Vice President of Cinergy, CG&E, and PSI 4/
- 1997
President, Energy Commodities Business Unit
of Cinergy - 1996
Group Vice President and Chief
Financial Officer of CG&E and PSI - 1995
Group Vice President and Chief Financial
Officer of Cinergy - 1994
Senior Vice President and Chief Financial
Officer of PSI and Resources - 1992
EXECUTIVE OFFICERS OF THE REGISTRANTS (continued)
Age at
Dec. 31,
Name 1997 Office & Date Elected or in Job
Madeleine W. Ludlow 43 Vice President and Chief Financial Officer
of Cinergy, CG&E, and PSI and Resources4/ - 1989
Stephen G. Salay 58 Group1997
Vice President Power Operations- Enterprise Diversified
Holdings Incorporated (EDHI), a subsidiary
of Public Service Enterprise Group
Incorporated 3/ - 1996
Vice President and Treasurer - EDHI 3/ -
1992
William L. Sheafer 54 Vice President and Treasurer of Cinergy,
CG&E, and PSI - 1995
Group Vice President, Power Operations of
Cinergy - 1994
Vice President, Electric Production and
Fuel Supply of CG&E - 1988
William L. Sheafer 521997
Treasurer of Cinergy and PSI - 1994
Treasurer of CG&E - 1987
George H. Stinson 50John P. Steffen 45 Vice President Corporate Servicesand Comptroller of Cinergy,
CG&E, and PSI - 1998
Comptroller of Cinergy, CG&E, and PSI 5/ -
1997
Assistant Comptroller of CG&E - 1995
Assistant Comptroller of Cinergy and PSI -
1994
Assistant Controller of CG&E - 1991
Larry E. Thomas 52 Vice President of Cinergy, - 1995
President of CG&E, and PSI -
1994
Vice1997
President, Gas OperationsEnergy Delivery Business Unit
of CG&ECinergy - 1991
Manager, Gas Operations of CG&E - 1990
Larry E. Thomas 501996
Group Vice President and Chief
Transformation Officer of Cinergy, CG&E,
and PSI - 1995
Group Vice President, Reengineering and
Operations Services of CG&E and
PSI - 1995
Group Vice President, Reengineering
and Operations Services of Cinergy - 1994
Senior Vice President and Chief Operations
Officer of PSI - 1992
SeniorCinergy and CG&E
William J. Grealis 6/ 52 President, ESBU of Cinergy 1/ - 1996
Vice President of Cinergy - 1995
President of CG&E - 1995
President of Investments - 1995
President, Gas Business Unit of CG&E - 1995
Partner - Akin, Gump, Strauss, Hauer
& Feld 3/ - 1978
EXECUTIVE OFFICERS OF THE REGISTRANTS (continued)
Age at
Dec. 31,
Name 1997 Office & Date Elected or in Job
Cinergy and PSI
John M. Mutz 7/ 62 Vice President of Cinergy - 1995
President of PSI - 1994
President of Resources - 1993
Cinergy
John Bryant 51 Vice President of Cinergy - 1998
Managing Director of MPI International
Limited, Cinergy's international project
development subsidiary - 1997
Executive Generation Director - Midlands -
1996
Generation Director - Midlands - 1992
J. Joseph Hale, Jr. 48 Vice President of Cinergy - 1996
General Manager, Marketing
Operations of CG&E - 1995
President of Cinergy Foundation, Inc. 8/ -
1992
M. Stephen Harkness 49 Vice President of Cinergy - 1996
Executive Vice President and Chief
Operating Officer Customer Operationsof Trigen-Cinergy 9/ -
1996
General Manager, Corporate Development
and Financial Services of Cinergy - 1994
Jerry W. Liggett 56 Vice President of Cinergy - 1996
Senior Manager, Human Resources
Strategy of Cinergy - 1995
General Manager, Employee Relations,
Compensation & Benefits of Cinergy - 1995
Executive Director, Human Resources
of PSI and Resources - 1990
Michael M. Sample 45 Vice President of Cinergy - 1996
General Manager, International
Investments of Cinergy - 1994
Vice President, Government Affairs
of PSI and Resources - 1991
Charles J. Winger 5052 Vice President of Cinergy - 1997
Vice President and Comptroller of Cinergy,
CG&E, and PSI 5/ - 1997 Comptroller of CG&E
- 1995 Comptroller of Cinergy - 1994
Comptroller of Resources - 1988
Comptroller of PSI - 1984
Cinergy and CG&E
William J. Grealis 1/ 50 President of CG&E - 1995
Vice President of Cinergy - 1995
President, Gas Business Unit of CG&E - 1995
President of Investments - 1995
Partner - Akin, Gump, Strauss, Hauer
& Feld 2/ - 1978
Cinergy and PSI
John M. Mutz 3/ 60 Vice President of Cinergy - 1995
President of PSI - 1994
President of Resources - 1993
President - Lilly Endowment, Inc. 2/ - 1989
EXECUTIVE OFFICERS OF THE REGISTRANTS (continued)
ULH&P
Omitted pursuant to instruction J(2)I(2)(c).
Cinergy, CG&E, and PSI
None of the officers are related in any manner. Executive officers of Cinergy
are elected to the offices set opposite their respective names until the next
annual meeting of the Board of Directors and until their successors shall have
been duly elected and shall have been qualified.
1/ Mr. Ingle named as Acting President of ESBU during May 1997, succeeding
Mr. Grealis; Mr. Ingle served in this capacity through September 1997, at
which time he was named President of ESBU and Vice President of each of
Cinergy, CG&E, and PSI, all effective October 1, 1997.
2/ Prior to becoming Vice President effective June 1, 1996, Ms. Lanier was a
partner in the law firm of Frost & Jacobs located in Cincinnati, Ohio.
3/ Non-affiliate of Cinergy.
4/ Effective April 22, 1997, Mr. Leonard relinquished additional title of
Chief Financial Officer and Ms. Ludlow appointed Vice President and Chief
Financial Officer.
5/ Effective August 11, 1997, Mr. Steffen was appointed Comptroller of
Cinergy, CG&E, and PSI, succeeding Mr. Winger, who retained office of Vice
President of Cinergy.
6/ Prior to becoming President of Investments, Mr. Grealis was a partner in
the Washington, D.C. law firm of Akin, Gump, Strauss, Hauer & Feld. In
addition, prior to the merger, Mr. Grealis was President of PSI
Investments, Inc. on an interim basis beginning in 1992.
2/ Non-affiliate of Cinergy.
3/7/ Prior to becoming President of Resources, Mr. Mutz was President of Lilly
Endowment, Inc., a private philanthropic foundation located in
Indianapolis, Indiana,Indiana.
8/ An affiliated public benefit corporation organized and also served two terms as lieutenant governor of
Indiana.operating exclusively
for charitable purposes.
9/ Joint venture company formed by Cinergy and Trigen Energy Corporation.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Cinergy, CG&E, PSI, and ULH&P
Cinergy's common stock is listed on the New York Stock Exchange and has unlisted
trading privileges on the Boston, Chicago, Cincinnati, Pacific, and Philadelphia
exchanges. As of February 5, 1996,1998, Cinergy's most recent dividend record date,
there were 80,55073,018 common shareholders of record.
Trading of CG&E's and Resources' common stock ended at the close of the market
October 24, 1994. Trading of Cinergy's common stock began upon the opening of
the market October 25, 1994. The following table shows the
high and low sales prices per share, if applicable, and the dividends on common
stock declared by Cinergy, CG&E, Resources, PSI, and ULH&P and Cinergy for the past two years:
Market Price (a) Dividends Declared
High Low (per share) (in thousands)
19941996
Cinergy
4th Quarter $34 1/4 $30 7/8 $.45
3rd Quarter 32 29 1/8 .43
2nd Quarter 32 27 1/2 .43
1st Quarter 32 1/8 28 1/4 .43
CG&E
4th Quarter $23 3/8 $21 7/8 $ .3272 (b) $15 267 (c)
3rd Quarter 23 1/4 20 7/8 .43
2nd Quarter 23 7/8 21 .43
1st Quarter 27 3/4 23 5/8 .43
Resources
4th Quarter 23 1/2 22 .180550 949 (b)
3rd Quarter 23 1/8 20 3/4 .31239 909 (b)
2nd Quarter 23 1/8 19 5/8 .3145 116 (b)
1st Quarter 26 5/8 22 3/4 .3141 995 (b)
PSI
4th Quarter 10 376 (c)29 713 (b)
3rd Quarter 16 174 (c)28 311 (b)
2nd Quarter 16 622 (c)28 165 (b)
1st Quarter 15 970 (c)25 887 (b)
ULH&P
4th Quarter 6.008.50 (b)
1997
Cinergy
4th Quarter 24 2039 1/8 32 .45
3rd Quarter 35 1/4 32 5/16 .45
2nd Quarter 35 5/8 32 .45
1st Quarter 35 3/4 .1028 (b)
199532 5/8 .45
CG&E
4th Quarter 5642 600 (c)(b)
3rd Quarter 55 400 (c)42 600 (b)
2nd Quarter 55 900 (c)42 600 (b)
1st Quarter 51 650 (c)42 600 (b)
PSI
4th Quarter 28 400 (b)
3rd Quarter 28 400 (b)
2nd Quarter 28 400 (b)
1st Quarter 28 400 (b)
ULH&P
4th Quarter 6.00
Cinergy
4th Quarter 31 1/8 27 3/4 .43
3rd Quarter 27 7/8 25 1/4 .43
2nd Quarter 27 24 5/8 .43
1st Quarter 25 1/4 23 3/8 .4317.00 (b)
(a) Market price for PSI and ULH&P for 1994 and for CG&E, PSI, and ULH&P for
1995 is not applicable.
(b) The prorated fourth quarter dividends for CG&E and Resources were
determined by multiplying that portion of each company's regular
quarterly dividend by a fraction equal to the number of days from their
last respective common dividend payment dates (August 15, 1994, for CG&E;
September 1, 1994, for Resources) to and including the closing date of
the merger, divided by the number of days in the quarterly period for
each respective company (92 for CG&E; 91 for Resources). These
respective prorated dividends were in addition to, but paid separately
from, the fourth quarter dividend on Cinergy common stock, which was
determined by prorating Cinergy's 43-cents per share quarterly dividend
for the remainder of the quarter ending November 15, 1994.
(c) All of CG&E's and PSI's 1994 dividends were paid to Resources. CG&E's 1994 fourth
quarter dividend of $15,276,000Cinergy and all of CG&E's 1995ULH&P's
dividends were paid to Cinergy.CG&E.
See Notes 3(b) and 4(c)Note 2(b) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data" for a brief description of common dividend
restrictions.
All CG&E and PSI common stock is held by Cinergy and all ULH&P common stock is
held by CG&E; therefore, there is no public trading market for their common
stock.
ITEM 6. SELECTED FINANCIAL DATA
Cinergy
1997 1996 1995 1994 1993 1992 1991
(in millions, except per share amounts)
Operating revenues (1) $4 353 $3 031243 $3 023 $2 898888 $2 843 $2 613 $2 640833
Net income before extraordinary
item (1) 363 335 347 191 63
271 202Net income (2) 253 335 347 191 63
Common stock
Earnings per share (1)(3)
Net income before extraordinary
item 2.30 2.00 2.22 1.30 .43
1.91 1.46Net income 1.61 2.00 2.22 1.30 .43
EPS-assuming dilution (3)
Net income before extraordinary
item 2.28 1.99 2.20 1.29 .43
Net income 1.59 1.99 2.20 1.29 .43
Dividends declared per share 1.80 1.74 1.72 1.50 1.46
1.39 1.33
Total assets (2)(4) 8 220858 8 150725 8 103 8 037 7 804 7 133 6 681696
Cumulative preferred stock of
subsidiaries subject to mandatory
redemption (3)(5) - - 160 210 210
210 192
Long-term debt (4)(6) 2 531151 2 715326 2 645347 2 547615 2 376545
Long-term debt due within
one year (6) 85 140 202 60 -
46 115
CG&E
1997 1996 1995 1994 1993 1992 1991
(in millions)
Operating revenues (1) $2 452 $1 976 $1 848 $1 788 $1 752
$1 553 $1 518
Net income (loss)(1) 239 227 236 158 (9)
202 207
Total assets (2)(4) 4 914 4 844 5 177081 5 182069 5 144 4 802 4 584036
Cumulative preferred stock subject
to mandatory redemption (3)(5) - - 160 210 210
210 167
Long-term debt (4)(6) 1 703324 1 838381 1 829518 1 810738 1 734729
Long-term debt due within
one year (6) - 130 152 - -
7 25
PSI
1997 1996 1995 1994 1993 1992 1991
(in millions)
Operating revenues (1) $1 958 $1 332 $1 248 $1 114 $1 092
$1 066 $1 120
Net income (1) 132 126 146 82 125
107 30
Total assets (2)(4) 3 406 3 295 3 076 2 945 2 645
2 300 2 093
Cumulative preferred stock subject
to mandatory redemption (3) - - - - 26
Long-term debt (4)(6) 826 945 828 878 816 737 642
Long-term debt due within
one year (6) 85 10 50 60 - 40 90
Cinergy, CG&E, and PSI
(1) See Notes 1 2, and 15 of the "Notes to Financial Statements" in
"Item 8. Financial Statements and Supplementary Data."
(2) See Notes 1 and 17 of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data."
(3) See Note 16 of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".
(2)Data."
(4) See Notes 1(d)1(f) and 76 of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
(3) Includes $39.5 million, $36.5 million, and $3 million in 1991
for Cinergy, CG&E, and PSI, respectively, to be redeemed within one year.
Also, seeData."
(5) See Note 43 of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".
(4)Data."
(6) See Note 54 and 8(b) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".Data."
In addition, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 1312 of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data" for
discussions of material uncertainties for Cinergy, CG&E, and PSI.
ULH&P
Omitted pursuant to Instruction J(2)I(2)(a).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in
this "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" reflect and elucidate the Companies' corporate vision of
the future and, as a part of that, outline goals and aspirations, as well as
specific projections. These goals and projections are considered forward-looking
statements and are based on management's beliefs, as well as certain assumptions
made by management. In addition to any assumptions and other factors that are
referred to specifically in connection with these statements, other factors that
could cause actual results to differ materially from those indicated in any
forward-looking statements include, among others:
* Factors affecting utility operations such as unusual weather conditions;
catastrophic weather-related damage; unscheduled generation outages;
unusual maintenance or repairs; unanticipated changes to fossil fuel costs,
gas supply costs, or availability constraints due to higher demand,
shortages, transportation problems or other developments; environmental
incidents; or electric transmission or gas pipeline system constraints.
* Increased competition in the electric and gas utility industries, including
effects of: industry restructuring; transmission system operation and/or
administration; customer choice; and cogeneration.
* Regulatory factors such as unanticipated changes in rate-setting policies
or procedures; recovery of investments made under traditional regulation,
and the frequency and timing of rate increases.
* Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission (SEC), the Federal Energy Regulatory Commission (FERC), state
public utility commissions, state entities which regulate natural gas
transmission, gathering and processing and similar entities with regulatory
oversight.
* Economic conditions, including inflation rates and monetary fluctuations.
* Changing market conditions and a variety of other factors associated with
physical energy and financial trading activities including, but not limited
to, price, basis, credit, liquidity, volatility, capacity, transmission,
currency exchange, interest rate, and warranty risks.
* Availability or cost of capital, resulting from changes in: Cinergy and its
subsidiaries, interest rates, and securities ratings or market perceptions
of the utility industry and energy-related industries.
* Employee workforce factors, including changes in key executives, collective
bargaining agreements with union employees, or work stoppages.
* Legal and regulatory delays and other obstacles associated with mergers,
acquisitions, and investments in joint ventures.
* Costs and other effects of legal and administrative proceedings,
settlements, investigations, claims, and other matters, including, but not
limited to, those described in Note 12 of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data."
* Changes in international, Federal, state, or local legislative
requirements, such as changes in tax laws or rates; environmental laws and
regulations.
Cinergy Corp. (Cinergy or Company) and its subsidiaries undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of changes in actual results, changes in assumptions, or other factors affecting
such statements.
Cinergy, CG&E, PSI, and ULH&P
THE COMPANIES
Cinergy, a Delaware corporation, is a registered holding company under the
PUHCA.Public Utility Holding Company Act of 1935 (PUHCA). Cinergy was created in the
October 1994 merger of PSI Resources, Inc. and CG&E. The business combination
was accounted for as a pooling of interests. Following the merger,Cincinnati Gas & Electric
Company (CG&E). Cinergy becameis the parent holding company of PSI previously Resources'Energy, Inc. (PSI),
CG&E, Cinergy Investments, Inc. (Investments), and Cinergy Services, Inc.
(Services). CG&E is an operating utility primarily engaged in providing electric
and gas service in the southwestern portion of Ohio and through its principal
subsidiary, The Union Light, Heat and Power Company (ULH&P), in adjacent areas
in Kentucky. PSI is an operating utility primarily engaged in providing electric
service in north central, central, and southern Indiana. Services provides
management, financial, administrative, engineering, legal, and other services to
Cinergy, CG&E, PSI, and Investments. Cinergy conducts its international and
non-regulated businesses through Investments and Services.its subsidiaries.
FINANCIAL CONDITION
COMPETITIVE PRESSURES
Electric Utility IndustryELECTRIC UTILITY INDUSTRY
Cinergy, CG&E, PSI, and ULH&P
Introduction
The primary factor influencingelectric utility industry is transitioning from a monopoly cost-of-service
regulated environment to an industry in which companies will ultimately compete
to be the futurecustomers' energy provider. This transition will continue to impact
the operations, structure, and profitability of Cinergy is the changing competitive environment for energy services, including
the impactCinergy. The effects of
emerging technologies, and the related commoditization of
electric power markets. Changescompetition are already being felt in the industry include increased competition
in wholesale power markets, where the
increased numbers of power marketers and ongoing pressurebrokers are reducing the margins
previously experienced.
Energy companies are positioning themselves for "customer choice" by large
industrial customersfull competition through mergers
and ultimately, by all retail customers.
Pressures for Customer Choice Extending choiceacquisitions, strategic alliances with other energy companies and
energy-related businesses, and through the development of new products and
services. Just as critical to end-user customers, also
referred to as retail wheeling, would allow customers within a particular
utility's service territory to "unbundle" their purchase decisions. Customers
wouldCinergy will be able to buy power as a commodity directly from another source and buy
distribution service over the power linesregulatory outcome of the
local utility for delivery.
The regulatory and legislative reform to facilitate this result is primarily
driven by: (1) large industrial energy users; (2) the emergencederegulation process in each of new
suppliers in the competitive markets; and (3) increasing evidence from other
regulated industries that wherever effective competition is feasible, it can
yield lower costs and a wider range of customer options and services than
traditional cost-of-service regulation. Industrial customers are intensifying
their efforts to change the regulatory process so that they may access the
lower-cost power necessary to remain competitive in the global marketplace.
The current restrictions on access to low-cost power are exacerbated by
traditional cost-of-service regulation which has produced average industrial
rates to customers that vary substantially across the United States (from less
than 3 cents per kwh to approximately 10 cents per kwh).
While customer efforts at industry reform have resulted in some success, the
emergence of new competitors to the localits three franchise utility has become an
equally effective force for change. This new competition was facilitated by
the Energy Policy Act of 1992 (Energy Act), which granted the FERC authority
to order wholesale transmission access. New competitors include power
marketers, power brokers, and local franchise utilities that now sell power in
regional or national markets. To date, the FERC has granted approximately 150
power marketers the ability to sell at market-based rates and accepted several
utilities' general sales tariffs that allow for sales anywhere in the United
States. Cinergy's non-firm power sales tariff was accepted by the FERC in
December 1995, and an affiliated power marketer of Cinergy was given
authorization to begin transacting business in September 1995. Additionally,
utilities are using merger and acquisition strategies to achieve expanded
scale and scope to support a regional or national market strategy. For
example, since the beginning of 1995, there were seven mergers involving major
investor-owned utilities announced in the industry, representing nearly $28
billion of combined market value.
Brokers are intermediaries between buyers and sellers (i.e., they do not take
title to the power). Power marketers are entities licensed by the FERC to
conduct bulk power trades at market-based prices. They manage portfolios of
power contracts (to which they have title) and owned generation and package
energy products for customers of bulk power, including price risk management
contracts such as options on fixed-price energy or guaranteed fixed-price
contracts.
Despite increased activity by utilities and new competitors to respond to the
demands of industrial customers for greater choice and lower prices, the pace
of legislative and regulatory restructuring appears to have slowed somewhat in
1995. Many states, continue to examine the complex technical and economic
issues restructuring presents. Among other things, states are considering the
trade-offs between achieving long-run economic efficiency and potential short-
term wealth transfers between customers and shareholders (see further
discussion below) or among customers, as well as the
potential impact (if any)
of restructuring onoutcome in other socially desirable objectives like clean air or
energy efficiency.states where Cinergy plans to compete.
Deregulation Process
The most difficult issue polarizingFERC opened up the debate on the future competitive
framework of the industry is the transition from the old orderwholesale electric markets to the new and
who will bear the costs of historical utility investments or past commitments
incurred under cost-of-service regulation. If the generation component of the
industry's business was immediately brought to market and priced at
competitive wholesale prices, it is likely that many utilities would currently
be unable to recover a large percentage of their fixed costs. Other costs
such as investments in energy efficiency (DSM investments) could also become
"stranded" (i.e., unrecoverable at competitive market prices) in this
scenario. The financial impact on the industry of alternative scenarios for a
transition to market prices is highly dependent upon: (1) the speed of the
transition; (2) the clearing price for electricity in a fully competitive
market; and (3) customer behavior (e.g., loyalty) when afforded potentially
lower-cost alternatives.
Because of the complex nature of electric power flows, the variety of state-
by-state regulations, and the potential inability or unwillingness to shut
down high-cost plants (e.g., nuclear) in a fully competitive market, great
uncertainty exists as to the time frame required for the future price of
electricity in a commodity market to rise to long-run marginal cost (e.g.,
full cost of new resources) and, importantly, how close to short-term marginal
cost (e.g., fuel and variable operating expenses) prices may fall in the
interim. For example, depending upon the scenario, Moody's has quantified the
stranded investment issue for the industry at between $50 billion and $300
billion (with the most likely result approximately $135 billion), while S&P
has estimated a total exposure of between $10 billion and $26 billion (6% and
16%, respectively) of total industry annual revenues. The Oak Ridge National
Laboratory has quantified the industry financial impact at $6 billion for
every 1 mill (tenth of a cent) change in market price.
The position that all prudent past investments and commitments must be honored
has received support from regulators at the FERC and in the state of
California, both of which have provided for the recovery of utility stranded
investments (see further discussion of each of these proposals herein),
although that position varies from state to state. For example, a recent
survey of 90 state utility commissioners from 40 states concluded that
approximately 50% agreed with allowing recovery of stranded costs at the state
level, while 26% disagreed with recovery, and the remaining 24% were
uncertain.
Cinergy's Response to the Changing Competitive Environment Cinergy supports
increased competition in the electric utility industry. Cinergy believes that
competition would benefit electric customers1996 with
Orders 888 and the economy as a whole. At
the same time, Cinergy possesses competitive advantages (e.g., low-cost
generation) that could work to the benefit of its shareholders in a
competitive environment. However, these advantages could be substantially
eroded by restrictive regulations that lag the development of a competitive
market and limit the Company's ability to preempt the competition in
responding to customer needs. As such, Cinergy has chosen to take a
leadership role in state and Federal debates on industry reform.
However, Cinergy believes there are two substantial impediments to realizing
the potential efficiencies of competition in the generation segment of the
business: (1) resolving the issue of stranded costs associated with past
utility commitments and (2) recognizing states' rights, concerns, and
authority in regulating a product that flows in interstate commerce. While
Cinergy is among the lowest-cost producers nationwide and has been recognized
by both Moody's and S&P as having little exposure to stranded investment,
Cinergy nevertheless recognizes the legitimacy of the industry's equity
argument for recovery of at least some of the costs associated with past
commitments and the importance of resolving this issue in the interest of
moving the debate to more important issues like how to achieve the potential
economic efficiencies that competition offers and what regulatory and
structural reforms are necessary to achieve those results. Cinergy remains
concerned that even low-cost producers, under certain scenarios, could face
difficult if not ruinous competition in an excess capacity market that was
created at least in part by past government policies. Cinergy has
approximately $1 billion of regulatory assets (past costs incurred for which
regulators have promised recovery in the future) that could be at risk, at
least in part, in some scenarios. At the same time, Cinergy believes that
full recovery of the industry's potential stranded investment is unrealistic
to expect in a market where certain customers can bypass stranded cost
mechanisms (e.g., self-generation), is politically infeasible, and is neither
necessarily equitable nor efficient.
Additionally, Cinergy believes that efficient competition cannot be achieved
if neighboring states reach substantially different conclusions concerning
items such as the transition889. The final rules the timetables for implementation,
universal service to customers, and reliability standards. Such state-by-
state disparity would provide inequitable advantages to some competitors while
unduly harming others' ability to compete in the marketplace. While Cinergy
believes that satisfactory results cannot be achieved without a broad national
consensus for the long-term goal and a time frame for getting there, Cinergy
does not believe a total preemption of states' rights on this issue is either
politically feasible or necessary.
Cinergy intends to pursue aggressively a national solution that will recognize
the legitimacy of certain claims to past costs (within some level of cost and
demonstrated prudence) and provide a required framework for states to align
their regulations and policies within a specified time frame. The framework
would require a consistent transition to full competition for generation in
all markets, thus minimizing the current fragmentation resulting from the
initiatives of multiple regulators and regulations.
As further evidence of its leadership in the restructuring of the electric
utility industry, in February 1996, Cinergy and several other midwestern
utilities announced the formation of a coalition to create and develop a
multi-state transmission region operated by an independent system operator
(ISO). The coalition, which Cinergy believes is likely to expand in
membership, is proposing a midwest ISO which would ensure non-discriminating
open transmission access, develop a regional transmission tariff, and ensure
system reliability. Cinergy believes the formation of ISOs will be a major
step toward facilitating competition in the electric utility industry and
potentially more mergers among utilities (i.e., reduced market power
concerns).
For an electric utility to be successful in this competitive environment, it
is critical that regulatory reform in all segments of the business keeps pace
with the competitive realities facing electric utilities and their customers
in not only generation, but also transmission, distribution, and energy
services activities. Strict adherence to traditional, cost-based rate-of-
return regulation will both significantly disadvantage a utility's ability to
compete successfully to supply customer needs and result in a failure to
realize the potential economic efficiencies from restructuring. For example,
performance-based regulation (e.g., price caps) would result in better
economic incentives to control costs and likely add substantial flexibility
for the franchise utility in the transition to a fully competitive
environment.
Legislation allowing significant flexibility was passed (Senate Bill 637) in
Indiana in 1995. The Company intends to pursue similar flexibility in all
markets where it conducts business.
Federal Developments
Mega-NOPR The Energy Act granted the FERC the authority to order wholesale
transmission access. Acting on that authority, in March 1995, the FERC took a
substantial step toward assuring increased competition in the electric
industry by issuing the mega-NOPR.
Cinergy was the first utility in the country to file its comments endorsing
the mega-NOPR, reaffirming its support for the FERC's authority to order
utilities owning transmission systems to provide access to other entities at
rates and terms comparable to those provided to affiliated companies. As
proposed, the FERC's mega-NOPR would, among other things, provide for mandatory filing of open
access/comparability transmission tariffs, provideprovided for functional unbundling of
all services, requirerequired utilities to use the filed tariffs for their own bulk
power transactions, establishestablished an electronic bulletin board for transmission
availability and pricing information, and establishestablished a contract-based approach
to recoveringrecover any potential stranded costs"stranded" investments (explained below) as a result of
customer choice at the wholesale level.
A final order is
expectedCustomer choice at the end-user (i.e., retail) level currently remains under the
jurisdiction of individual states (see State Developments). The deregulation
process has varied greatly from state to state. Several states have enacted
customer choice legislation, while many states are in the early stages of
studying the issues. During the process of developing customer choice
legislation, utilities have been required to consider issues such as the
recovery of any stranded investment, ability to compete for incumbent customers,
and the potential forced divestiture of generating assets. Cinergy continues to
be issued duringan advocate of competition in the first halfelectric utility industry and continues to
pursue customer choice legislation at both the state and Federal levels.
As the deregulation process has progressed, it has become clear that both scale
and diversity of 1996.business are critical factors for success. Scale is critical
for several reasons. A critical mass of customers allows the development of new
products and back-office capabilities in a cost-effective manner. A larger
balance sheet scale and diversity of commodities (i.e., gas and electric) allow
the trading business to market risk intermediation products without taking
excessive financial risks and to recover back-office costs in a low margin
business. Merger and acquisition activity in the energy industry appears to be
accelerating as companies attempt to create the desired scale.
Recent Developments
Stranded Investments Due to excess capacity in the industry and the declining
cost of new technology, electricity prices in a competitive market may not fully
cover the costs of past commitments made by utilities while under a cost-
of-service regulated environment. Fixed costs which cannot be recovered through
electricity sales at market prices are referred to as stranded investments.
While the recovery of prudent past investments and commitments has been
supported by FERC in Order 888 and at least partially in the states in which
competition-related legislation has been passed, there is no guarantee that
Cinergy or any other utility will receive full recovery of potential stranded
investments. In addition, in those states which have legislated open
competition, many have required the divestiture of generating assets in order to
qualify and obtain recovery of stranded investments.
Midwest ISO During 1997, Cinergy collaborated with other Midwestern utility
companies on a plan to join the transmission systems of the participating
companies into a single regional system. The plan was filed with the FERC early
in 1998 for approval. If approved, the new system would be managed independently
by an Independent System Operator (ISO). The formation of a Midwest ISO, as it
has become known, would ensure non-discriminatory open transmission access and
system reliability, as well as the development of a regional transmission
tariff, which would help eliminate the "pancaking" of transmission rates in a
region.
Currently, there are eight utilities participating in the filing along with
Cinergy. The proposed ISO consists of 32,000 miles of transmission lines and
covers portions of eight Midwestern states, forming one of the largest ISOs in
the country. FERC's approval of the plan is anticipated to come within a year.
Repeal of the PUHCA AfterCurrently, PUHCA creates a year-long reviewnumber of its continuing regulation of
publicrestrictions that make
preparing for deregulation more difficult. PUHCA restricts the amount which can
be invested outside the regulated utility, holding companies under the PUHCA,including foreign investments and
investments in Junepower plants. It also restricts potential merger partners to
those that meet certain integration requirements.
In 1995, the SEC endorsed recommendations for reform of the PUHCA. The
recommendations callcalled for repeal and, pending repeal, significant
administrative reform of the 60-
year-old62-year-old statute. WhileSince the report offers three alternative approaches to
repeal and legislative reform,release of the SEC's
preferred option is repeal coupled
with a transition period of one year or longer and a transfer of certain
consumer-protection provisionsreport, numerous bills have been introduced in both houses of the PUHCA toUnited States
(US) Congress providing for the FERC.
The report further recommends that, pending considerationrepeal or significant amendment of legislative
options, the SEC take prompt administrative action, by rulemaking and onPUHCA. During
1997, a case-by-case basis, to modernize and simplify regulation under thebill repealing PUHCA with
particular reference to financing transactions, diversification into non-
utility businesses, utility mergers and acquisitions, and the PUHCA's
"integration" standards. In the latter regard, the report recommends a
changed interpretation of the PUHCA to permit registered holding companies to
own combination electric and gas utility companies, provided the affected
states agree. Subsequent to the issuance of the report, the SEC adopted rule
changes exempting various types of financing transactions by utility and non-
utility subsidiaries of registered holding companies. The SEC also proposed a
rule that would exempt investments by registered systems in specified "energy-
related companies", subject to certain conditions.
In October 1995, a bill was introduced in the United StatesUS Senate providing
forbut was never
brought to a vote. Legislation repealing PUHCA is anticipated to be reintroduced
in the repeal of the PUHCA. The bill is pending before Congress. In
addition, various members ofUS Congress have indicated their support for
industry restructuring. One view that has been publicly stated in Congress is
that the repeal of the PUHCA and the orderly transition to open competition
should be considered comprehensively rather than piecemeal. Hearings have
been initiated in Congress for a comprehensive review of the electric utility
industry and the role Congress should play in fostering competition.1998. Cinergy supports the repeal of the PUHCA,this act either as
part of comprehensive reform of the electric utility industry or as separate
legislation.
Franchise Rights During 1997, several states enacted transition plans that
included a variety of measures designed to create a "level playing field" for
new competitors. In some cases, there has been a mandatory "divestiture" of
existing customers. In others, the plans provide incentives which may encourage
customers to switch suppliers by providing "above market" credits to those who
switch from the incumbent utility. Also, some states have put varying
restrictions on the incumbent utility's ability to compete for these customers.
Cinergy, CG&E, PSI, and ULH&P
State Developments
During 1995, 40As previously mentioned, certain states initiated or took parthave enacted legislation which will lead
to complete retail competition within the next several years. These states
generally have required up-front rate reductions and the opportunity for all
customer classes to choose an electricity provider. A few states have phased in
formal or
informal processes, held hearings, and/orcustomer choice, but still provided for immediate rate reductions.
All states passing legislation have included some mechanism for recovery of
stranded investment. However, states have varied on the methodology to be
applied in determining the level of stranded investment, and divestiture of
generation assets has been required in a few states.
As discussed below, the three states in which Cinergy operates public utility
companies have all had legislation introduced which would provide for full
retail customer choice. None of these states has yet passed legislation, addressingbut
policymakers and stakeholders continue to work to resolve issues with an eye
toward passage.
Cinergy and PSI
Indiana A customer choice bill (SB427) was introduced during the 1997 Indiana
legislative session, with support from a coalition made up of Cinergy, the
Indiana Manufacturers Association, the Indiana Industrial Energy Consumers,
Inc., and one other Indiana investor-owned electric utility. After amendments
were made, essentially stripping the bill of most of its provisions and turning
it into a bill calling for the study of deregulation by a legislative committee
known as the Regulatory Flexibility Committee (Study Committee), SB427 passed
the legislature and was signed by the governor.
The Indiana Utility Regulatory Commission (IURC) issued a report titled "Energy
Report: Public Policy Considerations" (Report) to the Study Committee in
November 1997. The scope and purpose of the Report was to provide information to
the Study Committee which would enable them to answer the question of whether
retail wheeling, restructuring,customer choice was in the best interest of Indiana. Public policy issues
listed by the Report for the Study Committee to consider were: jurisdiction over
retail transmission; recovery of stranded investments; estimation methodology of
any stranded investments allowed to be recovered; method for recovery of
stranded investments; low-income and environmental programs; and impact of
deregulation on state and local taxes. The Report's conclusion was: "In the long
run, competition alternative regulation,in the electricity market could be in the best interest of
Indiana. Experience in other states has shown that the best outcomes and
smoothest process to bring about customer choice in the electric industry have
resulted from a cooperative effort led by the governor, the legislature and the
state commission working together with all stakeholders. Indiana should be
prepared to respond to competition created by other states, especially those
surrounding Indiana, and to any Federal legislation that requires nationwide
competition in the electricity market." As a result of the IURC report and other
testimony to the Study Committee, the Study Committee recommended that they
continue to study changes in the electric industry.
Another customer choice bill (SB 431), sponsored by, among others, those who
supported the customer choice bill during 1997, was introduced in the Indiana
Senate in January 1998. In the House of Representatives, House Bill 1190 (HB
1190) was introduced. This bill calls for a study by the IURC of the effects
deregulation would have on Indiana. Although the legislature is much more
knowledgeable on the customer choice issues as a result of the Study Committee's
report and debating the 1997 customer choice bill, neither SB 431 or closely
related issues concerning electric utility industry restructuring.HB 1190 was
passed during the 1998 legislative session.
Cinergy and CG&E
Ohio Although the Ohio legislature did not pass customer choice legislation
during 1997, it did create the Joint Select Committee on Electric Industry
Deregulation (Committee) to examine competition and restructuring issues. The
PUCO has been actively examiningCommittee heard testimony from a variety of stakeholders on various customer
choice issues raisedthroughout the spring of 1997. In December 1997, the Committee's
chairpersons unveiled the outline of a plan designed to bring competition into
Ohio's retail electric industry in the year 2000. The chairpersons' plan is
based on five basic policies: all customers, including residential, can
participate from the outset; the cost of electricity will decrease from the
outset and continue to decrease at an accelerating rate for all customers during
the transition period; current low-income assistance programs will be continued;
current reliability and quality of service will be maintained; and open free
markets will be established with lower prices driven by continuing
competitive pressures.competition. The Chairmanplan
would provide for competition among utilities to begin January 1, 2000, with a
five-year transition period.
Furthermore, the plan addresses the tax consequences of a deregulated
environment through the creation of a revenue-neutral system. The current tax
structure of Ohio subjects Ohio electric utility companies to certain state
taxes which would not be paid by out-of-state competitors selling power in Ohio
retail markets. The new system attempts to remedy this disadvantage while not
diminishing the amount of tax revenues currently being collected by state and
local governments.
The chairpersons were not able to get their plan adopted by the full committee.
Some of the PUCO has publicly stated his
desireprimary concerns that have been expressed are that the plan does not
adequately address utilities' stranded investment concerns, and that the
proposal to make progress toward enhancing competitioncreate retail marketing areas, or "buying pools," throughout the
state during the transition period would be unduly disruptive in that customers
who did not affirmatively elect to remain with their incumbent utility would be
assigned to the buying pool under a Public Utility Commission of Ohio (PUCO)
designed and administered bidding process. The chairpersons have announced
intentions to introduce a bill in 1998.
Also in Ohio, but with the
objective of doing it right and not necessarily first. In late 1994, the PUCO
formed an electric competition roundtable that meets on an informal basis to
address competition, restructuring, performance-based regulation, and related
issues, with a stated mission of "promoting increased competitive options for
Ohio businesses that do not unduly harm the interests of utility company
shareholders or ratepayers". In 1995, the roundtable participants submitted
principles for a customer choice pilot program for interruptible buy-through
service. The PUCO issued the proposed guidelines for comments in late 1995
and issued final guidelines in February 1996.
Additionally, two recent actions of the PUCO provide support for maintaining
the financial integrity of the utilities in the state. In October 1995, the
PUCO approved a stipulated rate plan which could improve the competitive
position of a major utility in the state by the end of a 10-year moratorium
period, including provisions for accelerating depreciation and amortization of
the utility's nuclear plants and regulatory assets, respectively. In November
1995, the PUCO staff recommended a rate increase for another "at risk" utility
that is conditioned upon the increase being utilized to achieve a significant
reduction in the utility's uneconomic generating assets.
Finally, a retail wheeling bill was introduced in November 1997 (HB 625) authorizing the
Ohio legislatureissuance of electric utility rate reduction bonds that would if passed, requirepermit utilities to
develop retail wheeling plans by
January 1, 1998, and provide flexibility to propose alternatives to
traditional cost-of-service ratemaking methodologies.securitize certain assets. The bill is expected to
be considered during the 1996 legislative session.
Cinergy, CG&E, and PSI
Indiana The IURC has taken several steps to investigate the desirability ofitself does not provide for retail
competition but, rather, specifies financing issues a utility may engage in the state. A legislative regulatory flexibility
committee was established by Senate Bill 637. Senate Bill 637 also allows the
IURC to
approve utility alternative regulation proposals upon a showing that,
among other things, traditional regulation in a particular service sectorprepare for competition. It is no longer needed.
Additionally, the IURC has sponsored informaluncertain whether this bill or any bill providing
for retail competition forums that are
designed to develop a better understanding of issues related to expanding the
competitive market on both the wholesale and retail levels. While various
parties have participated in this process, the Citizens Action Coalition of
Indiana, Inc. (CAC)(a non-profit organization representing customers) has
called for electric utilities to make a new "covenant" with customers. The
CAC outlines eight principles intended to balance various economic and
environmental interests at stake in the debate. Among other things, the
covenant would include a voluntary pledge by utilities that: customers' bills
will not increase; the environment will not be polluted; universal service will be provided; construction of new power plants will be avoided; and
customers will not be harmed by utility self-dealing.passed in Ohio in 1998.
Cinergy, CG&E and ULH&P
Kentucky There has been considerably less activity and interest in industry
restructuring in Kentucky. This situation is generally attributed toIn January 1998, the fact
that Kentucky is oneHouse Chairman of the lowest-cost statesTourism, Development and
Energy Committee introduced a customer choice bill (HB 443). The bill would
allow persons and businesses in the country for electric
service. While large volume customers have circulated a draftparticipating service areas to choose their
supplier of a retail
wheeling bill, Cinergy does not believe such legislation, if introduced, would
receive much attention in 1996.
Cinergy, CG&E, PSI, and ULH&P
Other States In addition to the states in which Cinergy operates, significant
developments in other states have occurred during 1995. Not surprisingly, the
higher-cost regions of the country have been most interested in facilitating
the more rapid development of a competitive market for electric utilities.
For example, in December 1995, California regulators adopted a hybrid plan for
restructuring the state's electric services industry. The plan will
simultaneously create an ISO, a wholesale power exchange, and direct access
(customer choice) phased in over five yearselectricity beginning on January 1, 1998. The
plan further provides2000. It would also ensure a rate
cap to prevent any increase in generation energy prices for a non-bypassable competitive transition charge on
allsix years, with
certain exceptions. Because of its low electric rates, Kentucky has not to date
been moving aggressively toward retail customers to ensure utilities the opportunity for full recovery of
their stranded investments by 2005. Several aspects of the plan require
enabling legislation tocustomer choice. It is uncertain whether
HB 443 will be passed in California prior to restructuring. The
plan contemplates the continuation of state regulation over the transmission
and distribution segments of the industry.
In the northeasternKentucky in 1998.
Cinergy
United States, Massachusetts, Connecticut, New Hampshire,
and Rhode Island have all recently issued guidelines or principles for
industry restructuring, authorized restructuring studies, or created retail
wheeling pilot programs. In particular, the restructuring principles issued
in August 1995 by the Massachusetts state commission provide for the largest
utilities in the state to file negotiated restructuring plans in February 1996
to provide for a transitionKingdom
Transition to full competition including provisions for
functional unbundling and retail wheeling. A major utility in the region has
already filed a plan that provides for customer choice, transition to a
competitive market, restructuring, lower prices to customersUnited Kingdom's (UK) electric utility
industry began with the industry's privatization in 1991. When the interim,
and the recovery for shareholders of all stranded costs.
At the same time, the traditionally low-cost Midwest has also been exploring
how competition can efficiently and effectively be implemented for the benefit
of customers. In Wisconsin, a revised proposal by a state commissioner
focuses on some of the social issues and economic trade-offs involved in
restructuring the industry. The plan has established the year 2000 as a
target date for implementation of restructuring in that state, modifying the
previously adopted "building block" approach. The proposal would create an
ISO for the transmission system, while the distribution system would continue
to be subject to commission jurisdiction. Other provisions of the proposal
include a request for utilities to file plans for establishing functional
separation ofindustry was
privatized, the generation, transmission, and regional distribution business units,
commission certification of new market entrants, continuation of the winter
moratorium on disconnections, a permanent commitment to low-income and
universal service programs, priority generation service for Wisconsin
customers, and the transfer of the risk of decisions on power generation from
customers to shareholders.businesses
were, in effect, unbundled into separate companies. The state of Michigan has proposed a thorough review of existing state laws
and the comprehensive changes to those laws that would be required to
facilitate competition in the electric utility industry. Additionally,
Michigan has also mandated retail wheeling experiments for two of the large
utilityregional distribution
companies, in the state, scheduled to begin at the time of each
respective utility's next capacity solicitation. In Illinois, the legislature
has passed a resolution establishingincluding Midlands Electricity plc (Midlands) (Cinergy, through a
joint legislative committee to study
and recommend policy changes regarding competition. At least two of Illinois'
investor-owned utilities have recently filed two proposed retail wheeling
pilot programs with the state commission.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's Future - Others' Views The major credit rating agencies continue to
recognize the risk of the imminent restructuring of the electric utility
industry. In August 1995, Moody's issuedventure owns a report entitled "Stranded Costs
Will Threaten Credit Quality of U.S. Electrics", wherein Moody's notes its
belief that a substantial amount of fixed costs approved for recovery under
the traditional regulatory regime is likely to be stranded. In November 1995,
S&P issued its report, "Direct Access Threatens Electric Utility Revenues",50% interest in which S&P estimated the potential loss of annual revenues in the industry.
However, Cinergy has received praise and some measure of optimism for its
position in a more competitive environment. As part of the November 1995
upgrade of Cinergy's operating subsidiaries' debt and preferred stock, Moody's
expressed its opinion that Cinergy "will have no exposure to stranded costs"
and that "Cinergy is expected to be a formidable competitor because of its low
production costs". All such models used to predict potential exposure to
stranded costs are extremely sensitive to the assumed future market clearing
price. In its July 1995 upgrade of Cinergy's operating subsidiaries' debt and
preferred stock, S&P commented that "the business position evaluation of all
the Cinergy operating units is now high average" reflecting "low electric
production costs, efficient coal-fired equipment, relatively low rates, a well
positioned gas operation, the absence of nuclear challenges, a healthy service
territory, and a balanced capital structure".
Certain sell-side equity analysts continue to rank Cinergy highly as a utility
possessing a strong competitive profile and aggressive and innovative
management, with some considering Cinergy to be well positioned to outperform
the market in the competitive arena. Cinergy believes the opinions of these
rating agencies and equity analysts further support its position that its
competitive strategy and agenda will be successful.
Cinergy, CG&E, and ULH&P
Gas Utility Industry
Order 636 In 1992, the FERC issued Order 636 which restructured operations
between interstate gas pipelines and their customers for gas sales and
transportation services. Order 636 mandated changes to the way CG&E and its
utility subsidiaries purchase gas supplies and contract for transportation and
storage services, resulting in increased risks in meeting the gas demands of
their customers.
CG&E and its utility subsidiaries have responded to the supply risks and
opportunities of Order 636 by introducing innovations to their supply
strategy. These innovations include: contracting with major producers and
marketers for firm gas supply agreements with flexible, extremely market
sensitive pricing, marketing short-term unused pipeline capacity and storage
gas to other companies throughout the country through use of electronic
bulletin boards, and restructuring their allotment of interstate pipeline
capacity among delivering pipelines.
Order 636 also allowed pipelines to recover transition costs they incurred in
complying with the order from customers, including CG&E and its utility
subsidiaries. In July 1994, the PUCO issued an order approving a stipulation
between CG&E and its residential and industrial customer groups providing for
recovery of these pipeline transition costs. CG&E is presently recovering its
Order 636 transition costs pursuant to a PUCO-approved tariff. CG&E and its
utility subsidiaries, including ULH&P, recover such costs through their gas
cost recovery mechanisms.
Customer Choice In a January 1996 gas filing in Ohio (see additional
discussion inMidlands, see Note 2(b)1(e) of the "Notes to
Financial Statements" in "Item 8. Financial Statements and SupplementalSupplementary Data"),
CG&E proposedown no transmission facilities and are limited as to initiatethe amount of generation
they may own. Third-party access to the transmission and local distribution
systems was also put in place, enabling licensed suppliers to use these
networks.
As a pilot program that would allow residentialresult of the transition plan, larger users of electricity have been free
to choose their supplier since 1994 or earlier. Full competition for all
customers was scheduled to be phased in beginning in April 1998. However, due to
delays with the design and testing of information systems, the phase-in to full
competition has been delayed to September 1998. Midlands' service territory is
now scheduled to begin open competition in October 1998.
To date, new entrants to the industry have been limited to independent power
producers, who compete with the formerly state-run generators by using new,
efficient technology. There have been no major new entrants into the supply
business from outside the industry. However, new entrants are expected to emerge
as full competition opens.
A substantial portion of Midlands' operating profit is related to the
distribution business, which will remain a regulated monopoly. Midlands intends
to market both gas and electric service in the supply business, as all customers
gain the ability to choose their gas supplier and havesuppliers.
Cinergy, CG&E, transportand ULH&P
Gas Utility Industry
Customer Choice The PUCO approved CG&E's gas customer choice program during
1997. The plan, which made customer choice available to all residential and
small commercial customers, went into effect in November 1997. As of January 30,
1998, approximately 7,300 customers have opted to participate in this program.
Large industrial, commercial, and educational institution customers already had
the ability to select their own gas supplier. In 1997, the PUCO approved two
other gas customer choice programs in the state. Cinergy Resources, Inc. (CRI),
Cinergy's gas retail marketing subsidiary, is one of many entities competing for
customer gas supply business in these programs.
CG&E continues to provide the gas transportation service for them. This pilot
program for residentialall customers is essentially an extension of customer
choice that has been available for several yearson
its system without regard to large-volume commercial
and industrial customers.
Proposed Legislation House Bill 476 (HB) 476 was adopted unanimously by the Ohio House of Representatives in March 1996. HB 476 addresses regulatory
reformsupplier of the gas commodity. CG&E receives a
transportation charge from customers which is based on its current regulated
rates.
Cinergy and CG&E
Loss of Transportation Customer Late in 1997, AK Steel, Cinergy's largest
natural gas industrytransportation customer, informed CG&E that it plans to build its
own pipeline to connect directly to an interstate natural gas pipeline. The
interruptible contract with CG&E, which represents approximately $7 million of
annual revenues, will expire at the state levelend of 1998. Under that contract, AK Steel
purchases gas directly from other suppliers but uses CG&E's pipelines to deliver
the gas. AK Steel is able to pursue this alternative because of its close
proximity to an existing interstate pipeline. With few customers being similarly
situated, Cinergy and thusCG&E do not currently anticipate others proceeding in a
similar manner.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's Response to the Changing Competitive Environment
Cinergy believes competition will benefit electric customers individually and
the economy as a whole. Cinergy has taken steps to prepare not only for the
changing environment, but to assure fairness and consistency in the setting of
rules and regulations in the various markets in which Cinergy competes.
Cinergy's basic approach to the deregulation environment is to have set a goal
to be a top five utility in five measures of scale and productivity within five
years. Examples of steps taken to achieve this goal include the following:
Cinergy reorganized its operations into four strategic business units. This
functional unbundling separated Cinergy's business into Energy Services, Energy
Delivery, Energy Commodities, and International business units. Each business
unit is responsible for business expansion in its own markets.
Cinergy enhanced its international presence in 1996 by acquiring its
interest in Midlands, an extensionelectricity distribution company located in the UK. In
1997, Cinergy furthered its international development plans by acquiring the
development team and all rights to future projects of Order 636Midlands Power
International, a power development subsidiary of Midlands.
Cinergy formed a joint venture with Trigen Energy Corporation (Trigen) to
develop and operate cogeneration and trigeneration facilities throughout the US
and Canada which enables Cinergy to compete for local distribution companies.customers outside its own
franchise territory prior to and following the arrival of retail competition.
Cinergy has partnered with two other energy companies to form Cadence
Network LLC which will provide a variety of innovative products and services to
multi-site national accounts customers. These services include consolidated
billing, bill auditing, and rate and usage analysis.
Cinergy has become a major participant in the marketing of power, resulting
in megawatt (mw) sales volume increases of 600% and 80% in 1997 and 1996,
respectively.
In 1997, Cinergy acquired Greenwich Energy Partners (Greenwich). Greenwich
is a small proprietary trader of energy commodities. Through its acquisition of
Greenwich, Cinergy became the first utility company to hold a seat on the New
York Mercantile Exchange (NYMEX). The proposed legislation,
among other things, provides that natural gasNYMEX is the world's largest physical
commodity sales services may be
exempted from PUCO regulationfutures exchange and thatpreeminent trading forum for energy and precious
metals.
In 1996, the PUCO allow alternative rate-making
methodologiesNYMEX began trading electricity futures and options contracts
with contract delivery points in connectionthe western US. During the first half of 1998,
the NYMEX will begin trading contracts with other regulated services. The Ohio Senate is
expected to begin considerationdelivery points located in the
Midwest, Mid-Atlantic, and Southern regions of the legislationcountry. Cinergy's
transmission system was selected as the delivery point for the Midwest region.
Cinergy's acquisition of the NYMEX seat and its selection as a delivery point
for electricity futures trading demonstrates Cinergy's participation as a leader
in April 1996the evolving power markets.
Cinergy, CG&E, PSI, and ULH&P
Substantial Accounting Implications
Historically, regulated utilities have applied the provisions of Statement 71.of
Financial Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation (Statement 71). The accounting afforded regulated utilities
in Statement 71 is based on the fundamental premise that rates authorized by
regulators allow recovery of a utility's costs including the
cost of capital.in its generation, transmission,
and distribution operations. These principles have allowed the deferral of costs
(i.e., regulatory assets) based on assurances of a regulator as to the future
recoverability of the costs in rates charged to customers. Certain criteria must
be met in order to continue to applyfor the continued application of the provisions of Statement 71,
including regulated rates designed to recover the specific utility's costs.
Failure to satisfy the criteria in Statement 71 would eliminate the basis for
reportingrecognition of regulatory assets.
AlthoughBased on Cinergy's current regulatory orders and the regulatory environment fully
supportin
which it currently operates, the continued recognition of its regulatory assets as of
December 31, 1997, is fully supported. However, in light of recent trends in
customer choice legislation, the ultimate
outcome of the changing competitive environment could result in Cinergy
discontinuing applicationpotential for future losses resulting from
discontinuance of Statement 71 for all or part of its business.does exist. Such an event would require the write-off of the portion ofpotential losses, if any, regulatory
asset for which sufficient regulatory assurance of future recovery no longer
exists. No evidence currently exists that would support a write-off of any
portion of Cinergy's regulatory assets.
In March 1995, the FASB issued Statement 121, which is effective in January
1996 for Cinergy. Statement 121, which addresses the identification and
measurement of asset impairments for all enterprises, willcannot
be particularly
relevant for electric utilitiesdetermined until such time as a result of the potential for deregulation
of the generation segment of the business. Statement 121 requires recognition
of impairment losses on long-lived assets when book values exceed expected
future cash flows. Based on the regulatory environmentlegislated plan has been approved by each
state in which Cinergy currently operates compliance with the provisions of Statement 121 is not
expected to have an adverse effect on its financial condition or results of
operations. However, this conclusion may change in the future as competitive
pressures and potential restructuring influence the electric utility industry.a franchise territory. Cinergy intends to
continue its pursuit of competitive strategies thatwhich mitigate the potential
impact of these issues on the financial condition of the Company.
Cinergy, CG&E, PSI, and ULH&P
SECURITIES RATINGS
ReflectingThe current ratings provided by the positive results and future benefits of the merger, themajor credit ratings of Cinergy's operating subsidiaries' debt and preferred stock have
been upgraded by Fitch Investors Service, Inc. (Fitch), Moody's, and S&P.
Additionally,rating agencies; Duff & Phelps
Credit Rating Co. (D&P) upgraded the credit
ratings of PSI's, Fitch Investors Service, LP (Fitch), Moody's Investors
Service (Moody's), and CG&E's debt. Among the reasons cited for the upgrades
were decreases in projected capital expenditures, lower new capacity needs,
lower combined power production costs, reduced operationStandard and maintenance
expenses, enhanced transmission capabilities, competitive retail rates, and
strengthening financial profiles.
The current ratingsPoor's (S&P), are providedincluded in the following
table:
D&P Fitch Moody's S&P
Cinergy
Corporate Credit BBB+ BBB+ Baa2 BBB+
Commercial Paper D-2 F-2 P-2 A-2
CG&E
Secured Debt A- A- A3 A-
Senior Unsecured Debt BBB+ Not rated Baa1 BBB+
Junior Unsecured Debt BBB Not rated Baa2 BBB+
Preferred Stock BBB BBB+ baa1 BBB+
Commercial Paper D-1- F-2 P-2 Not rated
PSI
Secured Debt A- A-A A3 A-
Senior Unsecured Debt Not rated BBB+ A- Baa1 BBB+
Junior Unsecured Debt BBB BBB+ Baa2 BBB+
Preferred Stock BBB BBB+ baa1 BBB+
Commercial Paper D-1- F-2 P-2 Not rated
ULH&P
Secured Debt A- Not rated A3 A-
Unsecured Debt Not rated Not rated Baa1 BBB+
These securities ratings may be revised or withdrawn at any time, and each
rating should be evaluated independently of any other rating.
REGULATORY MATTERS
Cinergy and PSI
Indiana
IURC Orders - PSI's Current Retail Rate Proceeding PSI currently has pending beforeand Demand-Side Management (DSM)
Proceeding In September 1996, the IURC aissued an order (September 1996 Order)
approving an overall average retail rate increase requestfor PSI of 10.3%7.6% ($102.975.7 million
annually). Major
componentsAmong other things, the IURC authorized the inclusion in rates of the increase include the
costs of the Cleana 262-mw clean coal power generating facility located at Wabash River
Generating Station (Clean Coal Project,
increased DSM costs,Project) and the costs of a scrubber at Gibson
and other investments
in utility plant. Both the Clean Coal Project and the scrubber at Gibson were
previously approved by the IURC.Generating Station. The requestorder also reflects a return on common equity of 11.9%11.0%,
before the 100 basis points additional common equity return allowed as a merger
savings sharing mechanism in the IURC's February 1995 Orderorder (February 1995
Order) discussed further herein, with an 8.6%8.21% overall rate of return on net
original cost rate base.
In October 1996, The UCCOffice of the Utility Consumer Counselor (UCC) and the
Citizens Action Coalition of Indiana, Inc. (CAC) filed testimonya Joint Petition for
Reconsideration and Rehearing of the September 1996 Order with the IURC. A
settlement agreement with the UCC and CAC was approved in its entirety by the
IURC recommendingin August 1997. This settlement agreement reduced the original rate
increase by $2.1 million (.2%). Major provisions of the settlement agreement
include: a) a 4.7%
($47.3$4.1 million annually)increase in the annual amortization of certain
regulatory assets; b) a retail rate increase. The primary differencesreduction of $1 million annually; c) a $.9
million reduction in retail rates to reflect an August 31, 1995, cut-off date
for costs to achieve merger savings instead of an October 31, 1996, cut-off
date; and d) authorization to defer for subsequent recovery costs to achieve
merger savings incurred between PSI's requestSeptember 1, 1995, and the UCC's proposal are the requested return on
common equityOctober 31, 1996.
A settlement agreement between PSI and DSM costs. The UCC recommended the requested increase in
DSM costs be excluded from this proceeding and addressedcertain intervenors, in a separate
currently pending proceeding specifically
established to review PSI's current and proposed DSM programs. An order in the rate proceeding is anticipatedprograms, was approved by
the endIURC in December 1996 (December 1996 DSM Order). Beginning January 1, 1997,
and continuing through December 31, 2000, the settlement agreement allows PSI to
recover $35 million per year through a non-bypassable charge in PSI's retail
rates. The $35 million is designed to recover all previously incurred, but as
yet unrecovered, DSM costs and all costs related to satisfying remaining
commitments associated with a previous DSM settlement agreement. The $35 million
also includes recovery of carrying costs. Further, the second quarter of 1996. Cinergy cannot predict what actionagreement authorizes PSI
to spend up to $8 million annually on ongoing DSM programs through the IURC may take with respectyear 1999
and to this proposed rate increase. (See the "Capital
Resources" section herein and Notes 2(a) and 17collect such amounts currently in "Item 8. Financial
Statements and Supplementary Data".)retail rates.
February 1995 Order - Retail Rate Proceeding and Merger Savings Allocation Plan
The IURC's February 1995 Order approved a settlement agreement betweenamong PSI and certain
intervenors which authorizedauthorizing PSI to increase retail rates $33.6 million on an annual basis. The $33.6 million increase is before
reductions for customer credits for Non-fuel Merger Savings and excludes
increases for carrying costs attributable to certain environmental
expenditures not included in PSI's base retail electric rates, both of which
are further discussed herein. The increase included, among other things,
recovery of the costs of postretirement benefits other than pensions on an
accrual basis, recovery of DSM expenditures, and recovery of a portion of
amounts deferred for post-in-service carrying costs and depreciation expense.
The February 1995 Order also reflects the adoption of lower depreciation
rates, which reduced annual depreciation expense by approximately $30 million.
This rate increase reflected an 11.9% return on common equity with an 8.25%
overall rate of return on net original cost rate base.
Additionally, through December 31, 1997, the February 1995 Order provides a
mechanism to allocate PSI's share of net Non-fuel Merger Savings between PSI's
customers and Cinergy's shareholders. In essence, the mechanism guarantees
PSI's customers 50% of PSI's portion of projected net Non-fuel Merger Savings.
PSI's customers are receiving these merger savings via
credits to base rates of $4.4 million in 1995 and an additional $2.2 million and
$2.4 million in 1996 and 1997, respectively. The credits in 1996respectively, to reflect the sharing with
customers of non-fuel operation and 1997 will be applied to
the retail rates established in PSI's previously discussed current retail rate
proceeding. After 1997, the accumulated credits will continue until the
effective date of an order in a PSI retail rate proceeding.
The Non-fuel Merger Savings sharing mechanism provides PSI with a financial
incentive to achieve, or exceed,maintenance expense merger savings projections and enhance
operating efficiencies by allowing PSI to earn up to a 13.25% return on common
equity until the effective date of an IURC order in PSI's current retail rate
proceeding. Upon the effective date of an order relating to the current
retail rate proceeding,(Non-
fuel Merger Savings).
Additionally, the February 1995 Order providesprovided PSI an opportunity to earn up to
an additional 100 basis points above the common equity rate of return to
be granted byauthorized in the
IURC in such orderSeptember 1996 Order until December 31, 1997. To be eligible for thesuch additional
earnings, PSI musthad to meet certain performance-related standards. PSI currently meets thesemet those
standards, which arewere measured in conjunction with quarterly fuel adjustment
clause filings. This arrangement for sharing of Non-fuel Merger Savings allows PSIBeginning January 1, 1998, the 100 basis point increment to recover
Merger Coststhe
authorized common equity return will be phased out over a 10-yeartwelve-month period. (See Note 1(i) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".) Any
mechanism for sharing of merger savings after December 31, 1997, will be
determined in subsequent regulatory proceedings.
Effective with this order, PSI began recovering carrying costs on certain
environmental-related projects while under construction and prior toconstruction. This recovery continues until
the date of an approved rate order reflecting such projects in rates. Through
this mechanism, revenues were increased by $9 million, $18 million, and $2
million on an annual basis in February 1995, March 1995, and January 1996,
respectively.
Finally,Coal Contract Buyout Costs In August 1996, PSI entered into a coal supply
agreement with Eagle Coal Company (Eagle) for the February 1995 Ordersupply of approximately three
million tons of coal per year. The agreement, which terminates December 31,
2000, provides for a buyout fee of $179 million (including interest) to be
included certain additional ratemakingin the price of coal to PSI over the term of the contract. This fee
represents the costs to Eagle of the buyout of the coal supply agreement between
PSI and accounting mechanismsExxon Coal and Minerals Company. The retail jurisdictional portion of
the buyout charge, excluding the portion applicable to address regulatory lag (see Notes 1(h) and 13(a)joint owners, is being
recovered through the quarterly fuel adjustment clause, with carrying costs on
unrecovered amounts, through December 2002. PSI has also filed a petition at the
FERC for recovery of the wholesale jurisdictional portion of the buyout costs
through the wholesale fuel adjustment clause. Generally, the FERC will allow
recovery if the utility can demonstrate there will be net benefits to customers
during the buyout cost recovery period. The FERC is expected to issue an order
on PSI's petition early in 1998. (See Note 1(i) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data"Data.").
Cinergy and CG&E
Ohio
PUCO Order - CG&E's Current Gas Rate Proceeding In JanuaryDecember 1996, CG&E filed a request with the PUCO supporting aissued an
order (December 1996 Order) approving an overall average increase in gas
rate increaserevenues for CG&E of 7.8%2.5% ($26.79.3 million annually). The increase, anticipated to be effective in November 1996, is being requested, in
part, to recover capital investments made sincePUCO established an
overall rate of return of 9.7%, including a return on common equity of 12.0%. In
developing this return on common equity, the PUCO considered, among other
things, CG&E's last gas rateefforts to reduce costs and increase in 1993. The proposed rate design includes a pilot program that wouldoperating efficiency and its
proposals to allow
8,000 to 12,000 residential customers to choose their natural gas suppliersupplier.
The PUCO disallowed certain of CG&E's requests, including the requested working
capital allowance, recovery of certain capitalized information systems
development costs, and certain merger-related costs. These disallowances
resulted in a pretax charge to earnings during the fourth quarter of 1996 of $20
million ($15 million net of taxes or $.10 per share basic, $.09 per share
diluted). CG&E's request for a rehearing on the disallowed information systems
costs and other aspects of the order was denied.
In April 1997, CG&E filed a notice of appeal with the Supreme Court of Ohio
challenging the disallowance of information systems costs and the imputation of
certain revenues. Cinergy and CG&E providing transportation services to the customers' premises.
Settlement discussions with gas customer representatives, which began in July
1995, are ongoing. Cinergy cannot predict what action the outcomeSupreme Court
of the settlement
discussions nor what actions the PUCOOhio may take with respect to the proposed
rate increase. (See the "Capital Resources" section herein.)this appeal.
Other During the 1992 through 1994 period, CG&E received a number of rate
increases. The primary reasons for the electric rate increases were recovery
of CG&E's investments in Zimmer and Woodsdale units. The gas rate increase
reflected investments in new and replacement gas mains and facilities.
In the August 1993 Order, the PUCO authorized annual increases of
approximately $41 million (5%) in electric revenues and $19 million (6%) in
gas revenues. In April 1994, the PUCO issued an order approving a settlement agreement
among CG&E the PUCO Staff, the Ohio Office of Consumers' Counsel, and othercertain intervenors which, among other things, resolved
outstanding issues related to the merger and the
May 1992 Order which established a rate phase-in plan for Zimmer.merger. As a result
of this order, the rate phase-in plan, which granted annual increases in
electric revenues of $37.8 million, $38.8 million, and $39.8 million in May
1992, 1993, and 1994, respectively, remained unchanged. Additionally, as part of this settlement, CG&E
agreed to a moratorium on increases in base electric rates until January 1, 1999
(except under certain circumstances), and, in. In return, CG&E is allowed to retain all
PUCO electric jurisdictional Non-fuel Merger Savings until 1999.
Consistent with the provisions of the settlement agreement and the December 1996
Order, CG&E expensed Merger Costs of $32 million in 1994merger transaction costs and $5 million in 1995costs to achieve merger
savings (Merger Costs) applicable to its PUCO electric jurisdiction.jurisdiction of $5 million and $41
million (including $6 million as a result of the December 1996 Order) in 1995
and 1996, respectively. CG&E and its utility subsidiaries are deferring
the non-PUCO electric jurisdictionalhave deferred a
portion of the Merger Costs incurred through December 31, 1996, for future
recovery in customer rates, including $6 millionrates.
Additionally, in December 1996, the PUCO issued an order applicable to CG&E's
current gas rate
proceeding.DSM programs. The order requires CG&E to spend up to one-half of the annual $5
million currently included in retail rates on PUCO-sanctioned low-income
residential programs. The remaining portion of the $5 million is to be applied
to the recovery of DSM cost deferrals. CG&E's participation in the low-income
programs will be a factor considered by the PUCO in setting future rates of
return and approving competitive transition plans.
Cinergy, CG&E, and ULH&P
Kentucky In mid-1993, the KPSC issued orders authorizing ULH&P to increase
annual gas revenues by $4 million.
In exchange for the KPSC'sKentucky Public Service Commission's (KPSC) support
of the merger, in May 1994, ULH&P accepted the KPSC's request for an electric
rate moratorium commencing after ULH&P's next retail rate case (which has not
yet been filed) and extending to January 1, 2000. In 1994,addition, the KPSC has
authorized concurrent recovery of costs related to various DSM programs of
ULH&P.
ULH&P has deferred $1.8 million of Merger Costs. ULH&P intends to
continue deferring its portion of Merger Costs incurred through December 31,
1996, for future recovery in customers'customer rates.
KPSC Order In July 1996, the KPSC issued an order authorizing a decrease in
ULH&P's electric rates of approximately $1.8 million annually to reflect a
reduction in the cost of electricity purchased from CG&E.
Cinergy, CG&E, and ULH&P
Potential Divestiture of Gas Operations Under the PUHCA, the divestiture of
CG&E's gas operations may be required. The key question under the relevant PUHCA
standards is the amount of increased operating costs, if any, that would result
from the gas operations being divested and operated on a stand-alone basis.
In its order approving the merger, the SEC reserved judgment over Cinergy's
ownership of CG&E's gas operations for three years, at the end of which period
Cinergy would be required to address the matter. In February 1998, Cinergy made
a filing with the SEC setting forth its rationale for retention of the gas
operations. The filing includes, among other things, a study showing that, if
divested and operated on a stand-alone basis, the gas operations for a
period of three years. However, as previously discussed in the "Competitive
Pressures" section, in June 1995,would bear
significant increased operating costs, greater than those cited by the SEC endorsed recommendations for
reform/repeal of the PUHCA, including allowingin
two 1997 cases permitting electric registered holding companies to own combination electricacquire and
retain gas utility companies, provided the affected
states agree. In addition, legislation providing for the repeal of the PUHCA
is currently pending before Congress.
Regardless of the outcome of the proposals to reform/repeal the PUHCA,properties. For these and other reasons stated in Cinergy's filing,
Cinergy believes it has a justifiable basis forits retention of itsCG&E's gas operations and
will continue its pursuit of SEC approval. If divestiture is ultimately
required,properties meets all relevant
standards under the SEC has historically allowed companies sufficient time to
accomplish divestitures in a manner that protects shareholder value.PUHCA.
ENVIRONMENTAL ISSUES
Cinergy, CG&E, and PSI
CAAAClean Air Act Amendments of 1990 (CAAA) The 1990 revisions to the Clean Air Act
require reductions in both sulfur dioxide (SO2) and nitrogen oxide (NOx)
emissions from utility sources. Reductions of these emissions are to be
accomplished in two phases. Compliance under Phase I was required by January 1,
1995, and Phase II compliance is required by January 1, 2000. To achieve the sulfur dioxideSO2
reduction objectives of the CAAA, emission allowances have been allocated by the
EPAUS Environmental Protection Agency (EPA) to affected sources (e.g., Cinergy's
electric generating units). Each allowance permits one ton of sulfur dioxideSO2 emissions. The
CAAA allows compliance to be achieved on a national level, which provides
companies the option to achieve this compliance by reducing emissions and/or
purchasing emission allowances.
Cinergy's operating strategy for Phase I iswas based upon the compliance plans
developed by PSI and CG&E and approved by the IURC and the PUCO.PUCO, respectively.
All required modifications to Cinergy's generating units to implement the
compliance plans were completed prior to January 1, 1995.
To comply with Phase II sulfur dioxideSO2 emission requirements, Cinergy's current strategy
includes a combination of switching to lower-sulfur coal blends and utilizing itsan
emission allowance banking strategy. This cost
effectivecost-effective strategy will allow
Cinergy to meet Phase II sulfur dioxideSO2 reduction requirements while maintaining optimal
flexibility to meet changes in output due to increased customer choice, as well
as potentially significant future environmental demands.requirements. Cinergy intends to
utilize an emission allowance banking strategy to the extent a viable emission
allowance market exists. However, the availability and economic value of
emission allowances over the long termlong-term is still uncertain. In the event the
market price for emission allowances or lower-sulfur coal increases
substantially from the current forecast, Cinergy could be forced to consider
high-cost,high capital cost options.
To meet nitrogen oxideNOx reductions required by Phase II, Cinergy may install additional low-nitrogen oxidelow
NOx burners on certain affected units in addition to the use of a nitrogen oxidesystem-wide
NOx emission averaging strategy.
Cinergy is forecasting CAAA compliance capital expenditures of $34$19 million
during the 19961998 through 20002002 period. Of thethese forecasted expenditures, $19$9
million relates to CG&E and $15$10 million relates to PSI. These construction expenditures are
included in the amounts provided in the "Capital Requirements" section herein.
In addition, operating costs may increase due to higher fuel costs (e.g.,
higher-quality, lower-sulfur coal; increased use of natural gas) and maintenance
expenses.
Ambient Air Standards The EPA recently revised the National Ambient Air Quality
Standards for ozone and fine particulate matter. These new rules increase the
pressure for additional emissions reductions. On September 23, 1997, Cinergy
announced a proposal to reduce its NOx emissions rate by two-thirds to 0.25
pounds of NOx per one million British thermal units (MMBtu). At that time,
Cinergy's preliminary cost estimate for the two-thirds reduction was between $74
million and $204 million (stated in 1997 dollars). Subsequent to Cinergy's
announcement, the EPA announced on October 10, 1997, its proposed call for
revisions to State Implementation Plans (SIPs) for statewide reductions in NOx
emissions, proposing utility NOx emissions at a rate of 0.15 pounds per MMBtu.
The EPA's schedule calls for all reductions to be in place as early as 2002.
These initiatives will force significant reductions in NOx emissions from many
sources. The EPA has stated that electric utility generating facilities
specifically are targeted. The final total level of NOx reductions will depend
upon the outcome of the SIP revision process. Cinergy estimates that the capital
costs for additional NOx controls at its facilities at the 0.15 pounds of Nox
per MMBtu rate proposed by the EPA could exceed $524 million (stated in 1997
dollars) over the next five years depending upon the final level of reductions,
details of a NOx trading program, and the time frame for implementation.
In February 1998, Cinergy joined with various utilities, labor groups, and other
organizations from several Midwest, Great Lakes, Mid-Atlantic, and Southeast
states in forming the Alliance for Constructive Air Policy (ACAP). This
coalition is committed to working with policymakers to find cost-effective,
equitable approaches for reducing ozone pollution in key regions of the country.
The ACAP is developing an alternative to the EPA's proposed call for SIPs
revisions to reduce NOx emissions (see discussion above). The ACAP's proposal is
a two-step process to achieve reductions in NOx emissions. The first step
involves NOx emission reductions of 55 percent from 1990 levels, or a reduction
in the NOx emission rate to 0.35 pounds of NOx per MMBtu, whichever is less
stringent, by 2004. The second step involves the development of enhanced
subregional air quality modeling that would be used to determine if any
additional reductions are necessary to reach local attainment. These additional
reductions, if needed, would be implemented by 2007. The ACAP is also promoting
the establishment of a subregional trading market for NOx emissions. This system
would allow for a market-based approach to limiting emissions and would produce
cost savings and incentives for the development of new technologies to improve
air quality. Capital costs required for Cinergy to be in compliance under the
ACAP's proposals would be significantly less than those under the current EPA
proposal. But as stated above, final costs of compliance depend on the final
level of reductions required, details of a NOx trading program, and the time
frame for implementation and compliance.
The impact of the particulate standards cannot be determined at this time. The
EPA estimates it will take up to five years to collect sufficient ambient air
monitoring data. The states will then determine the sources of these
particulates and determine a reduction strategy. The ultimate effect of the new
standard could be requirements for newer and cleaner technologies and additional
controls on conventional particulates and/or reductions in SO2 and NOx emissions
from utility sources. Since these studies and determinations have not been made,
Cinergy cannot predict the outcome or effect of the new particulate standards.
Global Climate Change Some scientists, environmentalists,On December 11, 1997, delegates to the United Nations'
climate summit in Japan adopted a landmark environmental treaty (Kyoto Protocol)
to deal with global warming. The Kyoto Protocol establishes legally binding
greenhouse gas emission targets for developed nations. The Kyoto Protocol
framework lacks details related to definitions, implementation, and policymakers
continueenforcement
plans. For the Kyoto Protocol to express concern aboutenter into force within the potentialUS it will have to
be ratified by a two-thirds vote of the US Senate. In July 1997, the US Senate
passed a resolution advising the Clinton Administration that they would not
favorably consider a protocol which did not include commitments for climate change from
increasing amountsall nations
of greenhouse gases released as by-productsthe world, or that would cause harm to the US economy. The Kyoto Protocol, in
its present form, is unlikely to be ratified by the US Senate since it does not
meet the requirements of burning
fossil fuel and other industrial processes. However, significantthis resolution.
Significant uncertainty exists concerning increasedthe science of climate change, and the
Clinton Administration's environmental and energy policies and how it intends to
reduce greenhouse gas concentrations and their effect on
the global climate system.emissions. Cinergy's plan for managing the potential risk
and uncertainty of climate change includes: (1) implementing cost effectivecost-effective
greenhouse gas emission reduction and offsetting activities; (2) encouraging the
use of alternative fuels for transportation vehicles (a major source of
greenhouse gases); (3) funding research of more efficient and alternative
electric generating technologies; (4) funding research to better understand the
causes and consequences of climate change; and (5) encouraging a global
discussion of the issues and how best to manage them. Cinergy believes that
voluntary programs, such as the United StatesUS Department of Energy Climate Challenge
programProgram, which Cinergy joined in 1995, can successfullyare the most cost-effective means to
limit greenhouse gas emissions.
Air Toxics The air toxics provisions of the CAAA exemptexempted fossil-fueled steam
utility plants from mandatory reduction of 189 listed air toxics until the EPA completescompleted a
study, expectedstudy. The final report issued in early 1996, of theFebruary 1998, confirmed utility air toxic
emissions pose little risk of these emissions onto public health. It stated mercury is the pollutant
with the greatest potential threat, while others require further study. A
Mercury Study Report issued in December 1997, stated that mercury is not a risk
to the average American and expressed uncertainty whether reductions in current
domestic sources would reduce human mercury exposure. US utilities are a large
domestic source, but they are negligible compared to global mercury emissions.
The EPA was unable to show a feasible mercury control technology for coal-fired
utilities. The EPA must determine the need for regulation by April 15, 1998. If
additionalmore air toxics regulations are issued, the compliance cost of
compliance could be
significant. Cinergy cannot predict the outcome or the
effects of this EPA study.the EPA's
determination.
Cinergy, CG&E, PSI, and ULH&P
Other As more fully discussed in Note 13(b)12(b)(ii) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data", PSI has
received notificationclaims from IGCIndiana Gas Company, Inc. (IGC) and NIPSCO allegingNorthern Indiana Public
Service Company (NIPSCO) that PSI is a PRPPotentially Responsible Party under the
CERCLAComprehensive Environmental Response, Compensation and Liability Act with
respect to certain MGPmanufactured gas plant (MGP) sites, and therefore responsible
for the costs of investigating and remediating these sites.
In August 1997, NIPSCO filed suit against PSI has not assumed any responsibility to reimburse IGC or NIPSCO for theirseeking recovery from PSI of
NIPSCO's past and future costs of investigating and remediating MGP related
contamination at the Goshen, Indiana, MGP site. NIPSCO alleged that it has
already incurred about $400,000 in response costs at the site and that
remediation of the site will cost about $2.7 million. PSI denied liability in
its answer to the complaint. The parties are currently engaged in the discovery
process and the case has not yet been scheduled for trial.
Also, in August 1997, PSI reached an agreement with IGC settling IGC's claims
that PSI should contribute to IGC's response costs related to 13 of the 19 MGP
sites withconveyed by PSI to IGC in 1945. This agreement requires PSI and IGC to
share past and future response costs equally (50%/50%) at the exception13 sites. Further,
the parties must jointly approve future management of a site
at Shelbyville, for which the costs aresites and the decision
to spend additional funds. The settlement does not material.address five sites PSI
acquired from NIPSCO and subsequently sold to IGC.
It is premature, at this time, to predict the nature, extent, and ultimate costs
of, or PSI's responsibility for, environmental investigations and remediations
at MGP sites owned or previously owned by PSI. Information availablePSI or its predecessors. PSI continues
to PSI regarding the
current statusgather information pertaining to each of investigation and/or remediation at the sites identified in
IGC's claim indicates PSI's potential exposure to probable and reasonably
estimable liabilities associated with these MGP sites, wouldincluding the 13
sites which are the subject of the agreement with IGC and the Goshen site which
is the subject of NIPSCO's complaint. Reserves recorded, based on information
currently available, are not be material to itsCinergy's financial condition or
results of operations. However, as further investigation and remediation
activities are undertaken at these sites, and the additional
sites identified in NIPSCO's claim may indicate that the potential liability for MGP sites
could be material.
During 1995, the IURC denied IGC's request for recoverymaterial to Cinergy's financial condition or results of costs incurred
relating to its MGP sites, which included sites acquired from PSI. IGC has
appealed this decision. The IURC has granted PSI's motion to establish a sub-
docket to PSI's pending retail rate proceeding to consider its request for
rate recovery of any MGP site-related costs it may incur. PSI is unable to
predict the extent to which it will be able to recover through rates any MGP
costs ultimately incurred.operations.
Refer to Note 13(b)12(b) and (c) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data" for a more detailed discussion of
the status of certain environmental issues.
CAPITAL REQUIREMENTS
CONSTRUCTION AND OTHER INVESTING ACTIVITIES
Cinergy, CG&E, PSI, and ULH&P
Construction expenditures for the Cinergy system are forecasted to be
approximately $360$375 million for 1996,1998, and over the next five years (1996
through 2000)(1998 - 2002),
are forecasted to beaggregate approximately $2.1$1.7 billion. Of these projected
expenditures, approximately $195$191 million and $1.1 billion$866 million relate to CG&E
(including $18$37 million and $102$137 million for ULH&P) and $165$180 million and $1.0 billion$858
million relate to PSI, each respectively, for 19961998, and over the next five years. Theseyears, respectively.
Substantially all of these expenditures include approximately $1.1 billion, about halfare for capital improvements to and
expansion of which relates to each CG&E and PSI, for production plant additions, of which
$520 million ($285 million for CG&E and $235 million for PSI) relate toCinergy's operating facilities.
Cinergy is forecasting no investments in new generation. As previously discussedgenerating facilities under the
belief that excess supply in the "Competitive
Pressures" section, potentialmarket will continue in the near term. If
deregulation of the generation segmentcomponent of the electric utility industry creates numerous uncertainties (e.g., customer self-
and cogeneration efforts, alternative supply-side options, and eventual retail
wheeling) which could affect Cinergy's generation resource plan. Cinergy
plans to continue to evaluate future generation investments to maintain
maximum flexibility in its ability to react to change as it occursdoes
not occur in the industry.manner or in the time frame anticipated, and depending on
capacity constraints, franchise demand requirements, and the regulatory
requirements dictated for Integrated Resource Planning, Cinergy could be forced
to make capital investments in new generating facilities in lieu of relying upon
the existing market for its energy needs. (All forecasted amounts are in nominal
dollars, exclude capital costs for additional NOx controls at Cinergy's
facilities (see "Ambient Air Standards" in the "Environmental Issues" section
herein), and reflect assumptions as to the economy, capital markets,
construction programs, legislative and regulatory actions, frequency and timing
of rate increases, and other related factors, all or any of which may change
significantly.)
Cinergy
As discussed in the "Competitive Pressures" section, during 1996, Cinergy
acquired a 50% interest in Midlands. Cinergy and GPU, Inc. (GPU) formed Avon
Energy Partners Holdings (Avon Energy), a 50%/50% joint venture, and acquired
the outstanding common stock of Midlands through Avon Energy's wholly-owned
subsidiary for approximately $2.6 billion. Cinergy and GPU have each invested
approximately $500 million in Avon Energy. Cinergy funded its investment through
its credit facility. Avon Energy funded the remainder of the purchase price
through the issuance of non-recourse debt (see Note 1(e) of the "Notes to
Financial Statements" in "Item 8. Financial Statements and Supplementary Data").
During 1996, Cinergy and Trigen formed a joint venture, Trigen-Cinergy Solutions
LLC (Trigen-Cinergy). Cinergy may invest up to $100 million and provide
guaranties of debt and other obligations in an aggregate amount not to exceed
$250 million at any one time with respect to energy-related products and
services, including those undertaken by Trigen-Cinergy. (See the "Competitive
Pressures" section herein.)
With respect to international development, subject to identifying projects which
meet Cinergy's investment objectives, Cinergy may invest or commit up to $100
million during 1998. Funding of these investments or commitments will be
provided through additional debt borrowings. (See the "Competitive Pressures"
section herein.)
Cinergy
Cinergy's net cash used in investing activities was $377 million in 1997,
compared to $871 million and $363 million in 1996 and 1995, respectively. The
decrease in 1997 was primarily attributable to the effect of Cinergy's
investment in Midlands during 1996.
CG&E and ULH&P
CG&E and its subsidiaries' net cash used in investing activities was $166
million in 1997 (including $23 million for ULH&P), compared to $156 million and
$147 million in 1996 and 1995 (including $19 million and $19 million for ULH&P),
respectively. The increase in 1997 was primarily attributable to an increase in
the amount of construction expenditures.
PSI
PSI's net cash used in investing activities was $152 million in 1997, compared
to $198 million and $230 million and 1996 and 1995, respectively. The decrease
in 1997 was primarily attributable to a decrease in the amount of construction
expenditures for PSI.
OTHER COMMITMENTS
Cinergy, CG&E, PSI, and ULH&P
DSM The levelSecurities Redemptions Mandatory redemptions of Cinergy's future expenditures on DSM programs withinlong-term debt total $501
million ($341 million for CG&E and its regulated franchise is contingent onsubsidiaries, including $20 million for
ULH&P, and $160 million for PSI) during the extent to which recoveryperiod 1998 through 2002. On January
29, 1998, PSI gave notice of its DSM
costs is assured by the applicable state utility regulatory commissions. PSI
currently hasintention to redeem on March 1, 1998, all
outstanding shares of its 7.44% Series Cumulative Preferred Stock at a
proceeding pending before the IURCredemption price of $25 per share. On February 27, 1998, CG&E announced its
intention to address its ongoing DSM
programs.
Cinergy, CG&E, PSI, and ULH&P
Securities Redemptions In January 1996, CG&E retired $5redeem on March 29, 1998, $41 million principal amount of its 10.20% first mortgage bonds7
3/8% Series First Mortgage Bonds (due DecemberNovember 1, 2020).
Additionally, CG&E redeemed2001) at a redemption price of
100.30% and to redeem on February 15, 1996,March 30, 1998, the remaining $131.5entire $100 million principal
amount of these bondsits 8 1/2% Series First Mortgage Bonds (due September 1, 2022) at a
redemption price of 100%, both through the maintenance and replacement fund (M&R
Fund) provision of CG&E's first mortgage bond indenture. Additionally, on the
same date, CG&E announced its intention to redeem on March 30, 1998, the
remaining $19 million principal amount of its 7 3/8% Series First Mortgage Bonds
(due November 1, 2001) at a redemption price of 100.87%. On March 24, 1998,
ULH&P announced its intention to redeem on April 23, 1998, $6.3 million
principal amount of its 8% Series First Mortgage Bonds (due October 1, 2003) at
a redemption price of 100.85% through the M&R Fund provision of itsULH&P's first
mortgage bond indenture. ULH&P also redeemedAdditionally, on the same date, $9ULH&P announced its
intention to redeem on April 24, 1998, the remaining $3.7 million principal
amount of its 10 1/4% first mortgage bonds8% Series First Mortgage Bonds (due November 15, 2020)October 1, 2003) at a
redemption price of 107.20% and101.73%. Cinergy will continue to evaluate opportunities for
the remaining $6 million
principal amountrefinancing of such bonds at a price of 100% through its M&R Fund
provision.outstanding securities beyond mandatory redemption
requirements.
M&R Fund provisions contained in CG&E's, PSI's, and ULH&P's first mortgage bond
indentures require cash payments, bond retirements, or pledges of unfunded
property additions each year based on a formularizedan amount related to the net revenues of
the respective company.
Mandatory redemptionsCinergy
Windfall Profits Tax During the third quarter of long-term debt1997, a windfall profits tax
was levied against Midlands. Cinergy's share of the tax to be paid by Midlands
in two equal installments, due December 1, 1997, and cumulative preferred stock total
$4561998, is approximately 67
million pounds sterling ($322109 million for CG&E, including $20 million for ULH&P,or $.69 per share, basic and $134
million for PSI)diluted).
Midlands borrowed the funds to finance the first installment. Cinergy expects
Midlands will borrow funds as necessary to pay the final installment. As
Cinergy's management believes this charge to be unusual in nature, and does not
expect such a charge to recur, the tax was recorded as an extraordinary item in
Cinergy's Consolidated Statement of Income during the period 1996 through 2000. Cinergy will continue
to evaluate opportunitiesthird quarter of 1997. No
related tax benefit was recorded for the refinancing of outstanding securities beyond
mandatory redemption requirements.charge as the windfall profits tax is
not deductible for corporate income tax purposes in the UK, and Cinergy expects
that benefits, if any, derived for US Federal income taxes will not be
significant.
Cinergy, CG&E, PSI, and ULH&P
1996 Voluntary Workforce Reduction Program In January 1996,Year 2000 Costs Cinergy, announced
a voluntary workforce reduction program which provides enhanced retirement
and/like most owners of information systems, will be
required to modify significant portions of its systems to accommodate
requirements brought about by the turn of the century. During 1997, Cinergy
incurred costs of approximately $5 million to modify existing computer systems
and applications. Preliminary estimates of the remaining total costs to be
incurred prior to 2000 are approximately $8 million. Maintenance or severance benefits to eligible employees. The program is being offered
in conjunction with a corporate-wide initiative to redesign Cinergy's business
processes to achieve additional merger savings and further enhance Cinergy's
low-cost position. There are 840 employees who meet certain age and service
requirements and are potentially eligible for enhanced retirement benefits
under this program. Eligible employees who do not meet age and service
requirements would receive severance benefits upon resignation from their
employment. Programmodification
costs will not be known until afterexpensed as incurred, while the participation
election period ends on May 15, 1996 (see Note 13(g)costs of the "Notes to
Financial Statements" in "Item 8. Financial Statements and Supplementary
Data"). A significant portion of these benefitsnew software will be
eligible for funding
from qualified retirement plan assets.
Cinergycapitalized and PSI
Other Funds are required for a payment of $80 million in accordance withamortized over the settlement of PSI's WVPA litigation. The timing of this payment, which could
occur in 1996, is dependent on the outcome of various issues related to WVPA's
bankruptcy proceeding (see Notes 13(e) and 17 of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data").software's useful life.
CAPITAL RESOURCES
Cinergy, CG&E, PSI, and ULH&P
Cinergy, forecasts that its, CG&E and its subsidiaries'subsidiaries (including ULH&P), PSI's, and ULH&P'sPSI forecast that
their need if any, for external funds during the 19961998 through 20002002 period will primarily
be for the refinancing of long-term debt and preferred stock, as
previously discussed.existing securities. (This forecast reflects nominal
dollars and assumptions as to the economy, capital markets, construction
programs, legislative and regulatory actions, frequency and timing of rate
increases, and other related factors, all or any of which may change
significantly.)
INTERNAL FUNDS
Cinergy, CG&E, PSI, and ULH&P
General Currently, substantially allthe majority of Cinergy's revenues and corresponding cash
flows are derived from the cost-of-service regulated operations of CG&E
and its subsidiaries, including ULH&P, and PSI. As previously discussed in
the "Competitive Pressures" section,operations. Cinergy believes it
is likely that the generation segmentcomponent of the electric utility industry will
ultimately be deregulated. However, the timing and nature of the deregulation
and restructuring of the industry is uncertain. In the interim, revenues
provided by cost-of-service regulated operations are anticipated to continue as
the primary source of funds for Cinergy. As a result of its low-cost position
and market strategy, over the long term, Cinergy believes it will be successful
in a more competitive environment. However, as the industry becomes more
competitive, future cash flows from Cinergy's operations could be subject to a
higher degree of volatility than under the present regulatory structure.
Cinergy
For the year ended December 31, 1997, Cinergy's cash provided from operating
activities was $753 million compared to $855 million and $736 million in 1996
and 1995, respectively. The decrease in 1997 was primarily due to CG&E's and
ULH&P's sales of accounts receivable during 1996. The decrease was offset, in
part, by PSI's payment in 1996 of $80 million in accordance with a 1989
settlement agreement between PSI Contribution from Parent Company In December 1994, Cinergy publicly issued
approximately 7.1 million shares of common stock. The net proceeds of
approximately $160 million were contributed to the equity capital of PSI for
general corporate purposes, including repayment of short-term indebtedness
incurred for construction financing.
Cinergy and PSI
Regulatory Lag Ratemaking And Accounting Mechanisms As previously discussed
in the "Regulatory Matters" section, PSI is currently recovering carrying
costs on certain major projects prior to receipt of an order reflecting the
projects in rates. To the extent carrying costs are not recovered currently
on these projects, PSI has approval for deferral of carrying costs until such
projects are reflected in rates (see Note 1(h)Wabash Valley Power Association, Inc.
(WVPA). (See Notes 6 and 12(e) of the "Notes to Financial Statements" in "Item
8. Financial Statements and Supplementary Data"Data.")
CG&E and ULH&P
For the year ended December 31, 1997, CG&E and its subsidiaries' cash provided
from operating activities was $439 million (including $40 million for ULH&P)
compared to $680 million in 1996 (including $42 million for ULH&P) and $446
million in 1995 (including $37 million for ULH&P). The decrease in 1997 was
primarily due to CG&E's and ULH&P's sales of accounts receivable during 1996.
PSI
For the year ended December 31, 1997, PSI's cash provided from operating
activities was $332 million compared to $262 million in 1996 and $284 million in
1995. The increase in 1997 was primarily due to the reflection in 1996 of PSI's
payment of $80 million in accordance with a 1989 settlement agreement between
PSI and WVPA. (See Note 12(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data.")
Cinergy, CG&E, PSI, and ULH&P
Merger Savings As previously discussed in the "Regulatory Matters" section, PSI and CG&E
currently havehas a regulatory ordersorder in effect which provide
mechanismsprovides a mechanism for the
retention of a portion of net Non-fuel Merger Savings.
Cinergy, CG&E, PSI, and ULH&P
DSM Costs In addition to the recovery of previous deferrals of DSM program
costs, the February 1995 Order authorized recovery by PSI of $23 million of
DSM expenditures on an annual basis. Pursuant to the February 1995 Order, DSM
expenditures in excess of this $23 million base level are being deferred for
future recovery in rates. If DSM expenditures in any calendar year are less
than the $23 million in base rates, the unamortized balance of deferred DSM
expenditures will be reduced by such difference. In its current retail rate
proceeding, PSI has requested similar treatment of DSM costs, including an
increase in the ongoing annual expense level from $23 million to $39 million.
The August 1993 Order authorized CG&E to recover annually approximately $5
million of costs associated with DSM programs for residential customers. In
1995, the PUCO authorized the deferral, with carrying costs, of the
expenditures associated with a number of approved DSM programs to the extent
such expenditures are in excess of the $5 million already being recovered.
CG&E is also requesting PUCO approval to defer the costs of additional DSM
programs. In addition, the KPSC has authorized recovery of costs related to
various DSM programs of ULH&P.
See Note 1(g) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".
COMMON STOCK
Cinergy
During 1995, 1994,1997, 1996, and 1993,1995, Cinergy issued 66 thousand, 15 thousand, and 2.6
million 2.8 million, and 2.3
millionnew shares, respectively, of common stock pursuant to its dividend
reinvestment and stock purchase plan and various stock-based employee plans. Historically,In
addition, Cinergy has satisfiedpurchased 1.7 million and 1.2 million shares on the open
market to satisfy substantially all of its 1997 and 1996 obligations,
respectively, under these plans through
the issuance of additional shares of common stock. In the future and to the
extent possible,plans. Cinergy plans to usecontinue using market
purchases of outstanding common stock to satisfy all or at least a portion of its
obligations under these plans.
At December 31, 1995, 15.8 million shares were reserved for issuance
under Cinergy's stock-based plans.
LONG-TERM DEBT AND PREFERRED STOCK
Cinergy, CG&E, PSI, and ULH&P
As of December 31, 1995,1997, CG&E, PSI, and ULH&P had state regulatory authority for
long-term debt issuances of $250$300 million, $298$300 million, and $40$50 million,
respectively. Additionally, PSI had IURC authority to issue up to $40 million
of preferred stock. Regulatory approval to issue additional amounts of debt
securities and preferred stock will
be requested as needed. On March 19, 1998, PSI issued $100 million principal
amount of its 7.25% JUnior Maturing Principal Securities (JUMPS). The JUMPS will
mature on March 15, 2028. Proceeds from the sale were used to repay short-term
indebtedness incurred in connection with the redemption on March 1, 1998, of all
outstanding shares of PSI's 7.44% Series Cumulative Preferred Stock at a
redemption price of $25 per share.
SHORT-TERM DEBT
Cinergy, CG&E, PSI, and ULH&P
Cinergy's utility subsidiaries had regulatory authority to borrow up to $838$853
million ($438453 million for CG&E and its subsidiaries, including $35$50 million for
ULH&P, and $400 million for PSI) as of December 31, 1995.1997. In connection with
this authority, Committed Linescommitted lines have been established which permit borrowings of
up to $322$270 million ($10685 million for CG&E and its subsidiaries, including $30$185 million for ULH&P, and $215 million for PSI), of which
$182$140 million ($10620 million for CG&E and its subsidiaries, including $30 million for ULH&P, and
$74$120 million for PSI) remained unused and
available at December 31, 1995.1997. Also, pursuant to this authority, uncommitted
lines (short-term borrowings with various banks on an "as offered" basis) have
been established. Under these arrangements, $154 million ($100 million for CG&E
and $54 million for PSI) was unused and available at December 31, 1997. CG&E and
PSI also have the capability to issue commercial paper from time to time. All outstanding commercial paper iswhich must be supported
by Committed Linescommitted lines (unsecured lines of credit) of the respective company.
Additionally,
pursuant to this authority, Uncommitted Lines are arranged with various banks.
All Uncommitted Lines provide for maturities of up to 365 days with various
interest rate options.Neither CG&E nor PSI issued commercial paper in 1997 or 1996.
To better manage cash and working capital requirements, Cinergy's utility
subsidiaries, including CG&E, PSI, and ULH&P, participate in a money pooling
arrangement. Under the money pool, participantsthis arrangement, Cinergy system companies with surplus
short-term funds, whether from internal sources, bank loans, or commercial paper sales,external sources, provide short-term
loans to other system companies at rates that approximatereflect (1) the costactual costs of
the external borrowing and/or (2) the costs of the internal funds inwhich are set
at the 30-day Federal Reserve "AA" industrial commercial paper rate. The SEC's
approval of the money pool. The SEC's approval,pool, pursuant to the PUHCA, extends through December 31,
2002. For amounts outstanding under this money pool arrangement at December 31,
1997, and December 31, 1996, see "Notes payable to affiliated companies" on the
Consolidated Balance Sheets of CG&E and PSI and the Balance Sheets of ULH&P.
Cinergy
In 1997, Cinergy amended its existing credit facility. At year-end, Cinergy had
two separate credit facilities, a $350 million acquisition commitment and a $400
million revolving credit facility, which provides credit support for Cinergy's
newly instituted commercial paper program (see below). As of December 31, 1997,
approximately $111 million of the money pool extends$400 million revolving facility, excluding the
amount reserved for commercial paper support, remained unused and available.
Cinergy's newly instituted commercial paper program is limited to a maximum
outstanding principal amount of $200 million. As of December 31, 1997,
approximately $161 million of commercial paper was outstanding under this
program. The majority of the proceeds were used to reduce the acquisition
commitment to the year-end level of $350 million. The entire $350 million was
utilized to fund the acquisition of Midlands through May 31, 1997.Avon Energy and its
wholly-owned subsidiary.
In addition, Cinergy hasUK, Inc., a $100subsidiary of Investments, which holds
Cinergy's 50% investment in Avon Energy, entered into a $40 million non-recourse
credit facilityagreement in 1996, which expireswas terminated in September 1997 andOctober of 1997. This
agreement was replaced by a one year $115 million non-recourse revolving credit
agreement, which had $81 million unused atas of December 31, 1995. The facility may be
increased1997.
On January 20, 1998, the SEC issued an order under the PUHCA permitting Cinergy
to a maximumissue and sell from time to time through December 31, 2002: 1) short-term
notes and commercial paper in an aggregate principal amount not to exceed $2
billion outstanding at any time; and 2) up to approximately 30 million
additional shares of $300 million,Cinergy common stock. Cinergy intends to use the net
proceeds from the issuance and the Company has an annual option
of extending the termsale of the facility by one year. This credit facility will
be usedabove mentioned securities for
general corporate purposespurposes.
Net cash used in financing activities totaled $343 million in 1997, as compared
to $110 thousand and funding non-utility business
ventures.$410 million in 1996 and 1995, respectively. The change in
cash flow from financing activities for 1997 primarily resulted from Cinergy
borrowing under its credit facility in 1996 to fund the acquisition of Midlands.
CG&E and ULH&P
CG&E and its subsidiaries' net cash used in financing activities totaled $275
million (including $17 million for ULH&P) for 1997, as compared to $521 million
(including $23 million for ULH&P) for 1995 and $339 million (including $17
million for ULH&P) for 1994. The change in cash flow from financing activities
for 1997 was primarily attributable to CG&E's payments of common stock dividends
to Cinergy during 1996.
PSI
PSI's net cash used in financing activities totaled $165 million for 1997, as
compared to $77 million for 1996 and $45 million for 1995. The change in cash
flow from financing activities for 1997 was primarily attributable to PSI's
issuance of long-term debt in 1996.
SALE OF ACCOUNTS RECEIVABLE
Cinergy, CG&E, PSI, and ULH&P
In January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on a
revolving basis, undivided percentage interests in certain of their accounts
receivable up to an aggregate maximum of $350 million. PSI had a similar
agreement, which expired in January 1996, to sell up to $90 million, of which $252 million
($167 million by CG&E and its accounts receivable.subsidiaries, including $29 million by ULH&P, and
$85 million by PSI), net of reserves, has been sold as of December 31, 1997. The
Consolidated Balance Sheets of Cinergy, CG&E, and PSI and the Balance Sheets of
ULH&P are net of the amounts sold at December 31, 1997 and 1996.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
Cinergy, CG&E, PSI, and ULH&P
ACCOUNTING CHANGES
SeeThe following discussions about Cinergy's market risk sensitive instruments and
positions and risk management activities include forward-looking information and
statements that involve risks and uncertainties. The forward-looking information
and statements presented are only estimates of what may occur in the informationfuture,
assuming certain adverse market conditions, due to their dependence on Statement 121 provided herein undermodel
characteristics and assumptions. As a result, actual future results may differ
materially from those presented. These disclosures are not precise indicators of
expected future losses, rather they merely present indications of reasonably
possible losses.
Energy Commodities Sensitivity
Cinergy, CG&E, and PSI
During 1996 Cinergy functionally reorganized its operations into four strategic
business units, including an energy commodities business unit. The energy
commodities business unit includes Cinergy's power marketing and trading
function, which was formally established in 1995 and was the caption
"Substantial Accounting Implications"natural successor
of CG&E's and Note 1(d)PSI's existing bulk power operations.
At present, the competitive electric power market is dominated by a small number
of large participants (primarily utilities and a few power marketers), trading
liquidity is limited, and pricing is not transparent. However, similar to the
development of natural gas markets, the market for trading electricity is
expected to develop rapidly and Cinergy plans to be a major participant.
The transactions associated with Cinergy's power marketing and trading function
give rise to various risks, including market risk. Market risk represents the
potential risk of loss from changes in the market value of a particular
commitment arising from adverse changes in market rates and prices. Cinergy's
power marketing and trading operations are actively conducted in all regions of
the "NotesUS. These operations subject Cinergy to Financial
Statements"the risks and volatilities
associated with the energy commodities (e.g., primarily electricity) which it
markets and trades. The wholesale power marketing and trading business continues
to be very competitive and, as a result, margins have declined throughout the
year. As Cinergy continues to develop and expand its power marketing and trading
business (and due to its substantial investment in "Item 8. Financial Statementsgenerating assets), its
exposure to movements in the price of electricity and Supplementary Data"other energy commodities
will become greater. As a result, Cinergy may be subject to increased earnings
volatility.
Cinergy's power marketing and trading activities principally consist of
marketing and trading over-the-counter contracts for the purchase and sale of
electricity. The majority of these contracts commit Cinergy to purchase or sell
electricity at fixed prices in the future (i.e., fixed-price forward purchase
and sales contracts). Cinergy also markets and trades over-the-counter option
contracts. The majority of these forward and option contracts require settlement
by physical delivery of electricity or are netted out in accordance with
industry trading standards. The use of these types of physical commodity
instruments is designed to allow Cinergy to manage and hedge its contractual
commitments, reduce its exposure relative to the volatility of cash market
prices, and take advantage of selected arbitrage opportunities. The use of
derivative commodity instruments intended to be settled in cash was not
significant during 1997.
Cinergy values its portfolio of over-the-counter forward and option contracts
using the aggregate lower of cost or market method. To the extent there are
estimated net aggregate losses in the portfolio, Cinergy reserves for such
losses. As these contracts are settled, actual gains and losses may differ from
the estimated gains and losses utilized in calculating the aggregate lower of
cost or market reserve due to changing market conditions.
Cinergy structures and modifies its net position to capture expected changes in
future demand, seasonal market pricing characteristics, overall market
sentiment, and price relationships between different time periods and trading
regions. Therefore, at times, Cinergy creates a net open position or allows a
net open position to continue when it believes future changes in prices and
market conditions will make the positions profitable. Position imbalances may
also occur because of the basic lack of liquidity in the wholesale power market
itself. To the extent net open positions exist, Cinergy is exposed to the risk
that fluctuating market prices of electric power may potentially impact its
financial condition or results of operations adversely if prices do not move in
the manner or direction expected.
Cinergy measures the risk inherent in its portfolio utilizing value-at-risk
analysis and other methodologies, which simulate forward price curves in
electric power markets to quantify estimates of the magnitude and probability of
potential future losses related to open contract positions. Cinergy's
value-at-risk expresses the potential loss in fair value of its forward contract
and option position over a particular period of time, with a specified
likelihood of occurrence, due to an adverse market movement. Cinergy reports
value-at-risk as a percentage of its earnings, based on a 95% confidence
interval, utilizing one day holding periods. On a one day basis as of December
31, 1997, Cinergy's value-at-risk for its power marketing and trading activities
was less than 2% of Cinergy's "Income Before Interest and Other Charges". The
value-at-risk model uses the variance-covariance statistical modeling technique
and historical volatilities and correlations over the past 200 day period. The
estimated market prices used to value these transactions for value-at-risk
purposes reflect the use of established pricing models and various factors
including quotations from exchanges and over-the-counter markets, price
volatility factors, the time value of money, and location differentials.
Cinergy
Cinergy Capital & Trading, Inc. (CC&T), a subsidiary of Investments,
specializing in energy risk management, marketing, and proprietary arbitrage
trading, actively trades derivative commodity instruments, customarily settled
in cash, including futures, forwards, swaps, and options. CRI also utilizes
derivative commodity instruments, customarily settled in cash, to hedge
purchases and sales of natural gas. The trading and hedging activities of CC&T
and the hedging activities of CRI were not significant to Cinergy's financial
condition or results of operations.
Cinergy, CG&E, PSI, and ULH&P
INFLATION
OverCredit risk represents the past several years,risk of loss which would occur as a result of
nonperformance by counterparties pursuant to the terms of their contractual
obligations with the Company. Concentrations of credit risk relate to
significant customers or counterparties, or groups of customers or
counterparties, possessing similar economic or industry characteristics that
would cause their ability to meet contractual obligations to be similarly
affected by changes in economic or other conditions.
Concentration of credit risk with respect to Cinergy's trade accounts receivable
from electric and gas retail customers is limited due to Cinergy's large number
of customers and diversified customer base of residential, commercial, and
industrial customers. Sales for resale customers on Cinergy's electric system
include traditional electric cooperatives and municipalities with which CG&E and
PSI have long-standing relationships. Contracts for sales of electricity for
resale outside of Cinergy's system are principally with power marketers, other
investor owned utilities, electric cooperatives, and municipalities. As of
December 31, 1997, approximately 65% of Cinergy's power marketing and trading
activity represents commitments with 10 counterparties. The majority of these
contracts are for terms of one year or less. As the competitive electric power
market expands, counterparties will increasingly include new market entrants,
such as other power marketers, brokers, and commodities traders. This increased
level of new market entrants, as well as competitive pressures on the utility
market participants, could increase Cinergy's exposure to credit risk. As of
December 31, 1997, Cinergy's management believes nonperformance of contractual
obligations by any one counterparty of Cinergy's power marketing and trading
function would not result in losses which are significant to the financial
condition or results of operations of Cinergy.
Cinergy, CG&E, and PSI
Cinergy's energy commodities business unit has established a risk management
function and has implemented active risk management policies and procedures to
manage and minimize its exposure to price risks and associated volatilities,
other market risks, and credit risk. Cinergy maintains credit policies with
regard to its counterparties in order to manage and minimize its exposure to
credit risk. These policies include requiring parent company guaranties and
various forms of collateral under certain circumstances and the use of mutual
netting/closeout agreements. Cinergy manages, on a portfolio basis, the market
risks inherent in its power marketing and trading transactions subject to
parameters established by Cinergy's Risk Policy Committee. Market risks are
monitored by the Risk Management Group of Cinergy's energy commodities business
unit, which operates separately from the units which originate or actively
manage the market risk exposures, to ensure compliance with Cinergy's stated
risk management policies and procedures. These policies and procedures are
reviewed and monitored on a continuous basis to ensure their responsiveness to
changing market and business conditions. In addition, efforts are ongoing to
develop systems to improve the timeliness and quality of market and credit risk
information.
Exchange Rate Sensitivity
Cinergy
Cinergy has exposure to fluctuations in the US dollar/UK pound sterling exchange
rate through its investment in Midlands. Cinergy used dollar denominated
variable interest rate debt to fund this investment, and has hedged the exchange
rate exposure related to this transaction through a currency swap executed in
February 1997. Under the swap, Cinergy exchanged $500 million for 330 million
pounds sterling. When the swap terminates in the year 2002, these amounts will
be re-exchanged; that is, Cinergy will be repaid $500 million and will be
obligated to repay to the counterparty 330 million pounds sterling. To fund this
repayment, Cinergy could buy 330 million pounds sterling in the foreign exchange
market at the prevailing spot rate or enter into a new currency swap.
The purpose of inflationthis swap is to hedge the value of Cinergy's investment in
Midlands against changes in the dollar/sterling exchange rate. When the pound
sterling weakens relative to the dollar, the dollar value of Cinergy's
investment in Midlands as shown on its books declines; however, the value of the
swap increases, offsetting the decline in the investment. The reverse is true
when the pound sterling appreciates relative to the dollar. The translation
gains and losses related to the principal exchange on the swap and on Cinergy's
original investment in Midlands are recorded in the cumulative foreign currency
translation adjustment which is reported as a separate component of common stock
equity in the Consolidated Financial Statements.
In connection with this swap, Cinergy must pay semi-annual interest on its pound
sterling obligation and will receive interest on the dollar notional amount. At
December 31, 1997, the fair value of this swap, reflecting the semi-annual
interest obligations through February 2002, and the final principal exchange,
was $(48) million. This was largely offset by a $41 million currency translation
gain to date on Cinergy's investment in Midlands.
The following table summarizes the details of the swap. (For presentation
purposes, the pound sterling payment obligation has been relatively low.converted to US dollars
using the dollar/sterling spot exchange rate at December 31, 1997, of 1.64515.
The interest rates are based on the six-month London Interbank Offered Rate
(LIBOR) implied forward rates at December 31, 1997.)
Expected Maturity Date
There-
1998 1999 2000 2001 2002 after Total
Currency Swap ($US Equivalent in millions)
Receive principal ($US) $ - $ - $ - $ - $500 $ - $500
Average interest
receive rate - % - % - % - % 6.1% - % 6.1%
Pay principal (pound
sterling UK) $ - $ - $ - $ - $543 $ - $543
Average interest
pay rate - % - % - % - % 7.0% - % 7.0%
Interest Rate Sensitivity
Cinergy, CG&E, PSI, and ULH&P
Cinergy's net exposure to changes in interest rates primarily consists of
short-term debt instruments with floating interest rates that are benchmarked to
US short-term money market indices. At December 31, 1997, this included (i)
short-term bank loans and commercial paper totaling $870 million ($105 million
for CG&E and $131 million for PSI), (ii) $244 million of pollution control
related debt ($184 million for CG&E and $60 million for PSI) which is classified
as other short-term obligations on Cinergy's, CG&E's, and PSI's respective
Balance Sheets, and (iii) a $252 million sale of accounts receivable ($167
million sold by CG&E and its subsidiaries, including $29 million sold by ULH&P,
and $85 million sold by PSI) (Cinergy's, CG&E's, PSI's, and ULH&P's respective
Balance Sheets are net of this sale). At December 31, 1997, interest rates on
bank loans, commercial paper, and the sale of accounts receivable approximated
6%, and the interest rate on the pollution control debt approximated 4%. Current
forward yield curves project no significant change in applicable short-term
interest rates over the next five years.
The following table presents the principal cash repayments and related weighted
average interest rates by maturity date for Cinergy and certain of its utility
subsidiaries' long-term fixed-rate debt, other debt and capital lease
obligations as of December 31, 1997:
Expected Maturity Date
There- Fair
1998 1999 2000 2001 2002 after Total Value
(in millions)
Liabilities
Cinergy and Subsidiaries
Long-term Debt (a)
Fixed rate $ 35 $186 $ 31 $100 $149 $1 650 $2 151 $2 240
Average interest rate (b) 5.3% 6.3% 5.7% 6.1% 7.3% 7.2% 7.1%
Other (c) $ - $ - $ - $ - $ - $ 100 $ 100 $ 97
Average interest rate (b) -% -% -% -% -% 6.5% 6.5%
Capital Lease
Variable rate $ - $ - $ - $ 22 $ - $ - $ 22 $ 22
Average interest rate (b) -% -% -% 5.6% -% -% 5.6%
CG&E and Subsidiaries
Long-term Debt (a)
Fixed rate $ - $180 $ - $ 61 $100 $ 892 $1 233 $1 258
Average interest rate (b) -% 6.3% -% 7.4% 7.3% 7.2% 7.1%
Other (c) $ - $ - $ - $ - $ - $ 100 $ 100 $ 97
Average interest rate (b) -% -% -% -% -% 6.5% 6.5%
Capital Lease
Variable rate $ - $ - $ - $ 22 $ - $ - $ 22 $ 22
Average interest rate (b) -% -% -% 5.6% -% -% 5.6%
PSI
Long-term Debt (a)
Fixed rate $ 35 $ 6 $ 31 $ 39 $ 49 $ 758 $ 918 $ 982
Average interest rate (b) 5.3% 7.2% 5.7% 4.0% 7.3% 7.3% 7.1%
ULH&P
Long-term Debt (a)
Fixed rate $ - $ 20 $ - $ - $ - $ 25 $ 45 $ 46
Average interest rate (b) -% 6.5% -% -% -% 7.8% 7.2%
(a) Includes amounts reflected as long-term debt due within one year.
(b) For the long-term debt obligations, the weighted average interest rate
is based on the coupon rates of the debt that is maturing in the year
reported. For the capital lease, the interest rate is based on a spread
over 3-month LIBOR, and averaged to be approximately 6% in 1997. For
the variable rate Liquid Asset Notes with Coupon Exchange (LANCEs), the
current forward yield curve suggests the interest rate on these notes
would be fixed at 6.50% commencing October 1, 1999.
(c) Variable rate LANCEs.
Cinergy, CG&E, and PSI
To manage Cinergy's exposure to fluctuations in interest rates and to lower
funding costs, Cinergy constantly evaluates the use of, and has entered into,
several interest rate swaps. Under these swaps, Cinergy or its subsidiaries
agree with counterparties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated on an agreed
notional amount. This interest differential paid or received is recognized in
the Consolidated Statements of Income as a component of interest expense.
Through two interest rate swap agreements, Cinergy has effectively fixed the
interest rate on the pound sterling denominated obligation created by the
currency swap discussed above. Each contract requires Cinergy to pay
semi-annually a fixed rate and receive a floating rate through February 2002.
The combined notional amount of both swaps is 330 million pounds sterling.
Translation gains and losses related to Cinergy's interest obligation, which is
payable in pounds sterling, are recognized as a component of interest expense in
the Consolidated Statements of Income.
At December 31, 1997, PSI had two interest rate swap agreements outstanding with
notional amounts of $1OO million each. One contract, with three years remaining
of a four-year term, requires PSI to pay a floating rate and receive a fixed
rate. The second contract, with a six-month term, requires PSI to pay a fixed
rate and receive a floating rate. In both cases, the floating rate is based on
applicable LIBOR. The following table presents notional principal amounts and
weighted average interest rates by contractual maturity dates for the interest
rate swaps of Cinergy and PSI. The variable rates are the average implied
forward rates during the contract based on the six month LIBOR yield curve at
December 31, 1997. Although Cinergy's swaps require payments to be made in
pounds sterling, the table reflects the dollar equivalent notional amounts based
on spot market foreign currency exchange rates at December 31, 1997.
Expected Maturity Date
There- Fair
1998 1999 2000 2001 2002 after Total Value
Interest Rate ($US Equivalent in millions)
Derivatives
Interest Rate Swaps
Receive fixed/pay
variable ($US) $ - $ - $100 $ - $ - $ - $100 $ -
Average pay rate 5.9% 6.0% 6.1% - % - % - % 6.0%
Average receive rate 6.1% 6.1% 6.1% - % - % - % 6.1%
Receive variable/pay
fixed ($US) $100 $ - $ - $ - $ - $ - $100 $ -
Average pay rate 6.0% - % - % - % - % - % 6.0%
Average receive rate 5.9% - % - % - % - % - % 5.9%
Receive variable/pay
fixed (pound
sterling UK) $ - $ - $ - $ - $543(a) $ - $543(a) $(3)
Average pay rate - % - % - % - % 7.1% - % 7.1%
Average receive rate - % - % - % - % 6.9% - % 6.9%
(a) Notional converted to US dollars using the Sterling spot exchange rate at
December 31, 1997, of 1.64515.
INFLATION
Cinergy, CG&E, PSI, and ULH&P
Cinergy believes that the recent inflation rates do not materially affect its
financial condition or results of operations or financial condition.operations. However, under existing regulatory
practice, only the historical cost of plant is recoverable from customers. As a
result, cash flows designed to provide recovery of historical plant costs may
not be adequate to replace plant in future years.
DIVIDEND RESTRICTIONS
Cinergy, CG&E, and PSI
DIVIDEND RESTRICTIONS
See Notes 3(b) and 4(c)Note 2(b) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".Data."
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
RESULTS OF OPERATIONS
Reference is made to "ITEM"Item 8. Financial Statements and Supplementary Data".Data."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cinergy, CG&E, PSI, and ULH&P
Reference is made to the "Market Risk Sensitive Instruments and Positions"
section in "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Index to Financial Statements and Financial Statement Schedules
Page Number
Financial Statements
Cinergy, CG&E, PSI, and ULH&P
Report of Independent Public Accountants.Accountants . . . . . . .
Cinergy
Consolidated Statements of Income for the
three years ended December 31, 1995 .1997. . . . . . . . .
Consolidated Balance Sheets at
December 31, 19951997 and 19941996 . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1995.1997. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1995.1997. . . . .
Results of Operations. . . . . . . . . . . . . . . . .
CG&E
Consolidated Statements of Income for the
three years ended December 31, 1995.1997. . . . . . . . .
Consolidated Balance Sheets at
December 31, 19951997 and 19941996 . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1995.1997. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1995.1997. . . . .
Results of Operations. . . . . . . . . . . . . . . . .
PSI
Consolidated Statements of Income for the
three years ended December 31, 1995.1997. . . . . . . . .
Consolidated Balance Sheets at
December 31, 19951997 and 19941996 . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1995.1997. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1995.1997. . . . .
Results of Operations. . . . . . . . . . . . . . . . .
ULH&P
Statements of Income for the three years ended
December 31, 1995.1997. . . . . . . . . . . . . . . . . .
Balance Sheets at December 31, 19951997 and 19941996 . . . . .
Statements of Changes in Common Stock Equity
for the three years ended December 31, 1995.1997. . . . .
Statements of Cash Flows for the three years
ended December 31, 1995.1997. . . . . . . . . . . . . . .
Results of Operations. . . . . . . . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . . .
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Cinergy . . . . . . . . . . . . . . . . . . . . . .
CG&E. . . . . . . . . . . . . . . . . . . . . . . .
PSI . . . . . . . . . . . . . . . . . . . . . . . .
ULH&P . . . . . . . . . . . . . . . . . . . . . . .
The information required to be submitted in schedules other than those indicated
above has been included in the balance sheets, the statements of income, related
schedules, the notes thereto, or omitted as not required by the Rules of
Regulation S-X.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Cinergy Corp., The Cincinnati Gas & Electric
Company, PSI Energy, Inc., and The Union Light, Heat and Power Company:
We have audited the financial statements of Cinergy Corp. (a Delaware
Corporation), The Cincinnati Gas & Electric Company (an Ohio Corporation), PSI
Energy, Inc. (an Indiana Corporation), and The Union Light, Heat and Power
Company (a Kentucky Corporation), as of December 31, 19951997 and 1994,1996, and for each
of the three years in the period ended December 31, 1995,1997, as listed in the index
on page 46.53. These financial statements and the schedules referred to below are
the responsibility of management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cinergy Corp., The Cincinnati
Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company as of December 31, 19951997 and 1994,1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995,1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental financial statement
schedules listed in the index on page 4754 pursuant to Item 14, are presented for
purposes of complying with the Securities and Exchange Commission's Rules and
Regulations under the Securities Exchange Act of 1934 and are not a required
part of the basic financial statements. The supplemental financial statement
schedules have been subjected to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Cincinnati, Ohio
January 25, 199627, 1998
Cinergy Corp.
and Subsidiaries
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
1997 1996 1995 1994 1993
(in thousands, except per share amounts)
Operating Revenues
(Note 2)
Electric $3 861 698 $2 620 581768 706 $2 455 537 $2 374 242612 579
Gas 491 145 474 034 410 852
442 398 469 2964 352 843 3 031 433 2 897 935 2 843 538242 740 3 023 431
Operating Expenses
Fuel used in electric production 693 435 713 250 716 754
712 993 733 159
Gas purchased 266 158 249 116 206 250 248 293 280 836
Purchased and exchanged power 1 219 358 158 838 47 632
49 082 36 209
Other operation 534 587 563 650 456637 945 598 434 520 590
Maintenance 176 471 193 908 182 180
200 959 192 877
Depreciation 289 077 282 763 279 759 294 395 278 882
Amortization of phase-in deferrals 13 483 13 598 9 091 - -
Post-in-service deferred operating
expenses - net 4 362 (1 509) (2 500) (5 998) (11 540)
Phase-in deferred depreciation - (2 161) (8 524)
Income taxes (Note 12) 219 462 152 181 172 63711) 248 937 218 269 221 429
Taxes other than income taxes 256 086 244 051 229 148265 024 257 815 255 533
3 814 250 2 449 301684 482 2 457 445 2 360 274436 718
Operating Income 582 132 440 490 483 264538 593 558 258 586 713
Other Income and Expenses - Net
Allowance for equity funds used
during construction 98 1 225 1 964 6 201 14 327
Post-in-service carrying costs - 1 223 3 186 9 780 18 105
Phase-in deferred return 8 008 8 372 8 537
15 351 35 334
ReductionEquity in earnings of loss related to the
IURC's June 1987 Orderunconsolidated
subsidiaries (Note 1(e)) 60 392 25 430 - - 20 134
Write-off of a portion of Zimmer - - (234 844)
Income taxes (Note 12)
Related to the IURC's June 1987
Order - - (7 444)
Related to the write-off of a
portion of Zimmer - - 12 085
Other 5 391 10 609 21 04311) 35 937 19 536 7 358
Other - net 3 497 (28 444)(31 502) (40 299)
22 575 13 497 (161 559)464) (3 051)
72 933 15 322 17 994
Income Before Interest and Other Charges 611 526 573 580 604 707 453 987 321 705
Interest and Other Charges
Interest on long-term debt 181 772 190 617 213 911
219 248 225 990
Other interest 59 947 31 169 20 826 20 370 7 923
Allowance for borrowed funds used
during construction (5 400) (6 183) (8 065) (12 332) (12 740)
Preferred dividend requirements of
subsidiaries 12 569 23 180 30 853
35 559 37 985248 888 238 783 257 525
262 845 259 158Net Income Before Extraordinary Item $ 362 638 $ 334 797 $ 347 182
Extraordinary Item - Equity Share of
Windfall Profits Tax (Less Applicable
Income Taxes of $0) (Note 17) (109 400) - -
Net Income $ 253 238 $ 334 797 $ 347 182 $ 191 142 $ 62 547
Average Common Shares Outstanding 157 685 157 678 156 620 147 426 144 226
Earnings Per Common Share (Note 16)
Net income before extraordinary item $2.30 $2.00 $2.22
$1.30 $.43Net income $1.61 $2.00 $2.22
Earnings Per Common Share - Assuming
Dilution (Note 16)
Net income before extraordinary item $2.28 $1.99 $2.20
Net income $1.59 $1.99 $2.20
Dividends Declared Per Common Share $1.80 $1.74 $1.72 $1.50 $1.46
The accompanying notes are an integral part of these consolidated financial
statements.
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1995 1994_1997 1996
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $8 617 695981 182 $8 292 625809 786
Gas 680 339 645 602746 903 713 829
Common 184 663186 078 185 718255
9 482 697914 163 9 123 945708 870
Accumulated depreciation 3 367 401800 322 3 163 802591 858
6 115 296 5 960 143
CWIP 135 852 238 750113 841 6 117 012
Construction work in progress 183 262 172 614
Total utility plant 6 251 148297 103 6 198 893289 626
Current Assets
Cash and temporary cash investments 35 052 71 88053 310 19 327
Restricted deposits 2 336 11 288319 1 721
Accounts receivable less accumulated provision
of $10,360 in 1995 and $9,716 in 1994
for doubtful accounts of $10,382 in 1997 and
$10,618 in 1996 (Note 7) 371 150 299 5096) 413 626 199 361
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 122 409 156 02857 916 71 730
Gas stored for current use 21 493 31 28429 174 32 951
Other materials and supplies 85 076 92 880
Property taxes applicable to subsequent year 116 822 112 42076 066 80 292
Prepayments and other 32 347 36 416
786 685 811 70538 171 37 049
670 582 442 431
Other Assets
Regulatory assets (Note 1(f))
Amounts due from customers - income taxes 423 493 408 514374 456 377 194
Post-in-service carrying costs and deferred
operating expenses 187 190 185 280178 504 186 396
Coal contract buyout costs 122 485 138 171
Deferred demand-side management costs 109 596 134 742
Phase-in deferred return and depreciation 100 388 100 943
Deferred DSM costs 129 400 104 12789 689 95 163
Deferred merger costs 56 824 49 65890 346 93 999
Unamortized costs of reacquiring debt 73 90466 242 70 424518
Other 74 911 86 38945 533 72 483
Investments in unconsolidated
subsidiaries (Note 1(e)) 537 720 592 660
Other 136 121 133 909275 897 231 551
1 182 231890 468 1 139 244992 877
$8 220 064858 153 $8 149 842724 934
The accompanying notes are an integral part of these consolidated financial
statements.
CINERGY CORP.
CAPITALIZATION AND LIABILITIES
December 31
1995 19941997 1996
(dollars in thousands)
Common Stock Equity (Note 3)2)
Common stock - $.01 par value;
authorized shares - 600,000,000;
outstanding shares - 157,670,141157,744,658 in 19951997
and 155,198,038157,679,129 in 19941996 $ 1 577 $ 1 552577
Paid-in capital 1 597 050573 064 1 535 658590 735
Retained earnings 950 216 877 061965 084 992 273
Cumulative foreign currency
translation adjustment (525) (131)
Total common stock equity 2 548 843539 200 2 414 271584 454
Cumulative Preferred Stock of Subsidiaries (Note 4)3)
Not subject to mandatory redemption 227 897 267 929
Subject to mandatory redemption 160 000 210 000177 989 194 232
Long-term Debt (Note 5)4) 2 530 766150 902 2 715 269326 378
Total capitalization 4 868 091 5 467 506 5 607 469105 064
Current Liabilities
Long-term debt due within one year (Note 5) 201 900 60 4004) 85 000 140 000
Notes payable and other short-term
obligations (Note 6) 165 800 228 9005) 1 114 028 922 217
Accounts payable 263 403 266 467
Litigation settlement (Note 13(e)) 80 000 80 000488 716 305 420
Accrued taxes 317 185 258 041187 033 199 479
Accrued interest 46 622 55 995 58 504590
Other 61 938 52 09279 193 114 653
2 000 592 1 146 221 1 004 404737 359
Other Liabilities
Deferred income taxes (Note 12)11) 1 120 900248 543 1 071 104146 263
Unamortized investment tax credits 185 726 195 878166 262 175 935
Accrued pension and other postretirement
benefit costs (Notes 109 and 11) 171 771 133 57810) 297 142 263 319
Other 127 940 137 409277 523 296 994
1 606 337989 470 1 537 969882 511
Commitments and Contingencies (Note 13)12)
$8 220 064858 153 $8 149 842724 934
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Cumulative
Foreign
Currency
Common Paid-in Retained Translation Total Common
Stock Capital Earnings Adjustment Stock Equity
(dollars in thousands)
Balance December 31, 1992 $1 430 $1 260 474 $1 055 040 $2 316 944
Net income 62 547 62 547
Issuance of 3,443,918 shares of
common stock 23 57 159 57 182
Common stock issuance expenses (145) (145)
Costs of issuing and retiring
preferred stock of subsidiaries (5 062) (5 062)
Dividends on common stock (see
page 50 for per share amounts) (209 861) (209 861)
Other 76 76
Balance December 31, 1993 1 453 1 312 426 907 802 2 221 681
Net income 191 142 191 142
Issuance of 9,830,042 shares of
common stock 99 227 882 227 981
Common stock issuance expenses (5 225) (5 225)
Dividends on common stock (see
page 50 for per share amounts) (221 362) (221 362)
Other 575 (521) 54
Balance December 31, 1994 1$1 552 1$1 535 658 877$877 061 2$ - $2 414 271
Net income 347 182 347 182
Issuance of 2,472,103 shares of
common stock - net 25 60 343 60 368
Common stock issuance expenses (229) (229)
Dividends on common stock (see
page 5057 for per share amounts) (268 851) (268 851)
Other 1 278 (5 176) (3 898)
Balance December 31, 1995 1 577 1 597 050 950 216 - 2 548 843
Net income 334 797 334 797
Issuance of 8,988 shares of
common stock - net 311 311
Treasury shares purchased (4) (14 887) (14 891)
Treasury shares reissued 4 8 599 8 603
Dividends on common stock (see
page 57 for per share amounts) (274 358) (274 358)
Translation adjustments (131) (131)
Costs of reacquisition of
preferred stock of subsidiary (18 391) (18 391)
Other (338) 9 ____ (329)
Balance December 31, 1996 1 577 1 590 735 992 273 (131) 2 584 454
Net income 253 238 253 238
Issuance of 65,529 shares of
common stock - net 2 066 2 066
Treasury shares purchased (11) (46 199) (46 210)
Treasury shares reissued 11 26 729 26 740
Dividends on common stock (see
page 57 for per share amounts) (283 866) (283 866)
Translation adjustments (394) (394)
Other (267) 3 439 3 172
Balance December 31, 1997 $1 577 $1 597 050 $ 950 216573 064 $965 084 $(525) $2 548 843539 200
The accompanying notes are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1997 1996 1995 1994 1993
(in thousands)
Operating Activities
Net income $ 347$253 238 $334 797 $347 182 $ 191 142 $ 62 547
Items providing or (using) cash currently:cash:
Depreciation 289 077 282 763 279 759 294 395 278 882
Deferred income taxes and investment
tax credits - net 67 638 47 912 28 411
30 926 96 470Equity in earnings of unconsolidated
subsidiaries (35 239) (25 430) -
Extraordinary item - equity share of windfall
profits tax 109 400 - -
Allowance for equity funds used during
construction (98) (1 225) (1 964) (6 201) (14 327)
Regulatory assets - net 1 026 (58 165) (85 786)
Write-off of a portion of Zimmer - - 234 84471 310 39 282 33 324
Changes in current assets and current
liabilities
Restricted deposits (598) (358) (1 035)
10 046 40
Accounts receivable, net of reserves
on receivables sold (217 157) 132 749 (71 641) 40 550 (24 152)
Materials, supplies, and fuel 21 817 44 005 51 214
(45 949) 61 969
Accounts payable (3 064) (8 191) 62 508
Advance under accounts receivable purchase
agreement183 296 37 281 1 672
Litigation settlement - (49 940) 49 940(80 000) -
Accrued taxes and interest 56 635 5 753 7 257(21 414) (1 289) 52 233
Other items - net 32 175 44,604 16 872 36 890 (83 481)538
Net cash provided by (used in) operating activities 703 395 441 256 646 711753 445 855 091 735 693
Financing Activities
Issuance of common stock 2 066 311 60 139 222 756 57 037
Issuance of preferred stock of subsidiaries - - 156 325
Issuance of long-term debt 344100 062 150 217 260 280 420 935 538 704
Funds on deposit from issuance of long-term debt - 973 9 987 27 897 (31 342)
Retirement of preferred stock of subsidiaries (16 269) (212 487) (93 466) (40 426) (60 107)
Redemption of long-term debt (336 312) (237 183) (398 833) (313 682) (502 335)
Change in short-term debt (63 100) 51 186 (13 033)191 811 572 417 20 900
Dividends on common stock (283 866) (274 358) (268 851)
(221 362) (209 861)
Net cash provided by (used in)used in financing activities (342 508) (110) (409 844) 147 304 (64 612)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (328 055) (323 013) (324 905)
(480 533) (549 028)
Deferred DSMdemand-side management costs (19 867) (44 344) (57 571)
Investments in unconsolidated subsidiaries (29 032) (503 349) - net (25 273) (47 268) (33 763)
Equity investments in Argentine utilities - - 19 799
- (206)
Net cash provided by (used in)used in investing activities (330 379) (527 801) (582 997)(376 954) (870 706) (362 677)
Net increase (decrease) in cash and temporary
cash investments 33 983 (15 725) (36 828) 60 759 (898)
Cash and temporary cash investments at beginning
of period 19 327 35 052 71 880 11 121 12 019
Cash and temporary cash investments at end of
period $ 53 310 $ 19 327 $ 35 052 $ 71 880 $ 11 121
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $ 218$235 948 $207 393 $218 357 $ 211 163 $ 213 774
Income taxes 140 655 141 917 140 189 96 680 81 327
The accompanying notes are an integral part of these consolidated financial statements.
RESULTS OF OPERATIONS - CINERGY
KwhKilowatt-Hour (kwh) Sales
Increased activity in Cinergy's power marketing and trading operations led to
higher non-firm power sales for resale and significantly contributed to the
increase in total kwh sales of 78.7%, as compared to 1996. The increase in
retail sales, which reflects a higher average number of commercial and
industrial customers, was partially offset by a decline in residential sales as
a result of mild weather. (See Note 1(c) of the "Notes to Financial Statements"
in "Item 8. Financial Statements and Supplementary Data" and the "Market Risk
Sensitive Instruments and Positions" section for discussions on Cinergy's power
marketing and trading operations.)
Cinergy's total kwh sales in 1995,1996, as compared to 1995, increased 11.0%
reflecting an increase in sales to all customer classes. Increased activity in
Cinergy's power marketing and trading operations led to higher non-firm power
sales for resale. The increase in retail sales which reflects a higher average
number of residential and commercial customers was partially offset by the
return to more normal weather in 1996. The increase in industrial sales was due
to growth in the primary metals sector.
As compared to 1994, total kwh sales in 1995 increased 4.1%, reflecting increasedhigher
sales to all retail customer classes. Contributing significantly to this
increase were higher residential and commercial sales due to warmer weather
during the 1995 summer cooling season and colder weather during the fourth
quarter of 1995. Additionally, increased sales to industrial customers,
reflecting growth in the primary metals and chemicals sectors, contributed to
the increased kwh sales level. These increases were offset, in part, by a
decline in non-firm power sales for resale.
Total kwh sales increased 2.8% in 1994, as compared to 1993, due in large part
to non-firm power sales for resale, reflecting third party, short-term power
sales to other utilities through PSI's system and direct power sales by PSI to
other utilities. This increase was partially offset by CG&E's reduced power
sales to other utilities in 1994. Also significantly contributing to the
total kwh sales levels were increased sales to industrial customers. This
increase reflected growth in the primary metals and transportation equipment
sectors. Commercial sales increased due, in part, to new customers. A
decrease in residential sales resulted from the milder weather experienced
during the third and fourth quarters of 1994.
A return to more normal weather contributed to the 5.3% increase in total kwh
sales in 1993, as compared to 1992. In addition, growth in the primary metals
and transportation equipment sectors resulted in increased industrial sales.
Partially offsetting these increases was a reduction in non-firm power sales
for resale, which reflected a significant decrease in third party, short-term
power sales to other utilities through PSI's system.
Year-to-year changes in kwh sales for each major class of customers are shown
below:
Increase (Decrease) from Prior Year
1997 1996 1995 1994 1993_
Retail
Residential 5.8 (3.8)% (1.7)% 10.3 %2.4% 5.8%
Commercial 1.6 1.3 4.3
1.9 6.3
Industrial 2.9 3.3 4.6 4.6 4.2
Total retail .3 2.4 4.9 1.6 6.9
Sales for resale
Firm power obligations 15.5 10.5 1.7 2.5 2.6
Non-firm power transactions 460.3 82.0 (1.3) 14.4 (5.3)
Total sales for resale 363.9 59.6 (.4) 10.5 (2.8)
Total sales 78.7 11.0 4.1 2.8 5.3
Cinergy currently forecasts a 2% annual compound growth rate in kwh sales over
the 19961998 through 20052002 period. This forecast does not reflect the effects of
DSM programs and excludes non-firm power sales for
resale and any potential new off-system, long-term firm power sales.
McfThousand Cubic Feet (Mcf) Sales and Transportation
The milder weather experienced in 1997 contributed to a decrease in residential
and commercial gas sales volumes and led to an 8.2% decrease in total sales
volumes and a 1.1% decrease in total sales and transportation volumes, as
compared to 1996. An increase in gas transportation volumes and a decline in
industrial sales resulted from customers electing to purchase gas directly from
suppliers using transportation services provided by Cinergy.
Mcf gas sales and transportation volumes increased 8.4% in 1996, as compared to
1995. Colder weather in the first half of 1996 led to increased gas sales to
residential and commercial customers. Also contributing to the increase in total
sales was an increase in the number of residential and commercial customers.
Industrial sales decreased and gas transported increased as customers continued
to purchase gas directly from suppliers.
Total gas sales and transportation volumes increased 8.6% in 1995, as compared
to 1994. Increased sales to residential customers, resulting from colder weather
during the fourth quarter of 1995 and an increase in the number of customers,
contributed to the higher retail sales.sales levels. Additionally, increases in commercial
and industrial transportation volumes, which resulted from customers electing to
purchase gas directly from suppliers, more than offset declines in industrial
and commercial sales.
The increased transportation
volumes mainly reflect industrial demand for gas transportation services in
the primary metals, food products, and paper products sectors.
The milder weather experienced in 1994 contributed to a decrease in
residential and commercial gas sales volumes and led to the decrease in total
Mcf sales and transportation of 1.2% in 1994, as compared to 1993. An
increase in gas transportation volumes to industrial customers, mainly in the
primary metals sector, partially offset this decrease.
The increase in retail Mcf sales of 5.4% in 1993, when compared to 1992, was
primarily attributable to higher residential and commercial sales volumes as a
result of the return to more normal weather during the 1993 heating season and
the addition of a number of customers to CG&E's gas system during the year.
Gas transportation volumes for 1993 increased largely as a result of
additional industrial demand for gas transportation services in the primary
metals sector. The increase in Mcf transported more than offset the decrease
in Mcf sold to industrial customers.
Year-to-year changes in Mcf sales for each major class of customers and Mcf
transportation volumes are shown below:
Increase (Decrease) from Prior Year
1997 1996 1995 1994 1993_
Retail
Residential 10.5 (6.4)% (10.2)% 9.5 %3.6% 10.5%
Commercial (9.7) 7.8 (2.0)
(1.5) 1.1
Industrial (8.8) (13.3) (26.6)
(9.9) (.8)
Total retailsales (8.2) 2.1 1.5 (6.7) 5.4
Gas transported 10.1 19.8 24.4 13.9 12.7
Total gas sold and transported (1.1) 8.4 8.6 (1.2) 7.2
Operating Revenues
ELECTRIC OPERATING REVENUES
Increased kwh sales, as previously discussed, a full year's effects of PSI's
retail rate increases approved in the September 1996 Order, as amended in August
1997, and the December 1996 DSM Order significantly contributed to the $1
billion (39%) increase in electric operating revenues, when compared to 1996.
Also contributing to the increase was the return of approximately $13 million to
customers in 1996 in accordance with the February 1995 Order. The February 1995
Order required all retail operating income above a certain rate of return to be
refunded to customers. Partially offsetting these increases was the operation of
CG&E's fuel adjustment clauses reflecting a lower average cost of fuel used in
electric production.
The $156 million (6%) increase in 1996 electric operating revenues, as compared
to 1995, is due, in large part, to the increase in kwh sales as previously
discussed. Also contributing to the increase was the effect of PSI's September
1996 Order, as well as, a full year's effect of PSI's 4.3% retail rate increase
approved in the February 1995 Order and PSI's 1.9% increase for carrying costs
on construction work in progress property which was approved by the IURC in
March 1995. These rate increases were offset by the return of approximately $10
million to PSI's customers in accordance with the February 1995 Order, the
operation of CG&E's fuel adjustment clauses reflecting a lower average cost of
fuel used in electric production, and a decrease in ULH&P's electric rates
reflecting a reduction in the cost of electricity purchased from CG&E.
Higher retail kwh sales, PSI's electric rate increases which became effective in
February 1995 and March 1995, and a full year's effect of CG&E's electric rate
increase which became effective in May 1994, significantly contributed to the
$165$167 million (6.7%(7%) increase in electric operating revenues for 1995, when
compared to 1994.
Electric operating revenues increased $82 million (3.4%) in 1994, as compared
to 1993, as a result of CG&E's electric rate increases which became effective
in May 1993, August 1993, and May 1994, PSI's increased kwh sales, and the
effects of PSI's $31 million refund to retail customers accrued in June 1993
as a result of the settlement of the IURC's April 1990 Order.
Electric operating revenues increased $155 million (7.0%) in 1993 primarily as
a result of greater kwh sales and electric rate increases granted to CG&E in
1993 and 1992. These increases were partially offset by the refund resulting
from the settlement of the April 1990 Order.
An analysis of electric operating revenues for the past three years is shown
below:
1997 1996 1995
1994 1993_
(in(dollars in millions)
Previous year's electric
operating revenues $2 456769 $2 374613 $2 219446
Increase (Decrease) due to change in:
Price per kwh
Retail 9 (1) 54 32 12
Sales for resale
Firm power obligations (1) 1(10) (4) (1)
Non-firm power transactions 4113 - 104
Total change in price per kwh 112 (5) 57 33 21
Kwh sales
Retail 7 56 109 34 138
Sales for resale
Firm power obligations 14 9 1 2 2
Non-firm power transactions 956 94 (1) 14 (5)
Total change in kwh sales 977 159 109
50 135
Other (1) (1) (1)4 2 1
Current year's electric
operating revenues $3 862 $2 621769 $2 456 $2 374613
GAS OPERATING REVENUES
The increasing trend of industrial customers purchasing gas directly from
producers and utilizingusing CG&E facilities to transport the gas (see the "Mcf Sales and
Transportation" section) continues to put downward pressure on gas operating
revenues. When Cinergy sells gas, the sales price reflects the cost
of gas purchased by Cinergy to support the sale plus the costs to deliver the
gas. When gas is transported, Cinergy does not incur any purchased gas costs
but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery
of the cost of gas purchased, costs, the revenue per Mcf transported is less than the
revenue per Mcf sold. As a result, a higher relative volume of gas transported
to gas sold translates into lower gas operating revenues.
CG&E's gas rate increase of 2.5% ($9 million annually) approved by the PUCO in
the December 1996 Order and the operation of a gas cost recovery mechanism,
reflecting a higher average cost per Mcf of gas purchased, contributed to the
$17 million (4%) increase in gas operating revenues as compared to 1996. These
increases were partially offset by the previously discussed changes in Mcf gas
sales.
In 1995,1996, gas operating revenues increased $63 million (15%), as compared to
1995. This increase is attributable to the increase in gas sales and
transportation volumes. Also contributing to the increase was the operation of
fuel adjustment clauses, reflecting a higher average cost per Mcf of gas
purchased.
Gas operating revenues declined $32 million (7.1%(7%), in 1995, as compared to 1994,
as a result of the aforementioned trend toward increased transportation services
and the operation of fuel adjustment clauses, reflecting a lower average cost
of gas purchased.
Gas operating revenues decreased $27 million (5.7%) in 1994, as compared to
1993, due to the operation of fuel adjustment clauses which reflected a lower
average cost of gas purchased during the latter part of 1994 and a reduction
in total volumes sold and transported.
In 1993, gas operating revenues increased $75 million (19.1%) as a result of
rate increases granted in 1993, higher volumes of gas sold, and the operation
of fuel adjustment clauses reflecting an increase in the average costper Mcf of gas purchased.
Operating Expenses
FUEL
Fuel Used in Electric Production Electric fuel costs Cinergy's largest
operating expense, remained relatively constant in 1995, showing less than a
1% increasedeclined $20 million (3%)
when compared to 1994.1996.
An analysis of these fuel costs for the past three years is shown below:
1997 1996 1995 1994 1993
(in millions)
Previous year's fuel expense $713 $733 $707$717 $713
Increase (Decrease) due to change in:
Price of fuel (25) (39)7 (48) (23)
Deferred fuel cost (55) 42 (2)
Kwh generation 28 2 29 19 28
Current year's fuel expense $717$693 $713 $733$717
Gas Purchased The increase in gas purchased expense of $17 million (7%) in 1997,
as compared to 1996, reflects a higher average cost per Mcf of gas purchased.
This increase was partially offset by a decline in the volumes of gas purchased.
Gas purchased increased $43 million (21%) in 1996, as compared to 1995, due to
an increase in volumes purchased and a higher average cost per Mcf of gas
purchased.
In 1995, gas purchased expense decreased $42 million (16.9%(17%), as compared to 1994,
primarily reflecting a decline in the average cost per Mcf of gas purchased of 17.2%.
A reduction in the average cost per Mcf of gas purchased (5.1%) and lower
volumes purchased (6.8%) contributed to the decline in gas purchased expense
of $33 million (11.6%) in 1994, as compared to 1993.
Gas purchased expense increased $53 million (23.0%) in 1993 as a result of an
increase in the average cost per Mcf of gas purchased of 17.5% and an increase
in volumes purchased of 4.7%.purchased.
PURCHASED AND EXCHANGED POWER
Purchased and exchanged power increased $13$1.1 billion and $111 million (35.6%) in 1994, as
compared to 1993, reflecting an increase in third party, short-term power
sales to other utilities through PSI's system1997
and increased purchases of other
non-firm power by PSI1996, respectively. These increases primarily to serve its own load.
In 1993, PSIreflect increased its purchases of
non-firm power primarilyfor resale to serve its
own load, which resultedothers as a result of increased activity in
an increaseCinergy's power marketing and trading operations. (See Note 1(c) of the "Notes
to Financial Statements" in purchased"Item 8. Financial Statements and exchangedSupplementary
Data" and the "Market Risk Sensitive Instruments and Positions" section for
discussions on Cinergy's power costs
of $16 million (78.0%marketing and trading operations.).
OTHER OPERATION
Other operation expenses increased $40 million (7%) in 1997, as compared to
1996. This increase is primarily due to higher other operation expenses of PSI
relating to the Clean Coal Project, amortization of deferred DSM expenses, and
amortization of deferred expenses associated with the Clean Coal Project, all of
which are being recovered in revenues pursuant to either the September 1996
Order or the December 1996 DSM Order. The effect of PSI discontinuing deferral
of certain DSM-related costs in accordance with provisions of the December 1996
DSM Order also added to the increase. Further contributing to the increase is
the effect of CG&E curtailing certain deferrals associated with its DSM programs
for new participants after December 31, 1996, due to the December 1996 Order
that changed the benefit/cost tests that DSM programs must surpass in Ohio in
order for certain DSM-related costs to be eligible for deferral. These increases
were partially offset by the effect of charges in 1996 for early retirement and
severance programs and the December 1996 Order (see below).
Other operation expenses increased $78 million (15%) in 1996, as compared to
1995. This increase is due to a number of factors, including increased
administrative and general expenses reflecting, in part, charges of $35 million
for voluntary early retirement and severance programs and charges totaling $6
million related to the December 1996 Order.
In 1995, other operation expenses decreased $29 million (5.2%(5%), as compared to
1994. Charges of $62 million in 1994 for Merger Costs and other expenditures
which cannot be recovered from customers under the merger savings sharing
mechanisms authorized by regulators significantly contributed to the decrease.
In addition, emphasis on achieving merger savings and other cost reductions led
to lower operating costs for 1995. These decreases were partially offset by the
recognition of postretirement benefit costs on an accrual basis, an increase in
the ongoing level of DSM expenses, and the amortization of deferred
postretirement benefit costs, deferred Merger Costs, and deferred DSM costs, all
of which are being recovered in revenues pursuant to the February 1995 Order.
Other operation expenses increased $107MAINTENANCE
In 1997, maintenance costs decreased $17 million (23.4%(9%) in 1994,, as compared to 1993, due1996. This
decrease is primarily attributable to a number of factors including the previously discussedreduced outage related charges of $62 million, fuel litigation expenses of $8 million incurred by PSI, and increasedother
maintenance costs associated with PSI's and CG&E's electric production
facilities. Reduced maintenance costs associated with PSI's electric
transmission and distribution expenses.
MAINTENANCEfacilities also contributed to the decrease for
1997.
An increase of $12 million (6%) in maintenance costs for 1996, as compared to
1995, is primarily attributable to increased maintenance associated with the
Clean Coal Project which began commercial operation in November 1995. Increased
transmission and distribution expenses also contributed to the higher level of
maintenance expense.
Maintenance costs decreased $19 million (9.3%(9%) in 1995, as compared to 1994,
primarily due to improved scheduling of routine maintenance on electric
generating units. Lower maintenance costs on gas and electric distribution
facilities also contributed to this decrease.
Increased maintenance on a number of PSI's generating stations and the initial
costs of PSI's new distribution line clearing program resulted in increased
maintenance expenses of $8 million (4.2%) in 1994.
DEPRECIATION
In 1995, depreciation expense decreased $15 million (5.0%(5%), when compared to 1994,
due in large part to the adoption of lower depreciation rates for PSI effective
in March 1995. This decrease was partially offset by the effect of additions to
utility plant.
Depreciation expense increased $16 million (5.6%) in 1994, as compared to
1993, primarily as a resultAMORTIZATION OF PHASE-IN DEFERRALS AND PHASE-IN DEFERRED RETURN
Amortization of additions to electric utility plant.
Depreciation expense increased $21 million (8.1%) in 1993 primarily due to a
full year's effectphase-in deferrals and phase-in deferred return reflect the
PUCO-ordered phase-in plan for the Wm. H. Zimmer Generating Station (Zimmer).
(See Note 1(k) of the first five units of Woodsdale which were placed"Notes to Financial Statements" in commercial operation in 1992, the sixth unit which was placed in commercial
operation in 1993,"Item 8. Financial
Statements and other additions to electric utility plant.Supplementary Data.")
POST-IN-SERVICE DEFERRED OPERATING EXPENSES - NET
Post-in-service deferred operating expenses - net reflect various deferrals of
depreciation, operation and maintenance expenses (exclusive of fuel costs), and
property taxes on certain generating units and other utility plant from the
in-service date until the related plant is reflected in retail rates, net of
amortization of these deferrals as they are recovered through retail rates. (See
Note 1(h) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".)
PHASE-IN DEFERRED DEPRECIATION AND RETURN AND AMORTIZATION OF PHASE-IN
DEFERRALS
Phase-in deferred depreciation, phase-in deferred return, and amortization of
phase-in deferrals reflect the PUCO-ordered phase-in plan for Zimmer. (See
Note 1(f) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".Data.")
TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes increased $12 million (4.9%(5%) in 1995, $15
million (6.5%) in 1994, and $13 million (5.8%) in 1993, primarily due
to increased property taxes resulting from a greater investment in taxable
property (including Zimmer and Woodsdale) and higher property tax rates.
Other Income and Expenses - Net
POST-IN-SERVICE CARRYING COSTS
Post-in-service carrying costs reflect the deferral of carrying costs on certain
generating units and other utility plant from the in-service date until the
related plant is reflected in retail rates. (See Note 1(h) of the "Notes to
Financial Statements" in "Item 8. Financial Statements and Supplementary Data".Data.")
REDUCTIONEQUITY IN EARNINGS OF LOSS RELATED TO THE JUNE 1987 ORDERUNCONSOLIDATED SUBSIDIARIES
The December 1993 Order resolved open issues relatedincrease in equity in earnings of unconsolidated subsidiaries of $35 million
for 1997, as compared to the June 1987 Order
which addressed the1996, primarily reflects a full year's effect on PSI of the
1987 reductioninvestment in Midlands. Midlands was purchased during the Federal income
tax rate. The December 1993 Order provided for PSI to refund $119 million to
its retail customers, which was a reductionsecond quarter of
$20 million from the loss
previously recognized.
WRITE-OFF OF A PORTION OF ZIMMER
In the May 1992 Order authorizing the rate phase-in plan for Zimmer, the PUCO
disallowed from rates approximately $230 million of Zimmer costs. Upon
appeal, the Supreme Court of Ohio upheld the PUCO's decision, and CG&E wrote
off Zimmer costs of approximately $223 million, net of taxes, in November
1993.1996.
OTHER - NET
OtherThe $9 million change in other - net increased $32 million in 1995,for 1997, as compared to 1994,1996, is due, in
part, to charges in 1996 of approximately $14 million associated with the
December 1996 Order, a gain of approximately $4 million in 1997 on the sale of a
PSI investment, and a loss of approximately $5 million in 1996 on the sale of a
foreign subsidiary. These items were partially offset by gains of approximately
$6 million in 1996 related to the sale of certain CG&E assets, approximately $2
million of increased expenses in 1997 associated with the sales of accounts
receivable for PSI, CG&E, and ULH&P, and expenses of approximately $4 million
resulting from the inclusion of the Greenwich acquisition in 1997.
In 1996, other - net changed $37 million, as compared to 1995, due to a number
of factors including $4 million of interest received in 1995 on an income tax
refund related to prior years, charges totaling $14 million associated with the
December 1996 Order, expenses associated with CG&E's and ULH&P's sales of
accounts receivable in 1996, and the effect of a $10 million gain in 1995 on the
sale of Cinergy's investment in an Argentine utility,utility.
The $31 million change in other - net in 1995, as compared to 1994, is due, in
part, to interest on the income tax refund and the $10 million gain discussed
above and charges of $17 million in 1994 for merger-related and other
expenditures which cannot be recovered from customers.
In 1994, other - net increased $12Interest and Other Charges
INTEREST ON LONG-TERM DEBT
Interest on long-term debt decreased $23 million (11%) in 1996, as compared to
1993, primarily as
a result of the write-off during 1993 of $22 million related1995, due to the defense
against the IPALCO hostile takeover attempt.refinancing and redemptions of long-term debt by CG&E, PSI, and
ULH&P during 1995 and 1996.
OTHER INTEREST
The increase was offset, in
part, by the charges in 1994 of $17$29 million previously discussed.
The decreaseincrease in other - net of $38 million in 1993,interest, as compared to 1992, was1996, is primarily
due to interest expense on increased short-term borrowings used to fund CG&E's
redemption of first mortgage bonds and Cinergy's investments in non-regulated
companies, including Avon Energy.
In 1996, other interest increased $10 million (50%), as compared to 1995,
primarily reflecting increased interest expense on short-term borrowings used to
fund Cinergy's investment in Avon Energy.
PREFERRED DIVIDEND REQUIREMENTS OF SUBSIDIARIES
Preferred dividend requirements of subsidiaries decreased $11 million (46%) and
$8 million (25%) in 1997 and 1996, respectively. These decreases were primarily
attributable to the resultreacquisition of approximately 90% of the previously discussed write-offoutstanding
preferred stock of IPALCO defense
costsCG&E, pursuant to Cinergy's tender offer. (See Note 3(b) of
the "Notes to Financial Statements" in 1993."Item 8. Financial Statements and
Supplementary Data.")
Extraordinary Item - Equity Share of Windfall Profits Tax
Extraordinary item - equity share of windfall profits tax represents the one-
time charge for the windfall profits tax levied against Midlands as recorded in
the third quarter of 1997. (See Note 17 of the "Notes to Financial Statements"
in "Item 8. Financial Statements and Supplementary Data.")
The Cincinnati
Gas & Electric
Company
and subsidiaries
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
1997 1996 1995 1994 1993
(in thousands)
Operating Revenues
(Note 2)
Electric
(including $30,104, $4,667,
and $930 from affiliatedNon-affiliated companies for 1995, 1994, and 1993,
respectively) 1 437 223 1 345 787 1 282 445$1 920 915 $1 458 828 $1 407 119
Affiliated companies 35 341 43 180 30 104
Gas
Non-affiliated companies 491 145 474 034 410 852
442 398 469 296Affiliated companies 4 475 7 -
2 451 876 1 976 049 1 848 075 1 788 185 1 751 741
Operating Expenses
Fuel used in electric production 300 487 349 197 327 353
325 470 333 279
Gas purchased 266 123 249 116 206 250 248 293 280 836
Purchased and exchanged power
Non-affiliated companies 583 065 46 333 13 870
12 349 12 865
Affiliated companies 12 473 21 921 42 575
8 583 9 594
Other operation 308 239 330 169 291 874
336 030 257 407
Maintenance 90 097 96 205 94 688
106 810 108 857
Depreciation 163 418 160 951 158 986 156 676 152 061
Amortization of phase-in deferrals 13 483 13 598 9 091
- -
Post-in-serviceAmortization of post-in-service
deferred operating expenses - net 3 290 3 290 (6 471)
Phase-in deferred depreciation - (2 161) (8 524)3 290
Income taxes (Note 12)11) 172 047 145 075 136 386 104 128 108 970
Taxes other than income taxes 211 303 207 904 203 680
197 381 183 3672 124 025 1 623 759 1 488 043
1 496 849 1 432 241
Operating Income 327 851 352 290 360 032 291 336 319 500
Other Income and Expenses - Net
Allowance for equity funds
used during construction 98 1 225 1 790 1 971 3 154
Post-in-service carrying costs - - 12 100
Phase-in deferred return 8 008 8 372 8 537 15 351 35 334
Write-off of a portion of Zimmer - - (234 844)
Income taxes (Note 12)
Related to the write-off of a
portion of Zimmer - - 12 085
Other11) 33 286 9 139 4 587 6 619 9 405
Other - net (14 262) (21 296) 4 221
(6 726) (9 551)27 130 (2 560) 19 135 17 215 (172 317)
Income Before Interest 354 981 349 730 379 167 308 551 147 183
Interest
Interest on long-term debt 110 134 123 616 143 334
150 386 157 044
Other interest 10 327 2 793 3 486 2 831 2 449
Allowance for borrowed funds
used during construction (4 633) (3 859) (3 854)
(2 977) (3 586)115 828 122 550 142 966
150 240 155 907
Net Income (Loss)239 153 227 180 236 201 158 311 (8 724)
Preferred Dividend Requirement 868 10 643 17 673
22 377 25 160Costs of Reacquisition of
Preferred Stock (Note 3(b)) - 18 391 -
Net Income (Loss) Applicable to
Common Stock $ 238 285 $ 198 146 $ 218 528 $ 135 934 $ (33 884)
The accompanying notes are an integral part of these consolidated financial
statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1995 19941997 1996
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $4 564 711700 631 $4 502 840631 605
Gas 680 339 645 602746 903 713 829
Common 183 422186 078 185 718255
5 428 472633 612 5 334 160530 689
Accumulated depreciation 2 008 005 1 730 232 1 613 505868 579
3 698 240625 607 3 720 655
CWIP 77 661 74 989662 110
Construction work in progress 118 133 95 984
Total utility plant 3 775 901743 740 3 795 644758 094
Current Assets
Cash and temporary cash investments 6 612 52 5162 349 5 120
Restricted deposits 1 144 98173 1 171
Notes receivable from affiliated companies 27 193 31 740
Accounts receivable less accumulated
provision of $9,615 in 1995 and $8,999 in 1994
for doubtful accounts of $9,199 in
1997 and $9,178 in 1996 (Note 7) 292 493 265 1326) 193 549 117 912
Accounts receivable from affiliated companies 21 409 3 88835 507 2 453
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 40 395 42 16729 682 29 865
Gas stored for current use 21 493 31 28429 174 32 951
Other materials and supplies 55 388 57 864
Property taxes applicable to subsequent year 116 822 112 42049 111 52 023
Prepayments and other 30 572 31 327
586 328 596 696827 32 433
399 565 305 668
Other Assets
Regulatory assets (Note 1(f))
Amounts due from customers - income taxes 397 155 381 380350 515 344 126
Post-in-service carrying costs and deferred
operating expenses 148 316 155 138134 672 141 492
Phase-in deferred return and depreciation 100 388 100 94389 689 95 163
Deferred DSMdemand-side management costs 19 158 10 00238 318 33 534
Deferred merger costs 14 538 12 01316 557 17 709
Unamortized costs of reacquiring debt 39 428 33 42636 575 38 439
Other 41 025 56 3591 439 19 545
Other 54 691 40 064
814 699 789 325
$5 176 928 $5 181 665103 368 89 908
771 133 779 916
$4 914 438 $4 843 678
The accompanying notes are an integral part of these consolidated financial
statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CAPITALIZATION AND LIABILITIES
December 31
1995 19941997 1996
(dollars in thousands)
Common Stock Equity (Note 3)2)
Common stock - $8.50 par value;
authorized shares - 120,000,000;
outstanding shares - 89,663,086 in 19951997 and
199489,663,086 in 1996 $ 762 136 $ 762 136
Paid-in capital 339 101 337 874534 649 536 276
Retained earnings 427 226 432 962313 803 247 403
Total common stock equity 1 528 463610 588 1 532 972545 815
Cumulative Preferred Stock (Note 4)3)
Not subject to mandatory redemption 40 000 80 000
Subject to mandatory redemption 160 000 210 00020 793 21 146
Long-term Debt (Note 5)4) 1 702 650324 432 1 837 757381 108
Total capitalization 3 431 113 3 660 7292 955 813 2 948 069
Current Liabilities
Long-term debt due within one year (Note 5) 151 5004) - 130 000
Notes payable and other short-term
obligations (Note 6)
- 14 5005) 289 000 214 488
Notes payable to affiliated companies 12 253 103
Accounts payable 133 999 120 817249 538 166 064
Accounts payable to affiliated companies 10 821 12 726
Accrued taxes 250 189 227 651149 129 144 261
Accrued interest 31 299 31 90225 430 30 570
Other 45 14529 950 32 658
612 132 427 528191
766 121 730 403
Other Liabilities
Deferred income taxes (Note 12) 795 385 747 06011) 794 396 767 085
Unamortized investment tax credits 129 372 135 417116 966 123 185
Accrued pension and other postretirement
benefit costs (Notes 109 and 11) 117 641 102 25410) 180 566 165 282
Other 91 285 108 677100 576 109 654
1 133 683192 504 1 093 408165 206
Commitments and Contingencies (Note 13)
$5 176 928 $5 181 66512)
$4 914 438 $4 843 678
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Common Paid-in Retained Total Common
Stock Capital Earnings Stock Equity
(dollars in thousands)
Balance December 31, 1992 $734 307 $284 486 $ 636 3371994 $762 136 $337 874 $432 962 $1 655 130
Net income (loss) (8 724) (8 724)
Issuance of 1,673,058 shares of
common stock 14 221 29 765 43 986
Common stock issuance expenses (33) (33)
Dividends on preferred stock (25 160) (25 160)
Dividends on common stock (145 942) (145 942)
Balance December 31, 1993 748 528 314 218 456 511 1 519 257
Net income 158 311 158 311
Issuance of 1,601,003 shares of
common stock 13 608 23 142 36 750
Common stock issuance expenses (39) (39)
Dividends on preferred stock (22 377) (22 377)
Dividends on common stock (158 970) (158 970)
Other 553 (513) 40
Balance December 31, 1994 762 136 337 874 432 962 1 532 972
Net income 236 201 236 201
Dividends on preferred stock (17 673) (17 673)
Dividends on common stock (219 550) (219 550)
Other 1 227 (4 714) (3 487)
Balance December 31, 1995 762 136 339 101 427 226 1 528 463
Net income 227 180 227 180
Dividends on preferred stock (10 643) (10 643)
Dividends on common stock (377 969) (377 969)
Contribution from parent company 197 207 197 207
Costs of reacquisition of
preferred stock (18 391) (18 391)
Other (32) (32)
Balance December 31, 1996 762 136 536 276 247 403 1 545 815
Net income 239 153 239 153
Dividends on preferred stock (871) (871)
Dividends on common stock (170 400) (170 400)
Other (1 627) (1 482) (3 109)
Balance December 31, 1997 $762 136 $339 101 $ 427 226$534 649 $313 803 $1 528 463610 588
The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
1997 1996 1995
(in thousands)
1995 1994 1993
(in thousands)
Operating Activities
Net income (loss) $ 236$239 153 $227 180 $236 201 $ 158 311 $ (8 724)
Items providing or (using) cash currently:cash:
Depreciation 163 418 160 951 158 986 156 676 152 061
Deferred income taxes and investment
tax credits - net 16 443 18 929 26 938 13 680 23 635
Allowance for equity funds used during
construction (98) (1 225) (1 790) (1 971) (3 154)
Regulatory assets - net 16 654 (21 248) (55 832)
Write-off of a portion of Zimmer - - 234 84432 822 39 561 21 454
Changes in current assets and current
liabilities
Restricted deposits (2) (27) (1 046)
22 109
Accounts and notes receivable, (44 882) 43 145 (38 040)net of
reserves on receivables sold (105 829) 156 182 (65 350)
Materials, supplies, and fuel 6 872 2 437 14 039
21 202 3 567
Accounts payable 13 182 (8 093) 5 35281 569 19 587 38 386
Accrued taxes and interest 21 935 8 211 15 711(272) 10 165 17 533
Other items - net 631 77 462 14 5054 629 46 601 297
Net cash provided by (used in) operating activities 440 848 447 397 344 034438 705 680 341 445 648
Financing Activities
Issuance of common stock - 36 711 43 953
Issuance of long-term debt 344100 062 - 260 280 311 957 297 000
Retirement of preferred stock of subsidiaries(234) - (93 450) (40 400) -
Redemption of long-term debt (290 612) (162 583) (338 378) (313 522) (294 455)
Change in short-term debt (14 500) (16 500) (15 500)86 662 30 591 69 500
Dividends on preferred stock (871) (10 643) (17 673) (22 377) (25 160)
Dividends on common stock (170 400) (377 969) (219 550)
(158 970) (145 942)
Net cash provided by (used in)used in financing activities (275 393) (520 604) (339 271) (203 101) (140 104)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (156 499) (142 053) (138 325)
(189 954) (198 585)
Deferred DSMdemand-side management costs - net (9 156) (6 396) (3 027)584) (19 176) (13 956)
Net cash provided by (used in)used in investing activities (147 481) (196 350) (201 612)(166 083) (161 229) (152 281)
Net increase (decrease)decrease in cash and temporary cash investments (2 771) (1 492) (45 904) 47 946 2 318
Cash and temporary cash investments at beginning
of period 5 120 6 612 52 516 4 570 2 252
Cash and temporary cash investments at end of
period $ 2 349 $ 5 120 $ 6 612 $ 52 516 $ 4 570
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $ 137$115 801 $117 848 $137 892 $ 142 380 $ 151 867
Income taxes 106 154 109 034 79 769 88 639 53 786
The accompanying notes are an integral part of these consolidated financial statements.
RESULTS OF OPERATIONS - CG&E
Kwh Sales
Increased activity in Cinergy's power marketing and trading operations led to
higher non-firm power sales for resale and significantly contributed to the
increase in total kwh sales of 72.6%, as compared to 1996. Partially offsetting
this increase was a decline in residential sales, as a result of mild weather.
Kwh sales (and related revenues and expenses) outside of Cinergy's control area
resulting from Cinergy's power marketing and trading operations are allocated
50%/50% between CG&E and PSI. (See Note 1(c) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data" and the
"Market Risk Sensitive Instruments and Positions" section for discussions on
Cinergy's power marketing and trading operations.)
CG&E's total kwh sales increased 10.6% in 1996, as compared to 1995, reflecting
an increase in sales to all customer classes. The increase in retail sales,
which reflects a higher average number of residential and commercial customers,
was partially offset by the return to more normal weather in 1996. The increase
in industrial sales was due to growth in the primary metals sector. Increased
activity in Cinergy's power marketing and trading operations led to higher
non-firm power sales for resale.
Kwh sales for 1995 increased 15.3% over 1994, reflecting increased sales to all
customer classes. Significantly contributing to this increase were higher
non-firm power sales for resale primarily due to increased sales to PSI, as a
result of the coordination of CG&E's and PSI's electric dispatch systems. Higher
residential and commercial sales resulted primarily from warmer weather during
the 1995 summer cooling season and colder weather during the fourth quarter of
1995. Additionally, increased sales to industrial customers were mainly
attributable to growth in the primary metals and chemicals sectors.
CG&E's total kwh sales in 1994, as compared to 1993, decreased 1.2%, due in
large part to reduced power sales to other utilities in 1994 and decreased
residential sales resulting from milder weather experienced during the third
and fourth quarters of 1994. This decrease was partially offset by increased
kwh sales to industrial customers reflecting growth in the primary metals and
machinery sectors.
A return to more normal weather contributed to the 5.3% increase in total kwh
sales in 1993, as compared to 1992. In addition, growth in the primary
metals, transportation equipment, and chemicals sectors resulted in increased
industrial sales.
Year-to-year changes in kwh sales for each major class of customers are shown
below:
Increase (Decrease) from Prior Year
1997 1996 1995 1994 1993
Retail
Residential (6.8)% 4.7% 3.8%
(2.0)% 8.6 %
Commercial 1.9 2.3 3.4
2.3 5.4
Industrial 4.1 3.4 3.9 4.3 2.4
Total retail (.5) 3.3 3.8 1.1 5.8
Sales for resale
Firm power obligations (8.4) 3.7 6.3 1.7 6.1
Non-firm power transactions 356.5 51.7 211.8 (29.3) (.4)
Total sales for resale 337.5 48.1 172.6 (24.9) 1.1
Total sales 72.6 10.6 15.3 (1.2) 5.3
CG&E currently forecasts a 2% annual compound growth rate in kwh sales over the
19961998 through 20052002 period. This forecast does not reflect the effects of
DSM programs and excludes non-firm power sales for resale
and any potential new off-system, long-term firm power sales.
Mcf Sales and Transportation
The milder weather experienced in 1997 contributed to a decrease in residential
and commercial gas sales volumes and led to an 8.2% decrease in total sales
volumes and a 1.1% decrease in total sales and transportation volumes, as
compared to 1996. An increase in gas transportation volumes and a decline in
industrial sales resulted from customers electing to purchase gas directly from
suppliers, using transportation services provided by CG&E.
Mcf gas sales and transportation volumes increased 8.4% in 1996, as compared to
1995. Colder weather in the first half of 1996 led to increased gas sales to
residential and commercial customers. Also contributing to the increase in total
sales was an increase in the number of residential and commercial customers.
Industrial sales decreased and gas transported increased as customers continued
to purchase gas directly from suppliers.
Total gas sales and transportation volumes increased 8.6% in 1995, as compared
to 1994. Increased sales to residential customers, resulting from colder weather
during the fourth quarter of 1995 and an increase in the number of customers,
contributed to the higher retail sales.sales levels. Additionally, increases in commercial
and industrial transportation volumes, which resulted from customers electing to
purchase gas directly from suppliers, more than offset declines in industrial
and commercial sales.
The increased transportation
volumes mainly reflect industrial demand for gas transportation services in
the primary metals, food products, and paper products sectors.
The milder weather experienced in 1994 contributed to a decrease in
residential and commercial gas sales volumes and led to the decrease in total
Mcf sales and transportation of 1.2% in 1994, as compared to 1993. An
increase in gas transportation volumes to industrial customers, mainly in the
primary metals sector, partially offset this decrease.
The increase in retail Mcf sales of 5.4% in 1993, when compared to 1992, was
primarily attributable to higher residential and commercial sales volumes as a
result of the return to more normal weather during the 1993 heating season and
the addition of a number of customers to CG&E's gas system during the year.
Gas transportation volumes for 1993 increased largely as a result of
additional industrial demand for gas transportation services in the primary
metals sector. The increase in Mcf transported more than offset the decrease
in Mcf sold to industrial customers.
Year-to-year changes in Mcf sales for each major class of customers and Mcf
transportation volumes are shown below:
Increase (Decrease) from Prior Year
1997 1996 1995 1994 1993
Retail
Residential 10.5 (6.4)% (10.2)% 9.5 %3.6% 10.5%
Commercial (9.7) 7.8 (2.0)
(1.5) 1.1
Industrial (8.8) (13.3) (26.6)
(9.9) (.8)
Total retailsales (8.2) 2.1 1.5 (6.7) 5.4
Gas transported 10.1 19.8 24.4 13.9 12.7
Total gas sold and transported (1.1) 8.4 8.6 (1.2) 7.2
Operating Revenues
ELECTRIC OPERATING REVENUES
Electric operating revenues increased by $454 million (30%) in 1997 and $65
million (5%) in 1996. These increases primarily reflect the increased kwh sales,
as previously discussed. Partially offsetting these increases was the operation
of the fuel adjustment clause reflecting a lower average cost of fuel used in
electric production.
Electric operating revenues increased $91 million (6.8%(7%) in 1995, as compared to
1994. This increase reflects the higher kwh sales, as previously discussed and a
full year's effect of CG&E's electric rate increase which became effective in
May 1994. This increase was partially offset by the operation of fuel adjustment
clauses reflecting a lower average cost of fuel used in electric production.
CG&E's electric rate increases which became effective in May 1993, August
1993, and May 1994 substantially contributed to the increase in electric
operating revenues of $64 million (4.9%) in 1994, as compared to 1993.
Electric operating revenues increased $123 million (10.6%) in 1993 primarily
as a result of greater kwh sales and electric rate increases granted to CG&E
in 1993 and 1992.
An analysis of electric operating revenues for the past three years is shown
below:
1997 1996 1995 1994 1993
(in millions)
Previous year's electric
operating revenues $1 346502 $1 282437 $1 159346
Increase (Decrease) due to change in:
Price per kwh
Retail (44) (13) (10)
55Sales for resale
Firm power obligations - - 1
Non-firm power transactions 107 (10) (9)
Total change in price per kwh 63 (23) (18)
Kwh sales
Retail (8) 44 49
Sales for resale
Firm power obligations (1) 1 - -
Non-firm power transactions (9) 3 5
Total change in price per kwh (18) 58 54
Kwh sales
Retail 49 14 66
Sales for resale
Firm power obligations 1 - 1
Non-firm power transactions 395 41 60 (9) 1
Total change in kwh sales 386 86 110
Other 5 68
Other2 (1) 1 1
Current year's electric
operating revenues $1 437956 $1 346502 $1 282437
GAS OPERATING REVENUES
The increasing trend of industrial customers purchasing gas directly from
producers and utilizingusing CG&E facilities to transport the gas (see the "Mcf Sales and
Transportation" section) continues to put downward pressure on gas operating
revenues. When Cinergy sells gas, the sales price reflects the cost
of gas purchased by Cinergy to support the sale plus the costs to deliver the
gas. When gas is transported, Cinergy does not incur any purchased gas costs
but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery
of the cost of gas purchased, costs, the revenue per Mcf transported is less than the
revenue per Mcf sold. As a result, a higher relative volume of gas transported
to gas sold translates into lower gas operating revenues.
CG&E's gas rate increase of 2.5% ($9 million annually) approved by the PUCO in
the December 1996 Order and the operation of a gas cost recovery mechanism,
reflecting a higher average cost per Mcf of gas purchased, contributed to the
$22 million (5%) increase in gas operating revenues as compared to 1996. These
increases were partially offset by the previously discussed changes in Mcf gas
sales.
Gas operating revenues increased $63 million (15%) in 1996, as compared to 1995.
This increase is attributable to the increase in gas sales and transportation
volumes. Also contributing to the increase was the operation of the fuel
adjustment clause, reflecting a higher average cost per Mcf of gas purchased.
In 1995, gas operating revenues declined $32 million (7.1%(7%), as compared to 1994,
as a result of the aforementioned trend toward increased transportation services
and the operation of the fuel adjustment clausesclause, reflecting a lower average cost
of gas purchased.
Gas operating revenues decreased $27 million (5.7%)in 1994, as compared to
1993, due to the operation of fuel adjustment clauses which reflected a lower
average cost of gas purchased during the latter part of 1994 and a reduction
in total volumes sold and transported.
In 1993, gas operating revenues increased $75 million (19.1%) as a result of
rate increases granted in 1993, higher volumes of gas sold, and the operation
of fuel adjustment clauses reflecting an increase in the average costper Mcf of gas purchased.
Operating Expenses
FUEL
Fuel Used in Electric Production Electric fuel costs remained relatively
constantdecreased $49 million (14%)
in 1995, showing less than a 1% increase1997, when compared to 1994.1996.
An analysis of these fuel costs for the past three years is shown below:
1997 1996 1995 1994 1993
(in millions)
Previous year's fuel expense $349 $327 $325 $333 $321
Increase (Decrease) due to change in:
Price of fuel (20) (9) (8)8 (38) (10)
Deferred fuel cost (50) 34 (10)
Kwh generation (7) 26 22 1 20
Current year's fuel expense $300 $349 $327 $325 $333
Gas Purchased The increase in gas purchased expense of $17 million (7%) in 1997,
as compared to 1996, reflects a higher average cost per Mcf of gas purchased.
This increase was partially offset by a decline in the volumes of gas purchased.
Gas purchased increased $43 million (21%) in 1996, as compared to 1995, due to
an increase in volumes purchased and a higher average cost per Mcf of gas
purchased.
In 1995, gas purchased expense decreased $42 million (16.9%(17%), as compared to 1994,
primarily reflecting a decline in the average cost per Mcf of gas purchasedpurchased.
PURCHASED AND EXCHANGED POWER
Purchased and exchanged power increased $527 million and $12 million in 1997 and
1996, respectively. These increases primarily reflect increased purchases of
17.2%.
A reduction in the average cost per Mcf of gas purchased (5.1%) and lower
volumes purchased (6.8%) contributednon-firm power for resale to the decline in gas purchased expense
of $33 million (11.6%) in 1994, as compared to 1993.
Gas purchased expense increased $53 million (23.0%) in 1993others as a result of an
increaseincreased activity in
Cinergy's power marketing and trading operations. (See Note 1(c) of the average cost per Mcf of gas purchased of 17.5%"Notes
to Financial Statements" in "Item 8. Financial Statements and an increase
in volumes purchased of 4.7%.
PURCHASED AND EXCHANGED POWERSupplementary
Data" and the "Market Risk Sensitive Instruments and Positions" section for
discussion on Cinergy's power marketing and trading operations.)
Purchased and exchanged power costs increased $36 million in 1995, as compared
to 1994, reflecting increased purchases from PSI resulting from the coordination
of PSI's and CG&E's electric dispatch systems. These increases
wereThis increase was partially
offset by a decline in third party,third-party, short-term power sales to other utilities.
OTHER OPERATION
Other operation expenses decreased $22 million (7%) in 1997, as compared to
1996. This decrease is primarily due to the effect of charges in 1996 for early
retirement and severance programs and the December 1996 Order (see below). This
decrease is partially offset by the effect of CG&E curtailing certain deferrals
associated with its DSM programs for new participants after December 31, 1996,
due to the December 1996 Order that changed the benefit/cost tests that DSM
programs must surpass in Ohio in order for certain DSM-related costs to be
eligible for deferral.
Other operation increased $38 million (13%) in 1996, as compared to 1995. This
increase is attributable to higher administrative and general expenses
reflecting, in part, charges of $30 million for voluntary early retirement and
severance programs and charges totaling $6 million related to the December 1996
Order. The increase is partially offset by a decrease in electric distribution
expenses.
In 1995, other operation expenses decreased $44 million (13.1%(13%), as compared to
1994. Charges of $52 million in 1994 for Merger Costs and other expenditures,
which cannot be recovered from customers under the merger savings sharing
mechanism authorized by the PUCO, significantly contributed to the decrease. In
addition, emphasis on achieving merger savings and other cost reductions led to
lower operating costs for 1995. The decrease was partially offset by the
write-off of obsolete inventory in December 1995.
Other operation expenses increased $79MAINTENANCE
In 1997, maintenance costs decreased $6 million (30.5%(6%) in 1994,, as compared to 1993, due1996. This
decrease is primarily attributable to a number of factors including the previously discussedreduced outage related charges of
$52 million and increasedother
maintenance costs associated with electric production andfacilities. Reduced
maintenance costs associated with electric distribution expenses.
The $15 million (6.1%) increase in other operation expense in 1993 was duefacilities also
contributed to a number of factors, including wage increases, the adoption of two accounting
standards involving postemployment and postretirement benefits, and increases
in gas production expenses.
MAINTENANCEdecrease for 1997.
The decrease in maintenance expense of $12 million (11.3%(11%) in 1995, as compared to
1994, was primarily attributable to improved scheduling of routine maintenance
on electric generating units. Lower maintenance costs on gas and electric
distribution facilities also contributed to the decline.
DEPRECIATION
Depreciation expense increased $11 million (7.8%) in 1993 primarily due to a
full year's effectAMORTIZATION OF PHASE-IN DEFERRALS AND PHASE-IN DEFERRED RETURN
Amortization of phase-in deferrals and phase-in deferred return reflect the
PUCO-ordered phase-in plan for Zimmer. (See Note 1(k) of the first five units of Woodsdale which were placed"Notes to Financial
Statements" in commercial operation in 1992"Item 8. Financial Statements and the sixth unit which was placed in commercial
operation in 1993.Supplementary Data.")
AMORTIZATION OF POST-IN-SERVICE DEFERRED OPERATING EXPENSES
- NET
Post-in-serviceAmortization of post-in-service deferred operating expenses - net reflect variousthe
amortization of certain deferrals ofas they are recovered through retail rates.
These deferrals include depreciation, operation and maintenance expenses
(exclusive of fuel costs), and property taxes on certain generating units and
other utility plant from the in-service date until the related plant is
reflected in retail rates, net
of amortization of these deferrals as they are recovered through retail rates. (See Note 1(h) of the "Notes to Financial Statements"
in "Item 8. Financial Statements and Supplementary Data".Data.")
PHASE-IN DEFERRED DEPRECIATION AND RETURN AND AMORTIZATION OF PHASE-IN
DEFERRALS
Phase-in deferred depreciation, phase-in deferred return, and amortization of
phase-in deferrals reflect the PUCO-ordered phase-in plan for Zimmer. (See
Note 1(f) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".)
TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes increased $6 million (3.2%) in 1995, $14 million
(7.6%) in 1994, and $9 million (5.3%) in 1993, primarily due to increased
property taxes resulting from a greater investment in taxable property
(including Zimmer and Woodsdale) and higher property tax rates.
Other Income and Expenses - Net
POST-IN-SERVICE CARRYING COSTS
Post-in-service carrying costs reflectOTHER - NET
The $7 million change in other - net for 1997, as compared to 1996, is due
primarily to charges in 1996 of approximately $14 million associated with the
deferralDecember 1996 Order. These charges were partially offset by gains of
carrying costs onapproximately $6 million in 1996 related to the sale of certain generating units from the in-service date until the related plant is
reflected in retail rates. (See Note 1(h) of the "Notes to Financial
Statements" in "Item 8. Financial StatementsCG&E assets, and
Supplementary Data".)
WRITE-OFF OF A PORTION OF ZIMMER
In the May 1992 Order authorizing the rate phase-in plan for Zimmer, the PUCO
disallowed from rates approximately $230$2 million of Zimmer costs. Upon
appeal,increased expenses in 1997 associated with the Supreme Courtsales
of Ohio upheld the PUCO's decision,accounts receivable for CG&E and CG&E wrote
off Zimmer costs of approximately $223 million,ULH&P.
The change in other - net of taxes,$26 million in November
1993.
OTHER - NET1996, as compared to 1995, is due to
a number of factors including $4 million of interest received in 1995 on an
income tax refund related to prior years, charges totaling $14 million
associated with the December 1996 Order, and expenses associated with CG&E's and
ULH&P's sales of accounts receivable in 1996.
The increase in other - net of $11 million in 1995, as compared to 1994, is due,
in part, to $4 million of interest on anthe income tax refund related to prior
yearsdiscussed above and charges of $12
million in 1994 for merger-related and other expenditures which cannot be
recovered from customers.
Interest and Other Charges
INTEREST ON LONG-TERM DEBT
In 1997, interest on long-term debt decreased $13 million (11%), as compared to
1996, primarily due to the redemptions and maturities of long-term debt in 1996
and 1997.
Interest on long-term debt decreased $20 million (14%) in 1996, as compared to
1995, due to the refinancing and redemptions of long-term debt in 1996 and 1995.
OTHER INTEREST
The $8 million increase in other interest, as compared to 1996, is primarily due
to interest expense on increased short-term borrowings used to fund CG&E's
redemption of first mortgage bonds.
PREFERRED DIVIDEND REQUIREMENT
Preferred dividend requirements decreased $10 million (92%) and $7 million (40%)
in 1997 and 1996, respectively. These decreases were primarily attributable to
the reacquisition of approximately 90% of the outstanding preferred stock of
CG&E, pursuant to Cinergy's tender offer. (See Note 3(b) of the "Notes to
Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
In 1995, CG&E's preferred dividend requirement decreased $5 million (21.0%(21%) for 1995,, as
compared to 1994. The decrease was attributable to the early redemption of
400,000 shares of $100 par value, 9.28% Series Cumulative Preferred Stockpreferred stock in April 1994 along with the early redemption of 400,000 and 500,000 shares of
$100 par value Cumulative Preferred Stock, 7.44% SeriesJuly 1995.
PSI Energy, Inc.
and 9.15% Series,
respectively, on July 1, 1995.Subsidiaries
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
1997 1996 1995 1994 1993
(in thousands)
Operating Revenues
(Note 2)
Revenues (including $42,575, $8,583,
and $9,594 for affiliatedNon-affiliated companies for 1995, 1994, and 1993,
respectively)$1 940 783 $1 309 878 $1 205 460
Affiliated companies 17 686 22 084 42 575
1 958 469 1 331 962 1 248 035
1 113 512 1 092 222
Operating Expenses
Fuel 392 948 364 053 389 401 387 523 399 880
Purchased and exchanged power
Non-affiliated companies 636 293 112 505 33 762
36 733 23 343
Affiliated companies 29 932 43 343 30 104
4 667 930
Other operation 344 878 268 478 228 508
213 122 186 695
Maintenance 86 374 97 703 87 492
94 149 84 020
Depreciation 125 659 121 812 120 773 137 719 126 821
Post-in-service deferred operating
expenses - net 1 072 (4 799) (5 790) (9 288) (5 069)
Income taxes (Note 12)11) 76 890 73 194 85 043 50 366 64 911
Taxes other than income taxes 53 721 49 911 51 853
46 335 45 4771 747 767 1 126 200 1 021 146
961 326 927 008
Operating Income 210 702 205 762 226 889 152 186 165 214
Other Income and Expenses - Net
Allowance for equity funds
used during construction - - 174 4 230 11 173
Post-in-service carrying costs - 1 223 3 186 9 780 6 005
Reduction of loss related to the
IURC's June 1987 Order - - 20 134
Income taxes (Note 12)
Related to the IURC's June 1987
Order - - (7 444)
Other11) (1 039) (3 997) 941 (1 312) 3 202
Other - net 6 997 1 878 (3 188)
(7 893) (9 403)5,958 (896) 1 113 4 805 23 667
Income Before Interest 216 660 204 866 228 002 156 991 188 881
Interest
Interest on long-term debt 71 638 67 001 70 577
68 862 68 946
Other interest 13 584 14 511 15 821 15 292 4 191
Allowance for borrowed funds
used during construction (767) (2 324) (4 211)
(9 355) (9 154)84 455 79 188 82 187
74 799 63 983
Net Income 132 205 125 678 145 815 82 192 124 898
Preferred Dividend Requirement 11 701 12 537 13 180 13 182 12 825
Net Income Applicable to Common Stock $ 120 504 $ 113 141 $ 132 635 $ 69 010 $ 112 073
The accompanying notes are an integral part of these consolidated financial
statements.
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1995 19941997 1996
(dollars in thousands)
Electric Utility Plant - Original Cost
In service $4 052 984 $3 789 785280 551 $4 178 181
Accumulated depreciation 1 637 169792 317 1 550 297723 279
2 415 815488 234 2 239 488
CWIP 58 191 163 761454 902
Construction work in progress 65 129 76 630
Total electric utility plant 2 474 006553 363 2 403 249531 532
Current Assets
Cash and temporary cash investments 15 522 6 34118 169 2 911
Restricted deposits 1 187 11 190146 550
Notes receivable from affiliated companies 21 998 3
Accounts receivable less accumulated provision
of $468 in 1995 and $440 in 1994 for doubtful accounts of $1,183 in 1997 and
$1,269 in 1996 (Note 7) 73 419 32 0306) 198 008 74 289
Accounts receivable from affiliated companies - net 20 5686 384 4 031016
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 82 014 113 86128 234 41 865
Other materials and supplies 29 462 29 36326 955 28 268
Prepayments and other 1 234 4 758
223 406 201 574438 3 184
305 332 155 086
Other Assets
Regulatory assets (Note 1(f))
Amounts due from customers - income taxes 26 338 27 13423 941 33 068
Post-in-service carrying costs and deferred
operating expenses 38 874 30 14243 832 44 904
Coal contract buyout costs 122 485 138 171
Deferred DSMdemand-side management costs 110 242 94 12571 278 101 208
Deferred merger costs 42 286 37 64573 789 76 290
Unamortized costs of reacquiring debt 34 476 36 99829 667 32 079
Other 33 886 30 03044 094 52 938
Other 92 056 84 027
378 158 340 101138 650 129 667
547 736 608 325
$3 075 570 $2 944 924406 431 $3 294 943
The accompanying notes are an integral part of these consolidated financial
statements.
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
December 31
1995 19941997 1996
(dollars in thousands)
Common Stock Equity (Note 3)2)
Common stock - without par value; $.01 stated
value; authorized shares - 60,000,000;
outstanding shares - 53,913,701 in 19951997 and 19941996 $ 539 $ 539
Paid-in capital 403 253 389 309
Accumulated400 893 402 947
Retained earnings subsequent to November
30, 1986, quasi-reorganization 625 275 493 103636 228 626 089
Total common stock equity 1 037 660 1 029 067 882 951575
Cumulative Preferred Stock (Note 4)3)
Not subject to mandatory redemption 187 897 187 929157 196 173 086
Long-term Debt (Note 5) 828 116 877 5124) 826 470 945 270
Total capitalization 2 045 080 1 948 392021 326 2 147 931
Current Liabilities
Long-term debt due within one year 50 400 60 400(Note 4) 85 000 10 000
Notes payable and other short-term
obligations (Note 6) 198 531 193 5735) 190 600 171 729
Notes payable to affiliated companies 16 435 13 186
Accounts payable 116 817 142 775
Litigation settlement (Note 13(e)) 80 000 80 000212 833 114 330
Accounts payable to affiliated companies 41 326 12 850
Accrued taxes 65 851 30 78469 304 73 206
Accrued interest 21 369 24 696 25 685045
Other 16 000 18 684
552 295 551 9012 560 17 107
639 427 436 453
Other Liabilities
Deferred income taxes (Note 12) 331 876 324 73811) 403 535 372 997
Unamortized investment tax credits 56 354 60 46149 296 52 750
Accrued pension and other postretirement
benefit costs (Notes 109 and 11) 54 130 31 32410) 116 576 98 037
Other 35 835 28 108
478 195 444 631176 271 186 775
745 678 710 559
Commitments and Contingencies (Note 13)12)
$3 075 570 $2 944 924406 431 $3 294 943
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Common Paid-in AccumulatedRetained Total Common
Stock Capital Earnings Stock Equity
(in(dollars in thousands)
Balance December 31, 19921994 $539 $221 812 $432 747$389 309 $493 103 $ 655 098
Net income 124 898 124 898
Costs of issuing and retiring
preferred stock (5 062) (5 062)
Dividends on preferred stock (12 288) (12 288)
Dividends on common stock (62 191) (62 191)
Contribution from parent company 12 538 12 538
Other 76 76
Balance December 31, 1993 539 229 288 483 242 713 069
Net income 82 192 82 192
Dividends on preferred stock (13 182) (13 182)
Dividends on common stock (59 142) (59 142)
Contribution from parent company 159 999 159 999
Other 22 (7) 15
Balance December 31, 1994 539 389 309 493 103 882 951
Net income 145 815 145 815
Dividends on preferred stock (13 181) (13 181)
Contribution from parent company 13 926 13 926
Other 18 (462) (444)
Balance December 31, 1995 $539 $403539 403 253 $625625 275 $11 029 067
Net income 125 678 125 678
Dividends on preferred stock (12 629) (12 629)
Dividends on common stock (112 076) (112 076)
Other (306) (159) (465)
Balance December 31, 1996 539 402 947 626 089 1 029 575
Net income 132 205 132 205
Dividends on preferred stock (11 795) (11 795)
Dividends on common stock (113 600) (113 600)
Other (2 054) 3 329 1 275
Balance December 31, 1997 $539 $400 893 $636 228 $1 037 660
The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1997 1996 1995 1994 1993
(in thousands)
Operating Activities
Net income $ 145$132 205 $125 678 $145 815 $ 82 192 $ 124 898
Items providing or (using) cash currently:cash:
Depreciation 125 659 121 812 120 773 137 719 126 821
Deferred income taxes and investment
tax credits - net 35 661 29 925 5 201 24 127 68 103
Allowance for equity funds used during
construction - - (174) (4 230) (11 173)
Regulatory assets - net (15 628) (36 917) (29 954)38 488 (279) 11 870
Changes in current assets and current
liabilities
Restricted deposits (596) (336) 16
10 024 (69)
Accounts and notes receivable, net of
reserves on receivables sold (149 290) 2 722 (57 926) (7 404) 7 168
Income tax refunds - 28 900 (28 900)
Materials, supplies, and fuel 14 944 41 343 31 748
(66 697) 59 421
Accounts payable 126 979 10 363 (25 958)
(1 318) 56 415
Advance under accounts receivable purchase
agreementLitigation settlement - (49 940) 49 940(80 000) -
Accrued taxes and interest (6 578) 6 704 34 078 (2 928) (8 504)
Other items - net 14 630 3 813 18 714 (71 554) (70 049)
Net cash provided by (used in) operating activities 256 659 41 974 344 117332 102 261 745 284 157
Financing Activities
Issuance of preferred stock - - 156 325
Issuance of long-term debt - 108 978 241 704150 217 -
Funds on deposit from issuance of long-term debt - 973 9 987 27 897 (31 342)
Retirement of preferred stock (16 035) (15 116) (16) (26) (60 107)
Redemption of long-term debt (45 700) (74 600) (60 455) (160) (207 880)
Change in short-term debt 22 120 (13 616) 4 958 66 872 5 900
Dividends on preferred stock (11 795) (12 629) (13 181) (13 182) (12 288)
Dividends on common stock (113 600) (112 076) - (59 142) (62 191)
Capital contribution from parent company - - 13 926 159 999 12 538
Net cash provided by (used in) financing
activities (165 010) (76 847) (44 781) 291 236 42 659
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (141 552) (172 341) (186 580)
(290 579) (350 319)
Deferred DSMdemand-side management costs - net (16 117) (40 872) (30 736)
Equity investment in Argentine utility - - (10 200)282) (25 168) (43 615)
Net cash provided by (used in)used in investing activities (202 697) (331 451) (391 255)(151 834) (197 509) (230 195)
Net increase (decrease) in cash and temporary
cash investments 15 258 (12 611) 9 181 1 759 (4 479)
Cash and temporary cash investments at beginning
of period 2 911 15 522 6 341 4 582 9 061
Cash and temporary cash investments at end of
period $ 18 169 $ 2 911 $ 15 522 $ 6 341 $ 4 582
Supplemental Disclosure Of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $ 82 959 $ 76 655 $ 80 465
$ 67 150 $ 60 653
Income taxes 58 671 37 048 60 148 8 162 41 376
The accompanying notes are an integral part of these consolidated financial statements.
RESULTS OF OPERATIONS - PSI
Kwh Sales
Increased activity in Cinergy's power marketing and trading operations led to
higher non-firm power sales for resale and significantly contributed to the
increase in total kwh sales of 69.1%, as compared to 1996. The increase in
retail sales reflects a higher average number of commercial and industrial
customers, which was partially offset by a decrease in residential sales, as a
result of mild weather. Kwh sales (and related revenues and expenses) outside of
Cinergy's control area resulting from Cinergy's power marketing and trading
operations are allocated 50%/50% between CG&E and PSI. (See Note 1(c) of the
"Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" and the "Market Risk Sensitive Instruments and Positions"
section for discussions on Cinergy's power marketing and trading operations.)
PSI's total kwh sales increased 11.0% in 1996, as compared to 1995. Increased
activity in Cinergy's power marketing and trading operations led to higher
non-firm power sales for resale. The increase in retail sales, which reflects a
higher average number of residential and industrial customers, was partially
offset by the return to more normal weather in 1996. The increase in industrial
sales was due to growth in the primary metals and transportation equipment
sectors.
As compared to 1994, total kwh sales in 1995 as compared to 1994, increased 6.3%, reflecting
increased sales to all customer classes. Contributing significantly to this
increase were higher residential and commercial sales due to warmer weather
during the 1995 summer cooling season, colder weather during the fourth quarter
of 1995, and an increase in the number of residential and commercial customers.
Increased sales to industrial customers, reflecting growth in the primary
metals, chemicals, and food products sectors, also contributed to the increased
kwh sales level. This increase also reflects higher non-firm power sales for
resale resulting from an increase in sales to CG&E reflecting the coordination
of PSI's and CG&E's electric dispatch systems.
Total kwh sales increased 6.3% in 1994, as compared to 1993, due in large part
to non-firm power sales for resale, reflecting third party, short-term power
sales to other utilities through PSI's system and direct power sales by PSI to
other utilities. Also contributing to the total kwh sales levels were
increased sales to industrial customers. This increase reflected growth in
the primary metals and transportation equipment sectors. A decrease in
residential sales resulted from the milder weather experienced during the
third and fourth quarters of 1994.
New customers and a return to more normal weather contributed to the 3.6%
increase in total kwh sales in 1993, as compared to 1992. In addition, growth
in the primary metals, transportation equipment, precision instruments, and
photographic and optical goods sectors resulted in increased industrial sales.
Partially offsetting these increases was a reduction in non-firm power sales
for resale, which reflected a significant decrease in sales associated with
third party, short-term power sales to other utilities through PSI's system.
Year-to-year changes in kwh sales for each major class of customers are shown
below:
Increase (Decrease) from Prior Year
1997 1996 1995 1994 1993
Retail
Residential (.5)% - % 7.9%
(1.4)% 12.2 %
Commercial 1.3 0.4 5.2
1.4 7.2
Industrial 2.1 3.3 5.1 4.9 5.5
Total retail 1.1 1.5 6.0 2.0 8.0
Sales for resale
Firm power obligations 18.7 11.4 1.1 2.6 2.2
Non-firm power transactions 277.9 51.6 10.2 33.5 (15.4)
Total sales for resale 219.1 40.2 7.4 22.4 (9.8)
Total sales 69.1 11.0 6.3 6.3 3.6
PSI currently forecasts a 2%3% annual compound growth rate in kwh sales over the
19961998 through 20052002 period. This forecast does not reflect the effects of DSM
programs and excludes non-firm power sales for resale
and any potential new off-system, long-term firm power sales.
Operating Revenues
Increased kwh sales, as previously discussed, a full year's effects of PSI's
retail rate increases approved in the September 1996 Order, as amended in August
1997, and the December 1996 DSM Order significantly contributed to the $626
million (47%) increase in electric operating revenues, when compared to 1996.
Also contributing to the increase was the return of approximately $13 million to
customers in 1996 in accordance with the February 1995 Order. The February 1995
Order required all retail operating income above a certain rate of return to be
refunded to customers.
Operating revenues increased $84 million (7%) in 1996, as compared to 1995, due,
in large part, to the increase in kwh sales as previously discussed. Also
contributing to the increase was the effect of a 7.6% retail rate increase
approved in the September 1996 Order, as well as a full year's effect of a 4.3%
retail rate increase approved in the February 1995 Order and a 1.9% increase for
carrying costs on construction work in progress (CWIP) property which was
approved by the IURC in March 1995. Partially offsetting these increases was the
return of approximately $10 million to customers in accordance with the February
1995 Order.
Higher kwh sales and electric rate increases which became effective in February
1995 and March 1995 significantly contributed to the $134 million (12.1%(12%) increase
in operating revenues for 1995, when compared to 1994.
Operating revenues increased $22 million (1.9%) in 1994, as compared to 1993,
as a result of increased kwh sales, the effects of a $31 million refund to
retail customers accrued in June 1993 as a result of the settlement of the
April 1990 Order, and increased fuel costs. Partially offsetting these
increases were the 1.5% retail rate reduction resulting from the IURC's
December 1993 Order and the return of approximately $11 million (an increase
of $9 million when compared to 1993) to customers in connection with certain
provisions of Indiana law which limit the level of retail operating income as
determined in quarterly fuel adjustment clause proceedings.
In 1993, operating revenues increased $26 million (2.5%), as compared to 1992,
reflecting increased kwh sales which were offset, in part, by the refund
resulting from the settlement of the April 1990 Order.
An analysis of operating revenues for the past three years is shown below:
1997 1996 1995 1994 1993
(in millions)
Previous year's operating revenues $1 114332 $1 092248 $1 066114
Increase (Decrease) due to change in:
Price per kwh
Retail 56 8 68 (23) (38)
Sales for resale
Firm power obligations (1) 2(10) (3) (1)
Non-firm power transactions 193 - 71
Total change in price per kwh 139 5 68 (21) (32)
Kwh sales
Retail 12 16 55 18 71
Sales for resale
Firm power obligations 14 8 1 2 2
Non-firm power transactions 451 55 9 23 (12)
Total change in kwh sales 477 79 65
43 61
Other 110 - (3)1
Current year's operating revenues $1 248958 $1 114332 $1 092248
Operating Expenses
FUEL
FuelElectric fuel costs PSI's largest operating expense, remained relatively constantincreased $29 million (8%) in 1995, showing less than a 1% increase1997, when compared to 1994.1996.
An analysis of these fuel costs for the past three years is shown below:
1997 1996 1995 1994 1993
(in millions)
Previous year's fuel expense $364 $389 $387 $400 $386
Increase (Decrease) due to change in:
Price of fuel (2) (10) (13)
Deferred fuel cost (5) (30) 58 8
Kwh generation 36 (23) 7 17 9
Current year's fuel expense $393 $364 $389 $387 $400
PURCHASED AND EXCHANGED POWER
Purchased and exchanged power costsincreased $510 million and $92 million in 1997 and
1996, respectively. These increases primarily reflect increased purchases of
non-firm power for resale to others as a result of increased activity in
Cinergy's power marketing and trading operations. (See Note 1(c) of the "Notes
to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" and the "Market Risk Sensitive Instruments and Positions" section for
discussions on Cinergy's power marketing and trading operations.)
Purchased and exchanged power increased $22 million (54.3%(54%) in 1995, as compared
to 1994, reflecting increased purchases from CG&E as a result of the
coordination of PSI's and CG&E's electric dispatch systems. These increases
wereThis increase was
partially offset by a decline in third party, short-term power sales to other
utilities.
Purchased and exchanged powerOTHER OPERATION
Other operation expenses increased $17$76 million (70.6%(28%) in 1994,1997, as compared to
1993, reflecting1996. This increase is primarily due to higher other operation expenses relating
to the Clean Coal Project, amortization of deferred DSM expenses, and
amortization of deferred expenses associated with the Clean Coal Project, all of
which are being recovered in revenues pursuant to either the September 1996
Order or the December 1996 DSM Order. The effect of discontinuing deferral of
certain DSM-related costs in accordance with provisions of the December 1996 DSM
Order also added to the increase. These increases were partially offset by the
effect of charges in 1996 for early retirement and severance programs.
Other operation expenses increased approximately $40 million (17%) in 1996, as
compared to 1995. This increase was due to a number of factors, including an
increase related to the ongoing level and amortization of DSM expenses and an
increase in third party, short-term power
salesproduction expenses associated with the operations of the Clean Coal
Project, all of which are being recovered in revenues pursuant to other utilities through PSI's systemthe February
1995 and September 1996 Orders. Charges related to voluntary early retirement
and severance programs and increased purchasestransmission costs also contributed to the
higher level of other non-firm power by PSI primarily to serve its own load.
In 1993, PSI increased its purchases of non-firm power primarily to serve its
own load, which resulted in an increase in purchased and exchanged power costs
of $11 million (76.8%), as compared to 1992.
OTHER OPERATIONoperation expenses.
In 1995, other operation expenses increased $15 million (7.2%(7%), as compared to
1994. This increase was due to a number of factors, including the recognition of
postretirement benefit costs on an accrual basis, an increase in the ongoing
level of DSM expenses, and the amortization of deferred postretirement benefit
costs, deferred Merger Costs, and deferred DSM costs, all of which are being
recovered in revenues pursuant to the February 1995 Order. These increases were
partially offset by charges of $10 million in 1994 for severance benefits to
former officers of PSI which cannot be recovered from customers under the merger
savings sharing mechanisms authorized by the IURC. In addition, emphasis on
achieving merger savings and other cost reductions also partially offset the
increase in other operation expenses.
Other operation expenses increased $26MAINTENANCE
In 1997, maintenance costs decreased $11 million (14.2%(12%) in 1994,, as compared to 1993, due1996.
This decrease is primarily attributable to a number of factors includingreduced outage related charges and
other maintenance costs associated with electric production facilities. Reduced
maintenance costs associated with electric transmission and distribution
facilities also contributed to the previously discussed chargesdecrease for 1997.
An increase of $10 million (12%) in maintenance costs in 1996, as compared to
1995, is primarily attributable to increased maintenance associated with the
Clean Coal Project which began commercial operation in November 1995. Increased
transmission and fuel litigation expensesdistribution costs also contributed to the higher level of
$8 million.
MAINTENANCEmaintenance costs.
Maintenance costs decreased $7 million (7.1%(7%) in 1995, as compared to 1994,
primarily due to improved scheduling of routine maintenance on generating units
and lower maintenance costs on transmission and distribution facilities.
Maintenance on a number of PSI's generating stations and the initial costs of
a new distribution line clearing program resulted in increased maintenance
expenses of $10 million (12.1%) in 1994.
DEPRECIATION
In 1995, depreciation expense decreased $17 million (12.3%(12%), when compared to
1994, due, in large part, to the adoption of lower depreciation rates effective
in March 1995. This decrease was partially offset by the effect of additions to
utility plant.
Additions to electric utility plant led to increases in depreciation expense
of $11 million (8.6%), and $10 million (8.3%) in 1994 and 1993, respectively.
POST-IN-SERVICE DEFERRED OPERATING EXPENSES - NET
Post-in-service deferred operating expenses - net reflect the deferral of
depreciation on certain major projects, primarily environmental in nature, from
the in-service date until the related projects are reflected in retail rates,
net of amortization of these deferrals as they are recovered. (See Note 1(h) of
the "Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data".Data.")
TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes increased $4 million (8%) in 1997, as compared to
1996, primarily due to an increase in the Indiana Corporate Gross Income Tax.
Taxes other than income taxes increased $6 million (11.9%(12%) in 1995, as compared to
1994, primarily due to increased property taxes resulting from a greater
investment in taxable property.
Other Income and Expenses - Net
ALLOWANCE FOR EQUITY FUNDS USED DURING CONSTRUCTION
In 1995, allowance for equity funds used during construction decreased $4
million (95.9%), as compared to 1994, primarily due to a decrease in the
average balance of CWIP.
A decrease of $7 million (62.1%) in allowance for equity funds used during
construction in 1994, as compared to 1993, was due to an increase in
borrowings of short-term debt which resulted in a decrease in the equity rate.
The equity component of AFUDC increased in 1993, as compared to 1992,
primarily as a result of increased construction.
POST-IN-SERVICE CARRYING COSTS
Post-in-service carrying costs reflect the deferral of carrying costs on certain
major projects, primarily environmental in nature, from the in-service date
until the related projects are reflected in retail rates. (See Note 1(h) of the
"Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data".Data.")
REDUCTION OF LOSS RELATED TO THE JUNE 1987 ORDEROTHER - NET
The December 1993 Order resolved open issues related$5 million change in other - net for 1997, as compared to 1996, is primarily
due to a gain in 1997 on the sale of a PSI investment.
Interest and Other Charges
INTEREST ON LONG-TERM DEBT
In 1997, interest on long-term debt increased $5 million (7%) over the prior
year. The increase was primarily due to the June 1987 Order
which addressednet issuance of approximately $100
million of long-term debt during 1996 and 1997.
Interest on long-term debt decreased $4 million (5%) in 1996, as compared to
1995, due to the effect on PSIredemption of $135 million of long-term debt during the 1987 reduction in the Federal income
tax rate. Theperiod
from August 1995 through December 1993 Order provided for PSI to refund $119 million to
its retail customers, which was a reduction of $20 million from the loss
previously recognized.
Interest1996.
ALLOWANCE FOR BORROWED FUNDS USED DURING CONSTRUCTION
Allowance for borrowed funds used during construction decreased $2 million (45%)
in 1996, as compared to 1995. This decrease is primarily attributable to a
decrease in the average balance of CWIP, resulting from the Clean Coal Project
being completed at the end of 1995.
Allowance for borrowed funds used during construction decreased $5 million (55.0%(55%)
in 1995, as compared to 1994, primarily as a result of a decrease in the average
balance of CWIP, which was partially offset by an increase in the debt component
of the AFUDC rate.
The Union Light,
Heat and Power
Company
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
1997 1996 1995 1994 1993
(in thousands)
Operating Revenues
(Note 2)
Electric $192 774 $190 900 $187 180
$177 564 $175 712
Gas 78 848 76 868 70 288
71 971 75 744271 622 267 768 257 468 249 535 251 456
Operating Expenses
Electricity purchased from parent
company for resale 145 906 143 839 142 308
134 887 134 290
Gas purchased 44 354 41 185 36 745
40 508 43 380
Other operation 31 153 30 934 30 712
32 289 30 396
Maintenance 5 764 4 997 4 580
5 473 6 267
Depreciation 12 369 11 909 11 438 10 644 9 813
Income taxes (Note 12)11) 9 586 9 834 7 887 5 342 5 751
Taxes other than income taxes 4 055 4 036 3 968
4 002 3 623253 187 246 734 237 638
233 145 233 520
Operating Income 18 435 21 034 19 830 16 390 17 936
Other Income and Expenses - Net
Allowance for equity funds used
during construction 97 (8) 71 78 297
Income taxes (Note 12)11) 1 100 (352) (44) 56 46
Other - net (1 947) (1 417) 6
236 (580)(750) (1 777) 33 370 (237)
Income Before Interest 17 685 19 257 19 863 16 760 17 699
Interest
Interest on long-term debt 3 523 4 016 7 161
8 161 8 297
Other interest 1 396 703 728 395 331
Allowance for borrowed funds used
during construction (151) (58) (198)
(183) (268)4 768 4 661 7 691 8 373 8 360
Net Income $ 12 172917 $ 8 38714 596 $ 9 33912 172
The accompanying notes are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
December 31
1995 19941997 1996
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $188 508 $179 098$204 111 $195 053
Gas 140 604 134 103155 167 148 203
Common 19 068073 19 122
348 180 332 323285
378 351 362 541
Accumulated depreciation 112 812 104 113
235 368 228 210
CWIP 7 863 8 638133 213 122 310
245 138 240 231
Construction work in progress 14 346 9 050
Total utility plant 243 231 236 848259 484 249 281
Current Assets
Cash and temporary cash investments 546 1 750 1 071197
Notes receivable from affiliated companies - 100
Accounts receivable less accumulated provision
of $1,035 in 1995 and $457 in 1994 for doubtful accounts of $996 in 1997 and
$1,024 in 1996 (Note 7) 37 895 33 8926) 7 308 12 763
Accounts receivable from affiliated companies 446 620
Materials, supplies, and fuel - at average cost
Gas stored for current use 4 5135 401 6 216351
Other materials and supplies 693 716
Income tax refundable - 1 215 1 406
Property taxes applicable to subsequent year 2 350 2 200670
Prepayments and other 485 593
48 208 45 378385 370
14 779 23 787
Other Assets
Regulatory assets (Note 1(f))
Deferred merger costs 1 785 1 7855 213 5 218
Unamortized costs of reacquiring debt 2 526 -3 590 3 764
Other 2 548262 2 718357
Other 1 499 399
8 358 4 902
$299 797 $287 1286 262 5 146
17 327 16 485
$291 590 $289 553
The accompanying notes are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
CAPITALIZATION AND LIABILITIES
December 31
1995 19941997 1996
(dollars in thousands)
Common Stock Equity (Note 3)2)
Common stock - $15.00 par value;
authorized shares - 1,000,000;
outstanding shares - 585,333 in 19951997
and 19941996 $ 8 780 $ 8 780
Paid-in capital 18 839683 18 839
Retained earnings 82 863 74 20395 450 92 484
Total common stock equity 110 482 101 822122 913 120 103
Long-term Debt (Note 5) 54 377 89 2384) 44 671 44 617
Total capitalization 167 584 164 859 191 060720
Current Liabilities
Long-term debt due within one year (Note 5) 15 000 -
Notes payable (Note 6) - 14 500to affiliated companies 23 487 30 649
Accounts payable 11 057 6 049097 12 018
Accounts payable to affiliated companies 44 708 15 60619 712 16 771
Accrued taxes 1 993 2 8766 332 84
Accrued interest 1 549 2 123286 1 284
Other 4 364 5 505 4 123
79 812 45 277248
66 278 66 054
Other Liabilities
Deferred income taxes (Note 12) 23 728 23 22611) 26 211 33 463
Unamortized investment tax credits 5 079 5 3644 516 4 797
Accrued pension and other postretirement
benefit costs (Notes 109 and 11)10) 14 044 12 202 10 356
Amounts due to customers - income983
Income taxes 4 717 4 282refundable through rates 6 566 5 121
Other 9 400 7 563
55 126 50 7916 391 2 415
57 728 58 779
Commitments and Contingencies (Note 13)
$299 797 $287 12812)
$291 590 $289 553
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Common Paid-in Retained Total Common
Stock Capital Earnings Stock Equity
(in(dollars in thousands)
Balance December 31, 19921994 $8 780 $18 839 $62 915 $ 90 534
Net income 9 339 9 339
Dividends on common stock (2 927) (2 927)
Balance December 31, 1993 8 780 18 839 69 327 96 946
Net income 8 387 8 387
Dividends on common stock (3 511) (3 511)
Balance December 31, 1994 8 780 18 839 74$74 203 101$101 822
Net income 12 172 12 172
Dividends on common stock (3 512) (3 512)
Balance December 31, 1995 8 780 18 839 82 863 110 482
Net income 14 596 14 596
Dividends on common stock (4 975) (4 975)
Balance December 31, 1996 8 780 18 839 92 484 120 103
Net income 12 917 12 917
Dividends on common stock (9 951) (9 951)
Other - (156) - (156)
Balance December 31, 1997 $8 780 $18 839 $82 863 $110 482683 $95 450 $122 913
The accompanying notes are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
1997 1996 1995 1994 1993
(in thousands)
Operating Activities
Net income $ 12$12 917 $14 596 $12 172 $ 8 387 $ 9 339
Items providing or (using) cash currently:cash:
Depreciation 12 369 11 909 11 438 10 644 9 813
Deferred income taxes and investment
tax credits - net (6 124) 9 857 652 2 042 999
Allowance for equity funds used during
construction (97) 8 (71) (78) (297)
Regulatory assets - net100 (1 500) 170 (1 615) 116
Changes in current assets and current
liabilities
Accounts and notes receivable, net
of reserves on receivables sold 4 507 20 758 (4 003) 8 801 (5 859)
Materials, supplies, and fuel 973 (1 339) 1 894
1 043 (1 583)
Accounts payable 34 110 (2 377) 2 311020 (4 690) 11 824
Accrued taxes and interest 7 920 (1 457) 3 307494) (1 390)607)
Other items - net 5 019 2 780 2 294343 (6 554) 4 412
Net cash provided by (used in) operating activities 59 924 32 934 15 74339 928 41 551 36 881
Financing Activities
Issuance of long-term debt - - 14 704 - -
Redemption of long-term debt - (26 083) (37 036) - (6 500)
Change in short-term debt (14 500) (10 500) 18 500(7 162) 7 606 8 543
Dividends on common stock (9 951) (4 975) (3 512)
(3 511) (2 927)
Net cash provided by (used in)used in financing activities (40 344) (14 011) 9 073(17 113) (23 452) (17 301)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (23 466) (18 652) (18 901)
(20 329) (24 127)
Net cash provided by (used in)used in investing activities (23 466) (18 652) (18 901) (20 329) (24 127)
Net increase (decrease) in cash and temporary
cash investments (651) (553) 679 (1 406) 689
Cash and temporary cash investments at beginning
of period 1 071 2 477197 1 788750 1 071
Cash and temporary cash investments at end of
period $ 1 750546 $ 1 071197 $ 2 4771 750
Supplemental Disclosure of Cash Flow Information
Cash Paid Duringpaid during the year for:
Interest (net of amount capitalized) $ 4 490 $ 4 667 $ 8 121
$ 8 281 $ 8 404
Income taxes 2 859 1 240 7 727 4 714 4 001
The accompanying notes are an integral part of these financial statements.
RESULTS OF OPERATIONS - ULH&P
Kwh Sales
ULH&P'sKwh sales decreased by 1.2%, compared to 1996. This decrease was a result of
mild weather. This decline was partially offset by an increase in commercial
sales, which reflects a higher average number of customers.
In 1996, total kwh sales increased 5.8% as compared to 1995, reflecting
increased sales to all customer classes. The increase in retail sales, which
reflects a higher average number of residential and commercial customers, was
partially offset by the return to more normal weather in 1996. The increased
industrial sales primarily reflect growth in the food products sector.
Total kwh sales in 1995, as compared to 1994, increased 7.2% reflecting
increased sales to all customer classes. The increase in residential and
commercial kwh sales was due to warmer weather during the 1995 summer cooling
season and colder weather during the fourth quarter of 1995 and an increase in
the average number of customers. The increased industrial sales primarily
reflect growth in the primary metals sector.
Total kwh sales increased 2.8% in 1994, as compared to 1993, primarily due to
increased retail sales to commercial and industrial customers. Industrial
sales reflected a higher level of economic activity, including growth in the
primary metals, industrial machinery, food products, and rubber and plastic
products sectors. The increase in commercial sales was due, in part, to new
customers. A decrease in residential sales resulted from the milder weather
experienced during the third and fourth quarters of 1994.
A return to more normal weather contributed to the 5.8% increase in total kwh
sales in 1993, as compared to 1992. In addition, growth in the food products,
industrial machinery, transportation equipment, and fabricated metal products
sectors resulted in increased industrial sales.
Year-to-year changes in kwh sales for each major class of customers are shown
below:
Increase (Decrease) from Prior Year
1995 1994 1993
Retail
Residential 10.0% (4.6)% 6.6%
Commercial 5.6 6.0 5.8
Industrial 5.2 7.2 4.4
Total retail 7.2 2.8 5.9
Firm power sales for resale 7.4 5.1 4.7
Total sales 7.2 2.8 5.8
ULH&P currently forecasts a 2% annual compound growth rate in kwh sales over the
19961998 through 20052002 period. This forecast does not reflect the effects of
DSM programs and excludes any potential new off-system, long-term firm power
sales.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes decreased slightly, as compared to
1996. The milder weather experienced in 1997 contributed to a decrease in
residential and commercial sales. Gas transportation volumes increased and
industrial gas sales decreased as customers continued to purchase gas directly
from suppliers using transportation services provided by ULH&P.
Mcf gas sales and transportation volumes increased 6.6%, as compared to 1995.
Colder weather in the first quarter of 1996, cooler than normal weather early in
the second quarter of 1996, and increases in the average number of customers led
to increased sales to residential and commercial customers. This increase was
partially offset by a decrease in industrial sales as customers continued to
purchase gas directly from suppliers.
Total gas sales and transportation volumes increased 8.6% forin 1995, as compared
to 1994. The colder weather during the fourth quarter of 1995 primarily
attributed to the increase in residential and commercial sales. These increases
were partially offset by a decline in industrial sales resulting from customers
electing to purchase directly from suppliers, creating additional demand for
transportation services provided by ULH&P. The
increased transportation volumes mainly reflect industrial demand for gas
transportation services in the paper products sector.
The milder weather experienced in 1994 contributed to a decrease in
residential gas sales volumes and led to the decrease in total Mcf sales and
transportation of 4.3%, as compared to 1993. The increase in gas
transportation more than offset the decrease in industrial sales volumes and
was attributable to additional demand for gas transportation services by
industrial customers mainly in the primary metals, paper products, and food
products sectors.
The increase in Mcf sales and transportation of 5.8% in 1993, when compared to
1992, was attributable to higher sales to retail customers. This increase was
primarily attributable to higher sales to residential customers caused by the
return to more normal weather during the 1993 heating season and the addition
of a number of customers to ULH&P's gas system during the year. Gas
transportation volumes for 1993 decreased largely as a result of lower
industrial demand for gas transportation services in the paper products
sector. However, the decrease in Mcf transported was more than offset by the
increase in Mcf sold to industrial customers.
Year-to-year changes in Mcf sales for each major class of customers and Mcf
transportation volumes are shown below:
Increase (Decrease) from Prior Year
1995 1994 1993
Retail
Residential 9.5 % (11.2)% 8.2 %
Commercial 3.8 4.1 4.1
Industrial (8.4) (9.2) 23.9
Total retail 6.0 (6.6) 8.3
Gas transported 24.3 12.9 (10.5)
Total gas sold and transported 8.6 (4.3) 5.8services.
Operating Revenues
ELECTRIC OPERATING REVENUES
Electric operating revenues increased $9.6$2 million (5.4%(1%) in 1995, and $1.91997, $4 million (1.1%(2%)
in 1994. These increases reflect higher1996, and $10 million (5%) in 1995. The increase in 1997 was partially due to
the effect of an order issued by the Kentucky Public Service Commission in July
1996. This order authorized a decrease in electric rates, retroactive to July
1995, reflecting a reduction in the cost of electricity purchased from CG&E.
Partially offsetting this increase was a decline in kwh sales, as previously
discussed. In 1993, electric operating revenues increased $16.0
million (10.0%) due to an increaseIncreases in 1996 and 1995 reflect higher kwh sales, andwhich was
partially offset by the full effectlower average cost of a rate
increase that became effective in May 1992.
An analysis of electric operating revenues for the past three years is shown
below:
1995 1994 1993
(in thousands)
Previous year's electric
operating revenues $177 564 $175 712 $159 690
Increase (Decrease) due to change in:
Price per kwh
Retail (3 934) (3 095) 6 355
Firm power sales for resale 24 170 82
Total change in price per kwh (3 910) (2 925) 6 437
Kwh sales
Retail 13 363 4 761 9 196
Firm power sales for resale 157 92 78
Total change in kwh sales 13 520 4 853 9 274
Other 6 (76) 311
Current year's electric
operating revenues $187 180 $177 564 $175 712electricity purchased.
GAS OPERATING REVENUES
The increasing trend of industrial customers purchasing gas directly from
producers and utilizingusing ULH&P facilities to transport the gas (see the "Mcf Sales
and Transportation" section) continues to put downward pressure on gas operating
revenues. When ULH&P sells gas, the sales price reflects the cost
of gas purchased by ULH&P to support the sale plus the costs to deliver the
gas. When gas is transported, ULH&P does not incur any purchased gas costs
but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery
of gas purchased costs, the revenue per Mcf transported is less than the revenue
per Mcf sold. As a result, a higher relative volume of gas transported to gas
sold translates into lower gas operating revenues.
The $2 million (3%) increase in gas operating revenues in 1997, as compared to
1996, was due to the operation of the fuel adjustment clause reflecting a higher
average cost per Mcf of gas purchased.
Gas operating revenues declined $1.7increased $7 million (2.3%(9%) in 1996, as compared to 1995.
The increase was primarily attributable to the operation of the fuel adjustment
clause reflecting an increase in the average cost per Mcf of gas purchased and
an increase in total volumes sold and transported.
In 1995, gas operating revenues declined $2 million (2%), as compared to 1994,
as a result of the aforementioned trend toward increased transportation services
and the operation of the fuel adjustment clausesclause reflecting a lower average cost
per Mcf of gas purchased.
In 1994, gas operating revenues decreased $3.8 million (5.0%), as compared to
1993, primarily as a result of a decline in total volumes sold and transported
of 4.3%. This decrease was partially offset by the effect of a gas rate
increase which became effective in mid-1993.
Gas operating revenues increased $13.1 million (21.0%) in 1993 due to the
operation of the fuel adjustment clause reflecting an increase in the cost of
gas purchased, the mid-1993 rate increase, and a 5.8% increase in total
volumes sold and transported.
Operating Expenses
ELECTRICITY PURCHASED FROM PARENT COMPANY FOR RESALE
Electricity purchased increased $7.4$7 million (5.5%(6%) in 1995, as compared to 1994,
due to an 8.1%
increase in volumes purchased. In 1993, electricity purchased increased
$7.1 million (5.6%) due to a 6.3% increase in volumes purchased.
GAS PURCHASED
The increase in gas purchased expense of $3 million (8%) in 1997, as compared to
1996, reflects a higher average cost per Mcf of gas purchased partially offset
by a decline in the volumes of gas purchased.
Gas purchased increased $4 million (12%) in 1996, as compared to 1995, due to an
increase in volumes purchased and a higher average cost per Mcf of gas
purchased, as previously discussed.
In 1995, gas purchased expense decreased $3.8$4 million (9.3%(9%) from 1994 primarily due
to a 13.7% decrease in the average cost per Mcf of gas purchased.
Gas purchased expense in 1994 decreased $2.9 million (6.6%) due to
a 5.2% decrease in volumes purchased. In 1993, gas purchased expense
increased $8.0 million (22.5%) due to an 11.8% increase in the average cost
per Mcf of gas purchased and to a 9.5% increase in volumes purchased.
OTHER OPERATION
In 1995, other operation expense decreased $1.6$2 million (4.9%(5%), as compared to 1994,
due, in part, to decreased gas and electric distribution expenses and decreased
gas production expenses.
MAINTENANCE
In 1994, other operation expense1997, maintenance costs increased $1.9$1 million (6.2%(15%), as compared to 1993, due1996. This
increase is primarily attributable to increased gas andmaintenance costs on electric
distribution expensesfacilities.
In 1996, maintenance costs increased $.4 million (9%) as compared to 1995,
primarily as a result of increased transmission and increased wages and benefits. Other
operation expensedistribution costs.
Maintenance costs decreased $1.2$1 million (3.8%) in 1993 due to a number of
factors including reduced electric and gas distribution expenses and cost
control efforts.
MAINTENANCE
Maintenance expense decreased $.9 million (16.3%(16%) in 1995, and $.8 million
(12.7%) inas compared to 1994,
primarily as a result of reduced maintenance costs on gas and electric
distribution facilities.
DEPRECIATION
Depreciation expense increased $.8$1 million (7.5%(8%) in 1995, as compared to 1994,
primarily due to additions to electric and gas plant in service.
IncreasesOther Income and Expenses - Net
OTHER - NET
The $.5 million change in 1994 and 1993 of $.8 million (8.5%) and $1.5 million (18.0%),
respectively, wereother - net for 1997, as compared to 1996, is
primarily due to increasesincreased expenses associated with ULH&P's sales of accounts
receivable.
The decrease in depreciable plantother - net of $1 million in service1996, as compared to 1995, is
primarily attributable to expenses associated with the sales of accounts
receivables in 1996.
Interest and Other Charges
INTEREST ON LONG-TERM DEBT
The $.5 million (12%) decrease in interest on long-term debt, as compared to
1996, is primarily due to the adoptionredemption of higher depreciation rates$25 million of long-term debt in
1996.
Interest on gaslong-term debt decreased $3 million (44%) in 1996, as compared to
1995, due to the redemption of $25 million and common plant$35 million of long-term debt in
accordance
with a KPSC rate order issued1996 and 1995, respectively.
OTHER INTEREST
The $1 million increase in 1993.other interest, as compared to 1996, is primarily due
to increased short-term borrowings from affiliated companies through Cinergy's
money pool arrangement.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Cinergy, CG&E, PSI, and ULH&P
(a) Consolidation PolicyNature of Operations Cinergy Corp., a Delaware corporation, (Cinergy or
Company), is a registered holding company under the Public Utility Holding
Company Act of 1935 (PUHCA). Cinergy was created in the October 1994 merger of
PSI Resources, Inc. (Resources) and CG&E.The Cincinnati Gas & Electric Company
(CG&E). Cinergy's utility subsidiaries are CG&E PSI, Investments, and Services. The accompanying Financial Statements include
the accounts of Cinergy and its subsidiaries after elimination of significant
intercompany transactions and balances.
At merger consummation, each outstanding share of common stock of Resources
and CG&E was exchanged for 1.023 shares and one share, respectively, of
Cinergy common stock, resulting in the issuance of approximately 148 million
shares of Cinergy common stock, par value $.01 per share. The outstanding
preferred stock and debt securities of CG&E, its utility subsidiaries
(including ULH&P), and PSI were not affected by the merger. The merger was
accounted for as a pooling of interests, and the Financial Statements, along
with the related notes, are presented as if the merger was consummated as of
the beginning of the earliest period presented.
Resources' and CG&E's consolidated operating revenues and net income for the
nine months ended September 30, 1994, and the year ended December 31, 1993,
were as follows:
Resources CG&E Eliminations(i) Cinergy
(in millions)
Nine months ended September
30, 1994 (unaudited)
Operating revenues $ 849(ii) $1 363 $ (7) $2 205
Net income 60 146 - 206
Year ended December 31, 1993
Operating revenues 1 102(ii) 1 752 (10) 2 844
Net income (loss) 97 (34)(iii) - 63
(i) Eliminations of intercompany power sales.
(ii) Reflects reclassifications from previously reported amounts to
conform to the 1995 presentation.
(iii) Reflects write-off of a portion of Zimmer ($223 million, net of
taxes)Energy, Inc. (PSI).
Cinergy, CG&E, PSI, and ULH&P
(b) Nature of Operations Cinergy is a registered holding company under the
PUHCA.
CG&E, an Ohio combination electric and gas utility, and its fourfive wholly-owned
utility subsidiaries (including ULH&P,The Union Light, Heat and Power Company, a
Kentucky combination electric and gas utility)utility (ULH&P)), are primarily engaged in
the production, transmission, distribution, and sale of electric energy and/or
the sale and transportation of natural gas in the southwestern portion of Ohio
and adjacent areas in Kentucky and Indiana. PSI, an Indiana electric utility and
previously Resources' utility subsidiary, is engaged in the production,
transmission, distribution, and sale of electric energy in north central,
central, and southern Indiana. The majority of Cinergy's operating revenues are
derived from the sale of electricity and the sale and transportation of natural
gas.
Cinergy's non-utility subsidiaries are Cinergy Investments, Inc. (Investments)
and Cinergy Services, Inc. (Services). Investments, a Delaware corporation, is a
non-
utilitynon-utility subholding company that was formed to hold and operate Cinergy's
non-utility businesses and interests. Investments' principal activities include
investments in Midlands Electricity plc (Midlands), Cinergy Global Power, Inc.,
and Trigen-Cinergy Solutions LLC (Trigen-Cinergy). (See Note 1(e) for a further
discussion of Midlands.) Services, a Delaware corporation, is the service
company for the Cinergy system, providing member companies with a variety of
administrative, management, and support services.
The majority of Cinergy's
operating revenues are derived from the sale of electricity and the sale and
transportation of natural gas.
Cinergy, CG&E, PSI, and ULH&P
(c) Management's Use(b) Presentation The accompanying Consolidated Financial Statements of EstimatesCinergy,
CG&E, and PSI include the accounts of Cinergy, CG&E, and PSI, respectively, and
their wholly-owned subsidiaries. Investments in business entities in which the
Company does not have control, but has the ability to exercise significant
influence over operating and financial policies (generally, 20% to 50%
ownership) are accounted for using the equity method. All significant
intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Estimates are also required with respect toliabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. (See Note
13.12.)
Certain reclassifications of prior years' data have been made to conform with
the current year's presentation.
Cinergy, CG&E, and PSI
(c) Power Marketing and Trading Cinergy's power marketing and trading function
actively markets and trades over-the-counter forward and option contracts for
the purchase and sale of electricity. The majority of these contracts are
settled via physical delivery of electricity or netted out in accordance with
industry trading standards. Option premiums are deferred and included in the
Consolidated Balance Sheets and amortized to "Operating Revenues - Electric" or
"Purchased and exchanged power" in the Consolidated Statements of Income over
the term of the option contract. Cinergy values its portfolio of
over-the-counter forward and option contracts using the aggregate lower of cost
or market method. To the extent there are net aggregate losses in the portfolio,
Cinergy reserves for such losses. Net gains are recognized when realized. Due to
the lack of liquidity and the volatility currently experienced in the power
markets, significant assumptions must be made by the Company when estimating
current market values for purposes of the aggregate lower of cost or market
comparison. It is possible that the actual gains and losses from the Company's
power marketing and trading activities could differ substantially from the gains
and losses estimated currently.
Cinergy, CG&E, and PSI
(d) Financial Derivatives Cinergy and its subsidiaries use derivative financial
instruments to hedge exposures to foreign currency exchange rates, lower funding
costs, and manage exposures to fluctuations in interest rates. Instruments used
as hedges must be designated as a hedge at the inception of the contract and
must be effective at reducing the risk associated with the exposure being
hedged. Accordingly, changes in market values of designated hedge instruments
must be highly correlated with changes in market values of the underlying hedged
items at inception of the hedge and over the life of the hedge contract.
Cinergy utilizes a currency swap to hedge its pound sterling denominated net
investment in Avon Energy Partners Holdings (Avon Energy). Accordingly, any
translation gains or losses related to the principal exchange on the currency
swap are recorded in the cumulative foreign currency translation adjustment
which is a separate component of common stock equity. Aggregate translation
losses related to the principal exchange of the currency swap are reflected in
"Current Liabilities - Other" in the Consolidated Balance Sheets.
Interest rate swaps are accounted for under the accrual method. Accordingly,
gains and losses based on any interest differential between fixed-rate and
floating-rate interest amounts, calculated on agreed upon notional principal
amounts, are recognized in the Consolidated Statements of Income as a component
of interest expense as realized over the life of the agreement.
Cinergy
(e) Investments in Unconsolidated Subsidiaries
Except for Cinergy's investment in Avon Energy, investments in unconsolidated
subsidiaries are not significant. In May 1996, Cinergy and GPU, Inc. (GPU), a
Pennsylvania corporation, entered into a 50%/50% joint venture agreement and
formed Avon Energy, incorporated in London, England. Avon Energy, through a
wholly-owned subsidiary, immediately began acquiring the outstanding common
stock of Midlands, a United Kingdom (UK) regional electric company. During the
third quarter of 1996, Avon Energy completed the acquisition of substantially
all of the outstanding common stock of Midlands. The total consideration paid by
Avon Energy was approximately 1.7 billion pounds sterling ($2.6 billion at then
existing currency exchange rates). The funds for the acquisition were obtained
from Cinergy's and GPU's investment in Avon Energy of approximately 330 million
pounds sterling each ($500 million each), with the remainder being obtained by
Avon Energy through the issuance of non-recourse debt. As a result of the
allocation of the purchase price, Avon Energy has recorded goodwill of
approximately 1.4 billion pounds sterling ($2 billion) in connection with its
acquisition of Midlands. The goodwill is being amortized on a straight-line
basis over 40 years.
Summarized financial information for Avon Energy is as follows:
December 31, 1997
Avon Energy
Assets (in millions)
Property, plant, and equipment $1 890
Current assets 676
Other assets 2 148
Total assets $4 714
Capitalization and Liabilities
Total common shareholders' equity $1 006
Long-term debt 1 533
Other liabilities 2 175
Total capitalization and
liabilities $4 714
Cinergy's investments in unconsolidated
subsidiaries: Avon Energy $ 505
Other companies 33
Total investments in unconsolidated
subsidiaries $ 538
Year Ended
December 31, 1997
Avon Energy
(in millions)
Operating revenues $2 176
Net income before extraordinary item $ 127
Extraordinary item - windfall profits
tax (less applicable income taxes of $0) $ (219)
Net loss $ (92)
Cinergy's equity in earnings of Avon Energy
before extraordinary item $ 63
Cinergy's equity in extraordinary item $ (109)
Cinergy's equity in earnings of: Avon Energy $ (46)
Other companies (3)
Total equity in the earnings of unconsolidated
subsidiaries $ (49)
During 1997, Cinergy received $25 million of dividends from Avon Energy.
The pro forma financial information for 1996 presented below assumes 100% of
Midlands was acquired on January 1, 1996. The pro forma adjustments include
recognition of equity in the estimated earnings of Avon Energy, an adjustment
for interest expense on debt associated with Cinergy's investment in Avon
Energy, and related income taxes. The estimated earnings of Avon Energy include
the historical earnings of Midlands prior to its acquisition by Avon Energy,
adjusted for the estimated effect of purchase accounting (including the
amortization of goodwill) and conversion to United States (US) GAAP, interest
expense on debt issued by Avon Energy associated with the acquisition, and
related income taxes. The equity in earnings of Avon Energy has been converted
from pounds sterling to dollars using the average exchange rate for 1996 of
$1.53/pound sterling.
Year Ended December 31, 1996
Net Earnings Per Share(1)
Income Basic Diluted
(in millions, except
per share amounts)
Cinergy $335 $2.00(2) $1.99(2)
Pro forma adjustments:
Equity in earnings of Avon Energy 20
Interest expense (14)
Income taxes 6
Pro forma results $347 $2.08 $2.06
(1) See Note 16.
(2) Earnings per share after a charge of $.12 per share for the cost of
reacquiring preferred stock of CG&E through a tender offer.
Cinergy, CG&E, PSI, and ULH&P
(d)(f) Regulation Cinergy, its utility subsidiaries (CG&E, together with its
subsidiaries, and PSI), and certain of its non-
utilitynon-utility subsidiaries are subject
to regulation by the SECSecurities and Exchange Commission (SEC) under the PUHCA.
Cinergy's utility subsidiaries are also subject to regulation by the FERCFederal
Energy Regulatory Commission (FERC) and the state utility commissions of
Ohio,Indiana, Kentucky, and Indiana.Ohio.
The accounting policies of Cinergy's utility subsidiaries conform to the
accounting requirements and ratemaking practices of these regulatory authorities
and to generally accepted accounting principles,GAAP, including the provisions of Statement 71.of Financial Accounting
Standards No. 71, Accounting for the Effects of Certain Types of Regulation
(Statement 71).
Under the provisions of Statement 71, regulatory assets represent probable
future revenue associated with deferred costs to be recovered from customers
through the ratemaking process. The following regulatory assets of PSI and
CG&E and its utility subsidiaries are reflected in the Balance Sheets as of
December 31:
1995 1994
PSI CG&E 1/ Cinergy PSI CG&E 1/ Cinergy
(in millions)
Amounts due from customers -
income taxes $ 27 $397 $ 424 $ 27 $382 $ 409
Post-in-service carrying
costs and deferred
operating expenses 39 148 187 30 155 185
Phase-in deferred return
and depreciation - 100 100 - 101 101
Deferred DSM costs 110 19 129 94 10 104
Deferred merger costs 42 15 57 38 12 50
Unamortized costs of
reacquiring debt 34 40 74 37 33 70
Postretirement benefit
costs 21 4 25 21 4 25
1992 workforce reduction
costs - 8 8 - 17 17
Other 13 29 42 9 35 44
Total $286 $760 $1 046 $256 $749 $1 005
1/ Includes $7 million and $5 million related to ULH&P at December 31, 1995
and 1994, respectively.
PSI has previously received regulatory orders authorizing the recovery of $149
million of its total regulatory assets at December 31, 1995, and is currently
requesting recovery of an additional $119 million. CG&E has previously
received regulatory orders authorizing the recovery of $701 million (including
$3 million for ULH&P) of its total regulatory assets at December 31, 1995, and
is currently requesting recovery of an additional $11 million. Both PSI and
CG&E (including ULH&P) will request recovery of additional amounts in future
rate proceedings in each applicable jurisdiction. (See Note 2.)
See Note 1(e), (f), (g), (h), (i), (j), and (k) for additional information
regarding amounts due from customers - income taxes, phase-in deferred return
and depreciation, deferred DSM costs, post-in-service carrying costs and
deferred operating expenses, deferred merger costs, costs of reacquiring debt,
and 1992 workforce reduction costs, respectively. For additional information
regarding postretirement benefit costs, see Note 11.
Certain criteria must be met in orderfor regulatory
assets to continue to applybe recorded and for the continued application of the provisions of
Statement 71, including regulated rates designed to recover the specific
utility's costs. Failure to satisfy the criteria in Statement 71 would eliminate
the basis for reportingrecognition of regulatory assets.
AlthoughBased on Cinergy's
utility subsidiaries' current regulatory orders and regulatory environment
fully support the continued recognition of their regulatory assets, the
ultimate outcome of the changing competitive environment discussed in the
"Competitive Pressures" section of "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" could result in
Cinergy's utility subsidiaries discontinuing application of Statement 71 for
all or part of their business. Such an event would require the write-off of
the portion of any regulatory asset for which sufficient regulatory assurance
of future recovery no longer exists. No evidence currently exists that would
support a write-off of any portion of Cinergy's utility subsidiaries'
regulatory assets.
In March 1995, the FASB issued Statement 121, which is effective in January
1996 for Cinergy and its utility subsidiaries. Statement 121, which addresses
the identification and measurement of asset impairments for all enterprises,
will be particularly relevant for electric utilities as a result of the
potential for deregulation of the generation segment of the business.
Statement 121 requires recognition of impairment losses on long-lived assets
when book values exceed expected future cash flows. Based on the regulatory environment in
which Cinergyit currently operates, compliance with the provisionsrecognition of Statement 121its regulatory assets as of
December 31, 1997, is not expected to have an adverse effect on its
financial condition or resultsfully supported. The regulatory assets of operations. However, this conclusion may
change in the future as competitive pressuresPSI and potential restructuring
influence the electric utility industry.
CinergyCG&E and
its utility subsidiaries intendas of December 31 are as follows:
1997 1996
PSI CG&E 1/Cinergy PSI CG&E 1/Cinergy
(in millions)
Amounts due from customers -
income taxes (Note 1(g)) $ 24 $350 $ 374 $ 33 $344 $ 377
Post-in-service carrying costs and
deferred operating expenses
(Note 1(h)) 44 135 179 45 141 186
Coal contract buyout costs (Note 1(i)) 122 - 122 138 - 138
Deferred demand-side management (DSM)
costs (Note 1(j)) 71 39 110 102 33 135
Phase-in deferred return and
depreciation (Note 1(k)) - 90 90 - 95 95
Deferred merger costs (Note 1(l)) 74 16 90 76 18 94
Unamortized costs of reacquiring
debt (Note 1(m)) 30 36 66 32 39 71
Coal gasification services expenses
(Note 1(n)) 22 - 22 25 - 25
Other 22 2 24 28 20 48
Total $409 $668 $1 077 $479 $690 $1 169
1/ Includes $11 million related to ULH&P at both December 31, 1997, and 1996.
PSI has previously received regulatory orders authorizing the recovery of $399
million of its total regulatory assets at December 31, 1997. CG&E has previously
received regulatory orders authorizing the recovery of $595 million (including
$4 million for ULH&P) of its total regulatory assets at December 31, 1997. Both
PSI and CG&E (including ULH&P) will request recovery of additional amounts in
future proceedings, which could include proceedings, if any, related to
continue their pursuit of
competitive strategies that mitigate the potential impact of these issues on
the financial condition of the companies (see the "Competitive Pressures"
section of "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations").transition to customer choice in each applicable jurisdiction.
Cinergy, CG&E, PSI, and ULH&P
(e)(g) Federal and State Income Taxes DeferredUnder the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement
109), deferred tax assets and liabilities are recognized for the expected futureincome tax
consequences of existing differences
between thetransactions treated differently for financial reporting and tax
reporting basesreturn purposes, measured on the basis of assets and
liabilities.statutory tax rates. Investment tax
credits utilized to reduce Federal income taxes payable have been deferred for
financial reporting purposes and are being amortized over the useful lives of
the property which gave rise to such credits.
Income tax provisions reflected in customer rates are regulated by the various
regulatory commissions overseeing the regulated business operations of PSI,
CG&E, and itsCG&E's utility subsidiaries. ToIn accordance with the extent deferred income taxes are
not reflected in rates charged to customers, income taxes payable in future
years are recoverable from customers as paid. The future revenues associated
with these amounts are reflected in the accompanying Financial Statements asprovisions of
Statement 71, Cinergy, PSI, and CG&E have recorded a regulatory asset, based on"Amounts
due from customers - income taxes," representing the probable recovery from
customers of additional income taxes established under Statement 109. ULH&P has
recorded a regulatory liability "Income taxes refundable through customers' rates in
future periods. Conversely,rates"
representing the probable repayment to customers of income taxes established
under Statement 109 to the extent deferred income taxes recovered in rates
exceed amounts payable in future periods, such amounts are reflected in
the accompanying Financial Statements as "Income taxes refundable through
rates" on the basis of their probable repayment in future years.
Cinergy and CG&E
(f) Phase-in Deferred Return and Depreciation In the first three years of a
rate phase-in plan for Zimmer included in the May 1992 Order by the PUCO,
rates charged to customers did not fully recover depreciation expense and
return on investment. In accordance with the provisions of the May 1992
Order, this deficiency has been deferred on the Consolidated Balance Sheets
and is being recovered over a seven-year period beginning in May 1995.
Cinergy, CG&E, PSI, and ULH&P
(g) DSM In February 1995, the IURC issued the February 1995 Order approving
a rate settlement agreement among PSI and certain intervenors which authorized
the recovery of DSM expenditures deferred through July 1993 ($35 million),
together with carrying costs. In addition, base rates include recovery of $23
million of DSM expenditures on an annual basis. Under the February 1995
Order, current deferral of DSM expenditures is the amount by which actual
annual expenditures exceed the base level of $23 million. If DSM expenditures
in any calendar year are less than the $23 million in base rates, the
unamortized balance of deferred DSM expenditures is reduced by such
difference. In its current retail rate proceeding, PSI has requested recovery
of DSM expenditures deferred between July 1993 and August 1995, together with
carrying costs, and an increase in the ongoing annual expense level from $23
million to $39 million (see Note 2(a)). DSM expenditures subsequent to August
1995 in excess of the annual ongoing level in base rates are being deferred,
with carrying costs, for recovery in a subsequent rate proceeding.
In the August 1993 Order, CG&E was authorized to recover approximately $5
million annually of costs associated with DSM programs for residential
customers. In 1995, the PUCO authorized the deferral, with carrying costs, of
the expenditures associated with a number of approved DSM programs to the
extent such expenditures are in excess of the $5 million already being
recovered. CG&E is also requesting PUCO approval to defer the costs of
additional DSM programs. Additionally, the KPSC has authorized recovery of
costs related to various DSM programs of ULH&P.periods.
Cinergy, CG&E, and PSI
(h) Post-in-service Carrying Costs and Deferred Operating Expenses CG&E received
various orders from the PUCOPublic Utilities Commission of Ohio (PUCO) which
permitted the deferral of carrying costs and non-fuel operating expenses
(including depreciation) for the Wm. H. Zimmer Generating Station (Zimmer) and
Woodsdale.Woodsdale Generating Station (Woodsdale) units. Effective with the dates of the
PUCO's orders reflecting the units in customer rates, the deferrals of
post-in-service carrying costs are being recovered over the lives of the
applicable units and the deferred non-fuel operating expenses are being
recovered over a 10-year period.
PSI received authority from the IURCIndiana Utility Regulatory Commission (IURC) for
the accrual of the debt component of carrying costs (to the extent not recovered
currently in retail rates) and the deferral of depreciation expense on certain
major projects which are primarily environmental in nature, includingnature. These projects
include a 262-megawatt clean coal power generating facility located at the
CleanWabash River Generating Station (Clean Coal ProjectProject) and a scrubber at Gibson.Gibson
Generating Station (Gibson). In a February 1995 order (February 1995 Order) and
a September 1996 order (September 1996 Order), the IURC authorized the recovery
of deferred costs incurred prior to August 31, 1995. These deferralsdeferred costs are either beingto
be recovered currently over the remaining lives of the related assets in accordance with the February 1995
Order, have been requested for recovery in PSI's current retail rate
proceeding, orassets. Deferrals incurred
after this date will be requested for recovery in future proceedings. These
proceedings could include proceedings, if any, related to transition to customer
choice.
Cinergy and PSI
(i) Coal Contract Buyout Costs In August 1996, PSI entered into a subsequentcoal supply
agreement with Eagle Coal Company (Eagle) for the supply of approximately three
million tons of coal per year. The agreement, which terminates December 31,
2000, provides for a buyout fee of $179 million (including interest) to be
included in the price of coal to PSI over the term of the contract. This fee
represents the costs to Eagle of the buyout of the coal supply agreement between
PSI and Exxon Coal and Minerals Company. The retail rate
proceeding.jurisdictional portion of
the buyout charge, excluding the portion applicable to joint owners, is being
recovered through the quarterly fuel adjustment clause, with carrying costs on
unrecovered amounts, through December 2002. PSI has also filed a petition at the
FERC for recovery of the wholesale jurisdictional portion of the buyout costs
through the wholesale fuel adjustment clause. Generally, the FERC will allow
recovery if the utility can demonstrate there will be net benefits to customers
during the buyout cost recovery period. The FERC is expected to issue an order
on PSI's petition early in 1998.
Cinergy, CG&E, PSI, and ULH&P
(i)(j) DSM A settlement agreement between PSI and certain intervenors, in a
proceeding established to review PSI's current and proposed DSM programs, was
approved by the IURC in December 1996. Beginning January 1, 1997, and continuing
through December 31, 2000, the settlement agreement allows PSI to recover $35
million per year through a non-bypassable charge in PSI's retail rates. The $35
million is designed to recover all previously incurred, but as yet unrecovered,
DSM costs and all costs related to satisfying remaining commitments associated
with a previous DSM settlement agreement. The $35 million also includes recovery
of carrying costs. Further, the agreement authorizes PSI to spend up to $8
million annually on ongoing DSM programs through the year 1999 and to collect
such amounts currently in retail rates.
Additionally, in December 1996, the PUCO issued an order applicable to CG&E's
DSM programs. The order requires CG&E to spend up to one-half of the annual $5
million currently included in retail rates on PUCO-sanctioned low-income
residential programs. The remaining portion of the $5 million is to be applied
to the recovery of DSM cost deferrals. CG&E's participation in the low-income
programs will be a factor considered by the PUCO in setting future rates of
return and approving competitive transition plans.
The Kentucky Public Service Commission has authorized concurrent recovery of
costs related to various DSM programs of ULH&P.
Cinergy and CG&E
(k) Phase-in Deferred Return and Depreciation In May 1992, the PUCO issued an
order (May 1992 Order) establishing a rate phase-in plan for Zimmer. In the
first three years of the rate phase-in plan, rates charged to customers did not
fully recover depreciation expense and return on investment. In accordance with
the provisions of the May 1992 Order, this deficiency has been recognized as a
regulatory asset and is being recovered over a seven-year period which began in
May 1995.
Cinergy, CG&E, PSI, and ULH&P
(l) Deferred Merger Costs CG&E and its utility subsidiaries are deferring the non-
PUCO electric jurisdictionalhave deferred a
portion of merger transaction costs and costs to achieve merger savings
(collectively, Merger CostsCosts) incurred through December 31, 1996, for future
recovery in customer rates, including $6 million requested for recovery in CG&E's current
gas rate proceeding.rates.
In accordance with the February 1995 Order,various IURC orders, PSI is
deferringhas deferred Merger Costs it incursincurred
through October 31, 1996, and is recovering the deferrals$44 million of these deferred costs
incurred through August 31, 1995, over a 10-year period as an offset against merger savings.
In 1994,ten-year period.
CG&E and PSI completed voluntary workforce reduction programs. As a
resultand severance programs in
1996. The pre-tax costs of these programs and the programs, the Cinergy subsidiaries incurred a combined pre-tax
cost ofrelated accounting were as
follows:
1996 Programs
(in millions)
CG&E 1/ PSI
Costs expensed $30 $ 5
Costs deferred 9 33
$39 $38
1/ Includes $2 million related to ULH&P.
The above amounts reflect approximately $28.8$61 million ($17.431 million for CG&E and
its
subsidiaries($1.8$30 million for ULH&P), including $15.6 millionPSI) of costs associated with additional pension costsbenefits
further discussed in Note 10, and $11.4 million for PSI). In
the third quarter of 1994, CG&E expensed $11 million representing the PUCO
electric jurisdictional portion of these costs. The remaining $6.4 million of
costs have been deferred as costs to achieve merger savings. The cost of
PSI's voluntary workforce reduction program was deferred as a cost to achieve
merger savings.9.
Cinergy, CG&E, PSI, and ULH&P
(j)(m) Debt Discount, Premium, and Issuance Expenses and Costs of Reacquiring Debt
Debt discount, premium, and issuance expenses on outstanding long-term debt of
Cinergy's utility subsidiaries are amortized over the lives of the respective
issues.
In accordance with established ratemaking practices, Cinergy's utility
subsidiaries have deferred costs (principally call premiums) from the
reacquisition of long-term debt and are amortizing such amounts over periods
ranging from one1 to 2524 years (three(4 to 17 years for PSI, one to 2524 years for CG&E and its subsidiaries, and1 to 24
years for PSI, and 11 to 23 for ULH&P).
Cinergy CG&E, and ULH&P
(k) 1992 Workforce Reduction CostsPSI
(n) Coal Gasification Services Expenses In 1992, CG&ENovember 1995, upon commercial
operation of the Clean Coal Project, PSI and its subsidiariesDestec Energy, Inc. (Destec) began
a 25-year contractual agreement for the provision of coal gasification services.
The agreement requires PSI to pay Destec a base monthly fee including certain
monthly operating expenses. Over the next five years (1998 through 2002), the
base monthly fees and expenses are expected to total $201 million. PSI received
authorization in the September 1996 Order for the inclusion of the costs of the
Clean Coal Project in retail rates. PSI also received authorization to defer,
for subsequent recovery in retail rates, the base monthly fees and expenses
incurred $30.4 million (of which approximately $3 million relatedprior to ULH&P) in
connection with a workforce reduction program. In accordance with the August
1993 Order, CG&E is recoveringeffective date of the majority of these costs through rates over
a three-year period. ULH&P is recovering the gas portion of these costs
through rates over a 10-year period.September 1996 Order.
Cinergy, CG&E, PSI, and ULH&P
(l)(o) Utility Plant Utility plant is stated at the original cost of construction,
which includes AFUDCan allowance for funds used during construction (AFUDC) and a
proportionate share of overhead costs. Construction overhead costs include
salaries, payroll taxes, fringe benefits, and other expenses.
Substantially all utility plant is subject to the lien of each applicable
company's first mortgage bond indenture.
Cinergy, CG&E, PSI, and ULH&P
(m)(p) AFUDC Cinergy's utility subsidiaries capitalize AFUDC, a non-cash income
item, which is defined in the regulatory system of accounts prescribed by the
FERC as including "the net cost for the period of construction of borrowed funds
used for construction purposes and a reasonable rate on other funds when so
used".used." AFUDC accrual rates were as follows and are compounded semi-
annually:semi-annually:
1997 1996 1995
1994 1993
Cinergy Averageaverage 6.3% 7.1% 7.9% 6.9% 9.2%
CG&E and its utility
subsidiaries Averageaverage 6.4 8.7 8.8
9.1 8.3
ULH&P Averageaverage 6.9 8.8 7.0
PSI average 5.9 8.8
PSI5.4 7.0 6.4 9.5
Cinergy, CG&E, PSI, and ULH&P
(n)(q) Depreciation and Maintenance Provisions for depreciation are determined by
using the straight-line method applied to the cost of depreciable plant in
service. The rates are based on periodic studies of the estimated service lives
and net cost of removal of the properties. The average depreciation rates for
utility plant during each of the following three years were:are:
1997 1996 1995
1994 1993_
PSI 3.0% 3.0% 3.1% 3.8% 3.8%
CG&E and its utility subsidiaries
Electric 2.9 2.9 2.9
Gas 2.9 2.8 2.8
2.7
Common 3.0 3.0 3.4 3.4 3.3
ULH&P
Electric 3.3 3.3 3.43.3
Gas 3.1 3.1 2.93.1
Common 5.0 5.1 5.1 4.1
In accordance with the February 1995 Order, revised depreciation rates for PSI
were implemented in March 1995. This change resulted in a decrease in annual
depreciation expense of approximately $30 million.
In a July 1993 rate order, the KPSC authorized changes in depreciation accrual
rates on ULH&P's gas and common plant. The changes resulted in an increase in
depreciation expense of approximately $.5 million for 1993.
For Cinergy's utility subsidiaries, maintenance and repairs of property units
and replacements of minor items of property are charged to maintenance expense.
The costs of replacements of property units are capitalized. The original cost
of the property retired and the related costs of removal, less salvage
recovered, are charged to accumulated depreciation.
Cinergy, CG&E, PSI, and ULH&P
(o)(r) Operating Revenues and Fuel Costs Cinergy's utility subsidiaries recognize
revenues for electric and gas service rendered during the month, which includeincluding
revenues forassociated with sales unbilled at the end of each month. The costs of
electricity and gas purchased and the cost of fuel used in electric production
are expensed as recovered through revenues, and anyrevenues. Any portion of these costs which are
recoverable or refundable in future periods is deferred in the accompanying
Balance Sheets. In accordance with the settlement agreement
approved in the February 1995 Order and the Indiana statute in effect at the
time of the settlement agreement, PSI's recovery of fuel costs is subject to a determination that
such recovery will not result in PSI earning a return in excess of that allowed
in the September 1996 Order. Prior to January 1, 1998, this earnings test was
calculated in accordance with the settlement agreement approved in the February
1995 Order.Order and the Indiana statute in effect at the time of the settlement
agreement. Effective January 1, 1998, PSI will follow the provisions of the
current Indiana statute, which are generally less stringent with regard to the
earnings test.
Cinergy, CG&E, and ULH&P
(p)(s) Order 636 In 1992, the FERC issued order 636 (Order 636). CG&E and certain
of its utility subsidiaries are subject to Order 636 which restructured
operations between interstate gas pipelines and their customers for gas sales
and transportation services. Order 636 also allowed pipelines to recover from
customers transition costs they incurred in complying with the order from customers,
including CG&E and its utility subsidiaries.order. In July 1994,
the PUCO issued an order approving a stipulation between CG&E and its
residential and industrial customer groups providing for recovery of these
pipeline transition costs. CG&E is presently is recovering its Order 636 transition
costs pursuant to a PUCO-approved tariff. CG&E's utility subsidiaries, including
ULH&P, recover such costs through their gas cost recovery mechanisms. These
costs are deferred as incurred by CG&E and its applicable utility subsidiaries
and amortized as recovered from customers.
Cinergy, CG&E, PSI, and ULH&P
(q)(t) Statements of Cash Flows All temporary cash investments with maturities of
three months or less, when acquired, are reported as cash equivalents. CinergySee Notes
3(b) and its subsidiaries had no material8(a)(i) for information concerning non-cash investing or financing
transactions
during the years 1993 through 1995.1996.
Cinergy
CG&E, PSI,(u) Translation of Foreign Currency All assets and ULH&P
(r) Reclassification Certain amountsliabilities reported in the
1993balance sheets of foreign subsidiaries whose functional currency is other than
the US dollar are translated at year-end exchange rates; income and 1994 Financial
Statements have been reclassified to conform toexpense
items are translated at the 1995 presentation.
2. Rates
Cinergyaverage exchange rate prevailing during the month
the respective transactions occur. Translation gains and PSI
(a) PSI's Current Retail Rate Proceeding PSI currently has pending before
the IURC a retail rate increase request of 11.1% ($111.2 million annually).
Major components of the increase include the costs of the Clean Coal Project,
increased DSM costs, the costs of a scrubber at Gibson, and other investments
in utility plant. Both the Clean Coal Project and the scrubber at Gibson were
previously approved by the IURC. The request also reflects a return on common
equity of 11.9%, before the 100 basis points additional common equity return
allowedlosses are accumulated
as a merger savings sharing mechanism in the February 1995 Order, with
an 8.6% overall rateseparate component of return on net original cost rate base. The UCC filed
testimony with the IURC recommending a 4.7% ($47.3 million annually) retail
rate increase. The primary differences between PSI's request and the UCC's
proposal are the requested return on common equity and DSM costs. The UCC
recommended the requested increase in DSM costs be excluded from this
proceeding and addressed in a separate currently pending proceeding
specifically established to review PSI's current and proposed DSM programs.
An order in the rate proceeding is anticipated by the end of the second
quarter of 1996. Cinergy cannot predict what action the IURC may take with
respect to this proposed rate increase. (See Note 17 for an event subsequent
to the date of the auditor's report.)
Cinergy and CG&E
(b) CG&E's Current Gas Rate Proceeding In January 1996, CG&E filed a request
with the PUCO supporting a gas rate increase of 7.8% ($26.7 million annually).
The increase, anticipated to be effective in November 1996, is being
requested, in part, to recover capital investments made since CG&E's last gas
rate increase in 1993. The proposed rate design includes a pilot program that
would allow 8,000 to 12,000 residential customers to choose their natural gas
supplier with CG&E providing transportation services to the customers'
premises. Settlement discussions with gas customer representatives, which
began in July 1995, are ongoing. Cinergy cannot predict the outcome of the
settlement discussions nor what actions the PUCO may take with respect to the
proposed rate increase.
3.stock equity.
2. Common Stock
(a) Changes in Common Stock Outstanding
Cinergy
The following table reflects the shares of Cinergy common stock reserved for
issuance at December 31, 1995,1997, and shares issued in 1995, 1994,1997, 1996, and 1993,1995 for the
Company's stock-based plans, including previous plans of Resourcesplans.
Shares
Reserved at Shares Issued
Dec. 31, 1997 1997 1996 1995
401(k) Savings Plans 6 469 373 - - 1 222 379
Dividend Reinvestment and
Stock Purchase Plan 1 798 486 - - 935 711
Directors' Deferred
Compensation Plan 200 000 - - -
Performance Shares Plan (PSP) 771 301 - 492 28 207
Employee Stock Purchase
and Savings Plan 1 932 384 - - 1 010
Stock Option Plan 4 558 777 22 219 15 007 403 997
1996 Long-term Incentive
Compensation Plan (LTIP) 6 956 386 43 614 - -
Cinergy retired 304, 6,511, and CG&E.
Shares issued prior to merger consummation have been adjusted for Resources'
merger conversion ratio of 1.023.
Shares
Reserved at Shares Issued
Dec. 31, 1995 1995 1994 1993
401(k) Savings Plans 6 469 373 1 222 379 1 458 631 1 152 096
Dividend Reinvestment and
Stock Purchase Plan 1 798 486 935 711 1 127 881 944 168
Directors' Deferred
Compensation Plan 200 000 - 77 61 266
Performance Shares Plan* 771 793 28 207 27 116 28 447
Employee Stock Purchase
and Savings Plan 1 932 384 1 010 140 039 244
Stock Option Plan 4 596 003 403 997 25 575 139 026
*A long-term incentive compensation plan for certain participants designated
by the Compensation Committee of Cinergy's Board of Directors.
In addition to the issuances of common stock previously discussed, Resources
issued 1,118,671119,211 shares of common stock in 1993 to the trustee of its two
Master Trust Agreements as required as a result of the announcement of the
merger. Prior to consummation of the merger in October 1994, Resources issued
an additional 16,518 shares to the trustee and distributed 98,400 shares
(reflected in the above table as shares issued in 1994) to participants of
certain benefit plans. As a result of the merger consummation, in December
1994, Cinergy retired the remaining 1,036,789 shares held by the trustee.
In December 1994, Cinergy publicly issued 7,089,000 shares of common stock
under a shelf registration statement for the sale of up to eight million
shares. In addition, upon consummation of the merger, Cinergy awarded five
shares of common stock to all non-officer employees for additional issuances
under this shelf registration statement of 43,605 shares and 10 shares in 19941997, 1996,
and 1995, respectively.
During 1995, Cinergy retired 119,211 shares of common stock,respectively, primarily representing shares tendered as payment for
the exercise of previously granted stock options. CG&E
CG&EIn 1995, Cinergy issued 1,601,00310
shares of common stock, representing the remainder of a non-officer employee
award program granted in 1994 (prior to the merger),
and 1,673,058 shares in 1993, for its stock-based compensation and dividend
reinvestment plans. After merger consummation, the common stock issued to
CG&E's 401(k) Savings Plans is Cinergy common stock rather than CG&E common
stock, and CG&E's Dividend Reinvestment and Stock Purchase Plan was merged
into and replaced by Cinergy's Dividend Reinvestment and Stock Purchase Plan.1994.
ULH&P
All of ULH&P's common stock is held by CG&E.
Cinergy, CG&E, and PSI
(b) Dividend Restrictions Cinergy owns all of the common stock of CG&E and PSI.
The ability of Cinergy to pay dividends to holders of Cinergyits common stock is
principally dependent on the ability of CG&E and PSI to pay common dividends to
Cinergy. CG&E and PSI cannot purchase or otherwise acquire for value or pay
dividends on their common stock if dividends are in arrears on their preferred
stock or if they are in arrears in the redemption of preferred stock pursuant
to mandatory redemption requirements.stock. The amount of common stock dividends that each company can pay also may
be limited by certain capitalization and earnings requirements. Currently, these
requirements do not impact the ability of either company to pay dividends on
common stock.
Cinergy
(c) Stock-based Compensation Plans Cinergy has four stock-based compensation
plans: the LTIP, the Stock Option Plan, the PSP, and the Employee Stock Purchase
and Savings Plan. Cinergy ceased accrual of incentive compensation under the PSP
as of December 31, 1996, and on January 1, 1997, implemented the LTIP.
Cinergy accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, under
which stock option-type awards are recorded at intrinsic value. For 1997, 1996,
and 1995, compensation cost related to Cinergy's stock-based compensation plans,
before income taxes, recognized in the Consolidated Statements of Income was $6
million, $2 million, and $1 million, respectively.
Net income and earnings per share for 1997, 1996, and 1995, assuming
compensation cost for these plans had been determined at fair value, consistent
with the provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (Statement 123), would have
been as follows:
1997 1996 1995
(in millions, except per share amounts)
Net income - as reported $253 $335 $347
- pro forma $251 $334 $346
Earnings per share - as reported $1.61 $2.00 $2.22
- pro forma $1.59 $1.99 $2.21
Diluted earnings per share - as reported $1.59 $1.99 $2.20
- pro forma $1.58 $1.99 $2.20
In accordance with the provisions of Statement 123, in estimating the pro forma
amounts, the fair value method of accounting was not applied to options granted
prior to January 1, 1995. As a result, the pro forma effect on net income and
earnings per share may not be representative of future years. In addition, the
pro forma amounts reflect certain assumptions used in estimating fair values.
These fair value assumptions are described under each applicable plan discussion
below.
(i)LTIP In 1996, Cinergy adopted the LTIP. Under this plan, certain key
employees may be granted stock options and restricted shares of Cinergy common
stock. Stock options are granted at the fair market value of the shares on the
date of grant. These options vest in three years and expire in 10 years from the
date of grant. None of the stock options were exercisable as of December 31,
1997. Restricted shares are granted at the fair market value of the shares on
the date of grant, discounted to reflect the inability to sell the shares during
the three-year restriction period. In addition to the stock options and
restricted shares, participants may earn additional shares if Cinergy's Total
Shareholder Return (TSR) exceeds that of the average annual median TSR of a
selected peer group. Conversely, if Cinergy's TSR falls below that of the peer
group, participants would lose some or all of the restricted shares. Dividends
on any restricted stock awards and additional performance shares will be paid in
shares of common stock during the payout period in the years 2000 to 2002. No
stock-based awards were made under the LTIP prior to 1997. In 1997, 425,938
performance-based restricted shares at a weighted average price of $29.95 and
369,600 stock options at a weighted average exercise price of $33.60 were
granted to certain key employees. The number of shares of common stock to be
awarded under the LTIP is limited in the aggregate to 7,000,000 shares.
LTIP stock option activity for 1997 is summarized as follows:
1997
Weighted
Average
Exercise
Number Price
Outstanding, beginning of year - -
Granted 369 600 $33.60
Outstanding, end of year 369 600 $33.60
Exercisable, end of year - -
Weighted average fair value of
options granted during the year $3.71
The fair values of options granted were estimated as of the date of grant using
a Black-Scholes option pricing model. The weighted averages for the assumptions
used in determining the fair values of options granted were as follows:
1997
Risk-free interest rate 6.2%
Expected dividend yield 5.4%
Expected lives 6.5 yrs.
Expected common stock variance 1.7%
(ii) Stock Option Plan The Cinergy Stock Option Plan which succeeded a similar plan
of Resources, is designed to align
executive compensation with shareholder interests. Under the Stock Option Plan,
incentive and non-qualified stock options, and stock appreciation rights (SARs), and
SARs in tandem with stock options may be granted to key employees, officers, and
outside directors. Common stock granted under the Stock Option
Plan may not exceed five million shares. Options are granted at the fair market value of the shares on
the date of grant, except that non-qualified
stock options were granted to two executive officers under Resources' stock
option plan at an option price equal to 91% of the fair market value of the
shares at the date of grant. Options vest over five years at a rate of 20% per year and
have a purchase
termexpire 10 years from the date of up to 10 years. All options granted prior to November 1993, butgrant. The total number of shares of common
stock available under the Stock Option Plan may not previously vested, became vested upon approval of the merger by Resources'
shareholders.exceed 5,000,000 shares. No incentive
stock options may be granted under the plan after October 24, 2004.
The Stock Option Plan activity for 1993, 1994,1997, 1996, and 1995 adjusted for
Resources' merger conversion ratio of 1.023, is summarized as follows:
Range of
Shares Subject Option Prices
to Option Per Share
Balance at December 31, 1992 1 186 554 $12.26 to 17.35
Options Exercised (139 026) 12.26 to 16.56
Balance at December 31, 1993 1 047 528 $12.50 to 17.35
Options Granted 1 387 500 22.88
Options Exercised (25 575) 13.14 to 16.56
Balance at December 31, 1994 2 409 453 $12.50 to 22.88
Options Granted 1 672 500 24.31 to 28.81
Options Exercised _(403 997) 12.50 to 17.35
Balance at December 31, 1995 3 677 956 $12.50 to 28.81
Shares Reserved for Future Grants
At December 31, 1993 1 368 263
At December 31, 1994 2 590 547
At December 31, 1995 918 047
In addition, 45,000 options were granted to various employees in January 1996,
at an option price of $31.56 per share.
No stock appreciation rightsfollows (no
SARs have been granted under this plan.plan):
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
Outstanding, beginning of year 3 359 508 $23.61 3 652 956 $22.47 2 409 453 $19.74
Granted - - 220 000 29.75 1 672 500 24.91
Exercised (380 162) 21.71 (513 448) 18.16 (403 997) 16.16
Forfeited - - - - (25 000) 24.31
Outstanding, end of year 2 979 346 $23.85 3 359 508 $23.61 3 652 956 $22.47
Exercisable, end of year 1 259 859 $22.62 989 021 $21.12 895 456 $17.47
Weighted average fair value of
options granted during the year $ - $3.07 $2.41
The totalfair values of options exercisablegranted were estimated as of the date of grant using
a Black-Scholes option pricing model. The weighted averages for the assumptions
used in determining the fair values of options granted in 1996 and 1995 (no
options were granted during 1997), were as follows:
1996 1995
Risk-free interest rate 6.3% 7.3%
Expected dividend yield 5.8% 6.9%
Expected lives 6.5 yrs. 6.5 yrs.
Expected common stock variance 1.8% 1.8%
Price ranges, along with certain other information, for options outstanding
under the Stock Option Plan at December 31, 1995,1997, are as follows:
Outstanding Exercisable
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Contractual Exercise
Price Range Number Price Life Number Price
$13.14 - $17.35 234 179 $15.13 2.0 yrs. 234 179 $15.13
$22.88 - $25.19 2 311 744 $23.72 7.0 yrs. 897 257 $23.63
$28.81 - $31.56 433 423 $29.29 8.1 yrs. 128 423 $29.13
(iii) PSP Cinergy's PSP is a long-term incentive plan developed to reward
officers and other key employees for achieving corporate and individual goals.
Under the PSP, participants are granted contingent shares of common stock. A
percentage of these contingent shares is earned with respect to each participant
based on the level of goal attainment at the completion of a performance cycle.
Performance cycles consist of overlapping four-year periods, beginning every two
years. Awards earned under the PSP are paid in two installments: one-half of the
award is paid in the year immediately following the end of the performance cycle
and one-half of the award is paid in the subsequent year. The most recently
commenced four-year performance cycle under the PSP began January 1, 1996, and
was scheduled to end December 31, 1999. As previously discussed, Cinergy
implemented the LTIP effective January 1, 1997, and ceased accrual of incentive
compensation under the PSP as of December 31, 1996. The total number of shares
of common stock available under this plan may not exceed 800,000 shares. Final
payouts for performance cycle four that began January 1, 1992, were made in
1997. Final payouts for cycles five and six, which began in January 1994 and
1993,January 1996, respectively, will be made in 1999.
The following table provides certain information regarding contingent shares
granted under the PSP for the performance cycle which began January 1, 1996:
1996
Number of contingent shares granted 166 280
Fair value at date of grant (dollars in thousands) $ 3 508
Weighted average per share amounts $24.47
The fair values of contingent shares and the weighted average per share amounts
are measured at the market price of a share of common stock as if it were 895,456,
1,021,953,vested
and 1,047,528, respectively.
4.issued on the date of grant, adjusted for expected forfeitures and the
estimated present value of dividends foregone during the related performance
cycle.
(iv) Employee Stock Purchase and Savings Plan Cinergy's Employee Stock Purchase
and Savings Plan allows essentially all full-time, regular employees to purchase
shares of common stock pursuant to a stock option feature. Under the Employee
Stock Purchase and Savings Plan, after-tax funds are withheld from a
participant's compensation during a 26-month offering period and are deposited
in an interest-bearing account. At the end of the offering period, participants
may apply amounts deposited in the account, plus interest, toward the purchase
of shares of common stock at a purchase price equal to the fair market value of
a share of common stock on the first date of the offering period, less five
percent. Any funds not applied toward the purchase of shares are returned to the
participant. A participant may elect to terminate participation in the plan at
any time. Participation also will terminate if the participant's employment with
Cinergy ceases. Upon termination of participation, all funds, including
interest, are returned to the participant without penalty. A new offering period
began January 1, 1997, and will end February 28, 1999. The purchase price under
this offering is $31.825. The most recently completed offering period ended
December 31, 1996. The purchase price under this offering was $21.7312. The
total number of shares of common stock available under the Employee Stock
Purchase and Savings Plan may not exceed 2,000,000.
Employee Stock Purchase and Savings Plan activity for 1997, 1996, and 1995 is
summarized as follows:
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
Outstanding, beginning
of year - $ - 490 787 $21.73 217 604 $21.73
Granted 338 947 31.83 - - 328 362 21.73
Exercised (95) 31.83 (414 284) 21.73 (1 010) 21.73
Forfeited (12 485) 31.83 (76 503) 21.73 (54 169) 21.73
Outstanding, end of year 326 367 $31.83 - $ - 490 787 $21.73
Weighted average fair value of
options granted during the year $3.08 $ - $2.42
The fair values of options granted were estimated as of the date of grant using
a Black-Scholes option pricing model. The weighted averages for the assumptions
used in determining the fair values of options granted were as follows:
1997 1995
Risk-free interest rate 5.9% 7.7%
Expected dividend yield 5.4% 7.3%
Expected lives 2.0 yrs. 2.0 yrs.
Expected common stock variance 1.6% 1.7%
3. Preferred Stock of Subsidiaries
Cinergy, CG&E, and PSI
(a) Schedule of Cumulative Preferred Stock
December 31
1995 1994CG&E 1997 1996
Authorized 6,000,000 shares (dollars in thousands)
CG&E
Authorized 6,000,000 shares
Not subject to mandatory redemption
Par value $100 per share - outstanding
4% Series 270,000169,834 shares in 19951997 and 1994169,835 shares in 1996 $ 27 00016 983 $ 27 00016 984
4 3/4% Series 130,00038,096 shares in 19951997 and 1994 13 000 13 000
7.44% Series 400,00041,621 shares in 1994 - 40 0001996 3 810 4 162
Total 40 000 80 000
Subject to mandatory redemption
Par value $100 per share - outstanding
9.15% Series 500,000 shares in 1994 - 50 000
7 7/8% Series 800,000 shares in 1995 and 1994
(subject to mandatory redemption on January 1, 2004
at $100; not redeemable prior to that date) 80 000 80 000
7 3/8% Series 800,000 shares in 1995 and 1994
(redeemable, upon call, after August 1, 2002 at $100) 80 000 80 000
Total 160 000 210 00020 793 21 146
PSI
Not subject to mandatory redemption
Par value $25 per share - authorized 5,000,000 shares - outstanding
4.32% Series 169,162169,161 shares in 19951997 and 1994169,162 in 1996 4 229 4 229
4.16% Series 148,763 shares in 19951997 and 19941996 3 719 3 719
7.44% Series 4,000,0003,408,712 shares in 19951997 and 1994 100 000 100 0001996 85 218 85 218
Par value $100 per share - authorized 5,000,000 shares - outstanding
3 1/2% Series 40,84340,302 shares in 19951997 and 41,17240,567 shares in 19941996 4 085030 4 117056
6 7/8% Series 600,000 shares in 19951997 and 19941996 60 000 60 000
7.15% Series 158,640 shares in 1995 and 1994 15 8641996 - 15 864
Total 187 897 187 929157 196 173 086
Total - Cinergy
Total not subject to mandatory redemption $227 897 $267 929
Total subject to mandatory redemption $160 000 $210 000$177 989 $194 232
Cinergy, CG&E, and PSI
(b) Changes in Cumulative Preferred Stock Outstanding
Changes in cumulative preferred stock outstanding during 1995, 1994,1997, 1996, and 1993,1995,
were as follows:
Shares
Issued Par
(Retired) Value
(in thousands)
1995
Not subject to mandatory redemption
Par value $100 per share
CG&E
7.44 % Series (400 000) $(40 000)
PSI
3 1/2% Series (329) (32)
Subject to mandatory redemption
Par value $100 per share
CG&E
9.15 % Series (500 000) (50 000)
1994
Not subject to mandatory redemption
Par value $100 per share
CG&E
9.28 % Series (400 000) (40 000)
PSI
3 1/2% Series (598) (60)
1993
Not subject to mandatory redemption
Par value $25 per share
PSI
7.44 %
Shares Par
Retired Value
(dollars in
thousands)
1997
Not subject to mandatory redemption
Par value $100 per share
CG&E
4% Series 1 $ 1
4 3/4% Series 3 525 352
PSI
3 1/2% Series 265 26
7.15% Series 158 640 15 864
Par value $25 per share
PSI
4.32% Series 1 -
1996
Not subject to mandatory redemption
Par value $100 per share
CG&E
4% Series 100 165 $10 016
4 3/4% Series 88 379 8 838
PSI
3 1/2% Series 276 29
Par value $25 per share
PSI
7.44% Series 591 288 14 782
Subject to mandatory redemption
Par value $100 per share
CG&E
7 7/8% Series 800 000 80 000
7 3/8% Series 800 000 80 000
1995
Not subject to mandatory redemption
Par value $100 per share
CG&E
7.44% Series 400 000 $40 000
PSI
3 1/2% Series 329 32
Subject to mandatory redemption
Par value $100 per share
CG&E
9.15% Series 500 000 50 000
000 100 000
Par value $100 per share
PSI
3 1/2% Series (237) (24)
8.52 % Series (211 190) (21 119)
8.38 % Series (162 520) (16 252)
8.96 % Series (216 900) (21 690)
6 7/8% Series 600 000 60 000
Cinergy and CG&E
(c) Cumulative Preferred Stock with Mandatory Redemption In eachDuring the third quarter of 1998,
1999,1996, Cinergy commenced an offer to purchase any and
2000, CG&E is required to redeem $4 million of its 7 3/8% Series
Cumulative Preferred Stock, which is subject to mandatory redemption each
August 1, beginning in 1998, in an amount sufficient to retire 40,000all outstanding shares
at a price of $100 per share, plus accrued dividends. In addition, CG&E, at
its option, may redeem up to a like amount of shares in any given year, at a
price of $100 per share. CG&E may satisfy this sinking fund requirement, in
whole or in part, by crediting shares acquired during the year. To the extent
CG&E does not satisfy the sinking fund obligation in any year, such obligation
must be satisfied in the succeeding year or years. CG&E may not purchase or
otherwise acquire for value or pay dividends on its common stock if it is in
arrears in the redemption of preferred stock pursuantof CG&E. Cinergy purchased 1,788,544
shares of preferred stock and made a capital contribution to CG&E of all the
mandatory sinking
fund requirements.shares it acquired and CG&E canceled the shares. The cost of reacquiring the
preferred stock, totaling $18 million, represents the difference between the par
value of the preferred stock purchased and the price paid (including fees paid
to tender agents) and is reflected as a charge to "Retained Earnings" in the
Consolidated Statements of Changes in Common Stock Equity and as a deduction
from "Net Income" in the Consolidated Statements of Income for purposes of
determining net income and earnings per share applicable to common stock for
Cinergy. The 4 3/4% Series no longer meets listing requirements of the New York
Stock Exchange (NYSE) and has been delisted.
Cinergy, CG&E, PSI, and ULH&P
5.4. Long-term Debt
(a) Schedule of Long-term Debt (excluding amounts reflected in current
liabilities)
(a) Schedule of Long-term Debt (excluding amounts due within one year)
December 31
1995 19941997 1996
CG&E and Subsidiaries (dollars in thousands)
CG&E
and Subsidiaries
CG&E
First Mortgage Bonds
5 7/8% Series due July 1, 1997 $ 30 000 $ 30 000
6 1/4% Series due September 1, 1997 100 000 100 000
5.80% Series due February 15, 1999 $ 110 000 $ 110 000
7 3/8% Series due May 1, 1999 50 000 50 000
7 3/8% Series due November 1, 2001 60 000 60 000
7 1/4% Series due September 1, 2002 100 000 100 000
8 1/8% Series due August 1, 2003 60 000- 60 000
6.45% Series due February 15, 2004 110 000 110 000
10 1/8% Series due December 1, 2015 (Pollution Control) - 84 000
9.70% Series due June 15, 2019 - 100 000
10 1/8% Series due May 1, 2020 - 100 000
10.20% Series due December 1, 2020 - 150 000
8.95% Series due December 15, 2021 100 000- 100 000
8 1/2% Series due September 1, 2022 100 000 100 000
7.20% Series due October 1, 2023 300 000 300 000
5.45% Series due January 1, 2024 (Pollution Control) 46 700 46 700
5 1/2% Series due January 1, 2024 (Pollution Control) 48 000 48 000
Total first mortgage bonds 1 214924 700 1 648084 700
Pollution Control Notes
Variable rate due August 1, 2013 and December 1, 2015 100 000 100 000
Variable rate due September 1, 2030 84 000 -
6.50% due November 15, 2022 12 721 12 721
Total pollution control notes 196 721 112 721
Other Long-term Debt
6.90% unsecured debenturesDebentures due June 1, 2025
(Redeemable at the option of the holders on June 1, 2005) 150 000 -150 000
8.28% juniorJunior subordinated debentures due July 1, 2025 100 000 100 000
Variable rate Liquid Asset Notes with Coupon Exchange
(LANCEs) due October 1, 2007
(Redeemable at the option of CG&E)
(Variable interest rate sets at 6.50% commencing
October 1, 1999)
(Holders of not less than 66 2/3% in an
aggregate principal amount of the LANCEs have the one-time
right to convert from the 6.50% fixed rate to a LIBOR-
based floating rate at any interest rate payment date
between October 1, 1999 and October 1, 2002) 100 000 -
Total other long-term debt 350 000 250 000 -
Unamortized Premium and Discount - Net (14 348) (14 102)(8 860) (12 130)
Total - CG&E 1 647 073278 561 1 747 319335 291
ULH&P
First Mortgage Bonds
6 1/2% Series due August 1, 1999 20 000 20 000
8% Series due October 1, 2003 10 000 10 000
9 1/2% Series due December 1, 2008 10 000 10 000
9.70% Series due July 1, 2019 - 20 000
10 1/4% Series due June 1, 2020 and November 15, 2020 - 30 000
Total first mortgage bonds 4030 000 9030 000
Other Long-term Debt
7.65% unsecured debenturesDebentures due July 15, 2025 15 000 -15 000
Unamortized Premium and Discount - Net (623) (762)(329) (383)
Total - ULH&P 54 377 89 23844 671 44 617
Lawrenceburg Gas Company (Lawrenceburg)
First Mortgage Bonds
9 3/4% Series due October 1, 2001 1 200 1 200
Total - CG&E and Subsidiariessubsidiaries $1 702 650324 432 $1 837 757381 108
PSI
First Mortgage Bonds
Series S, 7%, due January 1, 2002 $ 26 429 $ 26 429
Series Y, 7 5/8%, due January 1, 2007 24 140 24 140
Series BB, 6 5/8%, due March 1, 2004 (Pollution Control) 5 000 5 000
Series NN, 7.60%, due March 15, 2012 (Pollution Control) 35 000- 35 000
Series QQ, 8 1/4%, due June 15, 2013 (Pollution Control) 23 000 23 000
Series RR, 9 3/4%, due August 1, 1996 - 50 000
Series TT, 7 3/8%, due March 15, 2012 (Pollution Control) 10 000 10 000
Series UU, 7 1/2%, due March 15, 2015 (Pollution Control) 14 250 14 250
Series YY, 5.60%, due February 15, 2023 (Pollution Control) 29 945 30 00029 945
Series ZZ, 5 3/4%, due February 15, 2028 (Pollution Control) 50 000 50 000
Series AAA, 7 1/8%, due February 1, 2024 50 000 50 000
Total first mortgage bonds 267227 764 317 819262 764
Secured Medium-term Notes
Series A, 6.65%7.15% to 8.88%, due January 3, 19976, 1999 to
June 1, 2022 300290 000 300290 000
Series B, 5.22% to 8.26%, due September 17, 1998
to August 22, 2022 230195 000 230 000
(Series A and B, 7.64%7.66% weighted average interest rate
and 1614 year weighted average remaining life)
Total secured medium-term notes 530485 000 530520 000
Pollution Control Notes
5 3/4%, due December 15, 1996 to December 15, 2003 19 200 19 600
Other Long-term Debt
Series 1994A Promissory Note, non-interest bearing,
due January 3, 2001 19 825 19 825
Unamortized Premium and Discount6.25%, due December 15, 2005
(Notes are callable and/or putable on December 15, 1998) - Net (8 673) (9 732)50 000
6.35% Debentures due November 15, 2006
(Redeemable in whole or in part at the option of the
holders on November 15, 2000) 100 000 100 000
Total - PSI $ 828 116 $ 877 512
Total - Cinergy and Subsidiaries
First Mortgage Bonds $1 523 664 $2 057 719
Secured Medium-term Notes 530 000 530 000
Pollution Control Notes 215 921 132 321
Other Long-term Debt 284other long-term debt 119 825 19169 825
Unamortized Premium and Discount - Net (23 644) (24 596)(6 119) (7 319)
Total - PSI $ 826 470 $ 945 270
Total - Cinergy
First Mortgage Bonds $1 183 664 $1 378 664
Secured Medium-term Notes 485 000 520 000
Pollution Control Notes 12 721 12 721
Other Long-term Debt 484 825 434 825
Unamortized Premium and Discount - Net (15 308) (19 832)
Total long-term debt $2 530 766150 902 $2 715 269326 378
Cinergy, CG&E, PSI, and ULH&P
(b) Mandatory Redemption and Other Requirements
Long-term debt maturities for the next five years (excluding $50 million of
6.25% notes, due December 15, 2005, which are callable and/or putable on
December 15, 1998) are as follows:
Cinergy and CG&E and
Subsidiaries Subsidiaries PSI ULH&P
(in millions)
19961998 $ 5035 $ - $ 5035 $ -
1997 140 130 10 -
1998 36 - 36 -
1999 187186 180 76 20
2000 31 - 31 -
$444 $310 $1342001 100 61 39 -
2002 149 100 49 -
$501 $341 $160 $20
In January 1996,On February 27, 1998, CG&E retired $5announced its intention to redeem on March 29, 1998,
$41 million principal amount of its 10.20% first
mortgage bonds7 3/8% Series First Mortgage Bonds (due
DecemberNovember 1, 2020). Additionally, CG&E redeemed in
February 1996, the remaining $131.5 million principal amount of these bonds2001) at a redemption price of 100% through100.30% and to redeem on March 30,
1998, the M&R Fund provision of its first mortgage bond
indenture. ULH&P also redeemed, in February 1996, $9entire $100 million principal amount of its 108 1/4%2% Series First
Mortgage Bonds (due September 1, 2022) at a redemption price of 100%, both
through the maintenance and replacement fund (M&R Fund) provision of CG&E's
first mortgage bonds (due November 15, 2020) at a price of
107.20% andbond indenture. Additionally, on the same date, CG&E announced
its intention to redeem on March 30, 1998, the remaining $6$19 million principal
amount of such bondsits 7 3/8% Series First Mortgage Bonds (due November 1, 2001) at a
redemption price of 100% through its M&R Fund provision. The first mortgage bonds retired in
January and February 1996 by CG&E and ULH&P have been classified as "Long-term
debt due within one year" in the appropriate Balance Sheets.100.87%. M&R Fund provisions contained in CG&E's, PSI's, and
ULH&P's first mortgage bond indentures require cash payments, bond retirements,
or pledges of unfunded property additions each year based on a formularizedan amount related
to the net revenues of the respective company.
6.5. Notes Payable and Other Short-term Obligations
Cinergy, CG&E, PSI, and ULH&P
Obligations representing notes payable and other short-term obligations
(excluding notes payable to affiliated companies) and weighted average interest
rates were as follows:
Cinergy
December 31, 1997 December 31, 1996
Weighted Weighted
Established Average Established Average
Lines Outstanding Rate Lines Outstanding Rate
(in millions) (in millions)
Cinergy
Committed lines
Acquisition line $ 350 $ 350 6.25% $ 500 $477 5.96%
Revolving line 400 89 6.27 100 32 5.95
Commercial paper - 161 6.19 - - -
Utility subsidiaries
Committed lines 270 30 6.09 280 99 5.92
Uncommitted lines 360 206 6.19 285 78 6.03
Pollution control notes 244 244 4.08 209 209 3.96
Cinergy UK, Inc. 115 34 7.20 40 27 6.91
Total $1 739 $1 114 5.78% $1 414 $922 5.53%
CG&E
December 31, 1997 December 31, 1996
Weighted Weighted
Established Average Established Average
Lines Outstanding Rate Lines Outstanding Rate
(in millions) (in millions)
Committed lines $ 85 $ 15 6.13% $ 80 $ 15 5.85%
Uncommitted lines 190 90 6.19 140 15 6.11
Pollution control notes 184 184 4.08 184 184 3.96
Total $459 $289 4.85% $404 $214 4.25%
PSI
Committed lines $185 $ 15 6.06% $200 $ 84 5.94%
Uncommitted lines 170 116 6.19 145 63 6.01
Pollution control notes 60 60 4.08 25 25 3.99
Total $415 $191 5.52% $370 $172 5.69%
Cinergy, CG&E, and PSI
Cinergy's committed lines are comprised of an acquisition line and a revolving
line and are maintained by commitment fees which were immaterial during the 1995
through 1997 period. The established revolving line (as shown in the above
table) also provides credit support for the newly instituted commercial paper
program. Such program is limited to a maximum outstanding principal amount of
$200 million. The majority of the proceeds from the commercial paper sales were
used to reduce the acquisition line to the year-end level of $350 million. CG&E
and PSI also have the capacity to issue commercial paper that must be supported
by committed lines (unsecured lines of credit) of the respective company.
Neither CG&E nor PSI issued commercial paper in 1997 or 1996.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's utility subsidiaries had regulatory authority to borrow up to $838$853
million ($438453 million for CG&E and its subsidiaries, including $35$50 million for
ULH&P, and $400 million for PSI) as of December 31, 1995.1997. In connection with
this authority, Committed Linescommitted lines, as well as, uncommitted lines (short-term
borrowings with various banks on an "as offered" basis) have been arranged. The
established which permit borrowingscommitted lines (as shown in the above table) include $100 million
designated as backup for certain of up
to $322 million ($106 million for CG&E and its subsidiaries, including $30
million for ULH&P, and $215 million for PSI), of which $182 million ($106
million for CG&E and its subsidiaries, including $30 million for ULH&P, and
$74 million for PSI) remained unusedthe uncommitted lines at December 31, 1995.1997.
Further, the committed lines are maintained by commitment fees, which were
immaterial during the 1995 through 1997 period.
Cinergy
In addition, Cinergy UK, Inc. (Cinergy UK), a subsidiary of Investments, which
holds Cinergy's 50% investment in Avon Energy, entered into a $40 million
non-recourse credit agreement in 1996, which was terminated in October of 1997.
This agreement was replaced by a one-year $115 million non-recourse revolving
credit agreement. The commitment fees paid for these lines were immaterial for
the 1996 through 1997 period.
Cinergy, CG&E, PSI, and PSI also
issue commercial paper from time to time. AllULH&P
Amounts outstanding commercial paper is
supported by Committed Lines of the respective company. Additionally,
pursuant to this authority, Uncommitted Lines are arranged with various banks.
All Uncommitted Lines providecommitted lines for maturities of up to 365 days with various
interest rate options.
Amounts outstanding underCinergy, the Committed Linesutility
subsidiaries, and Cinergy UK would become immediately due upon an event of
default which includes non-payment, default under other agreements governing
company indebtedness, bankruptcy, or insolvency. Certain of the Uncommitted Linesuncommitted
lines have similar default provisions.
The linesCinergy, CG&E, and PSI
Both CG&E and PSI have issued variable rate pollution control notes. Holders of
these pollution control notes have the right to put their notes on any business
day. Accordingly, these issuances are maintained by compensating balances or commitment fees. Commitment fees forreflected in the Committed Lines were immaterial during the 1993 through 1995 period.Consolidated Balance
Sheets as "Notes payable and other short-term obligations."
Cinergy, CG&E, PSI, and ULH&P
To better manage cash and working capital requirements, Cinergy's utility
subsidiaries, including CG&E, PSI, and ULH&P, participate in a money pooling
arrangement. Under the money pool, participantsthis arrangement, Cinergy system companies with surplus
short-term funds, whether from internal sources, bank loans, or commercial paper sales,external sources, provide short-term
loans to other system companies at rates that approximatereflect (1) the actual costs of
the external borrowing and/or (2) the costs of the internal funds inwhich are set
at the 30-day Federal Reserve "AA" industrial commercial paper rate. The SEC's
approval of the money pool. The SEC's approval,pool, pursuant to the PUHCA, of theextends through December 31,
2002. For amounts outstanding under this money pool extends through May 31, 1997.
In addition, Cinergy has a $100 million credit facility which expires in
September 1997 and was unusedarrangement at December 31,
1995. The facility may be
increased1997 and December 31, 1996, see "Notes payable to a maximum of $300 million,affiliated companies" on the
Consolidated Balance Sheets for CG&E and PSI and the Company has an annual option
of extending the term of the facility by one year. This credit facility will
be usedBalance Sheets for general corporate purposes and funding non-utility business
ventures.
The weighted average interest rates on short-term borrowings outstanding at
December 31, 1995 and 1994, were as follows:
1995 1994_
Cinergy and subsidiaries 5.97% 6.11%
CG&E and subsidiaries - 6.14
PSI 5.97 6.11
ULH&P - 6.14
7. Sale of Accounts Receivable&P.
Cinergy, CG&E, PSI, and ULH&P
6. Sale of Accounts Receivable
In January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on a
revolving basis, undivided percentage interests in certain of their accounts
receivable up to an aggregate maximum of $350 million. PSI had a similar
agreement, which expired in January 1996, to sell up to $90 million, of which $252 million
($167 million by CG&E and its accounts receivable. Accounts receivable on thesubsidiaries, including $29 million by ULH&P, and
$85 million by PSI), net of reserves, has been sold as of December 31, 1997. The
Consolidated Balance Sheets of Cinergy, CG&E and PSI and the Balance Sheets of
ULH&P are net of a $90 million and $87 million interestthe amounts sold
under the prior PSI agreement at December 31, 19951997 and 1994, respectively.
8.1996.
7. Leases
Cinergy, CG&E, PSI, and ULH&P
(a) Operating Leases
Cinergy and its subsidiaries have entered into operating lease agreements
covering various facilities and properties, including office space and computer,
communications, and transportation equipment. Total rental payments on operating
leases for each of the past three years were asare follows:
1997 1996 1995 1994 1993
(in millions)
Cinergy and subsidiaries $36 $31 $36 $35
CG&E and subsidiaries 22 2218 18 22
PSI 18 13 14 14 13
ULH&P 1 2 5 5 4
Future minimum lease payments required under operating leases with remaining,
non-cancelable lease terms in excess of one year as of December 31, 1995,1997, are as
follows:
Cinergy and CG&E and
Subsidiaries Subsidiaries PSI ULH&P*
(in millions, ULH&P in thousands)
1996 $28 $13 $12 $35
19971998 $ 36 $ 9 $11 $124
1999 29 9 7 110
2000 22 10 9 24
1998 147 5 6 12
199959
2001 13 5 3 -
2002 7 4 2 -
After 2002 26 22 3 -
2000 5 2 1 -
After 2000 20 17 3 -
$96 $51 $34 $71$133 $56 $31 $293
* Excludes amounts applicable to CG&E's non-cancelable leases allocated to
ULH&P.
Cinergy and CG&E
(b) Capital Lease
In November 1996, CG&E entered into a sale-leaseback agreement for certain
equipment at Woodsdale. The lease is a capital lease with an initial lease term
of five years. At the end of the initial lease term, the lease may be renewed at
mutually agreed upon terms or the equipment may be repurchased by CG&E at the
original sale amount. The monthly lease payment, comprised of interest only, is
based on the applicable London Interbank Offered Rate (LIBOR) and, therefore,
the capital lease obligation will not be amortized over the initial lease term.
The property under the capital lease is depreciated at the same rate as if the
property were still owned by CG&E. CG&E recorded a capital lease obligation of
$22 million, which represented the net book value of the equipment at the
beginning of the lease.
8. Financial Instruments
Cinergy, CG&E, and PSI
(a) Financial Derivatives Cinergy has entered into financial derivative
contracts for the purposes described below.
Cinergy
(i) Foreign Exchange Hedging Activity Cinergy has hedged its pound sterling
denominated investment in Midlands through a currency swap. The currency swap
requires Cinergy to exchange a series of pound sterling denominated cash flows
for a series of dollar denominated cash flows based on Cinergy's initial
exchange of $500 million for 330 million pounds sterling. Translation gains and
losses related to the principal exchange on the currency swap have been recorded
in the cumulative foreign currency translation adjustment which is reported as a
separate component of common stock equity in the Consolidated Financial
Statements of Cinergy. At December 31, 1997, translation losses of approximately
$43 million related to the principal exchange of the currency swap have been
reflected in "Current Liabilities - Other" in the Consolidated Balance Sheets of
Cinergy.
Cinergy, CG&E, and PSI
(ii) Interest Rate Risk Management Cinergy and its subsidiaries enter into
interest rate swaps to lower funding costs and manage exposures to fluctuations
in interest rates. Under these interest rate swaps, Cinergy and its subsidiaries
agree with counterparties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated on an agreed
notional principal amount. At December 31, 1997, Cinergy has effectively fixed
the interest rate applicable to the pound sterling denominated leg of its
currency swap through two interest rate swap agreements. These contracts require
Cinergy to pay a fixed rate and receive a floating rate. Both of the interest
rate swaps are forward starting swaps that effectively fix the interest rate
applicable to the ensuing four year period of the currency swap. These contracts
have a total notional principal amount of 330 million pounds sterling.
Translation gains and losses related to Cinergy's interest obligation, which is
payable in pounds sterling, are recognized as a component of interest expense in
the Consolidated Statements of Income. At December 31, 1997, PSI had two
interest rate swap agreements outstanding with notional amounts of $100 million
each. One contract, with three years remaining from a four-year term, requires
PSI to pay a floating rate and receive a fixed rate. The second contract, with a
six-month term, requires PSI to pay a fixed rate and receive a floating rate. In
all cases, the floating rate is based on the applicable LIBOR and the interest
differential paid or received is recognized in the Consolidated Statements of
Income as a component of interest expense. The fair values of the interest rate
swap agreements at December 31, 1997, were not significant.
Cinergy, CG&E, PSI, and ULH&P
9.(b) Fair ValuesValue of Other Financial Instruments
The estimated fair values of Cinergy's and its subsidiaries' other financial
instruments were as follows (this information does not purport to be a valuation
of the companies as a whole):
December 31 December 31
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value_
(in millions; ULH&P in thousands)
Financial Instruments
Cinergy and Subsidiaries
First mortgage bonds and
other long-term debt (includes
amounts due within one year) $ 2 733 $ 2 837 $ 2 776 $ 2 718
Cumulative preferred stock of
subsidiary - subject to
mandatory redemption 160 163 210 221
CG&E and Subsidiaries
First mortgage bonds and
other long-term debt (includes
amounts due within one year) $ 1 855 $ 1 912 $ 1 838 $ 1 806
Cumulative preferred stock -
subject to mandatory redemption 160 163 210 221
PSI
First mortgage bonds and
other long-term debt (includes
amounts due within one year) $ 878 $ 925 $ 938 $ 912
ULH&P
First mortgage bonds and
other long-term debt (includes
amounts due within one year) $69 377 $72 804 $89 238 $91 361
December 31 December 31
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Instruments (in millions; ULH&P in thousands)
Cinergy and Subsidiaries
First mortgage bonds and
other long-term debt (includes
amounts reflected as long-term
debt due within one year) $ 2 236 $ 2 337 $ 2 466 $ 2 472
CG&E and Subsidiaries
First mortgage bonds and
other long-term debt (includes
amounts reflected as long-term
debt due within one year) $ 1 324 $ 1 355 $ 1 511 $ 1 508
PSI
First mortgage bonds and
other long-term debt (includes
amounts reflected as long-term
debt due within one year) $ 912 $ 982 $ 955 $ 964
ULH&P
First mortgage bonds and
other long-term debt $44 671 $45 591 $44 617 $44 668
The following methods and assumptions were used to estimate the fair values of
each major class of financial instruments:
Cash and temporary cash investments, restricted deposits,Temporary Cash Investments, Restricted Deposits, and notes payableNotes Payable and
Other Short-Term Obligations Due to the short period to maturity, the carrying
amounts reflected on the Balance Sheets approximate fair values.
First mortgage bondsMortgage Bonds and other long-term debtOther Long-Term Debt The fair values of long-term debt
issues were estimated based on the latest quoted market prices or, if not listed
on the New York Stock Exchange (NYSE),NYSE, on the present value of future cash flows. The discount rates used
approximate the incremental borrowing costs for similar instruments.
Cumulative preferred stock - subjectCinergy, CG&E, PSI, and ULH&P
(c) Concentrations of Credit Risk
Credit risk represents the risk of loss which would occur as a result of
nonperformance by counterparties pursuant to mandatory redemptionthe terms of their contractual
obligations with the Company. Concentrations of credit risk relate to
significant customers or counterparties, or groups of customers or
counterparties, possessing similar economic or industry characteristics that
would cause their ability to meet contractual obligations to be similarly
affected by changes in economic or other conditions.
Concentration of credit risk with respect to Cinergy's trade accounts receivable
from electric and gas retail customers is limited due to Cinergy's large number
of customers and diversified customer base of residential, commercial, and
industrial customers. Sales for resale customers on Cinergy's electric system
include traditional electric cooperatives and municipalities with which CG&E and
PSI have long-standing relationships. Contracts for sales of electricity for
resale outside of Cinergy's system are principally with power marketers, other
investor owned utilities, electric cooperatives, and municipalities. As of
December 31, 1997, approximately 65% of Cinergy's power marketing and trading
activity represents commitments with 10 counterparties. The aggregate
fair valuemajority of preferred stock subject to mandatory redemption was basedthese
contracts are for terms of one year or less. As the competitive electric power
market expands, counterparties will increasingly include new market entrants,
such as other power marketers, brokers, and commodities traders. This increased
level of new market entrants, as well as competitive pressures on the latest closing prices quoted onutility
market participants, could increase Cinergy's exposure to credit risk. As of
December 31, 1997, Cinergy's management believes nonperformance of contractual
obligations by any one counterparty of Cinergy's power marketing and trading
function would not result in losses which are significant to the NYSE for each seriesfinancial
condition or if no trades
occurred duringresults of operations of Cinergy.
Potential exposure to credit risk also exists from Cinergy's use of financial
derivatives such as currency swaps and interest rate swaps. Because these
financial instruments are transacted only with highly rated financial
institutions, Cinergy does not anticipate nonperformance by any of the
period, on the present value of future cash flows using
discount rates that approximate the incremental borrowing costs for similar
instruments.
10.counterparties.
9. Pension Plans
Cinergy, CG&E, PSI, and ULH&P
TheCinergy's defined benefit pension plans of Cinergy's subsidiaries cover substantially all employees
meeting certain minimum age and service requirements. Plan benefits are
determined under a final average pay formula with consideration of years of
participation, age at retirement, and the applicable average Social Security
wage base or benefit amount.
TheCinergy's funding policies of the operating subsidiaries arepolicy is to contribute annually to the plans an amount which
is not less than the minimum amount required by the Employee Retirement Income
Security Act of 1974 and not more than the maximum amount deductible for income
tax purposes. Contributions applicable to the 1995, 1994, and 1993last three plan years are: $8
million for Cinergy's subsidiaries were $15.41997, $7 million $3.5for 1996, and $18 million and $11.3 million, respectively.for 1995. Of these
amounts, CG&E and its subsidiaries contributed $6.8had contributions of $4 million applicable to
the 1997 plan year and $3.1$7 million applicable to each of the 1996 and 1995 plan
years. PSI had contributions of $4 million applicable to the 1997 plan year, no
contributions for the 1996 plan year, and contributions of $11 million for the
1995 and 1993 plan years, respectively. There were no contributions made for
the 1994 plan year by CG&E and its subsidiaries. PSI's contributions were
$8.6 million, $3.5 million, and $8.2 million for the 1995, 1994, and 1993 plan
years, respectively.year. The plans' assets consist of investments in equity and fixed
income securities.
Effective January 1, 1998, Cinergy reconfigured its defined benefit pension
plans. The reconfigured plans cover the same employees as the previous plans and
established a uniform final average pay formula for all employees. When an
employee retires, he or she will receive the greater of the benefit accrued
under the previous plan as of December 31, 1997, or the benefit accrued under
the new plan as of the retirement date. The reconfiguration of the pension plans
is not expected to have a significant impact on the Company's financial
condition or results of operations.
Cinergy
Cinergy's pension cost for 1995, 1994,1997, 1996, and 19931995 included the following
components:
1997 1996 1995 1994 1993
(in millions)
Benefits earned during the period $ 18.519.8 $21.2 $ 19.4 $ 16.918.5
Interest accrued on projected
benefit obligations 67.8 61.6 61.4
54.9 53.9
Actual (return) lossReturn on plans' assets
Actual (186.6) (75.6) (119.3)
8.0 (69.9)Deferred gain 123.8 14.4 58.8
Net amortization and deferral 61.1 (66.3) 15.4amortizations 2.8 2.9 2.3
Net periodic pension cost $ 21.727.6 $24.5 $ 16.0 $ 16.321.7
CG&E and ULH&P
CG&E's and its subsidiaries' (including ULH&P's) pension cost for 1995, 1994,1997, 1996,
and 19931995 included the following components:
1997 1996 1995 1994 1993
(in millions)
Benefits earned during the period $ 9.810.5 $11.2 $ 10.7 $ 9.29.8
Interest accrued on projected
benefit obligations 41.2 38.6 38.8
35.1 34.5
Actual (return) lossReturn on plans' assets
Actual (108.3) (53.8) (71.9)
5.6 (31.4)Deferred gain 71.2 17.2 34.0
Net amortization and deferral 35.5 (43.2) (4.7)amortizations 1.8 2.1 1.5
Net periodic pension cost $ 12.2 $ 8.2 $ 7.616.4 $15.3 $12.2
PSI
PSI's pension cost for 1995, 1994,1997, 1996, and 19931995 included the following components:
1997 1996 1995 1994 1993
(in millions)
Benefits earned during the period $ 8.79.3 $10.0 $ 8.7 $ 7.7
Interest accrued on projected
benefit obligationobligations 26.6 23.0 22.6
19.8 19.4Return on plans' assets
Actual (return) loss on plan assets(78.3) (21.8) (47.4)
2.4 (38.5)Deferred gain (loss) 52.6 (2.8) 24.8
Net amortization and deferral 25.6 (23.1) 20.1amortizations 1.0 0.8 0.8
Net periodic pension cost $11.2 $ 9.2 $ 9.5
$ 7.8 $ 8.7
Cinergy, CG&E, PSI, and ULH&P
During 1994,1996, CG&E and its subsidiaries (including ULH&P) recognized an
additional $15.6$31 million of accrued pension cost in accordance with Statement of
Financial Accounting Standards No. 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits. This amount representsBenefits
(Statement 88). Additionally, during 1996, PSI recognized an additional $30
million of accrued pension cost in accordance with Statement 88. These amounts
represent the costs associated with additional benefits extended in connection
with a voluntary workforce reduction programprograms (see Note 1(i)1(l)).
Cinergy, CG&E, PSI, and ULH&P1997 1996 1995 1994 1993
Actuarial Assumptions:
For determination of projected benefit
obligations
Discount rate 7.50% 8.50% 7.50%7.5% 8.0% 7.5%
Rate of increase in future compensation PSI 4.50 5.50 4.50-5.00
CG&E and subsidiaries 4.50 5.50 5.004.5 5.0 4.5
For determination of pension cost
Rate of return on plans' assets
PSI 9.00 9.00 9.009.0 9.0 9.0
CG&E and subsidiaries 9.50 9.50 9.50
9.0 9.0 9.5
Cinergy
The following table reconciles the plans' funded status with amounts recorded in
the Consolidated Financial Statements.Statements of Cinergy. Under the provisions of
Statement of Financial Accounting Standards No. 87, Employers' Accounting for
Pensions (Statement 87), certain assets and obligations of the plans are
deferred and recognized in the Consolidated Financial Statements of Cinergy in
subsequent periods.later years.
1995 19941997 1996
Plans' Plan's Plans' Plan's
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
(in millions)
Actuarial present value
of benefits
Vested benefits $(376.9) $(227.3) $(320.7) $(206.5)$(731.6) $(423.1) $(241.6)
Non-vested benefits (35.1) (16.0) (25.5) (11.0)(35.5) (33.5) (10.1)
Accumulated benefit
obligations (412.0) (243.3) (346.2) (217.5)(767.1) (456.6) (251.7)
Effect of future
compensation
increases (120.3) (53.2) (120.3) (52.2)(193.2) (121.7) (53.3)
Projected benefit
obligations (532.3) (296.5) (466.5) (269.7)(960.3) (578.3) (305.0)
Plans' assets at fair value 500.6 220.0 438.4 198.7888.1 531.6 234.1
Projected benefit
obligations in excess of
plans' assets (31.7) (76.5) (28.1) (71.0)(72.2) (46.7) (70.9)
Remaining balance of plans'
net assets existing at
date of initial application
of Statement 87 to be
recognized as a reduction
of pension cost in future
periods (7.7) (3.4) (8.6) (3.8)(8.5) (6.7) (3.1)
Unrecognized net gain
resulting from experience
different from that
assumed and effects of
changes in assumptions (14.1) (1.3) (7.9) (1.9)(134.6) (48.4) (28.1)
Prior service cost not
yet recognized in net
periodic pension cost 35.2 16.8 38.1 18.246.6 33.6 23.2
Accrued pension cost at
December 31 $(168.7) $ (18.3)(68.2) $ (64.4) $ (6.5) $ (58.5)(78.9)
CG&E and ULH&P
The following table reconciles the plans' funded status with amounts recorded in
the Consolidated Financial Statements of CG&E. Under the provisions of Statement
87, certain assets and obligations of the plans are deferred and recognized in
the Consolidated Financial Statements in subsequent periods.later years.
1995 1994
Plan's Plan's1997 1996
Plans' Plan's Plan's
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
(in millions)
Actuarial present value
of benefits
Vested benefits $(138.3) $(227.3) $(123.2) $(206.5)$(437.2) $(160.3) $(241.6)
Non-vested benefits (25.5) (16.0) (17.5) (11.0)(17.6) (17.0) (10.1)
Accumulated benefit
obligations (163.8) (243.3) (140.7) (217.5)(454.8) (177.3) (251.7)
Effect of future
compensation
increases (54.8)(111.7) (53.2) (53.0) (52.2)(53.3)
Projected benefit
obligations (218.6) (296.5) (193.7) (269.7)(566.5) (230.5) (305.0)
Plans' assets at fair
value 209.3 220.0 182.1 198.7528.1 223.3 234.1
Projected benefit
obligations in excess of
plans' assets (9.3) (76.5) (11.6) (71.0)(38.4) (7.2) (70.9)
Remaining balance of plans'
net assets existing at
date of initial application
of Statement 87 to be
recognized as a reduction
of pension cost in future
periods (2.7) (3.4) (2.9) (3.8)(4.9) (2.4) (3.1)
Unrecognized net gain
resulting from experience
different from that
assumed and effects of
changes in assumptions (18.9) (1.3) (13.6) (1.9)(110.3) (40.1) (28.1)
Prior service cost not
yet recognized in net
periodic pension cost 19.5 16.8 20.9 18.230.7 16.1 23.2
Accrued pension cost at
December 31 $(122.9) $ (11.4)(33.6) $ (64.4) $ (7.2) $ (58.5)(78.9)
PSI
The following table reconciles the plan's funded status with amounts recorded in
the Consolidated Financial Statements.Statements of PSI. Under the provisions of Statement
87, certain assets and obligations of the plan are deferred and recognized in
the Consolidated Financial Statements in subsequent periods.
1995 1994
(in millions)
Actuarial present value of benefits
Vested benefits $(238.6) $(197.5)
Non-vested benefits (9.6) (8.0)
Accumulated benefit obligation (248.2) (205.5)
Effect of future compensation
increases (65.5) (67.3)
Projected benefit obligation (313.7) (272.8)
Plan's assets at fair value 291.3 256.3
Projected benefit obligation in
excess of plan's assets (22.4) (16.5)
Remaining balance of plan's net
assets existing at date of initial
application of Statement 87 to be
recognized as a reduction of
pension cost in future periods (5.0) (5.7)
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 4.8 5.7
Prior service cost not yet recognized
in net periodic pension cost 15.7 17.2
Prepaid (Accrued) pension cost
at December 31 $ (6.9) $ .7
11.later years.
1997 1996
(in millions)
Actuarial present value of benefits
Vested benefits $(294.4) $(262.8)
Non-vested benefits (17.9) (16.5)
Accumulated benefit obligation (312.3) (279.3)
Effect of future compensation
increases (81.5) (68.5)
Projected benefit obligation (393.8) (347.8)
Plan's assets at fair value 360.0 308.3
Projected benefit obligation in
excess of plan's assets (33.8) (39.5)
Remaining balance of plan's net
assets existing at date of initial
application of Statement 87 to be
recognized as a reduction of
pension cost in future periods (3.6) (4.3)
Unrecognized net (gain) resulting
from experience different from that
assumed and effects of changes in
assumptions (24.3) (8.3)
Prior service cost not yet recognized
in net periodic pension cost 15.9 17.5
Accrued pension cost
at December 31 $ (45.8) $ (34.6)
10. Other Postretirement Benefits
Cinergy, CG&E, PSI, and ULH&P
Cinergy's subsidiaries provideCinergy provides certain health care and life insurance benefits to retired
employees who have met minimum age and service requirements and their eligible
dependents. The health care benefits include medical coverage, dental coverage,
and prescription drugs. Additionally, PSI provides
dental benefits. PSI employees must meet minimum agedrugs and service requirements
to be eligible for these postretirement benefits. All retirees of CG&E and
its subsidiaries are eligible to receive health care benefits, while life
insurance is provided to retirees who participated in the plans and earned the
right to postretirement life insurance benefits prior to January 1, 1991. The
health care and dental benefits provided are subject to certain limitations, such as
deductibles and co-payments. Prior to January 1, 1997, CG&E and PSI employees
were covered under separate plans. Effective January 1, 1997, all Cinergy active
employees are eligible to receive essentially the same postretirement health
care benefits. Certain classes of employees, based on age, as well as all
retirees, have been grandfathered under benefit provisions in place prior to
January 1, 1997. Neither CG&E and its subsidiaries nor PSI currently pre-fund
their obligations for these postretirement benefits; however, PSI, in connection
with the settlement which resulted in the February 1995 Order, agreed to begin
pre-funding. Implementation of pre-funding is subject to the outcome of
negotiations with The Office of the Utility Consumer Counselor and approval by
the IURC.
Postretirement benefit cost for 1995, 1994,1997, 1996, and 19931995 included the following
components:
Cinergy
Health Life
Care Insurance Total
(in millions)
1997
Benefits earned during the period $ 3.0 $ .1 $ 3.1
Interest accrued on Accumulated Post-
retirement Benefit Obligation (APBO) 14.1 2.2 16.3
Net amortization and deferral .2 .1 .3
Amortization of transition obligations 4.7 .3 5.0
Net periodic postretirement benefit cost $22.0 $2.7 $24.7
1996
Benefits earned during the period $ 5.7 $ .1 $ 5.8
Interest accrued on APBO 16.5 2.2 18.7
Net amortization and deferral .3 - .3
Amortization of transition obligations 8.1 .3 8.4
Net periodic postretirement benefit cost $30.6 $2.6 $33.2
1995
Benefits earned during the period $ 4.4 $ .1 $ 4.5
Interest accrued on APBO 15.6 2.2 17.8
Amortization of transition obligations 8.1 .3 8.4
Net periodic postretirement benefit cost $28.1 $2.6 $30.7
1994
Benefits earned during the period $ 5.2 $ .2 $ 5.4
Interest accrued on APBO 13.8 2.2 16.0
Net amortization and deferral .1 - .1
Amortization of transition obligations 8.1 .3 8.4
Net periodic postretirement benefit cost $27.2 $2.7 $29.9
1993
Benefits earned during the period $ 4.3 $ .2 $ 4.5
Interest accrued on APBO 13.4 2.1 15.5
Amortization of transition obligations 8.1 .3 8.4
Net periodic postretirement benefit cost $25.8 $2.6 $28.4
CG&E and ULH&P
Health Life
Care Insurance Total
(in millions)
1997
Benefits earned during the period $1.4 $ .1 $ 1.5
Interest accrued on APBO 5.0 2.0 7.0
Net amortization and deferral .2 .1 .3
Amortization of transition obligation 1.5 .4 1.9
Net periodic postretirement benefit cost $8.1 $2.6 $10.7
1996
Benefits earned during the period $ .7 $ .1 $ .8
Interest accrued on APBO 4.9 2.0 6.9
Amortization of transition obligation 2.6 .4 3.0
Net periodic postretirement benefit cost $8.2 $2.5 $10.7
1995
Benefits earned during the period $ .4 $ .1 $ .5
Interest accrued on APBO 4.5 2.0 6.5
Amortization of transition obligation 2.6 .4 3.0
Net periodic postretirement benefit cost $7.5 $2.5 $10.0
1994
Benefits earned during the period $ .9 $ .1 $ 1.0
Interest accrued on APBO 3.9 2.0 5.9
Amortization of transition obligation 2.6 .4 3.0
Net periodic postretirement benefit cost $7.4 $2.5 $ 9.9
1993
Benefits earned during the period $1.0 $ .1 $ 1.1
Interest accrued on APBO 4.2 2.0 6.2
Amortization of transition obligation 2.6 .4 3.0
Net periodic postretirement benefit cost $7.8 $2.5 $10.3
PSI
Health Life
Care Insurance Total
(in millions)
1997
Benefits earned during the period $ 1.6 $ - $ 1.6
Interest accrued on APBO 9.1 .2 9.3
Amortization of transition obligation 3.2 (.1) 3.1
Net periodic postretirement benefit cost $13.9 $ .1 $14.0
1996
Benefits earned during the period $ 5.0 $ - $ 5.0
Interest accrued on APBO 11.6 .2 11.8
Net amortization and deferral .3 - .3
Amortization of transition obligation 5.5 (.1) 5.4
Net periodic postretirement benefit cost $22.4 $ .1 $22.5
1995
Benefits earned during the period $ 4.0 $ - $ 4.0
Interest accrued on APBO 11.1 .2 11.3
Amortization of transition obligation 5.5 (.1) 5.4
Net periodic postretirement benefit cost $20.6 $ .1 $20.7
1994
Benefits earned during the period $ 4.3 $ .1 $ 4.4
Interest accrued on APBO 9.9 .2 10.1
Net amortization and deferral .1 - .1
Amortization of transition obligation 5.5 (.1) 5.4
Net periodic postretirement benefit cost $19.8 $ .2 $20.0
1993
Benefits earned during the period $ 3.3 $ .1 $ 3.4
Interest accrued on APBO 9.2 .1 9.3
Amortization of transition obligation 5.5 (.1) 5.4
Net periodic postretirement benefit cost $18.0 $ .1 $18.1
Cinergy, CG&E, PSI, and ULH&P
The following tables reconciletable reconciles the APBO of the health care and life insurance
plans with amounts recorded in the Financial Statements. Under the provisions of
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, (Statement 106), certain obligations of the plans
are deferred and recognized in the Financial Statements in subsequent periods.later years.
Cinergy
Health Life
Care Insurance Total_Total
(in millions)
19951997
Actuarial present value of benefits
Fully eligible active plan participants $ (11.7)(9.9) $ (1.1)(2.3) $ (12.8)(12.2)
Other active plan participants (112.0) (2.7) (114.7)(66.3) (1.1) (67.4)
Retirees and beneficiaries (99.2) (26.4) (125.6)(113.6) (28.7) (142.3)
Projected APBO (222.9) (30.2) (253.1)(189.8) (32.1) (221.9)
Unamortized transition obligations 137.1 .7 137.8
Unrecognized prior service cost (.3) - (.3)70.7 .2 70.9
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 26.1 .5 26.621.1 1.5 22.6
Accrued postretirement benefit obligations
at December 31, 19951997 $ (60.0) $(29.0) $ (89.0)
1994(98.0) $(30.4) $(128.4)
1996
Actuarial present value of benefits
Fully eligible active plan participants $ (11.4)(13.7) $ (.9)(1.6) $ (12.3)(15.3)
Other active plan participants (84.3) (2.3) (86.6)(49.8) (1.5) (51.3)
Retirees and beneficiaries (92.0) (23.5) (115.5)(118.0) (26.4) (144.4)
Projected APBO (187.7) (26.7) (214.4)(181.5) (29.5) (211.0)
Unamortized transition obligations 145.2 1.0 146.275.4 .4 75.8
Unrecognized net (gain) loss resulting
from experience different from that
assumed and effects of changes in
assumptions 2.2 (2.6) (.4)
Accrued postretirement benefit obligations
at December 31, 1994 $ (40.3) $(28.3) $ (68.6)
Increasing the health care cost trend rate by one percentage point in each
year would increase the APBO by approximately $37 million and $27 million for
1995 and 1994, respectively, and the aggregate of the service and interest
cost components of the postretirement benefit cost for each of 1995, 1994, and
1993 by approximately $3.4 million, $3.7 million, and $3.4 million,
respectively.
CG&E and ULH&P
Health Life
Care Insurance Total_
(in millions)
1995
Actuarial present value of benefits
Fully eligible active plan participants $ (2.7) $ (.9) $ (3.6)
Other active plan participants (32.0) (2.0) (34.0)
Retirees and beneficiaries (30.5) (24.5) (55.0)
Projected APBO (65.2) (27.4) (92.6)
Unamortized transition obligation 43.4 2.9 46.3
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 4.4 .1 4.5
Accrued postretirement benefit obligation
at December 31, 1995 $ (17.4) $(24.4) $ (41.8)
1994
Actuarial present value of benefits
Fully eligible active plan participants $ (2.2) $ (.8) $ (3.0)
Other active plan participants (26.3) (1.8) (28.1)
Retirees and beneficiaries (25.2) (21.7) (46.9)
Projected APBO (53.7) (24.3) (78.0)
Unamortized transition obligation 46.1 3.3 49.4
Unrecognized net (gain) resulting from
experience different from that assumed
and effects of changes in assumptions (5.2) (2.7) (7.9)19.5 (.5) 19.0
Accrued postretirement benefit obligationobligations
at December 31, 19941996 $ (12.8) $(23.7) $ (36.5)
Increasing the health care cost trend rate by one percentage point in each
year would increase the APBO by approximately $12.7 million and $10.0 million
for 1995 and 1994, respectively, and the aggregate of the service and interest
cost components of the postretirement benefit cost for 1995 by approximately
$1.0 million and each of 1994 and 1993 by approximately $1.2 million.
PSI
Health Life
Care Insurance Total_
(in millions)
1995
Actuarial present value of benefits
Fully eligible active plan participants $ (9.0) $ (.2) $ (9.2)
Other active plan participants (80.0) (.7) (80.7)
Retirees and beneficiaries (68.7) (1.9) (70.6)
Projected APBO (157.7) (2.8) (160.5)
Unamortized transition obligation 93.7 (2.2) 91.5
Unrecognized prior service cost (.3) - (.3)
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 21.7 .4 22.1
Accrued postretirement benefit obligation
at December 31, 1995 $ (42.6) $ (4.6) $ (47.2)
1994
Actuarial present value of benefits
Fully eligible active plan participants $ (9.2) $ (.1) $ (9.3)
Other active plan participants (58.0) (.5) (58.5)
Retirees and beneficiaries (66.8) (1.8) (68.6)
Projected APBO (134.0) (2.4) (136.4)
Unamortized transition obligation 99.1 (2.3) 96.8
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 7.4 .1 7.5
Accrued postretirement benefit obligation
at December 31, 1994 $ (27.5) $ (4.6) $ (32.1)(86.6) $(29.6) $(116.2)
Increasing the health care cost trend rate by one percentage point in each year
would increase the APBO by approximately $24 million for 1997 and $17$21 million
for 19951996, and 1994,the aggregate of the service and interest cost components of the
postretirement benefit cost by approximately $2 million for 1997, $4 million for
1996, and $3 million for 1995.
CG&E and ULH&P
Health Life
Care Insurance Total
(in millions)
1997
Actuarial present value of benefits
Fully eligible active plan participants $ (5.3) $ (2.2) $ (7.5)
Other active plan participants (32.9) (.9) (33.8)
Retirees and beneficiaries (30.2) (25.8) (56.0)
Projected APBO (68.4) (28.9) (97.3)
Unamortized transition obligation 23.0 2.1 25.1
Unrecognized prior service cost - .2 .2
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 13.6 .7 14.3
Accrued postretirement benefit obligation
at December 31, 1997 $ (31.8) $(25.9) $ (57.7)
1996
Actuarial present value of benefits
Fully eligible active plan participants $ (10.8) $ (1.6) $ (12.4)
Other active plan participants (24.2) (1.3) (25.5)
Retirees and beneficiaries (28.7) (23.6) (52.3)
Projected APBO (63.7) (26.5) (90.2)
Unamortized transition obligation 24.5 2.5 27.0
Unrecognized prior service cost - .3 .3
Unrecognized net loss (gain) resulting from
experience different from that assumed
and effects of changes in assumptions 11.5 (1.4) 10.1
Accrued postretirement benefit obligation
at December 31, 1996 $ (27.7) $(25.1) $ (52.8)
Increasing the health care cost trend rate by one percentage point in each year
would increase the APBO by approximately $9 million and $7 million for 1997 and
1996 respectively, and the aggregate of the service and interest cost components
of the postretirement benefit cost by approximately $1 million for 1997, 1996,
and 1995.
PSI
Health Life
Care Insurance Total
(in millions)
1997
Actuarial present value of benefits
Fully eligible active plan participants $ (4.6) $ (.1) $ (4.7)
Other active plan participants (33.4) (.2) (33.6)
Retirees and beneficiaries (83.4) (2.9) (86.3)
Projected APBO (121.4) (3.2) (124.6)
Unamortized transition obligation 47.7 (1.9) 45.8
Unrecognized prior service cost - (.2) (.2)
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 7.5 .7 8.2
Accrued postretirement benefit obligation
at December 31, 1997 $ (66.2) $ (4.6) $ (70.8)
1996
Actuarial present value of benefits
Fully eligible active plan participants $ (2.9) $ - $ (2.9)
Other active plan participants (25.6) (.2) (25.8)
Retirees and beneficiaries (89.3) (2.8) (92.1)
Projected APBO (117.8) (3.0) (120.8)
Unamortized transition obligation 50.9 (2.1) 48.8
Unrecognized prior service cost - (.3) (.3)
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 8.0 .9 8.9
Accrued postretirement benefit obligation
at December 31, 1996 $ (58.9) $ (4.5) $ (63.4)
Increasing the health care cost trend rate by one percentage point in each year
would increase the APBO by approximately $15 million and $14 million for 1997
and 1996, respectively, and the aggregate of the service and interest cost
components of the postretirement benefit cost for each of 1995, 1994,1997, 1996, and 19931995
by approximately $2.4$1 million, $2.5$3 million, and $2 million, respectively.
Cinergy, CG&E, PSI, and ULH&P
The following assumptions were used to determine the APBO:
1997 1996 1995 1994 1993
Discount rate 7.50% 8.50% 7.50%7.5% 8.0% 7.5%
Health care cost trend rate,
gradually declining to 5%
CG&E and subsidiaries 8.00-11.00% 9.00-12.00% 10.00-13.00%7.0-8.0% 7.0-9.0% 8.0-11.0%
PSI 8.00-10.00 8.00-12.00 8.00-12.007.0-8.0 7.0-9.0 8.0-10.0
Year ultimate trend rates achieved
CG&E and subsidiaries 2002 20022004 2004 2002
PSI 2004 2004 2007
2007 200711. Income Taxes
Cinergy
CG&E, and ULH&P
The majority of CG&E's and its subsidiaries' postretirement benefit costs are
subject to PUCO jurisdiction. The PUCO has authorized CG&E to recover these
costs on an accrual basis. Prior to the recovery of these health care costs
in customers' rates on an accrual basis, the PUCO authorized CG&E to defer for
future recovery the difference between postretirement benefit costs determined
in accordanceCinergy complies with the provisions of Statement 106 and the costs determined in
accordance with CG&E's previous accounting practice. CG&E's deferrals totaled
$4 million as of December 31, 1995. CG&E is requesting authorization for
recovery of the gas portion of these costs in its current gas rate proceeding.
CG&E will request authorization to begin recovering the electric portion of
these costs in its next retail rate proceeding.
Cinergy and PSI
In accordance with the February 1995 Order, PSI is recovering the cost of
postretirement benefits other than pensions on an accrual basis. Prior to the
recovery of these costs in customers' rates on an accrual basis, the
difference between postretirement benefit costs determined in accordance with
the provisions of Statement 106 and the costs determined in accordance with
PSI's previous accounting practice was deferred for future recovery. PSI's
deferrals totaled $21 million as of December 31, 1995. Commencing in February
1995, approximately $6 million of costs deferred for the period January 1,
1993, through July 31, 1993, are being recovered over a five-year period.
Recovery over a five-year period of the remaining deferrals is being requested
in PSI's current retail rate proceeding.
12. Income Taxes
Cinergy, CG&E, PSI, and ULH&P
Cinergy and its subsidiaries comply with the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement
109).109. Statement 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of existing differences between the financial reporting and tax
reporting bases of assets and liabilities.
The significant components of each registrant'sCinergy's net deferred income tax liability at
December 31, 1995,1997, and 1994,1996, are as follows:
Cinergy
1995 19941997 1996
(in millions)
Deferred Income Tax LiabilitiesLiability
Utility plant $ 981.8 $ 947.8$1 076.8 $1 061.3
Unamortized costs of reacquiring debt 28.8 26.124.4 23.2
Deferred operating expenses
and carrying costs 86.6 87.870.4 73.5
Amounts due from customers - income taxes 143.4 112.1129.4 129.4
Deferred DSM costs 47.3 39.831.7 43.4
Investment in unconsolidated subsidiary 55.0 13.5
Other 36.4 47.247.9 41.3
Total deferred income tax liabilitiesliability 1 324.3435.6 1 260.8385.6
Deferred Income Tax AssetsAsset
Unamortized investment tax credits 67.5 70.8
Litigation settlement 29.8 29.860.5 63.9
Deferred fuel costs 13.0 13.1- 12.9
Accrued pension and other benefit costs 41.1 33.763.3 60.4
Other 52.0 42.363.3 102.1
Total deferred income tax assets 203.4 189.7asset 187.1 239.3
Net Deferred Income Tax Liability $1 120.9248.5 $1 071.1146.3
CG&E
1995 1994CG&E and its subsidiaries comply with the provisions of Statement 109. Statement
109 requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of existing differences between the financial reporting
and tax reporting bases of assets and liabilities.
The significant components of CG&E's net deferred income tax liability at
December 31, 1997, and 1996, are as follows:
1997 1996
(in millions)
Deferred Income Tax LiabilitiesLiability
Utility plant $663.8 $639.8$683.3 $671.6
Unamortized costs of reacquiring debt 14.2 10.311.1 11.2
Deferred operating expenses
and carrying costs 76.2 76.462.0 73.5
Amounts due from customers - income taxes 139.8 108.5121.9 120.7
Deferred DSM costs 5.6 2.611.7 6.0
Other 25.5 37.143.9 40.9
Total deferred income tax liabilities 925.1 874.7liability 933.9 923.9
Deferred Income Tax AssetsAsset
Unamortized investment tax credits 46.1 47.9
Deferred fuel costs 8.1 10.041.7 43.9
Accrued pension and other benefit costs 28.7 27.639.2 31.4
Other 46.8 42.158.6 81.5
Total deferred income tax assets 129.7 127.6asset 139.5 156.8
Net Deferred Income Tax Liability $795.4 $747.1$794.4 $767.1
PSI
1995 1994_PSI and its subsidiaries comply with the provisions of Statement 109. Statement
109 requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of existing differences between the financial reporting
and tax reporting bases of assets and liabilities.
The significant components of PSI's net deferred income tax liability at
December 31, 1997, and 1996, are as follows:
1997 1996
(in millions)
Deferred Income Tax Liability
Electric utility plant $393.5 $389.7
Unamortized costs of reacquiring debt 13.3 12.0
Amounts due from customers - income taxes 7.5 8.7
Deferred operating expenses
and accrued carrying costs 8.4 -
Deferred DSM costs 20.0 37.4
Other 3.7 -
Total deferred income tax liability 446.4 447.8
Deferred Income Tax Asset
Unamortized investment tax credits 18.8 20.0
Accrued pension and other benefit costs 24.1 29.0
Deferred fuel costs - 7.1
Other - 18.7
Total deferred income tax asset 42.9 74.8
Net Deferred Income Tax Liability $403.5 $373.0
ULH&P
ULH&P complies with the provisions of Statement 109. Statement 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of existing differences between the financial reporting and tax
reporting bases of assets and liabilities.
The significant components of ULH&P's net deferred income tax liability at
December 31, 1997, and 1996, are as follows:
1997 1996
(in thousands)
Deferred Income Tax Liabilities
Electric utilityLiability
Utility plant $315.7 $308.0$34 001 $33 872
Unamortized costs of reacquiring debt 14.6 15.81 463 996
Deferred operating expenses
and accrued carryingfuel costs 12.5 11.4
Deferred DSM costs 41.7 37.2- 5 459
Other 13.0 13.72 546 3 732
Total deferred income tax liabilities 397.5 386.1liability 38 010 44 059
Deferred Income Tax AssetsAsset
Unamortized investment tax credits 21.4 22.9
Litigation settlement 29.8 29.8
Accrued pension and other benefit costs 13.4 6.1
Other 1.0 2.6
Total deferred income tax assets 65.6 61.4
Net Deferred Income Tax Liability $331.9 $324.7
ULH&P
1995 1994
(in thousands)
Deferred Income Tax Liabilities
Utility plant $32 104 $30 637
Other 3 852 3 740
Total deferred income tax liabilities 35 956 34 377
Deferred Income Tax Assets
Unamortized investment tax credits 2 060 2 1751 832 1 946
Amounts due to customers - income taxes 1 904 1 8102 650 2 067
Deferred fuel costs 1 857 1 773508 -
Accrued pension and other benefit costs 2 365397 2 179482
Other 4 042 3 214412 4 101
Total deferred income tax assets 12 228asset 11 151799 10 596
Net Deferred Income Tax Liability $23 728 $23 226$26 211 $33 463
Cinergy, CG&E, PSI, and ULH&P
Cinergy and its subsidiaries will participate in the filing of a consolidated
Federal income tax return for the year ended December 31, 1997. The current tax
liability is allocated among the members of the group pursuant to a tax sharing
agreement consistent with Rule 45(c) of the PUHCA.
A summary of Federal and state income taxes charged (credited) to income and the
allocation of such amounts is as follows:
Cinergy
1997 1996 1995 1994 1993
(in millions)
Current Income Taxes
Federal $133.3 $143.4 $175.3
$104.1 $ 49.1
State 12.1 7.5 10.4 6.5 1.3
Total current income taxes 145.4 150.9 185.7 110.6 50.4
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items 26.7 61.6 53.8 62.2 58.4
Loss related to the June 1987 Order - (5.2) 45.9
Property taxes - (13.3) (9.3)
DSM costs (8.5) (1.9) 12.0 14.5 11.7
Write-off of a portion of Zimmer - - (11.0)
Pension and other benefit costs (20.8) (12.5) (4.2)
Deferred operating expenses and
carrying.9 (28.2) (21.8)
Litigation settlement 1.8 26.2 -
Fuel costs (1.6) (1.6) 4.74.4 8.8 .3
Other items - net (6.6) (5.4) 3.249.5 (15.4) (7.5)
Total deferred Federal income taxes 74.8 51.1 36.8
38.7 99.4
State 2.4 6.5 1.7 2.7 7.5
Total deferred income taxes 77.2 57.6 38.5 41.4 106.9
Investment Tax Credits - Net (9.6) (9.8) (10.1) (10.4) (10.3)
Total Income Taxes $213.0 $198.7 $214.1 $141.6 $147.0
Allocated to:
Operating income $219.4 $152.2 $172.6$248.9 $218.2 $221.4
Other income and expenses - net (5.3) (10.6) (25.6)(35.9) (19.5) (7.3)
$213.0 $198.7 $214.1
$141.6 $147.0
CG&E
1997 1996 1995 1994 1993
(in millions)
Current Income Taxes
Federal $117.1 $115.5 $102.4
$ 82.3 $ 61.8
State 2.55.2 1.5 2.02.5
Total current income taxes 122.3 117.0 104.9 83.8 63.8
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items 13.6 36.6 33.9
42.9 48.4
Property taxes - (11.3) (11.3)
Unrecovered gasDSM costs - net 3.8 (6.8) .77.5 .6 3.6
Pension and other benefit costs (2.8) (17.0) (10.7)
(8.4)Fuel costs (5.5) Write-off of a portion of Zimmer - - (11.0)
Deferred fuel costs - net (1.3) 5.3 (4.2)
Deferred operating expenses
and carrying costs (1.6) (1.6) 4.7
DSM costs 3.6 1.9 1.210.8 6.3
Other items - net 4.4 (2.8) 6.310.8 (8.1) (1.0)
Total deferred Federal income taxes 23.6 22.9 32.1
19.2 29.3
State (1.0) 2.2 .8 .6 .5
Total deferred income taxes 22.6 25.1 32.9 19.8 29.8
Investment Tax Credits - Net (6.2) (6.2) (6.0) (6.1) (6.1)
Total Income Taxes $138.7 $135.9 $131.8 $ 97.5 $ 87.5
Allocated to:
Operating income $172.0 $145.0 $136.4 $104.1 $109.0
Other income and expenses - net (33.3) (9.1) (4.6)
(6.6) (21.5)$138.7 $135.9 $131.8
$ 97.5 $ 87.5
PSI
1997 1996 1995 1994 1993
(in millions)
Current Income Taxes
Federal $35.5 $41.3 $71.4
$22.0 $ .6
State 6.8 6.0 7.5 5.5 .4
Total current income taxes 42.3 47.3 78.9 27.5 1.0
Deferred Income Taxes
Federal
Depreciation and other electric utility
plant-related items 13.3 25.0 19.9 19.2 9.6
Loss related to the June 1987 Order - (5.2) 45.9
Property taxes - (2.0) 2.0
DSM costs (16.1) (2.5) 8.4 12.6 10.6
Pension and other benefit costs (10.1) (1.8)3.7 (11.2) (11.1)
Litigation settlement 6.2 26.2 -
Deferred fuelFuel costs 9.9 (2.0) (6.0)
Coal contract buyout 5.5 - net (6.0) .7 (1.8)-
Destec payments 7.7 - -
Other items - net (4.0) 2.8 (.9)5.6 (6.3) (3.0)
Total deferred Federal income taxes 35.8 29.2 8.2
26.3 65.4
State 3.3 4.3 1.1 2.2 7.0
Total deferred income taxes 39.1 33.5 9.3 28.5 72.4
Investment Tax Credits - Net (3.5) (3.6) (4.1) (4.3) (4.2)
Total Income Taxes $77.9 $77.2 $84.1 $51.7 $69.2
Allocated to:
Operating income $76.9 $73.2 $85.0 $50.4 $64.9
Other income and expenses - net 1.0 4.0 (.9)
1.3 4.3$77.9 $77.2 $84.1 $51.7 $69.2
ULH&P
1997 1996 1995 1994 1993
(in thousands)
Current Income Taxes
Federal $11 607 $ 416 $5 955
$2 746 $3 580
State 3 002 (87) 1 324 498 1 126
Total current income taxes 14 609 329 7 279 3 244 4 706
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items 847 1 506 1 382 1 727 1 664
Unrecovered gas costs - net (277) (741) 575
Pension and other benefit costs - (277) (381)
(349) (329)
Deferred fuelFuel costs - net (257) 764 (685)(5 486) 6 111 (534)
Unamortized costs of reacquiring debt (122) 458 808 - -
Other items - net 12 291 (556) 280 (147)
Total deferred Federal income taxes (4 749) 8 089 719 1 681 1 078
State
Depreciation and other utility plant-
related items 287 425 390
656 431Fuel costs (1 404) 1 570 (137)
Other items - net (172) (8) (222)23 55 (35)
Total deferred state income taxes (1 094) 2 050 218 648 209
Total deferred income taxes (5 843) 10 139 937 2 329 1 287
Investment Tax Credits - Net (280) (282) (285) (287) (288)
Total Income Taxes $ 8 486 $10 186 $7 931 $5 286 $5 705
Allocated to:
Operating income $ 9 586 $ 9 834 $7 887 $5 342 $5 751
Other income and expenses - net (1 100) 352 44
(56) (46)$ 8 486 $10 186 $7 931 $5 286 $5 705
Cinergy, CG&E, PSI, and ULH&P
Federal income taxes, computed by applying the statutory Federal income tax rate
to book income before extraordinary item and Federal income tax, are reconciled
to Federal income tax expense reported in the Consolidated Statements of Income
for each registrantof Cinergy, CG&E, and PSI and the Statements of Income of ULH&P as follows:
Cinergy
1997 1996 1995 1994 1993
(in millions)
Statutory Federal income tax provision $191.2 $109.8 $ 68.1$196.4 $181.8 $192.2
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (9.6) (9.8) (10.1) (10.4) (10.0)
Depreciation and other utility plant-
related differences 11.7 14.1 9.0 13.5 13.1
Preferred dividend requirements of
subsidiaries 4.4 8.5 10.8
12.4 13.3
AFUDC equity (.6) (2.2) (5.0)
Phase-in deferred return (.6) (3.1) (7.2)
Write-off of a portion of ZimmerForeign tax adjustments (13.2) (11.1) - - 69.4
Other - net 2.3 12.4 (3.5)8.8 1.2 .1
Federal income tax expense $198.5 $184.7 $202.0
$132.4 $138.2
CG&E
1997 1996 1995
(in millions)
Statutory Federal income tax provision $121.4 $81.0 $17.9$130.8 $125.8 $127.6
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (6.2) (6.2) (6.0) (6.1) (5.8)
Depreciation and other utility plant-
related differences 9.8 11.7 9.0 8.2 6.9
Preferred dividends 6.2 7.8 8.8
AFUDC equity (.6) (.7) (1.1)
Phase-in deferred return (.6) (3.1) (7.2)
Write-off of a portion of Zimmer - - 69.46.2
Other - net (.9) 8.3 (3.9).1 .9 (8.3)
Federal income tax expense $134.5 $132.2 $128.5
$95.4 $85.0
PSI
1997 1996 1995 1994 1993
(in millions)
Statutory Federal income tax provision $77.5 $44.2 $65.3$ 70.0 $ 67.4 $ 77.5
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (3.5) (3.6) (4.1) (4.3) (4.2)
Depreciation and other electric utility
plant-related differences - 1.8 4.1
AFUDC equity - (1.5) (3.9)
Other - net 1.3 3.1 2.1 3.8 .5
Federal income tax expense $75.5 $44.0 $61.8$ 67.8 $ 66.9 $ 75.5
ULH&P
1997 1996 1995 1994 1993
(in thousands)
Statutory Federal income tax provision $6 823 $7 987 $6 496 $4 385 $4 798
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (280) (282) (285) (287) (288)
Depreciation and other utility plant-
related differences 96 358 219 138 108
AFUDC equity (25) (27) (104)
Other - net (16) (69) (144)(61) 160 (41)
Federal income tax expense $6 578 $8 223 $6 389
$4 140 $4 370
13.12. Commitments and Contingencies
(a) Construction and Other Expenditures
Cinergy, CG&E, PSI, and ULH&P
Cinergy and its subsidiaries will have commitments in connection with their
forecasted construction programs. Aggregatecurrently forecasts the aggregate expenditures for Cinergy'sits construction
program for the 19961998 through 20002002 period are currently forecasted to be $2.1$1.7 billion. Of these projected
expenditures, approximately $1.1
billion$866 million relates to CG&E and its subsidiaries,
including $102$137 million for ULH&P, and $1.0 billion$858 million relates to PSI.
Cinergy and PSI
In November 1995, a 25-year contractual agreement between PSI and Destec
Energy, Inc. (Destec) for the provision of coal gasification services began
upon commercial operation of the Clean Coal Project. The agreement requires
PSI to pay Destec a base monthly fee including certain monthly operating
expenses. Over the next five years (1996 through 2000), the fixed component
of the base monthly fee is expected to total $63 million, and the variable
expenses are estimated at $105 million in nominal dollars. PSI's currently
pending retail rate increase request includes recovery of the operating costs,
including gasification services, associated with the Clean Coal Project. PSI
received authorization in the February 1995 Order to defer for future recovery
the costs incurred prior to the order in its current retail rate proceeding.
(b) MGPManufactured Gas Plant (MGP) Sites
Cinergy, CG&E, PSI, and ULH&P
(i) General Prior to the 1950s, gas was produced at MGP sites through a
process that involved the heating of coal and/or oil. The gas produced from this
process was sold for residential, commercial, and industrial uses.
Cinergy and PSI
(ii) PSI Coal tar residues, related hydrocarbons, and various metals
associated with MGP sites have been found at former MGP sites in Indiana,
including but not limited to, Shelbyville and Lafayette, two sites previously
owned by PSI. PSI has identified at least 21 MGP sites which itPSI or its predecessors previously owned, includingowned.
In 1945, PSI sold 19 it sold in 1945of these sites to IGC,Indiana Gas and Water Company, Inc. (now
Indiana Gas Company, Inc. (IGC)), including the Shelbyville and Lafayette sites. IGC has informedsites
(discussed below). PSI or its predecessors acquired seven of the basis for its claim that PSI, as
a PRP under the CERCLA, should contribute to IGC's response costs related to
investigating and remediating contamination at21 MGP sites
from Northern Indiana Public Service Company (NIPSCO), five of which were among
the 19 sites PSI sold to IGC. The other two sites acquired from NIPSCO are
located in Goshen (discussed below) and Warsaw, Indiana.
PSI has received claims from IGC and NIPSCO that PSI is a Potentially
Responsible Party (PRP) under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) with respect to the 21 MGP sites, and
therefore responsible for the costs of investigating and remediating these
sites.
The Shelbyville MGP site has been the subject of an investigation and cleanup
enforcement action by the IDEMIndiana Department of Environmental Management (IDEM)
against IGC and PSI. Without admitting
liability,Pursuant to an agreement, PSI and IGC have conducted
an investigation and remedialremediation activities at the Shelbyville site. PSIsite and IGC are sharing
the costs of these activities. In 1997, PSI and IGC submitted a proposed agreed
order to IDEM relative to the Shelbyville site, which, if accepted by IDEM, will
result in a determination of whether the activities previously undertaken at the
site are sufficient to adequately protect human health and basedthe environment.
Based upon environmental investigations and remediation completed to date, PSI
believes that any further required investigation and remediation required for this site
will not have a material adverse effect on its financial condition or results of
operations.
In 1992, the IDEM issued an order to IGC, naming IGC as a PRP as defined in the
CERCLA, which requires investigation and remediation of the Lafayette MGP site.
IGC entered into an agreed order with the IDEM for the removal of MGP
contamination at that site.
During 1995,In August 1997, NIPSCO filed suit against PSI received notificationin the United States District
Court for the Northern District of Indiana, South Bend Division, claiming,
pursuant to CERCLA, recovery from PSI of NIPSCO's past and future costs of
investigating and remediating MGP related contamination at the Goshen MGP site.
NIPSCO allegingalleged that it has already incurred about $400,000 in response costs at
the site and that remediation of the site will cost about $2.7 million. PSI
is a PRP underdenied liability in its answer to the CERCLAcomplaint. The parties are currently
engaged in the discovery process and the case has not yet been scheduled for
trial.
Also, in August 1997, PSI reached an agreement with respectIGC settling IGC's claims
that PSI contribute to contamination associated withIGC's response costs related to 13 of the 19 MGP sites
previously
owned and/or operatedconveyed by bothPSI to IGC in 1945. This agreement requires PSI and NIPSCO (or their predecessors).IGC to share
past and future response costs equally (50%/50%) at the 13 sites. Further, the
parties must jointly approve future management of the sites and the decisions to
spend additional funds. The notification included sevensettlement does not address the five sites five of which PSI
acquired from NIPSCO and subsequently sold to IGC.IGC (including the Lafayette
site).
PSI has placed its insurance carriers on notice of IGC's, NIPSCO's, and NIPSCO'sIDEM's
claims.
IGC and PSI have entered into discussions regarding IGC's claim; however, with
the exception of the Shelbyville site, PSI has not assumed any responsibility
to reimburse IGC or NIPSCO for their costs of investigating and remediating
MGP sites. It is premature, at this time, to predict the nature, extent, and
ultimate costs of, or PSI's responsibility for, environmental investigations
and remediations at MGP sites owned or previously owned by PSI. Information
available to PSI regarding the current status of investigation and/or
remediation at the sites identified in IGC's claim indicates PSI's potential
exposure to probable and reasonably estimable liabilities associated with
these MGP sites would not be material to its financial condition or results of
operations. However, further investigation and remediation activities at
these sites and the additional sites identified in NIPSCO's claim may indicate
that the potential liability for MGP sites could be material.
In May 1995, the IURC denied IGC's request for recovery of costs incurred in
complying with Federal, state, and local environmental regulations related to
MGP sites in which IGC has an interest, including sites acquired from PSI. IGC
has appealed this decision, which IGC contends iscontended was contrary to decisions made by
other state utility commissions with respect to this issue. In January 1997, the
Indiana Court of Appeals (Court of Appeals) affirmed the IURC's decision denying
IGC's request for recovery of MGP costs. IGC petitioned the Indiana Supreme
Court to review the Court of Appeals decision. In August 1995,1997, the Indiana
Supreme Court denied transfer of this case. Accordingly, the IURC's decision
denying rate recovery for these costs by IGC remains intact. The IURC granted
PSI's motion to establishestablishing a sub-docket to PSI's pendinglast retail rate proceeding, in
which the IURC issued an order in September 1996, to consider its request for
rate recovery of any MGP site-related costs it may incur. PSI is unable to
predict the extent to which it will be able to recover through rates any MGP
site investigation and remediation costs ultimately incurred.
PSI continues to gather information pertaining to each of these MGP sites,
including the 13 sites which are the subject of the agreement with IGC and the
Goshen site which is the subject of NIPSCO's complaint. Reserves recorded, based
on information currently available, are not material to Cinergy's financial
condition or results of operations. However, as further investigation and
remediation activities are undertaken at these sites, the potential liability
for MGP sites could be material to Cinergy's financial condition or results of
operations.
Cinergy, CG&E, and ULH&P
(iii) CG&E and its Utility Subsidiaries Lawrenceburg, a wholly-owned
subsidiary of CG&E, also has ana MGP site. In May 1995, Lawrenceburg and the IDEM
reached an agreement to include the Lawrenceburg MGP site in the IDEM's
voluntary cleanup program. Lawrenceburg is currently implementingimplemented a remediation plan, and, on
September 20, 1996, received a certificate of completion on the cleanup from the
IDEM. The total costs incurred for the cleanup costs are not expected to exceed amounts previously accrued of $400,000.program were approximately
$273,000.
CG&E and its utility subsidiaries are aware of other potential sites where MGP
activities may have occurred at some time in the past. None of these sites is
known to present a risk to the environment. Except for the Lawrenceburg site,
neither CG&E norand its utility subsidiaries
have undertaken responsibility for
investigatingpreliminary site assessments to obtain more information about
some of the other potential MGP sites.
Cinergy and CG&E
(c) United Scrap Lead Site
The EPAUnited States Environmental Protection Agency (EPA) alleges that CG&E is a
PRP under the CERCLA liable for cleanup of the United Scrap Lead site in Troy,
Ohio. CG&E was one of approximately 200 companies so named. CG&E believes it is
not a PRP and should not be responsible for cleanup of the site. Under the
CERCLA, CG&E could be jointly and severally liable for costs incurred in
cleaning up the site, estimated by the EPA to be $27 million, of which CG&E
estimates its portion to be immaterial to its financial condition or results of
operations. In January 1998, CG&E executed a de minimis settlement agreement,
which if accepted by the Federal District Court will resolve CG&E's potential
liability for the site. Action on the proposed settlement is expected by the end
of 1998.
Cinergy, CG&E, and PSI
(d) Power InternationalEnertech Associates, Inc. (Enertech) Litigation
OnIn October 25, 1995, a suit was filed in the Federal District Court for the Southern
District of Ohio by three former employees of Enertech, formerly named Power
International, Inc., a subsidiary of Investments, naming as defendants Power International,Enertech,
Cinergy, Investments, CG&E, PSI, James E. Rogers, and William J. Grealis. (Mr.
Rogers and/or Mr. Grealis are officers and/or directors of the foregoing
companies.) The lawsuit, which stems from the termination of employment of the
three former employees, alleges that they entered into employment contracts with
Power InternationalEnertech based on the opportunity to participate in potential profits from
future investments in energy projects in central and eastern Europe. The suit
alleges causes of action based upon, among other theories, breach of contract
related to the events surrounding the termination of their employment and fraud
and misrepresentation related to the level of financial support for future
projects. The suit alleges compensatory damages of $154 million based upon
assumed future success of potential future investments and punitive damages of
three times that amount. All defendants intend to defendare vigorously defending against the
charges based upon meritorious defenses. Cinergy CG&E, and PSI areis currently unable to predict
the outcome of this litigation.
Cinergy and PSI
(e) Wabash Valley Power Association, Inc. (WVPA)
In February 1989, PSI and WVPA Litigation In 1984, WVPA discontinued paymentsentered into a settlement agreement to PSI for its 17%
share ofresolve
all claims related to Marble Hill, a nuclear project jointly owned by PSIcanceled in 1984.
Implementation of the settlement was contingent upon a number of events,
including the conclusion of WVPA's bankruptcy proceeding, negotiation of certain
terms and conditions with WVPA, which
was canceled by PSI in 1984, and filed suit against PSI in the United States
District Court for the Southern District of Indiana (Indiana District Court)Rural Utilities Service (RUS),
seeking $478 million plus interest and other damages to recover its Marble
Hill costs. The suit was amended to include as defendants several officers of
PSI along with certain contractors and their officers involved in the Marble
Hill project, and to allege claims against all defendants under the Racketeer
Influenced and Corrupt Organizations Act (RICO). Claims proven and damages
allowed under RICO may be trebled and attorneys' fees assessed against the
defendants. The suit was further amended to add claims of common law fraud,
constructive fraud and deceit, and negligent misrepresentation against PSI and the
other defendants.National Rural Utilities Cooperative Finance Corporation (CFC), and certain
regulatory approvals. In 1985, PSI and WVPA entered into an agreement under which PSI agreed to
place in escrow 17% of all salvage proceeds received from the sales of Marble
Hill equipment, materials, and nuclear fuel after May 23, 1985, as a result of
WVPA's filing for protection under Chapter 11 of the Federal Bankruptcy Code.
In 1989, PSI and its officers reached a settlement with WVPA which, if
approved by judicial and regulatory authorities, will settle the suit filed by
WVPA. The settlement is also contingent onDecember 1996, following the resolution of the WVPAissues
associated with WVPA's bankruptcy proceeding.
The principal terms of the settlement are:proceeding, PSI, on behalf of itself and its
officers, will paypaid $80 million on behalf of WVPA to the RUS and the CFC. The $80
million obligation, net of insurance proceeds, other credits, and applicable
income tax effects, was charged to income in 1988 and 1989.1988. In January 1997, an order
dismissing the WVPA will transfer its 17% ownership interest in the site tolitigation against PSI and PSI
will assume responsibility for all future costs associated with the site,
excluding WVPA's 17% share of future salvage program expenses. Additionally,
RUS and the CFC will receive the balance in the salvage escrow account and 17%
of future salvage proceeds, net of related salvage program expenses.
PSI will enter into a 35-year, take-or-pay power supply agreement for the
sale of 70 megawatts of firm power to WVPA. This power will be supplied from
Gibson Unit 1 and will be priced at PSI's firm power rates for service to
WVPA. The difference between the revenues received from WVPA and the costs of
operating Gibson Unit 1 (the Margin) will be remitted annually by PSI, on
behalf of itself and its officers to RUS and the CFC to discharge a $90
million obligation, plus accrued interest. If, at the end of the term of the
power supply agreement, the $90 million obligation plus accrued interest has
not been fully discharged, PSI must do so within 60 days. The settlement
provides that in the event PSI is party to a merger or acquisition, PSI and
WVPA will use their best efforts to obtain regulatory approval to price the
power sale exclusive of the effects of the merger or acquisition.
Certain aspects of the settlement are subject to approvalwith prejudice was
entered by the FERC and
potentially by the IURC and the Michigan Public Service Commission. At such
time as the necessary approvals from these regulatory authorities are
received, PSI will record a $90 million regulatory asset. Concurrently, a $90
million obligation to RUS and the CFC will be recorded as a long-term
commitment. Recognition of the asset is based, in part, on projections which
indicate that the Margin will be sufficient to discharge the $90 million
obligation to RUS and the CFC, plus accrued interest, within the 35-year term
of the power supply agreement. If, in some future period, projections
indicate the Margin would not be sufficient to discharge the obligation plus
accrued interest within the 35-year term, the deficiency would be recognized
as a loss.
RUS has proposed a plan of reorganization which, similar to WVPA's plan,
incorporates the settlement agreement. However, RUS's plan provides for full
recovery of principal and interest on WVPA's debt to RUS, which is
substantially in excess of the amount to be recovered under WVPA's proposed
plan. In 1991, the United States BankruptcyDistrict Court for the Southern District of
Indiana (Bankruptcy Court) confirmed WVPA's plan of reorganizationIndiana. Negotiations among PSI, WVPA, the RUS, and denied confirmation of RUS's opposing plan. The Bankruptcy Court's approval
of WVPA's reorganization plan is contingent upon WVPA's receipt of regulatory
approval to change its rates. RUS appealed the Bankruptcy Court's decision to
the Indiana District Court. In June 1994, the Indiana District Court ruled in
favor of WVPA's plan. RUS subsequently appealed this decision,CFC continue regarding
certain additional terms and on
December 28, 1995, the Seventh Circuit Court of Appeals affirmed the decisionconditions of the Indiana District Court. PSIsettlement agreement. Based on
the current status of negotiations, the Company believes it has adequately
reserved for any loss that would be material to its financial condition or
results of operations. However, the Company cannot currently predict whether RUS will appeal
this decision to the U.S. Supreme Court, and if appealed, the outcome
of such
appeal, nor is it known whether WVPA can obtainthese negotiations. Depending of the form of the final negotiated terms and
conditions and the form of any regulatory approvalapprovals, the Company could be
required to change
its rates. If reasonable progressrecognize additional losses of up to $90 million for accounting
purposes. The recognition of this loss is not made in satisfyingexpected to have an immediate
impact on Cinergy's cash flow. The Company believes that negotiations could be
concluded and the final terms and conditions to the
settlement by February 1, 1997, either party may terminate the settlement
agreement. (See Note 17 for an event subsequent to the date of the auditor's
report.)determined during 1998.
Cinergy, CG&E, and ULH&P
(f) Potential Divestiture of Gas Operations
Under the PUHCA, the divestiture of CG&E's including ULH&P's, gas operations may be required. The
key question under the relevant PUHCA standards is the amount of increased
operating costs, if any, that would result from the gas operations being
divested and operated on a stand-alone basis.
In its order approving the merger, the SEC reserved judgment over Cinergy's
ownership of CG&E's gas operations for three years, at the end of which period
Cinergy would be required to address the matter. In February 1998, Cinergy made
a filing with the SEC setting forth its rationale for retention of the gas
operations. The filing includes, among other things, a study showing that, if
divested and operated on a stand-alone basis, the gas operations for a period of three years. However, in June 1995,would bear
significant increased operating costs, greater than those cited by the SEC endorsed recommendations for reform/repeal of the PUHCA, including
allowingin
two 1997 cases permitting electric registered holding companies to own combination electricacquire and
retain gas utility companies, provided the affected states agree. In addition,
legislation providing for the repeal of the PUHCA is currently pending before
Congress.
Regardless of the outcome of the proposals to reform/repeal the PUHCA,properties. For these and other reasons stated in Cinergy's filing,
Cinergy believes it has a justifiable basis forits retention of itsCG&E's gas operations and
will continue its pursuit of SEC approval. If divestiture is ultimately
required,properties meets all relevant
standards under the SEC has historically allowed companies sufficient time to
accomplish divestitures in a manner that protects shareholder value. See Note
16 for financial information by business segment.
Cinergy, CG&E, PSI, and ULH&P
(g) 1996 Voluntary Workforce Reduction Program In January 1996, Cinergy
announced a voluntary workforce reduction program which provides enhanced
retirement and/or severance benefits to eligible employees. There are 840
employees who meet certain age and service requirements and are potentially
eligible for enhanced retirement benefits under this program. Eligible
employees who do not meet age and service requirements would receive severance
benefits upon resignation from their employment. Program costs will not be
known until after the participation election period ends on May 15, 1996.
Cinergy intends to classify these costs as costs to achieve merger savings
which, consistent with the merger savings sharing mechanisms previously
approved by regulators, will result in the portion of these costs allocable to
Ohio electric jurisdictional customers (approximately 38%) being charged to
earnings in the second quarter of 1996, and the remaining costs allocable to
other jurisdictions being deferred for future recovery through rates as an
offset against merger savings. (See Note 1(i).) A significant portion of
these benefits will be eligible for funding from qualified retirement plan
assets.PUHCA.
Cinergy, CG&E, and PSI
14.13. Jointly Owned Plant
PSI is a joint owner of Gibson Unit 5 with WVPA and IMPA.the Indiana Municipal Power
Agency (IMPA). Additionally, PSI is a co-owner with WVPA and IMPA of certain
transmission property and local facilities. These facilities constitute part of
the integrated transmission and distribution systems which are operated and
maintained by PSI. CG&E, Columbus Southern Power Company, and The Dayton Power
and Light Company have constructed electric generating units and related
transmission facilities on varying common ownership bases. The Consolidated
Statements of Income reflect PSI's and CG&E's portions of all operating costs
associated with the commonly owned facilities.
PSI's and CG&E's investments in jointly owned plant are as follows:
19951997
Utility Plant Accumulated Construction
Share in Service Depreciation Work in Progress
(dollars in millions)
PSI
Production
Gibson (Unit 5) 50.05% $ 204205 $ 97 $ -1
Transmission and local
facilities 94.0194.28 1 747 598 30918 673 32
CG&E
Production
Miami Fort Station
(Units 7 and 8) 64 205 105 1208 117 4
W.C. Beckjord Station
(Unit 6) 37.5 41 22 -25 1
J.M. Stuart Station 39 267 108 4273 121 1
Conesville Station
(Unit 4) 40 71 33 172 37 2
Zimmer 46.5 1 212 168 3216 239 5
East Bend Station 69 330 148 1164 2
Killen Station 33 186 76187 85 -
Transmission Various 62 29 -63 31 1
15.14. Quarterly Financial Data (unaudited)
Cinergy
Net
Basic Diluted
Earnings Earnings
Operating Operating Net (Loss) (Loss)
Quarter Ended Revenues Income Income(Loss) Per Share Per Share
(in millions, except per share amounts)
1997
March 31 $1 030 $152 $114 $ .72 $ .71
June 30 865 105 55 .35 .35
September 30 1 355 140 (27)(a) (.16)(a) (.17)(a)
December 31 1 103 142 111 .70 .70
Total $4 353 $539 $253 (a) $1.61 (a) $1.59 (a)
1996
March 31 $ 884 $169 $110 $ .70 $ .69
June 30 717 113 56(b) .35(b) .35 (b)
September 30 766 150 98 .51(c) .51 (c)
December 31 876 126 71(b) .44(b) .44 (b)
Total $3 243 $558 $335(b) $2.00(b)(c) $1.99 (b)(c)
(a) For a discussion of the windfall profits tax levied against Midlands, which
was recorded in the third quarter as an extraordinary item, see Note 17.
Net income, basic earnings per share and diluted earnings per share during
the third quarter of 1997, before the extraordinary item, were $83 million,
$.53, and $.52, respectively. Total net income, basic earnings per share,
and diluted earnings per share for 1997, before the extraordinary item,
were $363 million, $2.30, and $2.28, respectively.
(b) In 1996, Cinergy recognized charges to earnings of approximately $55
million ($38 million, net of taxes or $.24 per share, basic and diluted)
primarily for charges related to voluntary early retirement and severance
programs and disallowances associated with the PUCO's December 1996 Order
in CG&E's gas rate proceeding. Of these charges, approximately $11 million,
net of taxes or $.07 per share (basic and diluted), was recognized in the
second quarter, and approximately $27 million, net of taxes or $.17 per
share (basic and diluted), was recognized in the fourth quarter. Of the
total $55 million charge, $41 million is reflected in "Operating Expenses -
Other operation" and $14 million is reflected in "Other Income and Expenses
- Net."
(c) In the third quarter of 1996, Cinergy incurred costs of $18 million or $.12
per share (basic and diluted), related to the reacquisition of 90% of
CG&E's preferred stock through a tender offer. (See Note 3(b).)
CG&E
Operating Operating Income (Loss)Net
Quarter Ended Revenues Income (Loss) Per ShareIncome
(in millions, except per share amounts)
1995millions)
1997
March 31 $ 809 $161 $102614 $ .6599 $ 68
June 30 668 120 60 .39487 65 37
September 30 768 168 109 .69712 78 52
December 31 786 133 76 .49639 86 82
Total $3 031 $582 $347 $2.22
1994$2 452 $328 $239
1996
March 31 $ 851 $155575 $120 $ 99 $ .6892
June 30 662 106 49 .33437 69(a) 39(a)
September 30 692 118(a) 58 (a) .40 (a)431 90 62
December 31 693 61(a) (15)(a) (.11)(a)533 73(a) 34(a)
Total $2 898 $440 $191 $1.30$1 976 $352 $227
(a) In 1994, Cinergy1996, CG&E recognized charges to earnings of approximately $79$50 million
($5635 million, net of taxes) or 38 cents per share primarily for certain merger-relatedcharges related to voluntary
early retirement and other expenditures which cannot be recovered
from customers underseverance programs and disallowances associated with
the merger savings sharing mechanisms authorized by
regulators.PUCO's December 1996 Order in CG&E's gas rate proceeding. Of these
charges, approximately $46$10 million, net of taxes, (31 cents per share),was recognized in the
second quarter, and approximately $25 million, net of taxes, was recognized
in the fourth quarter, and
approximately $8 million, net of taxes (5 cents per share), was
recognized in the third quarter. The charges include the PUCO electric
jurisdictional portion of Merger Costs incurred through December 31,
1994, previously capitalized information systems development costs, and
severance benefits to former officers of CG&E and PSI. Of the total $79$50 million charge, $62$36 million is
reflected in "Operating Expenses - Other operation" and $17$14 million is
reflected in "Other Income and Expenses - Net".
CG&E
NetNet."
PSI
Operating Operating IncomeNet
Quarter Ended Revenues Income (Loss)Income
(in millions)
19951997
March 31 $ 525 $109424 $ 7754 $ 33
June 30 393 71 40390 41 23
September 30 435 98 69651 61 41
December 31 495 82 50493 55 35
Total $1 848 $360 $236
1994958 $211 $132
1996
March 31 $ 563 $106328 $ 7650 $ 27
June 30 391 70 39290 44(a) 25(a)
September 30 409 81 (a) 48 (a)348 61 43
December 31 425 34 (a) (5)(a)366 51(a) 31(a)
Total $1 788 $291 $158332 $206 $126
(a) In 1994, CG&E1996, PSI recognized charges to earnings of approximately $64$5 million ($463
million, net of taxes) primarily for certain merger-relatedcharges related to voluntary early
retirement and other expenditures which cannot be recovered from customers under the
merger savings sharing mechanism authorized by the PUCO.severance programs. Of these charges, approximately $39$1
million, net of taxes, was recognized in the second quarter, and
approximately $2 million, net of taxes, was recognized in the fourth
quarter and approximately $7 million, net of taxes, was recognized
in the third quarter. The charges include the PUCO electric
jurisdictional portion of Merger Costs incurred through December 31,
1994, previously capitalized information systems development costs, and
severance benefits to former officers of CG&E. Of the total $64 million
charge, $52 million is reflected in "Operating Expenses - Other
operation" and $12 million is reflected in "Other Income and Expenses -
Net".
PSI
Net
Operating Operating Income
Quarter Ended Revenues Income (Loss)
(in millions)
1995
March 31 $ 299 $ 53 $ 33
June 30 290 49 29
September 30 343 70 50
December 31 316 55 34
Total $1 248 $227 $146
1994
March 31 $ 288 $ 48 $ 35
June 30 272 37 19
September 30 284 38 20
December 31 270 29 (a) 8 (a)
Total $1 114 $152 $ 82
(a) In the fourth quarter of 1994, PSI recognized a charge to earnings of
approximately $10 million ($6 million, net of taxes) for severance
benefits to former officers of PSI which cannot be recovered from
customers under the merger savings sharing mechanism authorized by the
IURC. The total $10$5 million charge is reflected in "Operating Expenses - Other
operation".
16.operation."
15. Financial Information by Business Segment
Cinergy
Operating Provision
Operating Operating Income Provision for Construction
Year Ended Revenues Income Taxes Depreciation Expenditures
(in millions)
1997
Electric $3 862 $505 $229 $266 $247
Gas 491 34 20 23 44
Total $4 353 $539 $249 $289 $291
1996
Electric $2 769 $520 $204 $260 $276
Gas 474 38 14 23 32
Total $3 243 $558 $218 $283 $308
1995
Electric $2 620 $543 $207612 $548 $209 $258 $286
Gas 411 39 12 22 36
Total $3 031 $582 $219023 $587 $221 $280 $322
1994
Electric $2 456 $412 $144 $274 $432
Gas 442 28 8 20 42
Total $2 898 $440 $152 $294 $474
1993
Electric $2 374 $450 $166 $261 $517
Gas 469 33 7 18 45
Total $2 843 $483 $173 $279 $562
December 31
1997 1996 1995 1994 1993_
(in millions)
Property, Plant, and Equipment - net
Electric $5 719724 $5 680737 $5 519718
Gas 573 553 532
519 504
6 251297 6 199290 6 023250
Other Corporate Assets 2 561 2 435 1 969 1 951 1 781853
Total Assets $8 220858 $8 150 $7 804725 $8 103
For a discussion of the potential divestiture of CG&E's including ULH&P's,
gas operations, see Note
13(f)12(f).
CG&E
Operating
Operating Operating Income Provision for Construction
Year Ended RevenuesRevenues(1) Income Taxes Depreciation Expenditures
(in millions)
1997
Electric $1 956 $290 $152 $140 $105
Gas 496 38 20 23 44
Total $2 452 $328 $172 $163 $149
1996
Electric $1 502 $314 $131 $138 $109
Gas 474 38 14 23 32
Total $1 976 $352 $145 $161 $141
1995
Electric $1 437 $321 $124 $137 $101
Gas 411 39 12 22 36
Total $1 848 $360 $136 $159 $137
1994
Electric $1 346 $263 $ 96 $137 $138
Gas 442 28 8 20 42
Total $1 788 $291 $104 $157 $180
1993
Electric $1 283 $287 $102 $134 $157
Gas 469 33 7 18 45
Total $1 752 $320 $109 $152 $202
CG&E Continued
December 31
1997 1996 1995 1994 1993_
(in millions)
Property, Plant, and Equipment - net
Electric $3 171 $3 205 $3 244
$3 277 $3 282
Gas 573 553 532
519 5043 744 3 758 3 776 3 796 3 786
Other Corporate Assets 1 401170 1 386086 1 358305
Total Assets $4 914 $4 844 $5 177 $5 182 $5 144081
For a discussion of the potential divestiture of CG&E's, including ULH&P's, gas
operations, see Note 13(f)12(f).
ULH&P
Operating
Operating Operating Income Provision for Construction
Year Ended Revenues Income Taxes Depreciation Expenditures
(in thousands)
1997
Electric $192 774 $10 427 $6 549 $ 7 193 $14 115
Gas 78 848 8 008 3 037 5 176 9 448
Total $271 622 $18 435 $9 586 $12 369 $23 563
1996
Electric $190 900 $12 558 $5 644 $ 6 935 $ 9 571
Gas 76 868 8 476 4 190 4 974 9 073
Total $267 768 $21 034 $9 834 $11 909 $18 644
1995
Electric $187 180 $11 425 $4 500 $ 6 679 $10 909
Gas 70 288 8 405 3 387 4 759 8 063
Total $257 468 $19 830 $7 887 $11 438 $18 972
1994
Electric $177 564 $ 9 736 $3 007 $ 6 213 $12 127
Gas 71 971 6 654 2 335 4 431 8 277
Total $249 535 $16 390 $5 342 $10 644 $20 404
1993
Electric $175 712 $ 9 821 $3 078 $ 5 798 $16 291
Gas 75 744 8 115 2 673 4 015 8 133
Total $251 456 $17 936 $5 751 $ 9 813 $24 424
December 31
1997 1996 1995 1994 1993
(in thousands)
Property, Plant, and Equipment - net
Electric $147 869 $142 490 $138 482
$134 508 $130 054
Gas 111 615 106 791 104 749
102 340 98 445259 484 249 281 243 231 236 848 228 499
Other Corporate Assets 56 566 50 280 57 54632 106 40 272 54 911
Total Assets $299 797 $287 128 $286 045$291 590 $289 553 $298 142
For a discussion of the potential divestiture of ULH&P's gas operations, see
Note 13(f)12(f).
Cinergy
16. Earnings Per Share
Effective December 31, 1997, Cinergy adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share (Statement 128).
Statement 128 replaces the calculation of primary and fully diluted earnings per
share under previous accounting standards with basic and diluted earnings per
share amounts. Previously reported earnings per share amounts have been restated
to comply with the provisions of Statement 128.
The after-tax earnings per share impact of the extraordinary item - equity share
of windfall profits tax in 1997 was $.69 for both basic and diluted earnings per
share.
Presented below is a reconciliation of earnings per common share (basic EPS) and
earnings per common share assuming dilution (diluted EPS).
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
1997
Earnings per common share:
Net income before extraordinary item $362 638 157 685 $2.30
Effect of dilutive securities:
Common stock options 928
Contingently issuable common stock 204
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $362 638 158 817 $2.28
1996
Net income $334 797
Less: costs of reacquisition of
preferred stock of subsidiary 18 391
Earnings per common share:
Net income applicable to common
stock 316 406 157 678 $2.00
Effect of dilutive securities:
Common stock options 923
Contingently issuable common stock 314
EPS--assuming dilution:
Net income applicable to common
stock plus assumed conversions $316 406 158 915 $1.99
1995
Earnings per common share:
Net income $347 182 156 620 $2.22
Effect of dilutive securities:
Common stock options 586
Contingently issuable common stock 316
EPS--assuming dilution:
Net income plus assumed conversions $347 182 157 522 $2.20
Options to purchase shares of common stock that were excluded from the
calculation of EPS--assuming dilution because the exercise prices of these
options were greater than the average market price of the common shares
during the year are summarized below:
Average
Exercise
Year Shares Price
1997 22 300 $35.25
1996 45 000 31.56
1995 215 000 28.81
Cinergy
17. Extraordinary Item - Equity Share of Windfall Profits Tax
In May 1997, general elections were held in Great Britain which resulted in the
Labour Party gaining control of the government. In July 1997, the Labour
Government announced a windfall profits tax to be levied against a limited
number of British companies, including Midlands, which had previously been owned
and operated by the government. The tax, which was enacted into law during the
third quarter of 1997, was intended to be a recovery of funds by the government
due to the undervaluing of the companies subject to the tax when they were
privatized by the government via public stock offerings several years ago.
Cinergy's share of the tax to be paid by Midlands in two equal installments, due
December 1, 1997 and 1998, is approximately 67 million pounds sterling ($109
million or $.69 per share, basic and diluted). Midlands borrowed the funds to
finance the first installment. Cinergy expects Midlands will borrow funds as
necessary to pay the final installment. As Cinergy's management believes this
charge to be unusual in nature, and does not expect such a charge to recur, the
tax was recorded as an extraordinary item in Cinergy's Consolidated Statement of
Income during the third quarter of 1997. No related tax benefit was recorded for
the charge as the windfall profits tax is not deductible for corporate income
tax purposes in the UK, and Cinergy expects that benefits, if any, derived for
US Federal income taxes will not be significant.
18. Subsequent Events (unaudited)(Unaudited)
ULH&P
(a) PSI's Current Retail Rate Proceeding InRedemption of 8% Series First Mortgage Bonds On March 24, 1998, ULH&P
announced its intention to redeem on April 23, 1998, $6.3 million principal
amount of its 8% Series First Mortgage Bonds (due October 1, 2003) at a
redemption price of 100.85% through the M&R Fund Provision of ULH&P's first
mortgage bond indenture. Additionally, on the same date, ULH&P announced its
intention to redeem on April 24, 1998, the remaining $3.7 million principal
amount of its 8% Series First Mortgage Bonds (due October 1, 2003) at a
redemption price of 101.73%.
PSI
(b) Issuance of 7.25% JUnior Maturing Principal Securities (JUMPS) On March 19,
1998, PSI issued $100 million principal amount of its 7.25% JUMPS. The JUMPS
will mature on March 15, 2028. Proceeds from the sale were used to repay
short-term indebtedness incurred in connection with the filingredemption on March 1,
1998, of its proposed retail rate order with the IURC in March 1996, PSI reduced its
requested retail rate increase to 10.3% ($102.9 million annually) from 11.2%
($111.2 million annually). (See Note 2(a).)
(b) WVPA Litigation RUS has requestedall outstanding shares of PSI's 7.44% Series Cumulative Preferred Stock
at a rehearing by the Seventh Circuit
Courtredemption price of Appeals. PSI cannot predict the disposition of the rehearing request
or whether RUS will appeal an unfavorable decision to the U.S. Supreme Court,
and in the event of such an appeal, the outcome of such appeal. (See Note
13(e).)$25 per share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Cinergy, CG&E, PSI, and ULH&P
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Board of Directors
Cinergy
Reference is made to Cinergy's 1996Cinergy Corp.'s, a Delaware corporation (Cinergy or
Company), 1998 Proxy Statement with respect to identification of directors and
their current principal occupations.
CG&E
The directors of CG&EThe Cincinnati Gas & Electric Company (CG&E) at February 29, 1996,28,
1998, included:
Jackson H. Randolph Mr. Randolph, age 65,67, is Chairman of CG&E. He has served as
a director of CG&E since 1983, and his current term as director expires April
25, 1996.21, 1998.
James E. Rogers Mr. Rogers, age 48,50, is Vice Chairman and Chief Executive Officer
of CG&E. He has served as a director of CG&E since October 24, 1994, and his current term as
director expires April 25, 1996.21, 1998.
William J. Grealis Mr. Grealis, age 50,52, is President of CG&E. He has served as a
director of CG&E since September 1, 1995, and his current term expires April 25, 1996.21, 1998.
PSI
Reference is made to PSI's 1996PSI Energy, Inc.'s (PSI) 1998 Information Statement with
respect to identification of directors and their current principal occupations.
ULH&P
Omitted pursuant to Instruction J(2)I(2)(c).
Executive Officers
Cinergy, CG&E, and PSI
The information included in Part I of this report on pages 2118 through 2320 under
the caption "Executive Officers of the Registrant"Registrants" is referenced in reliance
upon General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K.
ULH&P
Omitted pursuant to Instruction J(2)I(2)(c).
ITEM 11. EXECUTIVE COMPENSATION
Cinergy
Reference is made to Cinergy's 19961998 Proxy Statement with respect to executive
compensation.
CG&E
Board Compensation Committee Report on Executive Compensation
TheReference is made to Cinergy's 1998 Proxy Statement with respect to executive
compensation, program of Cinergy and its subsidiaries is
administered by the Compensation Committee of Cinergy's Board of Directors
(the "Committee"). The Committee establishes the compensation philosophy andexcept as to information pertaining to the compensation of
the chief executive officerdirectors and all other executive
officers of Cinergy and its subsidiaries. The Committee also recommends and
administers compensation plans for all executive officers and key employees.
The Committee is composed of Messrs. Van P. Smith (Chairman), Michael G.
Browning, George C. Juilfs, and John J. Schiff, Jr., each of whom is an
independent, non-employee director (of Cinergy), and an "outside director" (of
Cinergy) within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code").
Compensation Philosophy
The Committee reported in Cinergy's 1995 proxy statement that although its
executive compensation philosophy was developing, it expressed an intent to
emphasize incentive compensation, both short-term and long-term, in order to
tie the interests of the executive officers and Cinergy's shareholders. At
that time, the Committee anticipated that base salary, annual cash incentives,
and long-term incentives would play an integral part in Cinergy's executive
compensation program.
With assistance from an independent compensation and benefits consulting firm
which conducted a study of existing executive compensation program structures,
the Committee has formulated an integrated executive compensation philosophy
which includes base salary, and annual and long-term incentives. The
consulting firm has also advised as to the retention, modification or
replacement of certain existing compensation and benefits plans and as to plan
design generally.
Cinergy and its subsidiaries seek to provide a total compensation program that
will attract, retain, and motivate the high quality employees needed to
provide superior service to its customers and to maximize returns to its
shareholders. Base salaries for the executive group will be targeted at the
median of comparably sized utility companies based on kilowatt hours sold.
Because of the low-cost position of Cinergy and its subsidiaries, kilowatt
hours soldperformance graph, which information is considered to be a better size measure than revenues for
constructing a comparator group. Base salary levels will be reviewed
annually. Salary increases will be based on such factors as corporate
financial results, each individual's performance, and the executive's role and
skills. The executive compensation program seeks to link executive and
shareholder interests through cash-based and equity-based incentive plans, in
order to reward corporate and individual performance and balance short-term
and long-term considerations. Thus, annual and long-term incentive plans will
be structured to provide opportunities that are competitive with general
industry companies.
This philosophy will result in a compensation mix for the chief executive
officer and senior officers, including executive officers, consisting of
annual incentive and long-term incentives that will account for at least 50%
of the employee's total compensation.
During 1995, the Committee adopted a charter which supports Cinergy's
executive compensation philosophy and the Committee's role in designing and
implementing that philosophy. Pursuant to the charter, the Committee:
- - reviews and determines the annual base salaries, annual incentives, and
long-term incentives of the executive officers of Cinergy and its
subsidiaries, and develops an appropriate balance between short-term and long-
term incentives while focusing on long-term shareholder interests; and
- - reviews the operation of the executive compensation programs; establishes
and periodically reviews policies for the administration of these programs;
and takes steps, if appropriate, to modify such programs and to design and
implement new executive compensation programs.
Consistent with its charter and its executive compensation philosophy, the
Committee has reviewed Cinergy's existing short-term and long-term incentive
plans and has concluded that it would be in the best interests of Cinergy and
its shareholders to modify the Annual Incentive Plan and to adopt a new long-
term incentive compensation plan.
Under the proposed amendment to the Annual Incentive Plan, the maximum award
opportunity for "covered employees", as that term is defined in Code Section
162(m), would be one million dollars. Currently, the maximum award is 75% of
annual base salary. Expressing the maximum possible award for covered
employees in this manner is consistent with regulations issued by the Internal
Revenue Service (the "IRS") in December, 1995.
The proposed 1996 Long-Term Incentive Compensation Plan would allow Cinergy
flexibility to design long-term incentive compensation programs which will
help achieve its goals. The adoption of this plan is subject to approval by
Cinergy's shareholders. The 1996 Long-Term Incentive Compensation Plan is
intended, in part, to replace Cinergy's Performance Shares Plan.
Annual Incentive Plan
For 1995, executive officers were eligible for incentives under Cinergy's
Annual Incentive Plan. Approximately 400 key employees participated in the
plan in 1995 and were granted cash awards to the extent that certain pre-
determined corporate and individual goals were attained during that year.
Graduated standards for achievement were developed to encourage each
employee's contribution. The potential awards ranged from 2.5% to 55% of the
annual salary of the participant (including deferred compensation), depending
upon the achievement levels and the participant's position. The Committee
reviewed and approved both the plan goals at the beginning of the year and the
achievements at the end of the year.
For 1995, the Annual Incentive Plan used a combination of corporate and
individual goals. Achievement of corporate goals and achievement of
individual goals each accounted for 50% of the total possible award. The
portion of the payout in March, 1996, attributable to the corporate goals was
based on 1995 achievement in two areas: (1) earnings per share; and (2) non-
fuel operation and maintenance merger savings. The earnings per share goal
accounted for 37.5% and the merger savings goal constituted 12.5% of the total
possible award. The achievement level for each of the corporate goals was at
the maximum award level for 1995.
In 1995, incentive awards for each executive officer reflected individual
achievement as well as Cinergy's attainment of its corporate goals.
Individual performance goals for each executive varied from executive to
executive; however, all related to the achievement of Cinergy's overall
strategic vision of becoming a premier general energy services company.
For each executive officer, the Committee assessed the extent to which each
person contributed toward the accomplishment of Cinergy's vision in 1995.
Although its determinations were subjective, the Committee believed that its
assessment accurately measured the performance of each executive officer.
Based upon the extraordinary efforts of the executive officers in 1995, the
Committee determined that a maximum award was payable to each.
For 1996, Cinergy's Annual Incentive Plan will again use a combination of
corporate and individual goals. The corporate goal will account for 50% of
the total possible award and achievement of individual goals will account for
the remaining 50%. The corporate goal for 1996 will be based on earnings per
share. For 1996, approximately 400 key employees will participate in the
plan. The potential awards will range from 2.5% to 90% of the participant's
annual salary, depending upon the achievement levels and the participant's
position.
Other Compensation Decisions
The Committee, at its discretion, can award other forms of compensation in
recognition of outstanding service to Cinergy or any of its subsidiaries.
Consistent with that philosophy, the Committee approved in 1995 special
performance awards for Messrs. Leonard and Thomas and Ms. Foley for exemplary
performance associated with consummation of the corporate reorganization
resulting in the formation of Cinergy (as set forth in footnotes to the
Summarybelow.
Compensation Table).
Long-Term Incentive Plan and Stock Option Plan
Cinergy's Performance Shares Plan (the "Performance Shares Plan") is a long-
term incentive plan developed to reward officers and other key employees for
contributing to long-term success by achieving corporate and individual goals
approved by the Committee. The executive officers named in the compensation
tables participate in this plan, and the same corporate and individual goals
used in Cinergy's Annual Incentive Plan are applicable to this plan. The
potential award opportunities are established in the same manner as the Annual
Incentive Plan, with the minimum award opportunities ranging from 13.33% to
36.66% of annual salary for the full performance cycle. Performance cycles
consist of overlapping four year periods. Because the former Resources'
performance shares plan was merged into the Performance Shares Plan effective
as of October 24, 1994, the then existing Resources performance cycles of
1992-1995 and 1994-1997 became performance cycles under the Performance Shares
Plan. Awards earned under the 1992-1995 performance cycle by executive
officers are paid in two installments: one-half of the award was paid in
February, 1996, and the remaining portion will be paid in February, 1997. The
dollar value of the awards to Messrs. Rogers, Leonard, and Thomas and Ms.
Foley, paid in February 1995 and earned under the 1990-1993 performance cycle,
are set forth in the Summary Compensation Table. The next overlapping four
year performance cycle under the Performance Shares Plan began January 1, 1996
and will end December 31, 1999. As mentioned previously, the 1996 Long-Term
Incentive Compensation Plan is intended, in part, to replace the Performance
Shares Plan; the details of the transition have yet to be determined.
Cinergy's executive officers and other key employees are also eligible for
grants under Cinergy's Stock Option Plan in amounts determined to be
appropriate by the Committee. The plan is designed to align executive
compensation with shareholder interests. Both non-qualified and incentive
stock options have been granted under the plan. Options vest at the rate of
20% per year over a five-year period from the date of grant and may be
exercised over a 10-year term.
Chief Executive Officer
Mr. Randolph's 1995 base salary was determined pursuant to an employment
agreement with Cinergy dated December 11, 1992, as amended and restated
effective October 24, 1994 (see Employment Agreements and Severance
Arrangements discussed further herein). For 1995, Mr. Randolph also earned
incentive compensation under the Annual Incentive Plan in the amount of
$321,750, of which 50% was based on achievement of corporate goals and 50% was
based upon the Committee's determination of his achievement of individual
goals.
Mr. Rogers' 1995 base salary was determined pursuant to an employment
agreement with Cinergy dated December 11, 1992, as amended and restated
effective July 2, 1993 (see Employment Agreements and Severance Arrangements
discussed further herein). For 1995, Mr. Rogers also earned incentive
compensation under the Annual Incentive Plan in the amount of $321,750, of
which 50% was based on achievement of corporate goals and 50% was based upon
the Committee's determination of his achievement of individual goals.
Giving consideration to the accomplishments of 1995 leading to a total return
to Cinergy shareholders of 39.1% and an increase in earnings per share of 17%,
the latter adjusted for the effects of weather and non-recurring items,
sufficient goals were met to obtain the maximum award available. Other goals
pertaining to budgeting, reengineering, development of a comprehensive human
resource strategy, enhancement of top management team effectiveness, and
elevation of Cinergy's impact in community involvement were also met. The
relative importance in meeting these goals was equal in the determination of
awards.
Summary
The Committee has established its executive compensation philosophy which
emphasizes incentive compensation, both short-term and long-term, in order to
tie the interests of the executive officers and shareholders. Base salary,
annual cash incentives, and long-term incentives are an integral part of
executive compensation. The Committee has determined that the Annual
Incentive Plan should be modified to increase the maximum amount which can be
awarded under that plan to "covered employees" under Code Section 162(m), and
that the proposed 1996 Long-Term Incentive Compensation Plan is needed to
provide flexibility in designing competitive long-term incentive programs in
order to attract and retain qualified and highly motivated executive employees
in the future.
The 1993 Omnibus Budget Reconciliation Act ("OBRA") became law in August,
1993, for compensation earned in 1994 and later. Under the law, income tax
deductions of publicly traded companies may be limited to the extent total
compensation for certain executive officers exceeds one million dollars in any
one year. Under OBRA, the deduction limit does not apply to payments which
qualify as "performance based" or compensation which is payable under a
written contract that was in effect before February 17, 1993. The Committee
has reviewed the final regulations issued by the IRS and will continue to
review the application of these rules to future compensation; however, the
Committee intends to compensate executives on performance achieved, both
corporate and individual.
Summary Compensation Table
The following table sets forth the compensation of Messrs. Rogers and
Randolph, each of whom served as chief executive officer at different periods
during 1995, and each of the additional four most highly compensated executive
officers (these six executive officers sometimes hereinafter collectively
referred to as the "named executive officers") for services to Cinergy and its
subsidiaries, including CG&E, during the calendar years ended December 31,
1995, 1994, and 1993. (The data presented includes, for Mr. Randolph
compensation from CG&E, and for the remaining named executive officers
compensation from PSI, for the periods prior to October 24, 1994.)
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Annual Restricted Securities Other
Compen- Stock Underlying LTIP Compen-
Name and Salary Bonus(1) sation Awards Options/SARs Payouts(2) sation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
James E. Rogers 1995 535,000 321,750 15,322 0 0 283,427 135,676 (3)
Vice Chairman 1994 433,144 265,729 64,417 0 250,000 273,720 285,393
and CEO 1993 402,408 239,324 0 0 0 193,618 83,968
Jackson H. Randolph 1995 535,000 321,750 11,594 0 0 0 104,112 (3)
Chairman of the Board 1994 470,000 255,750 5,719 0 250,000 0 92,724
1993 425,000 200,000 3,512 0 0 0 84,886
William J. Grealis (4) 1995 276,000 103,500 37,677 0 100,000 0 116,136 (5)
President, and
President Investments
J. Wayne Leonard 1995 250,008 93,753 17,385 0 0 83,974 49,726 (5)
Group Vice President 1994 211,208 79,203 32,146 0 100,000 81,132 93,555
and CFO 1993 187,168 92,568 0 0 0 62,210 6,762
Larry E. Thomas 1995 240,000 90,000 1,794 0 0 80,066 29,464 (5)
Group Vice President 1994 209,540 78,578 29,078 0 100,000 77,345 53,945
and Chief 1993 187,168 67,568 0 0 0 56,339 6,762
Transformation Officer
Cheryl M. Foley 1995 230,004 86,252 5,284 0 0 80,462 58,646 (5)
Vice President, General 1994 200,510 75,191 30,732 0 100,000 77,714 59,618
Counsel, and Secretary 1993 179,036 89,632 0 0 0 59,866 0
(1) The amounts appearing in this column reflect the Annual Incentive Plan awards earned during the year listed and paid in the
following year.
(2) The amounts appearing in this column for 1995 and 1994 reflect the values of the shares and cash earned under Resources
performance shares plan, as predecessor to Cinergy's Performance Shares Plan, by Messrs. Rogers, Leonard, and Thomas and Ms. Foley
during the four-year cycle from 1990 through 1993; the amounts reflected for 1993 were earned by such four officers under such
plan during the two-year cycle from 1990 through 1991.
(3) Amount includes for Messrs. Rogers and Randolph, respectively: a deferred compensation award in the amount of $50,000
pursuant to the terms of each officer's Deferred Compensation Agreement; employer matching contributions under the PSI and CG&E
401(k) plans of $9,240 and $4,125; above-market interest on amounts deferred pursuant to the Deferred Compensation Agreements of
$21,202 and $31,413; and benefits under Split Dollar Life Insurance Agreements of $16,584 and $18,574. Also includes for Mr.
Rogers insurance premiums paid with respect to executive/group-term life insurance and relocation compensation in the amounts of
$5,290 and $33,360, respectively.
(4) Mr. Grealis became President of Investments and President of CG&E's Gas Operations effective January 16, 1995, and President
of CG&E effective September 1, 1995.
(5) Amount includes for Messrs. Grealis, Leonard, and Thomas and Ms. Foley, respectively: insurance premiums paid with respect
to executive/group-term life insurance of $2,651, $1,927, $5,682, and $3,441; and relocation compensation in the amounts of
$45,958, $8,797, $4,800, and $25,205. Includes for Messrs. Grealis, Leonard, and Thomas, respectively, employer matching
contributions under the PSI 401(k) plan of $1,344, $9,002, and $8,982. Includes for Mr. Grealis a profession transition allowance
and supplemental life insurance of $50,000 and $16,183, respectively. Includes for Messrs. Leonard, and Thomas and Ms. Foley,
respectively, special performance awards in the amounts of $30,000, $10,000, and $30,000.
Option/SAR Grants Table
The following table sets forth information concerning options to purchase
Cinergy common stock granted to Mr. Grealis, the only named executive officer
granted such options during 1995.
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term___
(a) (b) (c) (d) (e) (f) (g)
Number of %
Securities of Total
Underlying Options/SARs Exercise
Options/SARs Granted to or Base
Granted Employees in Price Expiration 5% 10%
Name (#) Fiscal Year ($/Sh) Date ($) ($)
William J. Grealis 100,000 6.02% 24.3125 1/24/2005 671,710 1,484,300
Aggregated Option/SAR Exercises and Year-End Option/SAR Value Table
The following table sets forth information concerning stock options exercised
by the named executive officers during 1995, including the values realized for
such options exercised, which represent the positive spread between the
respective exercise prices and market prices on dates of exercises, and the
numbers of shares for which options were held as of December 31, 1995,
including the values for "in-the-money" options, which represent the positive
spread between the respective exercise prices of outstanding stock options and
the market price of the shares of Cinergy common stock as of December 31,
1995, which was $30.625 per share.
(a) (b) (c) (d) (e)
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End FY-End
Shares Acquired Value (#) ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
James E. Rogers 39,622 465,570 189,403/200,000 2,906,442/1,550,000
Jackson H. Randolph 0 N/A 50,000/200,00 387,500/1,550,000
William J. Grealis 0 N/A 0/100,000 0/775,000
J. Wayne Leonard 13,539 137,161 57,611/80,000 684,123/620,000
Larry E. Thomas 20,043 161,713 51,107/80,000 592,623/620,000
Cheryl M. Foley 13,753 126,435 57,397/80,000 681,112/620,000
Long-Term Incentive Plan Awards Table
The following table sets forth the potential payouts of an award contingently
granted under the Performance Shares Plan to Mr. Grealis, the only named
executive officer granted such award during 1995.
Estimated Future Payouts
under Non-Stock Price-Based Plans
(a) (b) (c) (d) (e) (f)
Number of Performance or
Shares, Units or Other Period Threshold Target Maximum
Other Rights Until Maturation Shares Shares Shares
Name (#) or Payout (#) (#) (#)
William J. Grealis 2,042 1994 - 1997 (1) 4,085 (1)
(1) The number of performance shares of Cinergy common stock contingently granted is calculated by determining the award
opportunity in dollars for the performance cycle and dividing this by the per share price of the common stock at the time of the
grant. For the 1994 through 1997 performance period, the award opportunity for participants is measured in terms of percentages
ranging from 13.33% to 36.66% of annual salary. The performance shares vest based upon the achievement of long-term corporate and
individual goals established by the Committee at the beginning of the performance period and measured at the end of the cycle.
The actual size of an award is determined by multiplying the amount contingently granted by a weighted calculation reflecting the
extent to which the aggregate of the pre-established goals has been met. For the 1994 through 1997 performance period, an award of
approximately twice the number of shares contingently granted will be made if the aggregate of the pre-established goals are met.
There is no minimum (threshold) award and the Committee may enhance the target award in recognition of exemplary performance or
achievement as to individual goals. Awards are made in cash and Cinergy common stock over a two-year period immediately following
each performance cycle. The amount of an award that is generally paid in cash is equal to the amount of Federal, state, and local
income taxes due on each installment, plus, with respect to the second installment, dividends otherwise payable on such
installment.
Pension Benefits
The primary pension benefits payable at retirement to each of the named
executive officers are provided pursuant to the terms of either CG&E's non-
contributory management pension plan (the "CG&E Pension Plan") or PSI's non-
contributory pension plan (the "PSI Pension Plan"). Mr. Randolph is covered
under the terms of the CG&E Pension Plan. Messrs. Rogers, Grealis, Leonard,
and Thomas and Ms. Foley are covered under the terms of the PSI Pension Plan.
Under the terms of the CG&E Pension Plan, the retirement income payable to a
pensioner is 1.3% of final average pay plus 0.35% of final average pay in
excess of covered compensation, times the number of years of credited service
through 30 years, plus 0.1% of final average pay times the number of years of
credited service over 30 years. Final average pay is the average annual
salary, based on July 1 pay rates, during the employee's five consecutive
calendar years producing the highest such average within the last ten calendar
years immediately preceding retirement. The IRS annually establishes a dollar
limit, indexed to inflation, of the amount of pay permitted for consideration
under the terms of the plan, which for 1995 was $150,000. Covered
compensation is the average social security taxable wage base over a 35-year
period. The accrued annual benefit payable to Mr. Randolph upon his
retirement under the terms of the plan is $106,211 based upon IRS limits and
credited service of 37 years.
Cinergy and Mr. Randolph have entered into an Amended and Restated
Supplemental Executive Retirement Income Agreement which in effect freezes as
of December 31, 1994, the accrual of benefits payable to Mr. Randolph under
CG&E's Supplemental Executive Retirement Plan upon his retirement, death, or
disability. Under the amended agreement, the annual supplemental retirement
benefit of $511,654 shall be paid to Mr. Randolph or his beneficiary in
monthly installments of $42,638 for 180 months beginning December 1, 2000.
The PSI Pension Plan covers all of its employees who meet certain minimum age
and service requirements. Compensation utilized to determine benefits under
the PSI Pension Plan includes substantially all salaries and annual incentive
compensation, including deferred compensation for Mr. Rogers. PSI Pension
Plan benefits are determined under a final average pay formula with
consideration of years of service to a maximum of 30, age at retirement and
the applicable average social security wage base. PSI also maintains an
Excess Benefit Plan which is designed to restore pension benefits to those
individuals whose benefits under the PSI Pension Plan would otherwise exceed
the limits imposed by the Code. Each of the named executive officers, with
the exception of Mr. Randolph, participates in the Excess Benefit Plan.
The following pension plan table illustrates the estimated annual benefits
payable as a straight-life annuity under both plans to participants who retire
at age 62. Such benefits are not subject to any deduction for social security
or other offset amounts.
Years of Service
Compensation 5 10 15 20 25 30
$ 300,000 $23,190 $ 46,380 $ 69,575 $ 92,765 $115,955 $139,145
400,000 31,190 62,380 93,575 124,765 155,955 187,145
500,000 39,190 78,380 117,575 156,765 195,955 235,145
600,000 47,190 94,380 141,575 188,765 235,955 283,145
700,000 55,190 110,380 165,575 220,765 275,955 331,145
800,000 63,190 126,380 189,575 252,765 315,955 379,145
900,000 71,190 142,380 213,575 284,765 355,955 427,145
1,000,000 79,190 158,380 237,575 316,765 395,955 475,145
1,100,000 87,190 174,380 261,575 348,765 435,955 523,145
The estimated credited years of service at age 62 for each of the named
executive officers covered under the terms of the PSI Pension Plan are as
follows: Mr. Rogers, 20.22 years; Mr. Grealis, 11.69 years; Mr. Leonard, 30
years; Mr. Thomas, 30 years; and Ms. Foley, 19.22 years.
Messrs. Rogers and Grealis and Ms. Foley also participate in the PSI
Supplemental Retirement Plan, which is designed to provide coverage to
employees, previously designated by the board of directors of PSI, who will
not otherwise qualify for full retirement benefits under the PSI Pension Plan.
The benefit provided by the PSI Supplemental Retirement Plan will be an amount
equal to that which a covered employee with maximum permitted years of
participation (30 years) would have received under the PSI Pension Plan,
reduced by the actual benefit provided by the PSI Pension Plan and the Excess
Benefit Plan, and further reduced by benefits the covered employee will be
eligible to receive from retirement plans from previous self-employment and
from previous employers. The estimated annual benefit payable at age 62 under
the PSI Supplemental Retirement Plan is $192,158 for Mr. Rogers, $3,230 for
Mr. Grealis, and $54,624 for Ms. Foley.
Cinergy has an Executive Supplemental Life Insurance Program, which provides
key management personnel, including the named executive officers, with
additional life insurance coverage during employment, and post-retirement
deferred compensation. At the later of age 55 or retirement, the
participant's life insurance coverage under the program will be canceled. At
that time, the participant will receive the total amount of coverage in the
form of deferred compensation payable in ten equal annual installments. The
annual benefit payable, at the later of age 55 or retirement, to each of the
named executive officers is $15,000 per year over ten years.
Employment Agreements and Severance Arrangements
Cinergy entered into individual employment agreements with Mr. Randolph and
Mr. Rogers (each sometimes hereinafter individually referred to as the
"Executive") effective as of October 24, 1994.
Pursuant to his employment agreement, Mr. Randolph served as Chairman and
Chief Executive Officer of Cinergy until November 30, 1995, at which time he
relinquished the position of Chief Executive Officer; he will continue to
serve as Chairman of the Board of Cinergy until November 30, 2000. Mr. Rogers
served as Vice Chairman, President and Chief Operating Officer of Cinergy
until November 30, 1995, and thereafter has served as Vice Chairman, President
and Chief Executive Officer of Cinergy. Mr. Rogers' agreement is for a term
of three years; however, as amended in December 1995, on each annual
anniversary date it will be automatically extended for an additional year,
unless either Cinergy or Mr. Rogers gives timely notice otherwise.
During the terms of their agreements, Messrs. Randolph and Rogers will receive
minimum annual base salaries of $465,000 and $422,722, respectively. Each
will also be paid an annual incentive award of up to a maximum of no less than
55% of his annual salary pursuant to Cinergy's Annual Incentive Plan, and will
be eligible to participate in all other incentive, stock option, performance
award, savings, retirement and welfare plans applicable generally to Cinergy
employees and executives.
If the Executive's employment terminates as a result of death, his beneficiary
will receive a lump sum cash amount equal to the sum of (a) the Executive's
annual base salary through the termination date to the extent not previously
paid, (b) a pro rata portion of the benefit under Cinergy's Annual Incentive
Plan calculated based upon the termination date, and (c) any compensation
previously deferred but not yet paid to the Executive (with accrued interest
or earnings thereon) and any unpaid accrued vacation pay. In addition to
these accrued amounts, if Cinergy terminates the Executive's employment
without "cause" or the Executive terminates his employment for "good reason"
(as each is defined in the employment agreements), Cinergy will pay to the
Executive (a) a lump sum cash amount equal to the present value of his annual
base salary and benefit under Cinergy's Annual Incentive Plan payable through
the end of the term of employment, at the rate and applying the same goals and
factors in effect at the time of notice of such termination, (b) the value of
all benefits to which the Executive would have been entitled had he remained
in employment until the end of the term of employment under Cinergy's
Performance Shares Plan and Executive Supplemental Life Insurance Program, (c)
the value of all deferred compensation and all executive life insurance
benefits whether or not then vested or payable, and (d) medical and welfare
benefits for the Executive and his family through the end of the term of
employment. If the Executive's employment is terminated by Cinergy for cause
or by the Executive without good reason, the Executive will receive unpaid
annual base salary accrued through the termination date and any accrued
deferred compensation.
Mr. Randolph has a severance agreement with Cinergy which provides that if,
within three years after October 24, 1994, he terminates his employment for
good cause or his employment is terminated by Cinergy other than for
disability or cause, Cinergy will pay him a cash amount equal to 300% of his
annualized compensation for the most recent five years ending before October
24, 1994, less $1,000, plus a cash "gross-up" payment equal to the federal
excise tax due on such amount, if any.
Cinergy and Mr. Grealis entered into an employment agreement which commenced
on January 16, 1995, and shall continue until June 30, 2000; provided,
however, commencing on January 1, 1999, and each January 1, 1999, and each
January 1 thereafter, the term of the employment agreement may be extended for
one additional year upon mutual agreement. Pursuant to the terms of his
agreement, Mr. Grealis initially served as President of Investments and
President of CG&E's Gas Operations. However, Mr. Grealis may be further
assigned such other responsible executive capacity or capacities as the boards
of directors of Cinergy or Services or Cinergy's chief executive officer may
from time to time determine. Effective September 1, 1995, Mr. Grealis was
named to the position of President of CG&E in addition to retaining the
position of President of Investments. During the term of his agreement, Mr.
Grealis will receive a minimum annualized base salary of $288,000, will be
eligible to participate in all other incentive, stock option, performance
award, savings, retirement and welfare benefit plans applicable generally to
Cinergy employees and executives, and will receive other fringe benefits. In
connection with his retirement, the employment agreement provides that Mr.
Grealis will receive an annual benefit of no less than $283,000 payable as a
straight-life annuity at age 62.
Cinergy entered into individual employment agreements with Messrs. Leonard and
Thomas and Ms. Foley, which shall continue until December 31, 1997; provided,
however, effective January 1, 1996, and each January 1 thereafter, the term of
each such employment agreement may be extended for one additional year upon
mutual agreement. Pursuant to the terms of their respective agreements, Mr.
Leonard has served as Group Vice President and Chief Financial Officer of
Cinergy and its subsidiaries, Mr. Thomas initially served as Group Vice
President, Reengineering and Operation Services of Cinergy and its
subsidiaries, and Ms. Foley has served as Vice President, General Counsel and
Secretary of Cinergy and its subsidiaries. However, each such officer may be
further assigned such other responsible executive capacity or capacities as
the boards of directors of Cinergy or Services or Cinergy's chief executive
officer may from time to time determine. Effective September 1, 1995, Mr.
Thomas was named to the position of Group Vice President and Chief
Transformation Officer. During the term of their agreements, Messrs. Leonard
and Thomas and Ms. Foley will receive minimum annual base salaries of
$250,000, $240,000, and $230,000, respectively, and each will be eligible to
participate in all other incentive, stock option, performance award, savings,
retirement and welfare benefit plans applicable generally to Cinergy employees
and executives, and will receive other fringe benefits.
If the employment of Messrs. Grealis, Leonard, or Thomas or Ms. Foley (each
sometimes hereinafter individually referred to as the "officer") is terminated
as a result of death, for cause, or by the officer without good reason, the
officer or the officer's beneficiary will be paid a lump sum cash amount equal
to (a) the officer's unpaid annual base salary through the termination date,
(b) a pro rata portion of the officer's award under Cinergy's Annual Incentive
Plan, (c) the officer's vested accrued benefits under Cinergy's Performance
Shares Plan, and (d) any unpaid deferred compensation (including accrued
interest or earnings) and unpaid accrued vacation pay. If, instead, the
officer's employment is terminated prior to a change in control (as defined)
without cause or by the officer for good reason, the officer will be paid (a)
a lump sum cash amount equal to the present value of the officer's annual base
salary and target annual incentive award payable through the end of the term
of the agreement, at the rate and applying the same goals and factors in
effect at the time of notice of such termination, (b) the present value of all
benefits to which the officer would have been entitled had the officer
remained in employment until the end of the term of the agreement under
Cinergy's Performance Shares Plan and Executive Supplemental Life Insurance
Program, (c) the value of all deferred compensation and all executive life
insurance benefits whether or not vested or payable, and (d) continued medical
and welfare benefits through the end of the term of the agreement.
If the employment of any such officer (as defined above) is terminated after a
change in control, the officer will be paid a lump sum cash payment equal to
the greater of (i) three times (two times in the case of Mr. Grealis) the sum
of the officer's annual base salary immediately prior to the date of the
officer's termination of employment or, if higher, the date of the change in
control, plus all incentive compensation or bonus plan amounts in effect prior
to the date of the officer's termination of employment or, if higher, prior to
the change in control, and (ii) the present value of all annual base salary,
bonuses and incentive compensation and retirement benefits that would
otherwise be due under the agreement plus deferred compensation and executive
life insurance benefits. In addition, the officer will be provided life,
disability, accident and health insurance benefits for thirty-six months
(twenty-four months in the case of Mr. Grealis), reduced to the extent
comparable benefits are received, without cost, by the officer.
Deferred Compensation Agreements
Mr. Randolph and CG&E, and Mr. Rogers and Resources, entered into deferred
compensation agreements effective as of January 1, 1992 (the "Deferred
Compensation Agreements"), pursuant to which each such officer is credited
with a $50,000 base salary increase in the form of deferred compensation.
Such amount is deferred annually, in the case of both Mr. Randolph and Mr.
Rogers, for a five-year period beginning January 1, 1992, and ending December
31, 1996, and in the case of Mr. Rogers, for an additional five-year period
beginning January 1, 1997 and ending December 31, 2001. The Deferred
Compensation Agreements were assumed by Cinergy effective as of October 24,
1994.
In general, Mr. Randolph's Deferred Compensation Agreement provides that if
his employment terminates for any reason, other than death or disability,
prior to January 1, 1997, he will receive the total amount of his deferred
income plus interest. If Mr. Randolph's employment terminates on or after
January 1, 1997, he will receive an annual cash benefit of $179,000 payable
for a 15-year period beginning January 2001. Proportional benefits are
payable to Mr. Randolph in the event his employment is terminated for death or
disability prior to January 1, 1997.
In general, Mr. Rogers' Deferred Compensation Agreement provides that if his
employment terminates for any reason, other than death, prior to January 1,
1997, he will receive a lump sum cash payment equal to the total amount
deferred for the first five-year period described above plus interest. If Mr.
Rogers' employment terminates for any reason, other than death, on or after
January 1, 1997, he will receive an annual cash benefit over a 15-year period
beginning the first January following termination of his employment, but in no
event earlier than January 2003 nor later than January 2010. The annual cash
benefit amount payable for such 15-year period ranges from $179,000 per year
if payment begins in January 2003, to $554,400 per year if payment commences
in January 2010. Comparable amounts are payable to Mr. Rogers in the event
his employment is terminated for disability prior to January 1, 1997, or if
Mr. Rogers dies (i) prior to January 1, 1997, while employed or disabled, or
(ii) on or after January 1, 1997, but before commencement of payment of the
15-year payments described above; provided, however, if Mr. Rogers becomes
disabled prior to the completion of the first award period, the amounts paid
will be proportionately reduced based on the ratio of the amount deferred to
the date of disability to the total amount that would have been deferred to
the end of the first award period. In addition, if Mr. Rogers' employment
terminates for any reason, other than death or disability, on or after January
1, 1997, but before January 1, 2002, he will receive a lump sum cash payment
equal to the total amount deferred during the second five-year period
described above plus interest. Additionally, if Mr. Rogers' employment
terminates for any reason, other than death or disability, on or after January
1, 2002, he will receive an additional annual benefit for a 15-year period
beginning the first January following termination of his employment, but in no
event earlier than January 2008 nor later than January 2010. The annual cash
benefit amount payable for such period ranges from $179,000 per year if
payment begins in January 2008, to $247,000 per year if payment begins in
January 2010. Provided that Mr. Rogers is employed on January 1, 1997,
comparable amounts are payable to Mr. Rogers in the event his employment is
terminated for disability prior to January 1, 2002, or if Mr. Rogers dies (i)
prior to January 1, 2002, while employed or disabled, or (ii) on or after
January 1, 2002, but before commencement of payment of benefits; provided,
however, if Mr. Rogers becomes disabled prior to the completion of the second
award period, his payments will be proportionately reduced in the same manner
as described above for disability during the first award period.
Compensation Committee Interlocks and Insider Participation
Mr. Schiff, Chairman of the Board of Cincinnati Financial Corporation, serves
on the Compensation Committee of the board of directors of Cinergy, and Mr.
Randolph, Chairman of the Board of Cinergy and its subsidiaries, including
CG&E, serves on the board of directors of Cincinnati Financial Corporation.
Performance Graph
The following line graph compares the cumulative total shareholder return of
the common stock of CG&E with the cumulative total returns during the same
time period of the S&P Electric Utilities Index and the S&P 500 Stock Index.
The graph tracks performance from January 1, 1991, through October 24, 1994,
the final trading date of CG&E's common stock. The graph assumes a $100
investment on January 1, 1991, and reinvestment of all dividends.
[OMITTED IS A LINE GRAPH ILLUSTRATING THE FOLLOWING DATA]
1/1/91 1/1/92 1/1/93 1/1/94 10/24/94
CG&E Common Stock $100 $145 $144 $169 $149
S&P Electric Utilities Index $100 $130 $138 $155 $128
S&P 500 Stock Index $100 $130 $140 $155 $156
Directors' CompensationDirectors
Directors who are not employees (the "non-employee directors")(non-employee directors) receive an annual
retainer fee of $8,000 plus a fee of $1,000 for each CG&E board of directors'
meeting attended; however, any non-employee director of CG&E who also serves as
a non-employee director of Cinergy or any of its affiliates shall neither
receive such annual retainer fee, nor any compensation for attendance at any
CG&E board meeting that is held concurrently or consecutively with a meeting of
the board of directors of Cinergy. Directors who are also employees of Cinergy
or any of its subsidiaries (Messrs. Randolph, Rogers, and Grealis) will receive
no remuneration for their services as directors.
Under Cinergy's Directors' Deferred Compensation Plan, each non-employee
director of Cinergy or any of its subsidiaries may defer fees and have them
accrued either in cash or in units representing shares of Cinergy common stock.
If deferred in such units, the stock will be distributed to the director at the
time of retirement from the appropriate board. Amounts deferred in cash will be
paid at the same time.
Under Cinergy's Retirement Plan for Directors, non-employee directors with five
or more years of service will receive annual retirement compensation in an
amount equal to the annual CG&ECinergy board retainer fee in effect at the time of
termination of service as a director, plus the product of the fee paid for
attendance at a CG&ECinergy board meeting multiplied by five. Retirement
compensation is paid for as many years as the director served on the CG&ECinergy
board. This plan covers non-employee directors serving on the boards of
directors of Cinergy, Services, CG&E, or PSI. Prior service by non-employee
directors of CG&E, PSI, or Resources is credited under this plan.
Performance Graph
The following line graph compares the cumulative total shareholder return of the
common stock of CG&E with the cumulative total returns during the same time
period of the Standard & Poor's (S&P) Electric Utilities Index and the S&P 500
Stock Index. The graph tracks performance from January 1, 1993, through October
24, 1994, the final trading date of CG&E's common stock. The graph assumes a
$100 investment on January 1, 1993, and reinvestment of all dividends.
Omitted is a line graph illustrating the following data.
1/1/93 1/1/94 10/24/94
CG&E Common Stock $100.00 $117.80 $103.70
S&P Electric Utilities Index $100.00 $112.60 $ 93.00
S&P 500 Stock Index $100.00 $110.10 $111.10
PSI
Reference is made to PSI's 19961998 Information Statement with respect to executive
compensation.
ULH&P
Omitted pursuant to Instruction J(2)I(2)(c).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Cinergy
Reference is made to Cinergy's 19961998 Proxy Statement with respect to security
ownership of certain beneficial owners and security ownership of management.
CG&E
Cinergy owns all the outstanding shares of common stock of CG&E. The only two
holdersPursuant to
Section 13(d) of recordthe Securities Exchange Act of 1934, a beneficial owner of a
security is any person who directly or indirectly has or shares voting or
investment power over such security. No person or group is known by the
management of CG&E to be the beneficial ownersowner of more than 5% of theCG&E's class of CG&E's
cumulative preferred stock as of December 31, 1995 are set forth in the following table.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
U. S. Leasing International, Inc. 282,500 shares 14.13%
733 Front Street
San Francisco, CA 94111
Household Finance Corporation 105,000 shares 5.25%
2700 Sanders Road
Prospect Heights, IL 600701997.
CG&E's directors and executive officers did not beneficially own any shares of any
series of the class of CG&E's cumulative preferred stock as of December 31,
1995.1997. The beneficial ownership of Cinergy's common stock held by each director
and named executive officer as of December 31, 19951997, is set forth in the
following table.
Amount and Nature
Name of Beneficial Owner(1) of Beneficial Ownership (2)
Cheryl M. Foley 71,592 shares
William J. Grealis 30086,313 shares
J. Wayne Leonard 74,060140,961 shares
Jackson H. Randolph 75,658152,426 shares
James E. Rogers 252,582339,254 shares
Larry E. Thomas 75,640130,366 shares
All directors and executive 666,7721,050,910 shares (2)
officers as a group (representing 0.42%0.67% of the class)
(1) No individual listed beneficially owned more than 0.16%0.215% of the
outstanding shares of Cinergy common stock.
(2) Includes shares which there is a right to acquire within 60 days pursuant
to the exercise of stock options in the following amounts: Ms.
FoleyMr. Grealis -
57,397;55,887; Mr. Leonard - 57,611;97,611; Mr. Randolph - 50,000; Mr. Rogers - - 189,403;145,629;
Mr. Thomas - 51,107;74,104; and all directors and executive officers as a group -
491,093.497,698.
PSI
Reference is made to PSI's 19961998 Information Statement with respect to security
ownership of certain beneficial owners and security ownership of management.
ULH&P
Omitted pursuant to Instruction J(2)I(2)(c).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Cinergy, CG&E, and PSI
None.
ULH&P
Omitted pursuant to Instruction J(2)I(2)(c).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
Cinergy, CG&E, PSI, and ULH&P
Refer to the page captioned "Index to Financial Statements and Financial
Statement Schedules", pages 4653 and 4754 of this report, for an index of the
financial statements and financial statement schedules included in this report.
(b) Reports on Form 8-K.
Cinergy, CG&E, PSI, and ULH&P
None
(c) Exhibits.
Copies of the documents listed below which are identified with an asterisk (*)
have heretofore been filed with the SECSecurities and Exchange Commission (SEC) and
are incorporated herein by reference and made a part hereof. Exhibits identified
with a pound sign (#) are being filed herewith by the registrant identified in
the exhibit discussion below and are incorporated herein by reference with
respect to any other designated registrant. Exhibits not so identified are filed
herewith.herewith:
Exhibit
Designation Nature of Exhibit
Cinergy
3-a *Certificate of Incorporation of Cinergy.Cinergy
Corp., a Delaware corporation (Cinergy or
Company). (Exhibit to Cinergy's 1993 Form
10-K in File No. 1-11377.)
3-b *By-lawsBy-laws of Cinergy as amended January 25, 1996. (Exhibit to
Cinergy's Form U-1 Declaration filed February 23, 1996, in File No. 70-
8807.)December 18,
1997.
CG&E
3-c *Amended Articles of Incorporation of CG&EThe Cincinnati
Gas & Electric Company (CG&E) effective January 24,
1994.October 23,
1996. (Exhibit to CG&E's 1993September 30, 1996, Form 10-K10-Q
in File No. 1-1232.)
3-d *Regulations of CG&E as amended, adopted June 16, 1995.April 25, 1996.
(Exhibit to CG&E's March 31, 1996, Form 8-A dated July 24, 1995.10-Q in File
No. 1-1232.)
PSI
3-e *Amended Articles of Consolidation of PSI Energy, Inc.
(PSI), as amended to April 20, 1995. (Exhibit to PSI's
June 30, 1995, Form 10-Q in File No. 1-3543.)
3-f By-lawsAmendment to Article D of the Amended Articles of
Consolidation of PSI Energy, Inc., effective July 10,
1997.
Exhibit
Designation Nature of Exhibit
3-g *By-laws of PSI, as amended January 25,to December 17,
1996. (Exhibit to PSI's March 31, 1997, Form 10-Q
in File No. 1-3543.)
ULH&P
3-g3-h *Restated Articles of Incorporation made effective May
7, 1976. (Exhibit to ULH&P'sThe Union Light, Heat and Power
Company's (ULH&P) Form 8-K, May 1976.)
3-h3-i *By-laws of ULH&P as amended, adopted by shareholders June 16,
1995.May 8,
1996. (Exhibit to ULH&P's June 30, 1995,March 31, 1996
Form 10-Q in File No. 2-
7793.2-7793.)
3-j Amendment to Restated Articles of Incorporation of
ULH&P (Article Third) and Amendment to the By-laws of
ULH&P (Article 1), both effective July 24, 1997.
Cinergy and PSI
4-a *Original Indenture (First Mortgage Bonds)
dated September 1, 1939, between PSI and The
First National Bank of Chicago, as Trustee
(Exhibit A-
PartA-Part 3 in File No. 70-258), and
LaSalle National Bank as Successor Trustee
(Supplemental Indenture dated March 30,
1984).
4-b *Nineteenth Supplemental Indenture between PSI and The
First National Bank of Chicago dated January 1, 1972.
(Exhibit to File No. 2-
42545.2-42545.)
4-c *Twenty-third Supplemental Indenture between PSI and
The First National Bank of Chicago dated January 1,
1977. (Exhibit to File No.
2-
57828.2-57828.)
4-d *Twenty-fifth Supplemental Indenture between
PSI and The First National Bank of Chicago
dated September 1, 1978. (Exhibit to File
No. 2-
62543.2-62543.)
4-e *Twenty-seventh Supplemental Indenture between PSI and The First
National Bank of Chicago dated March 1, 1979. (Exhibit to File No. 2-
63753.)
4-f *Thirty-fifth Supplemental Indenture between PSI and
The First National Bank of Chicago dated March 30,
1984. (Exhibit to PSI's 1984 Form 10-K in File No.
1-3543.)
4-g *Thirty-ninth Supplemental Indenture between PSI and The First
National Bank of Chicago dated March 15, 1987. (Exhibit to PSI's 1987 Form
10-K in File No. 1-3543.)
4-h4-f *Forty-first Supplemental Indenture between PSI and
The FirstLaSalle National Bank of Chicago dated June 15, 1988. (Exhibit to
PSI's 1988 Form 10-K in File No. 1-3543.)
4-i
Exhibit
Designation Nature of Exhibit
4-g *Forty-second Supplemental Indenture between PSI and
The FirstLaSalle National Bank of Chicago dated August 1, 1988. (Exhibit to
PSI's 1988 Form 10-K in File No. 1-3543.)
4-j4-h *Forty-fourth Supplemental Indenture between PSI and
The FirstLaSalle National Bank of Chicago dated March 15, 1990. (Exhibit to
PSI's 1990 Form 10-K in File No. 1-3543.)
4-k4-i *Forty-fifth Supplemental Indenture between PSI and
The FirstLaSalle National Bank of Chicago dated March 15, 1990. (Exhibit to
PSI's 1990 Form 10-K in File No. 1-3543.)
4-l4-j *Forty-sixth Supplemental Indenture between PSI and
The FirstLaSalle National Bank of Chicago dated June 1, 1990. (Exhibit to
PSI's 1991 Form 10-K in File No. 1-3543.)
4-m4-k *Forty-seventh Supplemental Indenture between PSI and
The FirstLaSalle National Bank of Chicago dated July 15, 1991. (Exhibit to
PSI's 1991 Form 10-K in File No. 1-3543.)
4-n4-l *Forty-eighth Supplemental Indenture between PSI and
The FirstLaSalle National Bank of Chicago dated July 15, 1992. (Exhibit to
PSI's 1992 Form 10-K in File No. 1-3543.)
4-o4-m *Forty-ninth Supplemental Indenture between PSI and The First
NationalLaSalle
national Bank of Chicago dated February 15, 1993. (Exhibit to PSI's 1992
Form 10-K in File No. 1-3543.)
4-p4-n *Fiftieth Supplemental Indenture between PSI and
The FirstLaSalle National Bank of Chicago dated February 15, 1993. (Exhibit
to PSI's 1992 Form 10-K in File No. 1-3543.)
4-q4-o *Fifty-first Supplemental Indenture between PSI and
The FirstLaSalle National Bank of Chicago dated February 1, 1994. (Exhibit
to PSI's 1993 Form 10-K in File No. 1-3543.)
4-r4-p *Indenture (Secured Medium-term Notes, Series A), dated
July 15, 1991, between PSI and The FirstLaSalle National Bank, of Chicago,
as Trustee. (Exhibit to PSI's Form 10-K/A, Amendment
No. 2, dated July 15, 1993, in File No. 1-3543.)
4-s4-q *Indenture (Secured Medium-term Notes, Series B), dated
July 15, 1992, between PSI and The FirstLaSalle National Bank, of Chicago,
as Trustee. (Exhibit to PSI's Form 10-K/A, Amendment
No. 2, dated July 15, 1993, in File No. 1-3543.)
Exhibit
Designation Nature of Exhibit
4-r *Loan Agreement between PSI and the City of Princeton,
Indiana dated as of November 7, 1996. (Exhibit to PSI's
September 30, 1996, Form 10-Q in File No. 1-3543.)
4-s *Loan Agreement between PSI and the City of
Princeton, Indiana dated as of February 1,
1997. (Exhibit to Cinergy's 1996 Form 10-K
in File No. 1-11377.)
4-t *Indenture dated November 15, 1996, between PSI and The
Fifth Third Bank, as Trustee. (Exhibit to Cinergy's
1996 Form 10-K in File No. 1-11377.)
4-u *First Supplemental Indenture dated November 15, 1996,
between PSI and The Fifth Third Bank, as Trustee.
(Exhibit to Cinergy's 1996 Form 10-K in File No.
1-11377.)
4-v *Second Supplemental Indenture dated December 15, 1996,
between PSI and The Fifth Third Bank, as Trustee.
(Exhibit to Cinergy's 1996 Form 10-K in File No.
1-11377.)
4-w Third Supplemental Indenture dated as of March 15,
1998, between PSI and The Fifth Third Bank, as Trustee.
Cinergy and CG&E
4-t4-x *Original Indenture (First Mortgage Bonds) between CG&E
and The Bank of New York (as Trustee) dated as of
August 1, 1936. (Exhibit to CG&E's Registration
Statement No. 2-2374.)
4-u *Tenth Supplemental Indenture between CG&E and The Bank of New York
dated as of July 1, 1967. (Exhibit to CG&E's Registration Statement No. 2-
26549.)
4-v4-y *Eleventh Supplemental Indenture between CG&E
and The Bank of New York dated as of May 1,
1969. (Exhibit to CG&E's Registration
Statement No. 2-32063.)
4-w4-z *Thirteenth Supplemental Indenture between
CG&E and The Bank of New York dated as of
November 1, 1971. (Exhibit to CG&E's
Registration Statement No. 2-41974.)
4-x4-aa *Fourteenth Supplemental Indenture between CG&E
and The Bank of New York dated as of November 2,
1972. (Exhibit to CG&E's Registration Statement
No. 2-60961.)
4-y *Fifteenth Supplemental Indenture between CG&E and The Bank of New
York dated as of August 1, 1973. (Exhibit to CG&E's Registration Statement
No. 2-60961.)
4-z *Thirty-second Supplemental Indenture between CG&E and The Bank of
New York dated as of December 15, 1991. (Exhibit to CG&E's Registration
Statement No. 33-45115.)
4-aa4-bb *Thirty-third Supplemental Indenture between CG&E and The Bank
of New York dated as of September 1, 1992. (Exhibit to CG&E's
Registration Statement No. 33-53578.)
4-bb
Exhibit
Designation Nature of Exhibit
4-cc *Thirty-fourth Supplemental Indenture between CG&E and
The Bank of New York dated as of October 1, 1993.
(Exhibit to CG&E's September 30, 1993, Form 10-Q in
File No. 1-1232.)
4-cc4-dd *Thirty-fifth Supplemental Indenture between
CG&E and The Bank of New York dated as of
January 1, 1994. (Exhibit to CG&E's
Registration Statement No. 33-52335.)
4-dd4-ee *Thirty-sixth Supplemental Indenture between
CGG&E and The Bank of New York dated as of
February 15, 1994. (Exhibit to CG&E's
Registration Statement No. 33-52335.)
4-ee4-ff *Thirty-seventh Supplemental Indenture
between CG&E and The Bank of New York dated
as of October 14, 1996. (Exhibit to
Cinergy's 1996 Form 10-K in File No. 1-11377.)
4-gg *Loan Agreement between CG&E and the County of Boone,
Kentucky dated as of February 1, 1985. (Exhibit to
CG&E's 1984 Form 10-K in File No. 1-
1232.)
4-ff *Loan Agreement between CG&E and State of Ohio Air Quality
Development Authority dated as of December 1, 1985. (Exhibit to CG&E's
1985 Form 10-K in File No. 1-1232.)
4-gg *Loan Agreement between CG&E and State of Ohio Air Quality
Development Authority dated as of December 1, 1985. (Exhibit to CG&E's
1985 Form 10-K in File No. 1-1232.)
4-hh *Repayment Agreement between CG&E and The Dayton Power
and Light Company dated as of December 23, 1992.
(Exhibit to CG&E's 1992 Form 10-K in File No. 1-1232.)
4-ii *Loan Agreement between CG&E and Statethe County of Ohio Water Development
AuthorityBoone,
Kentucky dated as of January 1, 1994. (Exhibit to
CG&E's 1993 Form 10-K in File No. 1-1232.)
4-jj *Loan Agreement between CG&E and the State of Ohio Air
Quality Development Authority dated as of December 1,
1985. (Exhibit to CG&E's 1985 Form 10-K in File No.
1-1232.)
4-kk *Loan Agreement between CG&E and the State of Ohio Air
Quality Development Authority dated as of December 1,
1985. (Exhibit to CG&E's 1985 Form 10-K in File No.
1-1232.)
4-ll *Loan Agreement between CG&E and the State of Ohio Air Quality
Development Authority dated as of September 13, 1995. (Exhibit
to CG&E's September 30, 1995, Form 10-Q in File No. 1-1232.)
Exhibit
Designation Nature of Exhibit
4-mm *Loan Agreement between CG&E and the State of Ohio Air Quality
Development Authority dated as of September 13, 1995. (Exhibit
to CG&E's September 30, 1995, Form 10-Q in File No.
1-1232.)
4-nn *Loan Agreement between CG&E and the State of Ohio
Water Development Authority dated as of January 1,
1994. (Exhibit to CG&E's 1993 Form 10-K in File No.
1-1232.)
4-oo *Loan Agreement between CG&E and the State of Ohio Air
Quality Development Authority dated as of January 1,
1994. (Exhibit to CG&E's 1993 Form 10-K in File No.
1-1232.)
4-kk *Loan Agreement between CG&E and County of Boone, Kentucky dated as
of January 1, 1994. (Exhibit to CG&E's 1993 Form 10-K in File No. 1-1232.)
4-ll4-pp *Original Indenture (Unsecured Debt Securities) between
CG&E and The Fifth Third Bank dated as of May 15, 1995.
(Exhibit to CG&E's Form 8-A dated July 24, 1995, in
File No. 1-1232.)
4-mm4-qq *First Supplemental Indenture between CG&E and The
Fifth Third Bank dated as of June 1, 1995. (Exhibit to
CG&E's June 30, 1995, Form 10-Q in File No. 1-1232.)
4-nn4-rr *Second Supplemental Indenture between CG&E and The
Fifth Third Bank dated as of June 30, 1995. (Exhibit to
CG&E's Form 8-A dated July 24, 1995, in File No.
1-1232.)
4-oo *Loan Agreement4-ss *Third Supplemental Indenture between CG&E and the State of Ohio Air Quality
Development AuthorityThe
Fifth Third Bank dated as of September 13, 1995.October 9, 1997. (Exhibit
to CG&E's&E'S September 30, 1995, Form 10-Q in File No. 1-1232.)
4-pp *Loan Agreement between CG&E and the State of Ohio Air Quality
Development Authority dated as of September 13, 1995. (Exhibit to CG&E's
September 30, 1995,1997, Form 10-Q in File No.
1-1232.)
Cinergy, CG&E, and ULH&P
4-qq4-tt *Original Indenture (First Mortgage Bonds) between
ULH&P and The Bank of New York dated as of February 1,
1949. (Exhibit to ULH&P's Registration Statement No.
2-7793.)
4-rr *Fifth Supplemental Indenture between ULH&P and The Bank of New
York dated as of January 1, 1967. (Exhibit to CG&E's Registration
Statement No. 2-60961.)
4-ss4-uu *Seventh Supplemental Indenture between ULH&P
and The Bank of New York dated as of October
1, 1973. (Exhibit to CG&E's Registration
Statement No. 2-60961.)
4-tt *Eighth Supplemental Indenture between ULH&P and The Bank
Exhibit
Designation Nature of New
York dated as of December 1, 1978. (Exhibit to CG&E's Registration
Statement No. 2-63591.)
4-uuExhibit
4-vv *Thirteenth Supplemental Indenture between ULH&P and
The Bank of New York dated as of August 1, 1992.
(Exhibit to ULH&P's 1992 Form 10-K in File No. 2-7793.)
4-vv4-ww *Original Indenture (Unsecured Debt Securities) between
ULH&P and the Fifth Third Bank dated as of July 1,
1995. (Exhibit to ULH&P's June 30, 1995, Form 10-Q in
File No. 2-7793)
4-ww4-xx *First Supplemental Indenture between ULH&P and The
Fifth Third Bank dated as of July 15, 1995. (Exhibit to
ULH&P's June 30, 1995, Form 10-Q in File No. 2-7793.)
Cinergy, CG&E, and PSI
10-a *+Amended and Restated Employment Agreement
dated October 24, 1994, among CG&E, Cinergy
Corp. (an Ohio corporation), Cinergy, (a Delaware
corporation), PSI
Resources, Inc., PSI, and Jackson H.
Randolph. (Exhibit to Cinergy's 1994 Form
10-K in File No. 1-11377.)
10-b *+Amended and Restated Employment Agreement dated July
2, 1993, among PSI Resources, Inc., PSI, CG&E, Cinergy,
Cinergy Sub, Inc., and James E. Rogers, Jr. (Exhibit to
Cinergy's Amendment No. 3 to Form S-4, filed October 8,
1993.)
10-c +First*+First Amendment to Amended and Restated
Employment Agreement dated December 12,
1995, retroactively effective to October 24,
1994, amended and restated July 2, 1993,
among Cinergy, Cinergy Services, Inc.
(Services), CG&E, PSI, and James E. Rogers.
(Exhibit to Cinergy's, 1995 Form 10-K in
File No. 1-11377.)
10-d *+Employment Agreement dated January 1, 1995,
among Cinergy, CG&E, Services, Cinergy
Investments, Inc. (Investments), Investments, PSI, and
William J. Grealis. (Exhibit to Cinergy's
1994 Form 10-K in File No. 1-11377.)
10-e +First Amendment to Employment Agreement dated January
1, 1997, among Cinergy, CG&E, Services, Investments,
PSI, and William J. Grealis.
Exhibit
Designation Nature of Exhibit
10-f *+Employment Agreement dated October 24,
1994, among Cinergy, Services, CG&E, PSI,
and Larry E. Thomas. 10-f (Exhibit to Cinergy's
1995 Form 10-K in File No. 1-11377.)
10-g *+First Amendment to Employment Agreement
dated October 24, 1994, among Cinergy,
Services, CG&E, PSI, and Larry E. Thomas.
10-g (Exhibit to Cinergy's 1995 Form 10-K in File
No. 1-11377.)
10-h *+Employment Agreement dated October 24,
1994, among Cinergy, Services, CG&E, PSI,
and J. Wayne Leonard. 10-h (Exhibit to Cinergy's
1995 Form 10-K in File No. 1-11377.)
10-i *+First Amendment to Employment Agreement
dated October 24, 1994, among Cinergy,
Services, CG&E, PSI, and J. Wayne Leonard.
10-i (Exhibit to Cinergy's 1995 Form 10-K in File
No. 1-11377.)
10-j *+Employment Agreement dated October 24,
1994, among Cinergy, Services, CG&E, PSI,
and Cheryl M. Foley. 10-j (Exhibit to Cinergy's,
1995 Form 10-K in File No. 1-11377.)
10-k *+First Amendment to Employment Agreement
dated October 24, 1994, among Cinergy,
Services, CG&E, PSI, and Cheryl M. Foley.
(Exhibit to Cinergy's 1995 Form 10-K in File
No. 1-11377.)
10-l *+Employment Agreement dated June 1, 1996,
among Cinergy, Services, CG&E, PSI, and
Elizabeth K. Lanier. (Exhibit to Cinergy's
1996 Form 10-K in File No. 1-11377.)
10-m +Employment Agreement dated April 22, 1997,
among Cinergy, Services, CG&E, PSI, and
Madeleine W. Ludlow.
10-n +Employment Agreement dated October 1, 1997,
among Cinergy, Services, CG&E, PSI, and
Donald B. Ingle, Jr.
Cinergy and PSI
10-k First Amendment to the PSI Union Employees' 401(k) Savings Plan, dated
December 31, 1995.
10-l First Amendment to the PSI Employees' 401(k) Savings Plan, dated
December 31, 1995.
10-m10-o *+Employment Agreement dated October 4, 1993,
among Cinergy, PSI, and John M. Mutz.
(Exhibit to PSI Resources, Inc.'s September
30, 1993, Form 10-Q in File No. 1-9941.)
10-n
Exhibit
Designation Nature of Exhibit
10-p *+First Amendment to Employment Agreement
dated August 30, 1996, among Cinergy, PSI,
and John M. Mutz. (Exhibit to Cinergy's
1996 Form 10-K in File No. 1-11377.)
10-q *+Deferred Compensation Agreement, effective
as of January 1, 1992, between Cinergy and James E. Rogers, Jr. (Exhibit to PSI's Form 10-K/A in
File No. 1-3543, Amendment No. 1, dated April 29, 1993.)
10-o *+Split Dollar Life Insurance Agreement, effective as of January 1,
1992, between CinergyPSI and James
E. Rogers, Jr. (Exhibit to PSI's Form 10-
K/A in File No. 1-3543, Amendment No. 1,
dated April 29, 1993.)
10-p10-r *+Split Dollar Life Insurance Agreement,
effective as of January 1, 1992, between PSI
and James E. Rogers, Jr. (Exhibit to PSI's
Form 10-K/A in File No. 1-3543, Amendment
No. 1, dated April 29, 1993.)
10-s *+First Amendment to Split Dollar Life
Insurance Agreement between CinergyPSI and James E.
Rogers, Jr. dated December 11, 1992.
(Exhibit to PSI's Form 10-K/A in File No. 1-3543,1-
3543, Amendment No. 1, dated April 29,
1993.)
10-q10-t *+PSI Union Employees' 401(k) Savings Plan as amended
and restated January 1, 1992. (Exhibit to PSI Resources
1992 Form 10-K in File No. 1-9941.)
10-u *Amendment to PSI Union Employees' 401(k) Savings Plan,
amended and restated December 17, 1996, with various
effective dates. (Exhibit to Cinergy's 1996 Form 10-K
in File No. 1-11377.)
10-v *+First Amendment to the PSI Union Employees' 401(k)
Savings Plan, dated December 31, 1995. (Exhibit to
Cinergy's 1995 Form 10-K in File No. 1-11377.)
10-w *+PSI Employees' 401(k) Savings Plan as amended and
restated January 1, 1992. (Exhibit to PSI Resources
1992 Form 10-K in File No. 1-9941.)
10-x *Amendment to PSI Employees' 401(k) Savings Plan,
amended and restated December 17, 1996, with various
effective dates. (Exhibit to Cinergy's 1996 Form 10-K
in File No. 1-11377.)
Exhibit
Designation Nature of Exhibit
10-y *+First Amendment to the PSI Employees'
401(k) Savings Plan, dated December 31,
1995. (Exhibit to Cinergy's 1995 Form 10-K
in File No. 1-11377.)
10-z *+PSI Supplemental Retirement Plan amended and restated
December 16, 1992, retroactively effective January 1,
1989. (Exhibit to PSI's 1992 Form 10-K in File No.
1-3543.)
10-r10-aa *+PSI Excess Benefit Plan, formerly named the
Supplemental Pension Plan, amended and restated
December 16, 1992, retroactively effective January 1,
1989. (Exhibit to PSI's 1992 Form 10-K in File No.
1-3543.)
Cinergy and CG&E
10-s *CG&E Deferred Compensation and Investment Plan, as amended,
effective January 1, 1989. (Exhibit to Cinergy's Form S-8, filed August 30,
1994.)
10-t *CG&E Savings Incentive Plan, as amended, effective January 1,
1989. (Exhibit to Cinergy's Form S-8, filed August 30, 1994.)
10-u10-bb *+Deferred Compensation Agreement between CG&E and
Jackson H. Randolph and
Cinergy dated January 1, 1992. (Exhibit to
CG&E's 1992 Form 10-K in File No. 1-1232.)
10-v10-cc *+Split Dollar Insurance Agreement, effective
as of May 1, 1993, between CG&E and Jackson
H. Randolph. (Exhibit to Cinergy's 1994
Form 10-K in File No. 1-11377.)
10-dd *+Amended and Restated Supplemental
Retirement Income Agreement between CG&E and
Jackson H. Randolph. (Exhibit to Cinergy's,
1995 Form 10-K in File No. 1-11377.)
10-ee *CG&E Deferred Compensation and Investment
Plan, as amended and restated, effective
January 1, 1995. (Exhibit to Cinergy's 1996
Form 10-K in File No. 1-11377.)
10-ff *CG&E Savings Incentive Plan, as amended and
restated, effective January 1, 1995.
(Exhibit to Cinergy's 1996 Form 10-K in File
No. 1-11377.)
10-gg +Amended and Restated Supplemental Executive Retirement
Income PlanAgreement between CG&E and certain executive
officers.
10-hh *+Executive Severance Agreement between CG&E and
certain executive officers. (Exhibit to CG&E's 19881989
Form 10-K in File No. 1-1232.)
10-w *+Amendment to Supplemental Executive Retirement Income Plan
between CG&E and certain executive officers. (Exhibit to CG&E's 1992 Form
10-K in File No 1-1232.)
10-x +Amended and Restated Supplemental Retirement Income Plan between
CG&E and Jackson H. Randolph.
10-y
Exhibit
Designation Nature of Exhibit
Cinergy
10-ii *+Amendment to Executive Severance Agreement
between CG&E and certain executive officers.
(Exhibit to CG&E's 1992 Form 10-K in File
No. 1-1232.)
10-z *+Executive Severance Agreement between CG&E10-jj +1997 Amendments to Various Compensation and
certain executive
officers. (Exhibit to CG&E's 1989 Form 10-K in File No. 1-1232.)Benefit Plans of Cinergy 10-aaCorp., adopted
January 30, 1997.
10-kk *+Cinergy Stock Option Plan, adopted October 18, 1994,
effective October 24, 1994. (Exhibit to Cinergy's Form
S-8, filed October 19, 1994.1994, in File No. 1-11377.)
10-bb10-ll *+Amendment to Cinergy Stock Option Plan, amended
October 22, 1996, effective November 1, 1996. (Exhibit
to Cinergy's September 30, 1996, Form 10-Q in File No.
1-11377.)
10-mm *+Cinergy Performance Shares Plan, adopted October 18,
1994, effective October 24, 1994. (Exhibit to Cinergy's
Form S-8, filed October 19, 1994.1994, in File No. 1-11377.)
10-cc10-nn *+Amendment to Cinergy Performance Shares Plan, amended
October 22, 1996, effective November 1, 1996. (Exhibit
to Cinergy's September 30, 1996, Form 10-Q in File No.
1- 11377.)
10-oo *+Cinergy Annual Incentive Plan, adopted October 18,
1994, effective October 24, 1994. (Exhibit to Cinergy's
1994 Form 10-K in File No. 1-11377.)
10-dd10-pp *+Amendment to Cinergy Annual Incentive Plan, amended
January 25, 1996, effective January 1, 1996. (Exhibit
to Cinergy's 1996 10-K in File No. 1-11377.)
10-qq *Cinergy Employee Stock Purchase and Savings Plan,
adopted October 18, 1994, effective October 24, 1994.
(Exhibit to Cinergy's Form S-8, filed October 19,
1994.)
10-ee10-rr *Amendment to CinergyCinergy's Employee Stock Purchase and
Savings Plan, adopted January 25, 1995, retroactivelyApril 26, 1996, effective January
1, 1995.1996. (Exhibit to Cinergy's 1994June 30, 1996, Form 10-K10-Q
in File No. 1-11377.)
10-ff
Exhibit
Designation Nature of Exhibit
10-ss *Amendment to Cinergy's Employee Stock Purchase and
Savings Plan, adopted October 22, 1996, effective
November 1, 1996. (Exhibit to Cinergy's September 30,
1996, Form 10-Q in File No. 1-11377.)
10-tt *+Cinergy Directors' Deferred Compensation Plan,
adopted October 18, 1994, effective October 24, 1994.
(Exhibit to Cinergy's Form S-8, filed October 19,
1994.)
10-gg10-uu *+Amendment to Cinergy's Directors' Deferred Compensation Plan,
adopted October 22, 1996. (Exhibit to Cinergy's September 30,
1996, Form 10-Q in File No. 1-11377.)
10-vv *+Cinergy Retirement Plan for Directors, adopted
October 18, 1994, effective October 24, 1994. (Exhibit
to Cinergy's 1994 Form 10-K in File No. 1-11377.)
10-hh10-ww *+Cinergy Executive Supplemental Life
Insurance Program adopted October 18, 1994,
effective October 24, 1994, consisting of
Defined Benefit Deferred Compensation
Agreement, Executive Supplemental Life
Insurance Program Split Dollar Agreement I,
and Executive Supplemental Life Insurance
Program Split Dollar Agreement II. (Exhibit
to Cinergy's 1994 Form 10-K in File No. 1-11377.1-
11377.)
10-ii10-xx *+Split Dollar Insurance Agreement, effective as of May 1, 1993,
between Cinergy and Jackson H. Randolph.Cinergy's 1996 Long-Term Incentive Compensation Plan,
adopted April 26, 1996. (Exhibit to Cinergy's 1994Schedule
14A Definitive Proxy Statement filed March 13, 1996, in
File No. 1-11377.)
10-yy *+Amendment to Cinergy's 1996 Long-Term Incentive
Compensation Plan, adopted October 22, 1996, effective
November 1, 1996. (Exhibit to Cinergy's September 30,
1996, Form 10-Q in File No. 1-11377.)
10-zz *+Cinergy's 401(k) Excess Plan, adopted
December 17, 1996. (Exhibit to Cinergy's
1996 Form 10-K in File No. 1-11377.)
Exhibit
Designation Nature of Exhibit
10-aaa *+Cinergy's Nonqualified Deferred Incentive
Compensation Plan, adopted December 17,
1996. (Exhibit to Cinergy's 1996 Form 10-K
in File No. 1-11377.)
Cinergy, CG&E, and PSI
10-jj *PSI Union Employees' 401(k) Savings Plan, amended and restated
October 24, 1994, effective January 1, 1992. (Exhibit to Cinergy's Form S-8,
filed October 18, 1994.)
10-kk *PSI Employees' 401(k) Savings Plan, amended and restated October 24,
1994, effective January 1, 1992. (Exhibit to Cinergy's Form S-8, filed
October 18, 1994.)
Cinergy
21 Subsidiaries of Cinergy, CG&E, and PSI
Cinergy, CG&E, PSI, and ULH&P
23 Consent of Independent Public Accountants.
24 Power of Attorney.
27 Financial Data Schedules (included in
electronic submission only).
Cinergy
99-a 1995 Form 11-K Annual Report of Cinergy Directors' Deferred
Compensation Plan.
99-b 1995 Form 11-K Annual Report of Cinergy Employee Stock Purchase and
Savings Plan. (To be filed by amendment.)
____________
+ Management contract, compensation plan, or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
CINERGY CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 19951997
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts
1997 $10 618 $12 582 $ 90 5475 609 $ 72 804 $(47 322) $21 62018 427 $ - $10 382
1996 $94 409 $22 341 $ 949 503 $115 635 $ - $10 618
1995 $90 547 $33 921 $(8 489) $ 21 570 $ - $94 409 1/
Miscellaneous Materials & Supplies
Provisions 5 693 614 - 1 364 73 4 870
Accumulated Depreciation 3 163 802 276 226 4 435 79 602 2/ (2 540) 3 367 401
Other Accumulated Provisions
Deferred Income Taxes 3/ $1 071 104 $ 56 336 $ 11 235 $17 775 $ - $1 120 900
Accrued Pension and Other
Postretirement Benefit Costs 133 578 34 765 12 989 9 561 - 171 771
Environmental Liability 8 750 - - 511 - 8 239
Injuries & Damages 4 310 7 402 - 6 444 - 5 268
Other 42 270 4 815 4 374 2 910 456 48 093
$1 260 012 $ 103 318 $ 28 598 $37 201 $ 456 $1 354 271
1/ Includes $84,049 for the WVPA Marble Hill receivable. See Note 13(e)12(e) of the "Notes to Financial Statements" in
"Item 8. Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" for further information with respect to deferred income taxes.Data."
CINERGY CORP.THE CINCINNATI GAS AND ELECTRIC COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 19941997
Col. A Col. B Col. C Col. D Col. E _
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
_
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts
1997 $9 178 $ 93 7356 484 $ 31 145 $15 010 $49 3435 609 $12 072 $ - $9 199
1996 $9 615 $17 297 $ 90 547 1/
Miscellaneous Materials & Supplies
Provisions 6 852 405 - 638 926 5 693
Accumulated Depreciation 2 928 184 307 386 4 793 76 698 2/ (137) 3 163 802
Other Accumulated Provisions
Deferred Income Taxes 3/ $1 018 891 $ 78 028 $ 8 985 $34 800669 $24 403 $ - $1 071 104
Accrued Pension and Other
Postretirement Benefit Costs 85 953 37 180 22 806 11 912 449 133 578
Environmental Liability $9 178
1995 $8 999 $27 623 $(8 000496) $18 511 $ - 750 - - 8 750
Injuries & Damages 3 578 9 836 - 9 104 - 4 310
Other 30 275 10 628 3 973 2 162 444 42 270
$1 146 697 $ 135 672 $36 514 $57 978 $ 893 $1 260 012
1/ Includes $80,832 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in
"Item 8. Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" for further information with respect to deferred income taxes.$9 615
CINERGY CORP.PSI ENERGY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARTHREE YEARS ENDED DECEMBER 31, 19931997
Col. A Col. B Col. C Col. D Col. E _
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
_
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts
$ 88 651 $ 24 2601997 $ 1 032 $20 208269 $6 098 $ - $ 93 735 1/
Miscellaneous Materials & Supplies
Provisions 8 844 554 - 2 356 190 6 852
Accumulated Depreciation 2 742 910 277 342 4 827 80 089 2/ 16 806 2 928 184
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 494 910 $155 738 $417 125 $48 882 $ - $1 018 891
Accrued Pension and Other
Postretirement Benefit Costs 59 393 20 905 21 719 15 970 94 85 953
Environmental Liability 5 000 3 000$ 1 183
1996 $84 517 $5 041 $2 834 $91 123 $ - $ 1 269
1995 $81 272 $6 100 $ 7 $ 2 862 $ - - 8 000
Injuries & Damages 5 212 7 563 - 9 197 - 3 578
Other 20 818 11 380 1 313 3 218 18 30 275
$ 585 333 $198 586 $440 157 $77 267 $ 112 $1 146 697$84 517 1/
1/ Includes $78,174$84,049 for the WVPA Marble Hill receivable. See Note 13(e)12(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.Data."
THE CINCINNATI GASUNION LIGHT, HEAT AND ELECTRICPOWER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995
Col. A Col. B Col. C Col. D Col. E _
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period _
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 8 999 $ 66 506 $(47 329) $ 18 561 $ - $ 9 615
Accumulated Depreciation 1 613 505 155 453 4 137 42 863 1/ - 1 730 232
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 747 060 $ 20 594 $ 15 343 $(12 388) $ - $ 795 385
Accrued Pension and Other
Postretirement Benefit Costs 102 254 13 185 4 202 2 000 - 117 641
Environmental Liability 8 750 - - 511 - 8 239
Injuries & Damages 771 5 121 - 4 672 - 1 220
Other 22 089 2 045 388 1 485 - 23 037
$ 880 924 $ 40 945 $ 19 933 $ (3 720) $ - $ 945 522
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data."
THE CINCINNATI GAS AND ELECTRIC COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 19941997
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period _
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts
1997 $1 024 $1 579 $ 14 906 $ 25 598 $ 15 010 $ 46 515691 $2 298 $ - $ 8 999
Accumulated Depreciation 1 472 313 169 607 4 374 32 789 1/ - 1 613 505
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 733 224 $ 8 616 $ (5 948) $(11 168)996
1996 $1 035 $1 862 $1 577 $3 450 $ - $1 024
1995 $ 747 060
Accrued Pension and Other
Postretirement Benefit Costs 71 856 26 566 5 243 1 411 - 102 254
Environmental Liability 8 000 - 750 - - 8 750
Injuries & Damages 474 5 512 - 5 215 - 771
Other 14 038 8 190 380 519 - 22 089
$ 827 592 $ 48 884 $ 425 $ (4 023)457 $3 010 $ - $ 880 924
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
THE CINCINNATI GAS AND ELECTRIC COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E_
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 12 114 $ 19 801 $ 1 032 $18 041$2 432 $ - $ 14 906
Accumulated Depreciation 1 362 468 150 521 4 435 28 022 1/ 17 089 1 472 313
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 307 139 $ 45 630 $396 307 $15 852 $ - $ 733 224
Accrued Pension and Other
Postretirement Benefit Costs 59 162 10 309 5 466 3 081 - 71 856
Environmental Liability 5 000 3 000 - - - 8 000
Injuries & Damages 1 078 5 034 - 5 638 - 474
Other 4 601 9 175 679 417 - 14 038
$ 376 980 $ 73 148 $402 452 $24 988 $ - $ 827 592
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
PSI ENERGY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995
Col. A Col. B Col. C Col. D Col. E
Additions _ Deductions _
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period _
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 81 272 $ 6 100 $ 7 $ 2 862 $ - $ 84 517 1/
Miscellaneous Materials & Supplies
Provisions 5 693 614 - 1 364 73 4 870
Accumulated Depreciation 1 550 297 120 773 298 36 739 2/ (2 540) 1 637 169
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 324 738 $ 35 656 $(2 170) $26 348 $ - $ 331 876
Accrued Pension and Other
Postretirement Benefit Costs 31 324 21 580 8 787 7 561 - 54 130
Injuries & Damages 3 539 2 281 - 1 772 - 4 048
Other 20 176 2 551 3 986 1 425 456 24 832
$ 379 777 $ 62 068 $10 603 $37 106 $ 456 $ 414 886
1/ Includes $84,049 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
PSI ENERGY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1994
Col. A Col. B Col. C Col. D Col. E__
Additions __ Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period _
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 78 567 $ 5 495 $ - $ 2 790 $ - $ 81 272 1/
Miscellaneous Materials & Supplies
Provisions 6 852 405 - 638 926 5 693
Accumulated Depreciation 1 455 871 137 719 479 43 909 2/ (137) 1 550 297
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 281 417 $ 73 145 $14 933 $44 757 $ - $ 324 738
Accrued Pension and Other
Postretirement Benefit Costs 14 097 10 614 17 563 10 501 449 31 324
Injuries & Damages 3 104 4 324 - 3 889 - 3 539
Other 16 235 2 435 3 593 1 643 444 20 176
$ 314 853 $ 90 518 $36 089 $60 790 $ 893 $ 379 777
1/ Includes $80,832 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
PSI ENERGY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E_
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 76 275 $ 4 459 $ - $ 2 167 $ - $ 78 567 1/
Miscellaneous Materials & Supplies
Provisions 8 844 554 - 2 356 190 6 852
Accumulated Depreciation 1 380 442 126 821 392 52 067 2/ (283) 1 455 871
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 188 252 $109 967 $20 818 $37 620 $ - $ 281 417
Accrued Pension and Other
Postretirement Benefit Costs 231 10 596 16 253 12 889 94 14 097
Injuries & Damages 4 134 2 529 - 3 559 - 3 104
Other 16 203 2 044 790 2 784 18 16 235
$ 208 820 $125 136 $37 861 $56 852 $ 112 $ 314 853
1/ Includes $78,174 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
THE UNION LIGHT, HEAT AND POWER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period _
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 457 $ 9 220 $(6 198) $ 2 444 $ - $ 1$1 035
Accumulated Depreciation 104 113 11 438 831 3 570 1/ - 112 812
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 23 226 $ (3 105) $ (435) $(4 042) $ - $ 23 728
Accrued Pension and Other
Postretirement Benefit Costs 10 356 1 156 773 83 - 12 202
Environmental Liability 800 - - - - 800
Injuries & Damages 210 1 185 - 795 - 600
Other 285 - 32 - - 317
$ 34 877 $ (764) $ 370 $(3 164) $ - $ 37 647
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" for further information with respect to deferred income taxes.
THE UNION LIGHT, HEAT AND POWER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1994
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period _
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 1 609 $ 2 502 $ 11 $ 3 665 $ - $ 457
Accumulated Depreciation 96 164 11 066 823 3 940 1/ - 104 113
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 20 487 $ 1 993 $(2 904) $(3 650) $ - $ 23 226
Accrued Pension and Other
Postretirement Benefit Costs 7 273 1 024 2 200 141 - 10 356
Environmental Liability 800 - - - - 800
Injuries & Damages 125 806 - 721 - 210
Other 242 24 19 - - 285
$ 28 927 $ 3 847 $ (685) $(2 788) $ - $ 34 877
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
THE UNION LIGHT, HEAT AND POWER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period _
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 1 001 $ 2 632 $ 3 $ 2 027 $ - $ 1 609
Accumulated Depreciation 89 132 9 655 865 3 488 1/ - 96 164
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 27 609 $ 1 204 $(9 251) $ (925) $ - $ 20 487
Accrued Pension and Other
Postretirement Benefit Costs 6 014 1 237 341 319 - 7 273
Environmental Liability 800 - - - - 800
Injuries & Damages 143 642 - 660 - 125
Other - 242 - - - 242
$ 34 566 $ 3 325 $(8 910) $ 54 $ - $ 28 927
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
. 2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Cinergy Corp., The Cincinnati Gas & Electric Company, PSI
Energy, Inc., and The Union Light, Heat and Power Company have each duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants
Dated: March 27, 199626, 1998
By /s/ James E. Rogers
James E. Rogers
Vice Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrantRegistrants and in the capacities and on the dates indicated.
Signature Title Date
Cinergy, CG&E, PSI, and ULH&P
Jackson H. Randolph Chairman
Cinergy
Neil A. Armstrong Director
Clement L. Buenger Director
Phillip R. Cox Director
Kenneth M. Duberstein Director
George C. Juilfs Director
Melvin Perelman Ph.D. Director
Thomas E. Petry Director
John J. Schiff, Jr. Director
PhillipPhilip R. Sharp Director
Dudley S. Taft Director
Oliver W. Waddell Director
Cinergy and PSI
James K. Baker Director
Michael G. Browning Director
John A. Hillenbrand II Director
Van P. Smith Director
CG&E and ULH&P
William J. Grealis President and Director
PSI
John M. Mutz President and Director
ULH&P
Terry E. Bruck Group Vice President and Director
Cheryl M. Foley Vice President, General Counsel,
Secretary, and Director
Stephen G. SalayJ. Wayne Leonard Vice President and Director
Larry E. Thomas Vice President and Director
Cinergy, CG&E, PSI, and ULH&P
/s/James E. Rogers Vice Chairman, Chief March 27, 1996
Attorney-in-fact for all26, 1998
James E. Rogers Executive Officer, and Director
Attorney-in-fact for all President of Cinergy
the foregoing persons President of Cinergy
(Principal Executive Officer)
J. Wayne Leonard Group/s/Madeleine W. Ludlow Vice President and March 27, 199626, 1998
Madeleine W. Ludlow Chief Financial Officer
Director of ULH&P
(Principal Financial Officer)
Charles J. Winger/s/John P. Steffen Vice President and Comptroller March 27, 199626, 1998
John P. Steffen (Principal Accounting Officer)