UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
1-11377 CINERGY CORP. 31-1385023
(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
1-3543 PSI ENERGY, INC. 35-0594457
(An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(513) 287-2644
2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080
(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
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 by Cinergy Corp., The Cincinnati Gas
& Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
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 April 30, 2000, shares of Common Stock outstanding for each registrant
were as listed:
Registrant Description Shares
Cinergy Corp. Par value $.01 per share 158,923,399
The Cincinnati Gas &
Electric Company Par value $8.50 per share 89,663,086
PSI Energy, Inc. Without par value, stated value 53,913,701
$.01 per share
The Union Light, Heat
and Power Company Par value $15.00 per share 585,333
Company
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Item Page
Number Number
- -------- -------
PART I FINANCIAL INFORMATION
1 Financial Statements ...............................................3
CINERGY CORP......................................................3
Consolidated Statements of Income...............................4
Consolidated Balance Sheets.....................................5
Consolidated Statements of Changes in Common Stock Equity.......7
Consolidated Statements of Cash Flows...........................8
THE CINCINNATI GAS & ELECTRIC COMPANY ............................9
Consolidated Statements of Income and Comprehensive Income.....10
Consolidated Balance Sheets ...................................11
Consolidate Statements of Cash Flows...........................13
PSI ENERGY, INC..................................................14
Consolidated Statements of Income and Comprehensive Income.....15
Consolidated Balance Sheets ...................................16
Consolidate Statements of Cash Flows ..........................18
THE UNION LIGHT, HEAT AND POWER COMPANY .........................19
Statements of Income and Comprehensive Income..................20
Balance Sheets.................................................21
Statements of Cash Flows.......................................23
Notes to Financial Statements......................................24
Cautionary Statements Regarding Forward-Looking Information........35
2 Management's Discussion and Analysis of Financial Condition........37
and Results of Operations
Introduction.....................................................37
Liquidity........................................................37
Capital Resources................................................38
First Quarter 2000 Results of Operations - Historical............41
Results of Operations - Future...................................46
3 Quantitative and Qualitative Disclosures About Market Risk ........50
PART II OTHER INFORMATION
1 Legal Proceedings..................................................51
4 Submission of Matters to a Vote of Security Holders................51
6 Exhibits and Reports on Form 8-K...................................53
Signatures ........................................................54
CINERGY CORP.
AND SUBSIDIARY COMPANIES
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended
March 31
2000 1999
(in thousands, except per share amounts)
(unaudited)
Operating Revenues
Electric $1,066,697 $ 968,532
Gas 498,728 421,308
Other 17,652 12,439
---------- ----------
Total Operating Revenues 1,583,077 1,402,279
Operating Expenses
Fuel and purchased and exchanged power 500,778 433,169
Gas purchased 406,145 334,402
Operation and maintenance 245,423 244,548
Depreciation and amortization 90,135 86,477
Taxes other than income taxes 66,131 69,534
---------- ----------
Total Operating Expenses 1,308,612 1,168,130
Operating Income 274,465 234,149
Equity in Earnings of
Unconsolidated Subsidiaries 1,842 44,682
Miscellaneous - Net (2,503) (11,886)
Interest 51,430 60,772
Income Before Taxes 222,374 206,173
Income Taxes 82,572 77,564
Preferred Dividend Requirements
of Subsidiaries 1,363 1,364
----------- -----------
Net Income $ 138,439 $ 127,245
=========== ===========
Average Common Shares Outstanding 158,923 158,746
Earnings Per Common Share
Net Income $0.87 $0.80
Earnings Per Common Share-Assuming Dilution
Net income $0.87 $0.80
Dividends Declared Per Common Share $0.45 $0.45
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 76,604 $ 81,919
Restricted deposits 658 628
Notes receivable 1,121 481
Accounts receivable less accumulated
provision for doubtful accounts of
$27,284 at March 31, 2000, 669,637 706,068
and $26,811 at December 31, 1999
Materials, supplies, and fuel -
at average cost 174,986 205,749
Energy risk management current assets 195,150 131,145
Prepayments and other 94,235 77,701
---------- ----------
Total Current Assets 1,212,391 1,203,691
Utility Plant - Original Cost
In service
Electric 9,471,140 9,414,744
Gas 834,411 824,427
Common 189,897 189,124
----------- -----------
Total 10,495,448 10,428,295
Accumulated depreciation 4,337,377 4,259,877
----------- -----------
Total 6,158,071 6,168,418
Construction work in progress 289,390 249,054
----------- -----------
Total Utility Plant 6,447,461 6,417,472
Other Assets
Regulatory assets 1,030,901 1,055,012
Investments in unconsolidated subsidiaries 464,436 358,853
Energy risk management non-current assets 40,656 26,624
Other 556,895 555,296
----------- -----------
Total Other Assets 2,092,888 1,995,785
Total Assets $ 9,752,740 $ 9,616,948
=========== ===========
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 604,275 $ 734,937
Accrued taxes 261,265 219,266
Accrued interest 46,983 49,354
Notes payable and other short-term
obligations 639,321 550,194
Long-term debt due within one year 31,871 31,000
Energy risk management current
liabilities 173,452 126,682
Other 82,674 76,774
---------- ----------
Total Current Liabilities 1,839,841 1,788,207
Non-Current Liabilities
Long-term debt 2,988,281 2,989,242
Deferred income taxes 1,160,312 1,174,818
Unamortized investment tax
credits 145,186 147,550
Accrued pension and other
postretirement benefit costs 366,299 355,917
Energy risk management non-current
liabilities 145,126 132,041
Other 288,370 282,855
---------- ----------
Total Non-Current Liabilities 5,093,574 5,082,423
Total Liabilities 6,933,415 6,870,630
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,457 92,597
Common Stock Equity
Common Stock - $.01 par value;
authorized shares - 600,000,000;
outstanding shares - 158,923,399
at March 31, 2000 and
December 31, 1999 1,589 1,589
Paid-in capital 1,604,096 1,597,554
Retained earnings 1,131,695 1,064,319
Accumulated other comprehensive
income (loss) (10,512) (9,741)
---------- ----------
Total Common Stock Equity 2,726,868 2,653,721
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholders'
Equity $9,752,740 $9,616,948
========== ==========
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Accumulated Total
Other Common
Common Paid-in Retained Comprehensive Stock
Stock Capital Earnings Income/(Loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
Quarter Ended March 31, 2000
Balance at January 1, 2000 $1,589 $1,597,554 $1,064,319 $ (9,741) $2,653,721
Comprehensive income:
Net income
Other comprehensive income (loss),
net of tax effect of $534 138,439 138,439
Foreign currency translation adjustment (1,728) (1,728)
Unrealized gains on grantor and
rabbi trusts 957 957
--------
Total comprehensive income 137,668
Treasury shares reissued 6,542 6,542
Dividends on common stock
(see page 4 for per share amounts) (71,077) (71,077)
Other 14 14
---------------------------------------------------------------------------------
Ending balance at March 31, 2000 $1,589 $1,604,096 $1,131,695 $(10,512) $2,726,868
====== ========== ========== ========= ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter Ended March 31, 1999
Balance at January 1, 1999 $1,587 $1,595,237 $ 945,214 $ (807) $2,541,231
Comprehensive income:
Net income 127,245 127,245
Other comprehensive income (loss),
net of tax effect of $1,762
Foreign currency translation adjustment (8,451) (8,451)
Unrealized gains (losses) on grantor and
rabbi trusts (15) (15)
----------
Total comprehensive income 118,779
Issuance of 115,368 shares of common stock-net 1 1,978 1,979
Treasury shares purchased (233) (233)
Treasury shares reissued 1,902 1,902
Dividends on common stock
(see page 4 for per share amounts) (71,422) (71,422)
Other (3) (3)
------------------------------------------------------------------------
Ending balance at March 31, 1999 $1,588 $1,598,884 $1,001,034 $ (9,273) $2,592,233
====== ========== ========== ========= ==========
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR TO DATE
March 31
2000 1999
(dollars in thousands)
(unaudited)
Operating Activities
Net income $138,439 $127,245
Items providing or (using) cash currently:
Depreciation and amortization 90,135 86,477
Deferred income taxes and investment tax
credits-net (841) 12,877
Unrealized (gain) loss from energy risk
management activities (18,182) (23,000)
Equity in earnings of unconsolidated
subsidiaries (1,842) (44,682)
Allowance for equity funds used during
construction (902) (775)
Regulatory assets-net 6,853 5,140
Changes in current assets and current
liabilities:
Restricted deposits (30) (54)
Accounts and notes receivable 35,226 182,265
Materials, supplies, and fuel 30,763 21,778
Accounts payable (130,662) (235,128)
Accrued taxes and interest 39,628 1,031
Other items-net (5,766) 9,478
--------- ---------
Net cash provided by operating activities 182,819 142,652
Financing Activities
Change in short-term debt 89,127 149,111
Issuance of long-term debt - 6,623
Redemption of long-term debt (594) (116,000)
Retirement of preferred stock of subsidiaries (105) (20)
Issuance of common stock - 1,979
Dividends on common stock (71,077) (71,422)
--------- ---------
Net cash provided by (used in)
financing activities 17,351 (29,729)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (106,984) (79,143)
Investments in unconsolidated subsidiaries (98,501) (41,282)
---------- ----------
Net cash used in investing activities (205,485) (120,425)
Net decrease in cash and cash equivalents (5,315) (7,502)
Cash and cash equivalents at beginning of period 81,919 100,154
--------- ---------
Cash and cash equivalents at end of period $ 76,604 $ 92,652
========= =========
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
THE CINCINNATI GAS & ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Quarter Ended
March 31
2000 1999
(dollars in thousands)
(unaudited)
Operating Revenues
Electric $538,018 $481,586
Gas 178,462 163,797
-------- --------
Total Operating Revenues 716,480 645,383
Operating Expenses
Fuel and purchased and exchanged power 240,352 198,871
Gas purchased 89,616 78,878
Operation and maintenance 105,047 108,156
Depreciation and amortization 50,993 50,570
Taxes other than income taxes 49,931 54,114
-------- --------
Total Operating Expenses 535,939 490,589
Operating Income 180,541 154,794
Miscellaneous - Net (1,973) (1,261)
Interest 25,749 24,407
-------- --------
Income Before Taxes 152,819 129,126
Income Taxes 56,855 48,889
--------- ---------
Net Income $ 95,964 $ 80,237
Preferred Dividend Requirement 213 214
--------- ---------
Net Income Applicable to Common Stock $ 95,751 $ 80,023
Other Comprehensive Income (Loss),
Net of Tax - -
--------- ---------
Comprehensive Income $ 95,751 $ 80,023
========= =========
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 4,186 $ 9,554
Restricted deposits 110 132
Accounts receivable less accumulated provision for
doubtful accounts of $17,386 at March 31, 2000,
and $16,740 at December 31, 1999 196,271 279,591
Accounts receivable from affiliated companies 80,638 12,718
Materials, supplies, and fuel - at average cost 85,745 98,999
Energy risk management current assets 95,145 63,926
Prepayments and other 44,673 35,527
---------- ----------
Total Current Assets 506,768 500,447
Utility Plant-Original Cost
In service
Electric 4,898,933 4,875,633
Gas 834,411 824,427
Common 189,897 189,124
--------- ---------
Total 5,923,241 5,889,184
Accumulated depreciation 2,322,882 2,279,587
--------- ---------
Total 3,600,359 3,609,597
Construction work in progress 175,402 153,229
--------- ---------
Total Utility Plant 3,775,761 3,762,826
Other Assets
Regulatory assets 526,754 536,224
Energy risk management non-current assets 9,953 7,368
Other 125,881 109,753
---------- ----------
Total Other Assets 662,588 653,345
Total Assets $4,945,117 $4,916,618
========== ==========
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 220,540 $ 253,115
Accounts payable to affiliated companies 29,785 65,256
Accrued taxes 165,117 136,118
Accrued interest 10,832 17,375
Notes payable and other short-term obligations 233,812 234,702
Notes payable to affiliated companies 54,051 60,360
Energy risk management current liabilities 82,891 60,478
Other 26,667 25,468
---------- ----------
Total Current Liabilities 823,695 852,872
Non-Current Liabilities
Long-term debt 1,206,002 1,205,916
Deferred income taxes 722,721 720,168
Unamortized investment tax credits 103,120 104,655
Accrued pension and other postretirement
benefit costs 156,993 154,718
Energy risk management non-current liabilities 58,493 57,644
Other 152,159 140,794
---------- ----------
Total Non-Current Liabilities 2,399,488 2,383,895
Total Liabilities 3,223,183 3,236,767
Cumulative Preferred Stock
Not subject to mandatory redemption 20,606 20,686
Common Stock Equity
Common Stock-$8.50 par value; authorized
shares-120,000,000; outstanding
shares-89,663,086 at March 31, 2000 and
December 31, 1999 762,136 762,136
Paid-in capital 562,863 562,851
Retained earnings 377,295 335,144
Accumulated other comprehensive income (loss) (966) (966)
---------- ----------
Total Common Stock Equity 1,701,328 1,659,165
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholder's Equity $4,945,117 $4,916,618
========== ==========
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR TO DATE
March 31
2000 1999
(dollars in thousands)
(unaudited)
Operating Activities
Net income $ 95,964 $ 80,237
Items providing or (using) cash currently:
Depreciation and amortization 50,993 50,570
Deferred income taxes and investment
tax credits-net 1,660 8,795
Unrealized (gain) loss from energy risk
management activities (10,542) (11,500)
Allowance for equity funds used
during construction (734) (775)
Regulatory assets-net 4,182 4,496
Changes in current assets and current liabilities:
Accounts and notes receivable 12,569 80,619
Materials, supplies, and fuel 13,254 21,131
Accounts payable (68,046) (89,741)
Accrued taxes and interest 22,456 (20,010)
Other items-net (9,900) (1,938)
-------- ---------
Net cash provided by operating activities 111,856 121,884
Financing Activities
Change in short-term debt (7,199) 86,977
Redemption of long-term debt - (110,000)
Retirement of preferred stock (68) (17)
Dividends on preferred stock (214) (214)
Dividends on common stock (53,600) (71,400)
-------- ---------
Net cash used in financing activities (61,081) (94,654)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (56,143) (36,363)
-------- ---------
Net cash used in investing activities (56,143) (36,363)
Net decrease in cash and cash equivalents (5,368) (9,133)
Cash and cash equivalents at beginning of period 9,554 26,989
-------- ---------
Cash and cash equivalents at end of period $ 4,186 $ 17,856
======== =========
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
QUARTER ENDED
March 31
2000 1999
(dollars in thousands)
(unaudited)
Operating Revenues
Electric $533,752 $482,465
Operating Expenses
Fuel and purchased and exchanged power 271,429 234,927
Operation and maintenance 111,075 113,240
Depreciation and amortization 34,960 33,743
Taxes other than income taxes 14,609 14,488
-------- --------
Total Operating Expenses 432,073 396,398
Operating Income 101,679 86,067
Miscellaneous - Net (859) 323
Interest 20,084 21,364
Income Before Taxes 80,736 65,026
--------- ---------
Income Taxes 30,523 25,185
--------- ---------
Net Income $ 50,213 $ 39,841
Preferred Dividend Requirement 1,150 1,150
--------- ---------
Net Income Applicable to Common Stock $ 49,063 $ 38,691
Other Comprehensive Income (Loss),
Net of Tax 632 (15)
---------- ---------
Comprehensive Income $ 49,695 $ 38,676
========== =========
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 23,917 $ 8,842
Restricted deposits 52 -
Notes receivable 583 481
Notes receivable from affiliated companies 54,051 60,360
Accounts receivable less accumulated
provision for doubtful accounts of
$9,898 at March 31, 2000, and $9,934
at December 31, 1999 252,559 253,022
Accounts receivable from affiliated companies 3,118 42,715
Materials, supplies, and fuel - at average cost 85,686 103,490
Energy risk management current assets 95,145 63,927
Prepayments and other 39,905 36,173
----------- -------------
Total Current Assets 555,016 569,010
Electric Utility Plant-Original Cost
In service 4,572,207 4,539,111
Accumulated depreciation 2,014,495 1,980,290
---------- ----------
Total 2,557,712 2,558,821
---------- ----------
Construction work in progress 113,988 95,825
---------- ----------
Total Electric Utility Plant 2,671,700 2,654,646
Other Assets
Regulatory assets 504,147 518,788
Energy risk management non-current assets 9,953 7,368
Other 89,069 85,024
--------- ----------
Total Other Assets 603,169 611,180
Total Assets $3,829,885 $3,834,836
========== ==========
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 193,880 $ 241,072
Accounts payable to affiliated companies 96,851 6,762
Accrued taxes 89,522 93,056
Accrued interest 22,886 26,989
Notes payable and other short-term
obligations 155,508 232,597
Notes payable to affiliated companies - 6,707
Long-term debt due within one year 31,871 31,000
Energy risk management current liabilities 82,891 60,478
Other 2,416 1,986
---------- ----------
Total Current Liabilities 675,825 700,647
Non-Current Liabilities
Long-term debt 1,210,923 1,211,552
Deferred income taxes 457,484 460,748
Unamortized investment tax credits 42,066 42,895
Accrued pension and other postretirement
benefit costs 133,463 129,103
Energy risk management non-current
liabilities 58,493 57,645
Other 92,365 104,638
--------- ---------
Total Non-Current Liabilities 1,994,794 2,006,581
Total Liabilities 2,670,619 2,707,228
--------- ---------
Cumulative Preferred Stock
Not subject to mandatory redemption 71,851 71,911
Common Stock Equity
Common Stock-without par value; $.01
stated value; authorized shares-
60,000,000; outstanding shares-
53,913,701 at March 31, 2000 and
December 31, 1999 539 539
Paid-in capital 411,220 411,198
Retained earnings 673,633 642,569
Accumulated other comprehensive income
(loss) 2,023 1,391
--------- ---------
Total Common Stock Equity 1,087,415 1,055,697
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholder's Equity $3,829,885 $3,834,836
========== ==========
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR TO DATE
March 31
2000 1999
(dollars in thousands)
(unaudited)
Operating Activities
Net income $ 50,213 $ 39,841
Items providing or (using) cash currently:
Depreciation and amortization 34,960 33,743
Deferred income taxes and investment tax
credits-net (2,166) (3,476)
Unrealized (gain) loss from energy risk
management activities (10,542) (11,500)
Allowance for equity funds used during
construction (168) -
Regulatory assets-net 2,671 644
Changes in current assets and current
liabilities:
Restricted deposits (52) (54)
Accounts and notes receivable 48,533 85,834
Materials, supplies, and fuel 17,804 (3,344)
Accounts payable 42,897 (94,074)
Accrued taxes and interest (7,637) 20,950
Other items-net (7,214) 7,593
---------- ---------
Net cash provided by operating activities 169,299 76,157
Financing Activities
Change in short-term debt (83,796) (15,419)
Redemption of long-term debt (150) (6,000)
Retirement of preferred stock (37) (3)
Dividends on preferred stock (1,150) (1,150)
Dividends on common stock (18,000) -
----------- ----------
Net cash used in financing activities (103,133) (22,572)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (51,091) (41,186)
----------- ----------
Net cash used in investing activities (51,091) (41,186)
Net increase in cash and cash equivalents 15,075 12,399
Cash and cash equivalents at beginning of period 8,842 18,788
---------- ---------
Cash and cash equivalents at end of period $ 23,917 $ 31,187
=========== =========
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
THE UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
QUARTER ENDED
March 31
2000 1999
(dollars in thousands)
(unaudited)
Operating Revenues
Electric $49,288 $49,159
Gas 33,487 33,000
------- -------
Total Operating Revenues 82,775 82,159
Operating Expenses
Electricity purchased from parent company
for resale 35,211 36,748
Gas purchased 17,994 17,322
Operation and maintenance 9,228 10,190
Depreciation and amortization 3,736 3,571
Taxes other than income taxes 1,098 1,083
------- -------
Total Operating Expenses 67,267 68,914
Operating Income 15,508 13,245
Miscellaneous - Net (191) (390)
Interest 1,571 1,563
------- -------
Income Before Taxes 13,746 11,292
Income Taxes 5,600 4,749
-------- --------
Net Income Applicable to Common Stock $ 8,146 $ 6,543
Other Comprehensive Income (Loss), Net of Tax - -
-------- --------
Comprehensive Income $ 8,146 $ 6,543
======== ========
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
March 31 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 1,900 $ 3,641
Accounts receivable less accumulated
provision for doubtful accounts of $1,500
at March 31, 2000, and $1,513 at
December 31, 1999 9,476 17,786
Accounts receivable from affiliated companies 881 775
Materials, supplies, and fuel - at average cost 3,216 7,654
Prepayments and other 107 219
-------- ---------
Total Current Assets 15,580 30,075
Utility Plant - Original Cost
In service
Electric 224,097 222,035
Gas 177,034 173,011
Common 42,457 42,351
-------- ---------
Total 443,588 437,397
Accumulated depreciation 158,655 154,607
-------- ---------
Total 284,933 282,790
Construction work in progress 14,639 13,761
-------- ---------
Total Utility Plant 299,572 296,551
Other Assets
Regulatory assets 10,420 10,639
Other 5,928 5,000
-------- ---------
Total Other Assets 16,348 15,639
Total Assets $331,500 $342,265
======== =========
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 6,279 $ 8,487
Accounts payable to affiliated companies 14,088 20,122
Accrued taxes 6,852 739
Accrued interest 552 1,298
Notes payable to affiliated companies 19,137 37,752
Other 5,211 4,062
-------- --------
Total Current Liabilities 52,119 72,460
Non-Current Liabilities
Long-term debt 74,565 74,557
Deferred income taxes 21,947 23,000
Unamortized investment tax credits 3,892 3,961
Accrued pension and other postretirement
benefit costs 12,497 12,333
Amounts due to customers - income taxes 11,895 11,308
Other 14,389 12,596
-------- --------
Total Non-Current Liabilities 139,185 137,755
Total Liabilities 191,304 210,215
Common Stock Equity
Common Stock-$15.00 par value; authorized
shares- 1,000,000; outstanding shares-
585,333 at March 31, 2000
and December 31, 1999 8,780 8,780
Paid-in capital 20,142 20,142
Retained earnings 111,274 103,128
-------- --------
Total Common Stock Equity 140,196 132,050
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholder's Equity $331,500 $342,265
======== ========
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
YEAR TO DATE
March 31
2000 1999
(dollars in thousands)
(unaudited)
Operating Activities
Net income $ 8,146 $ 6,543
Items providing or (using) cash currently:
Depreciation and amortization 3,736 3,571
Deferred income taxes and investment tax
credits - net (536) (200)
Allowance for equity funds used during construction - 16
Regulatory assets - net 169 35
Changes in current assets and current liabilities:
Accounts and notes receivable 7,351 4,006
Materials, supplies, and fuel 4,438 4,601
Accounts payable (8,242) 1,422
Accrued taxes and interest 5,367 2,873
Other items - net 3,514 4,286
-------- ---------
Net cash provided by operating activities 23,943 27,153
Financing Activities
Change in short-term debt (18,615) (20,431)
--------- ---------
Net cash used in financing activities (18,615) (20,431)
Investing Activities
Construction expenditures (less allowance for equity
funds used during construction) (7,069) (4,973)
--------- ---------
Net cash used in investing activities (7,069) (4,973)
Net increase (decrease) in cash and cash equivalents (1,741) 1,749
Cash and cash equivalents at beginning of period 3,641 3,244
--------- ---------
Cash and cash equivalents at end of period $ 1,900 $ 4,993
========= =========
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(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 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 some of the
following reasons:
* generating station outages;
* least-cost alternative;
* native load requirements; and
* extreme weather.
We value contracts in the trading portfolio using end-of-the-period market
prices, utilizing the following factors (as applicable):
* closing exchange prices (that is, closing prices for standardized
electricity products traded on an organized exchange such as the New
York Mercantile Exchange);
* broker-dealer and over-the-counter price quotations; and
* model pricing (which considers time value and historical volatility
factors of electricity pricing underlying any options and contractual
commitments).
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 results 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 March 31, 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 over the life of the agreement.
(d) Accounting Changes 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.
This standard, as subsequently amended by 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), is effective for fiscal years beginning after June 15, 2000. The purpose
of Statement 137 was to delay the effective date of Statement 133 by one year.
We expect to reflect the adoption of this standard in financial statements
issued beginning in the first quarter of 2001. In recognition of the complexity
of this new standard, the Derivatives Implementation Group has been formed by
the FASB. 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, defining relevant processes and information systems
needs, 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.
2. Change in Preferred Stock of Subsidiaries
On January 14, 2000, The Cincinnati Gas & Electric Company (CG&E) repurchased
700 shares of its 4 3/4% Series Cumulative Preferred Stock at a redemption price
of $84.21 per share. On February 18, 2000, PSI Energy, Inc. (PSI) repurchased
600 shares of its 3 1/2% Series Cumulative Preferred Stock at a redemption price
of $62 per share.
3. Long-Term Debt
On February 15, 2000, PSI retired $150,000 principal amount of its Series YY
First Mortgage Bonds.
4. Commitments and Contingencies
(a) Ozone Transport RulemakinG
(i) NOx SIP Call Ozone transport refers to wind-blown movement of
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 recommends 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 (1) obtain more time to file their SIPs,
and (2) require rulemaking and a comment period to determine a new compliance
date. Nevertheless, the states will have to begin adopting new regulations
requiring implementation of the requirements of the October 1998 ozone transport
rulemaking this year.
We estimate the capital expenditures for compliance with the NOx SIP Call at
$500 million to $700 million (in 1999 dollars) by May 2003. This estimate
depends on several factors, including:
* final determination regarding both the timing and strictness of the
final NOx reductions required by the SIPs adopted by the states in
which we operate;
* utilization of our generating units;
* availability of adequate supplies of materials and labor to construct
the necessary control equipment; and
* whether a viable market will exist to buy and sell NOx allowances.
(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 EPAs action granting the Section 126
petitions has been appealed in 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 rules 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 which are less stringent than the
EPA's NOx SIP Call. The states of Indiana and Kentucky have committed to adopt
utility NOx control rules by December 2000 that would require controls be
installed by May 2003. The states are waiting for further guidance from the EPA
on how the NOx SIP Call and the state rules should be coordinated. Since the
state rules are the legal mechanism through which the SIP requirements are
imposed on regulated facilities, 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 some 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 30). 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. 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, and Ohio SIP
requirements regarding a generating station operated by the Columbus Southern
Power Company (CSP) and jointly-owned by CSP, The Dayton Power and Light
Company, 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.
(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. The 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 has
set the case for trial beginning in May 2001. 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 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 a NOV 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 28. We are
currently unable to determine whether resolution of this matter will have a
material effect on our financial condition.
5. Financial Information by Business Segment
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:
* energy management and consulting services to commercial customers that
operate retail facilities (for example, finding more efficient ways
for a customer to use energy);
* utility operations/services to other utilities (for example, providing
underground locating and construction services for other utilities);
* building, operating, and maintaining combined heat and power
facilities through joint ventures with Trigen Energy Corporation; and
* building and maintaining fiber optic telecommunication networks for
businesses, municipalities, telecommunications carriers, and schools.
The International Business Unit (International) directs and manages our
international business holdings, which include wholly- and jointly-owned
companies in six countries. In addition, International also directs our
renewable energy investing activities (for example, wind farms) both inside and
outside the U.S. International earns (1) revenues, and (2) equity earnings from
unconsolidated companies primarily from energy-related businesses.
Financial results by business unit for the quarters ended March 31, 2000, and
1999, and total segment assets at March 31, 2000, and December 31, 1999, are as
follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Business Units
- -----------------------------------------------------------------------------------------------------------------------------------
2000
Cinergy Business Units
Cinergy (1) Reconciling
Commodities Delivery Investments International Total All Other Eliminations(2)Consolidated
(in thousands)
Operating revenues -
External customers $ 690,057 $ 860,621 $ 18,549 $ 13,850 $1,583,077 $ - $ - $1,583,077
Intersegment revenues 453,719 - - - 453,719 - (453,719) -
Segment profit (loss) (3) 80,064 58,495 (56) (64)(4) 138,439 - - 138,439
Total segment assets at
March 31, 2000 5,165,144 4,044,712 138,409 351,654 9,699,919 52,821 - 9,752,740
1999
Cinergy Business Units
Cinergy Reconciling
Commodities Delivery Investments International Total All Other Eliminations Consolidated
(in thousands) (1) (2)
Operating revenues -
External customers $ 503,638 $ 868,367 $ 17,400 $ 12,874 $1,402,279 $ - $ - $1,402,279
Intersegment revenues 456,536 - - - 456,536 - (456,536) -
Segment Profit (Loss) (3) 50,494 62,526 (1,949) 15,695 126,766 479 - 127,245
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
<FN>
(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) Management utilizes segment profit (loss) to evaluate segment
profitability.
(4) Reflects the loss of earnings from the July 1999 sale of our 50% ownership
interest in Avon Energy Partners Holdings, the parent company of Midlands
Electricity plc, to GPU, Inc.
</FN>
- --------------------------------------------------------------------------------
6. Earnings Per Common Share
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 March 31, 2000
Earnings per common share:
Net income $138,439 158,923 $0.87
Effect of dilutive securities:
Common stock options 9
Contingently issuable common stock 343
----------------------------------------
EPS-assuming dilution:
Net income plus assumed conversions $138,439 159,275 $0.87
Quarter ended March 31, 1999
Earnings per common share:
Net income $127,245 158,746 $0.80
Effect of dilutive securities:
Common stock options 412
Contingently issuable common stock 26
----------------------------------------
EPS-assuming dilution:
Net income plus assumed conversions $127,245 159,184 $0.80
- --------------------------------------------------------------------------------
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 March 31, 2000, and 1999, approximately seven million and two million
shares, respectively, were excluded from the diluted EPS calculation.
The Employee Stock Purchase and Savings Plan is also excluded from the diluted
EPS calculation, because 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.
7. Ohio Deregulation
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
and other potential adjustments. Furthermore, the legislation contemplates that
twenty percent of the current electric retail customers will switch suppliers no
later than December 31, 2003.
The Electric Restructuring Bill required each utility supplying retail electric
service in Ohio to file a comprehensive proposed transition plan with the PUCO
addressing specific requirements of the legislation. CG&E filed its plan on
December 28, 1999. The PUCO is required to issue a transition order no later
than October 31, 2000. On March 27, 2000, the PUCO staff issued a Staff Report
on CG&E's plan, identifying exceptions and offering recommendations for
Commission action.
On May 8, 2000, CG&E reached a stipulated 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. The major features
of this agreement include:
* Residential customer rates will be frozen through December 31, 2005;
* Residential customers will receive a five-percent reduction in the
generation portion of their electric rates, effective January 1, 2001;
* CG&E has agreed to provide $4 million over the next five years in support
of energy efficiency and weatherization services for low income customers;
* The creation of a Regulatory Transition Charge, or RTC, designed to recover
CG&E's regulatory assets and other transition costs over a ten-year period;
* Authority for CG&E to transfer its generation assets to a separate,
non-regulated corporate subsidiary to provide flexibility to manage its
generation asset portfolio in a manner that enhances opportunities in a
competitive marketplace;
* Authority for CG&E to defer cost and apply the proceeds of transition cost
recovery to costs incurred during the transition period including
implementation costs and purchased power costs that may be incurred by CG&E
to continue to maintain a sufficient reserve margin necessary to provide
reliable and adequate services to its customers;
* CG&E will provide standard offer default supplier service (i.e., CG&E will
be the supplier of last resort, so that no customer will be without an
electric supplier); and
* CG&E has agreed to provide shopping credits to switching customers.
CG&E expects to receive an order on the proposed settlement prior to the end of
the third quarter of 2000.
CG&E expects to discontinue the application of Statement of Financial Accounting
Standards No. 71, Accounting for the Effects of Certain Types of Regulation,
with respect to its generating assets coincident with the regulatory approval of
the settlement. To the extent the generating assets are financially impaired,
CG&E will be required to recognize a loss under generally accepted accounting
principles.
CAUTIONARY STATEMENTS
Cautionary Statements Regarding Forward-Looking Information
"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:
* Factors affecting operations, such as:
(1) unusual weather conditions;
(2) catastrophic weather-related damage;
(3) unscheduled generation outages;
(4) unusual maintenance or repairs;
(5) unanticipated changes in fossil fuel costs, gas supply costs, or
availability constraints;
(6) environmental incidents; and
(7) electric transmission or gas pipeline system constraints.
* Legislative and regulatory initiatives regarding deregulation of the
industry, including Ohio's comprehensive deregulation legislation and the
outcome of The Cincinnati Gas & Electric Company's (CG&E) Proposed
Transition Plan.
* The timing and extent of the entry of additional competition in electric or
gas markets and the effects of continued industry consolidation through the
pursuit of mergers, acquisitions, and strategic alliances.
* Regulatory factors such as changes in the policies or procedures that set
rates, changes in our ability to recover investments made under traditional
regulation through rates, and changes to the frequency and timing of rate
increases.
* Financial or regulatory accounting principles or policies imposed by
governing bodies.
* Political, legal, and economic conditions and developments in the United
States and the foreign countries in which we have a presence. This would
include inflation rates and monetary fluctuations.
* Changing market conditions and other factors related to physical energy and
financial trading activities. These would include price, basis, credit,
liquidity, volatility, capacity, transmission, currency exchange rates,
interest rates, and warranty risks.
* The performance of projects undertaken by our non-regulated businesses and
the success of efforts to invest in and develop new opportunities.
* Availability of, or cost of capital.
* Employee workforce factors, including changes in key executives, collective
bargaining agreements with union employees, and work stoppages.
* Legal and regulatory delays and other obstacles associated with mergers,
acquisitions, and investments in joint ventures.
* Costs and effects of legal and administrative proceedings, settlements,
investigations, and claims. Examples can be found in Note 4 of the "Notes
to Financial Statements" in "Part 1. Financial Information" beginning on
page 26.
* Changes in international, federal, state, or local legislative
requirements, such as changes in tax laws, tax rates, and environmental
laws and regulations.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
In MD&A, we explain liquidity, capital resources, and results of operations.
Specifically, we discuss the following:
* factors affecting current and future operations;
* why revenues and expenses changed from period to period; and
* how the above items affect our overall financial condition.
LIQUIDITY
In the "Liquidity" section, we discuss environmental issues as they relate to
our current and future cash needs. In the "Capital Resources" section beginning
on page 38, we discuss how we intend to meet these capital requirements.
Environmental Issues
In the "Environmental Issues" section, we discuss ozone transport rulemakings,
new source review, and manufactured gas plant sites as they relate to us and our
operating companies.
Ozone Transport Rulemakings, New Source Review,
Manufactured Gas Plant Sites, and Other
See Notes 4(a), (b), (c), and (d), respectively, of the "Notes to Financial
Statements" in "Part I. Financial Information" on pages 26 through 30.
CAPITAL RESOURCES
Debt
Cinergy Corp. has current authorization from the SEC under the Public Utility
Holding Company Act of 1935, as amended (PUHCA), to issue and sell short-term
notes and commercial paper and long-term unsecured debt through December 31,
2002, provided the total principal amount of all these debt securities may not
exceed $2 billion at any time. In addition, Cinergy Corp.'s long-term debt
cannot exceed $400 million at any time. As of March 31, 2000, Cinergy Corp. has
$400 million of long-term debt outstanding, and therefore, under the current
authorization, it cannot issue any additional long-term debt. Cinergy Corp. has
a request for additional authority pending with the SEC.
SHORT-TERM DEBT In connection with the current SEC authorization, Cinergy Corp.
has established lines of credit. As of March 31, 2000, Cinergy Corp. had $468
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 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, $87 million and $129
million, respectively, remained unused and available at March 31, 2000.
As of March 31, 2000, our non-regulated subsidiaries have $82 million in
short-term debt and established lines of credit of which $.6 million was unused
and available. 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 March 31, 2000, Cinergy Corp. had issued $156
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 March 31, 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 (Cinergy Corp. and all of its regulated and non-regulated
subsidiaries) on page 6, for CG&E on page 12, and for PSI on page 17. At March
31, 2000, CG&E and PSI had $184 million and $83 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 11 through 12, PSI on pages 16 through 17, and the Balance Sheets
for ULH&P on pages 21 through 22.
Long-Term Debt Under the PUHCA authorization mentioned previously, we are able
to issue and sell long-term debt at the parent holding company level. Cinergy
Corp.'s long-term debt cannot exceed $400 million at any time. As of March 31,
2000, Cinergy Corp. has $400 million of long-term debt outstanding, and
therefore, under the current authorization, it cannot issue any additional
long-term debt. Cinergy Corp. has a request for additional authority pending
with the SEC.
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 April 30, 2000, is reflected in the following table:
Authorizing Agency CG&E PSI ULH&P
(in millions)
Applicable State Utility Commission $200 $400 $30
(Secured or Unsecured Debt)
We may, at any time, request additional long-term debt authorization to increase
our authority. This request is subject to regulatory approval, which may or may
not be granted.
As of March 31, 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 redemptions of long-term debt securities, see
Note 3 of the "Notes to Financial Statements" in "Part I. Financial Information"
on page 26.
Guarantees
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 $1 billion. As of March
31, 2000, we had $576 million outstanding under the guarantees issued. Cinergy
Corp. has a request for additional authority to issue guarantees pending with
the SEC.
2000 RESULTS OF OPERATIONS
SUMMARY OF RESULTS
Electric and gas margins and net income for Cinergy, CG&E, and PSI for the
quarters ended March 31, 2000, and 1999, were as follows:
Cinergy (1) CG&E PSI
2000 1999 2000 1999 2000 1999
(in thousands)
Electric gross margin $565,919 $535,363 $297,666 $282,715 $262,323 $247,538
Gas gross margin 92,583 86,906 88,846 84,919 - -
Net income 138,439 127,245 95,964 80,237 50,213 39,841
(1) The results of Cinergy also include amounts related to non-registrants.
Our diluted earnings per share for the first quarter of 2000 increased to $.87
per share from $.80 per share for the same period of 1999.
Earnings of our regulated operations, including the supply business, increased
$.21 per share in the first quarter of 2000, when compared to 1999. Partially
offsetting this increase was a decrease of $.15 per share in the contribution to
earnings of our non-regulated investment activities. This decrease primarily
reflects the loss of earnings from the July 1999 sale of our 50% ownership
interest in Avon Energy Partners Holdings (Avon Energy), the parent company of
Midlands Electricity plc, to GPU, Inc. (GPU).
The explanations below follow the line items on the Statements of Income for
Cinergy, CG&E, and PSI, which begin on page 4. However, only the line items that
varied significantly from prior periods are discussed.
ELECTRIC OPERATING REVENUES
Cinergy (1) CG&E PSI
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
(in millions)
Retail $650 $676 (4) $351 $358 (2) $298 $318 (6)
Wholesale 384 266 44 182 121 50 227 157 45
Other 33 27 22 5 3 67 9 7 29
------ ---- ---- ---- ---- ----
Total $1,067 $969 10 $538 $482 12 $534 $482 11
(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 March 31, 2000, as compared to 1999, mainly due to an increase in volumes
on non-firm wholesale transactions related to energy marketing and trading
activity. Non-firm power is power without a guaranteed commitment for physical
delivery. Partially offsetting this increase was a decrease in the average price
per kilowatt-hour (kWh) realized for wholesale power transactions and lower firm
wholesale kWh sales.
Despite an increase in customers, retail revenues declined during the first
quarter of 2000, as compared to last year. Retail revenues for Cinergy and CG&E
decreased as a result of an overall decrease in volumes and a lower average
realization per kWh. This decrease in volumes was mainly due to the warmer than
normal weather experienced during the first quarter of 2000. PSI's retail
revenues decreased mainly as a result of a lower average realization per kWh.
GAS OPERATING REVENUES
Cinergy (1) CG&E
2000 1999 % Change 2000 1999 % Change
(in millions)
Non-regulated $321 $257 25 $ - $ - -
Retail 154 142 8 154 142 8
Transportation 22 20 10 22 20 10
Other 2 2 - 2 2 -
---- ----- ---- ----
Total $499 $421 19 $178 $164 9
(1) The results of Cinergy also include amounts related to non-registrants.
Gas operating revenues for Cinergy increased in the first quarter of 2000, when
compared to the same period last year. This increase is primarily the result of
a higher price received per thousand cubic feet (mcf) sold by Cinergy Marketing
and Trading, LLC.
CG&E's retail revenues increased primarily due to a higher price received per
mcf sold. This increase was partially offset by a decline in mcf sales due to a
reduction in residential customers and a warmer than normal winter.
Transportation revenues increased due to the continued progression 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 REVENUES
Other operating revenues for Cinergy increased $5 million (42%) in the first
quarter of 2000, when compared to the same period in 1999, primarily due to
revenues from the marketing of energy-related services.
OPERATING EXPENSES
CINERGY (1) CG&E PSI
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
(in millions)
Fuel $ 186 $ 198 (6) $ 82 $ 86 (5) $ 99 $107 (7)
Purchased and
exchanged power 315 235 34 158 113 40 172 128 34
Gas purchased 406 334 22 90 79 14 - - -
Operation 194 195 (1) 80 84 (5) 85 88 (3)
Maintenance 51 50 2 25 24 4 26 25 4
Depreciation and
amortization 90 86 5 51 51 - 35 34 3
Taxes other than
income taxes 66 70 (6) 50 54 (7) 15 14 7
------ ------ ---- ---- ---- ----
Total $1,308 $1,168 12 $536 $491 9 $432 $396 9
(1) The results of Cinergy also include amounts related to non-registrants.
Fuel
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 March 31, 1999, to the quarter ended March 31, 2000:
Cinergy (1) CG&E PSI
(in millions)
Fuel expense - March 31, 1999 $198 $86 $107
Increase (decrease) due to changes in:
Price of fuel (2) (2) -
Deferred fuel cost (21) (3) (18)
KWh generation 11 1 10
---- ---- ----
Fuel expense - March 31, 2000 $186 $82 $99
(1) The results of Cinergy also include amounts related to non-registrants.
Purchased and exchanged power
Purchased and exchanged power represents the electricity that is bought to be
sold through our energy marketing and trading activities. This expense increased
for Cinergy, CG&E, and PSI for the first quarter of 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 purchased
Gas purchased expense increased for Cinergy and CG&E for the first quarter of
2000, when compared to the same period last year, primarily due to an increase
in the average cost per mcf of gas purchased.
Depreciation and amortization
Cinergy's and PSI'S Depreciation and amortization costs increased for the
quarter ended March 31, 2000, as compared to the same period last year,
primarily due to additions to depreciable plant.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES
Cinergy's Equity in earnings of unconsolidated subsidiaries decreased $43
million (96%) for the first quarter of 2000, when compared to the same period
last year. This decrease is primarily due to the loss in earnings resulting from
the sale of our 50% ownership interest in Avon Energy to GPU on July 15, 1999.
INTEREST
Cinergy's Interest expense decreased $9 million (15%) for the first quarter of
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 Avon Energy.
This decrease was slightly offset by an increase in average short-term interest
rates.
ULH&P
The format of the following Results of Operations discussion has been changed
from the format of prior reports. Unlike prior reports, the Results of
Operations discussion for ULH&P is presented only for the quarter ended March
31, 2000, in accordance with General Instruction H(2)(a).
Electric and gas margins and net income for ULH&P for the quarters ended March
31, 2000, and 1999, were as follows:
ULH&P
2000 1999
(in thousands)
Electric gross margin $14,077 $12,411
Gas gross margin 15,493 15,678
Net income 8,146 6,543
Retail Electric operating revenues for the quarter ended March 31, 2000,
compared to last year, decreased mainly due to a lower average realization per
kWh. This decrease was offset by an increase in electric property rental income
related to an intercompany transaction beginning in April 1999. Electricity
purchased from parent company for resale also decreased due to a lower average
realization per kWh.
The increase in Gas operating revenues for the quarter ended March 31, 2000,
compared to last year, was mainly due to a higher price received per mcf sold
and an increase in the number of residential and commercial customers. Gas
purchased expense increased due to an increase in the average cost per mcf of
gas purchased.
The decrease in Operation and maintenance costs for the quarter ended
March 31, 2000, as compared to the same period last year, was primarily due to a
decrease in administrative and general expenses.
FUTURE EXPECTATIONS/TRENDS
In the "Future Expectations/Trends" section, we discuss electric industry
developments, market risk sensitive instruments and positions, impact of
acquisitions, accounting changes, and the corporate center restructuring. Each
of these discussions will address the current status and potential future impact
on our results of operations and financial condition.
ELECTRIC INDUSTRY
Wholesale Market Developments
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% ownership) with Duke Energy North America LLC, in an effort to increase the
available generating capacity for use during peak demand periods. This
partnership is to jointly construct and own three wholesale generating
facilities. On March 9, 2000, the Indiana Utility Regulatory Commission (IURC)
issued an order (Cause No. 41569), requiring us to immediately cease all
construction activities at the site located near Cadiz, (Henry County) Indiana
(a planned 132 megawatts (MW) capacity peaking plant). In making this decision
the IURC found that it needs additional information related to the project
before issuing a final decision. The IURC has requested the Henry County
Planning Commission and/or the Henry County Commissioners to supply additional
information by June 1, 2000. At this time, Cinergy cannot currently predict the
outcome of any potential decision. Construction of the remaining facilities
(with total capacity of approximately 1,268 MW) continues with the anticipation
of being fully operational by the summer of 2000. We are supplementing this
additional capability with block power purchases for the summer of 2000 peak
period.
Retail Market Developments
Ohio As discussed in the 1999 Form 10-K, during 1999, Ohio Governor Robert Taft
signed into law a bill creating a competitive electric retail service market
beginning January 1, 2001. As required by the bill, CG&E filed its transition
plan on December 28, 1999.
On May 8, 2000, CG&E reached a stipulated 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. The major features
of this agreement include:
* Residential customer rates will be frozen through December 31, 2005;
* Residential customers will receive a five-percent reduction in the
generation portion of their electric rates, effective January 1, 2001;
* CG&E has agreed to provide $4 million over the next five years in support
of energy efficiency and weatherization services for low income customers;
* The creation of a Regulatory Transition Charge, or RTC, designed to recover
CG&E's regulatory assets and other transition costs over a ten-year period;
* Authority for CG&E to transfer its generation assets to a separate,
non-regulated corporate subsidiary to provide flexibility to manage its
generation asset portfolio in a manner that enhances opportunities in a
competitive marketplace;
* Authority for CG&E to apply the proceeds of transition cost recovery to
costs incurred during the transition period including implementation costs
and purchased power costs that may be incurred by CG&E to continue to
maintain a sufficient reserve margin necessary to provide reliable and
adequate services to its customers; and
* CG&E will provide standard offer default supplier service (i.e., CG&E will
be the supplier of last resort, so that no customer will be without an
electric supplier); and
* CG&E has agreed to provide shopping credits to switching customers.
CG&E expects the settlement to be approved prior to the end of the third quarter
of 2000.
For additional information, see Note 7 of the "Notes to Financial Statements" in
"Part I. Financial Information" on page 33.
Midwest ISO
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 Systems 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 late 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 13 members with over 52,000 miles of transmission
lines in 11 states and an aggregate investment of approximately $8 billion.
Discussions are currently underway to merge the Midwest ISO and the
Mid-Continent Area Power Pool (MAPP). The MAPP Board of Directors and the MAPP
Members have approved the consolidation of assets between the two organizations.
The final requirement for the merger is two-thirds of the MAPP load voting for
the Midwest ISO becoming the operator of their transmission systems.
Significant Rate Developments
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 approval as to reasonableness under the circumstances.
A hearing on this request was completed on December 9, 1999. An order is
expected during the second quarter of 2000.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
Energy Commodities Sensitivity
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 24 through 25, 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.
Exchange Rate Sensitivity
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 24 through 25, for our accounting policies for
certain derivative instruments.
Interest Rate Sensitivity
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 24 through 25, 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.
ACCOUNTING CHANGES
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.
This standard, as subsequently amended by 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), is effective for fiscal years beginning after June 15, 2000. The purpose
of Statement 137 was to delay the effective date of Statement 133 by one year.
We expect to reflect the adoption of this standard in financial statements
issued beginning in the first quarter of 2001. In recognition of the complexity
of this new standard, the Derivatives Implementation Group has been formed by
the FASB. 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, defining relevant processes and information systems
needs, 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.
CORPORATE CENTER RESTRUCTURING
On March 10, 2000, we announced a plan to reorganize our corporate center that
will eliminate approximately 240 jobs. A limited early retirement program (LERP)
and unfilled vacancies are expected to reduce the number of employees displaced
to approximately 45. These employees will be able to seek other job
opportunities within Cinergy or voluntarily elect to accept a severance plan.
Overall, this reorganization is expected to achieve approximately $25 million in
annual savings for Cinergy.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Reference is made to the "Market Risk Sensitive Instruments and Positions"
section in "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations" in "Part I. Financial Information" on page 48, and
Notes 1(b) and 1(c) of the "Notes to Financial Statements" in "Part I. Financial
Information" on pages 24 through 25.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NEW SOURCE REVIEW, MANUFACTURED GAS PLANT SITES, AND OTHER
See Notes 4(b), (c), and (d), respectively, of the "Notes to Financial
Statements" in "Part I. Financial Information" on pages 28 through 30.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of Cinergy Corp. was held April 27, 2000, in
Cincinnati, Ohio.
At the meeting, one Class I director was elected to the board of Cinergy Corp.
to serve for a one-year term ending in 2001, and four Class III directors were
elected to the board of Cinergy Corp. to serve three-year terms ending in 2003,
as set forth below:
Class I Votes For Votes Withheld
Michael G. Browning 125,416,635 2,912,311
Class III Votes For Votes Withheld
Phillip R. Cox 125,499,093 2,829,853
James E. Rogers 124,687,045 3,641,901
John J. Schiff, Jr. 124,907,634 3,421,312
Oliver W. Waddell 125,368,524 2,960,422
In lieu of the annual meeting of shareholders of The Cincinnati Gas & Electric
Company (CG&E), a resolution was duly adopted via unanimous written consent of
Cinergy Corp., CG&E's sole shareholder, effective April 26, 2000, electing the
following members of the Board of Directors for one-year terms expiring in 2001:
* Jackson H. Randolph
* James E. Rogers
* James L. Turner
The annual meeting of shareholders of PSI Energy, Inc. was held April 27, 2000,
in Cincinnati, Ohio.
Proxies were not solicited for the annual meeting, at which the Board of
Directors was re-elected in its entirety (see below).
By unanimous vote, the following members of the Board of Directors were
re-elected at the annual meeting for one-year terms expiring in 2001:
* James K. Baker
* Michael G. Browning
* John A. Hillenbrand II
* Jackson H. Randolph
* James E. Rogers
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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
Articles of Incorporation/By-Laws
3a Cinergy By-Laws of Cinergy as amended April 27, 2000.
Financial Data Schedule
27 Cinergy Financial Data Schedules (included in
CG&E electronic submission only)
PSI
ULH&P
(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 March 31, 2000.
Date of Report Registrant Item Filed
May 10, 2000 Cinergy Item 5. Other Events
CG&E Item 7. Financial Statements and Exhibits
SIGNATURES
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: MAY 12, 2000 /S/ BERNARD F. ROBERTS
Bernard F. Roberts
Duly Authorized Officer
and
Chief Accounting Officer