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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,Washington, D.C. 20549
FORM 10-Q
(Mark(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| /x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended JuneSeptember 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
| / / | 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) 287-2644
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
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) 287-2644
| Commission File Number | Registrant, State of Incorporation, Address, and Telephone Number | I.R.S. Employer Identification No. | ||
|---|---|---|---|---|
| 1-11377 | CINERGY CORP. (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 287-2644 | 31-1385023 | ||
| 1-1232 | THE CINCINNATI GAS & ELECTRIC COMPANY (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 287-2644 | 31-0240030 | ||
| 1-3543 | PSI ENERGY, INC. (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (317) 839-9611 | 35-0594457 | ||
| 2-7793 | THE UNION LIGHT, HEAT AND POWER COMPANY (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 287-2644 | 31-0473080 |
Indicate
by check mark whether the registrants (1) have 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 were required to file such reports), and (2) have been subject to such filing requirements for the past 90
days. Yes X/x/ No / /
This
combined Form 10-Q 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 the information relating to the other registrants.
The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format.
As
of JulyOctober 31, 1999, shares of Common Stock outstanding for each registrant were as listed:
Company _ Shares _
- --------------------------------------------------------- ------------
Cinergy Corp., par value $.01 per share 158,886,167
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
| Company | Shares | |
|---|---|---|
| Cinergy Corp., par value $.01 per share | 158,917,227 | |
| 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 |
TABLE OF CONTENTS Item Page
Number Number
Glossary of Terms . . . . . . . . . . . . . . . . . . . 3
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . . 7
Consolidated Statements of Income (Loss). . . . . . . 9
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . 10
Consolidated Statements of Cash Flows . . . . . . . . 12
Results of Operations . . . . . . . . . . . . . . . . 13
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . . 21
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Cash Flows . . . . . . . . 24
Results of Operations . . . . . . . . . . . . . . . . 25
PSI Energy, Inc.
Consolidated Balance Sheets. . . . . . . . . . . . 31
Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss). . . . . . . . . . . . 33
Consolidated Statements of Cash Flows. . . . . . . . 34
Results of Operations . . . . . . . . . . . . . . . . 35
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . . 40
Statements of Income (Loss) . . . . . . . . . . . . . 42
Statements of Cash Flows. . . . . . . . . . . . . . . 43
Results of Operations . . . . . . . . . . . . . . . . 44
Notes to Financial Statements . . . . . . . . . . . . . 47
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 56
3 Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . 64
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 65
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 65
Signatures. . . . . . . . . . . . . . . . . . . . . . . 66
| Item Number | | Page Number | ||
|---|---|---|---|---|
| Glossary of Terms | 3 | |||
| PART I. FINANCIAL INFORMATION | ||||
| 1 | | Financial Statements | | |
| Cinergy Corp | ||||
| Consolidated Balance Sheets | 7 | |||
| Consolidated Statements of Income | 9 | |||
| Consolidated Statements of Changes in Common Stock Equity | 10 | |||
| Consolidated Statements of Cash Flows | 12 | |||
| | | The Cincinnati Gas & Electric Company | | |
| Consolidated Balance Sheets | 14 | |||
| Consolidated Statements of Income and Comprehensive Income | 16 | |||
| Consolidated Statements of Cash Flows | 17 | |||
| | | PSI Energy, Inc. | | |
| Consolidated Balance Sheets | 19 | |||
| Consolidated Statements of Income and Comprehensive Income | 21 | |||
| Consolidated Statements of Cash Flows | 22 | |||
| | | The Union Light, Heat and Power Company | | |
| Balance Sheets | 24 | |||
| Statements of Income | 26 | |||
| Statements of Cash Flows | 27 | |||
| | | Notes to Financial Statements | | 28 |
| 2 | | Management's Discussion and Analysis of Financial Condition and Results of Operations | | |
| Financial Condition | 38 | |||
| Capital Resources and Requirements | 43 | |||
| Results of Operations for the Quarter Ended September 30, 1999 | 46 | |||
| Results of Operations for the Nine Months Ended September 30, 1999 | 50 | |||
| Results of Operations for ULH&P for the Nine Months Ended September 30, 1999 | 54 | |||
| 3 | | Quantitative and Qualitative Disclosures About Market Risk | | 54 |
| PART II. OTHER INFORMATION | ||||
| 1 | | Legal Proceedings | | 55 |
| 6 | | Exhibits and Reports on Form 8-K | | 55 |
| | | Signatures | | 56 |
The following abbreviations or acronyms used in the text of this combined Form 10-Q are defined below:
TERM DEFINITION
- -------------- ------------------------------------------------------
1998 Form Combined 1998 Annual Report on Form 10-K filed separately by
10-K Cinergy, CG&E, PSI, and ULH&P
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
Beckjord CG&E's W.C. Beckjord Generating Station (steam electric
generating plant)
CAAA Clean Air Act Amendments of 1990
Cayuga PSI's Cayuga Generating Station (steam electric generating
plant)
CC&T Cinergy Capital & Trading, Inc. (a subsidiary of
Investments)
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
CIBU Cinergy Investments Business Unit
Cinergy or Cinergy Corp.
Company
CM&T Cinergy Marketing & Trading, LLC (a subsidiary of CC&T),
formerly Producers Energy Marketing, LLC (ProEnergy),
which is engaged in the marketing of natural gas
Committed Lines A line of credit providing short-term loans on a
committed basis
Court of Appeals U.S. Circuit Court of Appeals for the District of Columbia
Destec Destec Energy, Inc.
DOE United States Department of Energy
Dynegy Dynegy Inc.
ECBU Energy Commodities Business Unit
EDBU Energy Delivery Business Unit
EITF Issue 98-10 Emerging Issues Task Force Issue No. 98-10, Accounting for
Contracts Involved in Energy Trading and Risk Management
Activities
EPA United States Environmental Protection Agency
EPS Earnings per share
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
- -------------- ------------------------------------------------------
Gibson PSI's Gibson Generating Station (steam electric generating
plant)
Global Resources Cinergy Global Resources, Inc. (a subsidiary of Cinergy)
GPU GPU Inc.
House U.S. House of Representatives
IBU International Business Unit
ICR Mercury Information Collection Request
IDEM Indiana Department of Environmental Management
IGC Indiana Gas Company, Inc., formerly Indiana Gas and Water
Company, Inc.
Investments Cinergy Investments, Inc. (a subsidiary of Cinergy)
IT Information Technology
IURC Indiana Utility Regulatory Commission
JUMPS(sm) Junior Maturing Principal Securities
KWh Kilowatt-hour
mcf Thousand cubic feet
MGP Manufactured gas plant
Midlands Midlands Electricity plc, a United Kingdom regional electric
company (a wholly-owned subsidiary of Avon Energy)
Midwest ISO Midwest Independent System Operator
MW Megawatts
N/A Not applicable
NERC North American Electric Reliability Council
NIPSCO Northern Indiana Public Service Company
NOx Nitrogen oxide
NSR New Source Review
PSI PSI Energy, Inc. (a subsidiary of Cinergy)
PUCO Public Utilities Commission of Ohio
PUHCA Public Utility Holding Company Act of 1935
SEC United States Securities and Exchange Commission
Senate U.S. Senate
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
- -------------- ------------------------------------------------------
September 1996 An IURC order issued in September 1996 on PSI's retail
Order rate proceeding
SIP State Implementation Plan
SO2 Sulfur dioxide
Statement 131 Statement of Financial Accounting Standards No. 131,
Disclosures About Segments of an Enterprise and Related
Information
Statement 133 Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities
Statement 137 Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB
Statement 133
UCC The Indiana Office of the Utility Consumer Counselor
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
Uncommitted A line of credit providing short-term loans on an
Lines uncommitted basis
US United States
WVPA Wabash Valley Power Association, Inc.
Zimmer CG&E's William H. Zimmer Generating Station (steam
electric generating plant)
| TERM | DEFINITION | |
|---|---|---|
| 1998 Form 10-K | Combined 1998 Annual Report on Form 10-K filed separately by Cinergy, CG&E, PSI, and ULH&P | |
| Avon Energy | Avon Energy Partners Holdings, an Unlimited Liability Company and its wholly-owned subsidiary Avon Energy Partners PLC, a Limited Liability Company | |
| BACT | Best Available Control Technology | |
| Beckjord | CG&E's W.C. Beckjord Generating Station (steam electric generating plant) | |
| CAA | Clean Air Act | |
| Cayuga | PSI's Cayuga Generating Station (steam electric generating plant) | |
| CC&T | Cinergy Capital & Trading, Inc. (a subsidiary of Investments) | |
| CERCLA | Comprehensive Environmental Response, Compensation and Liability Act | |
| CG&E | The Cincinnati Gas & Electric Company (a subsidiary of Cinergy) | |
| CIBU | Cinergy Investments Business Unit | |
| Cinergy or Company | Cinergy Corp. | |
| CM&T | Cinergy Marketing & Trading, LLC (a subsidiary of CC&T), formerly Producers Energy Marketing, LLC (ProEnergy), which is engaged in the marketing of natural gas | |
| Committed Lines | A line of credit providing short-term loans on a committed basis | |
| Court of Appeals | U.S. Circuit Court of Appeals for the District of Columbia | |
| Destec | Destec Energy, Inc. | |
| DOE | United States Department of Energy | |
| Dynegy | Dynegy Inc. | |
| ECBU | Energy Commodities Business Unit | |
| EDBU | Energy Delivery Business Unit | |
| EITF Issue 98-10 | Emerging Issues Task Force Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities | |
| EPA | United States Environmental Protection Agency | |
| EPS | Earnings per share | |
| FASB | Financial Accounting Standards Board | |
| Gallagher | PSI's R.A. Gallagher Generating Station (steam electric generating plant) | |
| Gibson | PSI's Gibson Generating Station (steam electric generating plant) | |
| Global Resources | Cinergy Global Resources, Inc. (a subsidiary of Cinergy) | |
| GPU | GPU Inc. | |
| House | U.S. House of Representatives | |
| IBU | International Business Unit | |
| ICR | Mercury Information Collection Request | |
| IDEM | Indiana Department of Environmental Management | |
| IGC | Indiana Gas Company, Inc., formerly Indiana Gas and Water Company, Inc. | |
| Investments | Cinergy Investments, Inc. (a subsidiary of Cinergy) | |
| IT | Information Technology | |
| IURC | Indiana Utility Regulatory Commission | |
| JUMPS(sm) | Junior Maturing Principal Securities | |
| KWh | Kilowatt-hour | |
| mcf | Thousand cubic feet | |
| MGP | Manufactured gas plant | |
| Midlands | Midlands Electricity plc, a United Kingdom regional electric company (a wholly-owned subsidiary of Avon Energy) | |
| Midwest ISO | Midwest Independent System Operator | |
| N/A | Not applicable | |
| NERC | North American Electric Reliability Council | |
| NIPSCO | Northern Indiana Public Service Company | |
| NOx | Nitrogen oxide | |
| NSPS | New Source Performance Standards | |
| NSR | New Source Review | |
| PSD | Prevention of Significant Deterioration | |
| PSI | PSI Energy, Inc. (a subsidiary of Cinergy) | |
| PUCO | Public Utilities Commission of Ohio | |
| PUHCA | Public Utility Holding Company Act of 1935 | |
| SEC | United States Securities and Exchange Commission | |
| Senate | U.S. Senate | |
| September 1996 Order | An IURC order issued in September 1996 on PSI's retail rate proceeding | |
| SIP | State Implementation Plan | |
| SO2 | Sulfur dioxide | |
| Statement 131 | Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information | |
| Statement 133 | Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities | |
| Statement 137 | Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement 133 | |
| UCC | The Indiana Office of the Utility Consumer Counselor | |
| ULH&P | The Union Light, Heat and Power Company (a wholly-owned subsidiary of CG&E) | |
| Uncommitted | A line of credit providing short-term loans on an | |
| Lines | uncommitted basis | |
| U.S. | United States | |
| Wabash River | PSI's Wabash River Generating Station (steam electric generating plant) | |
| WVPA | Wabash Valley Power Association, Inc. | |
| Zimmer | CG&E's William H. Zimmer Generating Station (steam electric generating plant) |
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
| | September 30 1999 | December 31 1998 | ||||
|---|---|---|---|---|---|---|
| | (unaudited) | | ||||
| | (dollars in thousands) | |||||
| Current Assets | ||||||
| Cash and temporary cash investments | $ | 57,486 | $ | 100,154 | ||
| Restricted deposits | 1,425 | 3,587 | ||||
| Notes receivable | 290 | 64 | ||||
| Accounts receivable less accumulated provision for doubtful accounts of | 761,768 | 580,305 | ||||
| Materials, supplies, and fuel | 208,931 | 202,747 | ||||
| Energy risk management assets | 135,817 | 283,924 | ||||
| Prepayments and other | 75,208 | 74,849 | ||||
| 1,240,925 | 1,245,630 | |||||
| Utility Plant | ||||||
| In service | ||||||
| Electric | 9,330,180 | 9,222,261 | ||||
| Gas | 811,552 | 786,188 | ||||
| Common | 170,772 | 186,364 | ||||
| 10,312,504 | 10,194,813 | |||||
| Accumulated depreciation | 4,206,192 | 4,040,247 | ||||
| 6,106,312 | 6,154,566 | |||||
| Construction work in progress | 266,981 | 189,883 | ||||
| Total utility plant | 6,373,293 | 6,344,449 | ||||
| Other Assets | ||||||
| Regulatory assets | 1,128,957 | 970,767 | ||||
| Investments in unconsolidated subsidiaries | 309,578 | 574,401 | ||||
| Energy risk management assets | 21,507 | 73,662 | ||||
| Other | 460,227 | 478,472 | ||||
| 1,920,269 | 2,097,302 | |||||
| $ | 9,534,487 | $ | 9,687,381 | |||
The accompanying notes as they relate to Cinergy Corp. are an integral part of these
consolidated financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY
| | September 30 1999 | December 31 1998 | |||||
|---|---|---|---|---|---|---|---|
| | (unaudited) | | |||||
| | (dollars in thousands) | ||||||
| Current Liabilities | |||||||
| Accounts payable | $ | 935,430 | $ | 668,860 | |||
| Accrued taxes | 248,441 | 228,347 | |||||
| Accrued interest | 37,813 | 51,679 | |||||
| Notes payable and other short-term obligations | 363,780 | 903,700 | |||||
| Long-term debt due within one year | 31,822 | 136,000 | |||||
| Energy risk management liabilities | 123,885 | 398,538 | |||||
| Other | 81,854 | 93,376 | |||||
| 1,823,025 | 2,480,500 | ||||||
| Non-Current Liabilities | |||||||
| Long-term debt | 2,723,483 | 2,604,467 | |||||
| Deferred income taxes | 1,141,312 | 1,091,075 | |||||
| Unamortized investment tax credits | 149,629 | 156,757 | |||||
| Accrued pension and other postretirement benefit costs | 346,994 | 315,147 | |||||
| Energy risk management liabilities | 130,188 | 107,194 | |||||
| Other | 488,892 | 298,370 | |||||
| 4,980,498 | 4,573,010 | ||||||
| Total liabilities | 6,803,523 | 7,053,510 | |||||
| Cumulative Preferred Stock of Subsidiaries | |||||||
| Not subject to mandatory redemption | 92,597 | 92,640 | |||||
| Common Stock Equity | |||||||
| Common stock | 1,589 | 1,587 | |||||
| Paid-in capital | 1,605,674 | 1,595,237 | |||||
| Retained earnings | 1,038,660 | 945,214 | |||||
| Accumulated other comprehensive loss | (7,556 | ) | (807 | ) | |||
| Total common stock equity | 2,638,367 | 2,541,231 | |||||
| $ | 9,534,487 | $ | 9,687,381 | ||||
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| | Quarter Ended September 30 | Year to Date September 30 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | 1999 | 1998 | |||||||||
| | (in thousands, except per share amounts) | ||||||||||||
| Operating Revenues | |||||||||||||
| Electric | $ | 1,396,837 | $ | 1,602,211 | $ | 3,307,462 | $ | 3,782,857 | |||||
| Gas | 375,837 | 359,830 | 1,125,812 | 686,923 | |||||||||
| Other | 9,524 | 14,670 | 26,602 | 23,101 | |||||||||
| 1,782,198 | 1,976,711 | 4,459,876 | 4,492,881 | ||||||||||
| Operating Expenses | |||||||||||||
| Fuel and purchased and exchanged power | 891,351 | 1,070,753 | 1,775,586 | 2,318,624 | |||||||||
| Gas purchased | 349,259 | 324,145 | 977,174 | 544,488 | |||||||||
| Other operation and maintenance | 245,330 | 226,315 | 726,310 | 746,392 | |||||||||
| Depreciation and amortization | 88,734 | 81,585 | 263,412 | 242,271 | |||||||||
| Taxes other than income taxes | 70,077 | 69,346 | 208,688 | 208,125 | |||||||||
| 1,644,751 | 1,772,144 | 3,951,170 | 4,059,900 | ||||||||||
| Operating Income | 137,447 | 204,567 | 508,706 | 432,981 | |||||||||
| Other Income and | |||||||||||||
| Equity in earnings of unconsolidated subsidiaries | 372 | 11,421 | 58,076 | 32,992 | |||||||||
| Gain on sale of investment in unconsolidated subsidiary | 99,272 | — | 99,272 | — | |||||||||
| Miscellaneous—net | 8,729 | (115 | ) | (2,965 | ) | (11,850 | ) | ||||||
| Interest | (56,404 | ) | (60,950 | ) | (177,957 | ) | (181,510 | ) | |||||
| 51,969 | (49,644 | ) | (23,574 | ) | (160,368 | ) | |||||||
| Income | 189,416 | 154,923 | 485,132 | 272,613 | |||||||||
| Income Taxes | 66,489 | 44,127 | 173,173 | 77,891 | |||||||||
| Preferred Dividend Requirements of Subsidiaries | 1,364 | 1,365 | 4,093 | 5,153 | |||||||||
| Net Income | $ | 121,563 | $ | 109,431 | $ | 307,866 | $ | 189,569 | |||||
| Earnings Per Common Share | |||||||||||||
| Basic | $ | 0.77 | $ | 0.69 | $ | 1.94 | $ | 1.20 | |||||
| Assuming dilution | $ | 0.76 | $ | 0.69 | $ | 1.93 | $ | 1.20 | |||||
| Dividends Declared Per Common Share | $ | 0.45 | $ | 0.45 | $ | 1.35 | $ | 1.35 | |||||
| Average Common Shares Outstanding | |||||||||||||
| Basic | 158,907 | 158,539 | 158,844 | 158,110 | |||||||||
| Common stock options | 329 | 606 | 386 | 694 | |||||||||
| Contingently issuable common stock | 25 | 104 | 25 | 113 | |||||||||
| Assuming dilution | 159,261 | 159,249 | 159,255 | 158,917 | |||||||||
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(dollars in thousands)
(unaudited)
| | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Comprehensive Income (Loss) | Total Common Equity | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter Ended | |||||||||||||||||||
| Balance at | $ | 1,589 | $ | 1,602,608 | $ | 988,598 | $ | (10,359 | ) | $ | 2,582,436 | ||||||||
| Comprehensive income | |||||||||||||||||||
| Net income | 121,563 | $ | 121,563 | 121,563 | |||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||
| Foreign currency translation adjustment | 3,774 | 3,774 | |||||||||||||||||
| Minimum pension liability adjustment | 85 | 85 | |||||||||||||||||
| Unrealized | (819 | ) | (819 | ) | |||||||||||||||
| Unrealized loss on securities available for sale | (237 | ) | (237 | ) | |||||||||||||||
| Other comprehensive income | 2,803 | 2,803 | |||||||||||||||||
| Comprehensive income | $ | 124,366 | |||||||||||||||||
| Issuance of | 2,216 | 2,216 | |||||||||||||||||
| Treasury shares reissued | 850 | 850 | |||||||||||||||||
| Dividends on common stock (see page 9 for per share amounts) | (71,499 | ) | (71,499 | ) | |||||||||||||||
| Other | (2 | ) | (2 | ) | |||||||||||||||
| Balance at | $ | 1,589 | $ | 1,605,674 | $ | 1,038,660 | $ | (7,556 | ) | $ | 2,638,367 | ||||||||
| Quarter Ended | |||||||||||||||||||
| Balance at | $ | 1,585 | $ | 1,599,435 | $ | 905,556 | $ | (3,330 | ) | $ | 2,503,246 | ||||||||
| Comprehensive income | |||||||||||||||||||
| Net income | 109,431 | $ | 109,431 | 109,431 | |||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||
| Foreign currency translation adjustment | (329 | ) | (329 | ) | |||||||||||||||
| Other comprehensive income (loss) total | (329 | ) | (329 | ) | |||||||||||||||
| Comprehensive income | $ | 109,102 | |||||||||||||||||
| Issuance of | 225 | 225 | |||||||||||||||||
| Treasury shares purchased | (1 | ) | (1,536 | ) | (1,537 | ) | |||||||||||||
| Treasury shares reissued | 1 | 2,637 | 2,638 | ||||||||||||||||
| Dividends on common stock (see page 9 for per share amounts) | (71,340 | ) | (71,340 | ) | |||||||||||||||
| Other | 15 | 15 | |||||||||||||||||
| Balance at | $ | 1,585 | $ | 1,600,776 | $ | 943,647 | $ | (3,659 | ) | $ | 2,542,349 | ||||||||
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
(dollars in thousands)
(unaudited)
| | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Comprehensive Income | Total Common Equity | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended | |||||||||||||||||||
| Balance at January 1, 1999 | $ | 1,587 | $ | 1,595,237 | $ | 945,214 | $ | (807 | ) | $ | 2,541,231 | ||||||||
| Comprehensive income | |||||||||||||||||||
| Net income | 307,866 | $ | 307,866 | 307,866 | |||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||
| Foreign currency translation adjustment | (6,258 | ) | (6,258 | ) | |||||||||||||||
| Minimum pension liability adjustment | 85 | 85 | |||||||||||||||||
| Unrealized | (339 | ) | (339 | ) | |||||||||||||||
| Unrealized loss on securities available for sale | (237 | ) | (237 | ) | |||||||||||||||
| Other comprehensive income (loss) total | (6,749 | ) | (6,749 | ) | |||||||||||||||
| Comprehensive income total | $ | 301,117 | |||||||||||||||||
| Issuance of | 2 | 6,493 | 6,495 | ||||||||||||||||
| Treasury shares purchased | (233 | ) | (233 | ) | |||||||||||||||
| Treasury shares reissued | 4,177 | 4,177 | |||||||||||||||||
| Dividends on common stock (see page 9 for per share amounts) | (214,413 | ) | (214,413 | ) | |||||||||||||||
| Other | (7 | ) | (7 | ) | |||||||||||||||
| Balance | $ | 1,589 | $ | 1,605,674 | $ | 1,038,660 | $ | (7,556 | ) | $ | 2,638,367 | ||||||||
| Nine Months Ended | |||||||||||||||||||
| Balance at January 1, 1998 | $ | 1,577 | $ | 1,573,064 | $ | 967,420 | $ | (2,861 | ) | $ | 2,539,200 | ||||||||
| Comprehensive income | |||||||||||||||||||
| Net income | 189,569 | $ | 189,569 | 189,569 | |||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||
| Foreign currency translation adjustment | (747 | ) | (747 | ) | |||||||||||||||
| Minimum pension liability adjustment | (51 | ) | (51 | ) | |||||||||||||||
| Other comprehensive income (loss) total | (798 | ) | (798 | ) | |||||||||||||||
| Comprehensive income total | $ | 188,771 | |||||||||||||||||
| Issuance of | 8 | 27,018 | 27,026 | ||||||||||||||||
| Treasury shares purchased | (3 | ) | (6,468 | ) | (6,471 | ) | |||||||||||||
| Treasury shares reissued | 3 | 7,115 | 7,118 | ||||||||||||||||
| Dividends on common stock (see page 9 for per share amounts) | (213,340 | ) | (213,340 | ) | |||||||||||||||
| Other | 47 | (2 | ) | 45 | |||||||||||||||
| Balance at September 30, | $ | 1,585 | $ | 1,600,776 | $ | 943,647 | $ | (3,659 | ) | $ | 2,542,349 | ||||||||
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | Year to Date September 30 | ||||||
|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | |||||
| | (in thousands) | ||||||
| Operating Activities | |||||||
| Net income | $ | 307,866 | $ | 189,569 | |||
| Items providing (using) cash currently: | |||||||
| Depreciation and amortization | 263,412 | 240,780 | |||||
| WVPA settlement | — | 80,000 | |||||
| Deferred income taxes and investment tax credits | 4,283 | (79,350 | ) | ||||
| Equity in earnings of unconsolidated subsidiaries | (46,059 | ) | (32,992 | ) | |||
| Gain on sale of investment in unconsolidated subsidiary | (99,272 | ) | — | ||||
| Allowance for equity funds used during construction | (2,841 | ) | (793 | ) | |||
| Regulatory assets | (221,470 | ) | 57,122 | ||||
| Changes in current assets and current liabilities | |||||||
| Restricted deposits | 2,162 | 788 | |||||
| Accounts and notes receivable, net of reserves on receivables sold | (187,136 | ) | (298,792 | ) | |||
| Materials, supplies, and fuel | (6,184 | ) | (20,037 | ) | |||
| Accounts payable | 266,570 | 293,435 | |||||
| Accrued taxes and interest | 6,228 | 21,717 | |||||
| Energy risk management | (51,397 | ) | 148,146 | ||||
| Other items | 263,840 | (53,688 | ) | ||||
| Net cash provided by operating activities | 500,002 | 545,905 | |||||
| Financing Activities | | | | | | | |
| Issuance of common stock | 6,495 | 515 | |||||
| Issuance of long-term debt | 541,915 | 373,041 | |||||
| Retirement of preferred stock of subsidiaries | (34 | ) | (85,292 | ) | |||
| Redemption of long-term debt | (528,900 | ) | (333,745 | ) | |||
| Change in short-term debt | (539,920 | ) | 61,642 | ||||
| Dividends on common stock | (214,413 | ) | (212,730 | ) | |||
| Net cash used in financing activities | (734,857 | ) | (196,569 | ) | |||
| Investing Activities | | | | | | | |
| Construction expenditures (less allowance for equity funds used during construction) | (262,719 | ) | (238,364 | ) | |||
| Acquisition of businesses (net of cash acquired) | — | (63,412 | ) | ||||
| Investments in unconsolidated subsidiaries | (235,363 | ) | (22,044 | ) | |||
| Sale of investment in unconsolidated subsidiary | 690,269 | — | |||||
| Net cash | 192,187 | (323,820 | ) | ||||
| Net increase (decrease) in cash and temporary cash investments | | | (42,668 | ) | | 25,516 | |
| Cash and temporary cash investments at beginning of period | | | 100,154 | | | 53,310 | |
| Cash and temporary cash investments at end of period | | $ | 57,486 | | $ | 78,826 | |
The accompanying notes as they relate to Cinergy Corp. are an integral part of these
consolidated results of operations for
Cinergy for the quarter and six months ended June 30, 1999. For information
concerning the results of operations for each of the other registrants for the
quarter and six months ended June 30, 1999, see the discussion under the heading
"Results of Operations" following the financial statements of each registrant.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related KWh sales are
shown below:
Quarter Ended
June 30
Revenue KWh Sales
-----------------------------------------
1999 1998 1999 1998
---- ---- ---- -----
($ and KWh in millions)
Retail $623 $ 608 11,521 11,207
Sales for resale 285 403 10,652 16,373
Other 34 11 185 -
---- ------ ------ -------
Total $942 $1,022 22,358 27,580
Electric operating revenues decreased $80 million (8%) for the quarter ended
June 30, 1999, when compared to the same period for 1998. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to energy marketing and trading operations and milder
weather. Partially offsetting the decline was an increase in the average price
per KWh for non-firm power customers, higher retail and firm power KWh sales
resulting from growth in the average number of residential and commercial
customers, and increased international operations.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
June 30
Revenue Mcf Sales
--------------------------------------
1999 1998 1999 1998
---- ---- ---- -----
($ and mcf in millions)
Sales for resale $266 $ 84 123 42
Retail 52 49 6 6
Transportation 11 9 9 14
---- ---- --- ---
Total $329 $142 138 62
Gas operating revenues increased $187 million in the second quarter of 1999,
when compared to the same period last year, primarily due to the gas operating
revenues of CM&T, which was acquired in June 1998. Retail revenues increased
primarily due to an increase in sales by the non-regulated businesses.
Transportation revenues increased as more residential and commercial customers
continued to purchase gas directly from suppliers, using transportation services
provided by CG&E. This increase in transportation revenues was partially offset
by a decrease in mcf transportation volumes resulting from the loss of a large
industrial transportation customer during late 1998.
Other Revenues
Other revenues increased $1 million (31%) for the quarter ended June 30, 1999,
over the same period of 1998. This increase was primarily the result of
increased sales and new initiatives by certain of Cinergy's non-regulated
entities.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Fuel $186 $155
Purchased and exchanged power 265 440
---- ----
Total $451 $595
Electric fuel costs increased $31 million (20%) for the quarter ended June 30,
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $155
Increase (Decrease) due to change in:
Price of fuel (2)
Deferred fuel cost 16
KWh generation 11
Other 6
----
Fuel expense - June 30, 1999 $186
Purchased and exchanged power expense decreased $175 million (40%) for the
quarter ended June 30, 1999, as compared to the same period last year, primarily
reflecting decreased purchases of non-firm power for resale to others as a
result of a decline in sales for resale volumes in the energy marketing and
trading operations. Additionally, during the quarter ended June 30, 1999, a
favorable adjustment of $18 million after tax was recorded as a result of a
re-evaluation of transactions included in the trading portfolio as of December
31, 1998, at the time of adoption of EITF Issue 98-10. Also contributing to the
decline was the provision of $61 million of reserves for the energy marketing
and trading business recorded during the second quarter of 1998.
Gas Purchased
Gas purchased for the quarter ended June 30, 1999, increased $181 million, when
compared to the same period last year, primarily due to the gas purchased
expenses of CM&T, which was acquired in June 1998. Partially offsetting this
increase was a lower average cost per mcf of gas purchased.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Other operation $172 $252
Maintenance 64 55
---- ----
Total $236 $307
Other operation expenses decreased $80 million (32%) for the quarter ended June
30, 1999, as compared to the same period last year. This decrease is primarily
due to the one-time charge of $80 million recorded during the second quarter of
1998, reflecting the implementation of a 1989 settlement of a dispute with the
WVPA. Also, during the second quarter of 1998, a provision of $4 million for
potential bad debts related to certain energy marketing and trading accounts was
recorded. This decrease was partially offset by the increased growth in expenses
associated with existing and new initiatives by certain of Cinergy's
consolidated non-regulated businesses.
Maintenance expenses increased $9 million (16%) for the quarter ended June 30,
1999, as compared to the same period of 1998. This increase is due to an
increase in maintenance activities associated with planned outages at certain
production facilities and other repairs performed at certain facilities.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Depreciation $81 $74
Amortization of phase-in deferrals 6 6
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $88 $81
Depreciation expense increased $7 million (9%) for the quarter ended June 30,
1999, as compared to the same period last year, primarily due to additions to
depreciable plant.
Equity in Earnings of Unconsolidated Subsidiaries
The $3 million (34%) increase in equity in earnings of unconsolidated
subsidiaries for the quarter ended June 30, 1999, as compared to the same period
of 1998, is primarily attributable to an increase in the earnings of Avon Energy
resulting from increased profits related to Midlands' supply business and lower
costs of purchased electricity. On July 15, 1999, Cinergy and GPU completed a
transaction whereby GPU acquired Cinergy's 50% ownership interest in Avon
Energy, the parent company of Midlands. (See Note 12 of the "Notes to Financial
Statements" in "Part I. Financial Information.")
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related KWh sales are
shown below:
Six Months Ended
June 30
Revenue KWh Sales
1999 1998 1999 1998
($ and KWh in millions)
Retail $1,300 $1,242 23,796 22,885
Sales for resale 551 918 21,346 38,106
Other 60 21 358 -
------ ------ ------ ------
Total $1,911 $2,181 45,500 60,991
Electric operating revenues decreased $270 million (12%) for the six months
ended June 30, 1999, from the comparable period of 1998. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to energy marketing and trading operations. Partially
offsetting the decline was an increase in the average price per KWh for retail
customers and non-firm power customers, higher retail and firm power KWh sales
resulting from growth in the average number of residential and commercial
customers, a return to more normal weather, and increased international
operations for the six months ended June 30, 1999, as compared to 1998.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Six Months Ended
June 30
Revenue Mcf Sales
1999 1998 1999 1998
($ and mcf in millions)
Sales for resale $509 $ 84 265 42
Retail 210 223 32 32
Transportation 31 20 22 30
---- ---- --- ---
Total $750 $327 319 104
Gas operating revenues increased $423 million for the six months ended June 30,
1999, when compared to the same period last year. This increase is primarily due
to the gas operating revenues of CM&T, which was acquired in June 1998.
Transportation revenues increased as customers continued the trend of purchasing
gas directly from suppliers, using transportation services provided by CG&E.
These increases were partially offset by a decline in retail sales due to a
lower cost per mcf purchased that was passed on to the customer, and a reduction
in the average number of retail, commercial, and industrial customers.
Other Revenues
Other revenues for the six months ended June 30, 1999, increased $9 million,
over the same period of 1998. This increase was primarily the result of
increased sales and new initiatives by certain of Cinergy's non-regulated
entities.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Fuel $384 $ 336
Purchased and exchanged power 500 912
---- ------
Total $884 $1,248
Electric fuel costs increased $48 million (14%) for the first six months of
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Six Months Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $336
Increase (Decrease) due to change in:
Price of fuel (4)
Deferred fuel cost 21
KWh generation 20
Other 11
----
Fuel expense - June 30, 1999 $384
Purchased and exchanged power expense decreased $412 million (45%) for the six
months ended June 30, 1999, when compared to the same period last year,
primarily reflecting decreased purchases of non-firm power for resale to others
as a result of a decline in sales for resale volumes in the energy marketing and
trading operations. Additionally, during the quarter ended June 30, 1999, a
favorable adjustment of $18 million after tax was recorded as a result of a
re-evaluation of transactions included in the trading portfolio as of December
31, 1998, at the time of adoption of EITF Issue 98-10. Also contributing to the
decline was the provision of $63 million of reserves for the energy marketing
and trading business recorded during the six months ended June 30, 1998.
Gas Purchased
Gas purchased for the six months ended June 30, 1999, increased $408 million
when compared to the same period last year, primarily due to the acquisition of
CM&T in June 1998, and its related gas purchased expense. Slightly offsetting
this increase is a lower average cost per mcf of gas paid by CG&E.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Other operation $366 $425
Maintenance 115 95
---- ----
Total $481 $520
Other operation expenses decreased $59 million (14%) for the six months ended
June 30, 1999, as compared to the same period last year. This decrease is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA. This decrease was partially offset by the increased growth in
expenses associated with existing and new initiatives by certain of Cinergy's
consolidated non-regulated businesses.
Maintenance expenses increased $20 million (21%) for the six months ended June
30, 1999, as compared to the same period last year. This increase is due to an
increase in maintenance activities associated with planned outages at certain
production facilities and other repairs performed at certain facilities.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Depreciation $160 $148
Amortization of phase-in deferrals 13 11
Amortization of post-in-service
deferred operating expenses 2 2
---- ----
Total $175 $161
Depreciation expense increased $12 million (8%) for the six months ended June
30, 1999, as compared to the same period last year, primarily due to additions
to depreciable plant. Amortization of phase-in deferrals reflects the PUCO
ordered phase-in plan for Zimmer.
Equity in Earnings of Unconsolidated Subsidiaries
For the six months ended June 30, 1999, the equity in earnings of unconsolidated
subsidiaries increased $36 million, as compared to the same period of last year.
This increase is primarily attributable to an increase in the earnings of Avon
Energy resulting from increased profits related to Midlands' supply business and
lower costs of purchased electricity. On July 15, 1999, Cinergy and GPU
completed a transaction whereby GPU acquired Cinergy's 50% ownership interest in
Avon Energy, the parent company of Midlands. (See Note 12 of the "Notes to
Financial Statements" in "Part I. Financial Information.")
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $1 million
(28%) for the six months ended June 30, 1999, as compared to the same period of
1998, is primarily attributable to PSI's redemption of all outstanding shares of
its 7.44% Series Cumulative Preferred Stock on March 1, 1998.
THE CINCINNATI GAS &&
ELECTRIC COMPANY
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
| | September 30 | December 31 | ||||
|---|---|---|---|---|---|---|
| | 1999 | 1998 | ||||
| | (unaudited) | | ||||
| | (dollars in thousands) | |||||
| Current Assets | ||||||
| Cash and temporary cash investments | $ | 14,380 | $ | 26,989 | ||
| Restricted deposits | 1,172 | 1,173 | ||||
| Notes receivable from affiliated companies | — | 84,358 | ||||
| Accounts receivable less accumulated provision for doubtful accounts of | 240,508 | 205,060 | ||||
| Accounts receivable from affiliated companies | 41,614 | 22,635 | ||||
| Materials, supplies, and fuel | 109,427 | 115,294 | ||||
| Energy risk management assets | 67,909 | 141,962 | ||||
| Prepayments and other | 32,386 | 40,158 | ||||
| 507,396 | 637,629 | |||||
| Utility Plant | ||||||
| In service | ||||||
| Electric | 4,855,304 | 4,806,958 | ||||
| Gas | 811,552 | 786,188 | ||||
| Common | 170,772 | 186,364 | ||||
| 5,837,628 | 5,779,510 | |||||
| Accumulated depreciation | 2,246,188 | 2,147,298 | ||||
| 3,591,440 | 3,632,212 | |||||
| Construction work in progress | 153,986 | 119,993 | ||||
| Total utility plant | 3,745,426 | 3,752,205 | ||||
| Other Assets | ||||||
| Regulatory assets | 594,096 | 627,035 | ||||
| Energy risk management assets | 10,753 | 36,831 | ||||
| Other | 106,790 | 100,061 | ||||
| 711,639 | 763,927 | |||||
| $ | 4,964,461 | $ | 5,153,761 | |||
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral
part of these consolidated financial statements.
LIABILITIES AND SHAREHOLDER'S EQUITY
| | September 30 | December 31 | |||||
|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | |||||
| | (unaudited) | | |||||
| | (dollars in thousands) | ||||||
| Current Liabilities | |||||||
| Accounts payable | $ | 302,793 | $ | 282,743 | |||
| Accounts payable to affiliated companies | 64,506 | 13,166 | |||||
| Accrued taxes | 105,617 | 151,455 | |||||
| Accrued interest | 10,699 | 20,571 | |||||
| Long-term debt due within one year | — | 130,000 | |||||
| Notes payable and other short-term obligations | 204,000 | 189,283 | |||||
| Notes payable to affiliated companies | 110,790 | 17,020 | |||||
| Energy risk management liabilities | 61,942 | 199,269 | |||||
| Other | 23,996 | 26,422 | |||||
| 884,343 | 1,029,929 | ||||||
| Non-Current Liabilities | |||||||
| Long-term debt | 1,205,830 | 1,219,778 | |||||
| Deferred income taxes | 778,080 | 771,145 | |||||
| Unamortized investment tax credits | 106,177 | 110,801 | |||||
| Accrued pension and other postretirement benefit costs | 153,017 | 146,361 | |||||
| Energy risk management liabilities | 65,094 | 53,597 | |||||
| Other | 114,617 | 134,990 | |||||
| 2,422,815 | 2,436,672 | ||||||
| Total liabilities | 3,307,158 | 3,466,601 | |||||
| Cumulative Preferred Stock | |||||||
| Not subject to mandatory redemption | 20,686 | 20,717 | |||||
| Common Stock Equity | |||||||
| Common stock | 762,136 | 762,136 | |||||
| Paid-in capital | 553,931 | 553,926 | |||||
| Retained earnings | 321,674 | 351,505 | |||||
| Accumulated other comprehensive loss | (1,124 | ) | (1,124 | ) | |||
| Total common stock equity | 1,636,617 | 1,666,443 | |||||
| $ | 4,964,461 | $ | 5,153,761 | ||||
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
| | Quarter Ended September 30 | Year To Date September 30 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | 1999 | 1998 | |||||||||
| | | (in thousands) | | ||||||||||
| Operating Revenues | |||||||||||||
| Electric | $ | 699,981 | $ | 827,387 | $ | 1,658,604 | $ | 1,960,334 | |||||
| Gas | 38,510 | 56,505 | 255,855 | 280,437 | |||||||||
| 738,491 | 883,892 | 1,914,459 | 2,240,771 | ||||||||||
| Operating Expenses | |||||||||||||
| Fuel and purchased and exchanged power | 411,132 | 518,393 | 826,258 | 1,162,004 | |||||||||
| Gas purchased | 14,254 | 21,539 | 113,560 | 139,784 | |||||||||
| Other operation and maintenance | 103,150 | 96,193 | 311,527 | 302,764 | |||||||||
| Depreciation and amortization | 51,395 | 47,267 | 152,691 | 142,877 | |||||||||
| Taxes other than income taxes | 54,201 | 54,089 | 163,184 | 162,484 | |||||||||
| 634,132 | 737,481 | 1,567,220 | 1,909,913 | ||||||||||
| Operating Income | 104,359 | 146,411 | 347,239 | 330,858 | |||||||||
| Other Income and | |||||||||||||
| Miscellaneous—net | (287 | ) | 511 | (911 | ) | (2,349 | ) | ||||||
| Interest | (25,090 | ) | (25,072 | ) | (74,068 | ) | (77,034 | ) | |||||
| (25,377 | ) | (24,561 | ) | (74,979 | ) | (79,383 | ) | ||||||
| Income Before Taxes | 78,982 | 121,850 | 272,260 | 251,475 | |||||||||
| Income Taxes | 30,830 | 43,178 | 104,949 | 88,925 | |||||||||
| Net Income | $ | 48,152 | $ | 78,672 | $ | 167,311 | $ | 162,550 | |||||
| Preferred Dividend Requirement | 213 | 214 | 641 | 644 | |||||||||
| Net Income Applicable to Common Stock | $ | 47,939 | $ | 78,458 | $ | 166,670 | $ | 161,906 | |||||
| Other Comprehensive Income (Loss), Net Of Tax | — | — | — | (155 | ) | ||||||||
| Comprehensive Income | $ | 47,939 | $ | 78,458 | $ | 166,670 | $ | 161,751 | |||||
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part
of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | Year to Date September 30 | ||||||
|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | |||||
| | (in thousands) | ||||||
| Operating Activities | |||||||
| Net income | $ | 167,311 | $ | 162,550 | |||
| Items providing (using) cash currently: | |||||||
| Depreciation and amortization | 152,691 | 142,877 | |||||
| Deferred income taxes and investment tax credits | 9,151 | (11,592 | ) | ||||
| Allowance for equity funds used during construction | (2,083 | ) | (770 | ) | |||
| Regulatory assets | 10,343 | 23,716 | |||||
| Changes in current assets and current liabilities | |||||||
| Accounts and notes receivable, net of reserves on receivables sold | 24,555 | (232,865 | ) | ||||
| Materials, supplies, and fuel | 5,867 | 1,121 | |||||
| Accounts payable | 71,390 | 174,055 | |||||
| Accrued taxes and interest | (55,710 | ) | 22,822 | ||||
| Energy risk management | (25,699 | ) | 74,073 | ||||
| Other items | (7,274 | ) | (35,778 | ) | |||
| Net cash provided by operating activities | 350,542 | 320,209 | |||||
| Financing Activities | |||||||
| Issuance of long-term debt | 19,818 | 223,020 | |||||
| Retirement of preferred stock | (26 | ) | (45 | ) | |||
| Redemption of long-term debt | (164,264 | ) | (220,409 | ) | |||
| Change in short-term debt | 108,487 | (62,230 | ) | ||||
| Dividends on preferred stock | (642 | ) | (645 | ) | |||
| Dividends on common stock | (196,500 | ) | (132,245 | ) | |||
| Net cash used in financing activities | (233,127 | ) | (192,554 | ) | |||
| Investing Activities | |||||||
| Construction expenditures (less allowance for equity funds used during construction) | (130,024 | ) | (123,683 | ) | |||
| Net cash used in investing activities | (130,024 | ) | (123,683 | ) | |||
| Net increase (decrease) in cash and temporary cash investments | (12,609 | ) | 3,972 | ||||
| Cash and temporary cash investments at beginning of period | 26,989 | 2,349 | |||||
| Cash and temporary cash investments at end of period | $ | 14,380 | $ | 6,321 | |||
The accompanying notes as they relate to The Cincinnati Gas & Electric Operating Revenues
The components of electric operating revenues and the related KWh salesCompany are shown below:
Quarter Ended
June 30
Revenue ____KWh Sales_ _
1999 1998 1999 1998
($ and KWh in millions)
Retail $345 $342 5,629 5,496
Sales for resale 126 194 4,754 7,824
Other 6 4 - -
---- ---- ------ -------
Total $477 $540 10,383 13,320
Electric operating revenues decreased $63 million (12%) for the quarter ended
June 30, 1999, when compared to the same period for 1998. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to Cinergy's energy marketing and trading operations.
Partially offsetting the decline was higher retail KWh sales resulting from
growth in the average number of residential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
June 30
Revenue ___ Mcf Sales
1999 1998 1999 1998
---- ---- ---- ----
($ and mcf in millions)
Retail $43 $41 6 6
Transportation 11 9 9 14
--- --- --- ---
Total $54 $50 15 20
Gas operating revenues increased $4 million (8%) in the second quarter of 1999,
when compared to the same period last year. Transportation revenues increased as
more residential and commercial customers continued to purchase gas directly
from suppliers, using transportation services provided by CG&E.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Fuel $ 76 $ 78
Purchased and exchanged power 140 240
---- ----
Total $216 $318
Electric fuel costs decreased $2 million (3%) for the quarter ended June 30,
1999, as compared to the same period last year.
An analysisan integral part
of these fuel costs is shown below:
Quarter Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $78
Increase (Decrease) due to change in:
Deferred fuel cost (5)
KWh generation 3
---
Fuel expense - June 30, 1999 $76
Purchased and exchanged power expense decreased $100 million (42%) for the
quarter ended June 30, 1999, as compared to the same period last year. This
decline primarily reflects decreased purchases of non-firm power for resale to
others as a result of a decline in sales for resale volumes in Cinergy's energy
marketing and trading operations. Additionally, during the quarter ended June
30, 1999, a favorable adjustment of $9 million after tax was recorded as a
result of a re-evaluation of transactions included in the trading portfolio as
of December 31, 1998, at the time of adoption of EITF Issue 98-10. Also
contributing to the decline was the provision of $56 million of reserves for the
energy marketing and trading business recorded during the second quarter of
1998.
Gas Purchased
Gas purchased for the quarter ended June 30, 1999, decreased $1 million (6%),
when compared to the same period last year, primarily due to a decrease in the
volume of gas purchased.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Other operation $ 70 $ 77
Maintenance 30 28
---- ----
Total $100 $105
Other operation expenses decreased $7 million (9%) for the quarter ended June
30, 1999, as compared to the same period of 1998. The decline is due primarily
to activities occurring in 1998 related to Year 2000 expenditures and other
transmission and underground line expenses which did not occur in 1999. Also,
during the second quarter of 1998, a provision of $2 million for potential bad
debts related to certain energy marketing and trading accounts was recorded.
Maintenance expenses increased $2 million (7%) for the quarter ended June 30,
1999, as compared to the same period of 1998, primarily due to an increase in
maintenance activities associated with planned outages at certain production
facilities and overhead line maintenance.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Depreciation $43 $41
Amortization of phase-in deferrals 7 6
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $51 $48
Depreciation expense increased $2 million (5%) for the quarter ended June 30,
1999, as compared to the same period of 1998, primarily due to additions to
depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $1 million for the quarter
ended June 30, 1999, as compared to the same period of 1998, is primarily
attributable to an increase in miscellaneous non-utility revenues.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related KWh sales are
shown below:
Six Months Ended
June 30
Revenue KWh Sales
------------------- --------------------
1999 1998 1999 1998
------ ------ ------ -------
($ and KWh in millions)
Retail $703 $ 678 11,511 10,934
Sales for resale 247 448 9,672 18,617
Other 9 7 N/A N/A
---- ------ ------ ------
Total $959 $1,133 21,183 29,551
Electric operating revenues decreased $174 million (15%) for the six months
ended June 30, 1999, from the comparable period of 1998. This decrease was
primarily due to decreased volumes on sales for resale transactions. There was
also a decrease in the average price per KWh paid for the corresponding
purchases of purchased and exchanged power described below. Offsetting the
decrease were higher retail KWh sales due to the return to more normal weather
and growth in the average number of residential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Six Months Ended
June 30
Revenue Mcf Sales
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- -----
($ and mcf in millions)
Retail $186 $204 32 32
Transportation 31 20 23 30
---- ---- -- --
Total $217 $224 55 62
Gas operating revenues decreased $7 million (3%) for the six months ended June
30, 1999, when compared to the same period last year. A lower average cost per
mcf of gas purchased, which was passed on to end users, was the primary reason
for this decrease. Transportation revenues increased as residential and
commercial customers continued to purchase gas directly from suppliers, using
transportation services provided by CG&E. This increase in transportation
revenues was partially offset by a decrease in mcf transportation volumes
resulting from the loss of a large industrial customer during late 1998.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Fuel $162 $166
Purchased and exchanged power 253 478
---- ----
Total $415 $644
Electric fuel costs decreased $4 million (2%) for the six months ended June 30,
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Six Months Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $166
Increase (Decrease) due to change in:
Price of fuel 1
Deferred fuel cost (12)
KWh generation 7
----
Fuel expense - June 30, 1999 $162
Purchased and exchanged power expense decreased $225 million (47%) for the six
months ended June 30, 1999, when compared to the same period last year,
primarily reflecting decreased purchases of power for resale to others.
Additionally, during the quarter ended June 30, 1999, a favorable adjustment of
$9 million after tax was recorded as a result of a re-evaluation of transactions
included in the trading portfolio as of December 31, 1998, at the time of
adoption of EITF Issue 98-10. Also contributing to the decline was the provision
of $57 million of reserves for the energy marketing and trading business
recorded during the six months ended June 30, 1998.
Gas Purchased
Gas purchased for the six months ended June 30, 1999, decreased $19 million
(16%) when compared to the same period last year, primarily reflecting a
decrease in the average cost per mcf of gas purchased.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Depreciation $ 86 $83
Amortization of phase-in deferrals 13 11
Amortization of post-in-service
deferred operating expenses 2 2
---- ---
Total $101 $96
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $2 million for the six months
ended June 30, 1999, as compared to the same period of 1998, is largely due to
an increase in miscellaneous non-utility revenues.
Interest
The decrease in interest expense of $3 million (6%) for the six months ended
June 30, 1999, as compared to the same period last year, was due to decreases in
both interest on long-term debt and other interest expense. The decrease in
interest expense on long-term debt was primarily due to the maturity of
approximately $110 million of long-term debt in February 1999. The decrease in
other interest is due to a reduction in average short-term borrowings and lower
short-term interest rates.
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
| | September 30 1999 | December 31 1998 | ||||
|---|---|---|---|---|---|---|
| | (unaudited) | | ||||
| | (dollars in thousands) | |||||
| Current Assets | ||||||
| Cash and temporary cash investments | $ | 1,875 | $ | 18,788 | ||
| Restricted deposits | 253 | 2,414 | ||||
| Notes receivable from affiliated companies | 109,891 | 17,097 | ||||
| Accounts receivable less accumulated provision for doubtful accounts of | 338,200 | 225,449 | ||||
| Accounts receivable from affiliated companies | 39,225 | 384 | ||||
| Materials, supplies, and fuel | 96,124 | 80,445 | ||||
| Energy risk management assets | 67,908 | 141,962 | ||||
| Prepayments and other | 34,931 | 31,461 | ||||
| 688,407 | 518,000 | |||||
| Electric Utility Plant | | | | | | |
| In service | 4,474,876 | 4,415,303 | ||||
| Accumulated depreciation | 1,960,004 | 1,892,949 | ||||
| 2,514,872 | 2,522,354 | |||||
| Construction work in progress | 112,995 | 69,891 | ||||
| Total electric utility plant | 2,627,867 | 2,592,245 | ||||
| Other Assets | | | | | | |
| Regulatory assets | 534,861 | 343,731 | ||||
| Energy risk management assets | 10,754 | 36,831 | ||||
| Other | 90,556 | 93,012 | ||||
| Total other assets | 636,171 | 473,574 | ||||
| | | $ | 3,952,445 | | $ | 3,583,819 |
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
LIABILITIES AND SHAREHOLDER'S EQUITY
| | September 30 1999 | December 31 1998 | |||||
|---|---|---|---|---|---|---|---|
| | (unaudited) | | |||||
| | (dollars in thousands) | ||||||
| Current Liabilities | |||||||
| Accounts payable | $ | 310,404 | $ | 217,959 | |||
| Accounts payable to affiliated companies | 12,845 | 30,145 | |||||
| Accrued taxes | 116,950 | 58,901 | |||||
| Accrued interest | 15,302 | 28,335 | |||||
| Notes payable and other short-term obligations | 94,609 | 173,162 | |||||
| Notes payable to affiliated companies | 285,253 | 102,946 | |||||
| Long-term debt due within one year | 31,822 | 6,000 | |||||
| Energy risk management liabilities | 61,943 | 199,269 | |||||
| Other | 2,036 | 2,227 | |||||
| 931,164 | 818,944 | ||||||
| Non-Current Liabilities | | | | | | | |
| Long-term debt | 968,305 | 1,025,659 | |||||
| Deferred income taxes | 373,483 | 364,049 | |||||
| Unamortized investment tax credits | 43,452 | 45,956 | |||||
| Accrued pension and other postretirement benefit costs | 124,823 | 112,387 | |||||
| Energy risk management liabilities | 65,094 | 53,597 | |||||
| Other | 339,173 | 115,656 | |||||
| 1,914,330 | 1,717,304 | ||||||
| Total liabilities | | | 2,845,494 | | | 2,536,248 | |
| Cumulative Preferred Stock | | | | | | | |
| Not subject to mandatory redemption | 71,911 | 71,923 | |||||
| Common Stock Equity | | | | | | | |
| Common stock | 539 | 539 | |||||
| Paid-in capital | 410,742 | 410,739 | |||||
| Retained earnings | 624,593 | 564,865 | |||||
| Accumulated other comprehensive loss | (834 | ) | (495 | ) | |||
| Total common stock equity | 1,035,040 | 975,648 | |||||
| | | $ | 3,952,445 | | $ | 3,583,819 | |
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
| | Quarter Ended September 30 | Year To Date September 30 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | 1999 | 1998 | |||||||||
| | (in thousands) | ||||||||||||
| Operating Revenues | |||||||||||||
| Electric | $ | 707,193 | $ | 807,181 | $ | 1,653,144 | $ | 1,910,836 | |||||
| Operating Expenses | | | | | | | | | | | | | |
| Fuel and purchased and exchanged power | 495,015 | 584,415 | 967,099 | 1,242,253 | |||||||||
| Other operation and maintenance | 115,254 | 110,051 | 345,734 | 400,431 | |||||||||
| Depreciation and amortization | 34,025 | 32,688 | 101,889 | 97,433 | |||||||||
| Taxes other than income taxes | 15,427 | 14,882 | 44,184 | 44,356 | |||||||||
| 659,721 | 742,036 | 1,458,906 | 1,784,473 | ||||||||||
| Operating Income | | | 47,472 | | | 65,145 | | | 194,238 | | | 126,363 | |
| Other Income and | | | | | | | | | | | | | |
| Miscellaneous—net | (1,794 | ) | (315 | ) | (1,096 | ) | 1,616 | ||||||
| Interest | (19,620 | ) | (21,975 | ) | (61,480 | ) | (67,771 | ) | |||||
| (21,414 | ) | (22,290 | ) | (62,576 | ) | (66,155 | ) | ||||||
| Income | | | 26,058 | | | 42,855 | | | 131,662 | | | 60,208 | |
| Income Taxes | | | 10,400 | | | 16,063 | | | 50,583 | | | 21,106 | |
| Net Income | | $ | 15,658 | | $ | 26,792 | | $ | 81,079 | | $ | 39,102 | |
| Preferred Dividend Requirement | | | 1,150 | | | 1,151 | | | 3,451 | | | 4,509 | |
| Net Income | | $ | 14,508 | | $ | 25,641 | | $ | 77,628 | | $ | 34,593 | |
| Other Comprehensive Income (Loss), Net | | | (819 | ) | | — | | | (339 | ) | | 944 | |
| Comprehensive Income | | $ | 13,689 | | $ | 25,641 | | $ | 77,289 | | $ | 35,537 | |
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | Year September 30 | ||||||
|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | |||||
| | (in thousands) | ||||||
| Operating Activities | | | | | | | |
| Net income | $ | 81,079 | $ | 39,102 | |||
| Items providing (using) cash currently: | |||||||
| Depreciation and amortization | 101,889 | 97,433 | |||||
| WVPA settlement | — | 80,000 | |||||
| Deferred income taxes and investment tax credits | 10,707 | (44,433 | ) | ||||
| Allowance for equity funds used during construction | (758 | ) | (23 | ) | |||
| Regulatory assets | (231,813 | ) | 33,406 | ||||
| Changes in current assets and current liabilities | |||||||
| Restricted deposits | 2,161 | 787 | |||||
| Accounts and notes receivable, net of reserves on receivables sold | (244,456 | ) | (158,099 | ) | |||
| Materials, supplies, and fuel | (15,679 | ) | (19,543 | ) | |||
| Accounts payable | 75,145 | 135,816 | |||||
| Accrued taxes and interest | 45,016 | (2,249 | ) | ||||
| Energy risk management | (25,698 | ) | 74,073 | ||||
| Other items | 263,850 | (61,079 | ) | ||||
| Net cash provided by operating activities | 61,443 | 175,191 | |||||
| Financing Activities | | | | | | | |
| Issuance of long-term debt | 323,593 | 150,021 | |||||
| Retirement of preferred stock | (8 | ) | (85,247 | ) | |||
| Redemption of long-term debt | (355,192 | ) | (113,336 | ) | |||
| Change in short-term debt | 103,754 | 73,946 | |||||
| Dividends on preferred stock | (3,451 | ) | (5,037 | ) | |||
| Dividends on common stock | (17,900 | ) | (81,800 | ) | |||
| Net cash | 50,796 | (61,453 | ) | ||||
| Investing Activities | | | | | | | |
| Construction expenditures (less allowance for equity funds used during construction) | (129,152 | ) | (101,419 | ) | |||
| Net cash used in investing activities | (129,152 | ) | (101,419 | ) | |||
| Net increase (decrease) in cash and temporary cash investments | | | (16,913 | ) | | 12,319 | |
| Cash and temporary cash investments at beginning of period | | | 18,788 | | | 18,169 | |
| Cash and temporary cash investments at end of period | | $ | 1,875 | | $ | 30,488 | |
The accompanying notes as they relate to PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR Energy, Inc. are an integral part
of these consolidated financial statements.
THE QUARTER ENDED JUNE 30, 1999
Operating Revenues
The components of operating revenues and the related KWh sales are shown below:
Quarter Ended
June 30
Revenue KWh Sales
1999 1998 1999 1998
($ and KWh in millions)
Retail $278 $267 5,892 5,711
Sales for resale 174 237 6,606 9,624
Other 11 8 - -
---- ---- ------ ------
Total $463 $512 12,498 15,335
Operating revenues decreased $49 million (10%) for the quarter ended June 30,
1999, when compared to the same period for 1998. This decrease was primarily due
to decreased volumes on non-firm power sales for resale transactions related to
Cinergy's energy marketing and trading operations. Partially offsetting the
decline was an increase in the average price per KWh for retail customers and
higher retail and firm power KWh sales resulting from growth in the average
number of residential and commercial customers.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Fuel $104 $ 78
Purchased and exchanged power 133 227
---- ----
Total $237 $305
Fuel costs increased $26 million (33%) for the second quarter of 1999, as
compared to the same period last year.
An analysis of fuel costs is shown below:
Quarter Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $ 78
Increase (Decrease) due to change in:
Price of fuel (2)
Deferred fuel cost 20
KWh generation 8
----
Fuel expense - June 30, 1999 $104
Purchased and exchanged power expense decreased $94 million (41%) for the
quarter ended June 30, 1999, as compared to the same period last year. This
decline primarily reflects decreased purchases of non-firm power for resale to
others as a result of a decline in sales for resale volumes in Cinergy's energy
marketing and trading operations. Additionally, during the quarter ended June
30, 1999, a favorable adjustment of $9 million after tax was recorded as a
result of a re-evaluation of transactions included in the trading portfolio as
of December 31, 1998, at the time of adoption of EITF Issue 98-10. Also
contributing to the decline was the provision of $5 million of reserves for the
energy marketing and trading business recorded during the second quarter of
1998.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Other operation $ 82 $161
Maintenance 35 28
---- ----
Total $117 $189
Other operation expenses decreased $79 million (49%) for the quarter ended June
30, 1999, as compared to the same period of 1998. This decrease is primarily due
to the one-time charge of $80 million recorded during the second quarter of 1998
reflecting the implementation of a 1989 settlement of a dispute with the WVPA.
Maintenance expense increased $7 million (25%) for the quarter ended June 30,
1999, as compared to the same period of 1998. This increase is due to an
increase in maintenance activities associated with planned outages at certain
production facilities.
Depreciation and Amortization
Depreciation and amortization expense increased $2 million (5%) for the quarter
ended June 30, 1999, as compared to the same period of 1998, primarily due to
additions to depreciable plant.
Interest
The $2 million (10%) decrease in interest expense for the quarter ended June 30,
1999, as compared to the same period of 1998, is primarily due to a decrease in
other interest expense resulting from a reduction in average short-term
borrowings and lower short-term interest rates.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Operating Revenues
The components of operating revenues and the related KWh sales are shown below:
Six Months Ended
June 30
Revenue KWh Sales
1999 1998 1999 1998
($ and KWh in millions)
Retail $596 $ 564 12,285 11,951
Sales for resale 331 523 12,888 21,809
Other 19 17 N/A N/A
---- ------ ------ ------
Total $946 $1,104 25,173 33,760
Total operating revenues decreased $158 million (14%) for the six months ended
June 30, 1999, when compared to the same period last year. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to Cinergy's energy marketing and trading operations.
Partially offsetting this decrease were increased volumes on retail sales and
firm sales and a higher average price per KWh received on retail and non-firm
sales for resale transactions. Also contributing to the increase were higher
retail KWh sales resulting from an increase in retail and industrial customers.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Fuel $211 $170
Purchased and exchanged power 261 488
---- ----
Total $472 $658
Fuel costs increased $41 million (24%) for the six months ended June 30, 1999,
when compared to the same period last year.
An analysis of fuel costs is shown below:
Six Months Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $170
Increase (Decrease) due to change in:
Price of fuel (6)
Deferred fuel cost 33
KWh generation 14
----
Fuel expense - June 30, 1999 $211
Purchased and exchanged power expense decreased $227 million (47%) for the six
months ended June 30, 1999, when compared to the same period last year,
primarily reflecting decreased purchases of non-firm power for resale to others.
Additionally, during the quarter ended June 30, 1999, a favorable adjustment of
$9 million after tax was recorded as a result of a re-evaluation of transactions
included in the trading portfolio as of December 31, 1998, at the time of
adoption of EITF Issue 98-10. Also contributing to the decline was the provision
of $6 million of reserves for the energy marketing and trading business recorded
during the six months ended June 30, 1998.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Other operation $170 $243
Maintenance 60 47
---- ----
Total $230 $290
Other operation expenses decreased $73 million (30%) for the six months ended
June 30, 1999, as compared to the same period last year. This decrease is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA.
Maintenance expenses increased $13 million (28%) for the six months ended June
30, 1999, as compared to the same period of 1998. The increase was primarily due
to an increase in production maintenance activities associated with planned
outages at certain production facilities.
Depreciation and Amortization
Depreciation and amortization expense increased $3 million (5%) for the six
months ended June 30, 1999, as compared to the same period of 1998, primarily
due to additions to depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $1 million for the six months
ended June 30, 1999, as compared to the same period of 1998, is due primarily to
a decrease in interest income and a decrease in the level of expenses associated
with the sales of accounts receivable.
Interest
The decrease in interest expense of $4 million (9%) for the six months ended
June 30, 1999, as compared to the same period last year, was primarily due to a
decrease in other interest expense resulting from a reduction in average
short-term borrowings and lower short-term interest rates.
Preferred Dividend Requirement
The decrease in preferred dividend requirement of $1 million (31%) for the six
months ended June 30, 1999, as compared to the same period of 1998, is primarily
attributable to PSI's redemption of all outstanding shares of its 7.44% Series
Cumulative Preferred Stock on March 1, 1998.
AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
| | September 30 1999 | December 31 1998 | ||||
|---|---|---|---|---|---|---|
| | (unaudited) | | ||||
| | (dollars in thousands) | |||||
| Current Assets | ||||||
| Cash and temporary cash investments | $ | 5,733 | $ | 3,244 | ||
| Accounts receivable less accumulated provision for doubtful accounts of | 4,688 | 14,125 | ||||
| Accounts receivable from affiliated companies | 1,493 | 666 | ||||
| Materials, supplies, and fuel | 9,230 | 8,269 | ||||
| Prepayments and other | 390 | 308 | ||||
| 21,534 | 26,612 | |||||
| Utility Plant | ||||||
| In service | ||||||
| Electric | 241,005 | 232,222 | ||||
| Gas | 170,482 | 164,040 | ||||
| Common | 20,410 | 18,908 | ||||
| 431,897 | 415,170 | |||||
| Accumulated depreciation | 152,061 | 143,386 | ||||
| 279,836 | 271,784 | |||||
| Construction work in progress | 11,545 | 11,444 | ||||
| Total utility plant | 291,381 | 283,228 | ||||
| Other Assets | ||||||
| Regulatory assets | 10,723 | 10,978 | ||||
| Other | 5,733 | 3,767 | ||||
| 16,456 | 14,745 | |||||
| $ | 329,371 | $ | 324,585 | |||
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDER'S EQUITY
| | September 30 1999 | December 31 1998 | ||||
|---|---|---|---|---|---|---|
| | (unaudited) | | ||||
| | (dollars in thousands) | |||||
| Current Liabilities | ||||||
| Accounts payable | $ | 5,350 | $ | 5,903 | ||
| Accounts payable to affiliated companies | 18,075 | 14,986 | ||||
| Accrued taxes | 2,230 | 3,216 | ||||
| Accrued interest | 1,327 | 1,959 | ||||
| Long-term debt due within one year | — | 20,000 | ||||
| Notes payable to affiliated companies | 30,167 | 31,817 | ||||
| Other | 3,961 | 4,247 | ||||
| 61,110 | 82,128 | |||||
| Non-Current Liabilities | ||||||
| Long-term debt | 74,549 | 54,553 | ||||
| Deferred income taxes | 24,526 | 26,134 | ||||
| Unamortized investment tax credits | 4,029 | 4,238 | ||||
| Accrued pension and other postretirement benefit costs | 12,206 | 11,678 | ||||
| Amounts due to customers | 9,841 | 8,959 | ||||
| Other | 10,195 | 8,077 | ||||
| 135,346 | 113,639 | |||||
| Total liabilities | 196,456 | 195,767 | ||||
| Common Stock Equity | ||||||
| Common stock | 8,780 | 8,780 | ||||
| Paid-in capital | 19,525 | 19,525 | ||||
| Retained earnings | 104,610 | 100,513 | ||||
| Total common stock equity | 132,915 | 128,818 | ||||
| $ | 329,371 | $ | 324,585 | |||
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
(unaudited)
| | Quarter Ended September 30 | Year To Date September 30 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | 1999 | 1998 | |||||||||
| | (in thousands) | ||||||||||||
| Operating Revenues | |||||||||||||
| Electric | $ | 63,041 | $ | 56,368 | $ | 160,781 | $ | 144,903 | |||||
| Gas | 6,242 | 7,077 | 48,326 | 44,183 | |||||||||
| 69,283 | 63,445 | 209,107 | 189,086 | ||||||||||
| Operating Expenses | |||||||||||||
| Electricity purchased from parent company for resale | 49,166 | 41,827 | 122,756 | 110,338 | |||||||||
| Gas purchased | 2,229 | 2,691 | 23,112 | 23,211 | |||||||||
| Other operation and maintenance | 8,720 | 8,987 | 27,595 | 27,319 | |||||||||
| Depreciation | 3,906 | 3,296 | 10,983 | 9,737 | |||||||||
| Taxes other than income taxes | 1,024 | 1,024 | 3,134 | 3,058 | |||||||||
| 65,045 | 57,825 | 187,580 | 173,663 | ||||||||||
| Operating Income | 4,238 | 5,620 | 21,527 | 15,423 | |||||||||
| Other Income and | |||||||||||||
| Miscellaneous—net | (464 | ) | (175 | ) | (1,153 | ) | (1,051 | ) | |||||
| Interest | (1,437 | ) | (1,244 | ) | (4,432 | ) | (3,328 | ) | |||||
| (1,901 | ) | (1,419 | ) | (5,585 | ) | (4,379 | ) | ||||||
| Income | 2,337 | 4,201 | 15,942 | 11,044 | |||||||||
| Income Taxes | 1,226 | 1,696 | 6,869 | 4,418 | |||||||||
| Net Income | | $ | 1,111 | | $ | 2,505 | | $ | 9,073 | | $ | 6,626 | |
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
| | Year to Date September 30 | ||||||
|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | |||||
| | (in thousands) | ||||||
| Operating Activities | |||||||
| Net income | $ | 9,073 | $ | 6,626 | |||
| Items providing (using) cash currently: | |||||||
| Depreciation | 10,983 | 9,737 | |||||
| Deferred income taxes and investment tax credits | (936 | ) | 1,763 | ||||
| Allowance for equity funds used during construction | (43 | ) | (150 | ) | |||
| Regulatory assets | 103 | (31 | ) | ||||
| Changes in current assets and current liabilities | |||||||
| Accounts and notes receivable, net of reserves on receivables sold | 6,770 | 3,515 | |||||
| Materials, supplies, and fuel | (961 | ) | (3,580 | ) | |||
| Accounts payable | 2,536 | (6,992 | ) | ||||
| Accrued taxes and interest | (1,618 | ) | (4,107 | ) | |||
| Other items | 2,425 | (330 | ) | ||||
| Net cash provided by operating activities | 28,332 | 6,451 | |||||
| Financing Activities | |||||||
| Issuance of long-term debt | 19,818 | 20,127 | |||||
| Redemption of long-term debt | (20,000 | ) | (10,118 | ) | |||
| Change in short-term debt | (1,650 | ) | 16,257 | ||||
| Dividends on common stock | (4,975 | ) | (4,975 | ) | |||
| Net cash | (6,807 | ) | 21,291 | ||||
| Investing Activities | |||||||
| Construction expenditures (less allowance for equity funds used during construction) | (19,036 | ) | (25,486 | ) | |||
| Net cash used in investing activities | (19,036 | ) | (25,486 | ) | |||
| Net increase | 2,489 | 2,256 | |||||
| Cash and temporary cash investments at beginning of period | 3,244 | 546 | |||||
| Cash and temporary cash investments at end of period | $ | 5,733 | $ | 2,802 | |||
The accompanying notes as comparedthey relate to the same period last year. This increase primarily
reflects higher retail KWh sales resulting from growth in the average numberThe Union Light, Heat and Power Company are an integral part of residential and commercial customers and an increase in unbilled revenues.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
June 30
Revenue Mcf Sales
1999 1998 1999_ 1998_
($ and mcf in thousands)
Retail $8,024 $7,756 1,099 1,188
Transportation 1,060 870 976 850
------ ------ ----- -----
Total $9,084 $8,626 2,075 2,038
Gas operating revenues increased $.5 million (5%) in the second quarter of 1999,
when compared to the same period last year, primarily due to an increase in the
price per mcf which was partially offset by a decrease in the volume of mcfs
sold.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased increased $2 million (7%) for the quarter ended June 30,
1999, as compared to the same period last year. This increase reflects higher
volume purchased from CG&E.
Gas Purchased
Gas purchased for the quarter ended June 30, 1999, decreased $.6 million (15%),
when compared to the same period last year, primarily due to a decrease in the
volumes of gas purchased.
Depreciation
Depreciation increased $.3 million (9%) for the quarter ended June 30, 1999, as
compared to the same period last year, due to additions to depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $80 thousand for the quarter
ended June 30, 1999, as compared to the same period of 1998, is primarily due to
a decrease in the level of expenses associated with the sales of accounts
receivable.
Interest
The increase in interest expense of $.5 million (48%) for the quarter ended June
30, 1999, as compared to the same period last year, was primarily due to the net
issuance of approximately $30 million of long-term debt during the period of
April through December 1998.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $9 million (10%) for the six months ended
June 30, 1999, from the comparable period of 1998. This increase primarily
reflects higher retail KWh sales resulting from growth in the average number of
residential and commercial customers and an increase in unbilled revenues.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Six Months Ended
June 30
Revenue Mcf Sales
1999 1998 1999 1998
($ and mcf in thousands)
Retail $39,579 $35,022 6,318 5,679
Transportation 2,505 2,084 2,054 1,956
------- ------- ----- -----
Total $42,084 $37,106 8,372 7,635
Gas operating revenues increased $5 million (13%) for the six months ended June
30, 1999, when compared to the same period of last year. An increase in mcf
volumes sold and used per customer primarily attributed to the revenue increase.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased increased $5 million (7%) for the six months ended June
30, 1999, as compared to the same period last year. This increase reflects
higher volumes purchased from CG&E.
Gas Purchased
Gas purchased for the six months ended June 30, 1999, increased $.4 million
(2%), when compared to the same period in 1998. This increase reflects an
increase in the volumes and average cost per mcf of gas purchased.
Depreciation
Depreciation increased $.6 million (10%) for the six months ended June 30, 1999,
as compared to the same period last year, due to additions to depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $.2 million for the six
months ended June 30, 1999, as compared to the same period of 1998, is due
primarily to a decrease in the level of expenses associated with the sales of
accounts receivable.
Interest
The increase in interest expense of $.9 million (44%) for the six months ended
June 30, 1999, as compared to the same period last year, was due to changes in
interest on long-term debt and allowance for borrowed funds used during
construction. The increase in interest on long-term debt was due primarily to
the net issuance of approximately $30 million of long-term debt during the
period from April through December 1998.
these financial statements.
Cinergy, CG&E,&E, PSI, and ULH&P
&P
Certain amounts in the 1998 Financial Statements have been reclassified to conform to the 1999 presentation.
Cinergy
Cinergy and CG&E
&E
On
July 27, 1999, CG&E&E redeemed early a $23 million principal amount of its 7.20% First Mortgage Bonds, due October 1, 2023, at a redemption price of 96.75%.
Cinergy and PSI
Also on April 30, 1999, PSI issued $97 million principal amount of its 6.52% Senior Notes due 2009 in exchange for a like principal amount of outstanding 7.25% JUMPS(sm) due 2028.
The Secured Medium-term Notes and JUMPS(sm) received by PSI in the exchange transactions described above have been cancelled.
On August 12, 1999, PSI redeemed early a $7 million principal amount of its 7.125% First Mortgage Bonds, Series AAA, due February 1, 2024, at a redemption price of 95%.
CG&E and ULH&P
Cinergy, CG&E,&E, and PSI
7.
Although
physical transactions are entered with the intent and ability to settle the contract with company-owned generation, it is likely that, from time to time, due to numerous factors such as
generating station outages, native load requirements, and weather, power used to settle the physical transactions will be required to be purchased on the open market. Depending on the factors giving
rise to these open market purchases, the cost of such purchases could be in excess of the associated revenues. Losses such as
thisSuch losses, which could be material, will be recognized as the power is delivered.
In addition, physical
contracts are subjectReference is made to permanent impairment tests. At June 30,the Form 8-K filed on August 10, 1999, management has concluded that there is no impairment.
which describes the earnings impact of extreme weather experienced in July 1999.
Prior
to December 31,1998,31, 1998, the transactions now included in the trading portfolio were accounted for and valued at the aggregate lower of cost or market. Under this method, only the net value
of the entire portfolio was recorded as a liability in the Consolidated Balance Sheets.
During the quarter ended June 30, 1999, a favorable adjustment of $18
million after tax was recorded as a result of a re-evaluation of
transactions included in the trading portfolio as of December 31, 1998 at
the time of adoption of EITF Issue 98-10.
Contracts in the trading portfolio are valued at end-of-period market
prices, utilizing factors such as closing exchange prices, broker and
over-the-counter quotations, and model pricing. Model pricing considers
time value and volatility factors underlying any options and contractual
commitments. Management expects that some of these obligations, even though
considered as trading contracts, will ultimately be settled from time to
time by using company-owned generation. The cost of this generation is
typically below the market prices at which the trading portfolio has been
valued.
Because
of the volatility currently experienced in the power markets, and the factors discussed above pertaining to both the physical and trading activities, volatility in future earnings losses)(losses)
from period to period in the ECBU is likely (see Note 16).
likely.
Cinergy's
ECBU also physically markets natural gas and trades natural gas and other energy-related products. All of these operations are accounted for nusing the mark-to-market
method fof accounting. evenuesRevenues and costs from physical marketing are recorded gross in the Consolidated Statements of Income as contracts are settled due to the exchanging of title to the natural gas
throughout the earnings process. All non-physical transactions are recorded net in the Consolidated Statements of Income. Energy risk management assets and liabilities and gross margins
from these trading activities currently are not significant.
Cinergy, CG&E,&E, and PSI
8.
Cinergy
and its subsidiaries utilize foreign exchange forward contracts and currency swaps to hedge certain of its net investments in foreign operations. Accordingly, any translation gains or losses related
to the foreign exchange forward contracts or the principal exchange on the currency swap are recorded in "Accumulated other comprehensive loss," which is a separate component of common stock equity.
Aggregate translation losses related to these instruments are reflected in "Current LiabilitieLiabilities" in the Consolidated Balance Sheets. In connection with the sale of its interest in Avon Energy (see
Note 12)14), Cinergy terminated the hedging contracts related to its investment in July 1999. Additionally, during the second quarter of 1999, the Company settled the forward exchange
contracts related to its net investments in its Czech Republic subsidiary. The settlement costs were not material. After closing out these contracts, the remaining foreign exchange hedging contracts
are not significant.
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 interesinterest
amounts, calculated on agreed upon notional principal amounts, arare recognized in the Consolidated Statements of Income as a component of interest expense as realized over the life of the agreement.
Additionally, during the second quarter of 1999, the Company settled the
forward exchange contracts related to its investments in the Czech
Republic. The settlement costs were not material.
Cinergy, CG&E,&E, PSI, and ULH&P
9. &P
Cinergy and PSI
Coal tar residues, related hydrocarbons, and various metals associated with MGP sites have been found at former MGP sites in Indiana, including at least 21 MGP sites which PSI or its predecessors previously owned. PSI acquired four of the sites from NIPSCO in 1931 and at the same time it sold NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSI sold 19 of these sites (including the four it acquired from NIPSCO) to Indiana Gas and Water Company, Inc. (now IGC). One of the 19 sites, located in Rochester, Indiana, was later sold by IGC to NIPSCO.
IGC and NIPSCO both made claims against PSI, contending that PSI is a Potentially Responsible Party under the CERCLA with respect to the 21 MGP sites, and therefore legally responsible for the costs of investigating and remediating these sites. Moreover, in August 1997, NIPSCO filed suit against PSI in federal court, 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.
In November 1998, NIPSCO, IGC, and PSI entered into a Site Participation and Cost Sharing Agreement by which they settled allocation of CERCLA liability for past and future costs, among the three companies, at seven MGP sites in Indiana. Pursuant to this agreement, NIPSCO's lawsuit against PSI was dismissed. The parties have assigned one of the parties lead responsibility for managing further investigation and remediation activities at each of the sites. Similar agreements were reached between IGC and PSI which allocate CERCLA liability at 14 MGP sites with which NIPSCO had no involvement. These agreements conclude all CERCLA and similar claims between the three companies relative to MGP sites. Pursuant to the agreements and applicable laws, the parties are continuing to investigate and remediate the sites as appropriate. Investigation and cleanup of some of the sites is subject to oversight by the IDEM.
PSI has placed its insurance carriers on notice of IGC's, NIPSCO's, and the IDEM's claims related to MGP sites. In April 1998, PSI filed suit in Hendricks County Circuit Court against its general liability insurance carriers seeking, among other matters, a declaratory judgment that its insurance carriers are obligated to defend MGP claims against PSI or pay PSI's costs of defense and to indemnify PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims associated with MGP sites.
The case was moved to the Hendricks Superior Court 1 on a motion for change of judge. The Hendricks Superior Court 1 has set the case for trial beginning on September 11, 2000, and ordered the parties to meet certain deadlines for discovery proceedings based upon this trial date. PSI cannot predict the outcome of this litigation.
Based upon the work performed to date, PSI has accrued costs for the sites related to investigation, remediation, and groundwater monitoring. Estimated costs of certain remedial activities are accrued when such costs are probable and reasonably estimable. PSI does not believe it can provide an estimate of the reasonably possible total remediation costs for any site prior to completion of a remedial investigation/feasibility study and the development of some sense of the timing for the implementation of the potential remedial alternatives, to the extent such remediation may be required. Accordingly, the total costs that may be incurred in connection with the remediation of all sites, to the extent remediation is necessary, cannot be determined at this time. These future costs at the 21 Indiana MGP sites, 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 the 21 MGP sites could be material to Cinergy's and PSI's financial condition or results of operations.
Cinergy, CG&E,&E, and ULH&P
&P
CG&E&E
and its utility subsidiaries are aware of potential sites where MGP activities have occurred at some time in the past. None of these sites is known to present a risk to the environment. CG&E&E and
its utility subsidiaries have undertaken preliminary site assessments to obtain more information about some of these MGP sites.
Cinergy, CG&E,&E, PSI, and ULH&P
10. &P
The Company has not yet quantified the impacts of adopting Statement 133 on its consolidated financial statements. However, accounting prescribed under Statement 133 could increase volatility in earnings and other comprehensive income.
Cinergy
11.
Cinergy
12.
Pro forma information is presented below:
| | Quarter Ended September 30, 1999 | Nine Months Ended September 30, 1999 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Net Income | Earnings Per | Net Income | Earnings Per | ||||||||
| | (in millions, except for earnings per | |||||||||||
| | (unaudited) | |||||||||||
| Cinergy | $ | 122 | $ | 0.77 | $ | 308 | $ | 1.94 | ||||
| Pro forma adjustments: | ||||||||||||
| Equity in earnings of Avon Energy | — | (58 | ) | |||||||||
| Gain on sale of investment in Avon Energy | (99 | ) | (99 | ) | ||||||||
| Interest expense | — | 19 | ||||||||||
| Income taxes | 31 | 46 | ||||||||||
| Pro forma result | $ | 54 | $ | 0.34 | $ | 216 | $ | 1.36 | ||||
Cinergy and PSI
13.
During
the third quarter of 1998, PSI reached an agreement with Dynegy to purchase the remainder of its 25-year contract for coal gasification services. The settlement agreement specifies
a purchase price of $249$247 million. The proposed purchase, which is contingent upon regulatory
approval satisfactory to PSI, could be completed in 1999. PSI is
investigating financing alternatives. The transaction, if approved as
proposed, is not expected to have a material impact on PSI's earnings.
In
anticipation of the buyout, PSI and the UCC have comecame to a settlement agreement with respect to the proper ratemaking treatment of the buyout fee and other buyout implementation costs.costs, in
June 1999.
The agreement entered into on June
21, 1999, provides for PSI's retail electric rates to be decreased to eliminate jurisdictional costs associated with the gasification services agreement. Additionally, the agreement allows PSI to
recover the retail electric jurisdictional portion of the buyout fee and the associated buyout implementation costs through its rates with carrying costs on unrecovered amounts, over an
eighteen-year period. The settlement agreement has been
submitted toIn September 1999, the IURC approved the settlement agreement. In September 1999, PSI recorded a regulatory asset to reflect the buyout fee and the
associated buyout implementation costs. In October 1999, PSI issued $265 million in debentures due in 2007 to fund the buyout of the remaining term of the contract and for approval.
14. the estimated
cost of the plant modifications. For further discussion on these debentures, see Note 7.
Cinergy, CG&E,&E, PSI, and ULH&P
15. &P
The ECBU operates and maintains, exclusive of certain jointly-owned plant, all of the Company's domestic electric generation facilities. In addition to the production of electric power, all energy risk management, marketing, and proprietary arbitrage trading, with the exception of electric and gas retail sales, is conducted through the ECBU. Revenues from external customers are derived from the ECBU's marketing, trading, and risk management activities. Intersegment revenues are derived from the sale of electric power to the EDBU.
The EDBU plans, constructs, operates, and maintains the Company's transmission and distribution systems and provides gas and electric energy to end users. Revenues from customers other than end users are primarily derived from the transmission of electric power through the Company's transmission system.
The
CIBU manages the development, sales, and marketing of domestic, non-regulated wholesaleretail energy and energy-related products and services. Most of the CIBU's revenues are derived from the
sales of suchthese products and services to external, end-use customers. In addition, some of the CIBU's activities are conducted through joint-venture affiliates, including the construction
and sale or lease of cogeneration and trigeneration facilities to large commercial/industrial customers and energy management services to third parties.
The IBU directs and manages all of the Company's international business holdings and domestic renewable assets, which include wholly-owned subsidiaries and equity investments. Revenues and equity earnings from unconsolidated companies are primarily derived from energy-related businesses.
Transfer
pricing for sales of electric energy and sales of electric and gas transmission and distribution services between the ECBU and EDBU are derived from the operating utilities' retail and
wholesale rate structures.
Financial results by business unit for the quarters ended September 30, 1999, and 1998, are as follows:
| | 1999 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Cinergy Business Units | | | | ||||||||||||||||||||
| | All Other (1) | Reconciling Eliminations (2) | | |||||||||||||||||||||
| | ECBU | EDBU | CIBU | IBU | Total | Consolidated | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||
| External Customers | $ | 878,291 | $ | 880,987 | $ | 12,892 | $ | 10,028 | $ | 1,782,198 | $ | — | $ | — | $ | 1,782,198 | ||||||||
| Intersegment Revenues | 548,908 | — | — | — | 548,908 | — | (548,908 | ) | — | |||||||||||||||
| Segment Profit (Loss) Before Taxes | 9,434 | 84,016 | (2,492 | ) | 92,202 | 183,160 | 6,256 | — | 189,416 | |||||||||||||||
| | 1998 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Cinergy Business Units | | | | ||||||||||||||||||||
| | All Other (1) | Reconciling Eliminations (2) | | |||||||||||||||||||||
| | ECBU | EDBU | CIBU | IBU | Total | Consolidated | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||
| External Customers | $ | 1,143,295 | $ | 819,037 | $ | 12,435 | $ | 1,944 | $ | 1,976,711 | $ | — | $ | — | $ | 1,976,711 | ||||||||
| Intersegment Revenues | 496,356 | — | — | — | 496,356 | — | (496,356 | ) | — | |||||||||||||||
| Segment Profit (Loss) Before Taxes | 84,714 | 80,830 | (3,236 | ) | (4,056 | ) | 158,252 | (3,329 | ) | — | 154,923 | |||||||||||||
Financial results by business unit for the nine months ended September 30, 1999, and 1998, are as follows:
| | 1999 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Cinergy Business Units | | | | ||||||||||||||||||||
| | All Other (1) | Reconciling Eliminations (2) | | |||||||||||||||||||||
| | ECBU | EDBU | CIBU | IBU | Total | Consolidated | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||
| External Customers | $ | 1,923,931 | $ | 2,456,546 | $ | 41,176 | $ | 38,223 | $ | 4,459,876 | $ | — | $ | — | $ | 4,459,876 | ||||||||
| Intersegment Revenues | 1,429,222 | — | — | — | 1,429,222 | — | (1,429,222 | ) | — | |||||||||||||||
| Segment Profit (Loss) Before Taxes | 138,509 | 233,904 | (10,156 | ) | 121,711 | 483,968 | $ | 1,164 | — | 485,132 | ||||||||||||||
| | 1998 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Cinergy Business Units | | | | ||||||||||||||||||||
| | All Other (1) | Reconciling Eliminations (2) | | |||||||||||||||||||||
| | ECBU | EDBU | CIBU | IBU | Total | Consolidated | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||
| External Customers | $ | 2,112,753 | $ | 2,340,566 | $ | 36,843 | $ | 2,719 | $ | 4,492,881 | $ | — | $ | — | $ | 4,492,881 | ||||||||
| Intersegment Revenues | 1,364,627 | — | — | — | 1,364,627 | — | (1,364,627 | ) | — | |||||||||||||||
| Segment Profit (Loss) Before Taxes | 126,621 | 182,433 | (10,908 | ) | (8,981 | ) | 289,165 | (16,552 | ) | — | 272,613 | |||||||||||||
Total segment assets at September 30, 1999, and December 31, 1998, are as follows:
| | Cinergy Business Units | | | | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | All Other (1) | Reconciling Eliminations (2) | | |||||||||||||||||||||
| | ECBU | EDBU | CIBU | IBU | Total | Consolidated | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Total Segment Assets at | $ | 5,067,555 | $ | 4,053,292 | $ | 70,444 | $ | 303,500 | $ | 9,494,791 | $ | 39,696 | $ | — | $ | 9,534,487 | ||||||||
| Total Segment Assets at December 31, 1998 | $ | 4,863,014 | $ | 3,987,055 | $ | 42,107 | $ | 751,861 | $ | 9,644,037 | $ | 43,344 | $ | — | $ | 9,687,381 | ||||||||
Cinergy, CG&E,&E, and PSI
On
November 3, 1999, the EPA sued Cinergy, CG&E, and PSI 16. During latein the U.S. District Court for the Southern District of Indiana. The suit alleges that Cinergy and CG&E violated the CAA by conducting
various repairs and maintenance activities at Beckjord during the 1980's and early 1990's without a PSD permit and without installing BACT to reduce emissions from the plant. It further alleges that
Cinergy and PSI conducted maintenance and repair work at Cayuga during the 1980's and 1990's without obtaining a PSD permit or installing BACT. In addition, with respect to units 1 and 2 at Cayuga,
the
EPA also alleges that Cinergy and PSI failed to comply with the NSPS. The suit seeks (1) injunctive relief to require Cinergy, CG&E, and/or PSI to install pollution control technology on each
of the units which is the subject of the suit, and (2) civil penalties in amounts of up to $25,000 per day for each violation occurring on or before January 30, 1997, and $27,500 per day
for each violation after January 30, 1997. Cinergy, CG&E, and PSI believe that the allegations in the complaint are without merit and plan to defend the suit in court. At this time, it is not
possible to determine the likelihood that the EPA will prevail on its claims or the magnitude of the potential liability.
Also on November 3, 1999, the EPA filed a notice of violation against Cinergy, CG&E, and PSI alleging that they modified certain power plants without obtaining NSR permits. Specifically, it alleges that Cinergy and PSI modified Cayuga, Wabash River, and Gallagher in violation of the NSR regulations of the CAA and the related state laws and regulations. It also alleges violations of the NSR program by Cinergy and CG&E at Beckjord. The notice of violation indicates that the EPA may issue an administrative penalty order or file a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. By a letter accompanying the complaint described in the previous paragraph, the Department of Justice has informed Cinergy, CG&E, and PSI that upon the expiration of the thirty day waiting period, it will amend its complaint to add the violations contained in the notice to its civil complaint. Cinergy, CG&E, and PSI believe the allegations in the notice of violation are without merit. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or the magnitude of the potential liability.
Cinergy and CG&E have been informed by Columbus Southern Power Company, a subsidiary of American Electric Power Company, the operator of Conesville Station, that on November 3, 1999, U.S. EPA issued a notice of violation alleging violations of the Clean Air Act. Conesville Unit 4 is owned by CSP, The Dayton Power and Light Company, and CG&E. The notice of violation indicates that the EPA may issue an administrative penalty order or file a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. Cinergy and CG&E believe the allegations in the notice of violation are without merit. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or the magnitude of the potential liability.
Cinergy and CG&E
The legislation provides Ohio electric utilities with an opportunity to recover PUCO approved transition costs. Transition costs are recovered through payment of a frozen unbundled generation rate by customers who do not switch generation suppliers and through payment of a non-bypassable transition charge by customers who switch generation suppliers. Transition costs can include generation-related regulatory assets, above-market generation costs, employee severance and retraining costs and other costs. The Company must file a transition plan with the PUCO by January 3, 2000 and the PUCO is required to issue a transition order no later than October 31, 2000.
As
discussed in Note 1(f) of the Notes to Consolidated Financial Statements in the December 31, 1998 Form 10-K, the Company defers as regulatory assets the amount of
probable future revenue associated with deferred costs to be recovered from customers through the ratemaking process. At September 30, 1999, the amount of regulatory assets recorded in the
accompanying financial statements relating to
CG&E's generation is approximately $400 million before related tax effects. Whether the Company will have any additional transition costs related to an economic impairment of its generating
assets is dependent on several factors, including the future market price of electricity. CG&E intends to seek recovery in its transition plan filing of all generation-related regulatory assets and
any other transition costs which Cinergy operates
experienced extreme weather conditions.may be identified. The Company is currently unable to predict the outcome of the regulatory process and its impact on the results of operation, cash flows and
financial position. As a result, of these conditions,
Cinergy expects a reduction in net income for July of $57 million (after
tax, $16 million and $41 million for CG&E and PSI, respectively), or $.36
per share basic and dilutive. Cash losses reflecting costs to serve
wholesale power contracts and anticipated liquidated damage claims totaled
$73 million, $27 million, and $46 million after tax or $.46 per share basic
and dilutive for Cinergy, CG&E, and PSI, respectively. Also, as a result of
the extreme weather, increased sales from retail operations contributed $16
million, $11 million, and $5 million or $.10 per share basic and dilutive
after tax for Cinergy, CG&E, and PSI, respectively.
The extreme weather conditions required the purchase of power needed to
supplement generation to meet record wholesale and retail customer demand.
The anticipated liquidated damages are related to supply curtailments to
eight power marketers for four-to six hours on July 30.
These weather conditions in Cinergy's service area included record-setting
temperatures and extraordinary levels of demand. Preliminary figures
indicate electric demand in the Cinergy system's tri-state service
territory peaked at 10,858 MW July 22. On July 30 demand peaked at an
estimated 10,811 MW. An aggressive call for voluntary conservation,
including 2,600 contacts with large-volume power users as well as the
triggering of standard industrial interruptible contracts, reduced the
potential peak by more than 600 MW.
Additionally, the Company experienced regional transmission constraints
which prevented it from receiving significant amounts of prescheduled power
and further limited hourly purchases fromwill continue to apply Statement 71 until the north, east, and west for
both service territory and other wholesale obligations.
The Companyregulatory process is continuing to consider a number of strategies to address the
electricity market volatility being encountered as the industry
restructures, including construction of additional generation capacity,
securing additional sources of supply, possible expansion of or exit from
the power supply business, and pursuit of asset flexibility and customer
choice in all states where it operates. The Company intends to pursue the
alternatives which it believes will appropriately enable it to address the
volatility of the developing eletricity market.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cinergy, CG&E,&E, PSI, and ULH&P&P
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in this "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations" in "Part I. Financial Information"section reflect and elucidate
Cinergy's 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. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially
from the forward-looking statements. 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 generally affecting operations, such as unusual weather conditions, unscheduled
generation outages; unusual maintenance or repairs, unanticipated changes in fuel costs, environmental incidents, or system constraints; legislative and regulatory initiatives regarding deregulation
and restructuring of the industry; increased competition in the electric and gas utility environment; challenges related to Year 2000 readiness; regulatory factors; changes in accounting principles or
policies; adverse political, legal, or economic conditions; changing market conditions; success of efforts to invest in and develop new opportunities in non-traditional business;
availability or cost of capital; employee workforce factors; legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures; costs and effects
of legal and administrative proceedings; changes in legislative requirements; and other risks. The SEC's rules do not require forward-looking statements to be revised or updated, and Cinergy does not
intend to do so.
FINANCIAL CONDITION
Recent Developments
Cinergy
Acquisitions During the first sixnine months of 1999, Cinergy through its
international subsidiaries, invested an additional
$27$235 million in domestic and international unconsolidated subsidiaries.
On September 30, 1999, Cinergy (through a CC&T subsidiary) formed a partnership with Duke Energy North America LLC. This partnership will jointly own three wholesale generating facilities with total capacity of approximately 1,400 megawatts. These facilities will be natural gas-fired peaking stations with commercial operation anticipated for the summer of 2000.
Dispositions See Note 1214 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Subsequent Event See Note 16
Power Supply Business The Company continues to consider a number of strategies to address the
electricity market volatility during the industry restructuring. In November 1999, the Company's board
of directors unanimously determined to remain in the supply segment of the "Noteselectric industry as it moves to Financial Statements" in "Part I.
Financial Information."
a competitive environment.
PSI
Securities Ratings Changes In October, Fitch IBCA changed their ratings for the following PSI securities: Secured Debt to A- from A, Senior Unsecured Debt to BBB+ from A-, Junior Unsecured Debt to BBB from BBB+, and Preferred Stock to BBB from BBB+.
Competitive Pressures
Cinergy, CG&E,&E, PSI, and ULH&P
&P
Federal The Clinton Administration has introduced a bill--thebill—the Comprehensive
Electricity Competition Act--thatAct—that would grant all retail customers of electricity the right to choose their electricity supplier beginning January 1, 2003. The legislation would
allow a state regulatory authority to opt out of the retail competition system if the authority conducted a public proceeding and determined that the electric customers of that state would be better
served by a monopoly system or an alternative retail competition plan. A "compromise bipartisan" deregulation bill introduced on May 26, 1999 by Representatives Largent (R-Ok.) and
Markey (D-Mass.) included similar mandate and opt out provisions with an effective date of January 1, 2002.
Both
the House and the Senate continue to hold hearings on electric restructuring and to see if consensus legislation can be developed, but it is uncertain whether federal retail customer
choice legislation will be passed by this Congress.
Ohio As discussed in the 1998 Form 10-K, comprehensive electric restructuring
legislation was reintroduced in 1999 in both houses See Note 19 of the Ohio General
Assembly. One of these bills--Senate Bill 3--subsequently received approval by
both houses, and"Notes to Financial Statements" in July 1999, Ohio Governor Robert Taft signed the
restructuring legislation into law. The new law becomes effective in October
1999.
The new law calls for a competitive retail electric market starting January 1,
2001. Other details of the law include:
- - A 5% cut in the generation component of rates for every residential
customer beginning January 1, 2001;
- - Utility rates otherwise are frozen for non-switching customers through each
utility's market development period (ending no later than December 31,
2005);
- - The filing of a transition plan by each utility within 90 days of the
effective date of the law (the PUCO is given 275 days to approve or reject
a utility's filing). The transition plan must include a rate unbundling
plan, a corporate separation plan, an operational support plan, an employee
assistance plan, and a consumer education plan. The plan may also include a
quantification of utility transition costs and application to receive
transition revenues;
- - The establishment of a market development period, which is the transition
period to full market competition;
- - The recovery of transition costs throughout the market development period,
as determined by the PUCO;
- - The recovery of regulatory assets through December 31, 2010, as approved by
the PUCO;
- - The transfer of either ownership or control of the transmission system to
an independent transmission entity before December 31, 2003; and
- - The establishment of incentives to induce twenty percent (20%) of the loads
by customer class to switch providers by no later than December 31, 2003.
At this time, CG&E has not completed its transition plan and as such cannot
predict the ultimate financial impact the electric restructuring legislation
will have on future earnings and financial position.
"Part I. Financial Information."
Indiana As discussed in the 1998 Form 10-K, electric restructuring legislation supported by a group of large industrial customers was introduced into the Indiana legislature in January 1999. This legislation did not pass in the 1999 session of the Indiana General Assembly, which ended in April 1999. Cinergy anticipates that electric restructuring legislation will again be introduced in the "short session" in Indiana in 2000.
Kentucky Throughout 1999, a task force convened by the Kentucky legislature has been meeting to study the issue of electric restructuring. The legislature next meets in January 2000, and it is not certain whether an electric restructuring bill will be introduced at that time.
Regulatory Matters
Cinergy and PSI
Coal Gasification Contract Buyout Costs See Note 1315 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Cinergy and CG&E
&E
PUCO Order - —CG&E's&E's Gas Rate Order As discussed in the 1998
Form 10-K, in April 1997, CG&E&E filed a notice of appeal with the Supreme Court of Ohio challenging the disallowance of information systems costs and imputation of certain
revenues by the PUCO when it approved an overall average increase in CG&E's&E's gas revenues in December 1996. On July 7, 1999, the Supreme Court issued a ruling on the appeal supporting the
PUCO's decision to exclude a portion of the development costs of the information systems from the rate based calculation. However, the Supreme Court ruled in favor of CG&E&E on the imputed revenue
appeal, deciding the PUCO acted unlawfully in imputing certain revenues. The ruling will,
prospectively, resultresulted in a revision in rates generating a $3 million increase in annual revenues for CG&E,&E, which
represents less than a one percentage increase in retail rates. The recovery of these costs began in the third quarter of 1999.
Other Matters
Midwest ISO In July of 1999, the Midwest ISO named Matthew Cordaro as the first President and
Chief Executive Officer of the organization. It also updatedIn addition to Dr. Cordaro, the organization recently added Jim Torgeson as its expectationsChief Financial Officer. The Midwest ISO is expected to begin
operations in June of 2001.
As2001 and recently filed with the Federal Energy Regulatory Commission an appendix which once approved, would allow independent transmission companies to exist under the Midwest
ISO.
Two
additional companies have agreed to join the Midwest ISO as transmission owners—Northern States Power and Alliant Energy. The addition of August 1, 1999, there are 12these two companies expands
the total of transmission owners participating in the Midwest ISO. The participating transmission owners cover territories withISO to fourteen. This expansion increases the coverage of the Midwest ISO to include over 47,00069,000 miles of transmission lines extending
into 11portions of 16 states, and includes over
$7approximately $8.5 billion ofin transmission investment forming one of the largest ISOsISO in the country.
Repeal of the PUHCA As discussed in the 1998 Form 10-K, in February 1999, S. 313, a bill to repeal significant portions of PUHCA, was introduced in the Senate. The bill is currently awaiting action by the full Senate. In June 1999, H.R. 2363, a bill to repeal PUHCA, was introduced in the House as a companion bill to S. 313. H.R. 2363 is currently awaiting action by the House Commerce Committee.
While it is uncertain whether these bills will be enacted into law, Cinergy continues to support the repeal of this act either as part of comprehensive reform of the electric industry or as separate legislation.
Environmental Issues
Cinergy, CG&E,&E, and PSI
Ozone Transport Rulemaking As discussed in the 1998 Form 10-K, in
October 1998, the EPA finalized its Ozone Transport Rule (or NOxozone transport rule, also known as the NOX SIP Call).Call. It applies to 22 states in the eastern half of the US,U.S., including the three states in
which the
CinergyCinergy's electric utilities operate, and also proposes a model NOxnitrogen oxide (NOX) emission allowance trading program. ThisThe trading program would allow Cinergy to buy
NOX emission allowances from, or sell NOX emission allowances to, other companies as necessary. The rule recommends that states reduce NOxNOX emissions from primarily
industrial and utility sources to a certain limitlevel by May 2003. The EPA gave the affected states until September 30, 1999, to incorporate
utility NOxNOX reductions with a trading program into their SIPs (defined as a state's plan for implementing emissions reductions to address air quality concerns). If the states fail to revise their
SIPs accordingly, the EPA has proposed to implement a federal plan to accomplish NOX reductions by May 2003. The EPA must approve all SIPs.
Ohio,
Indiana, a number of other states, and various industry groups including some(some of which Cinergy is a member,member) filed legal challenges to the NOxNOX SIP Call in late 1998. Ohio and
Indiana have also provided preliminary indicationspreliminarily indicated that they will seek fewer NOxNOX reductions from the utility sector in their implementing regulations than the EPA has budgeted
in its rulemaking.
On April 30, 1999, the EPA made an affirmative technical determination on the
February 1998 northeast state CAAA Section 126 petitions seeking to reduce ozone
in the eastern US. By affirming these Section 126 petitions, the EPA makes a
finding that the named Midwest stationary sources (including all of Cinergy's
facilities) are significantly contributing to ozone problems in the northeast
for both the one- and eight-hour ozone standard. The EPA has stated that the
Section 126 petitions and the NOx SIP call requirements should be coordinated.
Therefore, the EPA will defer fully granting the relief sought by petitioners
until the affected states file their proposed SIPs in September 1999.recommended. On May 25, 1999, the Court of Appeals
granted the petitioners' request for a staydeferral of the rule and indefinitely suspended the September 30 filing deadline, pending further review by the Court of Appeals. The Court of Appeals
is now
scheduled to hearheard arguments on the case in the fall ofon November 9, 1999 makingand is expected to make a decision in early 2000.
In February 1998, the northeast states filed petitions seeking the EPA's assistance in reducing ozone in the eastern U.S. under Section 126 of the CAA. Section 126 petitions allow a state to claim that another state is contributing to its air quality problem and request that the EPA require that upwind state to reduce its emissions. On April 30, 1999, the EPA found that the Midwest stationary sources (including all of Cinergy's facilities) named in the petitions are significantly contributing to ozone problems in the northeast for both the one- and eight-hour ozone standards (health standards for ozone levels for a one- and eight-hour time period). The EPA has stated that the Section 126 petitions and the NOX SIP Call requirements should be coordinated. As with the NOX SIP Call, various industry groups filed legal challenges to the Section 126 petition findings.
Based
on the May 14a court decision (seeregarding ambient (outside) air standards (discussed below) and the May 25 court decision (previously discussed), in mid-June the EPA
(1) requested and was granted a deferral of the Section 126 rules, and (2) modified and re-proposed the Section 126 petitions
rulemaking to only address the one-hour ozone standard. The EPA alsopetitions are limited the petitions to 12 states instead of the original 22 states. NOx sources in the states of Indiana, Kentucky, and Ohio wouldmust still be required to meet the same
NOXemissions requirements. The EPA has scheduled a new rulemaking is scheduled for completionto be complete by November 1999.
Ambient Air Standards and Regional Haze As discussed in the 1998 Form 10-K,
induring 1997, the EPA revised the National Ambient Air Quality Standards for ozone and fine particulate matter. Utility NOxmatter and proposed rules for regional haze. Fine particulate matter refers to very small solid
or liquid particles in the air. Regional haze involves fine particulate matter that impairs visibility in national parks. It was anticipated that utility NOX reductions called for in the
EPA's final NOxNOX SIP call were anticipated toCall would (1) fully address both the one-hour ozone standard and the new eight-hour ozone standard.standard, and (2) partially address fine
particulate matter and regional haze concerns. With the recent challenges to the NOxNOX SIP callCall and the eight-hour ozone standard (discussed below), it is unclear to what extent
additional NOxNOX reductions would be required of utilities
to address eight-hour ozone non-attainment issues.utilities.
On
May 14, 1999, the Court of Appeals ruled that both the new eight-hour ozone standard and the fine particulate matter standard were unconstitutionalfound questionable and thereforewere
determined to be unenforceable by the EPA. In June, the EPA appealed the decision. At
this time,On October 29, 1999, the full Court of Appeals rejected the EPA's request for reconsideration. It is likely
that the EPA will appeal to the U.S. Supreme Court. Cinergy currently cannot determine the outcome of the appeals process and the effects on future emissions reduction requirements cannot be determined.requirements.
The
EPA published the final regional haze rule on July 1, 1999. This rule establishes planning and emission reduction timelines for states to use to improve visibility in
national parks throughout the US.U.S. The ultimate effect of the new regional haze rule could be requirements for (1) newer and cleaner
technologies and additional controls on conventional particulates, and/orand (2) reductions in SO2SO2 and NOxNOX emissions from utility sources. If more utility emissions reductions
are required, the compliance cost could be significant. TheCinergy currently cannot determine the outcome or effects of the states' determination cannot currently be predicted.determination.
Air Toxics As discussed in the 1998 Form 10-K, in November 1998, the
EPA finalized its ICR. Pursuant to theThe ICR requires all generating units mustto provide detailed information about coal use and mercury content. The EPA has since selected about 100 generating units for
one-time stack sampling, including Cinergy's Gibson Unit No. 3 and the Wabash River Repowering Project. The EPA is planning to make its regulatory determination on the need for
additional regulation by the fourth quarter of 2000. If more air toxics regulations are issued, the compliance cost could be significant. TheCinergy currently cannot predict the outcome or effects of the
EPA's determination cannot currently be predicted.determination.
NSR On July 21, 1992, the EPA published final regulations governing the
application The CAA's NSR provisions require that a company obtain a pre-construction
permit if it plans to build a new stationary source of new source rulespollution or make a major modification to electric generating plant repairs and
pollution control projects undertaken to comply with the CAAA. Generally, the
rule provides that plants undertaking pollution control projects will not
trigger NSR requirements. The Natural Resources Defense Council and a group of
utilities including CG&E and PSI have filed petitions for review of the
regulations with the Court of Appeals.an existing facility. In July 1998, the EPA requested commentcomments on proposed revisions to the NSR
rules whichthat would change NSR applicability by eliminating exemptions contained in the current regulation. On July 13 and 14, 1999, CG&E and PSI received fromCinergy believes that if these changes are finalized, it will be significantly harder to
maintain its facilities without triggering the NSR permitting requirements.
See
Note 18 of the "Notes to Financial Statements" in "Part I. Financial Information" for a discussion of the lawsuit filed by the EPA (Region 5) requests
under section 114as it relates to NSR issues.
On
September 15, 1999, the Attorney General of the CAAA seeking documentsState of New York issued a letter notifying Cinergy and information regarding
capital and maintenance expenditures at Beckjord and Cayuga, respectively. These
activities are partCG&E of an industry-wide investigation assessing compliance withits intent to sue under the NSR and New Source Performance Standardscitizens suit provisions of the
CAAACAA. On November 3, 1999, the Attorney General of the State of Connecticut issued a letter notifying Cinergy and CG&E of its intent to sue under the citizens suit provisions of the CAA. New
York and Connecticut allege that Cinergy and CG&E violated the CAA by constructing and continuing to operate a major modification of Beckjord without obtaining the required NSR
pre-construction permits. Under the CAA, New York
and Connecticut may not file a lawsuit against Cinergy or CG&E until at electric generating
units.
least sixty days after providing notice of the intent to sue.
MGP Sites See Note 911 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Accounting Issues
Cinergy, CG&E,&E, PSI, and ULH&P&P
New Accounting Standards See Note 1012 of the "Notes to Financial Statements" in
"Part I. Financial Information."
Market Risk Sensitive Instruments and Positions
Cinergy, CG&E,&E, and PSI
Energy Commodities Sensitivity The Company markets and trades electricity, natural gas, and
other energy-related products. The Company utilizes over-the-counter forward and option contracts for the purchase and sale of electricity and also trades exchange-traded
futures contracts. See Notes 79 and 810 of the "Notes to Financial Statements" in "Part I. Financial Information" for the Company's accounting policies for certain derivative instruments. The
Company's market risks have not changed materially from the market risks reported in the 1998 Form 10-K.
Cinergy
Exchange Rate Sensitivity The Company utilizes foreign exchange forward contracts and currency
swaps to hedge certain of its net investments in foreign operations. As part of the sale of the investment in Avon Energy, Cinergy eliminated the hedges related to the Midlands investment in
July 1999. Additionally, the Company eliminated the forward exchange contracts related to its investment in the Czech Republic. See Notes 79 and 810 of the "Notes to Financial Statements" in
"Part I. Financial Information" for the Company's accounting policies for certain derivative instruments.
Cinergy, CG&E,&E, PSI, and ULH&P&P
Interest Rate Sensitivity The Company's net exposure to changes in interest rates primarily
consists of debt instruments with floating interest rates that are benchmarked to various market indices. To manage the Company's exposure to fluctuations in interest rates and to lower funding costs,
the Company evaluates the use of, and has entered into, interest rate swaps. See Notes 79 and 810 of the "Notes to Financial Statements" in "Part I. Financial Information" for the Company's
accounting policies for certain derivative instruments. The Company's market risks have not changed materially from the market risks reported in the 1998 Form 10-K.
CAPITAL RESOURCES AND REQUIREMENTS
Cinergy, CG&E,&E, PSI, and ULH&P&P
Long-term Debt For information regarding recent issuances and redemptions of
long-term debt securities, see Notes 2, 3, 4, 5, 6, 7, and 68 of the "Notes to Financial Statements" in "Part I. Financial Information."
As
of July 31,September 30, 1999, CG&E&E, PSI, and PSIULH&P have remaining state regulatory authority for long-term debt issuance of $200 million, $30 million, and
$30 million, respectively.
ULH&P
received a state regulatory order for authority to issue long-term debt of up to
$50 million on August 5, 1999, that will expire on December 31, 2001.
Cinergy, CG&E,&E, PSI, and ULH&P&P
Short-term Debt Obligations representing notes payable and other
short-term obligations (excluding notes payable to affiliated companies) at June 30, 1999,
were as follows:
Cinergy
Established
Lines Outstanding
(in millions)
Cinergy
Committed lines
Acquisition line $ 160 $ 160
Revolving line 600 -
Commercial paper - 165
Uncommitted line 45 46*
Utility subsidiaries
Committed lines 215 -
Uncommitted lines 380 157
Pollution control notes 267 267
Non-utility subsidiary 142 42
------ ------
Total $1,809 $ 837
* Excess over Established Line represents amount sold by dealers to other
investors.
| | September 30, 1999 | |||||
|---|---|---|---|---|---|---|
| | Established Lines | Outstanding | ||||
| | (in millions) | |||||
| Cinergy | ||||||
| Committed lines | ||||||
| Revolving lines | $ | 600 | $ | — | ||
| Uncommitted lines | 45 | 5 | ||||
| Utility Subsidiaries | ||||||
| Committed lines | 195 | — | ||||
| Uncommitted lines | 380 | 32 | ||||
| Pollution control notes | 267 | 267 | ||||
| Non-utility subsidiaries | ||||||
| Revolving lines | 165 | 14 | ||||
| Short-term debt | 46 | 46 | ||||
| Total | $ | 1,698 | $ | 364 | ||
CG&E
Established
Lines Outstanding
(in millions)
Committed lines $ 85 $ -
Uncommitted lines 185 82
Pollution control notes 184 184
---- ----
Total $454 $266
&E
| | September 30, 1999 | |||||
|---|---|---|---|---|---|---|
| | Established Lines | Outstanding | ||||
| | (in millions) | |||||
| Committed lines | $ | 65 | $ | — | ||
| Uncommitted lines | 185 | 20 | ||||
| Pollution control notes | 184 | 184 | ||||
| Total | $ | 434 | $ | 204 | ||
PSI
Established
Lines Outstanding
(in millions)
Committed lines $130 $ -
Uncommitted lines 195 75
Pollution control notes 83 83
---- ----
Total $408 $158
| | September 30, 1999 | |||||
|---|---|---|---|---|---|---|
| | Established Lines | Outstanding | ||||
| | (in millions) | |||||
| Committed lines | $ | 130 | $ | — | ||
| Uncommitted lines | 195 | 12 | ||||
| Pollution control notes | 83 | 83 | ||||
| Total | $ | 408 | $ | 95 | ||
Cinergy, CG&E,&E, and PSI
Cinergy's committed lines are comprised of an acquisition line and atwo revolving line.lines. The established revolving linelines also providesprovide credit support for Cinergy's commercial paper
program, which is limited to a maximum
principal amount of $400 million. The proceeds from theCinergy did not issue commercial paper sales were used for general
corporate purposes.during the third quarter of 1999.
The
established committed lines for CG&E&E and PSI each includedalso provide credit support for certain uncommitted lines, which are limited to a maximum principal amount of $75 million each.
At September 30, 1999, $12 million was designated as backupcredit support for certain of thePSI's uncommitted lines at June 30, 1999;
however, if not in use as backup, these amounts would be available for
borrowing.lines. CG&E&E
and PSI also have the capacity to issue commercial paper that must be supported by committed lines of the respective company. Neither CG&E&E nor PSI issued commercial paper during the secondthird quarter of
1999.
Both
CG&E&E and PSI have issued variable rate pollution control notes. Holders of these pollution control notes have the right to put their notes to the issuing company for redemption
on any business day. Accordingly, these issuances are reflected in the Consolidated Balance Sheets as "Notes payable and other short-term obligations."
Cinergy
Global Resources has established a $100 million revolving credit agreement in 1998, which was due to expire in Juneexpired August 29, 1999, and has beenwas not extended to August 1999.or replaced.
During
mid-July, Cinergy's acquisition line was settledpaid off due to the sale of Cinergy's 50% ownership interest in Avon Energy. (See Note 1214 of the "Notes to Financial
Statements" in "Part I. Financial Information.")
Cinergy, CG&E,&E, PSI, and ULH&P
&P
Year 2000 The Year 2000 issue generally exists because many computer systems and applications, including those embedded in equipment and facilities, use two-digit rather than four-digit date fields to designate an applicable year. As a result, the systems and applications may not properly recognize dates including and beyond the year 2000 or accurately process data in which such dates are included, potentially causing data miscalculations and inaccuracies or operational malfunctions and failures, which could materially affect a business's financial condition, results of operations, and cash flows.
Cinergy has established a centrally managed, company-wide initiative, known as the Cinergy Year 2000 Readiness Program, to identify, evaluate, and address Year 2000 issues. The Cinergy Year 2000 Readiness Program, which began in the fourth quarter of 1996, is generally focused on three elements that are integral to this initiative: (1) business continuity, (2) risk management, and (3) regulatory compliance. Business continuity includes providing reliable electric and gas supply and service in a safe and cost-effective manner. This element encompasses mission-critical generation, transmission, and distribution systems and related infrastructure, as well as operational and financial IT systems and applications, end-user computing resources, and building systems (such as security, elevator, and heating and cooling systems). Risk management includes a review of the Year 2000 readiness efforts of Cinergy's critical suppliers, key customers and other principal business partners, and, as appropriate, the development of joint business support, contingency plans, and the inclusion of Year 2000 concerns as a regular part of the due diligence process in any new business venture. Regulatory compliance includes communications with regulatory agencies, other utilities, and various industry groups. While this initiative is broad in scope, it has been structured to identify and prioritize efforts for mission-critical electric and gas systems and services and key business partners.
Under the Cinergy Year 2000 Readiness Program, Cinergy achieved a target date of June 30, 1999, for the remediation and testing of its mission-critical generation, transmission, and distribution systems, components, and applications (gas and electric). An innovative remediation and testing effort, which Cinergy also completed on June 30, 1999, involved resetting the clocks on all of the generation units it operates in Ohio, Indiana, and Kentucky so that they are now operating as if it were already January 1, 2000. Cinergy's experience has been that those units have continued to operate without any material adverse result relating to a Year 2000 issue. Cinergy will continue to monitor its mission-critical systems, components and applications for the remainder of the year to maintain their Year 2000 readiness status.
Cinergy has also reviewed its existing contingency and business continuity plans and modified them in light of the Year 2000 issue. Contingency planning to maintain and restore service in the event of natural and other disasters (including software- and hardware-related problems) has been part of Cinergy's standard operation for many years, and Cinergy is working to leverage this experience in the review of existing plans to address Year 2000-related challenges. These reviews have assessed the potential for business disruption in various scenarios, including the most reasonably likely worst-case scenario, and to provide for key operational back up, recovery, and restoration alternatives.
Cinergy cannot guarantee that third parties on whom it depends for essential goods and services (those where the interruption of the supply of such goods and services could lead to issues involving the safety of employees, customers, or the public; the continued reliable delivery of gas and/or electricity; and the ability to comply with applicable laws or regulations) will convert their mission-critical systems, components, and applications in a timely manner. Failure or delay by any of these third parties could significantly disrupt business. However, to address this issue, Cinergy has established a supplier compliance program, and is working with its critical suppliers in an effort to minimize such risks.
In addition, Cinergy is coordinating its findings and other issues with other utilities and various industry groups via the Electric Power Research Institute Year 2000 Embedded Systems Project and the Year 2000 Readiness Assessment Program of the NERC, acting at the request of the DOE. The DOE has asked NERC to report on the integrity of the transmission system for North America and to coordinate and assess the preparation of the electric systems in North America for the Year 2000. NERC submitted its initial quarterly status report and coordination plan to the DOE in September 1998, and a second quarterly status report for the fourth quarter of 1998 was submitted on January 11, 1999. A third quarterly status report for the first quarter of 1999 was submitted on April 30, 1999. A fourth and final quarterly status report for the second quarter of 1999 was submitted to the DOE by NERC on August 3, 1999, in which Cinergy was listed as a "Y2k Ready" organization.
Cinergy
plans to participateparticipated in athe NERC-sponsored national preparedness drill on September 8 and 9, 1999. The goal of this drill was to rehearse, under simulated
conditions, key portions of our administrative, operating, communications, and contingency plans for the transition into the Year 2000.
Three major objectives were identified:
Cinergy was successful in meeting these objectives.
Cinergy
currently estimates that the total cost for the inventory, assessment, remediation, testing, and upgrading of its systems as a result of the Year 2000 effort is approximately
$13 million. Approximately $12$12.5 million in expenses have been incurred through JuneSeptember 30, 1999, for such things as external
labor, for hardware and software upgrades, and for Cinergy employees who are
dedicated full-time to the Cinergy Year 2000 Readiness Program. The timing of these expenses may vary and is not necessarily indicative of readiness efforts or progress to date. Cinergy
anticipates that a portion of its Year 2000 expenses will not be incremental costs, but rather, will represent the redeployment of existing IT resources. Since its formation, Cinergy has incurred, and
will continue to incur, significant capital improvement costs related to planned system upgrades or replacements required in the normal course of business. These costs have not been accelerated as a
result of the Year 2000 issue.
The above information is based on Cinergy's current best estimates, which were derived using numerous assumptions of future events, including the availability and future costs of certain technological and other resources, third-party modification actions, and other factors. Given the complexity of these issues and possible unidentified risks, actual results may vary materially from those anticipated and discussed above. Specific factors that might cause such differences include, among others; the ability to locate and correct all affected computer code, the timing and success of remedial efforts of third-party suppliers, and similar uncertainties.
The above information is a Year 2000 Readiness Disclosure pursuant to the Federal Year 2000 Information and Readiness Disclosure Act.
Cinergy
Other Commitments At JuneSeptember 30, 1999, Cinergy had issued $321$337 million in
guarantees primarily related to the energy marketing and trading activities of its subsidiaries and affiliates. In addition, Cinergy had guaranteed $258$308 million of the debt securities of its
subsidiaries and affiliates.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1999
The format of the following Results of Operations discussions has been changed from the format of prior periods. Unlike prior reports, the Results of
Operations discussions for Cinergy, CG&E,&E, and PSI are combined within this section. The Results of Operations discussion for ULH&P is presented only for the nine months ended September 30,
1999, in accordance with General Instruction H(2)(a).
Key Results Indicators
Cinergy, CG&E, and ULH&PPSI
Electric and gas margins and net income for Cinergy, CG&E, and PSI for the quarters ended September 30, 1999, and 1998 are as follows:
| | Cinergy | CG&E | PSI | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | 1999 | 1998 | 1999 | 1998 | ||||||||||||
| | (in thousands) | |||||||||||||||||
| Electric gross margin | $ | 505,486 | $ | 531,458 | $ | 288,849 | $ | 308,994 | $ | 212,178 | $ | 222,766 | ||||||
| Gas gross margin | 26,578 | 35,685 | 24,256 | 34,966 | — | — | ||||||||||||
| Net income | 121,563 | 109,431 | 48,152 | 78,672 | 15,658 | 26,792 | ||||||||||||
Cinergy's diluted EPS increased to $0.76 for the third quarter of 1999, up more than 10 percent over results of $0.69 per share in the third quarter of 1998. The contribution to earnings of the Company's international operations increased $0.36 per share in the third quarter compared with the same period a year ago, primarily the result of the sale of the Company's share of Midlands, as discussed in Note 14.
Earnings
from regulated operations decreased $0.27 per share in the third quarter of 1999 compared with a year earlier. The decrease is primarily due to the results of the supply
business and more normal operations and maintenance expenses following significant cost reductions in 1998, offset somewhat by growth in the service territory. Third quarter results for the supply
business were down $0.36 per share from the same period in 1998. This is primarily attributable to the extreme weather conditions experienced in July 1999. Reference is made to "Item 1.the
Form 8-K filed August 10, 1999, which describes the earnings impact of extreme weather experienced in July 1999.
Cinergy's electric margins were positively impacted by $12 million or $0.07 EPS (EPS is net of fuel and income taxes) during the quarter, as compared to 1998, as a result of a change in estimate of PSI's utility services delivered but unbilled at month end.
The explanations below follow the line items on the Statements of Income for Cinergy, CG&E, and PSI, which begin on page 9. However, only the line items that varied significantly from prior periods are discussed in these sections.
Operating Revenues
Cinergy, CG&E and PSI
Electric Operating Revenues The components of electric operating revenues for Cinergy, CG&E, and PSI for the quarters ended September 30, 1999 and 1998 were as follows:
| | Cinergy(1) | CG&E | PSI | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | % Change | 1999 | 1998 | % Change | 1999 | 1998 | % Change | ||||||||||||||||
| | (in millions) | ||||||||||||||||||||||||
| Retail | $ | 799 | $ | 713 | 12 | % | $ | 426 | $ | 397 | 7 | % | $ | 374 | $ | 315 | 19 | % | |||||||
| Wholesale | 564 | 873 | (35 | ) | 269 | 425 | (37 | ) | 322 | 481 | (33 | ) | |||||||||||||
| Other | 34 | 16 | 113 | 5 | 5 | — | 11 | 11 | — | ||||||||||||||||
| Total | $ | 1,397 | $ | 1,602 | (13 | )% | $ | 700 | $ | 827 | (15 | )% | $ | 707 | $ | 807 | (12 | )% | |||||||
The decrease in electric operating revenues for Cinergy, CG&E and PSI for the quarter ended September 30, 1999, compared to 1998, was primarily caused by decreased volumes on non-firm power wholesale transactions related to energy marketing and trading operations. Partially offsetting the decline was an increase in the average price per KWh for non-firm power customers, higher firm power KWh sales, and higher retail KWh sales resulting from growth in the average number of residential and commercial customers.
Cinergy's electric margins were positively impacted by $12 million or $0.07 EPS (EPS is net of fuel and income taxes) during the quarter, as compared to 1998, as a result of a change in estimate of PSI's utility services delivered but unbilled at month end. Also contributing to the increase for Cinergy was increased international operations.
Cinergy and CG&E
Gas Operating Revenues Gas operating revenues for Cinergy for the quarters ended September 30, 1999, and 1998 are as follows:
| | Cinergy(1) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | Quarter Ended September 30 | ||||||||
| | 1999 | 1998 | % Change | ||||||
| | (in millions) | ||||||||
| Wholesale | $ | 327 | $ | 296 | 10 | % | |||
| Retail | 41 | 55 | (25 | ) | |||||
| Transportation | 8 | 8 | — | ||||||
| Other | — | 1 | (100 | ) | |||||
| Total | $ | 376 | $ | 360 | 4 | % | |||
The increase in gas operating revenues for Cinergy for the quarter ended September 30, 1999, when compared to 1998, was primarily due to an increase in the wholesale gas operating revenues of CM&T resulting from an increase in the average price received per mcf sold.
Partially offsetting the increase for Cinergy was the decrease in CG&E's gas operating revenues for the quarter ended September 30, 1999, when compared to 1998. This decrease was primarily due to an adjustment to estimated line losses used in the calculation of unbilled revenues. Also contributing to the decline in revenues for CG&E was a decrease in the number of retail customers resulting from the November 1997 implementation of the customer choice program in Ohio. CG&E accounts for the majority of Cinergy's retail, transportation, and other gas operating revenues.
Cinergy
Other Revenues The decrease in other revenues for Cinergy for the quarter ended September 30, 1999, when compared to 1998, was primarily due to development fees associated with new initiatives by certain of Cinergy's non-regulated entities that were collected in 1998.
Cinergy, CG&E, and PSI
Operating Expenses
Operating expenses for Cinergy, CG&E, and PSI for the quarters ended September 30, 1999 and 1998 were as follows:
| | Cinergy(1) | CG&E | PSI | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | % Change | 1999 | 1998 | % Change | 1999 | 1998 | % Change | ||||||||||||||||
| | (in millions) | ||||||||||||||||||||||||
| Fuel | $ | 200 | $ | 206 | (3 | )% | $ | 91 | $ | 93 | (2 | )% | $ | 100 | $ | 113 | (12 | )% | |||||||
| Purchased and exchanged power | 691 | 865 | (20 | ) | 320 | 426 | (25 | ) | 395 | 471 | (16 | ) | |||||||||||||
| Gas purchased | 349 | 324 | 8 | 14 | 22 | (36 | ) | n/a | n/a | — | |||||||||||||||
| Other operation | 207 | 176 | 18 | 81 | 73 | 11 | 99 | 83 | 19 | ||||||||||||||||
| Maintenance | 39 | 50 | (22 | ) | 22 | 23 | (4 | ) | 17 | 27 | (37 | ) | |||||||||||||
| Depreciation and amortization | 89 | 82 | 9 | 52 | 47 | 11 | 34 | 33 | 3 | ||||||||||||||||
| Taxes other than income taxes | 70 | 69 | 1 | 54 | 54 | — | 15 | 15 | — | ||||||||||||||||
| Total | $ | 1,645 | $ | 1,772 | (7 | )% | $ | 634 | $ | 737 | (14 | )% | $ | 660 | $ | 742 | (11 | )% | |||||||
Fuel The following table details the changes in fuel expense for the quarters ended September 30, 1999 and 1998:
| | Cinergy(1) | CG&E | PSI | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | (in millions) | |||||||||
| Fuel expense-September 30, 1998 | $ | 206 | $ | 93 | $ | 113 | ||||
| Increase (Decrease) due to changes in: | | | | | | | | | | |
| Price of fuel | 7 | 5 | 2 | |||||||
| Deferred fuel cost | (28 | ) | (9 | ) | (19 | ) | ||||
| KWh generation | 6 | 2 | 4 | |||||||
| Other | 9 | — | — | |||||||
| Fuel expense September 30, 1999 | $ | 200 | $ | 91 | $ | 100 | ||||
Purchased and Exchanged Power The decrease in purchased and exchanged power expense for Cinergy, CG&E and PSI for the quarter ended September 30, 1999, compared to 1998, was primarily because of decreased purchases of non-firm power wholesale transactions as a result of a decline in sales volume in the energy marketing and trading operations. This decrease was offset partially by the extreme weather conditions experienced in July 1999. Reference is made to the Form 8-K filed on August 10, 1999, which describes the earnings impact of extreme weather experienced in July 1999.
Gas Purchased The increase in gas purchased expense for Cinergy for the quarter ended September 30, 1999, as compared to 1998, was primarily because of an increase in the gas purchased expenses of CM&T. Partially offsetting the increase for Cinergy was a decline in purchased gas expense for CG&E, reflecting a decrease in the volume of gas purchased due to the loss of retail customers and a lower average cost per mcf of gas purchased.
Other Operation The increase in other operation expense for CG&E for the quarter ended September 30, 1999, when compared to 1998, was primarily due to an increase in computer hardware leasing expense and a bad debt write-off related to the energy marketing and trading business.
The increase in other operation expense for PSI for the quarter ended September 30, 1999, when compared to 1998, was primarily due to an increase in the variable portion of base monthly fees related to the coal gasification services contract with Dynegy.
The increase in other operation expense for Cinergy for the quarter ended September 30, 1999, when compared to 1998, was primarily due to the reasons outlined in the CG&E and PSI discussions above.
Maintenance The decrease in maintenance expense for Cinergy and PSI for the quarter ended September 30, 1999, in comparison to 1998, was primarily due to a reduction in maintenance costs associated with generating station repairs.
Depreciation and Amortization The increase in depreciation and amortization expense for Cinergy and CG&E for the quarter ended September 30, 1999, when compared to 1998, was primarily due to additions to depreciable plant. Also contributing to the change for Cinergy and CG&E was an increased amortization of phase-in deferral expense, which reflects the PUCO-ordered phase-in plan for Zimmer.
Other Income and Deductions
Equity in Earnings of Unconsolidated Subsidiaries The decrease in equity in earnings of
unconsolidated subsidiaries for Cinergy for the quarter ended September 30, 1999, was primarily driven by the July 1999 sale of Cinergy's 50% interest in Midlands. (See Note 14 of
the "Notes to Financial Statements" in "Part I. Financial Information."
Information" for a discussion of the sale of Cinergy's 50% investment in Avon Energy.)
Miscellaneous—Net The increase in miscellaneous—net for Cinergy of $9 million for the quarter ended September 30, 1999, was primarily the result of transactions related to the sale of Midlands.
Miscellaneous—net decreased for CG&E ($1 million) and PSI ($2 million) for the quarter ended September 30, 1999 compared to 1998. The CG&E decrease was primarily the result of a decrease in interest income from a decrease in the balance of short-term loans to affiliated companies through Cinergy's money pool arrangement. The PSI decrease is primarily the result of a decrease in interest income and adjustments recorded related to certain transactions.
Interest Interest expense decreased for Cinergy ($5 million) for the quarter ended September 30, 1999. This decrease was primarily the result of a decrease in interest on short-term obligations resulting from a reduction in average short-term borrowings and lower short-term interest rates. The decrease was partially offset by an increase in interest expense on long-term debt resulting from an increase in the amount of long-term debt outstanding.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The format of the following Results of Operations discussions has been changed from the format of prior periods. Unlike prior reports, the Results of Operations discussions for Cinergy, CG&E, and PSI are combined within this section. The Results of Operations discussion for ULH&P is presented only for the nine months ended September 30, 1999, in accordance with General Instructions H(2)(a).
Key Results Indicators
Cinergy, CG&E, and PSI
Electric and gas margins and net income for Cinergy, CG&E, and PSI for the nine months ended September 30, 1999, and 1998 were as follows:
| | Cinergy | CG&E | PSI | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | 1999 | 1998 | 1999 | 1998 | ||||||||||||
| | (in thousands) | |||||||||||||||||
| Electric gross margin | $ | 1,531,876 | $ | 1,464,233 | $ | 832,346 | $ | 798,330 | $ | 686,045 | $ | 668,583 | ||||||
| Gas gross margin | 148,638 | 142,435 | 142,295 | 140,653 | — | — | ||||||||||||
| Net income | 307,866 | 189,569 | 167,311 | 162,550 | 81,079 | 39,102 | ||||||||||||
Cinergy's diluted EPS increased to $1.93 for the nine months ended September 30, 1999, compared to $1.20 per share for the comparable period in 1998. During this same time period, the contribution to earnings of the company's international operations was $0.43 per share. This was primarily the result of the sale of the company's share of Midlands. Earnings from regulated operations, including the supply business, increased $0.32 per share during the nine months ended September 30, 1999. This increase includes the impact of the extreme weather conditions experienced in July 1999. Reference is made to the Form 8-K filed on August 10, 1999, which describes the earnings impact of extreme weather experienced in July 1999.
Cinergy's electric margins were positively impacted by $12 million or $0.07 EPS (EPS is net of fuel and income taxes) during the quarter, as compared to 1998, as a result of a change in estimate of PSI's utility services delivered but unbilled at month end.
The explanations below follow the line items on the Statements of Income for Cinergy, CG&E and PSI, which begin on page 9. However, only the line items that varied significantly from prior periods are discussed in these sections.
Operating Revenues
Cinergy, CG&E and PSI
Electric Operating Revenues Electric operating revenues for Cinergy, CG&E, and PSI for the nine months ended September 30, 1999 and 1998 were as follows:
| | Cinergy(1) | CG&E | PSI | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | % Change | 1999 | 1998 | % Change | 1999 | 1998 | % Change | ||||||||||||||||
| | (in millions) | ||||||||||||||||||||||||
| Retail | $ | 2,098 | $ | 1,955 | 7 | % | $ | 1,129 | $ | 1,075 | 5 | % | $ | 970 | $ | 880 | 10 | % | |||||||
| Wholesale | 1,115 | 1,790 | (38 | ) | 515 | 873 | (41 | ) | 653 | 1,003 | (35 | ) | |||||||||||||
| Other | 94 | 38 | 147 | 15 | 12 | 25 | 30 | 28 | 7 | ||||||||||||||||
| Total | $ | 3,307 | $ | 3,783 | (13 | )% | $ | 1,659 | $ | 1,960 | (15 | )% | $ | 1,653 | $ | 1,911 | (14 | )% | |||||||
The decrease in electric operating revenues for Cinergy, CG&E, and PSI for the nine months ended September 30, 1999, compared to 1998, was primarily caused by decreased volumes on non-firm power wholesale transactions related to energy marketing and trading operations. Partially offsetting the decline was an increase in the average price per KWh for non-firm power customers, higher firm power KWh sales, and higher retail KWh sales resulting from growth in the average number of residential and commercial customers.
Cinergy's electric margins were positively impacted by $12 million or $0.07 EPS (EPS is net of fuel and income taxes) for the nine months ended September 30, 1999, as compared to 1998, as a result of a change in estimate of PSI's utility services delivered but unbilled at month end. Also contributing to the increase for Cinergy was increased international operations.
Cinergy and CG&E
Gas Operating Revenues Gas operating revenues for Cinergy and CG&E for the nine months ended September 30, 1999, and 1998 were as follows:
| | Cinergy(1) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | Nine Months Ended September 30 | ||||||||
| | 1999 | 1998 | % Change | ||||||
| | (in millions) | ||||||||
| Wholesale | $ | 837 | $ | 380 | 120 | % | |||
| Retail | 248 | 276 | (10 | ) | |||||
| Transportation | 38 | 28 | 36 | ||||||
| Other | 3 | 3 | — | ||||||
| Total | $ | 1,126 | $ | 687 | 64 | % | |||
The increase in gas operating revenues for Cinergy for the nine months ended September 30, 1999, when compared to 1998, was primarily due to the gas operating revenues of CM&T, which was acquired in June 1998.
Partially offsetting the increase for Cinergy was the decrease in CG&E's gas operating revenues for the nine months ended September 30, 1999, when compared to 1998. This decrease was partially due to an adjustment to estimated line losses used in the calculation of unbilled revenues. Also contributing to the decrease in CG&E's gas operating revenues was a lower average cost per mcf of gas purchased which was passed on to end users, a decrease in the number of retail customers resulting from the November 1997 implementation of the customer choice program in Ohio, and a decrease in transportation mcf volumes resulting from the loss of a large industrial customer during late 1998. CG&E accounts for the majority of Cinergy's retail, transportation, and other gas operating revenues.
Cinergy
Other Revenues The increase in other revenues for the nine months ended September 30, 1999, when compared to 1998, for Cinergy was primarily the result of increases in sales and new initiatives by certain of Cinergy's non-regulated entities.
Cinergy, CG&E, and PSI
Operating Expenses
Operating expenses for Cinergy, CG&E, and PSI for the nine months ended September 30, 1999 and 1998 were as follows:
| | Cinergy(1) | CG&E | PSI | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 1998 | % Change | 1999 | 1998 | % Change | 1999 | 1998 | % Change | ||||||||||||||||
| | (in millions) | ||||||||||||||||||||||||
| Fuel | $ | 584 | $ | 542 | 8 | % | $ | 253 | $ | 258 | (2 | )% | $ | 311 | $ | 284 | 10 | % | |||||||
| Purchased and exchanged power | 1,192 | 1,777 | (33 | ) | 573 | 904 | (37 | ) | 656 | 959 | (32 | ) | |||||||||||||
| Gas purchased | 977 | 544 | 80 | 114 | 140 | (19 | ) | n/a | n/a | — | |||||||||||||||
| Other operation | 573 | 602 | (5 | ) | 235 | 232 | 1 | 269 | 326 | (17 | ) | ||||||||||||||
| Maintenance | 153 | 145 | 6 | 76 | 71 | 7 | 77 | 74 | 4 | ||||||||||||||||
| Depreciation and amortization | 263 | 242 | 9 | 153 | 143 | 7 | 102 | 97 | 5 | ||||||||||||||||
| Taxes other than income taxes | 209 | 208 | — | 163 | 162 | 1 | 44 | 44 | — | ||||||||||||||||
| Total | $ | 3,951 | $ | 4,060 | (3 | )% | $ | 1,567 | $ | 1,910 | (18 | )% | $ | 1,459 | $ | 1,784 | (18 | )% | |||||||
Fuel The following table details the changes in fuel expense for the nine months ended September 30, 1999 and 1998:
| | Cinergy(1) | CG&E | PSI | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | (in millions) | |||||||||
| Fuel expense—September 30, 1998 | $ | 542 | $ | 258 | $ | 284 | ||||
| Increase (Decrease) due to changes in: | | | | | | | | | | |
| Price of fuel | 6 | 7 | (1 | ) | ||||||
| Deferred fuel cost | (8 | ) | (21 | ) | 13 | |||||
| KWh generation | 24 | 9 | 15 | |||||||
| Other | 20 | — | — | |||||||
| Fuel expense September 30, 1999 | $ | 584 | $ | 253 | $ | 311 | ||||
Purchased and Exchanged Power The decrease in purchased and exchanged power expense for Cinergy, CG&E and PSI for the nine months ended September 30, 1999, compared to 1998, was primarily because of decreased purchases of non-firm power wholesale transactions as a result of a decline in sales volume in the energy marketing and trading operations. This decrease was offset partially by the extreme weather conditions experienced in July 1999. Reference is made to the Form 8-K filed on August 10, 1999, which describes the earnings impact of extreme weather experienced in July 1999.
Gas Purchased The increase in gas purchased expense for Cinergy for the nine months ended September 30, 1999, when compared to 1998, was primarily due to an increase in the gas purchased expense of CM&T. Partially offsetting the increase for Cinergy was a decline in purchased gas expense for CG&E, reflecting a lower average cost per mcf of gas purchased.
Other Operation The decrease in other operation expense for PSI for the nine months ended September 30, 1999, when compared to 1998, was primarily due to the one-time charge of $80 million recorded during the second quarter of 1998 reflecting the implementation of a 1989 settlement of a dispute with the WVPA. Partially offsetting the decrease was the increase in the variable portion of the base monthly fees related to the coal gasification services contract with Dynegy.
The decrease in other operation expense for Cinergy for the nine months ended September 30, 1999, when compared to 1998, was primarily due to the reasons outlined in the PSI discussion above. Partially offsetting the decrease for Cinergy was an increase in expenses associated with existing and new initiatives by certain of Cinergy's consolidated non-regulated businesses.
Maintenance The increase in maintenance expense for CG&E for the nine months ended September 30, 1999, when compared to 1998, was primarily due to maintenance outages, an increase in the cost of generating station repair parts, and an overall increase in required maintenance at all of CG&E's generating stations.
The increase in maintenance expense for Cinergy for the nine months ended September 30, 1999, when compared to 1998, was partially due to the reasons outlined in the CG&E discussion above. Also contributing to the change for Cinergy was an increase in PSI's maintenance expense primarily caused by generating station repair costs and planned maintenance outages.
Depreciation and Amortization The increase in depreciation and amortization expense for Cinergy, CG&E, and PSI for the nine months ended September 30, 1999, when compared to 1998, was primarily due to additions to depreciable plant. Also contributing to the change for Cinergy and CG&E was an increased amortization of phase-in deferral expense, which reflects the PUCO-ordered phase-in plan for Zimmer.
Other Income and Deductions
Equity in Earnings of Unconsolidated Subsidiaries For the nine months ended September 30, 1999, equity in earnings of unconsolidated subsidiaries increased $25 million for Cinergy, as compared to the same period of 1998. The increase was primarily driven by the increase in the earnings of Avon Energy for the period prior to the sale of the investment. (See Note 14 of the "Notes to Financial Statements" in "Part I. Financial Information" for a discussion of the sale of Cinergy's 50% interest in Avon Energy.)
Miscellaneous—Net Miscellaneous—net increased $9 million for Cinergy during the nine months ended September 30, 1999, compared to the same period of 1998. The Cinergy increase was primarily the result of transactions related to the sale of Midlands.
Miscellaneous—net for PSI decreased $2 million for the nine months ended September 30, 1999, compared to the same period of 1998. This decrease was primarily the result of a decrease in interest income and a decrease in the level of expenses associated with the sales of accounts receivable.
Interest Interest expense decreased $4 million for Cinergy for the nine months ended September 30, 1999, compared to the same period of 1998. This decrease is primarily the result of a decrease in interest on short-term obligations resulting from a reduction in average short-term borrowings and lower short-term interest rates. This decrease was partially offset by an increase in interest expense on long-term debt resulting from an increase in the amount of long-term debt outstanding.
Preferred Dividend Requirements of Subsidiaries
Cinergy's preferred dividend requirements of subsidiaries decreased $1 million (21%) for the nine months ended September 30, 1999, as compared to the same period of 1998. This decrease was primarily attributable to PSI's redemption of all outstanding shares of its 7.44% Series Cumulative Preferred Stock on March 1, 1998.
Preferred Dividend Requirement
PSI's preferred dividend requirement decreased $1 million (23%) for the nine months ended September 30, 1999 as compared to the same period of 1998. This decrease was primarily attributable to PSI's redemption of all outstanding shares of its 7.44% Series Cumulative Preferred Stock on March 1, 1998.
ULH&P
RESULTS OF OPERATIONS FOR ULH&P FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The format of the following Results of Operations discussions has been changed from the format of prior periods. Unlike prior reports, the Results of Operations discussion for ULH&P is presented only for the nine months ended September 30, 1999, in accordance with General Instructions H(2)(a).
Electric and gas margins and net income for ULH&P for the nine months ended September 30, 1999, and 1998 are as follows:
| | ULH&P | |||||
|---|---|---|---|---|---|---|
| | 1999 | 1998 | ||||
| | (in thousands) | |||||
| Electric gross margin | $ | 38,025 | $ | 34,565 | ||
| Gas gross margin | 25,214 | 20,972 | ||||
| Net income | 9,073 | 6,626 | ||||
The increase in electric operating revenues for the nine months ended September 30, 1999, compared to 1998, was primarily attributable to higher retail KWh sales resulting from growth in the average number of residential and commercial customers. A higher volume purchased from CG&E caused the associated change in electricity purchased from parent company for resale.
The increase in gas operating revenues for the nine months ended September 30, 1999, when compared to 1998, was primarily caused by an increase in retail mcf volumes sold and used per customer and an increase in the average price per mcf recovered from retail customers.
The increase in depreciation for the nine months ended September 30, 1999, as compared to 1998 was primarily due to additions to depreciable plant. The interest expense increase for the nine months ended September 30, 1999, as compared to 1998 was primarily due to the issuance of $40 million of debt during the fourth quarter of 1998 and the third quarter of 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cinergy, CG&E,&E, PSI, and ULH&P&P
Reference is made to the "Market Risk Sensitive Instruments and Positions" section in "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations" in "Part I. Financial Information" and Notes 79 and 810 of the "Notes to Financial Statements" in "Part I. Financial Information."
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy, CG&E,&E, and PSI
Manufactured Gas Plant Sites
See
Note 911 of the "Notes to Financial Statements" in Part"Part I. Financial Information."
Cinergy, CG&E, and PSI
New Source Review
See Note 18 of the "Notes to Financial Statements" in "Part I. Financial Information."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
| Exhibit Designation | Nature of Exhibit | |
|---|---|---|
| Cinergy and PSI | ||
| 4-A | #Seventh Supplemental Indenture dated as of October 20, 1999, between PSI and Fifth Third Bank as Trustee. (Exhibit to PSI's September 30, 1999 Form 10-Q, in File No. 1-3543.) | |
| Cinergy and ULH&P | | |
| 4-B | #Fourth Supplemental Indenture dated as of September 17, 1999, between ULH&P and Fifth Third Bank as Trustee. (Exhibit to ULH&P's September 30, 1999 Form 10-Q, in File No. 2-7793.) | |
| Cinergy | | |
| 10-A | First Amendment to First Amended and Restated Employment Agreement dated September 1, 1999, between Cinergy, Cinergy Services, CG&E, and PSI and Larry E. Thomas. (Exhibit to Cinergy's September 30, 1999 Form 10-Q, in File No. 1-11377.) | |
| 10-B | | First Amendment to First Amended and Restated Employment Agreement dated September 1, 1999, between Cinergy, Cinergy Services, CG&E, and PSI and Charles J. Winger. (Exhibit to Cinergy's September 30, 1999 Form 10-Q, in File No. 1-11377.) |
| Cinergy, CG&E, PSI, and ULH&P | ||
| 27 | Financial Data Schedules (included in electronic submission only) | |
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although Cinergy, CG&E,&E, PSI, and ULH&P&P believe that the disclosures are adequate to make the information presented not
misleading. In the opinion of Cinergy, CG&E,&E, PSI, and ULH&P,&P, these statements reflect all adjustments (which include normal, recurring adjustments) necessary to reflect the results of operations for
the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their 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 | ||
| Date: November 15, 1999 | | /s/ BERNARD F. ROBERTS |
Bernard F. Roberts Duly Authorized Officer and Chief Accounting Officer |
TABLE OF CONTENTS
GLOSSARY OF TERMS
CINERGY CORP.
AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS && ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES