______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-1232
THE CINCINNATI GAS & ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
OHIO 31-0240030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
139 East Fourth Street
Cincinnati, Ohio 45202
(Address of principal executive offices)
Registrant's telephone number: (513) 381-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Cumulative Preferred Stock
4%, 4 3/4%, 7.44%, 9.15%, Cincinnati Stock Exchange
7 7/8%, and 7 3/8% New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (x)
All voting stock of the registrant is wholly-owned by CINergy Corp.
As of February 28, 1995, 89,663,086 shares of Common Stock, par value $8.50
per share, were outstanding, all of which were held by CINergy Corp.
______________________________________________________________________________
THE CINCINNATI GAS & ELECTRIC COMPANY
TABLE OF CONTENTS
Item
Number
PART I
1 Business
Organization . . . . . . . . . . . . . . . . . . . . . .
The Company. . . . . . . . . . . . . . . . . . . . . . .
Customer, Sales, and Revenue Data. . . . . . . . . . . .
Financial Information by Business Segment. . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . .
Rate Matters . . . . . . . . . . . . . . . . . . . . . .
Power Supply . . . . . . . . . . . . . . . . . . . . . .
Fuel Supply. . . . . . . . . . . . . . . . . . . . . . .
Gas Supply . . . . . . . . . . . . . . . . . . . . . . .
Competition. . . . . . . . . . . . . . . . . . . . . . .
Capital Requirements . . . . . . . . . . . . . . . . . .
Environmental Matters. . . . . . . . . . . . . . . . . .
Employees. . . . . . . . . . . . . . . . . . . . . . . .
2 Properties . . . . . . . . . . . . . . . . . . . . . . . .
CG&E . . . . . . . . . . . . . . . . . . . . . . . . . .
ULH&P. . . . . . . . . . . . . . . . . . . . . . . . . .
Other Subsidiaries . . . . . . . . . . . . . . . . . . .
3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . .
Merger Litigation. . . . . . . . . . . . . . . . . . . .
Shareholder Litigation . . . . . . . . . . . . . . . . .
4 Submission of Matters to a Vote of Security Holders. . . .
Executive Officers of the Registrant . . . . . . . . . . .
PART II
5 Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . . . . .
6 Selected Financial Data. . . . . . . . . . . . . . . . . .
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . .
Index to Financial Statements and Financial Statement
Schedules. . . . . . . . . . . . . . . . . . . . . . . .
8 Financial Statements and Supplementary Data. . . . . . . .
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . .
PART III
10 Directors and Executive Officers of the Registrant . . . .
11 Executive Compensation . . . . . . . . . . . . . . . . . .
12 Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . .
13 Certain Relationships and Related Transactions . . . . . .
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Financial Statements and Schedules . . . . . . . . . .
Reports on Form 8-K. . . . . . . . . . . . . . . . . .
Exhibits . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . .
PART I
ITEM 1. BUSINESS
Organization
In October 1994, The Cincinnati Gas & Electric Company (CG&E) became a
subsidiary of CINergy Corp. (CINergy) as a result of the merger of CG&E and
PSI Resources, Inc. (Resources). CINergy is a registered holding company
under the Public Utility Holding Company Act of 1935 (PUHCA).
The Company
CG&E, an Ohio corporation, is an electric and gas public utility company with
four wholly-owned utility subsidiaries including The Union Light, Heat and
Power Company (ULH&P), Miami Power Corporation (Miami), The West Harrison Gas
and Electric Company (West Harrison), and Lawrenceburg Gas Company
(Lawrenceburg). In addition, CG&E has two non-utility subsidiaries, KO
Transmission Company (KO Transmission) and Tri-State Improvement Company (Tri-
State), both of which are wholly-owned.
CG&E and its utility subsidiaries are primarily engaged in the production,
transmission, distribution, and sale of electric energy and the sale and
transportation of natural gas in the southwestern portion of Ohio and adjacent
areas in Kentucky and Indiana. The area served with electricity, gas, or both
covers approximately 3,000 square miles, has an estimated population of 1.8
million people, and includes the cities of Cincinnati and Middletown in Ohio,
Covington and Newport in Kentucky, and Lawrenceburg in Indiana.
KO Transmission was incorporated in Kentucky in 1994 and will be used to
acquire an interest in an interstate natural gas pipeline to which CG&E is
entitled as a result of a settlement with the Columbia Gas Transmission Corp.
It will have an office in Cincinnati and will be engaged in the transportation
of natural gas in interstate commerce between Kentucky and Ohio. KO
Transmission's portion of the pipeline will extend from central Kentucky to
the Ohio River.
Tri-State, an Ohio corporation, is devoted to acquiring and holding property
in Ohio, Kentucky, and Indiana for substations, electric and gas rights of
way, office space, and other uses in CG&E's and its subsidiaries' utility
operations.
As a result of the merger, CGE Corp., a subsidiary of CG&E prior to merger
consummation, was merged with and into CINergy Investments, Inc.
(Investments), a subsidiary of CINergy. CGE Corp.'s former subsidiaries,
Power International, Inc., previously named Enertech Associates International,
Inc., and CG&E Resource Marketing, Inc., are now subsidiaries of Investments.
Customer, Sales, and Revenue Data
Approximately 75% and 24% of CG&E's and its subsidiaries' operating revenues
are derived from the sale of electricity and the sale and transportation of
natural gas, respectively. The service territory of CG&E and its subsidiaries
is heavily populated and characterized by a stable residential customer base
and a diverse mix of industrial customers. As of December 31, 1994, CG&E and
its subsidiaries supplied electric service to over 708,000 customers and
provided gas service to more than 429,000 customers. CG&E's and its utility
subsidiaries' service territory spans 19 counties in Ohio, Indiana, and
Kentucky and includes approximately 130 cities, towns, unincorporated
communities, and adjacent rural areas, including municipal utilities and rural
electric cooperatives. No one customer accounts for more than 5% of electric
or gas operating revenues of CG&E and its subsidiaries. Sales of electricity
and gas sales and transportation are affected by seasonal weather patterns,
and, therefore, operating revenues and associated operating expenses are not
distributed evenly during the year.
Financial Information by Business Segment
For financial information by business segment, see Note 16 of the "Notes to
Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data". For a discussion of the potential divestiture of CG&E's
gas operations, see Note 13(d) of the "Notes to Consolidated Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".
Regulation
As subsidiaries of CINergy, CG&E and its subsidiaries are subject to
regulation by the Securities and Exchange Commission (SEC) under the PUHCA
with respect to, among other things, issuances and sales of securities,
acquisitions and sales of certain utility properties, acquisitions and
retentions of interests in non-utility businesses, intrasystem sales of
certain goods and services, the method of keeping accounts, and access to
books and records. In addition, the PUHCA generally limits registered holding
companies to a single "integrated" public utility system, which the SEC
traditionally has interpreted to prohibit a registered holding company, with
limited exceptions, from owning both gas and electric properties. (Refer to
the information appearing under the caption "Potential Divestiture of Gas
Operations" in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations".)
CG&E, ULH&P, and Miami are each subject to regulation by the Federal Energy
Regulatory Commission (FERC) under the Federal Power Act with respect to the
classification of accounts, rates for wholesale sales of electricity,
interconnection agreements, and acquisitions and sales of certain utility
properties. In addition, services by KO Transmission will be rendered in
accordance with terms and conditions and at rates contained in a gas tariff
filed with the FERC. Transportation of gas between CG&E and ULH&P is subject
to regulation by the FERC under the Natural Gas Act.
CG&E, as a public utility under the laws of Ohio, is also subject to
regulation by the Public Utilities Commission of Ohio (PUCO) as to retail
electric and gas rates, services, accounts, depreciation, issuance of
securities, acquisitions and sales of certain utility properties, and in other
respects as provided by Ohio law. Rates within municipalities in Ohio are
subject to original regulation by the municipalities. The Ohio Power Siting
Board, a division of the PUCO, has jurisdiction in Ohio over the location,
construction, and initial operation of new electric generating facilities and
certain electric and gas transmission lines presently utilized by CG&E. As to
retail rates and other matters, ULH&P is regulated by the Kentucky Public
Service Commission, and West Harrison and Lawrenceburg are regulated by the
Indiana Utility Regulatory Commission (IURC).
Rate Matters
Refer to the information appearing under the caption "Regulatory Matters" in
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Power Supply
CG&E and 28 other electric utilities in an eight-state area are participating
in the East Central Area Reliability Coordination Agreement for the purpose of
coordinating the planning and operation of generating and transmission
facilities to provide for maximum reliability of regional bulk power supply.
CG&E's electric system, which is operated by CINergy Services, Inc., the
service company which provides a variety of administrative, management, and
support services to the CINergy system, is interconnected with the electric
systems of PSI Energy, Inc. (Energy), also a subsidiary of CINergy, East
Kentucky Power Cooperative, Inc. (East Kentucky), Indiana Michigan Power
Company, Louisville Gas and Electric Company, Columbus Southern Power Company,
The Dayton Power and Light Company, Ohio Valley Electric Corporation, Ohio
Power Company, and Tennessee Valley Authority.
CG&E and East Kentucky have an agreement for the interchange of electric
power, subject to availability, during certain times of the year through March
2000. Under the agreement, CG&E, a summer peaking company, has the right to
obtain up to 150 megawatts (mw) of electricity through March 31, 1997, and up
to 50 mw from April 1, 1997, through March 31, 2000, from East Kentucky during
the months of June, July, and August. East Kentucky, a winter peaking
company, has the right to receive up to 150 mw through March 31, 1997, and up
to 50 mw from April 1, 1997, through March 31, 2000, from CG&E in December,
January, and February.
Fuel Supply
A major portion of the coal required by CG&E is obtained through both long-
and short-term coal supply agreements, with the remaining requirements
purchased on the spot market. The prices to be paid under most of these
contracts are subject to adjustment to reflect suppliers' costs and certain
other factors. In addition, some of these agreements include extension
options and termination provisions pertaining to coal quality. The coal
delivered under these contracts is primarily from mines located in Ohio,
Kentucky, West Virginia, and Pennsylvania.
CG&E monitors alternative sources to assure a continuing availability of
economical fuel supplies. CG&E intends to continue purchasing a portion of
its coal requirements on the spot market and, at the present time, is
investigating the expanded use of low-sulfur coal in connection with its plans
to comply with the Clean Air Act Amendments of 1990 (see the information
appearing under the caption "Environmental Issues" in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations").
CG&E believes it will be able to obtain sufficient coal to meet future
generating requirements. However, CG&E is unable to predict the extent to
which coal availability and price may ultimately be affected by future
environmental requirements. Presently, CG&E expects the cost of coal to rise
in the long run as the supply of more accessible and higher-grade coal
diminishes and as mining, transportation, and other related costs continue an
upward trend.
Gas Supply
The FERC's Order 636 restructured the operations of gas pipelines and the
supply portfolios of gas distribution companies. As gas pipelines unbundled
their historic service of supply aggregating, direct term contracting by gas
distribution companies with producers and marketers diminished the once
prominent spot market (see the information appearing under the caption "Order
636" in "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations").
CG&E and its subsidiaries now obtain the majority of their natural gas supply
(89%) from firm supply agreements, with remaining volumes purchased in the
spot market. These firm contracts feature dual levels of gas supply: base
load for continuous supply for CG&E's and its subsidiaries' core requirements,
and "swing" load, which is gas available on a daily basis for changes in
demand. While a premium is paid for the swing load, the use of industry
indices to price firm gas volumes on a monthly basis ensures that the price
CG&E and its subsidiaries pay remains economically competitive.
Gas is transported on interstate pipelines either directly to CG&E's and its
subsidiaries' distribution systems, or it is injected into pipeline storage
facilities for withdrawal and delivery in the future. Most of CG&E's and its
subsidiaries' gas supplies are sourced from the Gulf of Mexico coastal area.
CG&E and its subsidiaries have also obtained limited supply sourced from the
Appalachian region and the mid-continent (Arkansas - Oklahoma) basin, and from
methane gas recovered from an Ohio landfill. Over the long-term, natural gas
is expected to retain its competitiveness with alternative fuels; however, the
costs of discovery and development of new sources of supply will influence
prices.
Competition
Refer to the information appearing under the caption "Competitive Pressures"
in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Capital Requirements
Refer to the information appearing under the caption "Capital Requirements" in
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Environmental Matters
CG&E's 1995 construction expenditures for environmental compliance are
forecasted to be $6 million. In addition, refer to the information appearing
in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Employees
The number of employees of CG&E and its subsidiaries at December 31, 1994, was
4,834, of whom CG&E employed 4,479, ULH&P employed 342, and Lawrenceburg
employed 13.
CG&E and its utility subsidiaries have collective bargaining agreements with
several union organizations. Approximately 1,226 employees were represented
by the Independent Utilities Union (IUU). The current contract between CG&E
and the IUU will expire in March 1998. The United Steelworkers of America
(USWA) and the International Brotherhood of Electrical Workers (IBEW)
represented approximately 475 and 1,570 employees, respectively. CG&E and its
subsidiaries have a three-year contract with the USWA expiring May 15, 1997.
The IBEW contract expires April 1, 1997.
ITEM 2. PROPERTIES
Substantially all utility plant is subject to the lien of each applicable
company's first mortgage bond indenture.
In addition to the information further discussed herein, refer to the
information appearing under the caption "New Generation" in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 14 of the "Notes to Consolidated Financial Statements" in
"Item 8. Financial Statements and Supplementary Data".
CG&E
CG&E wholly owns and operates seven steam electric generating units at two
different stations and 20 rapid-start internal combustion generating units at
four different stations. In addition, CG&E operates five commonly owned steam
electric generating units at four different stations, in all of which CG&E has
an undivided interest. CG&E also has an undivided interest in six commonly
owned steam electric generating units at three separate stations which are not
operated by CG&E. All of these properties are located in Ohio, with the
exception of one of the jointly owned stations operated by CG&E which is
located in Kentucky. CG&E-owned system generating capability as of December
31, 1994, was 5,374 mw.
CG&E's 1994 summer peak load, which occurred on July 20, was 4,326 mw, and its
1994 winter peak load, which occurred on January 18, was 4,077 mw, exclusive
of off-system transactions. For the period 1995 through 2004, summer and
winter peak load and kilowatt-hour sales are each forecasted to have annual
growth rates of 2%. These forecasts reflect CG&E's assessment of demand-side
management programs, load growth, alternative fuel choices, population growth,
and housing starts. These forecasts exclude non-firm power transactions and
any potential off-system, long-term firm power sales.
As of December 31, 1994, CG&E's transmission system consisted of 388 circuit
miles of 345,000 volt line, 604 circuit miles of 138,000 volt line, 475
circuit miles of 69,000 volt line, and 117 circuit miles of lesser volt line,
all within the states of Ohio and Kentucky. In addition, as of December 31,
1994, CG&E's distribution system consisted of 14,388 circuit miles, all within
the state of Ohio. As of the same date, CG&E's transmission substations had a
combined capacity of 14,845,106 kilovolt-amperes, and the distribution
substations had a combined capacity of 5,860,802 kilovolt-amperes. A portion
of CG&E's total transmission system is jointly owned, primarily in connection
with the previously mentioned jointly owned electric generating units.
During 1994, almost all of the electricity generated by units owned by CG&E or
in which it has an ownership interest was produced by coal-fired generating
units. Those units generate most of the electric requirements of CG&E and its
subsidiaries.
CG&E owns two underground caverns, one with a seven million gallon capacity
and one with an eight million gallon capacity, for the storage of liquid
propane and related vaporization and mixing plants. Both of the storage
caverns are located in Ohio and used primarily to augment CG&E's supply of
natural gas during periods of peak demand and emergencies. CG&E also owns
natural gas distribution systems consisting of 5,341 miles of mains and
service lines in southwestern Ohio.
ULH&P
As of December 31, 1994, ULH&P owned 104 circuit miles of 69,000 volt electric
transmission line, an electric distribution system consisting of 2,468 circuit
miles, and a gas distribution system consisting of 1,190 miles of mains and
service lines in northern Kentucky. ULH&P also owns a seven million gallon
capacity underground cavern for the storage of liquid propane and a related
vaporization and mixing plant and feeder lines, located in northern Kentucky
and adjacent to one of the gas lines that transports natural gas to CG&E. The
cavern and vaporization and mixing plant are used primarily to augment CG&E's
and ULH&P's supply of natural gas during periods of peak demand and
emergencies.
Other Subsidiaries
As of December 31, 1994, Lawrenceburg owned a gas distribution system
consisting of 166 miles of mains and service lines in Indiana adjacent to the
western part of CG&E's service area. Lawrenceburg is connected with and sells
gas at wholesale to the city of Aurora, Indiana, and is also connected within
Indiana with the lines of Texas Gas Transmission Corporation and Texas Eastern
Transmission Corporation.
As of December 31, 1994, West Harrison owned a small electric distribution
system consisting of 10 circuit miles in Indiana adjacent to CG&E's service
area. As of the same date, Miami owned 40 miles of 138,000 volt transmission
line connecting the lines of Louisville Gas and Electric Company with those of
CG&E.
ITEM 3. LEGAL PROCEEDINGS
Merger Litigation
The original merger agreement between CG&E and Resources was amended in
response to a June 1993 ruling by the IURC, which dismissed a petition by
Energy for approval of the transfer of its license or property to CINergy
Corp., an Ohio corporation. The IURC held that such transfer could not be
made to a corporation incorporated outside of Indiana. The original structure
provided that Resources, Energy, and CG&E would be merged into CINergy. Under
this structure, Energy and CG&E would have become operating divisions of
CINergy, ceasing to exist as separate corporations, and CINergy would not have
been required to register as a public utility holding company under the PUHCA.
Energy appealed the IURC's decision, and in October 1994, the Indiana Court of
Appeals reversed the IURC's decision. This decision by the Indiana Court of
Appeals did not alter the consummation of the merger establishing CINergy as a
registered holding company.
Shareholder Litigation
In March 1993, in conjunction with a proposed tender offer for Resources,
IPALCO Enterprises, Inc. filed suit in the United States District Court for
the Southern District of Indiana, Indianapolis Division (District Court),
against Resources, CINergy, James E. Rogers, Energy, and CG&E (IPALCO Action).
The IPALCO Action was subsequently dismissed in November 1993. In March 1993
and in the weeks following, six suits with claims similar to the IPALCO Action
were filed by purported shareholders of Resources (Shareholder Litigation).
Four of the suits were filed in the District Court, and two were filed in
state courts, although one of those two was subsequently consolidated with the
four in the District Court.
In January 1994, the parties to the Shareholder Litigation executed a
Stipulation and Agreement of Dismissal (Stipulation) settling and dismissing
with prejudice all of the parties' claims except for plaintiffs' petitions for
fees and expenses and defendants' right to object thereto. An agreement in
principle has been reached in the Shareholder Litigation which contemplates
that counsel for all plaintiffs will receive from Energy a portion of the fees
and expenses claimed. The parties have agreed to provide notice to affected
shareholders of a hearing during which the order on the fees and expenses will
be considered by the District Court. Pending such order, the agreed upon fees
and expenses will be deposited into an interest-bearing escrow account.
In addition to the above litigation, see Notes 2 and 13(b), 13(c), and 13(d)
of the "Notes to Consolidated Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".
Item 4. Submission of Matters to a Vote of Security Holders
None.
EXECUTIVE OFFICERS OF THE REGISTRANT (at February 28, 1995)
Age at
Dec. 31,
Name 1994 Office & Date Elected or in Job
Jackson H. Randolph 64 Chairman and Chief Executive Officer
of CINergy, CG&E, and Energy - 1994
Chairman, President and Chief Executive
Officer of CG&E - 1993
President and Chief Executive Officer
of CG&E - 1986
James E. Rogers 47 Vice Chairman, President and Chief
Operating Officer of CINergy - 1994
Vice Chairman and Chief Operating Officer
of CG&E and Energy - 1994
Chairman and Chief Executive Officer
of Resources - 1993
Chairman, President and Chief Executive
Officer of Energy - 1990
Chairman, President and Chief Executive
Officer of Resources - 1988
Chairman and Chief Executive Officer of
Energy - 1988
Terry E. Bruck 49 Group Vice President, Wholesale Power
and Transmission Operations of
CG&E - 1995
Group Vice President, Wholesale Power
and Transmission Operations of
CINergy - 1994
Vice President, Electric Operations of
CG&E - 1988
Cheryl M. Foley 47 Vice President, General Counsel and
Corporate Secretary of CG&E - 1995
Vice President, General Counsel and
Corporate Secretary of CINergy - 1994
Vice President, General Counsel and
Secretary of Resources and Energy - 1991
Vice President and General Counsel of
Resources - 1990
Vice President and General Counsel of
Energy - 1989
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Age at
Dec. 31,
Name 1994 Office & Date Elected or in Job
William J. Grealis 1/ 49 Vice President of CINergy - 1995
President, Natural Gas Business Unit of
CG&E - 1995
President of Investments - 1995
Partner - Akin, Gump, Strauss, Hauer &
Feld - 1978 2/
J. Wayne Leonard 44 Group Vice President and Chief Financial
Officer of CG&E - 1995
Group Vice President and Chief Financial
Officer of CINergy - 1994
Senior Vice President and Chief Financial
Officer of Resources and Energy - 1992
Vice President and Chief Financial
Officer of Resources and Energy - 1989
Stephen G. Salay 57 Group Vice President, Power Operations
of CG&E - 1995
Group Vice President, Power Operations of
CINergy - 1994
Vice President, Electric Production and
Fuel Supply of CG&E - 1988
William L. Sheafer 51 Treasurer of CINergy and Energy - 1994
Treasurer of CG&E - 1987
George H. Stinson 49 Vice President of CINergy - 1995 3/
President of CG&E - 1994
Vice President, Gas Operations of
CG&E - 1991
Manager, Gas Operations of CG&E - 1990
Manager, CG&E's Miami Fort Station - 1980
Larry E. Thomas 49 Group Vice President, Reengineering
and Operations Services of CG&E - 1995
Group Vice President, Reengineering
and Operations Services of CINergy - 1994
Senior Vice President and Chief Operations
Officer of Energy - 1992
Senior Vice President and Chief Operating
Officer, Customer Operations of Energy -
1990
Senior Vice President, Customer Operations
of Energy - 1986
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Age at
Dec. 31,
Name 1994 Office & Date Elected or in Job
Charles J. Winger 49 Comptroller of CG&E - 1995
Comptroller of CINergy - 1994
Comptroller of Resources - 1988
Comptroller of Energy - 1984
Under the Amended and Restated Agreement and Plan of Reorganization (the
Merger Agreement) by and among CG&E, Resources, Energy, and CINergy, a
Delaware corporation, dated as of December 11, 1992, as amended on July 2,
1993, and as of September 10, 1993, Jackson H. Randolph will be entitled to
serve as Chairman and Chief Executive Officer (CEO) of CINergy until November
30, 1995, and Chairman of CINergy until November 30, 2000. James E. Rogers
will be entitled to serve as Vice Chairman, President and Chief Operating
Officer of CINergy until November 30, 1995, at which time he will be entitled
to serve as Vice Chairman, President and CEO.
None of the officers are related in any manner. Executive officers of CG&E
are elected to the offices set opposite their respective names until the next
annual meeting of the Board of Directors and until their successors shall have
been duly elected and shall have been qualified.
1/ Prior to becoming president of Investments, Mr. Grealis was a partner
in the Washington, D.C. law firm of Akin, Gump, Strauss, Hauer & Feld.
In addition, prior to the merger, Mr. Grealis was president of PSI
Investments, Inc. on an interim basis beginning in 1992.
2/ Non-affiliate of CINergy.
3/ Mr. Stinson was elected Vice President of CINergy effective March 3,
1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
All CG&E common stock is held by CINergy; therefore, there is no public
trading market for CG&E common stock.
Trading of CG&E common stock (New York, Cincinnati, Chicago, and Pacific Stock
Exchanges: CIN) ended at the close of the market October 24, 1994. Trading of
CINergy common stock began upon the opening of the market October 25, 1994.
The following table shows CG&E's common stock dividends declared per share for
the past two years:
Dividends
per share
Quarter 1994 1993
4th $.3272 (a) $.43
3rd .43 .415
2nd .43 .415
1st .43 .415
(a) The pro rated fourth quarter dividend for CG&E was determined by
multiplying that portion of the regular dividend by a fraction equal to
the number of days from the last common dividend payment date (August 15,
1994) to and including the closing date of the merger, divided by the
number of days in the quarterly period (92). In the fourth quarter of
1994, CG&E paid an additional dividend of $15,276,000 to CINergy.
ITEM 6. SELECTED FINANCIAL DATA
1994 1993 1992 1991 1990
(in millions)
Operating revenues (1) $1 788 $1 752 $1 553 $1 518 $1 438
Net income (loss) (1) 158 (9) 202 207 235
Total assets 5 182 5 144 4 802 4 584 4 156
Cumulative preferred stock
subject to mandatory redemption (2) 210 210 210 167 90
Long-term debt 1 838 1 829 1 810 1 734 1 651
Long-term debt due within one year - - 7 25 -
Notes payable 15 31 47 25 9
<FN>
(1) See Note 2 of the "Notes to Consolidated Financial Statements".
(2) Includes $36.5 million in 1991 to be redeemed within one year.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 13 of the "Notes to Consolidated Financial
Statements" in "Item 8. Financial Statements and Supplementary Data" for
discussions of material uncertainties.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MERGER CONSUMMATION
CINergy Corp. (CINergy) was created for the October 1994 merger of The
Cincinnati Gas & Electric Company (CG&E or Company) and PSI Resources, Inc.
(Resources) and is a registered holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). The business combination was accounted
for as a pooling of interests. Each outstanding share of common stock of CG&E
and Resources was exchanged for one share and 1.023 shares, respectively, of
CINergy common stock. Following the merger, CINergy became the parent holding
company of CG&E and PSI Energy, Inc. (Energy), previously Resources' utility
subsidiary. The outstanding preferred stock and debt securities of CG&E and
its utility subsidiaries were not affected by the merger. Following the
merger, CG&E and Energy (the Operating Companies) began jointly dispatching
their generating units.
FINANCIAL CONDITION
Competitive Pressures
Electric Utility Industry
Introduction The primary factor influencing the future profitability of
CINergy and its utility subsidiaries is the changing competitive environment
for energy services and the related commoditization of electric power markets.
Changes in the industry include more competition in wholesale power markets
and the imminent likelihood of "customer choice" by large industrial customers
and, ultimately, by all retail customers. For an electric utility to be
successful in this competitive environment, it is critical that regulatory
reform keep pace with the competitive realities facing electric utilities and
their customers. Strict adherence to traditional, cost-based rate of return
regulation will significantly disadvantage a utility's ability to successfully
compete to supply customer needs. For example, performance-based regulation
(e.g., price caps) would likely add substantial flexibility for the franchise
utility in the transition to a fully competitive environment.
Although the Operating Companies provide service in separate retail regulatory
jurisdictions, as a result of the merger, strategies and opportunities for
success in a more competitive environment are most appropriately discussed for
CINergy as a whole. Consequently, the discussion that follows addresses
issues for CINergy as a whole while recognizing that regulatory response to
competitive pressures may vary between regulatory jurisdictions.
Pressures for "Customer Choice" The granting of choice to end-user customers,
commonly referred to as retail wheeling, would allow a customer within a
particular utility's service territory to buy power directly from another
source using the power lines of the local utility for delivery. The
regulatory and legislative reform to facilitate this result is primarily
driven by large industrial energy users' needs for low-cost power to remain
competitive in the global marketplace. These industrial customers are
intensifying their efforts to change the regulatory process that currently
denies them access to lower-cost power. The current restrictions on access to
low-cost power are exacerbated by cost-of-service regulation which has
produced average industrial rates to customers that vary substantially across
the United States (from approximately 3 cents per kilowatt-hour [kwh] to 10
cents per kwh).
Federal Law, the New Competitors, and the Commoditization of Electric Power
Markets The Energy Policy Act of 1992 (Energy Act), the most comprehensive
energy legislation enacted since the late 1970s, has essentially provided for
open competition at the wholesale level. The Energy Act created a new class
of wholesale power providers, exempt wholesale generators (EWGs), that are not
subject to the restrictive requirements of the PUHCA nor the ownership
restrictions of the Public Utility Regulatory Policies Act of 1978. However,
due to excess capacity in the industry, EWGs have not yet significantly
affected competition in the wholesale power market. To date, the primary
impetus for increased wholesale competition has been the provision of the
Energy Act that granted the Federal Energy Regulatory Commission (FERC) the
authority to order wholesale transmission access. This provision, combined
with the excess capacity in the bulk-power markets, has resulted in the
emergence of power marketers and brokers.
Brokers are intermediaries between buyers and sellers (i.e., they do not take
title to the power). Power marketers are entities licensed by the FERC to
conduct bulk power trades at market-based prices. They manage portfolios of
power contracts (which they have title to) and owned generation and package
energy products for customers of bulk power, including price risk management
contracts such as options on fixed price energy or guaranteed fixed price
contracts.
As regulatory issues such as transmission pricing are resolved, power
marketers and brokers will become more significant factors in wholesale power
markets and, ultimately, the retail markets. With respect to transmission
pricing, the FERC recently issued a policy statement indicating its intent to
allow flexibility in pricing, permitting parties to submit either traditional,
cost-based plans or pricing schemes based on non-traditional designs. The
transmission pricing policy enumerates five principles that the FERC will
consider in approving future proposals, including cost-based rates, adherence
to the FERC's comparability standard, economic efficiency, fairness, and
practicality.
States' Role in Customer Choice (Retail Wheeling) As discussed above, the
Energy Act allows real competition in the wholesale power market; however, it
prohibits the FERC from ordering utilities to provide transmission access to
retail customers (retail wheeling) and is silent with respect to the states'
role and authority in this issue.
Several states are currently reviewing retail wheeling proposals. In
particular, the California Public Utilities Commission proposed a plan in 1994
that would allow all customers to choose their electric supplier by the year
2002. However, it is currently anticipated that implementation of this
proposal could be substantially delayed due to the complex issues involved
(e.g., exclusive use of a power pool run by an impartial third party vs.
bilateral contract arrangements). In addition to California, Michigan
regulators have proposed a limited retail wheeling experiment, and Wisconsin
regulators are reviewing numerous proposals for restructuring that state's
electric supply and related services. Connecticut regulators, on the other
hand, recently decided to delay consideration of retail wheeling until new
capacity is needed in the state (approximately the year 2007).
A significant issue for states and utilities to resolve with respect to retail
wheeling is the regulatory treatment of any stranded investments, or costs
without a customer. California's proposal and a recent proposal by the FERC
contain mechanisms for recovery by the franchise utility of certain sunk costs
or investments "stranded" by the loss of the monopoly franchise; however,
there are numerous arguments being advanced against the collection of stranded
costs. For example, there are concerns that an efficient competitive market
cannot exist if regulators allow recovery in the future of all uncollected
past costs. Given that the most severe electric competition is expected to be
in the commodity sector, stranded costs are usually considered uneconomical
generating property. In addition, stranded costs could include assets created
by the actions of regulators (i.e., regulatory assets) under the provisions of
Statement of Financial Accounting Standards No. 71, Accounting for the Effects
of Certain Types of Regulation (Statement 71), or operating costs such as fuel
supply contracts. The substantial accounting implications from the loss of
franchise territory and related regulatory protections are discussed further
herein.
CINergy's Response to the Changing Competitive Environment CINergy and its
utility subsidiaries support increased competition in the electric utility
industry. In fact, the foresight that competition was about to substantially
increase and that retail wheeling was inevitable was a catalyst for the merger
(which was announced in 1992). CINergy possesses certain competitive
advantages (e.g., low-cost generation) that could be substantially eroded by
restrictive regulations that lag the development of a competitive market and
limit CINergy's ability to preempt the competition in responding to customer
needs. As such, CINergy has chosen to initiate the retail wheeling debate and
be a leader in establishing the "ground rules" in its franchise area.
Energy recently announced its plans to offer its larger industrial customers
some form of retail wheeling in Indiana. Energy plans to submit a proposal
that would permit certain customers to choose their electric supplier. In
return, Energy would require some form of reciprocal arrangement (i.e., the
opportunity to similarly compete for customers of the selected supplier).
Under this proposal, Energy would be free to negotiate specific contracts with
customers who choose to give up the protection of the franchise obligation to
serve. Energy intends for these contractual relationships to satisfy customer
needs, while at the same time provide an appropriate risk-return relationship
for investors. In addition to the above proposal, Energy, along with other
Indiana utilities, proposed legislation in 1995 that would allow the Indiana
Utility Regulatory Commission (IURC) to adopt alternative regulatory schemes
such as performance-based regulation and the use of more flexible pricing
mechanisms. Energy is also participating in a series of informal conferences
sponsored by the IURC to discuss the consequences of competition and
appropriate responses thereto.
With respect to Ohio, a retail wheeling bill was introduced in early 1994 that
would have given customers the ability to purchase power from their provider
of choice and would have required utilities to provide access to their
transmission lines for delivery of the electric service. No action was taken
on the bill in 1994; however, similar legislation may be introduced in 1995.
CG&E is also participating in roundtable discussions being held by the Public
Utilities Commission of Ohio (PUCO) to more fully consider the emerging
competitive environment.
CINergy will continue to aggressively pursue any legislative or regulatory
reforms necessary to provide the opportunity for its success in a competitive
environment.
CINergy's Competitive Position As stand-alone companies, CG&E and Energy were
well positioned to succeed in a more competitive environment -- as a combined
organization, CINergy believes it is even better positioned to compete in such
an environment. The merger (1) combines two low-cost providers, resulting in
savings in nominal dollars of approximately $1.5 billion over the first 10
years; (2) enhances the companies' transmission capabilities; (3) diversifies
the customer base; and (4) creates a financially stronger company -- all of
which improve an already competitively strong position. CINergy's strategy
will be to aggressively build on its cost advantage by continually focusing on
flexible strategies that are directed toward reducing the cost structure and
shifting the cost mix from fixed to variable. CG&E and Energy have industrial
rates that are below the national average (based on 1993 data) and own
generating plants that are consistently ranked among the most efficient in the
country.
CINergy believes its low-cost position and strategic initiatives will allow it
to maintain, and perhaps expand, its wholesale market share and its current
base of industrial customers. Recent successes in these markets include
Energy's 10-year agreement to serve the power needs of Blue Ridge Power
Agency, a group of municipal utilities organized in Virginia, and CG&E's 14-
year agreement to provide power to a municipal utility serving a portion of
Cleveland, Ohio. Also, CG&E's and Energy's low industrial rates have produced
regional leadership over the last five years (1989 through 1993) with respect
to growth in industrial kwh sales.
In addition, CINergy intends to aggressively pursue the substantial
opportunities that exist in the electricity markets for power marketing and
brokering. These opportunities are being created by the increasing
commoditization of electricity. CINergy believes that the ability to identify
and manage various business risks and innovative packaging of power supply
services and products based upon superior acquisition and analysis of
information will be key factors that will ensure successful participation in
these markets. CINergy's strategy for success in this business is to leverage
its understanding of customer needs and the intricacies of operating in power
markets with new skills and expertise of operating in commodity markets that
are being developed and selectively acquired from outside the industry.
Outsiders' View of CINergy's Competitive Position Major credit rating
agencies have issued reports recognizing the increased risk in the electric
utility industry due to competition. Specifically, in conjunction with
fundamentally changing the way it evaluates the credit quality of electric
utilities, Standard & Poor's has categorized each electric utility's business
position in one of seven categories ranging from "Above Average" to "Below
Average". As a result, Standard & Poor's placed Energy in the second highest
category, "Somewhat Above Average", and CG&E in the third highest category,
"High Average". In addition, Moody's recently issued a credit report stating
its belief that Energy is well positioned to compete in a more competitive
environment. At the same time, certain sell-side equity analysts have placed
CINergy near the top of their lists of those best equipped to handle
increasing competitive pressures. CINergy believes these actions support its
position that its competitive strategy will be successful.
With respect to accessing financial markets for capital needs, U.S. utilities
must compete for capital in world markets where some forecasts indicate that
as much as $250 billion will be needed by the year 2000 for state-owned
electricity privatization. These forecasts enforce CINergy's belief that
regulatory reform establishing a market structure for utilities similar to
that already existing in other countries is critical in order to successfully
compete for not only customers, but also capital.
Despite the numerous published reports discussing the increased business risk
that investors face from deregulation of the electric utility industry, the
1994 decline in electric utility stocks, taken as a whole, can be
substantially attributed to historical relationships of common stock prices to
changes in interest rates. Therefore, electric utility stocks could see
additional pressures to reflect the increased fundamental business risk as
markets become more workably competitive, particularly, without regulatory
recognition through higher allowed returns and increased flexibility (e.g.,
price caps) in order to compete. On the other hand, there is an increasingly
large disparity between the fundamental valuation measures (e.g., yield,
market-to-book ratio) of low-cost producers, like CINergy, and high-cost
producers. For example, it should be noted that the merger of Resources and
CG&E combined two utilities whose common stocks have outperformed the industry
average for the five-year period 1990 through 1994.
Gas Utility Industry
Customer Choice Energy's retail wheeling proposal discussed above is
consistent with a recent step taken by CG&E to extend a program to its natural
gas customers that is the equivalent of electric retail wheeling. For several
years, large-volume commercial and industrial customers in Ohio and Kentucky
have been able to purchase natural gas directly from suppliers and have it
transported by CG&E or The Union Light, Heat and Power Company (ULH&P). In
September 1994, CG&E implemented a new firm transportation service which
allows all non-residential customers of CG&E to purchase gas directly from
suppliers, up to approximately 5% of CG&E's peak load. The suppliers assume
the risk and obligation associated with supplying the contractual volumes,
while CG&E retains responsibility for delivering the gas through its
distribution system. This new service affords commercial and industrial
customers greater choice in competitively contracting for their energy
requirements.
Order 636 In April 1992, the FERC issued Order 636, which restructured
operations between interstate gas pipelines and their customers for gas sales
and transportation services. Order 636 mandated changes to the way CG&E and
ULH&P purchase gas supplies and contract for transportation and storage
services, resulting in increased risks in meeting the gas demands of their
customers.
CG&E and ULH&P are responding to the supply risks and opportunities of Order
636 by introducing innovations to their supply strategy including contracting
with major southwest producers for firm gas supply agreements with flexible,
extremely market sensitive pricing, marketing short-term unused pipeline
capacity and storage gas to other companies throughout the country through use
of electronic bulletin boards, and restructuring their allotment of interstate
pipeline capacity among delivering pipelines.
Order 636 also allowed pipelines to recover transition costs they incurred in
complying with the order from customers, including CG&E and ULH&P. In July
1994, the PUCO issued an order approving a stipulation between CG&E and its
domestic and industrial customer groups providing for recovery of these
pipeline transition costs. CG&E is presently recovering its Order 636
transition costs pursuant to a PUCO approved tariff. ULH&P recovers such
costs through its gas cost recovery mechanism.
Substantial Accounting Implications
A potential outcome of the changing competitive environment could be the
inability of regulated utilities to continue application of Statement 71, the
linchpin of regulated industry accounting, which allows the deferral of costs
(i.e., regulatory assets) to future periods based on assurances of a regulator
as to the recoverability of the costs in rates charged to customers. In
connection with assessing the financial exposure related to stranded costs,
regulatory assets would have to be evaluated to determine the portion for
which deferral could be continued based on the existence of the necessary
regulatory assurances.
Although CINergy's current regulatory orders and regulatory environment fully
support the recognition of its regulatory assets, the ultimate outcome of the
changing competitive environment could result in CINergy discontinuing
application of Statement 71 for all or part of its business. Such an event
would require the write-off of the portion of any regulatory asset for which
no regulatory assurance of recovery continues to exist. No evidence currently
exists that would support a write-off of any portion of CINergy's regulatory
assets. CINergy intends to pursue competitive strategies that would mitigate
the impact of this issue on the financial condition of CINergy and its utility
subsidiaries (see Note 1(c) of the "Notes to Consolidated Financial
Statements" in "Item 8. Financial Statements and Supplementary Data" for a
summary of regulatory assets as of December 31, 1994).
Securities Ratings
As a result of the merger, the ratings of CG&E's and ULH&P's senior securities
continue to be on review for possible upgrade. CG&E and ULH&P have been
placed on Standard & Poor's ratings watch, while CG&E has been placed on Duff
& Phelps' ratings watch. In addition, in May 1994, Fitch Investors Service,
Inc. (Fitch) raised CG&E's first mortgage bonds rating to A- from BBB+ and
preferred stock rating to BBB+ from BBB. The Fitch ratings reflect CG&E's
low-cost generation, competitive retail rates, limited reliance on wholesale
markets, and the resolution of rate proceedings and litigation associated with
cost disallowance at the Wm. H. Zimmer Generating Station (Zimmer). CG&E's
and ULH&P's goals are to achieve at least an "A" credit rating on their senior
securities.
The current ratings are provided in the following table:
Duff & Standard
Phelps Fitch Moody's & Poor's
CG&E
First Mortgage Bonds BBB+ A- Baa1 BBB+
Preferred Stock BBB BBB+ baa2 BBB
ULH&P
First Mortgage Bonds Not rated Not rated Baa1 BBB+
These securities ratings may be revised or withdrawn at any time, and each
rating should be evaluated independently of any other rating.
Significant Achievements
Highlights of 1994 include the following key accomplishments:
- Following receipt of support from all state regulatory commissions and
approval by the FERC and the Securities and Exchange Commission (SEC),
CG&E and Resources consummated the merger in October 1994;
- In April 1994, the PUCO approved a settlement agreement which permits CG&E
to retain all electric non-fuel operation and maintenance expense savings
from the merger (Non-fuel Merger Savings) until 1999 in exchange for a
moratorium on increases in base electric rates until January 1, 1999;
- Fitch raised CG&E's first mortgage bonds rating to A- from BBB+ and
preferred stock rating to BBB+ from BBB in May 1994;
- During the first quarter of 1994, CG&E refinanced $305 million of long-
term debt to save approximately $8 million in annualized interest costs;
- CG&E renegotiated a contract for the transportation of coal to CG&E's
generating stations which extends service through the year 2000 and will
save CG&E's and ULH&P's electric customers approximately $6 million per
year; and
- CG&E's 1994 delivered fuel costs per million Btu were the lowest these
costs have been in the past 10 years.
Regulatory Matters
Potential Divestiture of Gas Operations Under the PUHCA, the divestiture of
CG&E's gas operations may be required. In its order approving the merger, the
SEC reserved judgement over CINergy's ownership of the gas operations for a
period of three years. In November 1994, the SEC requested comments on the
modernization of the PUHCA given the industry's movement toward a more
competitive environment, including whether or not a utility registered under
the PUHCA may own a combination system (i.e., electric and gas). CINergy
believes it has a justifiable basis for retention of its gas operations and
will continue its pursuit of SEC approval to retain the gas portion of the
business. If divestiture is ultimately required, the SEC has historically
allowed companies sufficient time to accomplish divestitures in a manner that
protects shareholder value. Further, CINergy believes that divestiture of the
gas operations, if required, would not have a material effect on merger
savings.
CG&E Rate Matters and Merger Savings During the last three years, CG&E has
received a number of electric and gas rate increases. The primary reasons for
the electric rate increases were recovery of CG&E's investments in Zimmer and
the Woodsdale Generating Station (Woodsdale). The gas rate increases reflect
investments in new and replacement gas mains and facilities.
In a May 1992 order (May 1992 Order), the PUCO authorized CG&E to begin
recovering the costs of Zimmer through an increase in electric revenues of
$116.4 million to be phased in over a three-year period through annual
increases beginning each May of $37.8 million in 1992, $38.8 million in 1993,
and $39.8 million in 1994. In this same order, the PUCO also disallowed from
rates approximately $230 million, representing costs related to Zimmer for
nuclear fuel, nuclear wind-down activities during the conversion to a
coal-fired facility, and a portion of the allowance for funds used during
construction (AFUDC) accrued on Zimmer.
Pursuant to an appeal by CG&E of the May 1992 Order, the Supreme Court of Ohio
(Court) ruled in November 1993 (November 1993 Ruling) that the PUCO did not
have the authority to order a phase-in of amounts granted in a rate proceeding
and remanded the case to the PUCO to set rates that provide the gross annual
revenues determined in accordance with Ohio statutes. However, the Court
upheld the PUCO's disallowance of Zimmer costs, and, as a result, CG&E wrote
off Zimmer costs of approximately $223 million, net of taxes, in the fourth
quarter of 1993.
In April 1994, the PUCO issued an order approving a settlement agreement
between CG&E, the PUCO Staff, the Ohio Office of Consumers' Counsel, and other
intervenors which addressed the issues raised in the November 1993 Ruling. As
part of the settlement, CG&E did not seek early implementation of the third
phase of the authorized rate increase and will not seek accelerated recovery
of deferrals related to the phase-in plan. These deferrals will be recovered
over the remaining seven-year period as contemplated in the May 1992 Order.
In addition, CG&E agreed to a moratorium on increases in base electric rates
until January 1, 1999 (except under certain circumstances), and, in return, is
allowed to retain all PUCO electric jurisdictional Non-fuel Merger Savings
until 1999.
In an August 1993 order (August 1993 Order), the PUCO approved a stipulation
providing for annual increases of approximately $41 million (5%) in electric
revenues and $19 million (6%) in gas revenues that were effective immediately.
The August 1993 Order precludes CG&E from increasing gas base rates prior to
June 1, 1995, except for rate filings made under certain circumstances.
In 1994, CG&E expensed $32 million of merger transaction costs and costs to
achieve merger savings applicable to its PUCO electric jurisdiction. The
remaining merger-related costs allocable to PUCO electric jurisdictional
customers will be expensed as incurred. CG&E and its utility subsidiaries
intend to continue deferring the non-PUCO electric jurisdictional portion of
merger transaction costs and costs to achieve merger savings (current estimate
of $14 million) for future recovery in customer rates.
ULH&P Rate Matters In mid-1993, the Kentucky Public Service Commission (KPSC)
issued orders authorizing ULH&P to increase annual gas revenues by $4.2
million.
In exchange for the KPSC's support of the merger, in May 1994, ULH&P accepted
the KPSC's request for an electric rate moratorium commencing after ULH&P's
next retail rate case and extending to January 1, 2000. The KPSC also
required CG&E and ULH&P to agree that, for 12 months from consummation of the
merger, no filings will be made to adjust CG&E's base purchase power rate
charged to ULH&P or ULH&P's base electric rates.
Environmental Issues
Clean Air Act Amendments of 1990 (CAAA) The acid rain provisions of the CAAA
require reductions in both sulfur dioxide and nitrogen oxide emissions from
utility sources. Reductions of these emissions are to be accomplished in two
phases. Compliance under Phase I was required by January 1, 1995, and Phase
II compliance is required by January 1, 2000. To achieve the sulfur dioxide
reduction objectives of the CAAA, emission allowances have been allocated by
the United States Environmental Protection Agency (EPA) to affected sources
(e.g., CG&E's electric generating units). Each allowance permits one ton of
sulfur dioxide emissions. The CAAA allows compliance to be achieved on a
national level, which provides companies the option to achieve this compliance
by reducing emissions and/or purchasing emission allowances.
CG&E's compliance plan with Phase I sulfur dioxide reduction requirements,
which has been approved by the PUCO, includes increasing the sulfur dioxide
removal rate of its East Bend Generating Station Unit 2 scrubber, installation
of flue-gas conditioning equipment on certain units, upgrading certain
precipitators, implementation of demand-side management (DSM) programs,
burning lower-sulfur coal at some of its major coal-fired generating stations,
and inclusion of the value of emission allowances in the economic dispatch
process. All required modifications to CG&E's generating units to implement
the compliance plan have been completed and tested and are operational. To
meet nitrogen oxide reductions required by Phase I, CG&E installed low-
nitrogen oxide burners at certain stations.
To comply with Phase II sulfur dioxide requirements, CG&E's current compliance
strategy includes a combination of switching to lower-sulfur coal blends and
utilizing its emission allowance banking strategy. This cost effective
strategy will allow CG&E to meet Phase II sulfur dioxide reduction
requirements while maintaining optimal flexibility to meet potentially
significant future environmental demands or changes in output due to increased
customer choice. CG&E intends to utilize its emission allowance banking
strategy to the extent a viable emission allowance market is available.
However, the availability and economic value of emission allowances over the
long-term is still uncertain. In the event the market price for emission
allowances or lower-sulfur coal increases substantially from current
estimates, CG&E could be forced to consider high-cost capital intensive
options (e.g., installing additional scrubbers).
To meet nitrogen oxide reductions required by Phase II, CG&E may install low-
nitrogen oxide burners on certain affected units. In addition, CG&E is
investigating the use of a nitrogen oxide emission averaging strategy for
meeting the Phase II requirements. However, this strategy may be impacted by
the delayed release of final nitrogen oxide compliance rules.
CG&E is forecasting CAAA compliance capital expenditures of $85 million during
the 1995 through 1999 period. In addition, operating costs may also increase
due to higher fuel costs (e.g., higher-quality, lower-sulfur coal, increased
use of natural gas) and maintenance expenses.
Manufactured Gas Plants Coal tar residues and other substances associated
with manufactured gas plant (MGP) sites have been found at former MGP sites.
Lawrenceburg Gas Company (Lawrenceburg), a wholly-owned subsidiary of CG&E,
has an MGP site which is under investigation to determine a remediation
strategy. Total cleanup cost is currently estimated to be approximately
$750,000. Lawrenceburg has applied to have the site included in the Indiana
Department of Environmental Management's voluntary cleanup program. CG&E and
its utility subsidiaries are aware of other potential sites where MGP
activities may have occurred at some time in the past. None of these sites
are known to present a risk to the environment. Except for the Lawrenceburg
site, neither CG&E nor its utility subsidiaries have undertaken responsibility
for investigating other potential MGP sites.
United Scrap Lead Site The EPA alleges that CG&E is a Potentially Responsible
Party (PRP) under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) liable for cleanup of the United Scrap Lead site in
Troy, Ohio. CG&E was one of approximately 200 companies so named. CG&E
believes it is not a PRP and should not be responsible for cleanup of the
site. Under the CERCLA, CG&E could be jointly and severally liable for costs
incurred in cleaning up the site, estimated by the EPA to be $27 million of
which CG&E estimates its portion to be immaterial to its financial condition
or results of operations.
Global Climate Change Concern has been expressed by environmentalists,
scientists, and policymakers as to the potential climate change from
increasing amounts of "greenhouse" gases released as by-products of burning
fossil fuel and other industrial processes. In response to this concern, in
October 1993, the Clinton Administration announced its plan to reduce
greenhouse gases to 1990 levels by the year 2000. The plan calls for the
reduction of 109 million metric tons of carbon equivalents of all greenhouse
gases. Initially, the plan relies largely on voluntary participation of many
industries, with a substantial emissions reduction contribution expected from
the utility industry. Numerous utilities, including CG&E and Energy, have
agreed to study and implement voluntary, cost-effective greenhouse gas
emission control programs. CINergy signed a voluntary reduction agreement
with the United States Department of Energy (DOE) in February 1995. CINergy's
voluntary participation will include a least-cost, market-oriented program
composed of residential, commercial, and industrial DSM programs, energy
efficiency improvements, research and development projects, and arrangements
with other sources through on- and off-system pollution prevention measures.
The DOE and the Clinton Administration have stated they will monitor the
progress of industry to determine whether targeted reductions are being
achieved. If the Clinton Administration or Congress should conclude that
further reductions are needed, legislation requiring utilities to achieve
additional reductions is possible.
Air Toxics The air toxics provisions of the CAAA exempt fossil-fueled steam
utility plants from mandatory reduction of 189 listed air toxics until the EPA
completes a study, expected in November 1995, on the risk of these emissions
on public health. If additional air toxics regulations are established, the
cost of compliance could be significant. CG&E cannot predict the outcome or
the effects of this EPA study.
CAPITAL REQUIREMENTS
Construction
General For 1995, construction expenditures are forecasted to be $140
million, and over the next five years (1995 through 1999), are forecasted to
be approximately $1.1 billion. (All forecasted amounts are in nominal dollars
and reflect assumptions as to the economy, capital markets, construction
programs, legislative and regulatory actions, frequency and timing of rate
increase requests, and other related factors which may change significantly.)
New Generation In November 1994, CG&E began construction of a 100-megawatt
combustion turbine generating unit to be located at Woodsdale. The unit is
scheduled to be in service to meet peak demand by the summer of 1998.
Other
Mandatory redemptions of long-term debt and cumulative preferred stock total
$328 million during the 1995 through 1999 period.
The first mortgage bond indentures of both CG&E and ULH&P provide that so long
as any series of bonds issued prior to 1976 and 1978, respectively, are
outstanding, CG&E and ULH&P will pay to the trustee as a Maintenance and
Replacement Fund (M&R Fund), on or before April 30 of each year, in cash,
unfunded property additions, or principal amount of first mortgage bonds of
any series issued under the mortgages, a formularized amount related to the
net revenues of CG&E and ULH&P. For 1994, the M&R Fund requirements (payable
on or before April 30, 1995) for CG&E and ULH&P are approximately $114 million
and $5 million, respectively.
Most of CG&E's and ULH&P's first mortgage bonds are redeemable at par value,
plus accrued interest, through cash deposited to satisfy the annual M&R Fund
requirement. On March 24, 1995, CG&E announced its intention to redeem,
beginning May 1, 1995, $114 million principal amount of its 10.125% and 9.70%
first mortgage bonds at par with cash deposited in the M&R Fund. ULH&P also
announced its intention to redeem $5 million principal amount of its 10.25%
first mortgage bonds (due June 1, 2020) at par with cash deposited in the M&R
Fund, and to redeem the remaining amount of such bonds at the redemption price
of 107.34% on June 1, 1995.
CG&E and ULH&P will continue to evaluate the use of this provision of their
mortgage indentures for the possible redemption of first mortgage bonds in
future years.
CG&E currently forecasts approximately $95 million for DSM expenditures during
the 1995 through 1999 period. In the PUCO's August 1993 Order, CG&E was
authorized to recover approximately $5 million of costs associated with DSM
programs for domestic customers. The PUCO has also permitted CG&E to defer
future expenditures of approved DSM programs, with carrying costs, for future
recovery. In addition, CG&E has applications pending for approval by the PUCO
for deferral of the costs of additional DSM programs.
CAPITAL RESOURCES
CG&E currently projects that internal generation of funds will be adequate to
finance substantially all of its capital needs during the 1995 through 1999
period. CG&E projects that its need, if any, for external funds during this
period will primarily be for the refinancing of long-term debt and preferred
stock, as previously discussed. (All forecasted amounts are in nominal
dollars and reflect assumptions as to the economy, capital markets,
construction programs, legislative and regulatory actions, frequency and
timing of rate increase requests, and other related factors which may change
significantly.)
Long-term Debt and Preferred Stock CG&E and its utility subsidiaries
currently have existing shelf registration statements which permit the sale of
up to $400 million of long-term debt and have applications pending before the
PUCO and the KPSC for authority to issue up to $555 million of long-term debt.
CG&E and its utility subsidiaries will request regulatory approval to issue
additional amounts of debt securities and preferred stock as needed.
Short-term Debt CG&E and its subsidiaries have authority to borrow up to $235
million as of December 31, 1994. In connection with this authority, CG&E and
its subsidiaries have established unsecured lines of credit (Committed Lines)
which currently permit borrowings of up to $112 million, of which $98 million
remained unused. CG&E also issues commercial paper from time to time. All
outstanding commercial paper is supported by CG&E's Committed Lines.
Additionally, this authority allows CG&E to arrange for additional short-term
borrowings with various banks on an "as offered" basis (Uncommitted Lines).
All Uncommitted Lines provide for maturities of up to 365 days with various
interest rate options.
INFLATION
Over the past several years, the rate of inflation has been relatively low.
CG&E believes that the recent inflation rates do not materially affect its
results of operations or financial condition. However, under existing
regulatory practice, only the historical cost of plant is recoverable from
customers. As a result, cash flows designed to provide recovery of historical
plant costs may not be adequate to replace plant in future years.
DIVIDEND RESTRICTIONS
See Notes 3 and 5 of the "Notes to Consolidated Financial Statements" in
"Item 8. Financial Statements and Supplementary Data" for a discussion of the
restrictions on common dividends.
RESULTS OF OPERATIONS
Nonrecurring Charges
In 1994, CG&E recognized charges to earnings of approximately $64 million ($46
million, net of taxes) primarily for certain merger costs and other costs
which CG&E does not expect to recover from customers due to rate settlements
related to securing support for the merger. The charges include the PUCO
electric jurisdictional portion of merger transaction costs and costs to
achieve merger savings incurred through December 31, 1994, previously
capitalized information systems development costs, and severance benefits to
former officers of CG&E. Of the total $64 million charge, $52 million is
reflected in "OPERATING EXPENSES - Other operation" and $12 million is
reflected in "OTHER INCOME AND EXPENSES - NET" (see Note 15 of the "Notes to
Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data").
In 1993, CG&E recognized charges to earnings of approximately $235 million
($223 million, net of taxes) for the write-off of a portion of Zimmer. This
charge is reflected in "OTHER INCOME AND EXPENSES - NET".
Kwh Sales
CG&E's total kwh sales in 1994, as compared to 1993, decreased 1.2%, due in
large part to reduced power sales to other utilities in 1994 and decreased
domestic sales resulting from milder weather experienced during the third and
fourth quarters of 1994. This decrease was partially offset by increased kwh
sales to industrial customers reflecting growth in the primary metals and
machinery sectors.
A return to more normal weather contributed to the 5.3% increase in total kwh
sales in 1993, as compared to 1992. In addition, growth in the primary
metals, transportation equipment, and chemicals sectors resulted in increased
industrial sales.
The increase in non-firm power sales for resale in 1992 was responsible, in
part, for a 1.1% increase in total kwh sales, as compared to 1991. Industrial
sales growth mainly in the primary metals, chemicals, paper products, and food
and kindred products sectors also contributed to the increase. These
increases were partially offset by a decrease in domestic and commercial sales
due to the milder weather experienced during the 1992 cooling season.
Year-to-year changes in kwh sales for each class of customers are shown below:
Increase (Decrease) from Prior Year
1994 1993 1992
Retail
Domestic. . . . . . . . . . . (2.0)% 8.6% (7.4)%
Commercial. . . . . . . . . . 2.3 5.4 (2.0)
Industrial. . . . . . . . . . 4.3 2.4 7.0
Total retail. . . . . . . . . . 1.1 5.8 (1.4)
Sales for resale
Firm power obligations. . . . 1.7 6.1 (2.9)
Non-firm power transactions . (29.3) (.4) 42.3
Total sales for resale. . . . . (24.9) 1.1 34.0
Total sales. . . . . . . . . . (1.2) 5.3 1.1
CG&E currently forecasts a 2% annual compound growth rate in kwh sales over
the 1995 through 2004 period. This forecast reflects the effects of DSM and
excludes non-firm power transactions and any potential off-system, long-term
firm power sales.
Mcf Sales and Transportation
The milder weather experienced in 1994 contributed to a decrease in domestic
and commercial gas sales volumes and led to the decrease in total Mcf sales
and transportation of 1.2%. The leading reason for an increase in gas
transportation services was additional demand for gas transportation services
by industrial customers, mainly in the primary metals sector.
The increase in retail Mcf sales of 5.4% in 1993, when compared to 1992, was
primarily attributable to higher domestic and commercial sales volumes as a
result of the return to more normal weather during the 1993 heating season and
the addition of a number of customers to CG&E's gas system during the year.
Gas transportation volumes for 1993 increased largely as a result of
additional industrial demand for gas transportation services in the primary
metals sector. The increase in Mcf transported more than offset the decrease
in Mcf sold to industrial customers.
In 1992, total gas sales and transportation volumes increased 7.3%, as
compared to 1991. Contributing to the increase in total retail Mcf sales were
the less mild weather during the 1992 heating season and an increase in the
average number of gas customers, both of which resulted in greater domestic
and commercial gas sales. These increases in domestic and commercial sales
were partially offset by decreased industrial sales volumes. The increase in
transportation volumes mainly reflected increased industrial demand in the
primary metals sector for gas transportation services.
Year-to-year changes in Mcf sales and transportation for each class of
customers are shown below:
Increase (Decrease) from Prior Year
1994 1993 1992
Retail
Domestic. . . . . . . . . . . (10.2)% 9.5% 4.5%
Commercial. . . . . . . . . . (1.5) 1.1 4.0
Industrial. . . . . . . . . . (9.9) (.8) (5.4)
Total retail. . . . . . . . . . (6.7) 5.4 3.0
Gas transported . . . . . . . . 13.9 12.7 22.3
Total gas sold and transported. (1.2) 7.2 7.3
Revenues
Electric Operating Revenues
CG&E's electric rate increases which became effective in May 1993, August
1993, and May 1994 substantially contributed to the increase in electric
operating revenues of $64 million (4.9%) in 1994, as compared to 1993.
Electric operating revenues increased $123 million (10.6%) in 1993 primarily
as a result of greater kwh sales and electric rate increases granted to CG&E
in 1993 and 1992.
In 1992, electric operating revenues increased $12 million (1.1%) primarily as
a result of electric rate increases granted to CG&E and ULH&P.
An analysis of electric operating revenues for the past three years is shown
below:
1994 1993 1992
(in millions)
Previous year's electric
operating revenues. . . . . . . . $1 282 $1 159 $1 147
Increase (Decrease) due to change in:
Price per kwh
Retail. . . . . . . . . . . . . 55 49 22
Sales for resale
Firm power obligations. . . . - - -
Non-firm power transactions . 3 5 (5)
Total change in price per kwh . . 58 54 17
Kwh sales
Retail. . . . . . . . . . . . . 14 66 (14)
Sales for resale
Firm power obligations. . . . - 1 -
Non-firm power transactions . (9) 1 10
Total change in kwh sales . . . . 5 68 (4)
Other . . . . . . . . . . . . . . 1 1 (1)
Current year's electric
operating revenues. . . . . . . . $1 346 $1 282 $1 159
Gas Operating Revenues
In 1994, gas operating revenues decreased $27 million (5.7%) when compared to
1993 due to the operation of fuel adjustment clauses, which reflected a lower
average cost of gas purchased during the latter part of 1994 and a reduction
in total volumes sold and transported.
Gas operating revenues increased $75 million (19.1%) in 1993, as compared to
1992, primarily as a result of gas rate increases in 1993, higher total
volumes of gas sold and transported, and the operation of fuel adjustment
clauses reflecting an increase in the average cost of gas purchased.
In 1992, gas operating revenues increased $23 million (6.3%). The increased
revenues were primarily a result of higher total volumes sold and transported
and the operation of fuel adjustment clauses reflecting an increase in the
average cost of gas purchased.
Operating Expenses
Fuel
(a) Fuel used in Electric Production Electric fuel costs decreased 2.3% in
1994, as compared to 1993. An analysis of these fuel costs for the past three
years is shown below:
1994 1993 1992
(in millions)
Previous year's fuel expense . . . . . $333 $321 $331
Increase (Decrease) due to change in:
Price of fuel. . . . . . . . . . . . (9) (8) (13)
Kwh generation . . . . . . . . . . . 1 20 3
Current year's fuel expense. . . . . . $325 $333 $321
(b) Gas Purchased A reduction in the average cost per Mcf of gas purchased
(5.1%) and lower volumes purchased (6.8%) contributed to the decline in gas
purchased expense of $33 million (11.6%) in 1994, as compared to 1993.
Gas purchased expense in 1993, as compared to 1992, increased $53 million
(23.0%) as a result of an increase in the average cost per Mcf of gas
purchased of 17.5% and an increase in volumes purchased of 4.7%.
In 1992, gas purchased expense increased $16 million (7.7%) as a result of an
increase in volumes purchased of 1.7% and an increase in the average cost per
Mcf of gas purchased of 5.9%.
Other Operation
Other operation expenses increased $79 million (30.5%) in 1994, as compared to
1993, due to a number of factors including charges of approximately $52
million for merger-related costs and other expenditures which CG&E does not
expect to recover from customers due to rate settlements related to securing
support for the merger. Additionally, increased electric production and
distribution expenses contributed to the increase.
The $15 million (6.1%) increase in other operation expense in 1993 was due to
a number of factors, including wage increases, the adoption of two accounting
standards involving postemployment and postretirement benefits, and increases
in gas production expenses.
In 1992, other operation expenses decreased $14 million (5.6%) primarily due
to reductions in test generation at Zimmer and decreases in gas and electric
distribution expenses.
Maintenance
Maintenance expenses decreased $16 million (13.3%) in 1992 primarily due to
decreased maintenance expenses on CG&E's electric generating units and gas and
electric distribution facilities.
Depreciation
Depreciation expense increased $11 million (7.8%) in 1993 primarily due to a
full year's effect of the first five units of Woodsdale which were placed in
commercial operation in 1992 and the sixth unit which was placed in commercial
operation in 1993.
Depreciation expense in 1992 increased $10 million (8.0%) primarily due to a
full year's effect of Zimmer which was placed in commercial operation in March
1991 and the first five units of Woodsdale which were placed in commercial
operation in 1992.
Post-in-service Deferred Operating Expenses - Net
Post-in-service deferred operating expenses of $6 million and $28 million in
1993 and 1992, respectively, reflect deferral of depreciation, operation and
maintenance expenses (exclusive of fuel costs), and property taxes related to
the first five units of Woodsdale between the time the units began commercial
operation and the effective date of new rates authorized by the PUCO in August
1993 which reflect these costs. In accordance with the August 1993 Order,
CG&E began amortizing the deferred Woodsdale expenses over a 10-year period.
The post-in-service deferred operating expenses for 1992 also reflect deferral
of depreciation, operation and maintenance expenses (exclusive of fuel costs),
and property taxes related to Zimmer from January 1992 through May 1992, the
effective date of new rates which reflected Zimmer costs. In accordance with
the May 1992 Order, CG&E began amortizing the deferred expenses associated
with Zimmer over a 10-year period (See Note 1(h) of the "Notes to Consolidated
Financial Statements" in "Item 8. Financial Statements and Supplementary
Data".)
Phase-in Deferred Depreciation
Phase-in deferred depreciation reflects the PUCO ordered phase-in plan for
Zimmer (see Note 1(g) of the "Notes to Consolidated Financial Statements" in
"Item 8. Financial Statements and Supplementary Data").
Taxes
Taxes other than income taxes increased $14 million (7.6%) in 1994, $9 million
(5.3%) in 1993, and $24 million (15.7%) in 1992 primarily due to increased
property taxes resulting from a greater investment in taxable property
(including Zimmer and Woodsdale) and higher property tax rates.
Other Income and Expenses - Net
Allowance for Equity Funds Used During Construction
Allowance for equity funds used during construction decreased $35 million
(77.7%) in 1992 due to a decrease in construction work in progress associated
with the commercial operation of the first five units of Woodsdale in 1992.
Post-in-service Carrying Costs
Post-in-service carrying costs decreased $12 million, $25 million (67.0%), and
$13 million (26.8%), in 1994, 1993, and 1992, respectively. The 1994 decrease
is a result of discontinuing the accrual of carrying costs on the first five
units of Woodsdale after the August 1993 effective date of new rates for CG&E
which reflected Woodsdale. Additionally, the 1993 and 1992 decreases reflect
the discontinuation of the accrual of carrying costs on Zimmer when it was
reflected in rates in May 1992.
Phase-in Deferred Return
Phase-in deferred return reflects the PUCO ordered phase-in plan for Zimmer
(see Note 1(g) of the "Notes to Consolidated Financial Statements" in "Item 8.
Financial Statements and Supplementary Data").
Write-off of a Portion of Zimmer Station
In November 1993, CG&E wrote off Zimmer costs disallowed from rates by the
PUCO in the May 1992 Order.
Interest
Interest increased $12 million (7.9%) in 1992. This increase was partially
attributable to a decrease in the allowance for borrowed funds used during
construction related to decreases in construction work in progress associated
with the first five units of Woodsdale being placed in service in 1992.
Index to Financial Statements and Financial Statement Schedules
Financial Statements
Report of Independent Public Accountants. . . . . . . . .
Consolidated Statements of Income for the
three years ended December 31, 1994 . . . . . . . . . .
Consolidated Balance Sheets at
December 31, 1994 and 1993. . . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1994 . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1994 . . . . . .
Schedule of Cumulative Preferred Stock. . . . . . . . . .
Schedule of Long-term Debt. . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements. . . . . . . .
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts . . . . .
The information required to be submitted in schedules other than those
indicated above has been included in the consolidated balance sheets, the
consolidated statements of income, related schedules, the notes thereto, or
omitted as not required by the Rules of Regulation S-X.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of The Cincinnati Gas & Electric Company:
We have audited the consolidated balance sheets and schedules of cumulative
preferred stock and long-term debt of THE CINCINNATI GAS & ELECTRIC COMPANY
(an Ohio Corporation and a wholly owned subsidiary of CINergy Corp.) and its
subsidiary companies as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in common stock equity and cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Cincinnati Gas & Electric
Company and its subsidiary companies as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As explained in Notes 8 and 12 to the consolidated financial statements, the
Company changed its methods of accounting for postretirement health care
benefits and income taxes effective January 1, 1993.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in
Item 14 are presented for purposes of complying with the Securities and
Exchange Commission's Rules and Regulations under the Securities Exchange Act
of 1934 and are not a required part of the basic financial statements. The
supplemental schedules have been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Cincinnati, Ohio,
January 23, 1995
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
1994 1993 1992
(in thousands)
OPERATING REVENUES (Note 2)
Electric. . . . . . . . . . . . . . . . . . $1 345 787 $1 282 445 $1 159 456
Gas . . . . . . . . . . . . . . . . . . . . 442 398 469 296 393 970
1 788 185 1 751 741 1 553 426
OPERATING EXPENSES
Fuel used in electric production. . . . . . 325 470 333 279 321 074
Gas purchased . . . . . . . . . . . . . . . 248 293 280 836 228 272
Purchased and exchanged power . . . . . . . 20 932 22 459 22 116
Other operation . . . . . . . . . . . . . . 336 030 257 407 242 663
Maintenance . . . . . . . . . . . . . . . . 106 810 108 857 104 780
Depreciation. . . . . . . . . . . . . . . . 156 676 152 061 140 996
Post-in-service deferred operating
expenses - net. . . . . . . . . . . . . . 3 290 (6 471) (27 799)
Phase-in deferred depreciation. . . . . . . (2 161) (8 524) (8 468)
Income taxes (Note 12). . . . . . . . . . . 104 128 108 970 96 019
Taxes other than income taxes 197 381 183 367 174 072
1 496 849 1 432 241 1 293 725
OPERATING INCOME. . . . . . . . . . . . . . . 291 336 319 500 259 701
OTHER INCOME AND EXPENSES - NET
Allowance for equity funds used
during construction . . . . . . . . . . . 1 971 3 154 9 966
Post-in-service carrying costs. . . . . . . - 12 100 36 655
Phase-in deferred return. . . . . . . . . . 15 351 35 334 26 609
Write-off of a portion of
Zimmer Station (Note 2) . . . . . . . . . - (234 844) -
Income taxes (Note 12)
Related to the write-off of a portion of
Zimmer Station. . . . . . . . . . . . . - 12 085 -
Other . . . . . . . . . . . . . . . . . . 6 619 9 405 27 386
Other - net . . . . . . . . . . . . . . . . (6 726) (9 551) 376
17 215 (172 317) 100 992
INCOME BEFORE INTEREST. . . . . . . . . . . . 308 551 147 183 360 693
INTEREST
Interest on long-term debt. . . . . . . . . 150 386 157 044 163 248
Other interest. . . . . . . . . . . . . . . 2 831 2 449 2 801
Allowance for borrowed funds used
during construction . . . . . . . . . . . (2 977) (3 586) (7 617)
150 240 155 907 158 432
NET INCOME (LOSS) . . . . . . . . . . . . . . 158 311 (8 724) 202 261
PREFERRED DIVIDEND REQUIREMENT. . . . . . . . 22 377 25 160 27 610
INCOME (LOSS) APPLICABLE TO COMMON STOCK. . . $ 135 934 $ (33 884) $ 174 651
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1994 1993
(dollars in thousands)
UTILITY PLANT - ORIGINAL COST
In service
Electric . . . . . . . . . . . . . . . . . . . . . $4 502 840 $4 393 798
Gas . . . . . . . . . . . . . . . . . . . . . . . . 645 602 611 579
Common . . . . . . . . . . . . . . . . . . . . . . 185 718 183 225
5 334 160 5 188 602
Accumulated depreciation. . . . . . . . . . . . . . . 1 613 505 1 472 313
3 720 655 3 716 289
Construction work in progress . . . . . . . . . . . . 74 989 69 351
Total utility plant . . . . . . . . . . . . . . . 3 795 644 3 785 640
CURRENT ASSETS
Cash and temporary cash investments . . . . . . . . . 52 516 4 570
Restricted deposits . . . . . . . . . . . . . . . . . 98 120
Accounts receivable less accumulated provision
of $8,999,410 in 1994 and $14,906,000 in 1993
for doubtful accounts . . . . . . . . . . . . . . . 269 020 312 165
Materials, supplies, and fuel - at average cost
Fuel for use in electric production . . . . . . . . 42 167 54 358
Gas stored for current use. . . . . . . . . . . . . 31 284 36 048
Other materials and supplies. . . . . . . . . . . . 57 864 62 111
Property taxes applicable to subsequent year. . . . . 112 420 107 410
Prepayments and other . . . . . . . . . . . . . . . . 31 327 29 066
596 696 605 848
OTHER ASSETS
Regulatory assets
Post-in-service carrying costs and deferred
operating expenses. . . . . . . . . . . . . . . . 155 138 161 964
Phase-in deferred return and depreciation . . . . . 100 943 83 431
Deferred demand-side management costs . . . . . . . 10 002 3 606
Amounts due from customers - income taxes . . . . . 381 380 387 748
Deferred merger costs . . . . . . . . . . . . . . . 12 013 12 972
Unamortized costs of reacquiring debt . . . . . . . 33 426 27 420
Other . . . . . . . . . . . . . . . . . . . . . . . 55 987 48 939
Other . . . . . . . . . . . . . . . . . . . . . . . . 40 436 25 955
789 325 752 035
$5 181 665 $5 143 523
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CAPITALIZATION AND LIABILITIES
December 31
1994 1993
(dollars in thousands)
COMMON STOCK EQUITY (Note 3)
Common stock - $8.50 par value;
authorized shares - 120,000,000;
outstanding shares - 89,663,086 in 1994
and 88,062,083 in 1993. . . . . . . . . . . . . . $ 762 136 $ 748 528
Paid-in capital . . . . . . . . . . . . . . . . . . 337 874 314 218
Retained earnings . . . . . . . . . . . . . . . . . 432 962 456 511
Total common stock equity . . . . . . . . . . . 1 532 972 1 519 257
CUMULATIVE PREFERRED STOCK
(Page 42, Notes 4 and 5)
Not subject to mandatory redemption . . . . . . . . 80 000 120 000
Subject to mandatory redemption . . . . . . . . . . 210 000 210 000
LONG-TERM DEBT (Page 43, Note 6). . . . . . . . . . . 1 837 757 1 829 061
Total capitalization. . . . . . . . . . . . . . 3 660 729 3 678 318
CURRENT LIABILITIES
Notes payable (Note 10) . . . . . . . . . . . . . . 14 500 31 013
Accounts payable . . . . . . . . . . . . . . . . . 120 817 128 910
Accrued taxes . . . . . . . . . . . . . . . . . . . 227 651 222 219
Accrued interest. . . . . . . . . . . . . . . . . . 31 902 29 123
Other . . . . . . . . . . . . . . . . . . . . . . . 32 658 29 496
427 528 440 761
OTHER LIABILITIES
Deferred income taxes (Note 12) . . . . . . . . . . 747 060 733 224
Unamortized investment tax credits . . . . . . . . 135 417 141 520
Accrued pension and other postretirement
benefit costs (Notes 7 and 8) . . . . . . . . . . 102 254 71 856
Other . . . . . . . . . . . . . . . . . . . . . . . 108 677 77 844
1 093 408 1 024 444
COMMITMENTS AND CONTINGENCIES (Note 13)
$5 181 665 $5 143 523
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Common Paid-in Retained Total Common
Stock Capital Earnings Stock Equity
(dollars in thousands)
BALANCE DECEMBER 31, 1991 . . . . . . $719 893 $257 215 $ 606 478 $1 583 586
Net income . . . . . . . . . . . . 202 261 202 261
Issuance of 1,700,208 shares of
common stock. . . . . . . . . . . 14 414 26 796 41 210
Common stock issuance
expenses. . . . . . . . . . . . . (407) (407)
Costs of issuing and retiring
preferred stock . . . . . . . . . 882 (3 660) (2 778)
Dividends on preferred stock. . . . (27 610) (27 610)
Dividends on common stock . . . . . (141 132) (141 132)
BALANCE DECEMBER 31, 1992 . . . . . . 734 307 284 486 636 337 1 655 130
Net income . . . . . . . . . . . . (8 724) (8 724)
Issuance of 1,673,058 shares of
common stock. . . . . . . . . . . 14 221 29 765 43 986
Common stock issuance
expenses. . . . . . . . . . . . . (33) (33)
Dividends on preferred stock. . . . (25 160) (25 160)
Dividends on common stock . . . . . (145 942) (145 942)
BALANCE DECEMBER 31, 1993 . . . . . . 748 528 314 218 456 511 1 519 257
Net income. . . . . . . . . . . . . 158 311 158 311
Issuance of 1,601,003 shares of
common stock. . . . . . . . . . . 13 608 23 142 36 750
Common stock issuance
expenses. . . . . . . . . . . . . (39) (39)
Dividends on preferred stock. . . . (22 377) (22 377)
Dividends on common stock . . . . . (158 970) (158 970)
Other . . . . . . . . . . . . . . . 553 (513) 40
BALANCE DECEMBER 31, 1994 . . . . . . $762 136 $337 874 $ 432 962 $1 532 972
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
1994 1993 1992
(in thousands)
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . $ 158 311 $ (8 724) $ 202 261
Items providing (using) cash currently:
Depreciation. . . . . . . . . . . . . . . . . . 156 676 152 061 140 996
Deferred income taxes and investment
tax credits - net . . . . . . . . . . . . . . 13 680 23 635 46 451
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . (1 971) (3 154) (9 966)
Deferred gas and electric fuel costs - net. . . (10 271) 3 914 (1 394)
Regulatory assets
Post-in-service and phase-in cost
deferrals . . . . . . . . . . . . . . . . . (14 222) (62 429) (99 531)
Deferred merger costs . . . . . . . . . . . . 959 (9 276) (3 696)
Other . . . . . . . . . . . . . . . . . . . . (7 891) 2 186 (31 066)
Write-off of a portion of Zimmer Station. . . . - 234 844 -
Changes in current assets and current
liabilities
Restricted deposits . . . . . . . . . . . . (22) 109 152
Accounts receivable . . . . . . . . . . . . 43 145 (38 040) (15 279)
Materials, supplies, and fuel . . . . . . . 21 202 3 567 (12 206)
Accounts payable. . . . . . . . . . . . . . (8 093) 5 352 (18 851)
Accrued taxes and interest. . . . . . . . . 8 211 15 711 25 117
Other items - net . . . . . . . . . . . . . . . 87 644 24 245 39 820
Net cash provided by (used in)
operating activities. . . . . . . . . . . 447 358 344 001 262 808
FINANCING ACTIVITIES
Issuance of common stock. . . . . . . . . . . . . 36 750 43 986 41 210
Issuance of preferred stock . . . . . . . . . . . - - 79 300
Issuance of long-term debt. . . . . . . . . . . . 311 957 297 000 329 006
Funds on deposit from issuance of long-term
debt. . . . . . . . . . . . . . . . . . . . . . - - 32 829
Retirement of preferred stock . . . . . . . . . . (40 400) - (118 395)
Redemption of long-term debt. . . . . . . . . . . (313 522) (294 455) (322 166)
Change in short-term debt . . . . . . . . . . . . (16 500) (15 500) 21 500
Dividends on preferred stock. . . . . . . . . . . (22 377) (25 160) (27 610)
Dividends on common stock . . . . . . . . . . . . (158 970) (145 942) (141 132)
Net cash provided by (used in)
financing activities. . . . . . . . . . . (203 062) (140 071) (105 458)
INVESTING ACTIVITIES
Construction expenditures (less allowance for
equity funds used during construction). . . . . (189 954) (198 585) (219 757)
Deferred demand-side management costs . . . . . . (6 396) (3 027) (579)
Net cash provided by (used in)
investing activities. . . . . . . . . . . (196 350) (201 612) (220 336)
Net increase (decrease) in cash and temporary
cash investments. . . . . . . . . . . . . . . . . 47 946 2 318 (62 986)
Cash and temporary cash investments at
beginning of period . . . . . . . . . . . . . . . 4 570 2 252 65 238
Cash and temporary cash investments at end
of period . . . . . . . . . . . . . . . . . . . . $ 52 516 $ 4 570 $ 2 252
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized). . . . . . $ 142 380 $ 151 867 $ 151 821
Income taxes. . . . . . . . . . . . . . . . . . 88 639 53 786 26 021
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
SCHEDULE OF CUMULATIVE PREFERRED STOCK
December 31
1994 1993
(dollars in thousands)
Authorized 6,000,000 shares -
Not subject to mandatory redemption (Note 4)
Par value $100 per share - outstanding
4% Series 270,000 shares in 1994 and 1993 . . . . $ 27 000 $ 27 000
4 3/4% Series 130,000 shares in 1994 and 1993 . . . . 13 000 13 000
7.44% Series 400,000 shares in 1994 and 1993 . . . . 40 000 40 000
9.28% Series 400,000 shares in 1993. . . . . . . . . - 40 000
Total . . . . . . . . . . . . . . . . . . . . . . . . 80 000 120 000
Subject to mandatory redemption (Notes 4 and 5)
Par value $100 per share - outstanding
9.15% Series 500,000 shares in 1994 and 1993
(redeemable, upon call, prior to
July 1, 1995 at $106.71; reduced
amounts thereafter). . . . . . . . . . . . . . 50 000 50 000
7 7/8% Series 800,000 shares in 1994 and 1993
(subject to mandatory redemption on
January 1, 2004 at $100; not redeemable
prior to that date). . . . . . . . . . . . . . 80 000 80 000
7 3/8% Series 800,000 shares in 1994 and 1993
(redeemable, upon call, after
August 1, 2002 at $100). . . . . . . . . . . . 80 000 80 000
Total . . . . . . . . . . . . . . . . . . . . . . . . $210 000 $210 000
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
SCHEDULE OF LONG-TERM DEBT
December 31
1994 1993
(dollars in thousands)
The Cincinnati Gas & Electric Company and Subsidiaries
The Cincinnati Gas & Electric Company
First Mortgage Bonds
5 7/8 % Series due July 1, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30 000 $ 30 000
6 1/4 % Series due September 1, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . 100 000 100 000
5.80 % Series due February 15, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . 110 000 -
7 3/8 % Series due May 1, 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 000 50 000
8 5/8 % Series due December 1, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . - 60 000
7 3/8 % Series due November 1, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 60 000 60 000
7 1/4 % Series due September 1, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . 100 000 100 000
8 1/8 % Series due August 1, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 000 60 000
6.45 % Series due February 15, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 110 000 -
8.55 % Series due October 15, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . - 75 000
9 1/8 % Series due April 15, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . - 75 000
9 5/8 % Series A and B due May 1, 2013 (Pollution Control). . . . . . . . . . . . . . . - 31 700
10 1/8% Series due December 1, 2015 (Pollution Control) . . . . . . . . . . . . . . . . 84 000 84 000
9.70 % Series due June 15, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 000 100 000
10 1/8% Series due May 1, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 000 100 000
10.20 % Series due December 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . 150 000 150 000
8.95 % Series due December 15, 2021. . . . . . . . . . . . . . . . . . . . . . . . . . 100 000 100 000
8 1/2 % Series due September 1, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . 100 000 100 000
7.20 % Series due October 1, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . 300 000 300 000
5.45 % Series A and B due January 1, 2024 (Pollution Control). . . . . . . . . . . . . 46 700 -
5 1/2 % Series due January 1, 2024 (Pollution Control). . . . . . . . . . . . . . . . . 48 000 -
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 648 700 1 575 700
Pollution Control Notes
6.70% to 8.50% due June 1, 1997 to October 1, 2009. . . . . . . . . . . . . . . . . . . - 63 000
Variable rate due August 1, 2013 and December 1, 2015 . . . . . . . . . . . . . . . . . 100 000 100 000
6.50% due November 15, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 721 12 721
Total pollution control notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 721 175 721
Total - The Cincinnati Gas & Electric Company. . . . . . . . . . . . . . . . . . . . 1 761 421 1 751 421
The Union Light, Heat and Power Company
First Mortgage Bonds
6 1/2 % Series due August 1, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 000 20 000
8 % Series due October 1, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 000 10 000
9 1/2 % Series due December 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . 10 000 10 000
9.70 % Series due July 1, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 000 20 000
10 1/4% Series due June 1, 2020 and November 15, 2020 . . . . . . . . . . . . . . . . . 30 000 30 000
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 000 90 000
Lawrenceburg Gas Company
First Mortgage Bonds
9 3/4 % Series due October 1, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 200 1 200
Other Subsidiary Company Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 275
Unamortized Premium and Discount - Net. . . . . . . . . . . . . . . . . . . . . . . . . . (14 864) (13 835)
Total - The Cincinnati Gas & Electric Company and Subsidiaries . . . . . . . . . . . $1 837 757 $1 829 061
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Merger On October 24, 1994, a subsidiary of CINergy Corp. (CINergy) was
merged with and into The Cincinnati Gas & Electric Company (CG&E), and PSI
Resources, Inc. (Resources) was merged with and into CINergy. Each
outstanding share of common stock of CG&E and Resources was exchanged for one
share and 1.023 shares, respectively, of CINergy common stock, resulting in
the issuance of approximately 148 million shares of CINergy common stock, par
value $.01 per share. The outstanding preferred stock and debt securities of
CG&E and its utility subsidiaries were not affected by the merger. Following
the merger, CINergy became the parent holding company of CG&E and PSI Energy,
Inc., previously Resources' utility subsidiary. The merger was accounted for
as a pooling of interests, and the Consolidated Financial Statements, along
with the related notes, are presented as if the merger was consummated as of
the beginning of the earliest period presented. Due to immateriality, no
adjustments were made to conform the accounting policies of the two companies.
(b) Consolidation Policy The accompanying Consolidated Financial Statements
include the accounts of CG&E and its subsidiaries after elimination of
significant intercompany transactions and balances.
(c) Regulation CG&E and its subsidiaries are subject to regulation by the
Securities and Exchange Commission (SEC) under the Public Utility Holding
Company Act of 1935 (PUHCA). CG&E and its utility subsidiaries are also
subject to regulation by the Federal Energy Regulatory Commission (FERC) and
the state utility commissions of Indiana, Ohio, and Kentucky. The accounting
policies of CG&E and its subsidiaries conform to the accounting requirements
and ratemaking practices of these regulatory authorities and to generally
accepted accounting principles, including the provisions of Statement of
Financial Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation (Statement 71).
Regulatory assets represent probable future revenue to CG&E and its utility
subsidiaries associated with deferred costs to be recovered from customers
through the ratemaking process. The following regulatory assets of CG&E and
its utility subsidiaries are reflected in the Consolidated Balance Sheets as
of December 31:
1994 1993
(in millions)
Post-in-service carrying costs and deferred
operating expenses. . . . . . . . . . . . . . $155 $162
Phase-in deferred return and depreciation . . . 101 83
Deferred demand-side management (DSM) costs . . 10 4
Amounts due from customers - income taxes . . . 382 388
Deferred merger costs . . . . . . . . . . . . . 12 13
Costs of reacquiring debt . . . . . . . . . . . 33 27
Postretirement benefit costs. . . . . . . . . . 4 5
1992 workforce reduction costs. . . . . . . . . 17 27
Other . . . . . . . . . . . . . . . . . . . . . 35 17
Total . . . . . . . . . . . . . . . . . . . . $749 $726
CG&E and its utility subsidiaries currently have regulatory orders in effect
which provide for the recovery of $704 million of their regulatory assets as
of December 31, 1994, and will request recovery of the remaining amounts in
their next rate proceedings in each applicable jurisdiction.
See Note 1(g), (h), (i), (j), and (l) for additional information regarding
phase-in deferred return and depreciation, post-in-service carrying costs and
deferred operating expenses, deferred DSM costs, amounts due from customers -
income taxes, and costs of reacquiring debt, respectively. For additional
information regarding deferred merger costs, postretirement benefit costs, and
1992 workforce reduction costs, see Notes 2, 8, and 9.
Although current regulatory orders and the regulatory environment fully
support the recognition of these regulatory assets, the ultimate outcome of
the changing competitive environment discussed in the "Competitive Pressures"
section of "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" could result in CG&E discontinuing
application of Statement 71 for all or part of the business. Such an event
would require the write-off of the portion of any regulatory asset for which
no regulatory assurance of recovery continues to exist. No evidence currently
exists that would support a write-off of any portion of the regulatory assets.
CG&E and its utility subsidiaries intend to pursue competitive strategies that
would mitigate the impact of this issue on their financial condition.
(d) Utility Plant Utility plant is stated at the original cost of
construction, which includes an allowance for funds used during construction
(AFUDC) and a proportionate share of overhead costs. Construction overhead
costs include salaries, payroll taxes, fringe benefits, and other expenses.
Substantially all utility plant is subject to the lien of each applicable
company's first mortgage bond indenture.
(e) AFUDC CG&E and its utility subsidiaries capitalize AFUDC, a non-cash
income item, which is defined in the regulatory system of accounts prescribed
by the FERC as including "the net cost for the period of construction of
borrowed funds used for construction purposes and a reasonable rate on other
funds when so used". AFUDC accrual rates averaged 9.1%, 8.3%, and 10.2% in
1994, 1993, and 1992, respectively, and are compounded semi-annually.
(f) Depreciation and Maintenance Provisions for depreciation are determined
by using the straight-line method applied to the cost of depreciable plant in
service. The rates are based on periodic studies of the estimated service
lives and net cost of removal of the properties. The depreciation rates for
utility plant during each of the following three years were:
1994 1993 1992
Electric. . . . . . . . . . . . 2.9% 2.9% 2.9%
Gas . . . . . . . . . . . . . . 2.8 2.7 2.6
Common. . . . . . . . . . . . . 3.4 3.3 3.1
In May 1992, the Public Utilities Commission of Ohio (PUCO) issued an order
(May 1992 Order) which authorized changes in depreciation accrual rates on
CG&E's electric and common plant. The changes resulted in an annual decrease
in depreciation expense of about $9 million.
Maintenance and repairs of property units and replacements of minor items of
property are charged to maintenance expense. The costs of replacements of
property units are capitalized. The original cost of the property retired and
the related costs of removal, less salvage recovered, are charged to
accumulated depreciation.
(g) Phase-in Deferred Return and Depreciation In the May 1992 Order, the
PUCO authorized CG&E to begin recovering the cost of the Wm. H. Zimmer
Generating Station (Zimmer) through an increase in electric revenues of
$116.4 million to be phased in over a three-year period under a plan that met
the requirements of Statement of Financial Accounting Standards No. 92,
Regulated Enterprises - Accounting for Phase-in Plans. The phase-in plan was
designed so that the three rate increases would provide revenues sufficient to
recover all operating expenses and provide a fair rate of return on plant
investment. In the first three years of the phase-in plan, rates charged to
customers did not fully recover depreciation expense and return on
shareholders' investment. This deficiency has been deferred on the
Consolidated Balance Sheets and will be recovered over a seven-year period
beginning in May 1995, at which point the revenue levels authorized pursuant
to the phase-in plan are designed to be sufficient to recover annual operating
expenses, a fair return on the unrecovered investment, and annual amortization
of the deferred depreciation and deferred return recorded during the first
three years of the plan.
(h) Post-in-service Carrying Costs and Deferred Operating Expenses In
accordance with a March 1991 order by the PUCO, CG&E capitalized carrying
costs for Zimmer from the time it was placed in service in March 1991 until
the effective date of new rates authorized by the May 1992 Order which
reflected Zimmer. CG&E began recovering these carrying costs over the useful
life of Zimmer in accordance with a stipulation approved by the PUCO in August
1993 (August 1993 Order) (see Note 2).
Effective in January 1992, the PUCO authorized CG&E to defer Zimmer
depreciation, operation and maintenance expenses (exclusive of fuel costs),
and property taxes which were not being recovered in rates charged to
customers. The PUCO also authorized CG&E to accrue carrying costs on the
deferred expenses. In the May 1992 Order, the PUCO authorized CG&E to begin
recovering these deferred expenses and associated carrying costs over a
10-year period.
In May 1992, the first three units at CG&E's Woodsdale Generating Station
(Woodsdale) began commercial operation, and, in July 1992, two additional
units were declared operational. In accordance with an October 1992 order
issued by the PUCO, CG&E deferred carrying costs on the first five units at
Woodsdale and deferred depreciation, operation and maintenance expenses
(exclusive of fuel costs), and property taxes from the time these units were
placed in service until the effective date of new rates approved in the August
1993 Order which reflected the Woodsdale units. CG&E began recovering the
carrying costs over the useful life of Woodsdale and the deferred expenses
over a 10-year period in accordance with the August 1993 Order (see Note 2).
(i) DSM Costs In the August 1993 Order, CG&E was authorized to recover
approximately $5 million of costs associated with DSM programs for domestic
customers. The PUCO has also permitted CG&E to defer future expenditures of
approved DSM programs with carrying costs for future recovery. In addition,
CG&E has applications pending for approval by the PUCO for deferral of the
costs of additional DSM programs.
(j) Federal and State Income Taxes Deferred tax assets and liabilities are
recognized for the expected future tax consequences of existing differences
between the financial reporting and tax reporting bases of assets and
liabilities. Investment tax credits utilized to reduce Federal income taxes
payable have been deferred for financial reporting purposes and are being
amortized over the useful lives of the property which gave rise to such
credits.
Income tax provisions reflected in customer rates are regulated by the various
regulatory commissions overseeing the regulated business operations of CG&E
and its utility subsidiaries. To the extent deferred income taxes are not
reflected in rates charged to customers, income taxes payable in future years
are recoverable from customers as paid. These amounts are reflected in the
accompanying Consolidated Financial Statements as a regulatory asset on the
basis of their probable recovery in future periods.
(k) Operating Revenues and Fuel Costs CG&E and its utility subsidiaries
recognize revenues for electric and gas service rendered during the month,
which includes revenues for sales unbilled at the end of each month. CG&E and
its Kentucky subsidiary, The Union Light, Heat and Power Company (ULH&P)
expense the costs of electricity and gas purchased and the cost of fuel used
in electric production as recovered through revenues and defer the portion of
these costs recoverable or refundable in future periods.
(l) Debt Discount, Premium, and Issuance Expense and Costs of Reacquiring
Debt Debt discount, premium, and issuance expense on outstanding long-term
debt are amortized over the lives of the respective issues.
In accordance with established ratemaking practices, CG&E and its utility
subsidiaries are deferring costs (principally call premiums) from the
reacquisition of long-term debt and are amortizing such amounts over periods
ranging from one year to 15 years.
(m) Order 636 In April 1992, the FERC issued Order 636, which restructured
operations between interstate gas pipelines and their customers for gas sales
and transportation services. Order 636 also allowed pipelines to recover
transition costs they incurred in complying with the order from customers,
including CG&E and ULH&P. In July 1994, the PUCO issued an order approving a
stipulation between CG&E and its domestic and industrial customer groups
providing for recovery of these pipeline transition costs. CG&E is presently
recovering its Order 636 transition costs pursuant to a PUCO approved tariff.
ULH&P recovers such costs through its gas cost recovery mechanism. These
costs are deferred as incurred by CG&E and ULH&P and amortized as recovered
from customers.
(n) Consolidated Statements of Cash Flows All temporary cash investments
with maturities of three months or less, when acquired, are reported as cash
equivalents. CG&E and its subsidiaries had no material non-cash investing or
financing transactions during the years 1992 through 1994.
(o) Reclassification Certain amounts in the 1992 and 1993 Consolidated
Financial Statements have been reclassified to conform to the 1994
presentation.
2. Rates
In its May 1992 Order authorizing the phase-in of Zimmer costs into customer
rates, the PUCO disallowed from rates approximately $230 million, representing
costs related to Zimmer for nuclear fuel, nuclear wind-down activities during
the conversion to a coal-fired facility, and a portion of the AFUDC accrued on
Zimmer.
Pursuant to an appeal by CG&E of the May 1992 Order, the Supreme Court of Ohio
(Court) ruled in November 1993 (November 1993 Ruling) that the PUCO does not
have the authority to order a phase-in of amounts granted in a rate proceeding
and remanded the case to the PUCO to set rates that provide the gross annual
revenues determined in accordance with Ohio statutes. However, the Court
upheld the PUCO's disallowance of Zimmer costs, and, as a result, CG&E wrote
off Zimmer costs of approximately $223 million, net of taxes, in the fourth
quarter of 1993.
In April 1994, the PUCO issued an order approving a settlement agreement
between CG&E, the PUCO Staff, the Ohio Office of Consumers' Counsel, and other
intervenors which addressed the issues raised in the November 1993 Ruling. As
part of the settlement agreement, CG&E did not seek early implementation of
the third phase of the authorized rate increase and will not seek accelerated
recovery of deferrals related to the phase-in plan. These deferrals will be
recovered over the remaining seven-year period as contemplated in the May 1992
Order. In addition, CG&E agreed to a moratorium on increases in base electric
rates until January 1, 1999 (except under certain circumstances), and, in
return, is allowed to retain all PUCO electric jurisdictional non-fuel
operation and maintenance expense merger savings until 1999.
In the August 1993 Order, the PUCO authorized annual increases of
approximately $41 million (5%) in electric revenues and $19 million (6%) in
gas revenues that were effective immediately. The August 1993 Order precludes
CG&E from increasing gas base rates prior to June 1, 1995, except for rate
filings made under certain circumstances.
In 1994, CG&E expensed $32 million of merger transaction costs and costs to
achieve merger savings applicable to its PUCO electric jurisdiction. The
remaining merger-related costs allocable to PUCO electric jurisdictional
customers will be expensed as incurred. CG&E intends to continue deferring
the non-PUCO electric jurisdictional portion of merger transaction costs and
costs to achieve merger savings (current estimate of $14 million) for future
recovery in customer rates.
In mid-1993, the Kentucky Public Service Commission (KPSC) issued orders
authorizing ULH&P to increase annual gas revenues by $4.2 million.
In exchange for the KPSC's support of the merger, in May 1994, ULH&P accepted
the KPSC's request for an electric rate moratorium commencing after ULH&P's
next retail rate case and extending to January 1, 2000. The KPSC also
required CG&E and ULH&P to agree that, for 12 months from consummation of the
merger, no filings will be made to adjust CG&E's base purchase power rate
charged to ULH&P or ULH&P's base electric rates.
3. Common Stock
All of CG&E's common stock is held by CINergy. No common dividends can be
paid by CG&E if dividends are in arrears on its preferred stock.
The following table reflects the shares of CG&E common stock issued in 1994
(prior to the merger), 1993, and 1992 for its stock-based plans. After merger
consummation, the common stock used by CG&E's 401(k) Savings Plans became
CINergy common stock rather than CG&E common stock, and CG&E's Dividend
Reinvestment and Stock Purchase Plan was merged into and replaced by CINergy's
Dividend Reinvestment and Stock Purchase Plan.
Shares Issued
1994 1993 1992
401(k) Savings Plans. . . . . . . 830 140 843 352 902 692
Dividend Reinvestment and
Stock Purchase Plan . . . . . . 770 863 829 706 797 516
4. Preferred Stock
Changes in preferred stock outstanding during 1994 and 1992 were as follows:
Shares
Issued Par
(Retired) Value
(dollars in thousands)
1994
Cumulative preferred stock
Not subject to mandatory redemption
Par value $100 per share
9.28 % Series. . . . . . . . . . . (400 000) $(40 000)
1992
Cumulative preferred stock
Not subject to mandatory redemption
Par value $100 per share
9.52 % Series. . . . . . . . . . . (450 000) (45 000)
9.30 % Series. . . . . . . . . . . (350 000) (35 000)
Subject to mandatory redemption
Par value $100 per share
7 3/8% Series. . . . . . . . . . . 800 000 80 000
10.20% Series. . . . . . . . . . . (365 000) (36 500)
CG&E had no changes in preferred stock outstanding during 1993.
5. Preferred Stock with Mandatory Redemption
CG&E's preferred stock redemption requirements for the next five years are
$2.5 million in each of 1996 and 1997 and $6.5 million in each of 1998 and
1999.
CG&E's Cumulative Preferred Stock, 9.15% Series is subject to mandatory
redemption each July 1, beginning in 1996, in an amount sufficient to retire
25,000 shares, and CG&E's 7 3/8% Series is subject to mandatory redemption
each August 1, beginning in 1998, in an amount sufficient to retire 40,000
shares, each at $100 per share, plus accrued dividends. For both series, CG&E
has the noncumulative option to redeem up to a like amount of additional
shares in each year. CG&E has the option to satisfy the mandatory redemption
requirements in whole or in part by crediting shares acquired by CG&E. To the
extent CG&E does not satisfy its mandatory sinking fund obligation in any
year, such obligation must be satisfied in the succeeding year or years. If
CG&E is in arrears in the redemption pursuant to the mandatory sinking fund
requirement, CG&E shall not purchase or otherwise acquire for value, or pay
dividends on, common stock.
6. Long-term Debt
CG&E's and its subsidiaries' long-term debt maturities, excluding sinking fund
requirements, for the next five years are $130 million in 1997 and $180
million in 1999.
The first mortgage bond indentures of both CG&E and ULH&P provide that so long
as any series of bonds issued prior to 1976 and 1978, respectively, are
outstanding, CG&E and ULH&P will pay to the trustee as a Maintenance and
Replacement Fund (M&R Fund), on or before April 30 of each year, in cash,
unfunded property additions, or principal amount of first mortgage bonds of
any series issued under the mortgages, a formularized amount related to the
net revenues of CG&E and ULH&P. For 1994, the M&R Fund requirements (payable
on or before April 30, 1995) for CG&E and ULH&P are approximately $114 million
and $5 million, respectively.
Most of CG&E's and ULH&P's first mortgage bonds are redeemable at par value,
plus accrued interest, through cash deposited to satisfy the annual M&R Fund
requirement. On March 24, 1995, CG&E announced its intention to redeem,
beginning May 1, 1995, $114 million principal amount of its 10.125% and 9.70%
first mortgage bonds at par with cash deposited in the M&R Fund. ULH&P also
announced its intention to redeem $5 million principal amount of its 10.25%
first mortgage bonds (due June 1, 2020) at par with cash deposited in the M&R
Fund, and to redeem the remaining amount of such bonds at the redemption price
of 107.34% on June 1, 1995.
7. Pension Plan
The defined benefit pension plans of CG&E and its subsidiaries cover
substantially all employees meeting certain minimum age and service
requirements. Plan benefits are determined under a final average pay formula
with consideration of years of participation, age at retirement, and the
applicable average Social Security wage base or benefit amount.
The funding policy of CG&E and its subsidiaries is to contribute annually to
the plans an amount which is not less than the minimum amount required by the
Employee Retirement Income Security Act of 1974 and not more than the maximum
amount deductible for income tax purposes. No contributions were made for the
1994 and 1992 plan years, and a contribution of $3.1 million was made for the
1993 plan year. The plans' assets consist of investments in equity and fixed
income securities.
Pension cost for 1994, 1993, and 1992 included the following components:
1994 1993 1992
(in millions)
Benefits earned during the period . . . . . . . $ 10.7 $ 9.2 $ 8.8
Interest accrued on projected
benefit obligations . . . . . . . . . . . . . 35.1 34.5 30.4
Actual (return) loss on plans' assets . . . . . 5.6 (31.4) (27.0)
Net amortization and deferral . . . . . . . . . (43.2) (4.7) (7.5)
Net periodic pension cost . . . . . . . . . . . $ 8.2 $ 7.6 $ 4.7
Additionally, during 1992 and 1994, CG&E and its subsidiaries recognized
$28.4 million and $15.6 million, respectively, of accrued pension cost in
accordance with Statement of Financial Accounting Standards No. 88, Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits. These amounts represented the costs associated
with additional benefits extended in connection with voluntary early
retirement programs and workforce reductions in those years (see Note 9).
1994 1993 1992
Actuarial Assumptions:
For determination of projected benefit
obligations
Discount rate . . . . . . . . . . . . . . . 8.50% 7.50% 8.25%
Rate of increase in future compensation . . 5.50 5.00 5.75
For determination of pension cost
Rate of return on plans' assets . . . . . . . 9.50 9.50 9.50
The following table reconciles the plans' funded status with amounts recorded
in the Consolidated Financial Statements. Under the provisions of Statement
of Financial Accounting Standards No. 87, Employers' Accounting for Pensions
(Statement 87), certain assets and obligations of the plans are deferred and
recognized in the Consolidated Financial Statements in subsequent periods.
1994 1993
Plan's Plan's Plans'
Assets Exceed Accumulated Assets Exceed
Accumulated Benefits Accumulated
Benefits Exceed Assets Benefits
(in millions)
Actuarial present value of benefits
Vested benefits . . . . . . . . $(123.2) $(206.5) $(328.1)
Non-vested benefits . . . . . . (17.5) (11.0) (32.3)
Accumulated benefit
obligations . . . . . . . . (140.7) (217.5) (360.4)
Effect of future compensation
increases . . . . . . . . . . (53.0) (52.2) (110.3)
Projected benefit
obligations . . . . . . . . (193.7) (269.7) (470.7)
Plans' assets at fair value . . . 182.1 198.7 423.1
Projected benefit obligations in
excess of plans' assets . . . . (11.6) (71.0) (47.6)
Remaining balance of plans' net
assets existing at date of
initial application of
Statement 87 to be recognized
as a reduction of pension
cost in future periods. . . . . (2.9) (3.8) (7.4)
Unrecognized net gain
resulting from experience
different from that assumed
and effects of changes in
assumptions . . . . . . . . . . (13.6) (1.9) (16.0)
Prior service cost not yet
recognized in net periodic
pension cost. . . . . . . . . . 20.9 18.2 29.2
Accrued pension cost at
December 31 . . . . . . . . . . $ (7.2) $ (58.5) $ (41.8)
8. Other Postretirement Benefits
CG&E and its subsidiaries provide certain health care and life insurance
benefits to retired employees and their eligible dependents. The health care
benefits include medical coverage and prescription drugs. Prior to 1993, the
cost of retiree health care was charged to expense as claims were paid. The
accounting for life insurance benefits provided by CG&E and its subsidiaries
is further discussed herein. CG&E and its subsidiaries do not currently pre-
fund their obligations for these postretirement benefits.
Effective with the first quarter of 1993, CG&E and its subsidiaries
implemented the provisions of Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions
(Statement 106). Under the provisions of Statement 106, the costs of health
care and life insurance benefits provided to retirees are recognized for
accounting purposes during periods of employee service (accrual basis). The
unrecognized and unfunded Accumulated Postretirement Benefit Obligation (APBO)
existing at the date of initial application of Statement 106 (i.e., the
transition obligation) of $51.7 million is being amortized over a 20-year
period.
Life insurance benefits are fully paid by CG&E for qualified employees.
Eligibility to receive postretirement coverage is limited to those employees
who participated in the plans and earned the right to postretirement benefits
prior to January 1, 1991. In 1988, CG&E and its subsidiaries recognized the
actuarially determined APBO for postretirement life insurance benefits earned
by retirees. The portion of the APBO applicable to active employees is being
amortized over 15 years, the employees' estimated remaining service lives.
The accounting for CG&E's postretirement life insurance benefits was not
affected by the adoption of Statement 106.
Postretirement benefit cost for 1994 and 1993 included the following
components:
Health Life
Care Insurance Total
(in millions)
1994
Benefits earned during the period. . . . . . $ .9 $ .1 $ 1.0
Interest accrued on APBO . . . . . . . . . . 3.9 2.0 5.9
Amortization of transition obligation. . . . 2.6 .4 3.0
Net periodic postretirement benefit cost . . $7.4 $2.5 $ 9.9
1993
Benefits earned during the period. . . . . . $1.0 $ .1 $ 1.1
Interest accrued on APBO . . . . . . . . . . 4.2 2.0 6.2
Amortization of transition obligation. . . . 2.6 .4 3.0
Net periodic postretirement benefit cost . . $7.8 $2.5 $10.3
The following table reconciles the APBO of the health care and life insurance
plans with amounts recorded in the Consolidated Financial Statements. Under
the provisions of Statement 106, certain obligations of the plans are deferred
and recognized in the Consolidated Financial Statements in subsequent periods.
Health Life
Care Insurance Total
(in millions)
1994
Actuarial present value of benefits
Fully eligible active plan participants. . $ (2.2) $ (.8) $ (3.0)
Other active plan participants . . . . . . (26.3) (1.8) (28.1)
Retirees and beneficiaries . . . . . . . . (25.2) (21.7) (46.9)
Projected APBO . . . . . . . . . . . . . (53.7) (24.3) (78.0)
Unamortized transition obligation. . . . . . 46.1 3.3 49.4
Unrecognized net gain resulting from
experience different from that assumed
and effects of changes in assumptions. . . (5.2) (2.7) (7.9)
Accrued postretirement benefit obligation
at December 31, 1994 . . . . . . . . . . . $(12.8) $(23.7) $(36.5)
1993
Actuarial present value of benefits
Fully eligible active plan participants. . $ (2.4) $ (1.5) $ (3.9)
Other active plan participants . . . . . . (27.5) (2.9) (30.4)
Retirees and beneficiaries . . . . . . . . (22.7) (22.3) (45.0)
Projected APBO . . . . . . . . . . . . . (52.6) (26.7) (79.3)
Unamortized transition obligation. . . . . . 49.1 3.7 52.8
Unrecognized net (gain) loss resulting from
experience different from that assumed
and effects of changes in assumptions. . . (3.8) .3 (3.5)
Accrued postretirement benefit obligation
at December 31, 1993 . . . . . . . . . . . $ (7.3) $(22.7) $(30.0)
The following assumptions were used to determine the APBO:
1994 1993 1992
Discount rate. . . . . . . . . . 8.50% 7.50% 8.25%
Health care cost trend rate,
gradually declining to 5%. . . 9.00-12.00% 10.00-13.00% 12.00-15.00%
Year ultimate trend rates
achieved . . . . . . . . . . . 2002 2002 2003
Increasing the health care cost trend rate by one percentage point in each
year would increase the APBO by approximately $10.0 million and $10.5 million
for 1994 and 1993, respectively, and the aggregate of the service and interest
cost components of the postretirement benefit cost for each of 1994 and 1993
by approximately $1.2 million.
CG&E and its subsidiaries began amortizing the transition obligation for
health care costs over 20 years in accordance with Statement 106. The
majority of CG&E's and its subsidiaries' postretirement benefit costs are
subject to PUCO jurisdiction. The PUCO authorized CG&E to begin recovering
these costs in September 1993. The adoption of Statement 106 did not have a
material effect on the results of operations of CG&E and its subsidiaries.
9. Workforce Reductions
In 1992, CG&E and its subsidiaries eliminated 464 positions. The workforce
reduction was accomplished through a voluntary early retirement program and
involuntary separations. At December 31, 1992, the accrued liability
associated with the workforce reduction was $30.4 million (including $28.4
million of additional pension costs previously discussed in Note 7). In
accordance with the August 1993 Order, CG&E is recovering the majority of
these costs through rates over a period of three years.
Additionally, in an effort to begin to realize merger savings, CG&E and its
subsidiaries completed a voluntary workforce reduction program in 1994. Under
the program, 115 employees elected to terminate their employment with the
companies, resulting in a combined pre-tax cost of approximately $17.4 million
(including $15.6 million of additional pension costs previously discussed in
Note 7). In the third quarter of 1994, CG&E expensed $11 million representing
the PUCO electric jurisdictional portion of these costs. The remaining $6.4
million of costs have been deferred as costs to achieve merger savings for
future recovery through rates.
10. Notes Payable
CG&E and its subsidiaries had authority to borrow up to $235 million as of
December 31, 1994. In connection with this authority, CG&E and its
subsidiaries have established unsecured lines of credit (Committed Lines)
which currently permit borrowings of up to $112 million, of which $98 million
remained unused. CG&E also issues commercial paper from time to time. All
outstanding commercial paper is supported by the Committed Lines.
Additionally, this authority allows CG&E to arrange for additional short-term
borrowings with various banks on an "as offered" basis (Uncommitted Lines).
All Uncommitted Lines provide for maturities of up to 365 days with various
interest rate options.
Amounts outstanding under the Committed Lines would become immediately due
upon an event of default which includes non-payment, default under other
agreements governing company indebtedness, bankruptcy, or insolvency. Certain
of the Uncommitted Lines have similar default provisions. The lines are
maintained by compensating balances or commitment fees. Commitment fees for
the Committed Lines were immaterial during the 1992 through 1994 period.
For the years 1994, 1993, and 1992, CG&E's and its subsidiaries' short-term
borrowings outstanding at various times were as follows:
Weighted
Weighted Maximum Average Average
Average Amount Amount Interest
Balance Interest Outstanding Outstanding Rate
at Rate at at Any During the During
Dec. 31 Dec. 31 Month-end Year the Year
(dollars in millions)
1994
Bank loans. . . . . . $14.5 6.14% $26.0 $ 6.7 4.12%
1993
Bank loans. . . . . . 31.0 3.48 47.6 22.5 3.35
Commercial paper. . . - - 20.0 7.7 3.44
1992
Bank loans. . . . . . 33.5 3.74 67.0 27.0 4.06
Commercial paper. . . 13.0 4.22 13.0 3.1 3.82
11. Fair Values of Financial Instruments
The estimated fair values of financial instruments were as follows (this
information does not purport to be a valuation of CG&E and its subsidiaries):
December 31 December 31
1994 1993
Carrying Fair Carrying Fair
Financial Instrument Amount Value Amount Value
(in millions)
Long-term debt
First mortgage bonds. . . . . . $1 726 $1 692 $1 654 $1 847
Other long-term debt. . . . . . 112 114 175 193
Cumulative preferred stock -
subject to mandatory
redemption. . . . . . . . . . . 210 221 210 230
The following methods and assumptions were used to estimate the fair values of
each major class of financial instrument:
Cash and temporary cash investments, restricted deposits, and notes payable
Due to the short period to maturity, the carrying amounts reflected on the
Consolidated Balance Sheets approximate fair values.
Long-term debt The fair values of long-term debt issues were estimated based
on the present value of future cash flows. The discount rates used
approximate the incremental borrowing costs for similar instruments.
Cumulative preferred stock - subject to mandatory redemption The aggregate
fair value of preferred stock subject to mandatory redemption was based on the
latest closing prices quoted on the New York Stock Exchange for each series.
12. Income Taxes
Effective with the first quarter of 1993, CG&E and its subsidiaries
implemented the provisions of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes (Statement 109). Statement 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of existing differences between the financial reporting and tax
reporting bases of assets and liabilities. Net-of-tax accounting and
reporting is prohibited. CG&E and its subsidiaries adopted this new
accounting standard as the cumulative effect of a change in accounting
principle with no restatement of prior periods. The adoption of Statement 109
had no material effect on CG&E's consolidated earnings.
In August 1993, Congress enacted the Omnibus Budget Reconciliation Act of
1993, which included a provision to increase the Federal corporate income tax
rate from 34% to 35%, retroactive to January 1, 1993. In accordance with the
provisions of Statement 109, the income tax rate increase resulted in an
increase in the net deferred income tax liability and recognition of a
regulatory asset to reflect expected future recovery of the increased
liability through rates charged to customers.
The significant components of CG&E's and subsidiaries' net deferred income tax
liability at December 31, 1994, and 1993, are as follows:
1994 1993
(in millions)
Deferred Income Tax Liabilities
Utility plant . . . . . . . . . . . . . . . . $639.8 $631.6
Unamortized costs of reacquiring debt . . . . 10.3 9.8
Deferred operating expenses,
phase-in deferred return,
and accrued carrying costs. . . . . . . . . 76.4 70.6
Amounts due from customers - income taxes . . 108.5 106.1
Deferred demand-side management costs . . . . 2.6 .9
Other . . . . . . . . . . . . . . . . . . . . 37.1 27.7
Total deferred income tax liabilities . . . 874.7 846.7
Deferred Income Tax Assets
Unamortized investment tax credits. . . . . . 47.9 49.9
Deferred fuel costs . . . . . . . . . . . . . 10.0 14.8
Accrued pension and other benefit costs . . . 27.6 15.9
Other . . . . . . . . . . . . . . . . . . . . 42.1 32.9
Total deferred income tax assets. . . . . . 127.6 113.5
Net Deferred Income Tax Liability . . . . . . . $747.1 $733.2
A summary of Federal and state income taxes charged (credited) to income and the
allocation of such amounts is as follows:
1994 1993 1992
(in millions)
Current Income Taxes
Federal . . . . . . . . . . . . . . . . . . . $ 82.3 $ 61.8 $ 22.0
State . . . . . . . . . . . . . . . . . . . . 1.5 2.0 .2
Total current income taxes. . . . . . . . 83.8 63.8 22.2
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items . . . . . . . . . . . . . . 39.6 47.0 44.7
Property taxes. . . . . . . . . . . . . . . (11.3) (11.3) 6.4
Unrecovered gas cost - net. . . . . . . . . (6.8) .7 2.2
Pension and other benefit costs . . . . . . (8.4) (5.5) (2.2)
Write-off of a portion of Zimmer
(Note 2). . . . . . . . . . . . . . . . . - (11.0) -
Unbilled revenues fuel - net. . . . . . . . 5.3 (4.2) (.9)
Deferred expenses and phase-in
deferred return . . . . . . . . . . . . . 1.7 6.1 4.0
Costs of reacquiring debt - net . . . . . . 2.0 2.5 4.8
Alternative minimum tax credit
carryforward. . . . . . . . . . . . . . . - 3.8 (3.8)
Systems costs capitalized . . . . . . . . . (5.2) - (.2)
Demand-side management costs. . . . . . . . 1.9 1.2 -
Other items - net . . . . . . . . . . . . . .4 - (3.9)
Total deferred Federal income taxes . . . 19.2 29.3 51.1
State
Depreciation and other utility plant-
related items . . . . . . . . . . . . . . 1.1 1.0 1.0
Other items - net . . . . . . . . . . . . . (.5) (.5) .1
Total deferred state income taxes . . . . .6 .5 1.1
Total deferred income taxes . . . . . . . 19.8 29.8 52.2
Investment Tax Credits - Net. . . . . . . . . . (6.1) (6.1) (5.8)
Total Income Taxes. . . . . . . . . . . . $ 97.5 $ 87.5 $ 68.6
Allocated to:
Operating income. . . . . . . . . . . . . . . $104.1 $109.0 $ 96.0
Other income and expenses - net . . . . . . . (6.6) (21.5) (27.4)
$ 97.5 $ 87.5 $ 68.6
CG&E will participate in the filing of a consolidated Federal income tax
return with its parent, CINergy, and other affiliated companies for the year
ended December 31, 1994. The current tax liability is allocated among the
members of the group pursuant to a tax sharing agreement consistent with Rule
45(c) of the PUHCA.
Federal income taxes, computed by applying the statutory Federal income tax
rate to book income before Federal income tax, are reconciled to Federal
income tax expense reported in the Consolidated Statements of Income as
follows:
1994 1993 1992
(in millions)
Statutory Federal income tax provision. . . . . $81.0 $17.9 $ 82.3
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits. . . . (6.1) (5.8) (5.5)
Depreciation and other utility plant-
related differences . . . . . . . . . . . . 8.2 6.9 5.5
Preferred dividends . . . . . . . . . . . . . 7.8 8.8 9.4
AFUDC equity. . . . . . . . . . . . . . . . . (.7) (1.1) (14.2)
Deferred operating expenses, phase-in
deferred return, and accrued
carrying costs. . . . . . . . . . . . . . . (3.1) (7.2) (10.7)
Write-off of a portion of Zimmer. . . . . . . - 69.4 -
Reorganization costs. . . . . . . . . . . . . 4.6 - -
Other - net . . . . . . . . . . . . . . . . . 3.7 (3.9) .5
Federal income tax expense. . . . . . . . . . . $95.4 $85.0 $ 67.3
13. Commitments and Contingencies
(a) Construction CG&E and its subsidiaries will have substantial commitments
in connection with their construction program. Aggregate expenditures for
CG&E's and its subsidiaries' construction program for the 1995 through 1999
period are currently estimated to be approximately $1.1 billion.
(b) Manufactured Gas Plants Coal tar residues and other substances
associated with manufactured gas plant (MGP) sites have been found at former
MGP sites. Lawrenceburg Gas Company (Lawrenceburg), a wholly-owned subsidiary
of CG&E, has an MGP site which is under investigation to determine a
remediation strategy. Total cleanup cost is currently estimated to be
approximately $750,000. Lawrenceburg has applied to have the site included in
the Indiana Department of Environmental Management's voluntary cleanup
program. CG&E and its utility subsidiaries are aware of other potential sites
where MGP activities may have occurred at some time in the past. None of
these sites are known to present a risk to the environment. Except for the
Lawrenceburg site, neither CG&E nor its utility subsidiaries have undertaken
responsibility for investigating other potential MGP sites.
(c) United Scrap Lead Site The United States Environmental Protection Agency
(EPA) alleges that CG&E is a Potentially Responsible Party (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
liable for cleanup of the United Scrap Lead site in Troy, Ohio. CG&E was one
of approximately 200 companies so named. CG&E believes it is not a PRP and
should not be responsible for cleanup of the site. Under the CERCLA, CG&E
could be jointly and severally liable for costs incurred in cleaning up the
site, estimated by the EPA to be $27 million, of which CG&E estimates its
portion to be immaterial to its financial condition or results of operations.
(d) Potential Divestiture of Gas Operations Under the PUHCA, the divestiture
of CG&E's gas operations may be required. In its order approving the merger,
the SEC reserved judgement over CINergy's ownership of the gas operations for
a period of three years. In November 1994, the SEC requested comments on the
modernization of the PUHCA given the industry's movement toward a more
competitive environment, including whether or not a utility registered under
the PUHCA may own a combination system (i.e., electric and gas). CINergy
believes it has a justifiable basis for retention of CG&E's gas operations and
will continue its pursuit of SEC approval to retain the gas portion of the
business. If divestiture is ultimately required, the SEC has historically
allowed companies sufficient time to accomplish divestitures in a manner that
protects shareholder value. See Note 16 for financial information by business
segments.
14. Jointly Owned Plant
CG&E, Columbus Southern Power Company, and The Dayton Power and Light Company
have constructed electric generating units and related transmission facilities
on varying common ownership bases. The Consolidated Statements of Income
reflect CG&E's portion of all operating costs associated with the commonly
owned facilities.
CG&E's investments in jointly owned plant are as follows:
1994
------------------------------------------------------------------------------
Utility Plant Accumulated Construction
Share in Service Depreciation Work in Progress
(dollars in millions)
Production
Miami Fort Station
(Units 7 and 8) . . . 64 % $ 202 $100 $1
W.C. Beckjord Station
(Unit 6). . . . . . . 37.5 41 22 -
J.M. Stuart Station . . 39 262 107 5
Conesville Station
(Unit 4). . . . . . . 40 70 31 3
Zimmer. . . . . . . . . 46.5 1 211 133 3
East Bend Station . . . 69 329 140 1
Killen Station. . . . . 33 186 71 -
Transmission. . . . . . . various 62 28 -
15. Quarterly Financial Data (unaudited)
Net
Operating Operating Income
Quarter Ended Revenues Income (Loss)
(in millions)
1994
March 31. . . . . . . . . . . . . . $ 563 $106 $ 76
June 30 . . . . . . . . . . . . . . 391 70 39
September 30. . . . . . . . . . . . 409 81(a) 48 (a)
December 31 . . . . . . . . . . . . 425 34(a) (5)(a)
Total . . . . . . . . . . . . . . $1 788 $291 $ 158
1993
March 31. . . . . . . . . . . . . . $ 494 $ 90 $ 68
June 30 . . . . . . . . . . . . . . 367 64 40
September 30. . . . . . . . . . . . 409 85 60
December 31 . . . . . . . . . . . . 482 81 (177)(b)
Total . . . . . . . . . . . . . . $1 752 $320 $ (9)
<FN>
(a) In 1994, CG&E recognized charges to earnings of approximately $64 million
($47 million, net of taxes) primarily for certain merger costs and other
costs which CG&E does not expect to recover from customers due to rate
settlements related to securing support for the merger. Of these
charges, approximately $39 million, net of taxes, was recognized in the
fourth quarter. The charges include the PUCO electric jurisdictional
portion of merger transaction costs and costs to achieve merger savings
incurred through December 31, 1994, previously capitalized information
systems development costs, and severance benefits to former officers of
CG&E. Of the total $64 million charge, $52 million is reflected in
"OPERATING EXPENSES - Other operation" and $12 million is reflected in
"OTHER INCOME AND EXPENSES - NET".
(b) In the fourth quarter of 1993, CG&E recognized a charge to earnings of
approximately $235 million ($223 million, net of taxes) for the write-off
of a portion of Zimmer. This charge is reflected in "OTHER INCOME AND
EXPENSES - NET".
16. Financial Information by Business Segments
Operating
Operating Operating Income Provision for Construction
Year Ended Revenues Income Taxes Depreciation Expenditures
(in millions)
1994
Electric......... $1 346 $263 $ 96 $137 $138
Gas.............. 442 28 8 20 42
Total.......... $1 788 $291 $104 $157 $180
1993
Electric......... $1 283 $287 $102 $134 $157
Gas.............. 469 33 7 18 45
Total.......... $1 752 $320 $109 $152 $202
1992
Electric......... $1 159 $237 $ 93 $125 $185
Gas.............. 394 23 3 16 42
Total.......... $1 553 $260 $ 96 $141 $227
December 31
1994 1993 1992
(in millions)
Property, Plant, and Equipment - net
Electric.......................... $3 277 $3 282 $3 469
Gas............................... 519 504 476
3 796 3 786 3 945
Other Corporate Assets.............. 1 386 1 358 857
Total Assets.................... $5 182 $5 144 $4 802
For a discussion of the potential divestiture of CG&E's gas operations, see Note
13(d).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
The directors of CG&E at February 28, 1995, included:
Jackson H. Randolph Mr. Randolph, age 64, is Chairman, President and Chief
Executive Officer of CG&E. He has served as a director of CG&E since 1983,
and his current term as director expires April 20, 1995.
James E. Rogers Mr. Rogers, age 47, is Vice Chairman and Chief Operating
Officer of CG&E. He has served as a director of CG&E since October 24, 1994,
and his current term as director expires April 20, 1995.
George H. Stinson Mr. Stinson, age 49, is President of CG&E. He has served
as a director of CG&E since October 24, 1994, and his current term expires
April 20, 1995.
Executive Officers
The information included in Part I of this report on pages 11 through 13 under
the caption "Executive Officers of the Registrant" is referenced in reliance
upon General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Board Compensation Committee Report on Executive Compensation
In 1994, the executive compensation program of CG&E was administered by the
Management Compensation Committee (CG&E Committee) of the Board of Directors
of CG&E (CG&E Board). The CG&E Committee established CG&E's compensation
philosophy and the compensation of the Chief Executive Officer and all other
executive officers prior to October 24, 1994 (the Effective Date). On the
Effective Date, CINergy acquired all the common stock of both CG&E and
Resources, and the former common stock holders of CG&E and Resources became
holders of common stock of CINergy.
After the Effective Date, it is the responsibility of the Compensation
Committee of the Board of Directors of CINergy (CINergy Committee) to
establish the compensation for the Chief Executive Officer and all other
executive officers. The CINergy Committee also administers compensation plans
for all executive officers and key employees. The CG&E Committee was composed
of Messrs. Oliver W. Birckhead (Chairman), George C. Juilfs, John J. Schiff,
Jr., Dudley S. Taft, and Oliver W. Waddell, each of whom was an independent,
non-employee director of CG&E. The CINergy Committee is composed of Messrs.
Van P. Smith (Chairman), Michael G. Browning, George C. Juilfs, and John J.
Schiff, Jr., each of whom is an independent, non-employee director of CINergy.
Compensation Philosophy CG&E's executive compensation philosophy sought to
provide a total compensation program that would attract, retain, and motivate
the high quality employees needed to provide superior service to its customers
and to maximize returns to its shareholders. CG&E's policy, in considering
base salary and performance based annual incentives, was designed to provide
competitive levels of compensation that would integrate pay with CG&E's annual
performance goals, reward above average corporate performance, and recognize
individual achievement.
It was CG&E's practice to review compensation data provided by the Edison
Electric Institute for utility companies of comparable size based on revenue.
The compensation level for each executive officer was reviewed based on an
evaluation of compensation levels at such companies for executives with
similar job responsibilities, with the objective of providing total
compensation equivalent to approximately the 75th percentile. The performance
of each executive was evaluated based upon that individual's performance for
the year in relation to the established goals and objectives for the year.
CG&E's executive compensation program consisted of two components: base
salary and annual incentives.
Pursuant to the merger, certain executive compensation and benefit plans of
Resources and Energy were adopted and implemented by CINergy as of the
Effective Date. On October 18, 1994, CINergy adopted, effective as of the
Effective Date, the Stock Option Plan, Performance Shares Plan, Annual
Incentive Plan, and Executive Supplemental Life Insurance Program (Board
approved plans). Each of these plans is substantially similar to its
predecessor Resources or Energy plan. Each Resources or Energy predecessor
plan was merged into and became a part of the CINergy plan which bears the
same name.
CINergy has retained an independent compensation and benefits consulting firm
to conduct a study of existing executive compensation program structures and
to assist the CINergy Committee as it formulates an integrated corporate
compensation philosophy, including the elements of compensation and the mix of
base salary, annual, and long-term incentives. The consulting firm will also
advise as to the retention, modification, or replacement of the Board approved
plans and as to plan design and administration generally.
Annual Cash Incentive Plan For 1994, CG&E had a Key Employee Annual Incentive
Plan which was intended to provide additional incentive for superior
performance. Approximately 210 key employees of CG&E participated in the plan
during 1994 and were granted cash awards to the extent that certain pre-
determined corporate and individual goals were attained. Under the Key
Employee Annual Incentive Plan, the Chief Executive Officer was eligible for
additional compensation of up to 55% of base pay and other CG&E executive
officers were eligible for additional compensation of up to 37.5% of base pay.
The CG&E Committee determined that the maximum available awards were payable
based upon the extraordinary efforts of the executive officers during 1994
leading to the consummation of the merger. The Key Employee Annual Incentive
Plan was replaced by CINergy's Annual Incentive Plan as of the Effective Date.
The granting of compensation under the Key Employee Annual Incentive Plan was
first subject to a Shareholder Protection Trigger. This trigger provided that
no incentive payments were made for the current fiscal year unless dividends
per share for that fiscal year equalled or exceeded the amount per share paid
in the previous fiscal year, and total pre-tax earnings were sufficient to
cover all dividends payable for the current fiscal year, plus the amount
necessary to cover total awards payable under the plan. The amounts of any
awards varied depending on the meeting of various other goals established and
approved by the CG&E Committee. Such goals included consummation of the
merger, overall customer satisfaction and relationships, corporate culture
initiatives, and cost control. Any award was then subject to modification
based on the relative level of rates charged customers, a Customer Protection
Modifier, which was based on the relative ranking of electric and gas rates
for the city of Cincinnati as compared to 30 other cities. If CG&E maintained
its relative position, this modifier had no effect. If CG&E's relative
position improved or declined, the awards payable were subject to upward or
downward adjustment, accordingly. The data on electric rates was as published
by the Edison Electric Institute, and by the American Gas Association for gas
rates. Because the CG&E Board recognized that the interests of shareholders
and customers are paramount, the Shareholder Protection Trigger and Customer
Protection Modifier, as indicated above, were integral to the plan.
For 1995, the CINergy Annual Incentive Plan will use a combination of
corporate and individual goals. Corporate goals will account for 50% of the
total possible award, and achievement of individual goals will make up the
balance. The corporate goals for 1995 will be based in two areas: (1)
earnings per share; and (2) non-fuel operation and maintenance merger savings.
The earnings per share goal will account for 37.5% and the merger savings goal
will constitute 12.5% of the total possible award. For 1995, approximately
400 key employees will participate in the plan. The potential awards will
range up to a maximum of 55% of the participant's annual salary, depending
upon the achievement levels and the participant's position.
Long-term Incentive Plan and Stock Option Plan The CINergy Performance Shares
Plan is a long-term incentive plan developed to reward officers and other key
employees for contributing to long-term success by achieving corporate and
individual goals approved by the CINergy Committee. The executive officers
named in the compensation tables (except Messrs. C. Robert Everman and Robert
P. Wiwi) participate in this plan, and the same corporate and individual goals
used in CINergy's Annual Incentive Plan are applicable to this plan. The
potential award opportunities are established in the same manner as the Annual
Incentive Plan, with the minimum award opportunities ranging from 13.33% to
36.66% of annual salary for the full performance cycle. Performance cycles
consist of overlapping four-year periods. Because the former Energy
Performance Shares Plan was merged into the CINergy Performance Shares Plan on
the Effective Date, the then existing Energy performance cycles of 1992
through 1995 and 1994 through 1997 are the current performance cycles under
the CINergy plan.
The executive officers and other key employees of CINergy are also eligible
for grants under the CINergy Stock Option Plan. This Plan is designed to
align executive compensation with shareholder interests. Both non-qualified
and incentive stock options have been granted under the plan. Options vest at
the rate of 20% per year over a five-year period from the date of grant and
may be exercised over a 10-year term.
Chief Executive Officer Mr. Randolph's 1994 base salary was determined
pursuant to an employment agreement with CINergy dated December 11, 1992, as
amended and restated as of the Effective Date (see "Employment Agreement and
Severance Arrangements" discussed further herein). For 1994, Mr. Randolph
also received incentive compensation under the CG&E Key Employee Annual
Incentive Plan in the amount of $255,750, of which 57% was based on
achievement of CG&E goals and 43% was based upon the CG&E Committee's
determination of his achievement of individual goals. Mr. Randolph also was
granted an option to purchase 250,000 shares of CINergy common stock on the
Effective Date at a price of $22.875.
Giving consideration to the accomplishments of 1994 which resulted in the
consummation of the merger, sufficient goals were met to obtain the maximum
award available. Other goals pertaining to customer satisfaction and
relationships, corporate culture initiatives, and cost control were also met.
The relative importance in meeting these goals was equal in the determination
of awards. The Customer Protection Modifier was neutral, resulting in no
upward or downward adjustment.
Summary The CINergy Committee is reviewing the compensation philosophies of
Resources and CG&E in order to determine the CINergy Committee's philosophy.
Although its philosophy has not been finalized, it is the intent of the
CINergy Committee to emphasize incentive compensation, both short-term and
long-term, in order to tie the interests of the executive officers and the
shareholders of CINergy. It is anticipated that base salary, annual cash
incentives, and long-term incentives will play an integral part in executive
compensation in the future. Although CINergy currently has adopted executive
compensation plans identical to those previously available at Resources and
Energy, the CINergy Committee is reviewing those plans in order to determine
the types of plans which will complement its executive compensation
philosophy.
The 1993 Omnibus Budget Reconciliation Act (OBRA) became law in August 1993
for compensation earned in 1994 and later. Under the law, income tax
deductions of publicly traded companies may be limited to the extent total
compensation (including base salary, annual bonus, restricted stock awards,
stock option exercises, and non-qualified benefits) for certain executive
officers exceeds $1 million in any one year. Under the OBRA, the deduction
limit does not apply to payments which qualify as "performance based" or
compensation which is payable under a written contract that was in effect
before February 17, 1993. The CINergy Committee will review the application
of the OBRA to future compensation; however, it intends to compensate
executives on performance achieved, both corporate and individual.
Summary Compensation Table
The following table sets forth the total compensation paid to CG&E's Chief
Executive Officer and to each of its additional four most highly compensated
executive officers (named executive officers) for services to CG&E and its
subsidiaries during the calendar years ended December 31, 1994, 1993, and
1992. The data presented includes compensation paid by CG&E and its
subsidiaries for the periods prior to the merger.
Long-term Compensation
Annual Compensation Awards Payouts
Other All
Annual Restricted Securities Other
Compen- Stock Underlying LTIP Compen-
Name and Salary Bonus(1) sation Awards Options/SARs Payouts sation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
Jackson H. Randolph (2) 1994 470,000 255,750 5,719 0 250,000 0 92,724 (3)
Chairman and CEO 1993 425,000 200,000 3,512 0 0 0 84,886
1992 425,000 150,000 3,096 0 0 0 61,292
C. Robert Everman (4) 1994 229,167 86,625 10,339 0 0 0 788,141 (5)
Senior Vice President - 1993 217,500 55,000 0 0 0 0 5,437
Finance 1992 205,000 43,000 0 0 0 0 5,125
Robert P. Wiwi (6) 1994 202,806 76,658 16,578 0 0 0 707,402 (5)
Senior Vice President - 1993 193,188 48,700 941 0 0 0 4,830
Customer and 1992 184,585 30,000 4,189 0 0 0 4,596
Corporate Services
Terry E. Bruck 1994 191,267 69,975 0 0 100,000 0 0
Group Vice President - 1993 169,333 42,800 843 0 0 0 0
Wholesale Power and 1992 158,997 30,000 2,725 0 0 0 0
Transmission Operations
Stephen G. Salay 1994 182,796 65,871 0 0 100,000 0 3,969 (7)
Group Vice President - 1993 161,895 41,000 0 0 0 0 4,047
Power Operations 1992 149,670 30,000 0 0 0 0 3,495
<FN>
(1) The 1994 and 1993 bonuses were paid during 1994 and 1993,
respectively; 1992 bonuses were paid during 1993; 1991 bonuses
were paid during 1992.
(2) Mr. Randolph held additional office of President from October 1986
through the Effective Date.
(3) The employer matching contributions for Mr. Randolph under the
CG&E Deferred Compensation and Investment Plan (DCIP) were $3,969.
At the direction of the CG&E Board pursuant to the terms of a
Deferred Compensation Agreement effective as of January 1, 1992,
Mr. Randolph received a deferred compensation award in the amount
of $50,000. The above-market interest on the deferred
compensation award under the Deferred Compensation Agreement for
1994 is $21,211. The value of benefits under a Split Dollar Life
Insurance Agreement for 1994 is $17,544.
(4) Mr. Everman retired effective January 1, 1995.
(5) Amount includes for Messrs. Everman and Wiwi, respectively:
employer matching contributions under the DCIP of $3,969 and
$3,969; and compensation pursuant to the terms of their executive
severance agreements of $784,172 and $703,433.
(6) Mr. Wiwi resigned effective January 1, 1995.
(7) Amount consists entirely of employer matching contributions under
the DCIP.
Option/SAR Grants Table
The following table sets forth information concerning individual grants of
options to purchase CINergy common stock made to the named executive officers
during 1994.
Potential
Individual Grants Realizable Value at
---------------------------------- Assumed Annual
Number of % Rates of Stock Price
Securities of Total Appreciation
Underlying Options/SARs Exercise for Option Term
Options/SARs Granted to or Base ------------------------
Granted Employees in Price Expiration 5% 10%
Name (#) Fiscal Year ($/Sh) Date ($) ($)
Jackson H. Randolph 250,000 20.83% 22.875 10/24/2004 1,579,985 3,491,354
C. Robert Everman -0- N/A N/A N/A N/A N/A
Robert P. Wiwi -0- N/A N/A N/A N/A N/A
Terry E. Bruck 100,000 8.33% 22.875 10/24/2004 631,994 1,396,542
Stephen G. Salay 100,000 8.33% 22.875 10/24/2004 631,994 1,396,542
Option/SAR Exercises and Year-end Value Table
The following table sets forth information concerning stock options held by
the named executive officers during 1994. During 1994, none of the named
executive officers exercised any stock options. The table shows the numbers
of shares for which options were held as of December 31, 1994, and the values
for "in-the-money" options, which represent the positive spread between the
exercise prices of outstanding stock options and the market price of the
shares as of December 31, 1994, which was $23.50 per share.
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End FY-End
Shares Acquired Value (#) ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
Jackson H. Randolph 0 N/A 0/250,000 0/156,250
C. Robert Everman 0 N/A 0/0 0/0
Robert P. Wiwi 0 N/A 0/0 0/0
Terry E. Bruck 0 N/A 0/100,000 0/62,500
Stephen G. Salay 0 N/A 0/100,000 0/62,500
Long-term Incentive Plan Awards Table
The following table sets forth the potential payouts of awards granted under
the CINergy Performance Shares Plan to the named executive officers during
1994.
Estimated Future Payouts
under Non-Stock Price-Based Plans
Number of Performance or ------------------------------------------
Shares, Units or Other Period Threshold Target Maximum
Other Rights Until Maturation Shares Shares Shares
Name (#) or Payout (#) (#) (#)
Jackson H. Randolph 6,139 1994-1997 (1) 12,278 (1)
C. Robert Everman 0 N/A N/A N/A N/A
Robert P. Wiwi 0 N/A N/A N/A N/A
Terry E. Bruck 1,800 1994-1997 (1) 3,599 (1)
Stephen G. Salay 1,800 1994-1997 (1) 3,599 (1)
<FN>
(1) The number of performance shares of CINergy common stock contingently
granted is calculated by determining the award opportunity in dollars
for the performance cycle and dividing this by the per share price of
the common stock at the time of the grant. For the 1994 through 1997
performance period, the award opportunity for participants is measured
in terms of percentages ranging from 13.33% to 36.66% of annual
earnings. The performance shares vest based upon the achievement of
long-term corporate and individual goals established by the board of
directors of CINergy at the beginning of the performance period and
measured at the end of the cycle. The actual size of an award is
determined by multiplying the amount contingently granted by a weighted
calculation reflecting the extent to which the aggregate of the pre-
established goals has been met. For the 1994 through 1997 performance
period, an award of approximately twice the number of shares as
contingently granted will be made if the aggregate of the pre-
established goals is met. There is no minimum (threshold) award, and
the board of directors of CINergy may enhance the target award in
recognition of exemplary performance or achievement as to individual
goals. Awards are made in cash and shares of CINergy common stock over
a two-year period immediately following each performance cycle. The
amount of an award that is generally paid in cash is equal to the amount
of Federal, state, and local income taxes due on each installment, plus,
with respect to the second installment, dividends otherwise payable on
such installment.
Pension Benefits
The primary pension benefits payable at retirement to each of the named
executive officers are provided pursuant to the terms of CG&E's non-
contributory management pension plan (CG&E Pension Plan).
Under the terms of the CG&E Pension Plan, the retirement income payable to a
pensioner is 1.3% of final average pay plus 0.35% of final average pay in
excess of covered compensation, times the number of years of credited service
through 30 years, plus 0.1% of final average pay times the number of years of
credited service over 30 years. Final average pay is the average annual
salary, based on July 1 pay rates, during the employee's five consecutive
calendar years producing the highest such average within the last 10 calendar
years immediately preceding retirement. Covered compensation is the average
Social Security taxable wage base over a 35-year period.
Each of the named executive officers is also a vested participant in CG&E's
Supplemental Executive Retirement Plan which provides retirement, disability,
and death benefits. Upon retirement or death after age 55, the participant or
designated beneficiary will receive for a period of 15 years an annual amount
equal to 75% of the individual's highest annual compensation, reduced by
social security benefits and by amounts received from the CG&E Pension Plan.
Further reductions will be made for fewer than 30 years of service and
retirement prior to age 60. In the case of a participant's death prior to age
60, the designated beneficiary will receive 50% of the participant's final
annual compensation until the later of the date the participant would have
reached age 65, or 10 years. If disabled, a participant will receive the
supplemental retirement benefits until the later of the participant's age 65,
or 15 years.
The following pension plan table illustrates the estimated annual benefits
payable at normal retirement age 65 for the years of service indicated under
the terms of the CG&E Pension Plan and the supplemental plan. Compensation
utilized to determine benefits under the plans includes salary and bonus as
set forth within the respective columns of the summary compensation table.
The estimated credited years of service at normal retirement age 65 are as
follows: J. H. Randolph, 37 years; T. E. Bruck, 42 years; and S. G. Salay, 26
years. Effective December 31, 1994, R. P. Wiwi resigned with 31 credited
years of service, and C. R. Everman retired with 36 credited years of service.
Years of Service
Compensation 15 20 25 30 or More
$200,000. . . . . . . . . $ 75,000 $100,000 $125,000 $150,000
225,000. . . . . . . . . 84,375 112,500 140,625 168,750
250,000. . . . . . . . . 93,750 125,000 156,250 187,500
300,000. . . . . . . . . 112,500 150,000 187,500 225,000
350,000. . . . . . . . . 131,250 175,000 218,750 262,500
400,000. . . . . . . . . 150,000 200,000 250,000 300,000
450,000. . . . . . . . . 168,750 225,000 281,250 337,500
550,000. . . . . . . . . 206,250 275,000 343,750 412,500
650,000. . . . . . . . . 243,750 325,000 406,250 487,500
750,000. . . . . . . . . 281,250 375,000 468,750 562,500
850,000. . . . . . . . . 318,750 425,000 531,250 637,500
950,000. . . . . . . . . 356,250 475,000 593,750 712,500
CINergy has an Executive Supplemental Life Insurance Program, which provides
key management personnel, including Messrs. Randolph, Bruck, and Salay, with
either postretirement life insurance coverage or deferred compensation. A
participant in the program may elect either to continue life insurance
coverage after retirement or to receive the total amount of coverage in the
form of deferred compensation payable in 10 equal annual installments
beginning at age 62 or retirement, whichever is later. An employee who elects
to receive deferred compensation will receive, at the later of age 62 or
retirement, only deferred compensation payments, and his or her life insurance
coverage will be cancelled at that time. Coverage is $50,000 for participants
with annual base salaries of less than $100,000; $100,000 for participants
with annual base salaries between $100,000 and $200,000; and $150,000 for
participants with annual base salaries over $200,000. The estimated annual
benefit payable, at the later of age 62 or retirement, to Mr. Randolph is
$15,000 per year over 10 years, and to each of Messrs. Bruck and Salay is
$10,000 per year over 10 years.
Employment Agreement and Severance Arrangements
CINergy entered into an employment agreement with Mr. Randolph as of the
Effective Date. Pursuant to this agreement, Mr. Randolph will serve as
Chairman and Chief Executive Officer of CINergy until November 30, 1995, and
then will retire from the position of Chief Executive Officer but will
continue to serve as Chairman of the Board of CINergy until November 30, 2000.
During the terms of his agreement, Mr. Randolph will receive a minimum annual
base salary of $465,000. He will also be paid an annual incentive cash award
of up to 55% of his annual salary pursuant to the CINergy Annual Incentive
Plan, and will be eligible to participate in all other incentive, stock
option, performance award, savings, retirement, and welfare plans applicable
generally to employees and executives of CINergy.
If Mr. Randolph's employment terminates as a result of death, his beneficiary
will receive a lump sum cash amount equal to the sum of (a) his annual base
salary through the termination date to the extent not previously paid, (b) a
pro rata portion of the benefit under the CINergy Annual Incentive Plan
calculated based upon the termination date, and (c) any compensation
previously deferred but not yet paid to Mr. Randolph (with accrued interest or
earnings thereon) and any unpaid accrued vacation pay. In addition to these
accrued amounts, if CINergy terminates Mr. Randolph's employment without
"cause" or he terminates his employment for "good reason" (as each is defined
in the employment agreement), CINergy will pay to Mr. Randolph (a) a lump sum
cash amount equal to the present value of his annual base salary and benefit
under the CINergy Annual Incentive Plan payable through the end of the term of
employment, at the rate and applying the same goals and factors in effect at
the time of notice of such termination, (b) the value of all benefits to which
Mr. Randolph would have been entitled had he remained in employment until the
end of the term of employment under the CINergy Performance Shares Plan and
Executive Supplemental Life Insurance Program, (c) the value of all deferred
compensation and all executive life insurance benefits whether or not then
vested or payable, and (d) medical and welfare benefits for Mr. Randolph and
his family through the end of the term of employment. If Mr. Randolph's
employment is terminated by CINergy for cause or by Mr. Randolph without good
reason, Mr. Randolph will receive unpaid annual base salary accrued through
the termination date and any accrued deferred compensation.
Each of Messrs. Bruck, Randolph, and Salay (each, an Officer) has a severance
agreement with CINergy which provides that if, within three years after the
Effective Date, the Officer terminates his employment for good cause or his
employment is terminated by CINergy other than for disability or cause,
CINergy will pay the Officer a cash amount equal to 300% of his annualized
compensation for the most recent five years ending before the Effective Date,
less $1,000, plus a cash "gross-up" payment equal to the Federal excise tax
due on such amount, if any.
Deferred Compensation Agreement
Mr. Randolph and CG&E entered into a deferred compensation agreement effective
as of January 1, 1992 (Deferred Compensation Agreement) pursuant to which, in
lieu of granting to him a cash increase in base salary, Mr. Randolph was
credited with a $50,000 base salary increase in the form of deferred
compensation. Such amount will be deferred annually for a five-year period
beginning January 1, 1992, and ending December 31, 1996. The Deferred
Compensation Agreement was assumed by CINergy as of the Effective Date.
In general, Mr. Randolph's Deferred Compensation Agreement provides that if
his employment terminates for any reason, other than death or disability,
prior to January 1, 1997, he will receive the total amount of his deferred
income plus interest. If Mr. Randolph's employment terminates on or after
January 1, 1997, he will receive an annual cash benefit of $179,000 payable
for a 15-year period beginning January 2001. Proportional benefits are
payable to Mr. Randolph in the event his employment is terminated for death or
disability prior to January 1, 1997.
Compensation Committee Interlocks and Insider Participation
Mr. Schiff, Chairman of the Board of Cincinnati Financial Corporation, serves
on the Compensation Committee of the Board of Directors of CINergy, and Mr.
Randolph, Chairman of the Board and Chief Executive Officer of CINergy and its
subsidiaries, including CG&E, serves on the Board of Directors of Cincinnati
Financial Corporation.
CG&E and its subsidiaries carry various bond coverages and also carry
insurance coverage for their directors, officers, and employees against
certain civil liabilities. During 1994, insurance premiums, amounting to
approximately $123,300, at competitive rates, were paid to the John J. &
Thomas R. Schiff & Co., Inc., of which Mr. Schiff is also Chairman of the
Board.
Performance Graph
The following line graph compares the cumulative total shareholder return of
the common stock of CG&E with the cumulative total returns during the same
time period of the Standard & Poor's (S&P) Electric Utilities Index and the
S&P 500 Stock Index. The graph tracks performance from January 1, 1990,
through October 24, 1994, the final trading date of CG&E's common stock. The
graph assumes a $100 investment on January 1, 1990, and the reinvestment of
all dividends.
1/1/90 1/1/91 1/1/92 1/1/93 1/1/94 10/24/94
CG&E Common Stock $100 $103 $148 $147 $174 $153
S&P Electric Utilities Index $100 $103 $134 $141 $159 $132
S&P 500 Stock Index $100 $97 $126 $136 $150 $151
Directors' Compensation
Effective March 3, 1995, the CG&E Board approved a recommended decrease in
directors' retainer and meeting attendance fees.
Under the revised arrangement, directors who are not employees (non-employee
directors) will receive an annual retainer fee of $8,000 plus a fee of $1,000
for each CG&E Board meeting attended; however, any director of CG&E who also
serves as a director of CINergy or any of its affiliates shall neither receive
such annual retainer fee, nor any compensation for attendance at any CG&E
Board meeting that is held concurrently or consecutively with a meeting of the
board of directors of CINergy. Directors who are also employees of CINergy or
any of its subsidiaries (Messrs. Randolph, Rogers, and Stinson) will receive
no remuneration for their services as directors.
Under the CINergy Directors' Deferred Compensation Plan, each non-employee
director of CINergy or any of its subsidiaries may defer fees and have them
accrued either in cash or in units representing shares of common stock of
CINergy. If deferred in such units, the stock will be distributed to the
director at the time of retirement from the appropriate board. Amounts
deferred in cash will be paid at the same time.
Under the CINergy Retirement Plan for Directors, non-employee directors with
five or more years of service will receive annual compensation in an amount
equal to the annual CG&E Board fees in effect at the time of termination of
service as a director, paid for as many years as the director served on the
CG&E Board. This plan covers non-employee directors serving on the boards of
directors of CINergy, CINergy Services, Inc., CG&E, or Energy. Prior service
by non-employee directors of CG&E, Resources, or Energy as of the Effective
Date will be credited under this plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
As a result of the merger, CINergy became the owner of all of the 89,663,086
outstanding shares of CG&E's common stock. There remain outstanding 2,900,000
shares of CG&E's cumulative preferred stock as of December 31, 1994. The
class of cumulative preferred stock has been issued in six series.
No person or group is known by management of CG&E to be the beneficial owner
of more than 5% of CG&E's cumulative preferred class of stock, or of any such
series.
The beneficial ownership of the outstanding shares of common stock of CINergy
held by each director and named executive officer as of December 31, 1994, is
set forth in the following table:
Amount and Nature
Name of Beneficial Owner (1) of Beneficial Ownership (2)
Terry E. Bruck 2,944 shares
C. Robert Everman 6,401 shares
Jackson H. Randolph 23,549 shares
James E. Rogers 212,147 shares
Stephen G. Salay 6,114 shares
George H. Stinson 3,564 shares
Robert P. Wiwi 5,854 shares
All directors and executive 485,627 shares
officers as a group (representing 0.31% of the class)
__________
(1) No individual listed beneficially owned more than 0.14% of the
outstanding shares of common stock.
(2) Includes for Mr. Rogers 179,025 shares which he has the right to
acquire within 60 days pursuant to the exercise of stock options.
All
remaining shares listed are held directly and/or indirectly by named
beneficial owner.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
Refer to the page captioned "Index to Financial Statements and Financial
Statement Schedules", page 35 of this report, for an index of the financial
statements and financial statement schedules included in this report.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
Copies of the documents listed below which are identified with an asterisk (*)
have heretofore been filed with the Securities and Exchange Commission and are
incorporated herein by reference and made a part hereof. Exhibits not so
identified are filed herewith.
Exhibit
Designation Nature of Exhibit
3-a *Amended Articles of Incorporation of The
Cincinnati Gas & Electric Company (CG&E)
effective January 24, 1994. (Exhibit to
CG&E's 1993 Form 10-K in File No. 1-1232.)
3-b Regulations of CG&E as amended, adopted
March 3, 1995.
4-a *Original Indenture (First Mortgage Bonds)
between CG&E and The Bank of New York (as
Trustee) dated as of August 1, 1936.
(Exhibit to CG&E's Registration Statement
No. 2-2374.)
4-b *Tenth Supplemental Indenture between CG&E
and The Bank of New York dated as of July 1,
1967. (Exhibit to CG&E's Registration
Statement No. 2-26549.)
4-c *Eleventh Supplemental Indenture between
CG&E and The Bank of New York dated as of
May 1, 1969. (Exhibit to CG&E's
Registration Statement No. 2-32063.)
Exhibit
Designation Nature of Exhibit
4-d *Thirteenth Supplemental Indenture between
CG&E and The Bank of New York dated as of
November 1, 1971. (Exhibit to CG&E's
Registration Statement No. 2-41974.)
4-e *Fourteenth Supplemental Indenture between
CG&E and The Bank of New York dated as of
November 2, 1972. (Exhibit to CG&E's
Registration Statement No. 2-60961.)
4-f *Fifteenth Supplemental Indenture between
CG&E and The Bank of New York dated as of
August 1, 1973. (Exhibit to CG&E's
Registration Statement No. 2-60961.)
4-g *Twenty-fifth Supplemental Indenture between
CG&E and The Bank of New York dated as of
December 1, 1985. (Exhibit to CG&E's 1985
Form 10-K in File No. 1-1232.)
4-h *Twenty-ninth Supplemental Indenture between
CG&E and The Bank of New York dated as of
June 15, 1989. (Exhibit to CG&E's June 30,
1989, Form 10-Q in File No. 1-1232.)
4-i *Thirtieth Supplemental Indenture between
CG&E and The Bank of New York dated as of
May 1, 1990. (Exhibit to CG&E's June 30,
1990, Form 10-Q in File No. 1-1232.)
4-j *Thirty-first Supplemental Indenture between
CG&E and The Bank of New York dated as of
December 1, 1990. (Exhibit to CG&E's 1990
Form 10-K in File No. 1-1232.)
4-k *Thirty-second Supplemental Indenture
between CG&E and The Bank of New York dated
as of December 15, 1991. (Exhibit to CG&E's
Registration Statement No. 33-45115.)
4-l *Thirty-third Supplemental Indenture between
CG&E and The Bank of New York dated as of
September 1, 1992. (Exhibit to CG&E's
Registration Statement No. 33-53578.)
4-m *Thirty-fourth Supplemental Indenture
between CG&E and The Bank of New York dated
as of October 1, 1993. (Exhibit to CG&E's
September 30, 1993, Form 10-Q in File No. 1-
1232.)
Exhibit
Designation Nature of Exhibit
4-n *Thirty-fifth Supplemental Indenture between
CG&E and The Bank of New York dated as of
January 1, 1994. (Exhibit to CG&E's
Registration Statement No. 33-52335.)
4-o *Thirty-sixth Supplemental Indenture between
CG&E and The Bank of New York dated as of
February 15, 1994. (Exhibit to CG&E's
Registration Statement No. 33-52335.)
4-p *Loan Agreement between CG&E and County of
Boone, Kentucky dated as of February 1,
1985. (Exhibit to CG&E's 1984 Form 10-K in
File No. 1-1232.)
4-q *Loan Agreement between CG&E and State of
Ohio Air Quality Development Authority dated
as of December 1, 1985. (Exhibit to CG&E's
1985 Form 10-K in File No. 1-1232.)
4-r *Loan Agreement between CG&E and State of
Ohio Air Quality Development Authority dated
as of December 1, 1985. (Exhibit to CG&E's
1985 Form 10-K in File No. 1-1232.)
4-s *Loan Agreement between CG&E and State of
Ohio Air Quality Development Authority dated
as of December 1, 1985. (Exhibit to CG&E's
1985 Form 10-K in File No. 1-1232.)
4-t *Repayment Agreement between CG&E and The
Dayton Power and Light Company dated as of
December 23, 1992. (Exhibit to CG&E's 1992
Form 10-K in File No. 1-1232.)
4-u *Loan Agreement between CG&E and State of
Ohio Water Development Authority dated as of
January 1, 1994. (Exhibit to CG&E's 1993
Form 10-K in File No. 1-1232.)
4-v *Loan Agreement between CG&E and State of
Ohio Air Quality Development Authority dated
as of January 1, 1994. (Exhibit to CG&E's
1993 Form 10-K in File No. 1-1232.)
4-w *Loan Agreement between CG&E and County of
Boone, Kentucky dated as of January 1, 1994.
(Exhibit to CG&E's 1993 Form 10-K in File
No. 1-1232.)
Exhibit
Designation Nature of Exhibit
4-x *Original Indenture (First Mortgage Bonds)
between The Union Light, Heat and Power
Company (ULH&P) and The Bank of New York
dated as of February 1, 1949. (Exhibit to
ULH&P's Registration Statement No. 2-7793.)
4-y *Fifth Supplemental Indenture between ULH&P
and The Bank of New York dated as of January
1, 1967. (Exhibit to CG&E's Registration
Statement No. 2-60961.)
4-z *Seventh Supplemental Indenture between
ULH&P and The Bank of New York dated as of
October 1, 1973. (Exhibit to CG&E's
Registration Statement No. 2-60961.)
4-aa *Eighth Supplemental Indenture between ULH&P
and The Bank of New York dated as of
December 1, 1978. (Exhibit to CG&E's
Registration Statement No. 2-63591.)
4-bb *Tenth Supplemental Indenture between ULH&P
and The Bank of New York dated as of July 1,
1989. (Exhibit to CG&E's June 30, 1989,
Form 10-Q in File No. 1-1232.)
4-cc *Eleventh Supplemental Indenture between
ULH&P and The Bank of New York dated as of
June 1, 1990. (Exhibit to CG&E's June 30,
1990, Form 10-Q in File No. 1-1232.)
4-dd *Twelfth Supplemental Indenture between
ULH&P and The Bank of New York dated as of
November 15, 1990. (Exhibit to ULH&P's 1990
Form 10-K in File No. 2-7793.)
4-ee *Thirteenth Supplemental Indenture between
ULH&P and The Bank of New York dated as of
August 1, 1992. (Exhibit to ULH&P's 1992
Form 10-K in File No. 2-7793.)
10-a *+Supplemental Executive Retirement Income
Plan between CG&E and certain executive
officers. (Exhibit to CG&E's 1988 Form 10-K
in File No. 1-1232.)
10-b *+Amendment to Supplemental Executive
Retirement Income Plan between CG&E and
certain executive officers. (Exhibit to
CG&E's 1992 Form 10-K in File No 1-1232.)
Exhibit
Designation Nature of Exhibit
10-c *+Executive Severance Agreement between CG&E
and certain executive officers. (Exhibit to
CG&E's 1989 Form 10-K in File No. 1-1232.)
10-d *+Amendment to Executive Severance Agreement
between CG&E and certain executive officers.
(Exhibit to CG&E's 1992 Form 10-K in File
No. 1-1232.)
10-e *+Amended and Restated Employment Agreement
dated October 24, 1994, among CG&E, CINergy
Corp. (an Ohio corporation), CINergy Corp.
(CINergy) (a Delaware corporation), PSI
Resources, Inc., PSI Energy, Inc., and
Jackson H. Randolph. (Exhibit to CINergy's
1994 Form 10-K in File No. 1-11377.)
10-f *+Amended and Restated Employment Agreement
dated July 2, 1993 among PSI Resources,
Inc., PSI Energy, Inc., CG&E, CINergy,
CINergy Sub, Inc., and James E. Rogers, Jr.
(Exhibit to CINergy's Amendment No. 3 to
CINergy's Form S-4, filed October 8, 1993.)
10-g *+Employment Agreement dated January 1,
1995, among CINergy, CG&E, CINergy Services,
Inc., CINergy Investments, Inc., PSI Energy,
Inc., and William J. Grealis. (Exhibit to
CINergy's 1994 Form 10-K in File No. 1-
11377.)
10-h *Text of Settlement Agreement dated October
27, 1993, by and among PSI Resources, Inc.,
PSI Energy, Inc., CG&E, CINergy, IPALCO
Enterprises, Inc., Indianapolis Power &
Light Company, James E. Rogers, John R.
Hodowal, and Ramon L. Humke (together with
the exhibits and schedules thereto).
(Exhibit to PSI Resources, Inc.'s Form 8-K,
dated October 27, 1993.)
21 Not Applicable.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule (included in
electronic submission only).
__________________
+ Management contract, compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
THE CINCINNATI GAS AND ELECTRIC COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1994
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 14 906 $ 25 598 $ 15 010 $ 46 515 $ - $ 8 999
Accumulated Depreciation 1 472 313 169 607 4 374 32 789 1/ - 1 613 505
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 733 224 $ 8 616 $ (5 948) $(11 168) $ - $ 747 060
Accrued Pension and Other
Postretirement Benefit Costs 71 856 26 566 5 243 1 411 - 102 254
Environmental Liability 8 000 - 750 - - 8 750
Injuries & Damages 474 5 512 - 5 215 - 771
Other 14 038 8 190 380 519 - 22 089
$ 827 592 $ 48 884 $ 425 $(4 023) $ - $ 880 924
<FN>
_1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
_2/ See Notes 1(j) and 12 of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" for further information with respect to deferred income taxes.
THE CINCINNATI GAS AND ELECTRIC COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 12 114 $ 19 801 $ 1 032 $18 041 $ - $ 14 906
Accumulated Depreciation 1 362 468 150 521 4 435 28 022 1/ 17 089 1 472 313
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 307 139 $ 45 630 $396 307 $15 852 $ - $ 733 224
Accrued Pension and Other
Postretirement Benefit Costs 59 162 10 309 5 466 3 081 - 71 856
Environmental Liability 5 000 3 000 - - - 8 000
Injuries & Damages 1 078 5 034 - 5 638 - 474
Other 4 601 9 175 679 417 - 14 038
$ 376 980 $ 73 148 $402 452 $24 988 $ - $ 827 592
<FN>
_1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
_2/ See Notes 1(j) and 12 of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" for further information with respect to deferred income taxes.
THE CINCINNATI GAS AND ELECTRIC COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
Accumulated Provisions Deducted from
Applicable Assets
Allowance for Doubtful Accounts $ 12 003 $ 18 143 $ 989 $19 021 $ - $ 12 114
Accumulated Depreciation 1 249 046 140 529 4 447 31 554 1/ - 1 362 468
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 246 056 $ 80 074 $ 586 $19 577 $ - $ 307 139
Accrued Pension and Other
Postretirement Benefit Costs 25 012 5 495 28 655 - - 59 162
Environmental Liability - 5 000 - - - 5 000
Injuries & Damages 1 572 10 275 - 10 769 - 1 078
Other 3 613 1 301 - 313 - 4 601
$ 276 253 $102 145 $29 241 $30 659 $ - $ 376 980
<FN>
_1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
_2/ See Notes 1(j) and 12 of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and
Supplementary Data" for further information with respect to deferred income taxes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE CINCINNATI GAS & ELECTRIC COMPANY
Dated: March 28, 1995 Registrant
By Jackson H. Randolph
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
James E. Rogers Vice Chairman, Chief Operating March 28, 1995
Officer and Director
George H. Stinson President and Director March 28, 1995
J. Wayne Leonard Group Vice President and March 28, 1995
Chief Financial Officer
(Principal Financial Officer)
Jackson H. Randolph Chairman, Chief Executive Officer March 28, 1995
and Director
(Principal Executive Officer)
Charles J. Winger Comptroller March 28, 1995
(Principal Accounting Officer)