SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 9, 1994
PSI ENERGY, INC.
(Exact name of registrant as specified in its charter)
Indiana 1-3543 35-0594457
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1000 East Main Street, Plainfield, Indiana 46168
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (317) 839-9611
FORM 8-K
TABLE OF CONTENTS
Item Page
Number Number
1. Changes in Control of Registrant . . . . . . . . . 3
2. Acquisition or Disposition of Assets . . . . . . . 3
3. Bankruptcy or Receivership . . . . . . . . . . . . 3
4. Changes in Registrant's Certifying Accountant . . 3
5. Other Events . . . . . . . . . . . . . . . . . . . 3
6. Resignations of Registrant's Directors . . . . . . 5
7. Financial Statements and Exhibits . . . . . . . . 5
8. Change in Fiscal Year. . . . . . . . . . . . . . . 5
Signatures . . . . . . . . . . . . . . . . . . . . 6
None
2. Acquisition or Disposition of Assets
None
3. Bankruptcy or Receivership
None
4. Changes in Registrant's Certifying Accountant
None
5. Other Events
On December 9, 1994, PSI Energy, Inc. (PSI), a wholly-owned subsidiary
of CINergy Corp. (CINergy), the Office of the Utility Consumer
Counselor, Citizens Action Coalition of Indiana, Inc., and the PSI-
Industrial Group entered into a settlement agreement concerning PSI's
petition for a $93 million retail rate increase ($103 million including
ratebase treatment of certain projects while under construction) and
PSI's previously filed plan for the allocation of its portion of merger
savings between PSI's customers and CINergy's shareholders. The
settlement agreement is subject to the approval of the Indiana Utility
Regulatory Commission (IURC) in its entirety without any change or
condition that is unacceptable to any party to the settlement agreement.
No assurance can be given that the IURC will approve the settlement
agreement. Significant provisions of the settlement agreement include:
. A retail rate increase of $33.1 million, excluding reductions for
customer credits for non-fuel, operation and maintenance expense
merger savings (Non-Fuel Merger Savings) and exclusive of increases
for ratemaking related to construction work in progress, both of
which are discussed below. The increase includes the recovery of the
costs of postretirement benefits other than pensions on an accrual
basis and, as further discussed herein, the recovery of demand-side
management (DSM) expenditures and the adoption of lower depreciation
rates. This rate increase reflects an 11.9% return on common equity
with an 8.23% overall rate of return on net original cost plant. The
settling parties have agreed to support an effective date of February
1, 1995, for the rate increase.
. A mechanism to allocate PSI's share of net merger savings through
December 31, 1997, between PSI's customers and CINergy's
shareholders. In essence, the mechanism guarantees PSI's customers
50% of PSI's portion of the projected net, Non-Fuel Merger Savings.
PSI's customers will receive these merger savings via credits to base
rates of $4.4 million in 1995, an additional $2.2 million in 1996,
and an additional $2.4 million in 1997. After 1997, the accumulated
credits shall continue until the effective date of an order in a PSI
merger savings allows PSI to recover its portion of transaction costs
(currently estimated at $27 million) and costs to achieve merger
savings (currently estimated at $21 million) over a 10-year period
commencing October 1, 1994. PSI will have to achieve these levels of
merger savings in order to realize the 11.9% return on equity.
The settlement agreement provides PSI with a financial incentive for
PSI to achieve, or exceed, merger savings projections and enhance
operating efficiencies by allowing PSI to earn up to a 13.25% return
on common equity until the effective date of an order in PSI's next
retail rate proceeding. PSI's next retail rate proceeding is
currently pending before the IURC, and PSI expects an order in this
proceeding by early 1996. Upon the effective date of an order in the
next retail rate proceeding, the settlement agreement provides PSI an
opportunity to earn an additional 100 basis points above the common
equity return to be granted by the IURC in such rate proceeding until
December 31, 1997. In return for the agreed upon sharing mechanism,
PSI will withdraw its previously filed "performance efficiency plan"
which would have provided for the sharing of merger savings with
shareholders. Any mechanism for sharing of merger savings after
December 31, 1997, will be determined in subsequent regulatory
proceedings.
. Recovery of DSM expenditures deferred through July 1993 ($35
million), together with carrying costs, over a five-year period
commencing with the effective date of new rates in the order
approving the settlement. Deferred DSM expenditures as of the
effective date of an IURC order approving the settlement agreement,
which are not included for recovery in the settlement agreement, will
continue to be deferred, with carrying costs, for recovery in
subsequent rate proceedings. In addition, base rates would include
$23 million on an annual basis for DSM expenditures. Future deferral
of DSM expenditures will be the amount by which actual expenditures
exceed the base level of $23 million. If DSM expenditures in any
calendar year are less than the $23 million in base rates, the
unamortized balance of deferred DSM expenditures would be reduced by
such difference.
. Ratemaking and accounting mechanisms to address regulatory lag. The
settlement agreement provides for the inclusion of capital costs
associated with environmental compliance projects and the applicable
portion of PSI's Wabash River Clean Coal project in rate base while
the projects are under construction, thus allowing PSI to earn a cash
return on these costs prior to the projects' in-service dates. In
addition, the agreement includes provisions for the deferral of
certain operating costs associated with the Wabash River Clean Coal
project, together with the debt component of carrying costs, and
continued accrual of the debt component of carrying costs and
deferral of depreciation expense on two major projects for subsequent
recovery in PSI's next retail rate proceeding.
. The adoption of lower depreciation rates, to be effective with the
IURC's orders in this settlement and PSI's next retail rate expense
by approximately $24 million from the level included in PSI's
initial request.
. The agreement to a procedural schedule in connection with PSI's
request filed in July 1994 for a retail rate increase, primarily to
recover the costs of the Gibson Unit No. 4 scrubber and the Wabash
River Clean Coal project, both of which were previously approved by
the IURC. Final action on this rate request is not expected until
early 1996.
By entering into the settlement, the company was able to:
. resolve a major uncertainty as to the ultimate level and timing of
the rate increase;
. substantially mitigate the risks of not being able to achieve its
allowed return on common equity due to the earnings attrition
resulting from the completion of two major construction projects
within a nine-month period; and
. timely provide a realistic opportunity to retain a portion of the
merger savings for shareholders.
The above description of the settlement agreement does not purport to be
complete and is qualified in its entirety by reference to the copy of
such settlement agreement attached hereto as Exhibit 10-a.
6. Resignations of Registrant's Directors
None
7. Financial Statements and Exhibits
Exhibits
10-a Settlement Agreement (Excluding Attachments A and C)
8. Change in Fiscal Year
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PSI Energy, Inc.
Date: December 9, 1994
By: Charles J. Winger
Comptroller and Principal
Accounting Officer