(Mark One)
| (X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period endedSeptember 30, 2000 |
or
| ( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________ to ____________ |
| 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) 287-1099 | 31-1385023 |
| 1-1232 | THE CINCINNATI GAS & ELECTRIC COMPANY (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 287-1099 | 31-0240030 |
| 1-3543 | PSI ENERGY, INC. (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (513) 287-1099 | 35-0594457 |
| 2-7793 | THE UNION LIGHT, HEAT AND POWER COMPANY (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 287-1099 | 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 No
This combined Form 10-Q is separately filed byCinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., andThe Union Light, Heat and Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants.
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 specified in General Instruction H(2) of Form 10-Q.
As of October 31, 2000, shares of Common Stock outstanding for each registrant were as listed:
| Registrant | Description | Shares |
|---|---|---|
| Cinergy Corp. | Par value $.01 per share | 158,967,661 |
| 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 |
1 Financial Statements
Cinergy Corp.
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Common Stock Equity
Consolidated Statements of Cash Flows
The Cincinnati Gas & Electric Company
Consolidated Statements of Income and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
PSI Energy, Inc.
Consolidated Statements of Income and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
The Union Light, Heat and Power Company
Statements of Income and Comprehensive Income
Balance Sheets
Statements of Cash Flows
Notes to Financial Statements
Cautionary Statements Regarding Forward-Looking Information
2 Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Liquidity
Capital Resources
2000 Quarterly Results of Operations- Historical
2000 Year to Date Results of Operations- Historical
2000 Results of Operations- Future
3 Quantitative and Qualitative Disclosures About Market Risk
1 Legal Proceedings
6 Exhibits and Reports on Form 8-K
Signatures
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended Year To Date
September 30 September 30
2000 1999 2000 1999
(dollars in thousands, except per share amounts)
(unaudited)
Operating Revenues
Electric $ 1,599,468 $ 1,396,837 $ 3,916,518 $ 3,307,462
Gas 677,917 375,837 1,668,272 1,125,812
Other 22,400 9,524 67,586 26,602
------ ----- ------ ------
Total Operating Revenues 2,299,785 1,782,198 5,652,376 4,459,876
Operating Expenses
Fuel and purchased and
exchanged power 1,048,189 891,351 2,249,519 1,775,586
Gas purchased 634,917 349,259 1,490,868 977,174
Operation and maintenance 259,950 245,330 795,453 726,310
Depreciation and amortization 94,066 88,734 277,512 263,412
Taxes other than income taxes 66,892 70,077 201,481 208,688
------ ------ ------- -------
Total Operating Expenses 2,104,014 1,644,751 5,014,833 3,951,170
Operating Income 195,771 137,447 637,543 508,706
Equity in Earnings of Unconsolidated
Subsidiaries 165 372 6,340 58,076
Gain on Sale of Investment in
Unconsolidated Subsidiary - 99,272 - 99,272
Miscellaneous - Net 12,073 8,729 12,187 (2,965)
Interest Expense 60,166 56,404 164,709 177,957
Income Before Taxes 147,843 189,416 491,361 485,132
Income Taxes 52,959 66,489 180,285 173,173
Preferred Dividend Requirements
of Subsidiaries 1,070 1,364 3,708 4,093
===== ===== ===== =====
Net Income $ 93,814 $ 121,563 $ 307,368 $ 307,866
Average Common Shares Outstanding
158,938 158,907 158,928 158,844
Earnings Per Common Share
Net Income $ 0.59 $ 0.77 $ 1.93 $ 1.94
Earnings Per Common Share-Assuming
Dilution
Net income $ 0.58 $ 0.76 $ 1.92 $ 1.93
Dividends Declared Per Common Share
$ 0.45 $ 0.45 $ 1.35 $ 1.35
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
Return to Table of Contents
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 121,486 $ 81,919
Restricted deposits 781 628
Notes receivable 34,626 481
Accounts receivable less accumulated provision for
doubtful accounts of $26,211 at September 30, 2000,
and $26,811 at December 31, 1999 1,358,987 706,068
Materials, supplies, and fuel - at average cost 183,841 205,749
Prepayments and other 103,601 77,701
Energy risk management current assets 376,025 131,145
------- -------
Total Current Assets 2,179,347 1,203,691
Utility Plant - Original Cost
In service
Electric 9,602,010 9,414,744
Gas 849,027 824,427
Common 210,826 189,124
------- -------
Total 10,661,863 10,428,295
Accumulated depreciation 4,489,017 4,259,877
--------- ---------
Total 6,172,846 6,168,418
Construction work in progress 346,759 249,054
------- -------
Total Utility Plant 6,519,605 6,417,472
Other Assets
Regulatory assets 1,020,328 1,055,012
Investments in unconsolidated subsidiaries 481,962 358,853
Energy risk management non-current assets 74,383 26,624
Other 677,406 555,296
------- -------
Total Other Assets 2,254,079 1,995,785
Total Assets $ 10,953,031 $ 9,616,948
============== ==============
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 1,317,180 $ 734,937
Accrued taxes 250,906 219,266
Accrued interest 62,832 49,354
Long-term debt due within one year 21,716 31,000
Notes payable and other short-term obligations 818,629 550,194
Energy risk management current liabilities 424,955 126,682
Other 87,674 76,774
------ ------
Total Current Liabilities 2,983,892 1,788,207
Non-Current Liabilities
Long-term debt 3,033,059 2,989,242
Deferred income taxes 1,174,500 1,174,818
Unamortized investment tax credits 140,457 147,550
Accrued pension and other post-retirement
benefit costs 401,992 355,917
Energy risk management non-current liabilities 123,337 132,041
Other 267,524 282,855
------- -------
Total Non-Current Liabilities 5,140,869 5,082,423
Total Liabilities 8,124,761 6,870,630
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 62,834 92,597
Common Stock Equity
Common Stock - $0.01 par value;
authorized shares - 600,000,000; outstanding shares-
158,967,661 at September 30, 2000 and 158,923,399 at
December 31, 1999 1,590 1,589
Paid-in capital 1,616,456 1,597,554
Retained earnings 1,158,328 1,064,319
Accumulated other comprehensive income (loss) (10,938) (9,741)
------- ------
Total Common Stock Equity 2,765,436 2,653,721
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholders' Equity $ 10,953,031 $ 9,616,948
=============== =============
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
Return to Table of Contents
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Accumulated
Other Total
Common Paid-in Retained Comprehensive Common Stock
Stock Capital Earnings Income/(Loss) Equity
(dollars in thousands)
(unaudited)
Quarter Ended September 30, 2000
Balance at July 1, 2000 $ 1,589 $ 1,612,572 $ 1,135,703 $ (5,316) $ 2,744,548
Comprehensive income:
Net income - - 93,814 - 93,814
Other comprehensive income (loss),
net of tax effect of($2,954)
Foreign currency translation adjustment - - - (5,466) (5,466)
Unrealized gain (loss) on grantor and
rabbi trusts - - - (156) (156)
---- ----
Total comprehensive income - - - - 88,192
Issuance of 44,262 shares of common stock-net 1 1,769 - - 1,770
Treasury shares reissued - 2,115 - - 2,115
Dividends on common stock (see page 5 for
per share amounts) - - (71,516) - (71,516)
Other - - 327 - 327
------- ------- ------- ------- -------
Ending balance at September 30, 2000 $ 1,590 $ 1,616,456 $ 1,158,328 $ (10,938) $ 2,765,436
========= ============ ============== ============== =============
Quarter Ended September 30, 1999
Balance at July 1, 1999 $ 1,589 $ 1,602,608 $ 988,598 $ (10,359) $ 2,582,436
Comprehensive income:
Net income - - 121,563 - 121,563
Other comprehensive income (loss), net of
tax effect of ($683)
Foreign currency translation adjustment - - - 3,774 3,774
Minimum pension liability adjustment - - - 85 85
Unrealized gain (loss) on grantor trust - - - (819) (819)
Unrealized gain (loss) on securities
available for sale - - - (237) (237)
----
Total comprehensive income - - - - 124,366
Issuance of 31,043 shares of common stock-net - 2,216 - - 2,216
Treasury shares reissued - 850 - - 850
Dividends on common stock (see page 5 for
per share amounts) - - (71,499) - (71,499)
Other - - (2) - (2)
------- ------- ------- ------- -------
Ending balance at September 30, 1999 $ 1,589 $ 1,605,674 $ 1,038,660 $ (7,556) $ 2,638,367
========= ============ ============== ============== =============
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)
Accumulated
Other Total
Common Paid-in Retained Comprehensive Common Stock
Stock Capital Earnings Income/(Loss) Equity
(dollars in thousands)
(unaudited)
Nine Months Ended September 30, 2000
Balance at January 1, 2000 $ 1,589 $ 1,597,554 $ 1,064,319 $ (9,741)$ 2,653,721
Comprehensive income:
Net income - - 307,368 - 307,368
Other comprehensive income (loss), net of
tax effect of($2,927)
Foreign currency translation adjustment - - - (1,180) (1,180)
Unrealized gain (loss) on grantor and
rabbi trusts - - - (17) (17)
---
Total comprehensive income - - - - 306,171
Issuance of 44,262 share of common stock-net 1 1,769 - - 1,770
Treasury shares reissued - 17,133 - - 17,133
Dividends on common stock (see page 5 for per
share amounts) - - (213,707) - (213,707)
Other - - 348 - 348
------- ------- ------- ------- -------
Ending balance at September 30, 2000 $ 1,590 $ 1,616,456 $ 1,158,328 $ (10,938)$ 2,765,436
========= ============= =========== =============== ============
Nine Months Ended September 30, 1999
Balance at January 1, 1999 $ 1,587 $ 1,595,237 $ 945,214 $ (807)$ 2,541,231
Comprehensive income:
Net income - - 307,866 - 307,866
Other comprehensive income (loss), net of
tax effect of $2,409
Foreign currency translation adjustment - - - (6,258) (6,258)
Minimum pension liability adjustment - - - 85 85
Unrealized gain (loss) on grantor trust - - - (339) (339)
Unrealized gain (loss) on securities
available for sale - - - (237) (237)
----
Total comprehensive income - - - - 301,117
Issuance of 252,678 shares of common stock-net 2 6,493 - - 6,495
Treasury shares purchased - (233) - - (233)
Treasury shares reissued - 4,177 - - 4,177
Dividends on common stock (see page 5 for per
share amounts) - - (214,413) - (214,413)
Other - - (7) - (7)
------- ------- ------- ------- -------
Ending balance at September 30, 1999 $ 1,589 $ 1,605,674 $ 1,038,660 $ (7,556)$ 2,638,367
========= ============= =========== =============== ============
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
Return to Table of Contents
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year to Date
September 30
2000 1999
(dollars in thousands)
(unaudited)
Operating Activities
Net income $ 307,368 $ 307,866
Items providing or (using) cash currently:
Depreciation and amortization 277,512 1,263,412
Deferred income taxes and investment tax
credits-net 3,414 4,283
Gain on sale of investment in unconsolidated
subsidiaries - (99,272)
Unrealized (gain) loss from energy risk
management activities (3,070) (51,397)
Equity in earnings of unconsolidated subsidiaries (6,340) (46,059)
Allowance for equity funds used during construction (4,667) (2,841)
Regulatory assets-net (5,111) (221,470)
Changes in current assets and current liabilities:
Restricted deposits (153) 2,162
Accounts and notes receivable, net of reserves on
receivables sold (692,256) (187,136)
Materials, supplies, and fuel 21,908 (6,184)
Accounts payable 582,243 266,570
Accrued taxes and interest 45,118 6,228
Other items-net (100,535) 263,840
-------- -------
Net cash provided by operating activities 425,431 500,002
======= =======
Financing Activities
Change in short-term debt 268,435 (539,920)
Issuance of long-term debt 126,420 541,915
Redemption of long-term debt (95,570) (528,900)
Retirement of preferred stock of subsidiaries (29,392) (34)
Issuance of common stock 1,770 6,495
Dividends on common stock (213,707) (214,413)
-------- --------
Net cash provided by (used in) financing
activities 57,956 (734,857)
====== ========
Investing Activities
Construction expenditures (less allowance for equity
funds used during construction) (332,922) (262,719)
Investments in unconsolidated subsidiaries (110,898) (235,363)
Sale of investment in unconsolidated subsidiary - 690,269
-------- --------
Net cash provided by (used in)
investing activities (443,820) 192,187
======== =======
Net increase (decrease) in cash and cash equivalents 39,567 (42,668)
Cash and cash equivalents at beginning of period 81,919 100,154
------ -------
Cash and cash equivalents at end of period $ 121,486 $ 57,486
============= ============
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
Return to Table of Contents
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Quarter Ended Year to Date
September 30 September 30
2000 1999 2000 1999
(dollars in thousands)
(unaudited)
Operating Revenues
Electric $ 791,655 $ 699,981 $ 1,976,646 $ 1,658,604
Gas 48,733 38,510 286,793 255,855
------- ------- --------- ---------
Total Operating Revenues 840,388 738,491 2,263,439 1,914,459
Operating Expenses
Fuel and purchased and exchanged
power 522,958 411,132 1,102,486 826,258
Gas purchased 21,534 14,254 135,396 113,560
Operation and maintenance 110,860 103,150 338,945 311,527
Depreciation and amortization 52,872 51,395 156,670 152,691
Taxes other than income taxes 51,504 54,201 155,326 163,184
------- ------- --------- ---------
Total Operating Expenses 759,728 634,132 1,888,823 1,567,220
Operating Income 80,660 104,359 374,616 347,239
Miscellaneous - Net 671 (287) (340) (911)
Interest Expense 24,400 25,090 73,873 74,068
Income Before Taxes 56,931 78,982 300,403 272,260
Income Taxes 17,835 30,830 109,462 104,949
------- ------- --------- ---------
Net Income $ 39,096 $ 48,152 $ 190,941 $ 167,311
Preferred Dividend Requirement 211 213 636 641
------- ------- --------- ---------
Net Income Applicable to Common Stock $ 38,885 $ 47,939 $ 190,305 $ 166,670
Net Income $ 39,096 $ 48,152 $ 190,941 $ 167,311
Other Comprehensive Income (Loss),
Net of Tax - - - -
------- ------- --------- ---------
Comprehensive Income $ 39,096 $ 48,152 $ 190,941 $ 167,311
============= ============ =============== ===============
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated
financial statements.
Return to Table of Contents
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 16,730 $ 9,554
Restricted deposits 130 132
Notes receivable from affiliated
companies 17,144 -
Accounts receivable less accumulated
provision for doubtful accounts of
$17,582 at September 30, 2000, and
$16,740 at December 31, 1999 453,991 279,591
Accounts receivable from affiliated companies 3,743 12,718
Materials, supplies, and fuel - at average cost 114,690 98,999
Prepayments and other 36,255 35,527
Energy risk management current assets 183,140 63,926
------- ------
Total Current Assets 825,823 500,447
Utility Plant - Original Cost
In service
Electric 4,958,520 4,875,633
Gas 849,027 824,427
Common 210,826 189,124
------- -------
Total 6,018,373 5,889,184
Accumulated depreciation 2,409,601 2,279,587
--------- ---------
Total 3,608,772 3,609,597
Construction work in progress 193,800 153,229
--------- ---------
Total Utility Plant 3,802,572 3,762,826
Other Assets
Regulatory assets 545,983 536,224
Energy risk management non-current assets 25,164 7,368
Other 132,817 109,753
------- -------
Total Other Assets 703,964 653,345
Total Assets $ 5,332,359 $ 4,916,618
================= =============
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 BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 529,648 $ 253,115
Accounts payable to affiliated
companies 31,962 65,256
Accrued taxes 159,545 136,118
Accrued interest 24,253 17,375
Notes payable and other short-term
obligations 215,468 234,702
Notes payable to affiliated companies 26,414 60,360
Energy risk management current liabilities 206,443 60,478
Other 30,361 25,468
--------- -------
Total Current Liabilities 1,224,094 852,872
Non-Current Liabilities
Long-term debt 1,206,175 1,205,916
Deferred income taxes 736,482 720,168
Unamortized investment tax credits 100,050 104,655
Accrued pension and other post-retirement
benefit costs 162,790 154,718
Energy risk management non-current liabilities 43,216 57,644
Other 150,358 140,794
--------- -------
Total Non-Current Liabilities 2,399,071 2,383,895
Total Liabilities 3,623,165 3,236,767
Cumulative Preferred Stock
Not subject to mandatory redemption 20,486 20,686
Common Stock Equity
Common Stock-$8.50 par value;
Authorized shares-120,000,000; outstanding
shares-89,663,086 at September 30, 2000
and December 31, 1999 762,136 762,136
Paid-in capital 562,883 562,851
Retained earnings 364,655 335,144
Accumulated other comprehensive income (loss) (966) (966)
--------- ---------
Total Common Stock Equity 1,688,708 1,659,165
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholder's Equity $ 5,332,359 $ 4,916,618
============= ==============
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated
financial statements.
Return to Table of Contents
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year to Date
September 30
2000 1999
(dollars in thousands)
(unaudited)
Operating Activities
Net income $ 190,941 $ 167,311
Items providing or (using) cash currently:
Depreciation and amortization 156,670 152,691
Deferred income taxes and investment tax
credits-net 6,110 9,151
Unrealized (gain) loss from energy risk
management activities (5,473) (25,699)
Allowance for equity funds used during construction (3,560) (2,083)
Regulatory assets-net (15,881) 10,343
Changes in current assets and current liabilities:
Accounts and notes receivable, net of reserves
on receivables sold (184,125) 24,555
Materials, supplies, and fuel (15,691) 5,867
Accounts payable 243,239 71,390
Accrued taxes and interest 30,305 (55,710)
Other items-net (11,390) (7,274)
------- -------
Net cash provided by operating activities 391,145 350,542
Financing Activities
Change in short-term debt (53,180) 108,487
Issuance of long-term debt - 19,818
Redemption of long-term debt - (164,264)
Retirement of preferred stock (168) (26)
Dividends on preferred stock (630) (642)
Dividends on common stock (160,800) (196,500)
------- -------
Net cash used in financing activities (214,778) (233,127)
Investing Activities
Construction expenditures (less allowance for equity
funds used during construction) (169,191) (130,024)
------- -------
Net cash used in investing activities (169,191) (130,024)
Net increase (decrease) in cash and cash equivalents 7,176 (12,609)
Cash and cash equivalents at beginning of period 9,554 26,989
------- -------
Cash and cash equivalents at end of period $ 16,730 $ 14,380
=========== ==============
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial
statements.
Return to Table of Contents
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Quarter Ended Year to Date
September 30 September 30
2000 1999 2000 1999
(dollars in thousands)
(unaudited)
Operating Revenues
Electric $ 804,234 $ 707,193 $ 1,957,746 $ 1,653,144
Operating Expenses
Fuel and purchased and exchanged power 586,480 495,015 1,255,716 967,099
Operation and maintenance 103,738 115,254 338,951 345,734
Depreciation and amortization 36,144 34,025 106,105 101,889
Taxes other than income taxes 14,850 15,427 43,259 44,184
------- ------- --------- ---------
Total Operating Expenses 741,212 659,721 1,744,031 1,458,906
Operating Income 63,022 47,472 213,715 194,238
Miscellaneous - Net 3,421 (1,794) 3,904 (1,096)
Interest Expense 18,309 19,620 58,162 61,480
Income Before Taxes 48,134 26,058 159,457 131,662
Income Taxes 17,521 10,400 59,715 50,583
------- ------- --------- ---------
Net Income $ 30,613 $ 15,658 $ 99,742 $ 81,079
Preferred Dividend Requirement 858 1,150 3,071 3,451
------- ------- --------- ---------
Net Income Applicable to Common Stock $ 29,755 $ 14,508 $ 96,671 $ 77,628
Net Income $ 30,613 $ 15,658 $ 99,742 $ 81,079
Other Comprehensive Income (Loss),
Net of Tax (784) (819) (749) (339)
------- ------- --------- ---------
Comprehensive Income $ 29,829 $ 14,839 $ 98,993 $ 80,740
============= ============== ============= =============
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
Return to Table of Contents
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 10,800 $ 8,842 $ $
Restricted deposits 155 -
Notes receivable 3 481
Notes receivable from affiliated companies 26,414 60,360
Accounts receivable less accumulated
provision for doubtful accounts of $8,629 at
September 30, 2000, and $9,934 at December 31, 1999 536,434 253,022
Accounts receivable from affiliated companies 18,141 42,715
Materials, supplies, and fuel - at average cost 64,843 103,490
Prepayments and other 41,270 36,173
Energy risk management current assets 183,140 63,927
------- ------
Total Current Assets 881,200 569,010
Electric Utility Plant-Original Cost
In service 4,643,490 4,539,111
Accumulated depreciation 2,079,416 1,980,290
--------- ---------
Total 2,564,074 2,558,821
Construction work in progress 152,959 95,825
------- ------
Total Electric Utility Plant 2,717,033 2,654,646
Other Assets
Regulatory assets 474,345 518,788
Energy risk management non-current assets 25,164 7,368
Other 104,985 85,024
------- ------
Total Other Assets 604,494 611,180
Total Assets $ 4,202,727 $ 3,834,836 $ $
============ ============ ======================
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 495,465 $ 241,072 $ $
Accounts payable to affiliated companies 14,612 6,762
Accrued taxes 61,877 93,056
Accrued interest 24,560 26,989
Notes payable and other short-term obligations 214,974 232,597
Notes payable to affiliated companies 66,663 6,707
Long-term debt due within one year 20,696 31,000
Energy risk management current liabilities 206,443 60,478
Other 3,381 1,986
----- -----
Total Current Liabilities 1,108,671 700,647
Non-Current Liabilities
Long-term debt 1,192,003 1,211,552
Deferred income taxes 458,587 460,748
Unamortized investment tax credits 40,407 42,895
Accrued pension and other post-retirement
benefit costs 146,525 129,103
Energy risk management non-current liabilities 48,413 57,645
Other 68,004 104,638
------ -------
Total Non-Current Liabilities 1,953,939 2,006,581
Total Liabilities 3,062,610 2,707,228
Cumulative Preferred Stock
Not subject to mandatory redemption 42,348 71,911
Common Stock Equity
Common Stock-without par value; $.01 stated value;
authorized shares-60,000,000; outstanding shares-
53,913,701 at September 30, 2000 and December 31, 1999 539 539
Paid-in capital 411,534 411,198
Retained earnings 685,054 642,569
Accumulated other comprehensive income (loss) 642 1,391
--- -----
Total Common Stock Equity 1,097,769 1,055,697
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholder's Equity $ 4,202,727 $ 3,834,836 $ $
=========== ============ ======================
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
Return to Table of Contents
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year to Date
September 30
2000 1999
(dollars in thousands)
(unaudited)
Operating Activities
Net income $ 99,742 $ 81,079
Items providing or (using) cash currently:
Depreciation and amortization 106,105 101,889
Deferred income taxes and investment tax
credits-net 318 10,707
Unrealized (gain) loss from energy risk
management activities (276) (25,698)
Allowance for equity funds used during construction (1,107) (758)
Regulatory assets-net 10,770 (231,813)
Changes in current assets and current liabilities:
Restricted deposits (155) 2,161
Accounts and notes receivable, net of reserves
on receivables sold (228,050) (244,456)
Materials, supplies, and fuel 38,647 (15,679)
Accounts payable 262,243 75,145
Accrued taxes and interest (33,608) 45,016
Other items-net (11,284) 263,850
------- -------
Net cash provided by operating activities 243,345 61,443
Financing Activities
Change in short-term debt 42,333 103,754
Issuance of long-term debt 53,075 323,593
Redemption of long-term debt (86,276) (355,192)
Retirement of preferred stock (29,226) (8)
Dividends on preferred stock (3,259) (3,451)
Dividends on common stock (54,000) (17,900)
------- -------
Net cash provided by (used in) financing
activities (77,353) 50,796
Investing Activities
Construction expenditures (less allowance for equity
funds used during construction) (164,034) (129,152)
-------- --------
Net cash used in investing activities (164,034) (129,152)
Net increase (decrease) in cash and cash equivalents 1,958 (16,913)
Cash and cash equivalents at beginning of period 8,842 18,788
----- ------
Cash and cash equivalents at end of period $ 10,800 $ 1,875
================= ==================
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
Return to Table of Contents
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Quarter Ended Year to Date
September 30 September 30
2000 1999 2000 1999
(dollars in thousands)
(unaudited)
Operating Revenues
Electric $ 61,540 $ 63,041 $ 165,908 $ 160,781
Gas 9,871 6,242 54,418 48,326
----- ----- ------ ------
Total Operating Revenues 71,411 69,283 220,326 209,107
Operating Expenses
Fuel and purchased and exchanged power 47,242 49,166 122,382 122,756
Gas purchased 4,475 2,229 27,457 23,112
Operation and maintenance 9,328 8,720 28,022 27,595
Depreciation and amortization 3,992 3,906 11,650 10,983
Taxes other than income taxes 955 1,024 3,078 3,134
--- ----- ----- -----
Total Operating Expenses 65,992 65,045 192,589 187,580
Operating Income 5,419 4,238 27,737 21,527
Miscellaneous - Net (72) (464) (702) (1,153)
Interest Expense 1,662 1,437 4,806 4,432
Income Before Taxes 3,685 2,337 22,229 15,942
Income Taxes 1,500 1,226 9,121 6,869
----- ----- ----- -----
Net Income $ 2,185 $ 1,111 $ 13,108 $ 9,073
Other Comprehensive Income (Loss),
Net of Tax - - - -
----- ----- ------ ------
Comprehensive Income $ 2,185 $ 1,111 $ 13,108 $ 9,073
=========== ============ ============ ============
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
Return to Table of Contents
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
September 30 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 7,288 $ 3,641
Accounts receivable less accumulated
provision for doubtful accounts of
$1,517 at September 30, 2000, and
$1,513 at December 31, 1999 7,952 17,786
Accounts receivable from affiliated companies 278 775
Materials, supplies, and fuel-at average cost 7,562 7,654
Prepayments and other 548 219
--- ---
Total Current Assets 23,628 30,075
Utility Plant - Original Cost
In service
Electric 231,287 222,035
Gas 180,816 173,011
Common 44,513 42,351
------ ------
Total 456,616 437,397
Accumulated depreciation 166,157 154,607
------- -------
Total 290,459 282,790
Construction work in progress 13,580 13,761
------ ------
Total Utility Plant 304,039 296,551
Other Assets
Regulatory assets 10,250 10,639
Other 5,665 5,000
----- -----
Total Other Assets 15,915 15,639
Total Assets $ 343,582 $ 342,265
=========== ============
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
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 3,365 $ 8,487
Accounts payable to affiliated companies 17,567 20,122
Accrued taxes 3,074 739
Accrued interest 1,251 1,298
Notes payable to affiliated companies 30,259 37,752
Other 9,043 4,062
----- -----
Total Current Liabilities 64,559 72,460
Non-Current Liabilities
Long-term debt 74,581 74,557
Deferred income taxes 20,158 23,000
Unamortized investment tax credits 3,753 3,961
Accrued pension and other post-retirement
benefit costs 12,892 12,333
Amounts due to customers - income taxes 13,070 11,308
Other 14,387 12,596
------ ------
Total Non-Current Liabilities 138,841 137,755
Total Liabilities 203,400 210,215
Common Stock Equity
Common Stock-$15.00 par value; authorized
shares-1,000,000; outstanding shares-585,333
at September 30, 2000 and December 31, 1999 8,780 8,780
Paid-in capital 20,142 20,142
Retained earnings 111,260 103,128
------- -------
Total Common Stock Equity 140,182 132,050
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholder's Equity $ 343,582 $ 342,265
========== ===========
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
Return to Table of Contents
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
Year to Date
September 30
2000 1999
(dollars in thousands)
(unaudited)
Operating Activities
Net income $ 13,108 $ 9,073
Items providing or (using) cash currently:
Depreciation and amortization 11,650 10,983
Deferred income taxes and investment tax
credits - net (1,289) (936)
Allowance for equity funds used during construction (32) (43)
Regulatory assets - net 237 103
Changes in current assets and current liabilities:
Accounts and notes receivable, net of reserves
on receivables sold 9,286 6,770
Materials, supplies, and fuel 92 (961)
Accounts payable (7,677) 2,536
Accrued taxes and interest 2,288 (1,618)
Other items - net 7,482 2,425
----- -----
Net cash provided by operating activities 35,145 28,332
Financing Activities
Change in short-term debt (7,493) (1,650)
Issuance of long-term debt - 19,818
Redemption of long-term debt - (20,000)
Dividends on common stock (4,975) (4,975)
------ ------
Net cash used in financing activities (12,468) (6,807)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (19,030) (19,036)
------- -------
Net cash used in investing activities (19,030) (19,036)
Net increase in cash and cash equivalents 3,647 2,489
Cash and cash equivalents at beginning of period 3,641 3,244
----- -----
Cash and cash equivalents at end of period $ 7,288 $ 5,733
=========== =============
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial
statements.
Return to Table of Contents(a) Presentation These Financial Statements reflect all adjustments (which include normal, recurring adjustments) necessary in the opinion of the registrants for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 1999 Form 10-K of the registrants.
Certain amounts in the 1999 Financial Statements have been reclassified to conform to the 2000 presentation.
(b) Energy Marketing and Trading We market and trade electricity, natural gas, and other energy-related products. We designate transactions as physical or trading at the time they are originated. Physical refers to our intent and projected ability to fulfill obligations from company-owned assets. We sell generation to third parties when it is not required to meet native load requirements (end-use customers within our operating companies’ franchise service territory). We account for physical transactions on a settlement basis and trading transactions using the mark-to-market method of accounting. Under the mark-to-market method of accounting, trading transactions are shown at fair value in our Consolidated Balance Sheets as Energy risk management assets - current and non-current, and Energy risk management liabilities - current and non-current. We reflect changes in fair value resulting in unrealized gains and losses in Fuel and purchased and exchanged power and Gas purchased. We record the revenues and costs for all transactions in our Consolidated Statements of Income when the contracts are settled. We recognize revenues in Operating revenues; costs are recorded in Fuel and purchased and exchanged power and Gas purchased.
Although we intend to settle physical sales contracts with company-owned generation, there are times when we have to settle these contracts with power purchased on the open trading markets. The cost of these purchases could be in excess of the associated revenues. We recognize the gains or losses on these transactions as the power is delivered. Open market purchases may occur for reasons such as:
We value contracts in the trading portfolio using end-of-the-period market prices, utilizing the following factors (as applicable):
We anticipate that some of these obligations, even though considered trading contracts, will ultimately be settled using company-owned generation. The cost of this generation is usually below the market price at which the trading portfolio has been valued.
Earnings volatility may occur from period to period due to the risks associated with marketing and trading electricity, natural gas, and other energy-related products.
(c) Financial Derivatives We use derivative financial instruments to manage: (1) funding costs; (2) exposures to fluctuations in interest rates; and (3) exposures to foreign currency exchange rates. These financial instruments must be designated as a hedge (for example, an offset of foreign exchange or interest rate risks) at the inception of the contract and must be effective at reducing the risk associated with the underlying instrument. An underlying instrument is one that gives rise to the derivative financial instrument, for example, a foreign currency denominated contract. Accordingly, changes in the market values of instruments designated as hedges must be highly correlated with changes in the market values of the underlying instrument.
From time to time, we may utilize foreign exchange forward contracts (for example, a contract obligating one party to buy, and the other to sell, a specified quantity of a foreign currency for a fixed price at a future date) and currency swaps (for example, a contract whereby two parties exchange principal and interest cash flows denominated in different currencies) to hedge certain of our net investments in foreign operations. Accordingly, any translation gains and losses are recorded in Accumulated other comprehensive income (loss), which is a component of Common stock equity. Aggregate translation losses related to these instruments are reflected net in Current liabilities in our Consolidated Balance Sheets. At September 30, 2000, no such instruments were held.
We also use interest rate swaps (an agreement by two parties to exchange fixed-interest rate cash flows for floating-interest rate cash flows). We use the accrual method to account for these interest rate swaps. Accordingly, gains and losses are calculated based on the difference between the fixed-rate and the floating-rate interest amounts, using agreed upon principal amounts. These gains and losses are recognized in our Consolidated Statements of Income as a component of Interest expense over the life of the agreement.
Holders of the $100 million principal amount Liquid Asset Notes with Coupon Exchange (LANCE) exercised their option to convert from a fixed interest rate to a rate based on the three-month London Inter-Bank Offered Rate (LIBOR). The first floating rate interest payment occurred on October 1, 2000. Based on favorable market conditions at the time, The Cincinnati Gas & Electric Company (CG&E) entered into an interest rate swap agreement to limit floating rate debt exposure. Under the agreement, which has a notional amount of $100 million, CG&E will pay a fixed rate and receive a floating rate for the remaining seven-year term of the note. The floating rate CG&E receives will be based on three-month LIBOR. The agreement effectively fixes CG&E’s interest rate on the LANCEs. The swap agreement will be designated as a hedge of the LANCEs upon CG&E’s adoption of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133) in the first quarter of 2001.
(d) Accounting Changes On August 31, 2000, the Public Utilities Commission of Ohio (PUCO) approved CG&E's stipulation agreement with respect to its proposal to implement electric customer choice in the state of Ohio. In connection with the approval of the stipulation agreement, CG&E discontinued the application of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71) for the generation portion of its business and adopted Statement of Financial Accounting Standards No. 101, Regulated Enterprises – Accounting for Discontinuation of Application of FASB Statement No. 71. For a further discussion on Ohio deregulation, see Note 7 of the “Notes to Financial Statements” in “Part 1. Financial Information” beginning on page 39.
During the second quarter of 1998, the Financial Accounting Standards Board (FASB) issued Statement 133. This standard requires companies to record derivative instruments as assets or liabilities, measured at fair value. Changes in the derivative’s fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Hedges are transactions entered into for the purpose of reducing exposure to one or more types of business risk. Gains and losses on derivatives that qualify as hedges can offset related results on the hedged item in the income statement.
In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No.133 (Statement 137). Statement 137 deferred the effective date of Statement 133 by one year. As a result, Statement 133 will be effective for fiscal years beginning after June 15, 2000.
Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133 (Statement 138) was issued in June 2000. Statement 138 addresses implementation issues and reflects decisions of the FASB regarding recommendations of the FASB-sponsored Derivatives Implementation Group.
We expect to reflect the adoption of Statement 133 in financial statements issued beginning in the first quarter of 2001. In preparation for our implementation of this new standard, we have formed a cross-functional project team. The project team is identifying and analyzing all contracts which could be subject to the new standard, developing required documentation and reporting systems, and promoting internal awareness of the requirements and potential effects of the new standard. While we continue to analyze and follow the development of implementation guidelines, at this time we are unable to predict whether the implementation of this accounting standard will be material to our results of operations and financial position. However, the adoption of Statement 133 could increase volatility in earnings and other comprehensive income.
The following represents the changes during the year in preferred stock of CG&E and PSI Energy, Inc. (PSI):
Registrant Quarter Series Shares Redeemed Par Value
CG&E First 4 3/4% 800 $ 80,000
Second 4 3/4% 1,100 110,000
Third 4 3/4% 100 10,000
PSI First 3 1/2% 600 $ 60,000
Second 3 1/2% 1,184 118,400
6.875% 105,150 10,515,000
4.32% 14,380 359,500
Third 3 1/2% 1,000 100,000
6.875% 184,100 18,410,000
On February 15, 2000, PSI retired $150,000 principal amount of its Series YY First Mortgage Bonds.
On May 16, 2000, PSI issued $44,025,000 of Indiana Development Finance Authority Environmental Refunding Revenue Bonds Series 2000A, due May 1, 2035 and $10,000,000 of Indiana Development Finance Authority Environmental Refunding Revenue Bonds Series 2000B, due April 1, 2022. The initial interest rates on the Series 2000A and Series 2000B bonds were 4.65% and 4.70%, respectively. The rates reset every 35 days.
The proceeds from these issuances were used to pay a portion of the cost of refunding the $29,795,000 principal amount outstanding of PSI’s First Mortgage Bonds, Series YY, the $14,250,000 principal amount outstanding of its First Mortgage Bonds, Series UU, and the $10,000,000 principal amount outstanding of its First Mortgage Bonds, Series TT, each at a redemption price of 102% of the principal amount thereof, plus accrued interest.
On September 18, 2000, PSI retired $11,000,000 principal amount of 5.61% Series B Medium Term Notes, and on September 27, 2000, PSI retired $20,000,000 principal amount of 5.78% Series B Medium Term Notes.
On October 15, 2000, the holders of PSI's $100 million, 6.35% Debentures due November 15, 2006, elected to exercise their option to put the securities back to the company effective November 15, 2000.
(i) NOX SIP Call Ozone transport refers to the alleged wind-blown movement of ozone or ozone-causing materials across city and state boundaries. As discussed in the 1999 Form 10-K, in October 1998, the United States Environmental Protection Agency (EPA) finalized its ozone transport rule, also known as the NOX SIP Call. (A SIP is a state's implementation plan for achieving emissions reductions to address air quality concerns.) It applied to 22 states in the eastern half of the United States (U.S.), including the three states in which our electric utilities operate, and also proposes a model nitrogen oxide (NOX) emission allowance trading program. If implemented by the states, the trading program would allow us to buy NOX emission allowances from, or sell NOX emission allowances to, other companies as necessary. This rule recommended that states reduce NOX emissions primarily from industrial and utility sources to a certain level by May 2003. The EPA gave the affected states until September 30, 1999, to incorporate NOX reductions and, in the discretion of the state, a trading program into their SIPs. The EPA proposed to implement a federal plan to accomplish the equivalent NOX reductions by May 2003, if states failed to revise their SIPs. The EPA must approve all SIPs.
Ohio, Indiana, a number of other states, and various industry groups (some of which we are a member) filed legal challenges to the NOX SIP Call in late 1998. On May 25, 1999, the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals) granted a request for a deferral of the rule and indefinitely suspended the September 30 filing deadline, pending further review by the Court of Appeals.
In March 2000, the Court of Appeals substantially upheld the EPA’s rule. On April 11, 2000, the EPA asked the Court of Appeals to remove its May 25, 1999, suspension of the rule and also directed the states to submit SIP revisions by September 1, 2000. On April 17, 2000, various states and industry groups (some of which we are a member) filed a request with the Court of Appeals for a rehearing of the NOX SIP Call decisions. On April 24, 2000, the same group filed a request with the Court of Appeals to require rulemaking and a comment period to determine a new compliance date. The states also filed a request to obtain more time to file their SIPs. On June 23, 2000, the Court of Appeals denied both requests and directed the states to submit their SIP revisions by October 30, 2000. Indiana, Kentucky, and Ohio submitted letters stating their intent to revise their SIPs in response to the NOx SIP Call. The respective rulemaking procedures will allow these states to provide draft SIP revisions to the EPA for comment during the winter and final regulations in the late spring or summer of 2001.
In August 2000, the U.S. Court of Appeals for the District of Columbia extended the May 1, 2003, deadline for NOx reductions to May 31, 2004. The ultimate outcome of this matter is uncertain. The states and other groups appealed the Court of Appeals ruling to the U.S. Supreme Court (Supreme Court).
On September 25, 2000, Cinergy announced a plan to invest approximately $700 million in pollution control equipment and other methods to reduce NOx emissions. This expected investment includes the following:
SCRs are the most proven technology currently available for reducing NOx emissions produced in coal-fired generating stations.
(ii) Section 126 Petitions As discussed in the 1999 Form 10-K, 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 Clean Air Act (CAA). The EPA believes that Section 126 petitions allow a state to claim that another state is contributing to its air quality problem and request that the EPA require the upwind state to reduce its emissions.
In December 1999, the EPA granted four Section 126 petitions relating to NOX emissions. This ruling affects all of our Ohio and Kentucky facilities, as well as some of our Indiana facilities, and requires us to reduce our NOX emissions to a certain level by May 2003. The EPA’s action granting the Section 126 petitions has been appealed to the Court of Appeals. In April 2000, the parties to the appeal filed a proposed scheduling order which, if approved, would set oral arguments in late 2000, with a court decision expected in the spring of 2001. We currently cannot predict the outcome of this proceeding. We do not anticipate that any Section 126 rulings will have any significant financial impact in addition to that of the NOX SIP Call.
(iii) State Ozone Plans As discussed in the 1999 Form 10-K, on November 15, 1999, the State of Indiana and the Commonwealth of Kentucky (along with Jefferson County, Kentucky) jointly filed an amendment to their SIPs on how they intend to bring the greater Louisville area, including Floyd and Clark Counties in Indiana, into attainment with the one-hour ozone standard. The SIP amendments call for, among other things, statewide NOX reductions from utilities in Indiana, Kentucky, and surrounding states. These rules are less stringent than the EPA's NOX SIP Call. The states of Indiana and Kentucky have committed to adopt utility NOX reduction rules by December 2000, which would require controls be installed by May 2003. We do not anticipate that the state NOX rules will have any significant financial impact in addition to that of the NOX SIP Call.
(b) New Source Review (NSR) As discussed in the 1999 Form 10-K, the CAA’s NSR provisions require that a company obtain a pre-construction permit if it plans to build a new stationary source of pollution or make a major change to an existing facility unless the changes are exempt. In July 1998, the EPA requested comments on proposed revisions to the NSR rules that would change NSR applicability by eliminating exemptions contained in the current regulation. We believe that if these changes are finalized, it will be significantly harder to maintain our facilities without triggering the NSR permit requirements.
Since July 1999, CG&E and PSI have received requests from the EPA (Region 5), under Section 114 of the CAA, seeking documents and information regarding capital and maintenance expenditures at several of their respective generating stations. These activities are part of an industry-wide investigation assessing compliance with the NSR and the New Source Performance Standards (NSPS, emissions standards that apply to new and changed units) of the CAA at electric generating stations.
On September 15, 1999, and on November 3, 1999, the attorneys general of the states of New York and Connecticut, respectively, issued letters notifying Cinergy (Cinergy Corp. and all of its regulated and non-regulated subsidiaries) and CG&E of their intent to sue under the citizens suit provisions of the CAA. New York and Connecticut allege violations of the CAA by constructing and continuing to operate a major change to CG&E’s W.C. Beckjord Station (Beckjord) without obtaining the required NSR pre-construction permits.
On November 3, 1999, the EPA sued a number of holding companies and electric utilities, including Cinergy, CG&E, and PSI, in various U.S. District Courts. The Cinergy, CG&E, and PSI suit alleges violations of the CAA at certain of our generating stations relating to NSR and NSPS requirements. The suit seeks (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord and PSI’s Cayuga Generating Station (Cayuga), and (2) civil penalties in amounts of up to $27,500 per day for each violation.
On March 1, 2000, the EPA filed an amended complaint against Cinergy, CG&E, and PSI. The amended complaint added the alleged violations of the NSR requirements of the CAA contained in the notice of violation (NOV) filed by the EPA on November 3, 1999. It also added claims for relief alleging violations of (1) nonattainment NSR, (2) Indiana and Ohio SIPs, and (3) particulate matter emission limits (as discussed in Note 4(d) on page 34). The amended complaint seeks (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord, Cayuga, and PSI’s Wabash River and Gallagher Generating Stations, and such other measures as necessary, and (2) civil penalties in amounts of up to $27,500 per day for each violation. We believe the allegations contained in the amended complaint are without merit and plan to defend the suit vigorously in court. The case is set for trial by jury in July 2002. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on our financial condition. In addition, we cannot predict whether any additional allegations will be added to this proceeding.
On March 1, 2000, the EPA also filed an amended complaint alleging violations of the CAA relating to NSR, Prevention of Significant Deterioration (PSD), and Ohio SIP requirements regarding Conesville Station, which is operated by the Columbus Southern Power Company (CSP) and jointly-owned by CSP, The Dayton Power and Light Company (DP&L), and CG&E. The EPA is seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. We believe the allegations in the amended complaint are without merit. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on our financial condition.
On June 28, 2000, the EPA issued an NOV to Cinergy, CG&E, and PSI for alleged violations of NSR, PSD, and SIP requirements at CG&E’s Miami Fort Station and PSI’s Gibson Station. In addition, Cinergy and CG&E have been informed by DP&L, the operator of J.M. Stuart Station (Stuart), that on June 30, 2000, the EPA issued an NOV for alleged violations of NSR, PSD, and SIP requirements at this station. CG&E owns 39% of Stuart. The NOVs indicated that the EPA may (1) issue an order requiring compliance with the requirements of the SIP, or (2) bring a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on our financial condition.
(c) Manufactured Gas Plant (MGP) Sites(i) General As discussed in the 1999 Form 10-K, prior to the 1950s, gas was produced at MGP sites through a process that involved the heating of coal and/or oil. The gas produced from this process was sold for residential, commercial, and industrial uses.
(ii) 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 sites which PSI or its predecessors previously owned. PSI acquired four of the sites from Northern Indiana Public Service Company (NIPSCO) in 1931. At the same time, PSI sold NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSI sold 19 of these sites (including the four sites it acquired from NIPSCO) to the predecessor of the Indiana Gas Company, Inc. (IGC). IGC later sold the site located in Rochester, Indiana, to NIPSCO.
IGC (in 1994) and NIPSCO (in 1995) both made claims against PSI. The basis of these claims was that PSI is a Potentially Responsible Party with respect to the 21 MGP sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The claims further asserted that PSI is therefore legally responsible for the costs of investigating and remediating the sites. In August 1997, NIPSCO filed suit against PSI in federal court claiming recovery (pursuant to CERCLA) 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. This agreement allocated CERCLA liability for past and future costs at seven MGP sites in Indiana among the three companies. As a result of the agreement, NIPSCO’s lawsuit against PSI was dismissed. The parties have assigned lead responsibility for managing further investigation and remediation activities at each of the sites to one of the parties. Similar agreements were reached between IGC and PSI that allocate CERCLA liability at 14 MGP sites with which NIPSCO was not involved. These agreements conclude all CERCLA and similar claims between the three companies related to MGP sites. The parties continue to investigate and remediate the sites, as appropriate under the agreements and applicable laws. The Indiana Department of Environmental Management (IDEM) oversees investigation and cleanup of some of the sites.
PSI notified its insurance carriers of the claims related to MGP sites raised by IGC, NIPSCO, and the IDEM. In April 1998, PSI filed suit in Hendricks County Circuit Court in the State of Indiana against its general liability insurance carriers. Among other matters, PSI requested a declaratory judgment that would obligate its insurance carriers to (1) defend MGP claims against PSI, or (2) pay PSI’s costs of defense and compensate PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims related to MGP sites. The case was moved to the Hendricks County Superior Court 1 on a request for a change of judge. The Hendricks County Superior Court 1 had set the case for trial beginning in May 2001, which has been moved to January 2002. It ordered the parties to meet certain deadlines for discovery proceedings based upon this trial date. PSI cannot predict the outcome of this litigation. Recently, PSI has been involved in settlement discussions with some of the insurance carriers. At the present time, PSI cannot predict either the progress or outcome of these discussions.
PSI has accrued costs for the sites related to investigation, remediation, and groundwater monitoring for the work performed to date. The estimated costs for such remedial activities are accrued when the costs are probable and can be reasonably estimated. PSI does not believe it can provide an estimate of the reasonably possible total remediation costs for any site before a remedial investigation/feasibility study has been completed. To the extent remediation is necessary, the timing of the remediation activities impacts the cost of remediation. Therefore, PSI currently cannot determine the total costs that may be incurred in connection with the remediation of all sites, to the extent that remediation is required. According to current information, these future costs at the 21 Indiana MGP sites are not material to our financial condition or results of operations. As further investigation and remediation activities are performed at these sites, the potential liability for the 21 Indiana MGP sites could be material to our financial position or results of operations.
(iii) CG&E CG&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 and its utility subsidiaries have begun preliminary site assessments to obtain information about some of these MGP sites.
(d) Other As discussed in the 1999 Form 10-K, on November 30, 1999, the EPA filed an NOV and a Finding of Violation (FOV) against Cinergy and CG&E alleging that emissions of particulate matter at Beckjord exceeded the allowable limit. The NOV indicated that the EPA may (1) issue an administrative penalty order, or (2) file a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. The allegations contained in this NOV were incorporated within the March 1, 2000, amended complaint, as discussed in Note 4(b) on page 31. On June 22, 2000, the EPA issued an NOV and an FOV alleging additional particulate emission violations at Beckjord and offered us an opportunity to meet and discuss the allegations and corrective measures. The NOV/FOV indicated that the EPA may (1) issue an administrative compliance order, (2) issue an administrative penalty order, or (3) bring a civil or criminal action. We are currently unable to determine whether resolution of these matters will have a material effect on our financial condition.
As discussed in the 1999 Form 10-K, during 1998, we adopted the requirements of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (Statement 131). Statement 131 requires disclosures about reportable operating segments in annual and interim condensed financial statements.
The Energy Commodities Business Unit (Commodities) operates and maintains our domestic electric generating plants and some of our jointly-owned plants. It also conducts the following activities: (1) wholesale energy marketing and trading, (2) energy risk management, (3) financial restructuring services, and (4) proprietary arbitrage activities. Commodities earns revenues from external customers from its marketing, trading, and risk management activities. Commodities earns intersegment revenues from the sale of electric power to the Energy Delivery Business Unit (Delivery).
Delivery plans, constructs, operates, and maintains our operating companies’ transmission and distribution systems and provides gas and electric energy to consumers. Delivery earns revenues from customers other than consumers primarily by transmitting electric power through our transmission system. Delivery currently receives all of its electricity from Commodities at a transfer price based upon current regulatory ratemaking methodology.
The Cinergy Investments Business Unit (Cinergy Investments) primarily manages the development, marketing, and sales of our non-regulated retail energy and energy-related products and services. This is accomplished through various subsidiaries and joint ventures. Cinergy Investments earns all of its revenues from the sale of such products and services to ultimate consumers. These products and services include the following:
The International Business Unit (International) directs and manages our international business holdings, which include wholly- and jointly-owned companies in twelve countries. In addition, International also directs our renewable energy investing activities (for example, wind farms) both inside and outside the U.S. International recognizes (1) revenues from consolidated subsidiaries, and (2) equity earnings from unconsolidated subsidiaries primarily from energy-related businesses.
Financial results by business unit for the quarters ended September 30, 2000, and 1999, are as follows:
Business Units
2000
Cinergy Business Units
Reconciling
Cinergy All Other Eliminations
Commodities Delivery Investments International Total (1) (2) Consolidated
(in thousands)
Operating revenues -
External customers $1,455,842 $812,509 $18,301 $13,133 $2,299,785 $ - $ - $2,299,785
Intersegment revenues 520,682 - - - 520,682 - (520,682) -
Segment profit (loss) 67,399(3) 36,914 (4,997) (5,502) 93,814 - - 93,814
1999
Cinergy Business Units
Reconciling
Cinergy All Other Eliminations
Commodities Delivery Investments International Total (1) (2) 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) 6,290 48,351 (1,485) 67,120(4) 120,276 1,287 - 121,563
(1) The All Other category represents miscellaneous corporate items which are not allocated to business units for purposes of segment profit measurement.
(2) The Reconciling Eliminations category eliminates the intersegment revenues of Commodities.
(3) The increase in 2000, as compared to 1999, is primarily due to improvements in gross margins and the increase in volumes and average price realized on non-firm wholesale
transactions.
(4) Includes the earnings from our 50% ownership interest in Midlands Electricity plc and the gain on the sale which occurred in the third quarter of 1999.
Financial results by business unit for the nine months ended September 30, 2000, and 1999, are as follows:
Business Units
2000
Cinergy Business Units
Reconciling
Cinergy All Other Eliminations
Commodities Delivery Investments International Total (1) (2) Consolidated
(in thousands)
Operating revenues -
External customers $3,130,379 $2,417,662 $57,303 $47,032 $5,652,376 $ - $ - $5,652,376
Intersegment revenues 1,420,276 - - - 1,420,276 - (1,420,276) -
Segment profit (loss) 205,353(3) 118,124 (8,589) (7,520) 307,368 - - 307,368
1999
Cinergy Business Units
Reconciling
Cinergy All Other Eliminations
Commodities Delivery Investments International Total (1) (2) 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) 85,368 137,979 (6,399) 87,986(4) 304,934 2,932 - 307,866
(1) The All Other category represents miscellaneous corporate items which are not allocated to business units for purposes of segment profit measurement.
(2) The Reconciling Eliminations category eliminates the intersegment revenues of Commodities.
(3) The increase in 2000, as compared to 1999, is primarily due to improvements in gross margins, and the increase in volumes and average price realized on non-firm
wholesale transactions.
(4) Includes the earnings from our 50% ownership interest in Midlands Electricity plc and the gain on the sale which occurred in the third quarter of 1999.
Total segment assets at September 30, 2000, and December 31, 1999, are as follows:
Cinergy Business Units
Cinergy
Commodities Delivery Investments International Total All Other (1) Consolidated
(in thousands)
Total segment assets at September 30, 2000 $5,843,109 $4,371,336 $212,186 $494,529 $10,921,160 $31,871 $10,953,031
Total segment assets at December 31, 1999 5,041,578 4,058,164 129,935 339,905 9,569,582 47,366 9,616,948
(1) The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment profit measurement.
A reconciliation of earnings per common share (EPS) to earnings per common share assuming dilution (diluted EPS) is presented below:
Income Shares EPS
(in thousands, except per share amounts)
Quarter ended September 30, 2000
Earnings per common share:
Net income $ 93,814 158,938 $0.59
Effect of dilutive securities:
Common stock options 667
Share saver plan common stock 11
Contingently issuable common stock 426
EPS-assuming dilution:
Net income plus assumed conversions $ 93,814 160,042 $0.58
Quarter ended September 30, 1999
Earnings per common share:
Net income $121,563 158,907 $0.77
Effect of dilutive securities:
Common stock options 329
Share saver plan common stock 26
Contingently issuable common stock 26
EPS-assuming dilution:
Net income plus assumed conversions $121,563 159,288 $0.76
Options to purchase shares of common stock are excluded from the calculation of diluted EPS when the exercise prices of these options are greater than the average market price of the common shares during the period. For the quarters ended September 30, 2000, and 1999, approximately 1.7 million shares were excluded from the diluted EPS calculation.
The Employee Stock Purchase and Savings Plan is also excluded from the diluted EPS calculation since the purchase price is greater than the average market price during this period. This plan allows all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature. A detailed description of this plan is available in the 1999 Form 10-K.
As discussed in the 1999 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the state of Ohio. The Electric Restructuring Bill creates a competitive electric retail service market beginning January 1, 2001. The legislation provides for a market development period that begins January 1, 2001, and ends no later than December 31, 2005. Ohio electric utilities have an opportunity to recover PUCO-approved transition costs during the market development period. The legislation also freezes retail electric rates during the market development period, at the rates in effect on October 4, 1999, except for a five-percent reduction in the generation component of residential rates. Furthermore, the legislation contemplates that twenty percent of the current electric retail customers will switch suppliers no later than December 31, 2003.
On May 8, 2000, CG&E reached a stipulation agreement with the PUCO staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio beginning January 1, 2001. On August 31, 2000, the PUCO approved CG&E’s stipulation agreement. The major features of this agreement include:
In connection with the PUCO approval of the stipulation agreement, CG&E discontinued Statement 71 for the generation portion of its business. The effect of discontinuation of Statement 71 is immaterial to CG&E’s results of operations and financial condition. Additionally, pursuant to Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of, our analysis indicates future revenues will be sufficient to recover the costs of CG&E’s generating assets over their estimated remaining lives.
Return to Table of Contents“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) discusses various matters that may make management’s corporate vision of the future more clear for you. Certain of management’s goals and aspirations are outlined and specific projections may be made. These goals and projections are considered forward-looking statements and are based on management’s beliefs and assumptions.
Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ are often presented with forward-looking statements. In addition, other factors could cause actual results to differ materially from those indicated in any forward-looking statement. These include:
Unless we otherwise have a duty to do so, the Securities and Exchange Commission’s (SEC) rules do not require forward-looking statements to be revised or updated (whether as a result of changes in actual results, changes in assumptions, or other factors affecting the statements). Our forward-looking statements reflect our best beliefs as of the time they are made and may not be updated for subsequent developments.
In MD&A, we explain liquidity, capital resources, and results of operations. Specifically, we discuss the following:
In the “Liquidity” section, we discuss environmental issues and other investing activities as they relate to our current and future cash needs. In the “Capital Resources” section beginning on page 44, we discuss how we intend to meet these capital requirements.
See Notes 4(a), (b), (c), and (d), respectively, of the "Notes to Financial Statements" in "Part I. Financial Information" on pages 30 through 34.
As discussed in the 1999 Form 10-K, our ability to invest in growth initiatives, such as Exempt Wholesale Generators (EWG) and Foreign Utility Companies (FUCO), is limited by certain legal and regulatory requirements, including the Public Utility Holding Company Act of 1935, as amended (PUHCA). In late 1999, Cinergy (Cinergy Corp. and all of its regulated and non-regulated subsidiaries) filed a request with the SEC under the PUHCA for additional authority to, among other things, increase the amount we can invest in EWGs and FUCOs. On June 23, 2000, the SEC issued an order granting Cinergy approximately $676 million in additional authority under the PUHCA to invest in EWGs and FUCOs. This order supplements our existing authority under PUHCA, based on a prior SEC order, to make such investments, which had been capped at an amount equal to 100 percent of Cinergy’s average consolidated retained earnings for the preceding four calendar quarters (approximately $1.055 billion). As of September 30, 2000, we had invested or committed to invest approximately $752 million of the approximately $1.731 billion available.
Return to Table of ContentsAs discussed in the 1999 Form 10-K, Cinergy Corp. filed a request with the SEC under the PUHCA for authority to increase its financing capacity. On June 23, 2000, the SEC issued an order under the PUHCA authorizing Cinergy Corp. to increase its total capitalization at December 31, 1999 (excluding retained earnings and accumulated other comprehensive income) by an additional $5 billion, through issuance of any combination of equity and debt securities. This increased authorization is subject to certain conditions, including, among others, that common equity comprises at least 30 percent of Cinergy’s consolidated capital structure and that Cinergy, under certain circumstances, maintains an investment grade rating on its senior debt obligations. This increased authority is intended to provide Cinergy flexibility to respond quickly and efficiently to the company’s financing needs and available conditions in capital markets.
Short-term Debt In connection with the current SEC authorization, Cinergy Corp. has established lines of credit. As of September 30, 2000, Cinergy Corp. had $306 million remaining unused and available on its established lines.
Our operating companies have regulatory authority to borrow up to a total of $853 million in short-term debt ($453 million for The Cincinnati Gas & Electric Company (CG&E) and its subsidiaries including $50 million for The Union Light, Heat and Power Company (ULH&P), and $400 million for PSI Energy, Inc. (PSI)). In connection with this authority, CG&E and PSI have established lines of credit, of which, $139 million and $91 million, respectively, remained unused and available at September 30, 2000.
Also, our non-regulated subsidiaries have established lines of credit. As of September 30, 2000, $2.4 million was unused and available on these established lines. Our non-regulated subsidiaries have the availability of funds from Cinergy Corp. if the need arises.
A portion of each company’s committed lines is used to provide credit support for commercial paper (discussed below) and other uncommitted lines. When committed lines are reserved for commercial paper or other uncommitted lines, they are not available for additional borrowings.
Commercial Paper The commercial paper (debt instruments exchanged between companies) program is limited to a maximum outstanding principal amount of $400 million for Cinergy Corp. As of September 30, 2000, Cinergy Corp. had issued $246 million in commercial paper.
CG&E and PSI also have the capacity to issue commercial paper, which must be supported by available committed lines of the respective company. The maximum outstanding principal amount for CG&E is $200 million and for PSI is $100 million. At September 30, 2000, neither CG&E nor PSI had issued any commercial paper.
Variable Rate Pollution Control Notes CG&E and PSI have issued variable rate pollution control notes (tax-exempt notes obtained to finance equipment or land development for pollution control purposes). Because the holders of these notes have the right to redeem their notes on any business day, they are reflected in Notes payable and other short-term obligations in the Consolidated Balance Sheets for Cinergy on page 7, for CG&E on page 14, and for PSI on page 19. At September 30, 2000, CG&E and PSI had $184 million and $82.6 million, respectively, outstanding in pollution control notes.
Money Pool Our operating companies and their subsidiaries participate in a money pool arrangement to better manage cash and working capital requirements. Under this arrangement, our operating companies and their subsidiaries with surplus short-term funds provide short-term loans to each other. This surplus cash may be from internal or external sources. The amounts outstanding under this money pool arrangement are shown as Notes receivable from affiliated companies or Notes payable to affiliated companies on the Consolidated Balance Sheets for CG&E on pages 13 through 14, PSI on pages 18 through 19, and the Balance Sheets for ULH&P on pages 23 through 24.
Long-term Debt Under the PUHCA authorization mentioned above, we are able to issue and sell long-term debt at the parent holding company level. As of September 30, 2000, Cinergy Corp. has $400 million of long-term debt outstanding.
Currently, our operating companies have the following types of outstanding long-term debt: First Mortgage Bonds and other Secured Notes, and Senior and Junior Unsecured Debt. Under our existing authority, the remaining unissued debt, as of September 30, 2000, is reflected in the following table:
Authorizing Agency CG&E PSI ULH&P
(in millions)
Applicable State Utility Commission
(Secured or Unsecured Debt) $200 $346 $30
We may, at any time, request additional long-term debt authorization. This request is subject to regulatory approval, which may or may not be granted.
As of September 30, 2000, through shelf registrations filed with the SEC under the Securities Act of 1933, we could issue the following amounts of debt securities:
CG&E PSI ULH&P
(in millions)
First Mortgage Bonds and Other Secured Notes $300 $265 $20
Senior or Junior Unsecured Debt 50 400 30
For information regarding recent issuances and redemptions of long-term debt securities, see Note 3 of the "Notes to Financial Statements" in "Part I. Financial Information" on page 29.
Cinergy Corp. currently has SEC authorization to issue and sell 30 million shares of common stock under various stock-based plans. This authorization expires December 31, 2000. On September 29, 2000, Cinergy Corp. filed a request with the SEC under the PUHCA for authority to issue and/or sell up to 50 million shares of common stock over a 10-year period under various stock-based plans. We intend to use the proceeds from the transactions described for general corporate purposes.
On June 1, 2000, Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co. merged, and are now known as Fitch, thereby combining their ratings of Cinergy Corp. and its affiliates. As of September 30, 2000, the major credit rating agencies rated our securities as follows:
Fitch(1) Moody's (2) S&P (3)
Cinergy Corp.
Corporate Credit BBB+ Baa2 BBB+
Commercial Paper F-2 P-2 A-2
CG&E
Secured Debt A- A3 A-
Senior Unsecured Debt BBB+ Baa1 BBB+
Junior Unsecured Debt BBB Baa2 BBB
Preferred Stock BBB baa1 BBB
Commercial Paper F-2 P-2 Not Rated
PSI
Secured Debt A- A3 A-
Senior Unsecured Debt BBB+ Baa1 BBB+
Junior Unsecured Debt BBB Baa2 BBB
Preferred Stock BBB baa1 BBB
Commercial Paper F-2 P-2 Not Rated
ULH&P
Secured Debt A- A3 A-
Unsecured Debt Not Rated Baa1 BBB+
(1) Fitch (Fitch)
(2) Moody's Investors Service (Moody's)
(3) Standard & Poor's Ratings Services (S&P)
These securities ratings may be revised or withdrawn at any time, and each rating should be evaluated independently of any other rating.
We are subject to a SEC order under the PUHCA, which limits the amounts Cinergy Corp. can have outstanding under guarantees (promises to pay by one party in the event of default by another party) at any one time to $2 billion. This is an increase from the previous $1 billion guarantee level as a result of the June 23, 2000 order received from the SEC. As of September 30, 2000, we had $741 million outstanding under the guarantees issued.
Return to Table of ContentsElectric and gas margins and net income for Cinergy, CG&E, and PSI for the quarters ended September 30, 2000, and 1999, were as follows:
Cinergy (1) CG&E PSI
2000 1999 2000 1999 2000 1999
(in thousands)
Electric gross margin $551,279 $505,486 $268,697 $288,849 $217,754 $212,178
Gas gross margin 43,000 26,578 27,199 24,256 - -
Net income 93,814 121,563 39,096 48,152 30,613 15,658
(1) The results of Cinergy also include amounts related to non-registrants.
Our diluted earnings per share for the third quarter of 2000 increased to $.58 per share from $.33 per share (before a gain of $.43 from the sale of the company’s interest in Midlands Electricity plc (Midlands) in July 1999).
Earnings from our regulated operations, including the commodities supply business, increased $.22 per share in the third quarter of 2000, when compared to the same period of 1999. The improved results are primarily attributable to an increase in gross margins from the commodities supply business. Offsetting this increase was a decrease of $.40 per share in the contribution to earnings of our non-regulated investment activities. This decrease primarily reflects the loss of earnings from the company’s share in Midlands, which was sold in the third quarter of 1999.
The explanations below follow the line items on the “Statements of Income” for Cinergy, CG&E, and PSI, which begin on page 5. However, only the line items that varied significantly from prior periods are discussed.
Cinergy (1) CG&E PSI
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
(in millions)
Retail $ 714 $ 799 (11) $402 $426 (6) $312 $374 (17)
Wholesale 788 564 40 383 269 42 478 322 48
Other 97 34 185 7 5 40 14 11 27
-- -- - - -- --
Total $1,599 $1,397 14 $792 $700 13 $804 $707 14
(1) The results of Cinergy also include amounts related to non-registrants.
Electric operating revenues for Cinergy, CG&E, and PSI increased for the quarter ended September 30, 2000, as compared to 1999, mainly due to an increase in volumes and the average price per kilowatt-hour (kWh) realized on non-firm wholesale transactions related to the commodities supply business. Non-firm power is power without a guaranteed commitment for physical delivery. This increase is somewhat offset by a decrease in retail revenues, which reflects decreased volumes due to a 25 percent reduction in the number of cooling degree-days (a measure of temperature variance from normal).
The increase in other electric operating revenues for Cinergy primarily reflects marketing activities of Cinergy Capital & Trading, Inc. (CC&T), a Cinergy affiliate.
Cinergy (1) CG&E
2000 1999 % Change 2000 1999 % Change
(in millions)
Non-regulated $629 $337 87 $ - $ - -
Retail 40 30 33 40 30 33
Transportation 8 8 - 8 8 -
Other 1 1 - 1 1 -
- - - -
Total $678 $376 80 $49 $39 26
(1) The results of Cinergy also include amounts related to non-registrants.
Gas operating revenues for Cinergy increased in the third quarter of 2000, when compared to the same period last year. This is primarily the result of an increase in gas commodity trading activity. CG&E's retail revenues increased primarily due to a higher price realized per thousand cubic feet (mcf) sold, when compared to the same period in 1999.
Other operating revenues for Cinergy increased $13 million in the third quarter of 2000, when compared to the same period in 1999, primarily due to revenues from the marketing of energy-related services.
Cinergy (1) CG&E PSI
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
(in millions)
Fuel $ 181 $ 200 (10) $ 87 $ 91 (4) $ 90 $100 (10)
Purchased and
exchanged power 867 691 25 436 320 36 496 395 26
Gas purchased 635 349 82 22 14 57 - - -
Operation 212 207 2 86 81 6 81 99 (18)
Maintenance 48 39 23 24 22 9 23 17 35
Depreciation and
amortization 94 89 6 53 52 2 36 34 6
Taxes other than
income taxes 67 70 (4) 52 54 (4) 15 15 -
-- -- -- -- -- --
Total $2,104 $1,645 28 $760 $634 20 $741 $660 12
(1) The results of Cinergy also include amounts related to non-registrants.
Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity. The following table details the changes to fuel expense from the quarter ended September 30, 1999, to the quarter ended September 30, 2000:
Cinergy (1) CG&E PSI
(in millions)
Fuel expense - September 30, 1999 $200 $91 $100
Increase (Decrease) due to changes in:
Price of fuel (7) (7) -
Deferred fuel cost (8) 3 (11)
kWh generation 1 - 1
Other (5) - -
-- -- --
Fuel expense - September 30, 2000 $181 $87 $ 90
(1) The results of Cinergy also include amounts related to non-registrants.
Purchased and exchanged power expense increased for Cinergy, CG&E, and PSI for the third quarter of 2000, compared to last year, primarily due to an increase in purchases of non-firm wholesale power as a result of an increase in sales volume in the energy marketing and trading operations.
Gas PurchasedGas purchased expense increased for Cinergy for the third quarter of 2000, when compared to the same period last year, primarily due to increased gas commodity trading activity and, for both Cinergy and CG&E, an increase in the average cost per mcf of gas purchased. CG&E’s Gas purchased expense also increased due to higher mcf volumes purchased during the third quarter of 2000, as compared to the same period of 1999.
OperationPSI’s Operation expenses decreased for the quarter ended September 30, 2000, as compared to the same period last year, due to a number of factors, including a reduction in the amortization of demand-side management costs as a result of the expiration of the agreement in May 2000.
MaintenanceCinergy’s, CG&E’s, and PSI’s Maintenance expenses increased for the quarter ended September 30, 2000, as compared to the same period last year, primarily due to activities associated with planned PSI production projects and other repairs performed at certain CG&E facilities.
Depreciation and AmortizationCinergy’s Depreciation and amortization costs increased for the quarter ended September 30, 2000, as compared to the same period last year, primarily due to additions to depreciable plant.
Cinergy’s Interest expense increased $4 million for the third quarter of 2000, when compared to the same period last year, due to an increase in short-term borrowings and average short-term interest rates.
Return to Table of ContentsElectric and gas margins and net income for Cinergy, CG&E, and PSI for the nine months ended September 30, 2000, and 1999, were as follows:
Cinergy (1) CG&E PSI
2000 1999 2000 1999 2000 1999
(in thousands)
Electric gross margin $1,666,999 $1,531,876 $874,160 $832,346 $702,030 $686,045
Gas gross margin 177,404 148,638 151,397 142,295 - -
Net income 307,368 307,866 190,941 167,311 99,742 81,079
(1) The results of Cinergy also include amounts related to non-registrants.
Our diluted earnings per share for the nine months ending September 30, 2000, decreased slightly to $1.92 per share from $1.93 per share for the same period of 1999.
Earnings of our regulated operations, including the commodities supply business, increased $.56 per share for the nine months ending September 30, 2000, when compared to the same period in 1999. The improved results are primarily attributable to an increase in gross margins from the commodities supply business. Offsetting this increase was a decrease of $.57 per share in the contribution to earnings of our non-regulated investment activities. This decrease primarily reflects the loss of earnings from the company's share in Midlands, which was sold in the third quarter of 1999.
The explanations below follow the line items on the "Statements of Income" for Cinergy, CG&E, and PSI, which begin on page 5. However, only the line items that varied significantly from prior periods are discussed
Cinergy (1) CG&E PSI
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
(in millions)
Retail $2,015 $2,098 (4) $1,114 $1,129 (1) $ 901 $ 970 (7)
Wholesale 1,727 1,115 55 846 515 64 1,026 653 57
Other 175 94 86 17 15 13 31 30 3
--- -- -- -- -- --
Total $3,917 $3,307 18 $1,977 $1,659 19 $1,958 $1,653 18
(1) The results of Cinergy also include amounts related to non-registrants.
Electric operating revenues for Cinergy, CG&E, and PSI increased for the nine months ended September 30, 2000, as compared to 1999, mainly due to an increase in volumes and the average price per kWh realized on non-firm wholesale transactions related to commodities supply business. Non-firm power is power without a guaranteed commitment for physical delivery. This increase is somewhat offset by a decrease in retail revenues, which reflects decreased volumes due to a 21 percent reduction in the number of cooling degree-days.
The increase in other electric operating revenues for Cinergy primarily reflects marketing activities of CC&T.
Cinergy (1) CG&E
2000 1999 % Change 2000 1999 % Change
(in millions)
Non-regulated $1,383 $ 871 59 $ - $ - -
Retail 241 214 13 241 214 13
Transportation 41 38 8 41 38 8
Other 3 3 - 5 4 25
- - - -
Total $1,668 $1,126 48 $287 $256 12
(1) The results of Cinergy also include amounts related to non-registrants.
Gas operating revenues for Cinergy increased in the nine months ending September 30, 2000, when compared to the same period last year. This is primarily the result of an increase in gas commodity trading activity.
CG&E's retail revenues increased primarily due to a higher price realized per mcf sold. Transportation revenues increased due to the continued trend of full-service customers (customers who purchase gas and utilize the transportation services of CG&E) purchasing gas directly from suppliers and using transportation services provided by CG&E.
Other operating revenues for Cinergy increased $41 million for the nine months ending September 30, 2000, when compared to the same period in 1999, primarily due to revenues from the marketing of energy-related services.
Cinergy (1) CG&E PSI
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
(in millions)
Fuel $ 574 $ 584 (2) $ 256 $ 253 1 $ 302 $ 311 (3)
Purchased and
exchanged power 1,676 1,192 41 847 573 48 954 656 45
Gas purchased 1,491 977 53 135 114 18 - - -
Operation 636 573 11 260 235 11 259 269 (4)
Maintenance 159 153 4 79 76 4 80 77 4
Depreciation and
amortization 278 263 6 157 153 3 106 102 4
Taxes other than
income taxes 201 209 (4) 155 163 (5) 43 44 (2)
--- --- --- --- -- --
Total $5,015 $3,951 27 $1,889 $1,567 21 $1,744 $1,459 20
(1) The results of Cinergy also include amounts related to non-registrants.
Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity. The following table details the changes to fuel expense from the nine months ending September 30, 1999, to the nine months ending September 30, 2000:
Cinergy (1) CG&E PSI
(in millions)
Fuel expense - September 30, 1999 $584 $253 $311
Increase (Decrease) due to changes
in:
Price of fuel (17) (14) (3)
Deferred fuel cost (9) 10 (19)
kWh generation 20 7 13
Other (4) - -
-- -- --
Fuel expense - September 30, 2000 $574 $256 $302
(1) The results of Cinergy also include amounts related to non-registrants.
Purchased and exchanged power expense increased for Cinergy, CG&E, and PSI for the nine months ending September 30, 2000, compared to last year. This increase was primarily due to an increase in purchases of non-firm wholesale power as a result of an increase in sales volume in the energy marketing and trading operations.
Gas PurchasedGas purchased expense increased for Cinergy for the nine months ending September 30, 2000, when compared to the same period last year, primarily due to increased gas commodity trading activity and, for both Cinergy and CG&E, an increase in the average cost per mcf of gas purchased.
OperationCinergy's Operation expenses increased for the nine months ended September 30, 2000, as compared to the same period last year, primarily due to an increase in expenses associated with the marketing of energy-related services. Additionally, operation expenses increased for Cinergy, CG&E, and PSI as a result of the limited early retirement plan (LERP). For a further discussion of the LERP, see the "Corporate Center Restructuring" section on page 62. Cinergy's overall increase was partially offset by PSI's reduction in the amortization of demand-side management costs as a result of the expiration of the agreement in May 2000.
Depreciation and AmortizationCinergy's Depreciation and amortization costs increased for the nine months ending September 30, 2000, as compared to the same period last year, primarily due to additions to depreciable plant.
Cinergy's Equity in earnings of unconsolidated subsidiaries decreased $52 million for the nine months ending September 30, 2000, when compared to the same period last year. This decrease is primarily due to the loss in earnings resulting from our 50 percent ownership interest in Midlands, which was sold in the third quarter of 1999.
Cinergy's Interest expense decreased $13 million for the nine months ending September 30, 2000, when compared to the same period last year. This decrease is primarily due to a reduction in short-term borrowings as a result of the sale of Midlands. This decrease was slightly offset by an increase in average short-term interest rates.
The Results of Operations discussion for ULH&P is presented only for the nine months ended September 30, 2000, in accordance with General Instruction H(2)(a).
Electric and gas margins and net income for ULH&P for the nine months ended September 30, 2000, and 1999, were as follows:
ULH&P
2000 1999
(in thousands)
Electric gross margin $43,526 $38,025
Gas gross margin 26,961 25,214
Net income 13,108 9,073
Electric operating revenues increased for the nine months ended September 30, 2000, when compared to last year, mainly due to an increase in the average price per kWh realized and growth in kWh usage for commercial and industrial customers. Partially offsetting this increase was a decrease in residential revenues due to a 21 percent reduction in the number of cooling-degree days.
The increase in Gas operating revenues for the nine months ended September 30, 2000, compared to last year, was mainly due to a higher price received per mcf sold. Gas purchased expense increased due to an increase in the average cost per mcf of gas purchased.
The increase in Depreciation and amortization costs for the nine months ended September 30, 2000, as compared to the same period last year, was primarily due to additions to depreciable plant.
Interest expense increased for the nine months ended September 30, 2000, as compared to the same period last year, primarily due to an increase in interest expense on long-term debt and increased borrowings from CG&E and PSI.
Return to Table of ContentsIn the “Future Expectations/Trends” section, we discuss electric industry developments; market risk sensitive instruments and positions; accounting changes; investments, acquisitions, and dispositions; the corporate center restructuring; the shareholder rights plan; and a Gas Service Disruption. Each of these discussions will address the current status and potential future impact on our results of operations and financial condition.
Supply-side Actions As discussed in the 1999 Form 10-K, on September 30, 1999, one of our non-regulated subsidiaries formed a partnership (each party having a 50 percent ownership) with Duke Energy North America LLC, to increase the available generating capacity for use during peak demand periods. The partnership was formed for the purpose of jointly constructing and owning three wholesale generating facilities.
On March 9, 2000, the Indiana Utility Regulatory Commission (IURC) issued an order (Cause No. 41569), requiring the partnership to immediately cease all construction activities at the site located near Cadiz, (Henry County) Indiana (a peaking plant with a total capacity of 132 megawatts (MW)). In making this decision the IURC found that it needed additional information related to the project before issuing a final decision. The IURC requested the Henry County Planning Commission and/or the Henry County Commissioners to supply additional information, which was provided on June 1, 2000. The issues raised were air quality, water supply, noise control, landscaping, plant abandonment, and emergency services training. During the third quarter, the partnership filed responses to the issues indicating how it would address these concerns. The IURC scheduled another hearing on this matter to be held on November 17, 2000. At this time, Cinergy cannot predict the outcome of this matter.
The remaining facilities became fully operational in June 2000. The total capacity of these operational plants is approximately 1,268 MW.
Federal The Clinton Administration has introduced a bill—the Comprehensive Electricity Competition Act—that would grant all retail electric customers 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-MA) includes similar mandates and opt out provisions with an effective date of January 1, 2002.
After attempting for several months to reach consensus on comprehensive electric restructuring legislation, the U.S. Senate on June 30, 2000, approved S.2071, the Electric Reliability 2000 Act. S.2071 would authorize the establishment of a North American Electric Reliability Organization and would not legislate on additional issues surrounding the restructuring of the electricity industry. It remains uncertain whether federal retail customer choice legislation will be passed by this Congress.
Ohio As discussed in the 1999 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the state of Ohio. The Electric Restructuring Bill creates a competitive electric retail service market beginning January 1, 2001. The legislation provides for a market development period that begins January 1, 2001, and ends no later than December 31, 2005. Ohio electric utilities have an opportunity to recover Public Utilities Commission of Ohio (PUCO)-approved transition costs during the market development period. The legislation also freezes retail electric rates during the market development period, at the rates in effect on October 4, 1999, except for a five-percent reduction in the generation component of residential rates. Furthermore, the legislation contemplates that twenty percent of the current electric retail customers will switch suppliers no later than December 31, 2003.
On May 8, 2000, CG&E reached a stipulation agreement with the PUCO staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio beginning January 1, 2001. On August 31, 2000 the PUCO approved CG&E’s stipulation agreement. The major features of this agreement include:
With regard to the PUCO's order, two parties filed applications for a rehearing with the PUCO. On October 18, 2000, the PUCO denied these applications for rehearing.
In connection with the PUCO approval of the stipulation agreement, CG&E discontinued Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71) for the generation portion of its business. The effect of discontinuation of Statement 71 is immaterial to CG&E’s results of operations and financial condition. Additionally, pursuant to Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of, our analysis indicates future revenues will be sufficient to recover the costs of CG&E’s generating assets over their estimated remaining lives.
As part of the effort to create a competitive wholesale power marketplace, the Federal Energy Regulatory Commission (FERC) approved the formation of the Midwest Independent Transmission System Operator, Inc. (Midwest ISO) during 1998. The Midwest ISO will oversee the combined transmission systems of its members. The organization is expected to begin operations in November of 2001. This effort will help to facilitate a reliable and efficient market for electric power and create open transmission access consistent with FERC policies. The Midwest ISO currently includes 16 members with over 50,000 miles of transmission lines in 11 states and an aggregate investment of approximately $8 billion. Two members have indicated their intent to leave the Midwest ISO by the end of 2001. It is unclear at this time if these members will receive the necessary regulatory approvals to withdraw, and how their potential withdrawal may impact the operations of the Midwest ISO.
Purchased Power Tracker On May 28, 1999, PSI filed a petition with the IURC seeking approval of a purchased power tracking mechanism (Tracker). This request is designed to provide for the recovery of costs related to purchases of power necessary to meet native load requirements to the extent such costs are not sought through the existing fuel adjustment clause. The Tracker is intended to apply to a limited number of purchases made for the purpose of ensuring adequate power reserves to meet peak retail native load requirements, which in recent years have coincided with periods of extreme price volatility. As proposed by PSI, the Tracker would only apply to capacity purchases, which are presented to the IURC for review and approved by the IURC as reasonable under the circumstances. On May 31, 2000, the IURC approved the Tracker for the summer of 2000. The IURC is now expected to review PSI’s purchases and rule on its associated request for recovery of costs. The IURC will also determine whether it is appropriate for PSI to continue using the Tracker for future periods. Costs have been deferred totaling approximately $18 million for subsequent recovery in connection with this matter.
On June 20, 2000, the Indiana Office of Utility Consumer Counselor filed an application for a rehearing regarding the Tracker. At the present time, PSI cannot predict the outcome of this matter.
Purchased Power Agreement ULH&P has a contract to purchase electric commodity requirements from CG&E. This cost-based contract, which is due to expire December 31, 2001, is currently under negotiation with the involvement of the Kentucky Public Service Commission. The ultimate supplier(s) and the pricing of electric commodity requirements contained in any new arrangement could reflect a market-based approach. At the current time we are unable to predict the outcome of this matter.
We market and trade electricity, natural gas, and other energy-related products. We use over-the-counter forward and option contracts for the purchase and sale of electricity and also trade exchange-traded futures contracts. See Notes 1(b) and 1(c) of the “Notes to Financial Statements” in “Part I. Financial Information” on pages 26 through 28, for our accounting policies for certain derivative instruments. For additional information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” pages 61 through 64, of our 1999 Form 10-K. Our market risks have not changed materially from the market risks reported in the 1999 Form 10-K.
From time to time, we may utilize foreign exchange forward contracts and currency swaps to hedge certain of our net investments in foreign operations. See Notes 1(b) and 1(c) of the “Notes to Financial Statements” in “Part I. Financial Information” on pages 26 through 28, for our accounting policies for certain derivative instruments.
Our net exposure to changes in interest rates primarily consist of debt instruments with floating interest rates that are benchmarked to various market indices. To manage the exposure to fluctuations in interest rates and to lower funding costs, we evaluate the use of, and have entered into, interest rate swaps. See Notes 1(b) and 1(c) of the “Notes to Financial Statements” in “Part I. Financial Information” on pages 26 through 28, for our accounting policies for certain derivative instruments. Our market risks have not changed materially from the market risks reported in the 1999 Form 10-K.
On October 26, 2000, the Greek government awarded a 30-year franchise for the development and operation of the natural gas system in the Athens region of Greece to a consortium formed by an international development affiliate of Cinergy and Shell Gas B.V. (Shell). With an investment of 58 billion Greek drachmas (approximately $146 million), the consortium will own 49 percent of the new gas company, EPA ATTIKI. The Greek government will retain 51 percent ownership in EPA ATTIKI. Cinergy and Shell will have day-to-day management of the business. The transaction is expected to be complete in early 2001.
On October 31, 2000, Reliant Services, LLC, a joint venture equally owned by subsidiaries of Cinergy and Vectren Corporation, announced the signing of a definitive agreement to purchase the common stock of Miller Pipeline Corporation (Miller Pipeline) from NiSource, Inc. for $68 million. Miller Pipeline performs natural gas and water distribution and transmission construction, repair and rehabilitation primarily in the Midwest region and the repair and rehabilitation of gas, water, and waste water facilities nationwide. The acquisition requires review by the United States Department of Justice under the Hart Scott Rodino Act and should be completed by the end of 2000.
On August 31, 2000, the PUCO approved CG&E’s stipulation agreement with respect to its proposal to implement electric customer choice in the state of Ohio. In connection with the approval of the stipulation agreement, CG&E discontinued the application of Statement 71 for the generation portion of its business and adopted Statement of Financial Accounting Standards No. 101, Regulated Enterprises – Accounting for Discontinuation of Application of FASB Statement No. 71. For a further discussion on Ohio deregulation, see the “Retail Market Developments–Ohio” section on page 58.
During the second quarter of 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133). This standard requires companies to record derivative instruments as assets or liabilities, measured at fair value. Changes in the derivative’s fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Hedges are transactions entered into for the purpose of reducing exposure to one or more types of business risk. Gains and losses on derivatives that qualify as hedges can offset related results on the hedged item in the income statement.
In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No.133 (Statement 137). Statement 137 deferred the effective date of Statement 133 by one year. As a result, Statement 133 will be effective for fiscal years beginning after June 15, 2000.
Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133 (Statement 138) was issued in June 2000. Statement 138 addresses implementation issues and reflects decisions of the FASB regarding recommendations of the FASB-sponsored Derivatives Implementation Group.
We expect to reflect the adoption of Statement 133 in financial statements issued beginning in the first quarter of 2001. In preparation for our implementation of this new standard, we have formed a cross-functional project team. The project team is identifying and analyzing all contracts which could be subject to the new standard, developing required documentation and reporting systems, and promoting internal awareness of the requirements and potential effects of the new standard. While we continue to analyze and follow the development of implementation guidelines, at this time we are unable to predict whether the implementation of this accounting standard will be material to our results of operations and financial position. However, the adoption of Statement 133 could increase volatility in earnings and other comprehensive income.
On March 10, 2000, we announced a plan to reorganize our corporate center that will eliminate approximately 240 jobs. In connection with this reorganization, Cinergy offered a limited early retirement plan (LERP). We have recorded expenses of approximately $13 million relating to benefits provided to LERP participants.
On July 19, 2000, Cinergy Corp.‘s Board of Directors approved a Shareholder Rights Plan (the Plan), subject to receipt of SEC authorization under PUHCA. On October 6, 2000, the SEC issued an order authorizing the Plan.
Under the Plan, each shareholder of record on October 30, 2000, will receive, as a dividend, a right to purchase from Cinergy Corp. one share of common stock at a price of $100. Initially, the rights will not be represented by separate certificates and will not trade separately from Cinergy Corp. shares of common stock. The rights would separate from the common stock ten days after either of the following occurred:
The rights become exercisable if one of these events occurs and the rights are no longer redeemable by the board of directors. If the rights become exercisable after someone has acquired ten percent or more of the company’s common stock, holders of the rights will have the right to purchase the common stock of Cinergy Corp. at a 50 percent discount. However, any rights held by the acquirer would not be exercisable.
In addition, if the rights become exercisable and Cinergy Corp. engages in a merger or consolidation in which it is not the surviving corporation or in which all or part of its common stock is changed or exchanged, or if 50 percent or more of the company’s assets are sold, each holder of a right would have the right to acquire common stock of the acquirer at a 50 percent discount.
The board of directors may direct Cinergy Corp. to redeem the rights at $.01 per right at any time before the tenth day following the acquisition of ten percent or more of Cinergy Corp. common stock.
On October 5, 2000, natural gas service to a large area of Newport, Kentucky was disrupted after a municipal utility water main break caused large amounts of water and sediment to enter ULH&P gas lines. Approximately 3,700 customers were affected. The restoration required workers to go door-to-door to clean and inspect gas lines and customer-owned equipment. This effort included assistance from several area utilities, as well as local and regional heating and cooling contractors. We currently estimate the total cost to be $4-5 million.
Return to Table of ContentsReference 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” on page 60, and Notes 1(b) and 1(c) of the “Notes to Financial Statements” in “Part I. Financial Information” on pages 26 through 28.
See Notes 4(b), (c), and (d), respectively, of the "Notes to Financial Statements" in "Part I. Financial Information" on pages 31 through 34.
On July 6, 2000, the EPA identified PSI and the Indianapolis Power and Light Company (IPL) as potentially responsible parties for the release of hazardous substances at the M Metals Superfund Site (Site) located in Indianapolis, Indiana. The EPA advised that it had taken response actions relating to the Site and had incurred costs of approximately $500 thousand. The EPA has demanded reimbursement of the costs incurred related to the Site and has encouraged PSI and IPL to work out an allocation between themselves for the payment of the costs. However, PSI and IPL will be held jointly and severally liable for the costs. PSI is considering how to respond to the demand.
Return to Table of Contents(a) Copies of the documents listed below which are identified with an asterisk (*)have heretofore been filed with the Securities and Exchange Commission and are incorporated herein by reference and made a part hereof. Exhibits identified with a pound sign (#)
are being filed herewith by the registrant identified in the exhibit discussion below and are incorporated herein by reference with
respect to any other designated registrant. Exhibits not so identified are filed herewith:
Exhibit
Designation Registrant Nature of Exhibit Filed as Exhibit to:
Financial Data
Schedule
27 Cinergy Financial Data Schedules (included in
CG&E
PSI
ULH&P electronic submission only).
Instruments
defining the
rights of
holders, incl.
indentures
4 Cinergy * Rights Agreement between Cinergy Corp. and Cinergy's Registration
Statement on Form 8-A
The Fifth Third Bank, as Rights Agent. dated October 16, 2000
(b) The following reports on Form 8-K were filed during the quarter or prior to the filing of the Form 10-Q for the quarter ended
September 30, 2000:
Date of Report Registrant Item Filed
October 16, 2000 Cinergy Item 5 Other Events
Item 7 Financial Statements and Exhibits
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 Corp., The Cincinnati Gas & Electric Company, PSI Energy Inc., and The Union Light, Heat and Power Company believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy, CG&E, PSI, and ULH&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 13, 2000 /s/ Bernard F. Roberts
Bernard F. Roberts ;
Duly Authorized Officer ;
and
Chief Accounting Officer