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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, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
1-11377 CINERGY CORP. 31-1385023
(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-3543 PSI ENERGY, INC. 35-0594457
(An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(317) 839-9611
2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080
(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
Cinergy Corp. Common Stock New York Stock Exchange
The Cincinnati Gas Cumulative Preferred Stock
& Electric Company 4%, 4 3/4%, 7 3/8%, and
7 7/8% New York Stock Exchange
Junior Subordinated
Debentures 8.28% New York Stock Exchange
PSI Energy, Inc. Cumulative Preferred Stock
4.32%, 4.16%, 6 7/8%,
7.15%, and 7.44% New York Stock Exchange
First Mortgage Bonds
Series S and Y New York Stock Exchange
The Union Light, None
Heat and Power
Company
Securities registered pursuant to Section 12(g) of the Act for Cinergy Corp.,
The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light,
Heat and Power Company: None
Indicate by check mark whether all registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No __
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 registrants' 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)
Requirements pursuant to Item 405 of Regulation S-K are not applicable for The
Union Light, Heat and Power Company.
The Union Light, Heat and Power Company meets the conditions set forth in
General Instruction J(1)(a) and (b) of Form 10-K and is therefore filing this
Form 10-K with the reduced disclosure format specified in General Instruction
J(2) of Form 10-K.
As of February 29, 1996, the aggregate market values of Cinergy Corp. Common
Stock and PSI Energy, Inc. Cumulative Preferred Stock held by non-affiliates
were $4.7 billion and $186 million, respectively.
Cinergy Corp. is the sole owner of the Common Stock of each of PSI Energy,
Inc. and The Cincinnati Gas & Electric Company. The Union Light, Heat and
Power Company's Common Stock is wholly-owned by The Cincinnati Gas & Electric
Company.
As of February 29, 1996, shares of Common Stock outstanding for each
registrant were as listed:
Company Shares
Cinergy Corp., par value $.01 per share 157,676,286
The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086
PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701
The Union Light, Heat and Power Company, par value $15.00 per share 585,333
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement of Cinergy Corp. dated March 15, 1996, and the Information
Statement of PSI Energy, Inc. dated March 27, 1996, are incorporated by
reference into Part III of this report.
This combined Form 10-K is separately filed by Cinergy Corp., The Cincinnati
Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant
is filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
TABLE OF CONTENTS
Item
Number
Glossary of Terms
PART I
1 Business
Organization . . . . . . . . . . . . . . . . . . . . . .
CG&E . . . . . . . . . . . . . . . . . . . . . . . . . .
ULH&P. . . . . . . . . . . . . . . . . . . . . . . . . .
PSI. . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments. . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . .
PSI. . . . . . . . . . . . . . . . . . . . . . . . . . .
ULH&P. . . . . . . . . . . . . . . . . . . . . . . . . .
Other Utility Subsidiaries . . . . . . . . . . . . . . .
3 Legal Proceedings
Power International Litigation . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . .
GLOSSARY OF TERMS
The following commonly used abbreviations or acronyms used in the text of this
combined Form 10-K are defined below:
TERM DEFINITION
Cinergy and Certain of its Subsidiaries:
Bruwabel Beheer-En Belegginsmaatschappij Bruwabel B.V., a
subsidiary of Power International
CG&E The Cincinnati Gas & Electric Company, an utility
subsidiary of Cinergy
Cinergy or Company Cinergy Corp.
Costanera Costanera Power Corp., a subsidiary of PSI Argentina,
Inc.
Enertech Enertech Associates International, Inc., a subsidiary
of Investments
Investments Cinergy Investments, Inc., a subsidiary of Cinergy
KO Transmission KO Transmission Company, a subsidiary of CG&E
Lawrenceburg Lawrenceburg Gas Company, an utility subsidiary of CG&E
PESCO Power Equipment Supply Co., a subsidiary of Investments
Power International Power International, Inc., a subsidiary of Investments
PSI PSI Energy, Inc., an utility subsidiary of Cinergy
Resources PSI Resources, Inc., PSI's previous parent holding
company
Services Cinergy Services, Inc., a subsidiary of Cinergy
ULH&P The Union Light, Heat and Power Company, a Kentucky
utility subsidiary of CG&E
Wholesale Power Wholesale Power Services, Inc., a subsidiary of
Investments
Certain of Cinergy's Generating Stations:
Gibson Gibson Generating Station
Woodsdale Woodsdale Generating Station
Zimmer William H. Zimmer Generating Station
Certain of Cinergy's Regulatory Orders:
April 1990 Order An IURC order issued in April 1990
August 1993 Order A PUCO order issued in August 1993
December 1993 Order An IURC order issued in December 1993
February 1995 An IURC order issued in February 1995
Order
June 1987 Order An IURC order issued in June 1987
May 1992 Order A PUCO order issued in May 1992
Merger Order The FERC's order approving the merger of CG&E and
Resources to form Cinergy
Regulatory Authorities:
CAAA Clean Air Act Amendments of 1990
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
EPA The Environmental Protection Agency
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
IDEM Indiana Department of Environmental Management
IURC Indiana Utility Regulatory Commission
KPSC Kentucky Public Service Commission
mega-NOPR FERC's Notice of Proposed Rulemaking Promoting Wholesale
Competition Through Open Access Non-discriminatory
Transmission Services by Public Utilities
Order 636 FERC order regarding gas purchases and transportation
PUCO Public Utilities Commission of Ohio
PUHCA Public Utility Holding Company Act of 1935
SEC Securities and Exchange Commission
Statement 71 Statement of Financial Accounting Standards No. 71,
Accounting for the Effects of Certain Types of
Regulation
Statement 87 Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions
Statement 121 Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of
Other Organizations:
AEP American Electric Power Company, Inc.
CFC National Rural Utilities Cooperative Finance
Corporation
East Kentucky East Kentucky Power Cooperative, Inc.
IBEW International Brotherhood of Electrical Workers
IGC Indiana Gas Company, Inc., formerly Indiana Gas and
Water Company, Inc.
IMPA Indiana Municipal Power Agency
IPALCO IPALCO Enterprises, Inc.
IUU Independent Utilities Union
Moody's Moody's Investors Service
NIPSCO Northern Indiana Public Service Company
RUS Rural Utilities Service, previously called the Rural
Electrification Administration
S&P Standard & Poor's
UCC The Indiana Office of the Utility Consumer Counselor
USWA United Steelworkers of America
WVPA Wabash Valley Power Association, Inc.
Miscellaneous Terms:
AFUDC Allowance for funds used during construction
APBO Accumulated Postretirement Benefit Obligation
Clean Coal Project Wabash River Clean Coal Project, a 262-megawatt clean
coal power generating facility, located at PSI's
Wabash River Generating Station
Committed Lines Unsecured lines of credit
CWIP Construction work in progress
DSM Demand-side management
kwh Kilowatt-hour
M&R Fund Maintenance and Replacement Fund
Mcf Thousand cubic feet
Merger Agreement Amended and Restated Agreement and Plan of
Reorganization
Merger Costs Merger transaction costs and costs to achieve merger
savings
MGP Manufactured gas plant
mw Megawatt
Non-fuel Merger Electric non-fuel operation and maintenance expense
Savings savings from the merger
PRP Potentially Responsible Party
Stock Option Plan Cinergy's Stock Option Plan
Uncommitted Lines Short-term borrowings with various banks on an "as
offered" basis
PART I
ITEM 1. BUSINESS
Cinergy, CG&E, PSI, and ULH&P
Organization
Cinergy, a Delaware corporation, is a registered holding company under the
PUHCA. Cinergy was created in the October 1994 merger of Resources and CG&E.
The business combination was accounted for as a pooling of interests.
Following the merger, Cinergy became the parent holding company of PSI, CG&E,
Investments, and Services.
Cinergy's two utility subsidiaries, CG&E and PSI, account for substantially
all of Cinergy's total operating revenues and Cinergy's total assets.
Cinergy, CG&E, and ULH&P
CG&E
CG&E, an Ohio corporation, is a combination electric and gas public utility
company with four wholly-owned utility subsidiaries, ULH&P, Miami Power
Corporation (Miami), The West Harrison Gas and Electric Company (West
Harrison), and Lawrenceburg. In addition, CG&E has two wholly-owned non-
utility subsidiaries, KO Transmission and Tri-State Improvement Company (Tri-
State).
CG&E and its utility subsidiaries are engaged in the production, transmission,
distribution, and sale of electric energy and/or 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, a Kentucky corporation, 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. KO Transmission will be
engaged in the transportation of natural gas in interstate commerce between
Kentucky and Ohio.
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.
ULH&P
ULH&P is engaged in the transmission, distribution, and sale of electric
energy and/or the sale and transportation of natural gas in northern Kentucky.
The area served with electricity, gas, or both covers approximately 500 square
miles, has an estimated population of 292,000 people, and includes the cities
of Covington and Newport in Kentucky.
Cinergy and PSI
PSI
PSI, an Indiana corporation, is engaged in the production, transmission,
distribution, and sale of electric energy in north central, central, and
southern Indiana. It serves an estimated population of two million people
located in 69 of the state's 92 counties including the cities of Bloomington,
Columbus, Kokomo, Lafayette, New Albany, and Terre Haute.
PSI Energy Argentina, Inc. (PSI Energy Argentina), a wholly-owned subsidiary
of PSI and an Indiana corporation, was formed to invest in foreign utility
companies. PSI Energy Argentina is a member of a multinational consortium
which has controlling ownership of Edesur S.A. (Edesur). Edesur is an
electricity-distribution network serving the southern half of Buenos Aires,
Argentina. Edesur provides distribution services to 2.1 million customers.
PSI Energy Argentina owns a small equity interest in this project and provides
operating and consulting services.
South Construction Company, Inc. (South Construction), a wholly-owned
subsidiary of PSI and an Indiana corporation, has been used solely to hold
legal title to real estate and interests in real estate which are either not
used and useful in the conduct of PSI's business (such as undeveloped real
estate of PSI abutting a PSI office building) or which has some defect in
title which is unacceptable to PSI. Most of the real estate to which South
Construction acquires title relates to PSI's utility business.
Cinergy
Investments
Investments, a Delaware corporation, is a non-utility subholding company that
was formed to operate Cinergy's non-utility businesses and interests.
Investments holds the following active non-utility subsidiaries and interests,
which are more fully described below: Power International, formerly Enertech,
its direct subsidiary, Bruwabel, and its indirect subsidiaries, Power
International s.r.o. and Power Development s.r.o.; Cinergy Resources, Inc.
(Cinergy Resources), formerly CG&E Resource Marketing, Inc.; CGE ECK, Inc.
(CGE ECK) and its interest in ECK s.r.o.; PSI Recycling, Inc. (Recycling);
PESCO; Wholesale Power; PSI Argentina, Inc. (PSI Argentina) and its
subsidiary, Costanera; Cinergy Technology, Inc. (Technology), formerly PSI
Environmental Corp.; and Cinergy Cooling Corp. (CoolCo).
Enertech was incorporated in Ohio in 1992 as a vehicle for CG&E to offer
utility management consulting services and to pursue investment opportunities
in energy-related areas, including DSM services, consulting, energy and fuel
brokering, engineering services, construction and/or operation of generation,
cogeneration, independent power production facilities, and project
development. In July 1994, Enertech acquired Bruwabel and its subsidiaries
for the purpose of pursuing design, engineering, and development work
involving energy privatization projects, primarily in the Czech Republic.
Subsequently, Enertech changed its name to Power International. While an
office in the Czech Republic is still being maintained, activities in the
Czech Republic and elsewhere have been reduced. Currently, Investments is
exploring opportunities to sell Bruwabel and its subsidiaries and their
assets, including the Vytopna Kromeriz Heating Plant which was acquired by
Power Development s.r.o. in 1995. (See Note 13(d) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".)
Cinergy Resources, a Delaware corporation, was formed to hold CG&E's interest
in U.S. Energy Partners, a gas marketing partnership that was dissolved
effective September 1, 1995. Upon dissolution, Cinergy Resources took its
portion of the partnership assets to continue in the gas marketing business.
Cinergy Resources will compete with traditional, regulated local distribution
companies by offering "merchant service" (i.e., acquiring natural gas for
resale to end-use customers) and will broker gas to industrial and large
commercial customers.
CGE ECK, a Delaware corporation, was formed to hold an investment in ECK
s.r.o., a Czech limited liability company which owns and operates a generating
facility in the Czech Republic. At present, CGE ECK holds an approximate 3%
interest in ECK s.r.o. and intends to dispose of that interest.
Recycling is an Indiana corporation which recycles metal from CG&E and paper,
metal, and other materials from PSI, its largest single supplier, and other
sources. Investments is actively pursuing the sale of Recycling.
PESCO was incorporated in Indiana to sell equipment and parts from a PSI
generating plant which was canceled, the Marble Hill Nuclear Project. PESCO
also purchased equipment for resale, brokered equipment, and sold equipment on
consignment for others. In late 1995 and early 1996, PESCO sold its remaining
assets and is in the process of discontinuing operations.
Wholesale Power, an Indiana corporation, was formed to engage in the business
of brokering power, emission allowances, electricity futures, and related
products and services and to provide consulting services in the wholesale
power-related markets. In addition, Wholesale Power was formed to create,
market, and maintain the services of an "electronic bulletin board" for the
bulk power market. The use of the electronic bulletin board was limited in
1995 and is being phased out in 1996.
PSI Argentina was formed as an Indiana corporation to, among other things, own
foreign generating facilities. In 1995, Costanera, a wholly-owned subsidiary
of PSI Argentina, sold its equity interest in its only investment, the 1,260-
mw Costanera power plant in Buenos Aires, Argentina. Costanera had obtained
its interest in the plant as a member of a multi-national consortium which has
controlling ownership of the plant.
Technology, an Indiana corporation, was created to manage Cinergy's existing
non-regulated, technology-related investments, assess the market potential for
non-regulated product and service development opportunities, and form key
alliances for non-regulated product development.
CoolCo, incorporated in Ohio in February 1996, was formed to engage in the
district cooling business. The City of Cincinnati awarded a non-exclusive
franchise that will permit CoolCo to construct, install, maintain, and operate
a chilled water system in the downtown business district of Cincinnati, Ohio.
Construction of such system is expected to begin in the first half of 1996.
Cinergy, CG&E, PSI, and ULH&P
Services
Services, a Delaware corporation, is the service company for the Cinergy
system, providing member companies with a variety of administrative,
management, and support services.
Cinergy, CG&E, PSI, and ULH&P
Customer, Sales, and Revenue Data
The number of customers served at year-end and the percent of operating
revenues derived from the sale of electricity and the sale and transportation
of natural gas for each registrant for 1995 are as follows:
Operating
Customers Revenues
Registrant Electric Gas Electric Gas
Cinergy and subsidiaries 1,369,043 439,427 85% 13%
CG&E and subsidiaries 719,227 439,427 77% 22%
PSI 649,816 N/A 98% N/A
ULH&P 113,874 73,680 72% 27%
Cinergy's utilities' service territory spans 86 counties in Ohio, Indiana, and
Kentucky and includes approximately 840 cities, towns, unincorporated
communities, and adjacent rural areas, including municipal utilities and rural
electric cooperatives.
The service territory of CG&E and its utility subsidiaries, including ULH&P,
is heavily populated and characterized by a stable residential customer base
and a diverse mix of industrial customers. CG&E's and its utility
subsidiaries' service territory spans 19 counties in Ohio, Indiana, and
Kentucky (of which ULH&P serves six counties in Kentucky) and includes
approximately 130 (44 for ULH&P) cities, towns, unincorporated communities,
and adjacent rural areas, including municipal utilities and rural electric
cooperatives. The area served by PSI is a residential, agricultural, and
widely diversified industrial territory. PSI's service territory includes
approximately 710 cities, towns, unincorporated communities, and adjacent
rural areas, including municipal utilities and rural electric cooperatives.
No one customer accounts for more than 5% of operating revenues for PSI, 5% of
electric or gas operating revenues for CG&E and its utility subsidiaries, or
10% of electric or gas operating revenues for ULH&P. 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.
Cinergy, CG&E, and ULH&P
Financial Information by Business Segment
For financial information by business segment, see Note 16 of the "Notes to
Financial Statements" in "Item 8. Financial Statements and Supplementary
Data". For a discussion of the potential divestiture of CG&E's, including
ULH&P's, gas operations, see Note 13(f) of the "Notes to Financial Statements"
in "Item 8. Financial Statements and Supplementary Data".
Regulation
Cinergy, CG&E, PSI, and ULH&P
Cinergy, its utility subsidiaries, and certain of its non-utility subsidiaries
are subject to regulation by the 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
captions "Repeal of the PUHCA" in the "Competitive Pressures" section and
"Potential Divestiture of Gas Operations" in the "Regulatory Matters" section
in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".)
CG&E, ULH&P, Miami, and PSI are each subject to regulation by the 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.
Cinergy, CG&E, and ULH&P
CG&E, as a public utility under the laws of Ohio, is also subject to
regulation by the 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 KPSC, and West Harrison and Lawrenceburg are regulated by
the IURC.
Cinergy and PSI
PSI, as a public utility under the laws of Indiana, is also regulated by the
IURC as to its retail rates, services, accounts, depreciation, issuance of
securities, acquisitions and sales of certain utility properties, and in other
respects as provided by Indiana law. Prior to the construction, purchase, or
lease of a facility used for the generation of electricity, a public utility
in Indiana must obtain from the IURC a certificate of public convenience and
necessity.
Cinergy, CG&E, PSI, and ULH&P
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
Cinergy, CG&E, PSI, and ULH&P
CG&E, PSI, and 27 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. (Refer to the information appearing under the caption
"Cinergy's Response to the Changing Competitive Environment" in the
"Competitive Pressures" section of "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion of
Cinergy's involvement in a coalition for operation of a regional transmission
system.)
In addition to the intercompany tie between CG&E's and PSI's electric systems,
Cinergy's electric system, which is operated by Services, is interconnected
with the electric systems of Indiana Michigan Power Company, Columbus and
Southern Ohio Electric Company, Ohio Power Company (all doing business as
AEP), Central Illinois Public Service Company, East Kentucky, Hoosier Energy
Rural Electric Cooperative, Inc., Indianapolis Power and Light Company,
Kentucky Utilities Company, Louisville Gas & Electric Company (LG&E), NIPSCO,
Southern Indiana Gas and Electric Company, The Dayton Power and Light Company,
Ohio Valley Electric Corporation, and Tennessee Valley Authority.
Cinergy, CG&E, and PSI
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 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. In addition, PSI has a power supply relationship with WVPA and
IMPA through power coordination agreements. WVPA and IMPA are also parties
with PSI to a joint transmission and local facilities agreement.
Cinergy, CG&E, and ULH&P
ULH&P does not own or operate any electric generating facilities. Its
requirements for electric energy are purchased from CG&E at rates regulated by
the FERC.
Fuel Supply
Cinergy
Cinergy purchases approximately 23 million tons of coal annually for use by
CG&E and PSI, which historically would rank Cinergy as the sixth largest
utility coal purchaser in the United States.
Cinergy, CG&E, and PSI
A major portion of the coal required by CG&E and PSI 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. 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 Illinois, Indiana, and Pennsylvania for PSI and Ohio, Kentucky,
West Virginia, and Pennsylvania for CG&E.
CG&E and PSI monitor alternative sources to assure a continuing availability
of economical fuel supplies. The companies intend to maintain the practice of
purchasing a portion of their coal requirements on the spot market and will
continue to investigate the least cost coal options in connection with their
compliance with the CAAA (see the information appearing under the caption
"Environmental Issues" in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations").
The companies believe they will be able to obtain sufficient coal to meet
future generating requirements. However, both CG&E and PSI are unable to
predict the extent to which coal availability and price may ultimately be
affected by future environmental requirements. Presently, CG&E and PSI expect
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.
Cinergy, CG&E, and ULH&P
Gas Supply
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 aggregation, gas distribution companies are
entering into term (one year or more) contracts directly with producers and
marketers, diminishing the once prominent spot market (see the information
appearing under the caption "Order 636" in the "Competitive Pressures" section
of "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations").
CG&E and its utility subsidiaries, including ULH&P, now obtain the majority of
their natural gas supply (91%) 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
utility subsidiaries' core requirements, and "swing" load, which is gas
available on a daily basis to accommodate 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 utility
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
utility 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,,
among other things, will influence prices.
Cinergy, CG&E, PSI, and ULH&P
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".
Cinergy, CG&E, PSI, and ULH&P
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".
Cinergy, CG&E, and PSI
Environmental Matters
Environmental compliance construction expenditures for 1996 for Cinergy and
its subsidiaries are forecasted to be as follows:
Registrant Expenditures
(in thousands)
CG&E and subsidiaries $309
PSI 51
Cinergy and subsidiaries $360
In addition, refer to the information appearing under the caption
"Environmental Issues" in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Employees
Cinergy
The number of employees of Cinergy and its subsidiaries at December 31, 1995,
was 8,602, of whom 4,859 belonged to bargaining units. These bargaining unit
employees were represented by labor agreements between CG&E and its
subsidiaries, including ULH&P, or PSI and the applicable union organization.
Of Cinergy's total employees, 3,236 employees were represented by the IBEW,
466 were represented by the USWA, and 1,157 were represented by the IUU. (For
additional information, See Note 13(g) of the "Notes to Financial Statements"
in "Item 8. Financial Statements and Supplementary Data".)
Employees assigned to Services at December 31, 1995, totaled 2,739, of whom
922 belonged to bargaining units. These bargaining unit employees were
represented by the labor agreements previously discussed. Of Services' total
employees, 455 were represented by the IUU and 467 were represented by the
IBEW (158 were represented by the agreement with PSI and 309 were represented
by the agreement with CG&E).
Cinergy and CG&E
The number of employees of CG&E and its subsidiaries at December 31, 1995, was
3,056, of whom CG&E employed 2,759, ULH&P employed 284, and Lawrenceburg
employed 13.
CG&E and its subsidiaries have collective bargaining agreements with several
union organizations. Of CG&E's and its subsidiaries' total employees 702
employees were represented by the IUU, 466 were represented by the USWA, and
1,214 were represented by the IBEW. The current contract between CG&E and the
IUU will expire in March 1998. CG&E and its subsidiaries have a three-year
contract with the USWA expiring May 15, 1997. The IBEW contract expires April
1, 1997.
Cinergy and PSI
The number of employees of PSI at December 31, 1995, was 2,807, of whom 1,555
were represented by the IBEW.
PSI's collective bargaining agreement with the IBEW will expire at the end of
April 1996.
Cinergy and ULH&P
The number of employees of ULH&P at December 31, 1995, was 284, of whom 228
belonged to bargaining units. These bargaining unit employees were
represented by the same labor agreements between CG&E and the applicable union
organization. Of ULH&P's total employees, 58 employees were represented by
the IBEW, 104 were represented by the USWA, and 66 were represented by the
IUU.
The current contract between ULH&P and the IUU will expire in March 1998.
ULH&P has three-year agreements with the USWA and IBEW that will expire May
15, 1997, and April 1, 1997, respectively.
ITEM 2. PROPERTIES
Cinergy, CG&E, PSI, and ULH&P
Substantially all utility plant is subject to the lien of each applicable
company's first mortgage bond indenture.
In addition to the information discussed herein, refer to Note 14 of the
"Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data".
Cinergy, CG&E, and PSI
At December 31, 1995, the Cinergy utility subsidiaries owned electric
generating plants, or portions thereof in the case of jointly owned plants,
with net capabilities (winter ratings) as shown in the following table:
Net
Percent Principal Capability
Plant Name Location Ownership Fuel Source (mw)
CG&E
Steam Electric Generating
Plants:
Miami Fort Station (Units 5&6) North Bend, Ohio 100.00% Coal 243
Miami Fort Station (Units 7&8) North Bend, Ohio 64.00 Coal 640
W.C. Beckjord Station (Units 1-5) New Richmond, Ohio 100.00 Coal 704
W.C. Beckjord Station (Unit 6) New Richmond, Ohio 37.50 Coal 158
J.M. Stuart Station Aberdeen, Ohio 39.00* Coal 913
Killen Station Adams County, Ohio 33.00* Coal 198
Conesville Station Conesville, Ohio 40.00* Coal 312
Zimmer Moscow, Ohio 46.50 Coal 605
East Bend Station Boone County, Kentucky 69.00 Coal 414
Combustion Turbines:
Dicks Creek Station Middletown, Ohio 100.00 Gas 172
Miami Fort Gas Turbine Station North Bend, Ohio 100.00 Oil 207
W.C. Beckjord Gas Turbine Station New Richmond, Ohio 100.00 Oil 245
Woodsdale Butler County, Ohio 100.00 Gas 564
PSI
Steam Electric Generating
Plants:
Gibson (Units 1-4) Princeton, Indiana 100.00 Coal 2,533
Gibson (Unit 5) Princeton, Indiana 50.05 Coal 313
Wabash River Station Terre Haute, Indiana 100.00 Coal 668
Cayuga Station Cayuga, Indiana 100.00 Coal 1,005
R.A. Gallagher Station New Albany, Indiana 100.00 Coal 560
Edwardsport Station Edwardsport, Indiana 100.00 Coal 160
Noblesville Station Noblesville, Indiana 100.00 Coal 90
Combustion Turbines:
Cayuga Combustion Turbine Cayuga, Indiana 100.00 Gas 120
Wabash River Coal Gasification
Project Terre Haute, Indiana 100.00 Coal 262
Internal Combustion Units:
Connersville Peaking Station Connersville, Indiana 100.00 Oil 98
Miami-Wabash Peaking Station Wabash, Indiana 100.00 Oil 104
Cayuga Peaking Units Cayuga, Indiana 100.00 Oil 11
Wabash River Peaking Units Terre Haute, Indiana 100.00 Oil 8
Hydroelectric Generating Station:
Markland Generating Station Markland Dam, Ohio
River 100.00 Water 45
* Station is not operated by CG&E.
Cinergy and CG&E
CG&E
CG&E's 1995 peak load, which occurred on August 14 and was exclusive of off-
system transactions, was 4,509 mw. For the period 1996 through 2005, peak
load and kwh sales are each forecasted to have annual growth rates of 2%.
These forecasts reflect CG&E's load growth, alternative fuel choices,
population growth, and housing starts. These forecasts exclude an assessment
of DSM, non-firm power transactions, and any potential off-system, long-term
firm power sales.
As of December 31, 1995, CG&E's transmission system consisted of 388 circuit
miles of 345,000 volt line, 605 circuit miles of 138,000 volt line, 512
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,
1995, CG&E's distribution system consisted of 14,556 circuit miles, all within
the state of Ohio. As of the same date, CG&E's transmission substations had a
combined capacity of 14,845,000 kilovolt-amperes, and the distribution
substations had a combined capacity of 5,964,000 kilovolt-amperes. A portion
of CG&E's total transmission system is jointly owned, primarily in connection
with its jointly owned electric generating units.
During 1995, 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
utility subsidiaries.
CG&E owns two propane/air peakshaving plants. Associated with these plants
are two underground caverns, one with a seven million gallon capacity and one
with an eight million gallon capacity. Both plants and 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 5,506 miles of mains and service lines in
southwestern Ohio.
Cinergy and PSI
PSI
PSI's 1995 peak load, which occurred on August 14 and was exclusive of off-
system transactions, was 5,274 mw. For the period 1996 through 2005, peak
load and kwh sales are each forecasted to have annual growth rates of 2%.
These forecasts reflect PSI's load growth, alternative fuel choices,
population growth, and housing starts. These forecasts exclude an assessment
of DSM, non-firm power transactions, and any potential off-system, long-term
firm power sales.
As of December 31, 1995, PSI's transmission system consisted of 719 circuit
miles of 345,000 volt line, 656 circuit miles of 230,000 volt line, 1,595
circuit miles of 138,000 volt line, and 2,427 circuit miles of 69,000 volt
line, all within the state of Indiana. In addition, as of December 31, 1995,
PSI's distribution system consisted of 19,264 circuit miles, all within the
state of Indiana. As of the same date, PSI's transmission substations had a
combined capacity of 21,608,000 kilovolt-amperes, and the distribution
substations had a combined capacity of 6,142,000 kilovolt-amperes.
During 1995, almost all of PSI's kwh production was obtained from coal-fired
and hydroelectric generation.
Cinergy, CG&E, and ULH&P
ULH&P
As of December 31, 1995, ULH&P owned 104 circuit miles of 69,000 volt electric
transmission line, an electric distribution system consisting of 2,504 circuit
miles, and a gas distribution system consisting of 1,230 miles of mains and
service lines in northern Kentucky. ULH&P also owns a propane/air peakshaving
plant, a seven million gallon capacity underground cavern for the storage of
liquid propane, and related liquid propane feeder lines, located in northern
Kentucky and adjacent to one of the gas lines that transports natural gas to
CG&E. The propane/air plant and cavern are used primarily to augment CG&E's
and ULH&P's supply of natural gas during periods of peak demand and
emergencies.
Cinergy and CG&E
Other Utility Subsidiaries
As of December 31, 1995, Lawrenceburg owned a gas distribution system
consisting of 171 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, 1995, 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 LG&E with those of CG&E.
ITEM 3. LEGAL PROCEEDINGS
Cinergy, CG&E, and PSI
Power International Litigation
See Note 13(d) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
Cinergy, CG&E, and PSI
Merger Litigation
In August 1995, AEP filed a petition in the United States Court of Appeals
for the District of Columbia Circuit for review of the FERC's Merger Order.
AEP has objected to the Merger Order alleging that the post-merger
operations of Cinergy would require the use of AEP's transmission
facilities on a continuous basis without compensation. AEP contends that
the FERC, in issuing the Merger Order, did not adequately evaluate the
impact on AEP or whether the need to use AEP's transmission facilities
would interfere with Cinergy achieving merger benefits. In addition, AEP
claims that the FERC failed to evaluate the extent to which the merged
facilities' operations would be consistent with the integrated public
utility concept of the PUHCA. CG&E and PSI have intervened in this action
and have filed a Motion to Dismiss. At this time, Cinergy, CG&E, and PSI
cannot predict the outcome of the appeal.
Cinergy, CG&E, and PSI
Shareholder Litigation
In March 1993, in conjunction with a proposed tender offer for Resources,
IPALCO filed suit in the United States District Court for the Southern
District of Indiana, Indianapolis Division (District Court), against
Resources, Cinergy, PSI, CG&E, and James E. Rogers (at that time Mr. Rogers
was an officer and director of Resources and PSI). In addition, in the
weeks following, suits with claims similar to those of IPALCO were filed by
purported shareholders of Resources. IPALCO's claim was subsequently
dismissed in November 1993, and in November 1995, the District Court
dismissed the shareholders' claims in accordance with the terms of a
settlement agreement entered into by the parties.
ULH&P
ULH&P has no material pending legal proceedings.
Cinergy, CG&E, PSI, and ULH&P
In addition to the above litigation, see Notes 2, 13(b), 13(c), 13(e), and
13(f) of the "Notes to Financial Statements" in "Item 8. Financial Statements
and Supplementary Data".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Cinergy, CG&E, and PSI
None.
ULH&P
Omitted pursuant to instruction J(2)(c).
EXECUTIVE OFFICERS OF THE REGISTRANTS (at February 29, 1996)
Age at
Dec. 31,
Name 1995 Office & Date Elected or in Job
Cinergy, CG&E, and PSI
Jackson H. Randolph 65 Chairman of Cinergy, CG&E, and
PSI - 1995
Chairman and Chief Executive Officer
of Cinergy, CG&E, and PSI - 1994
Chairman, President, and Chief Executive
Officer of CG&E - 1993
President and Chief Executive Officer
of CG&E - 1986
James E. Rogers 48 Vice Chairman, President, and Chief
Executive Officer of Cinergy - 1995
Vice Chairman and Chief Executive
Officer of CG&E and PSI - 1995
Vice Chairman, President, and Chief
Operating Officer of Cinergy - 1994
Vice Chairman and Chief Operating
Officer of CG&E and PSI - 1994
Chairman and Chief Executive Officer
of Resources - 1993
Chairman, President, and Chief Executive
Officer of PSI - 1990
Terry E. Bruck 50 Group Vice President, Transmission and
Distribution of Cinergy, CG&E, and
PSI - 1995
Group Vice President, Wholesale Power and
Transmission Operations of CG&E and
PSI - 1995
Group Vice President, Wholesale Power
and Transmission Operations of
Cinergy - 1994
Vice President, Electric Operations of
CG&E - 1988
Cheryl M. Foley 48 Vice President, General Counsel, and
Secretary of CG&E - 1995
Vice President, General Counsel, and
Secretary of Cinergy - 1994
Vice President, General Counsel, and
Secretary of PSI and Resources - 1991
Vice President and General Counsel of
Resources - 1990
J. Wayne Leonard 45 Group Vice President and Chief
Financial Officer of CG&E and PSI - 1995
Group Vice President and Chief Financial
Officer of Cinergy - 1994
Senior Vice President and Chief Financial
Officer of PSI and Resources - 1992
Vice President and Chief Financial
Officer of PSI and Resources - 1989
Stephen G. Salay 58 Group Vice President, Power Operations
of CG&E and PSI - 1995
Group Vice President, Power Operations of
Cinergy - 1994
Vice President, Electric Production and
Fuel Supply of CG&E - 1988
William L. Sheafer 52 Treasurer of Cinergy and PSI - 1994
Treasurer of CG&E - 1987
George H. Stinson 50 Vice President, Corporate Services of
Cinergy, CG&E, and PSI - 1995
Vice President of Cinergy - 1995
President of CG&E - 1994
Vice President, Gas Operations of
CG&E - 1991
Manager, Gas Operations of CG&E - 1990
Larry E. Thomas 50 Group Vice President and Chief
Transformation Officer of Cinergy, CG&E,
and PSI - 1995
Group Vice President, Reengineering and
Operations Services of CG&E and
PSI - 1995
Group Vice President, Reengineering
and Operations Services of Cinergy - 1994
Senior Vice President and Chief Operations
Officer of PSI - 1992
Senior Vice President and Chief Operating
Officer, Customer Operations of
PSI - 1990
Charles J. Winger 50 Comptroller of CG&E - 1995
Comptroller of Cinergy - 1994
Comptroller of Resources - 1988
Comptroller of PSI - 1984
Cinergy and CG&E
William J. Grealis 1/ 50 President of CG&E - 1995
Vice President of Cinergy - 1995
President, Gas Business Unit of CG&E - 1995
President of Investments - 1995
Partner - Akin, Gump, Strauss, Hauer
& Feld 2/ - 1978
Cinergy and PSI
John M. Mutz 3/ 60 Vice President of Cinergy - 1995
President of PSI - 1994
President of Resources - 1993
President - Lilly Endowment, Inc. 2/ - 1989
ULH&P
Omitted pursuant to instruction J(2)(c).
Cinergy, CG&E, and PSI
None of the officers are related in any manner. Executive officers of Cinergy
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/ Prior to becoming President of Resources, Mr. Mutz was President of
Lilly Endowment, Inc., a private philanthropic foundation located in
Indianapolis, Indiana, and also served two terms as lieutenant governor of
Indiana.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Cinergy, CG&E, PSI, and ULH&P
Cinergy's common stock is listed on the New York Stock Exchange and has
unlisted trading privileges on the Boston, Chicago, Cincinnati, Pacific, and
Philadelphia exchanges. As of February 5, 1996, Cinergy's most recent
dividend record date, there were 80,550 common shareholders of record.
Trading of CG&E's and Resources' common stock ended at the close of the market
October 24, 1994. Trading of Cinergy's common stock began upon the opening of
the market October 25, 1994. The following table shows the high and low sales
prices per share, if applicable, and the dividends on common stock declared by
CG&E, Resources, PSI, ULH&P, and Cinergy for the past two years:
Market Price (a) Dividends Declared
High Low (per share) (in thousands)
1994
CG&E
4th Quarter $23 3/8 $21 7/8 $ .3272 (b) $15 267 (c)
3rd Quarter 23 1/4 20 7/8 .43
2nd Quarter 23 7/8 21 .43
1st Quarter 27 3/4 23 5/8 .43
Resources
4th Quarter 23 1/2 22 .1805 (b)
3rd Quarter 23 1/8 20 3/4 .31
2nd Quarter 23 1/8 19 5/8 .31
1st Quarter 26 5/8 22 3/4 .31
PSI
4th Quarter 10 376 (c)
3rd Quarter 16 174 (c)
2nd Quarter 16 622 (c)
1st Quarter 15 970 (c)
ULH&P
4th Quarter 6.00
Cinergy
4th Quarter 24 20 3/4 .1028 (b)
1995
CG&E
4th Quarter 56 600 (c)
3rd Quarter 55 400 (c)
2nd Quarter 55 900 (c)
1st Quarter 51 650 (c)
ULH&P
4th Quarter 6.00
Cinergy
4th Quarter 31 1/8 27 3/4 .43
3rd Quarter 27 7/8 25 1/4 .43
2nd Quarter 27 24 5/8 .43
1st Quarter 25 1/4 23 3/8 .43
(a) Market price for PSI and ULH&P for 1994 and for CG&E, PSI, and ULH&P for
1995 is not applicable.
(b) The prorated fourth quarter dividends for CG&E and Resources were
determined by multiplying that portion of each company's regular
quarterly dividend by a fraction equal to the number of days from their
last respective common dividend payment dates (August 15, 1994, for CG&E;
September 1, 1994, for Resources) to and including the closing date of
the merger, divided by the number of days in the quarterly period for
each respective company (92 for CG&E; 91 for Resources). These
respective prorated dividends were in addition to, but paid separately
from, the fourth quarter dividend on Cinergy common stock, which was
determined by prorating Cinergy's 43-cents per share quarterly dividend
for the remainder of the quarter ending November 15, 1994.
(c) All of PSI's 1994 dividends were paid to Resources. CG&E's 1994 fourth
quarter dividend of $15,276,000 and all of CG&E's 1995 dividends were
paid to Cinergy.
See Notes 3(b) and 4(c) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data" for a brief description of common
dividend restrictions.
All CG&E and PSI common stock is held by Cinergy and all ULH&P common stock is
held by CG&E; therefore, there is no public trading market for their common
stock.
ITEM 6. SELECTED FINANCIAL DATA
Cinergy
1995 1994 1993 1992 1991
(in millions, except per share amounts)
Operating revenues (1) $3 031 $2 898 $2 843 $2 613 $2 640
Net income (1) 347 191 63 271 202
Common stock
Earnings per share (1) 2.22 1.30 .43 1.91 1.46
Dividends declared per share 1.72 1.50 1.46 1.39 1.33
Total assets (2) 8 220 8 150 7 804 7 133 6 681
Cumulative preferred stock of
subsidiaries subject to mandatory
redemption (3) 160 210 210 210 192
Long-term debt (4) 2 531 2 715 2 645 2 547 2 376
Long-term debt due within
one year 202 60 - 46 115
CG&E
1995 1994 1993 1992 1991
(in millions)
Operating revenues (1) $1 848 $1 788 $1 752 $1 553 $1 518
Net income (loss)(1) 236 158 (9) 202 207
Total assets (2) 5 177 5 182 5 144 4 802 4 584
Cumulative preferred stock subject
to mandatory redemption (3) 160 210 210 210 167
Long-term debt (4) 1 703 1 838 1 829 1 810 1 734
Long-term debt due within
one year 152 - - 7 25
PSI
1995 1994 1993 1992 1991
(in millions)
Operating revenues (1) $1 248 $1 114 $1 092 $1 066 $1 120
Net income (1) 146 82 125 107 30
Total assets (2) 3 076 2 945 2 645 2 300 2 093
Cumulative preferred stock subject
to mandatory redemption (3) - - - - 26
Long-term debt (4) 828 878 816 737 642
Long-term debt due within
one year 50 60 - 40 90
Cinergy, CG&E, and PSI
(1) See Notes 1, 2, and 16 of the "Notes to Financial Statements"
in "Item 8. Financial Statements and Supplementary Data".
(2) See Notes 1(d) and 7 of the "Notes to Financial Statements" in
"Item 8. Financial Statements and Supplementary Data".
(3) Includes $39.5 million, $36.5 million, and $3 million in 1991
for Cinergy, CG&E, and PSI, respectively, to be redeemed within one year.
Also, see Note 4 of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
(4) See Note 5 of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
In addition, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 13 of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data" for
discussions of material uncertainties for Cinergy, CG&E, and PSI.
ULH&P
Omitted pursuant to Instruction J(2)(a).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
THE COMPANIES
Cinergy is a registered holding company under the PUHCA. Cinergy was created
in the October 1994 merger of Resources and CG&E. The business combination
was accounted for as a pooling of interests. Following the merger, Cinergy
became the parent holding company of PSI, previously Resources' utility
subsidiary, CG&E, Investments, and Services.
FINANCIAL CONDITION
COMPETITIVE PRESSURES
Electric Utility Industry
Cinergy, CG&E, PSI, and ULH&P
Introduction The primary factor influencing the future profitability of
Cinergy is the changing competitive environment for energy services, including
the impact of emerging technologies, and the related commoditization of
electric power markets. Changes in the industry include increased competition
in wholesale power markets and ongoing pressure for "customer choice" by large
industrial customers and, ultimately, by all retail customers.
Pressures for Customer Choice Extending choice to end-user customers, also
referred to as retail wheeling, would allow customers within a particular
utility's service territory to "unbundle" their purchase decisions. Customers
would be able to buy power as a commodity directly from another source and buy
distribution service over the power lines of the local utility for delivery.
The regulatory and legislative reform to facilitate this result is primarily
driven by: (1) large industrial energy users; (2) the emergence of new
suppliers in the competitive markets; and (3) increasing evidence from other
regulated industries that wherever effective competition is feasible, it can
yield lower costs and a wider range of customer options and services than
traditional cost-of-service regulation. Industrial customers are intensifying
their efforts to change the regulatory process so that they may access the
lower-cost power necessary to remain competitive in the global marketplace.
The current restrictions on access to low-cost power are exacerbated by
traditional cost-of-service regulation which has produced average industrial
rates to customers that vary substantially across the United States (from less
than 3 cents per kwh to approximately 10 cents per kwh).
While customer efforts at industry reform have resulted in some success, the
emergence of new competitors to the local franchise utility has become an
equally effective force for change. This new competition was facilitated by
the Energy Policy Act of 1992 (Energy Act), which granted the FERC authority
to order wholesale transmission access. New competitors include power
marketers, power brokers, and local franchise utilities that now sell power in
regional or national markets. To date, the FERC has granted approximately 150
power marketers the ability to sell at market-based rates and accepted several
utilities' general sales tariffs that allow for sales anywhere in the United
States. Cinergy's non-firm power sales tariff was accepted by the FERC in
December 1995, and an affiliated power marketer of Cinergy was given
authorization to begin transacting business in September 1995. Additionally,
utilities are using merger and acquisition strategies to achieve expanded
scale and scope to support a regional or national market strategy. For
example, since the beginning of 1995, there were seven mergers involving major
investor-owned utilities announced in the industry, representing nearly $28
billion of combined market value.
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 (to which they have title) 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.
Despite increased activity by utilities and new competitors to respond to the
demands of industrial customers for greater choice and lower prices, the pace
of legislative and regulatory restructuring appears to have slowed somewhat in
1995. Many states continue to examine the complex technical and economic
issues restructuring presents. Among other things, states are considering the
trade-offs between achieving long-run economic efficiency and potential short-
term wealth transfers between customers and shareholders (see further
discussion below) or among customers, as well as the potential impact (if any)
of restructuring on other socially desirable objectives like clean air or
energy efficiency.
The most difficult issue polarizing the debate on the future competitive
framework of the industry is the transition from the old order to the new and
who will bear the costs of historical utility investments or past commitments
incurred under cost-of-service regulation. If the generation component of the
industry's business was immediately brought to market and priced at
competitive wholesale prices, it is likely that many utilities would currently
be unable to recover a large percentage of their fixed costs. Other costs
such as investments in energy efficiency (DSM investments) could also become
"stranded" (i.e., unrecoverable at competitive market prices) in this
scenario. The financial impact on the industry of alternative scenarios for a
transition to market prices is highly dependent upon: (1) the speed of the
transition; (2) the clearing price for electricity in a fully competitive
market; and (3) customer behavior (e.g., loyalty) when afforded potentially
lower-cost alternatives.
Because of the complex nature of electric power flows, the variety of state-
by-state regulations, and the potential inability or unwillingness to shut
down high-cost plants (e.g., nuclear) in a fully competitive market, great
uncertainty exists as to the time frame required for the future price of
electricity in a commodity market to rise to long-run marginal cost (e.g.,
full cost of new resources) and, importantly, how close to short-term marginal
cost (e.g., fuel and variable operating expenses) prices may fall in the
interim. For example, depending upon the scenario, Moody's has quantified the
stranded investment issue for the industry at between $50 billion and $300
billion (with the most likely result approximately $135 billion), while S&P
has estimated a total exposure of between $10 billion and $26 billion (6% and
16%, respectively) of total industry annual revenues. The Oak Ridge National
Laboratory has quantified the industry financial impact at $6 billion for
every 1 mill (tenth of a cent) change in market price.
The position that all prudent past investments and commitments must be honored
has received support from regulators at the FERC and in the state of
California, both of which have provided for the recovery of utility stranded
investments (see further discussion of each of these proposals herein),
although that position varies from state to state. For example, a recent
survey of 90 state utility commissioners from 40 states concluded that
approximately 50% agreed with allowing recovery of stranded costs at the state
level, while 26% disagreed with recovery, and the remaining 24% were
uncertain.
Cinergy's Response to the Changing Competitive Environment Cinergy supports
increased competition in the electric utility industry. Cinergy believes that
competition would benefit electric customers and the economy as a whole. At
the same time, Cinergy possesses competitive advantages (e.g., low-cost
generation) that could work to the benefit of its shareholders in a
competitive environment. However, these advantages could be substantially
eroded by restrictive regulations that lag the development of a competitive
market and limit the Company's ability to preempt the competition in
responding to customer needs. As such, Cinergy has chosen to take a
leadership role in state and Federal debates on industry reform.
However, Cinergy believes there are two substantial impediments to realizing
the potential efficiencies of competition in the generation segment of the
business: (1) resolving the issue of stranded costs associated with past
utility commitments and (2) recognizing states' rights, concerns, and
authority in regulating a product that flows in interstate commerce. While
Cinergy is among the lowest-cost producers nationwide and has been recognized
by both Moody's and S&P as having little exposure to stranded investment,
Cinergy nevertheless recognizes the legitimacy of the industry's equity
argument for recovery of at least some of the costs associated with past
commitments and the importance of resolving this issue in the interest of
moving the debate to more important issues like how to achieve the potential
economic efficiencies that competition offers and what regulatory and
structural reforms are necessary to achieve those results. Cinergy remains
concerned that even low-cost producers, under certain scenarios, could face
difficult if not ruinous competition in an excess capacity market that was
created at least in part by past government policies. Cinergy has
approximately $1 billion of regulatory assets (past costs incurred for which
regulators have promised recovery in the future) that could be at risk, at
least in part, in some scenarios. At the same time, Cinergy believes that
full recovery of the industry's potential stranded investment is unrealistic
to expect in a market where certain customers can bypass stranded cost
mechanisms (e.g., self-generation), is politically infeasible, and is neither
necessarily equitable nor efficient.
Additionally, Cinergy believes that efficient competition cannot be achieved
if neighboring states reach substantially different conclusions concerning
items such as the transition rules, the timetables for implementation,
universal service to customers, and reliability standards. Such state-by-
state disparity would provide inequitable advantages to some competitors while
unduly harming others' ability to compete in the marketplace. While Cinergy
believes that satisfactory results cannot be achieved without a broad national
consensus for the long-term goal and a time frame for getting there, Cinergy
does not believe a total preemption of states' rights on this issue is either
politically feasible or necessary.
Cinergy intends to pursue aggressively a national solution that will recognize
the legitimacy of certain claims to past costs (within some level of cost and
demonstrated prudence) and provide a required framework for states to align
their regulations and policies within a specified time frame. The framework
would require a consistent transition to full competition for generation in
all markets, thus minimizing the current fragmentation resulting from the
initiatives of multiple regulators and regulations.
As further evidence of its leadership in the restructuring of the electric
utility industry, in February 1996, Cinergy and several other midwestern
utilities announced the formation of a coalition to create and develop a
multi-state transmission region operated by an independent system operator
(ISO). The coalition, which Cinergy believes is likely to expand in
membership, is proposing a midwest ISO which would ensure non-discriminating
open transmission access, develop a regional transmission tariff, and ensure
system reliability. Cinergy believes the formation of ISOs will be a major
step toward facilitating competition in the electric utility industry and
potentially more mergers among utilities (i.e., reduced market power
concerns).
For an electric utility to be successful in this competitive environment, it
is critical that regulatory reform in all segments of the business keeps pace
with the competitive realities facing electric utilities and their customers
in not only generation, but also transmission, distribution, and energy
services activities. Strict adherence to traditional, cost-based rate-of-
return regulation will both significantly disadvantage a utility's ability to
compete successfully to supply customer needs and result in a failure to
realize the potential economic efficiencies from restructuring. For example,
performance-based regulation (e.g., price caps) would result in better
economic incentives to control costs and likely add substantial flexibility
for the franchise utility in the transition to a fully competitive
environment.
Legislation allowing significant flexibility was passed (Senate Bill 637) in
Indiana in 1995. The Company intends to pursue similar flexibility in all
markets where it conducts business.
Federal Developments
Mega-NOPR The Energy Act granted the FERC the authority to order wholesale
transmission access. Acting on that authority, in March 1995, the FERC took a
substantial step toward assuring increased competition in the electric
industry by issuing the mega-NOPR.
Cinergy was the first utility in the country to file its comments endorsing
the mega-NOPR, reaffirming its support for the FERC's authority to order
utilities owning transmission systems to provide access to other entities at
rates and terms comparable to those provided to affiliated companies. As
proposed, the FERC's mega-NOPR would, among other things, provide for
mandatory filing of open access/comparability transmission tariffs, provide
for functional unbundling of all services, require utilities to use the filed
tariffs for their own bulk power transactions, establish an electronic
bulletin board for transmission availability and pricing information, and
establish a contract-based approach to recovering any potential stranded costs
as a result of customer choice at the wholesale level. A final order is
expected to be issued during the first half of 1996.
Repeal of the PUHCA After a year-long review of its continuing regulation of
public utility holding companies under the PUHCA, in June 1995, the SEC
endorsed recommendations for reform of the PUHCA. The recommendations call
for repeal and, pending repeal, significant administrative reform of the 60-
year-old statute. While the report offers three alternative approaches to
repeal and legislative reform, the SEC's preferred option is repeal coupled
with a transition period of one year or longer and a transfer of certain
consumer-protection provisions of the PUHCA to the FERC.
The report further recommends that, pending consideration of legislative
options, the SEC take prompt administrative action, by rulemaking and on a
case-by-case basis, to modernize and simplify regulation under the PUHCA, with
particular reference to financing transactions, diversification into non-
utility businesses, utility mergers and acquisitions, and the PUHCA's
"integration" standards. In the latter regard, the report recommends a
changed interpretation of the PUHCA to permit registered holding companies to
own combination electric and gas utility companies, provided the affected
states agree. Subsequent to the issuance of the report, the SEC adopted rule
changes exempting various types of financing transactions by utility and non-
utility subsidiaries of registered holding companies. The SEC also proposed a
rule that would exempt investments by registered systems in specified "energy-
related companies", subject to certain conditions.
In October 1995, a bill was introduced in the United States Senate providing
for the repeal of the PUHCA. The bill is pending before Congress. In
addition, various members of Congress have indicated their support for
industry restructuring. One view that has been publicly stated in Congress is
that the repeal of the PUHCA and the orderly transition to open competition
should be considered comprehensively rather than piecemeal. Hearings have
been initiated in Congress for a comprehensive review of the electric utility
industry and the role Congress should play in fostering competition. Cinergy
supports the repeal of the PUHCA, either as part of comprehensive reform of
the electric utility industry or as separate legislation.
Cinergy, CG&E, PSI, and ULH&P
State Developments During 1995, 40 states initiated or took part in formal or
informal processes, held hearings, and/or passed legislation addressing retail
wheeling, restructuring, competition, alternative regulation, or closely
related issues concerning electric utility industry restructuring.
Cinergy and CG&E
Ohio The PUCO has been actively examining issues raised by continuing
competitive pressures. The Chairman of the PUCO has publicly stated his
desire to make progress toward enhancing competition in Ohio, but with the
objective of doing it right and not necessarily first. In late 1994, the PUCO
formed an electric competition roundtable that meets on an informal basis to
address competition, restructuring, performance-based regulation, and related
issues, with a stated mission of "promoting increased competitive options for
Ohio businesses that do not unduly harm the interests of utility company
shareholders or ratepayers". In 1995, the roundtable participants submitted
principles for a customer choice pilot program for interruptible buy-through
service. The PUCO issued the proposed guidelines for comments in late 1995
and issued final guidelines in February 1996.
Additionally, two recent actions of the PUCO provide support for maintaining
the financial integrity of the utilities in the state. In October 1995, the
PUCO approved a stipulated rate plan which could improve the competitive
position of a major utility in the state by the end of a 10-year moratorium
period, including provisions for accelerating depreciation and amortization of
the utility's nuclear plants and regulatory assets, respectively. In November
1995, the PUCO staff recommended a rate increase for another "at risk" utility
that is conditioned upon the increase being utilized to achieve a significant
reduction in the utility's uneconomic generating assets.
Finally, a retail wheeling bill was introduced in the Ohio legislature that
would, if passed, require utilities to develop retail wheeling plans by
January 1, 1998, and provide flexibility to propose alternatives to
traditional cost-of-service ratemaking methodologies. The bill is expected to
be considered during the 1996 legislative session.
Cinergy, CG&E, and PSI
Indiana The IURC has taken several steps to investigate the desirability of
retail competition in the state. A legislative regulatory flexibility
committee was established by Senate Bill 637. Senate Bill 637 also allows the
IURC to approve utility alternative regulation proposals upon a showing that,
among other things, traditional regulation in a particular service sector is
no longer needed.
Additionally, the IURC has sponsored informal competition forums that are
designed to develop a better understanding of issues related to expanding the
competitive market on both the wholesale and retail levels. While various
parties have participated in this process, the Citizens Action Coalition of
Indiana, Inc. (CAC)(a non-profit organization representing customers) has
called for electric utilities to make a new "covenant" with customers. The
CAC outlines eight principles intended to balance various economic and
environmental interests at stake in the debate. Among other things, the
covenant would include a voluntary pledge by utilities that: customers' bills
will not increase; the environment will not be polluted; universal service
will be provided; construction of new power plants will be avoided; and
customers will not be harmed by utility self-dealing.
Cinergy, CG&E, and ULH&P
Kentucky There has been considerably less activity and interest in industry
restructuring in Kentucky. This situation is generally attributed to the fact
that Kentucky is one of the lowest-cost states in the country for electric
service. While large volume customers have circulated a draft of a retail
wheeling bill, Cinergy does not believe such legislation, if introduced, would
receive much attention in 1996.
Cinergy, CG&E, PSI, and ULH&P
Other States In addition to the states in which Cinergy operates, significant
developments in other states have occurred during 1995. Not surprisingly, the
higher-cost regions of the country have been most interested in facilitating
the more rapid development of a competitive market for electric utilities.
For example, in December 1995, California regulators adopted a hybrid plan for
restructuring the state's electric services industry. The plan will
simultaneously create an ISO, a wholesale power exchange, and direct access
(customer choice) phased in over five years beginning on January 1, 1998. The
plan further provides for a non-bypassable competitive transition charge on
all retail customers to ensure utilities the opportunity for full recovery of
their stranded investments by 2005. Several aspects of the plan require
enabling legislation to be passed in California prior to restructuring. The
plan contemplates the continuation of state regulation over the transmission
and distribution segments of the industry.
In the northeastern United States, Massachusetts, Connecticut, New Hampshire,
and Rhode Island have all recently issued guidelines or principles for
industry restructuring, authorized restructuring studies, or created retail
wheeling pilot programs. In particular, the restructuring principles issued
in August 1995 by the Massachusetts state commission provide for the largest
utilities in the state to file negotiated restructuring plans in February 1996
to provide for a transition to full competition, including provisions for
functional unbundling and retail wheeling. A major utility in the region has
already filed a plan that provides for customer choice, transition to a
competitive market, restructuring, lower prices to customers in the interim,
and the recovery for shareholders of all stranded costs.
At the same time, the traditionally low-cost Midwest has also been exploring
how competition can efficiently and effectively be implemented for the benefit
of customers. In Wisconsin, a revised proposal by a state commissioner
focuses on some of the social issues and economic trade-offs involved in
restructuring the industry. The plan has established the year 2000 as a
target date for implementation of restructuring in that state, modifying the
previously adopted "building block" approach. The proposal would create an
ISO for the transmission system, while the distribution system would continue
to be subject to commission jurisdiction. Other provisions of the proposal
include a request for utilities to file plans for establishing functional
separation of the generation, transmission, and distribution business units,
commission certification of new market entrants, continuation of the winter
moratorium on disconnections, a permanent commitment to low-income and
universal service programs, priority generation service for Wisconsin
customers, and the transfer of the risk of decisions on power generation from
customers to shareholders.
The state of Michigan has proposed a thorough review of existing state laws
and the comprehensive changes to those laws that would be required to
facilitate competition in the electric utility industry. Additionally,
Michigan has also mandated retail wheeling experiments for two of the large
utility companies in the state, scheduled to begin at the time of each
respective utility's next capacity solicitation. In Illinois, the legislature
has passed a resolution establishing a joint legislative committee to study
and recommend policy changes regarding competition. At least two of Illinois'
investor-owned utilities have recently filed two proposed retail wheeling
pilot programs with the state commission.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's Future - Others' Views The major credit rating agencies continue to
recognize the risk of the imminent restructuring of the electric utility
industry. In August 1995, Moody's issued a report entitled "Stranded Costs
Will Threaten Credit Quality of U.S. Electrics", wherein Moody's notes its
belief that a substantial amount of fixed costs approved for recovery under
the traditional regulatory regime is likely to be stranded. In November 1995,
S&P issued its report, "Direct Access Threatens Electric Utility Revenues", in
which S&P estimated the potential loss of annual revenues in the industry.
However, Cinergy has received praise and some measure of optimism for its
position in a more competitive environment. As part of the November 1995
upgrade of Cinergy's operating subsidiaries' debt and preferred stock, Moody's
expressed its opinion that Cinergy "will have no exposure to stranded costs"
and that "Cinergy is expected to be a formidable competitor because of its low
production costs". All such models used to predict potential exposure to
stranded costs are extremely sensitive to the assumed future market clearing
price. In its July 1995 upgrade of Cinergy's operating subsidiaries' debt and
preferred stock, S&P commented that "the business position evaluation of all
the Cinergy operating units is now high average" reflecting "low electric
production costs, efficient coal-fired equipment, relatively low rates, a well
positioned gas operation, the absence of nuclear challenges, a healthy service
territory, and a balanced capital structure".
Certain sell-side equity analysts continue to rank Cinergy highly as a utility
possessing a strong competitive profile and aggressive and innovative
management, with some considering Cinergy to be well positioned to outperform
the market in the competitive arena. Cinergy believes the opinions of these
rating agencies and equity analysts further support its position that its
competitive strategy and agenda will be successful.
Cinergy, CG&E, and ULH&P
Gas Utility Industry
Order 636 In 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 its
utility subsidiaries 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 its utility subsidiaries have responded to the supply risks and
opportunities of Order 636 by introducing innovations to their supply
strategy. These innovations include: contracting with major producers and
marketers 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 its utility
subsidiaries. In July 1994, the PUCO issued an order approving a stipulation
between CG&E and its residential 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. CG&E and its
utility subsidiaries, including ULH&P, recover such costs through their gas
cost recovery mechanisms.
Customer Choice In a January 1996 gas filing in Ohio (see additional
discussion in Note 2(b) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplemental Data"), CG&E proposed to initiate a
pilot program that would allow residential customers the ability to choose
their gas supplier and have CG&E transport the gas for them. This pilot
program for residential customers is essentially an extension of customer
choice that has been available for several years to large-volume commercial
and industrial customers.
Proposed Legislation House Bill 476 (HB) 476 was adopted unanimously by the
Ohio House of Representatives in March 1996. HB 476 addresses regulatory
reform of the natural gas industry at the state level and thus is an extension
of Order 636 for local distribution companies. The proposed legislation,
among other things, provides that natural gas commodity sales services may be
exempted from PUCO regulation and that the PUCO allow alternative rate-making
methodologies in connection with other regulated services. The Ohio Senate is
expected to begin consideration of the legislation in April 1996
Cinergy, CG&E, PSI, and ULH&P
Substantial Accounting Implications Historically, regulated utilities have
applied the provisions of Statement 71. The accounting afforded regulated
utilities in Statement 71 is based on the fundamental premise that rates
authorized by regulators allow recovery of a utility's costs, including the
cost of capital. These principles have allowed the deferral of costs (i.e.,
regulatory assets) based on assurances of a regulator as to the future
recoverability of the costs in rates charged to customers. Certain criteria
must be met in order to continue to apply the provisions of Statement 71,
including regulated rates designed to recover the specific utility's costs.
Failure to satisfy the criteria in Statement 71 would eliminate the basis for
reporting regulatory assets.
Although Cinergy's current regulatory orders and regulatory environment fully
support the continued 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 sufficient regulatory assurance of future recovery no longer
exists. No evidence currently exists that would support a write-off of any
portion of Cinergy's regulatory assets.
In March 1995, the FASB issued Statement 121, which is effective in January
1996 for Cinergy. Statement 121, which addresses the identification and
measurement of asset impairments for all enterprises, will be particularly
relevant for electric utilities as a result of the potential for deregulation
of the generation segment of the business. Statement 121 requires recognition
of impairment losses on long-lived assets when book values exceed expected
future cash flows. Based on the regulatory environment in which Cinergy
currently operates, compliance with the provisions of Statement 121 is not
expected to have an adverse effect on its financial condition or results of
operations. However, this conclusion may change in the future as competitive
pressures and potential restructuring influence the electric utility industry.
Cinergy intends to continue its pursuit of competitive strategies that
mitigate the potential impact of these issues on the financial condition of
the Company.
Cinergy, CG&E, PSI, and ULH&P
SECURITIES RATINGS
Reflecting the positive results and future benefits of the merger, the credit
ratings of Cinergy's operating subsidiaries' debt and preferred stock have
been upgraded by Fitch Investors Service, Inc. (Fitch), Moody's, and S&P.
Additionally, Duff & Phelps Credit Rating Co. (D&P) upgraded the credit
ratings of PSI's and CG&E's debt. Among the reasons cited for the upgrades
were decreases in projected capital expenditures, lower new capacity needs,
lower combined power production costs, reduced operation and maintenance
expenses, enhanced transmission capabilities, competitive retail rates, and
strengthening financial profiles.
The current ratings are provided in the following table:
D&P Fitch Moody's S&P
CG&E
Secured Debt A- A- A3 A-
Senior Unsecured Debt BBB+ Not rated Baa1 BBB+
Junior Unsecured Debt BBB Not rated Baa2 BBB+
Preferred Stock BBB BBB+ baa1 BBB+
PSI
Secured Debt A- A- A3 A-
Unsecured Debt Not rated BBB+ Baa1 BBB+
Preferred Stock BBB BBB+ baa1 BBB+
ULH&P
Secured Debt A- Not rated A3 A-
Unsecured Debt 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.
REGULATORY MATTERS
Cinergy and PSI
Indiana
PSI's Current Retail Rate Proceeding PSI currently has pending before the
IURC a retail rate increase request of 10.3% ($102.9 million annually). Major
components of the increase include the costs of the Clean Coal Project,
increased DSM costs, the costs of a scrubber at Gibson, and other investments
in utility plant. Both the Clean Coal Project and the scrubber at Gibson were
previously approved by the IURC. The request also reflects a return on common
equity of 11.9%, before the 100 basis points additional common equity return
allowed as a merger savings sharing mechanism in the February 1995 Order
discussed further herein, with an 8.6% overall rate of return on net original
cost rate base. The UCC filed testimony with the IURC recommending a 4.7%
($47.3 million annually) retail rate increase. The primary differences
between PSI's request and the UCC's proposal are the requested return on
common equity and DSM costs. The UCC recommended the requested increase in
DSM costs be excluded from this proceeding and addressed in a separate
currently pending proceeding specifically established to review PSI's current
and proposed DSM programs. An order in the rate proceeding is anticipated by
the end of the second quarter of 1996. Cinergy cannot predict what action the
IURC may take with respect to this proposed rate increase. (See the "Capital
Resources" section herein and Notes 2(a) and 17 in "Item 8. Financial
Statements and Supplementary Data".)
February 1995 Order - Retail Rate Proceeding and Merger Savings Allocation
Plan The IURC's February 1995 Order approved a settlement agreement between
PSI and certain intervenors which authorized PSI to increase retail rates
$33.6 million on an annual basis. The $33.6 million increase is before
reductions for customer credits for Non-fuel Merger Savings and excludes
increases for carrying costs attributable to certain environmental
expenditures not included in PSI's base retail electric rates, both of which
are further discussed herein. The increase included, among other things,
recovery of the costs of postretirement benefits other than pensions on an
accrual basis, recovery of DSM expenditures, and recovery of a portion of
amounts deferred for post-in-service carrying costs and depreciation expense.
The February 1995 Order also reflects the adoption of lower depreciation
rates, which reduced annual depreciation expense by approximately $30 million.
This rate increase reflected an 11.9% return on common equity with an 8.25%
overall rate of return on net original cost rate base.
Additionally, through December 31, 1997, the February 1995 Order provides a
mechanism to allocate PSI's share of net Non-fuel Merger Savings between PSI's
customers and Cinergy's shareholders. In essence, the mechanism guarantees
PSI's customers 50% of PSI's portion of projected net Non-fuel Merger Savings.
PSI's customers are receiving these merger savings via credits to base rates
of $4.4 million in 1995 and an additional $2.2 million and $2.4 million in
1996 and 1997, respectively. The credits in 1996 and 1997 will be applied to
the retail rates established in PSI's previously discussed current retail rate
proceeding. After 1997, the accumulated credits will continue until the
effective date of an order in a PSI retail rate proceeding.
The Non-fuel Merger Savings sharing mechanism provides PSI with a financial
incentive to achieve, or exceed, merger savings projections and enhance
operating efficiencies by allowing PSI to earn up to a 13.25% return on common
equity until the effective date of an IURC order in PSI's current retail rate
proceeding. Upon the effective date of an order relating to the current
retail rate proceeding, the February 1995 Order provides PSI an opportunity to
earn an additional 100 basis points above the common equity rate of return to
be granted by the IURC in such order until December 31, 1997. To be eligible
for the additional earnings, PSI must meet certain performance-related
standards. PSI currently meets these standards which are measured in
conjunction with quarterly fuel adjustment clause filings.
This arrangement for sharing of Non-fuel Merger Savings allows PSI to recover
Merger Costs over a 10-year period. (See Note 1(i) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".) Any
mechanism for sharing of merger savings after December 31, 1997, will be
determined in subsequent regulatory proceedings.
Effective with this order, PSI began recovering carrying costs on certain
environmental-related projects while under construction and prior to the date
of an order reflecting such projects in rates. Through this mechanism,
revenues were increased by $9 million, $18 million, and $2 million on an
annual basis in February 1995, March 1995, and January 1996, respectively.
Finally, the February 1995 Order included certain additional ratemaking and
accounting mechanisms to address regulatory lag (see Notes 1(h) and 13(a) of
the "Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data").
Cinergy and CG&E
Ohio
CG&E's Current Gas Rate Proceeding In January 1996, CG&E filed a request with
the PUCO supporting a gas rate increase of 7.8% ($26.7 million annually). The
increase, anticipated to be effective in November 1996, is being requested, in
part, to recover capital investments made since CG&E's last gas rate increase
in 1993. The proposed rate design includes a pilot program that would allow
8,000 to 12,000 residential customers to choose their natural gas supplier
with CG&E providing transportation services to the customers' premises.
Settlement discussions with gas customer representatives, which began in July
1995, are ongoing. Cinergy cannot predict the outcome of the settlement
discussions nor what actions the PUCO may take with respect to the proposed
rate increase. (See the "Capital Resources" section herein.)
Other During the 1992 through 1994 period, CG&E received a number of rate
increases. The primary reasons for the electric rate increases were recovery
of CG&E's investments in Zimmer and Woodsdale units. The gas rate increase
reflected investments in new and replacement gas mains and facilities.
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.
In April 1994, the PUCO issued an order approving a settlement agreement among
CG&E, the PUCO Staff, the Ohio Office of Consumers' Counsel, and other
intervenors which resolved outstanding issues related to the merger and the
May 1992 Order which established a rate phase-in plan for Zimmer. As a result
of this order, the rate phase-in plan, which granted annual increases in
electric revenues of $37.8 million, $38.8 million, and $39.8 million in May
1992, 1993, and 1994, respectively, remained unchanged. Additionally, as part
of this settlement, 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.
Consistent with the provisions of the settlement agreement, CG&E expensed
Merger Costs of $32 million in 1994 and $5 million in 1995 applicable to its
PUCO electric jurisdiction. CG&E and its utility subsidiaries are deferring
the non-PUCO electric jurisdictional portion of Merger Costs for future
recovery in customer rates, including $6 million in CG&E's current gas rate
proceeding.
Cinergy, CG&E, and ULH&P
Kentucky In mid-1993, the KPSC issued orders authorizing ULH&P to increase
annual gas revenues by $4 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.
In 1994, ULH&P deferred $1.8 million of Merger Costs. ULH&P intends to
continue deferring its portion of Merger Costs for future recovery in
customers' rates.
Cinergy, CG&E, and ULH&P
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 judgment over Cinergy's ownership of the gas operations for a
period of three years. However, as previously discussed in the "Competitive
Pressures" section, in June 1995, the SEC endorsed recommendations for
reform/repeal of the PUHCA, including allowing registered holding companies to
own combination electric and gas utility companies, provided the affected
states agree. In addition, legislation providing for the repeal of the PUHCA
is currently pending before Congress.
Regardless of the outcome of the proposals to reform/repeal the PUHCA, Cinergy
believes it has a justifiable basis for retention of its gas operations and
will continue its pursuit of SEC approval. If divestiture is ultimately
required, the SEC has historically allowed companies sufficient time to
accomplish divestitures in a manner that protects shareholder value.
ENVIRONMENTAL ISSUES
Cinergy, CG&E, and PSI
CAAA The 1990 revisions to the Clean Air Act 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 EPA to affected sources
(e.g., Cinergy'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.
Cinergy's operating strategy for Phase I is based upon the compliance plans
developed by PSI and CG&E and approved by the IURC and the PUCO. All required
modifications to Cinergy's generating units to implement the compliance plans
were completed prior to January 1, 1995.
To comply with Phase II sulfur dioxide emission requirements, Cinergy's
current strategy includes a combination of switching to lower-sulfur coal
blends and utilizing its emission allowance banking strategy. This cost
effective strategy will allow Cinergy to meet Phase II sulfur dioxide
reduction requirements while maintaining optimal flexibility to meet changes
in output due to increased customer choice as well as potentially significant
future environmental demands. Cinergy intends to utilize an emission
allowance banking strategy to the extent a viable emission allowance market
exists. 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 the
current forecast, Cinergy could be forced to consider high-cost, capital
options.
To meet nitrogen oxide reductions required by Phase II, Cinergy may install
additional low-nitrogen oxide burners on certain affected units in addition to
the use of a nitrogen oxide emission averaging strategy.
Cinergy is forecasting CAAA compliance capital expenditures of $34 million
during the 1996 through 2000 period. Of the forecasted expenditures, $19
million relates to CG&E and $15 million relates to PSI. These construction
expenditures are included in the amounts provided in the "Capital
Requirements" section herein. In addition, operating costs may increase due
to higher fuel costs (e.g., higher-quality, lower-sulfur coal; increased use
of natural gas) and maintenance expenses.
Global Climate Change Some scientists, environmentalists, and policymakers
continue to express concern about the potential for climate change from
increasing amounts of greenhouse gases released as by-products of burning
fossil fuel and other industrial processes. However, significant uncertainty
exists concerning increased greenhouse gas concentrations and their effect on
the global climate system. Cinergy's plan for managing the potential risk and
uncertainty of climate change includes: (1) implementing cost effective
greenhouse gas emission reduction and offsetting activities; (2) encouraging
the use of alternative fuels for transportation vehicles (a major source of
greenhouse gases); (3) funding research of more efficient and alternative
electric generating technologies; (4) funding research to better understand
the causes and consequences of climate change; and (5) encouraging a global
discussion of the issues and how best to manage them. Cinergy believes that
voluntary programs, such as the United States Department of Energy Climate
Challenge program which Cinergy joined in 1995, can successfully limit
greenhouse gas emissions.
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 early 1996, of the risk of these emissions on
public health. If additional air toxics regulations are issued, the cost of
compliance could be significant. Cinergy cannot predict the outcome or the
effects of this EPA study.
Cinergy, CG&E, PSI, and ULH&P
Other As more fully discussed in Note 13(b)(ii) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data", PSI has
received notification from IGC and NIPSCO alleging PSI is a PRP under the
CERCLA with respect to certain MGP sites.
PSI has not assumed any responsibility to reimburse IGC or NIPSCO for their
costs of investigating and remediating MGP sites, with the exception of a site
at Shelbyville, for which the costs are not material. It is premature, at
this time, to predict the nature, extent, and ultimate costs of, or PSI's
responsibility for, environmental investigations and remediations at MGP sites
owned or previously owned by PSI. Information available to PSI regarding the
current status of investigation and/or remediation at the sites identified in
IGC's claim indicates PSI's potential exposure to probable and reasonably
estimable liabilities associated with these MGP sites would not be material to
its financial condition or results of operations. However, further
investigation and remediation activities at these sites and the additional
sites identified in NIPSCO's claim may indicate that the potential liability
for MGP sites could be material.
During 1995, the IURC denied IGC's request for recovery of costs incurred
relating to its MGP sites, which included sites acquired from PSI. IGC has
appealed this decision. The IURC has granted PSI's motion to establish a sub-
docket to PSI's pending retail rate proceeding to consider its request for
rate recovery of any MGP site-related costs it may incur. PSI is unable to
predict the extent to which it will be able to recover through rates any MGP
costs ultimately incurred.
Refer to Note 13(b) and (c) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data" for a more detailed discussion of
the status of certain environmental issues.
CAPITAL REQUIREMENTS
CONSTRUCTION
Cinergy, CG&E, PSI, and ULH&P
Construction expenditures for the Cinergy system are forecasted to be
approximately $360 million for 1996, and over the next five years (1996
through 2000), are forecasted to be approximately $2.1 billion. Of these
projected expenditures, approximately $195 million and $1.1 billion relate to
CG&E (including $18 million and $102 million for ULH&P) and $165 million and
$1.0 billion relate to PSI, each respectively, for 1996 and over the next five
years. These expenditures include approximately $1.1 billion, about half of
which relates to each CG&E and PSI, for production plant additions, of which
$520 million ($285 million for CG&E and $235 million for PSI) relate to
investments in new generation. As previously discussed in the "Competitive
Pressures" section, potential deregulation of the generation segment of the
electric utility industry creates numerous uncertainties (e.g., customer self-
and cogeneration efforts, alternative supply-side options, and eventual retail
wheeling) which could affect Cinergy's generation resource plan. Cinergy
plans to continue to evaluate future generation investments to maintain
maximum flexibility in its ability to react to change as it occurs in the
industry. (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 increases,
and other related factors which may change significantly.)
OTHER COMMITMENTS
Cinergy, CG&E, PSI, and ULH&P
DSM The level of Cinergy's future expenditures on DSM programs within its
regulated franchise is contingent on the extent to which recovery of its DSM
costs is assured by the applicable state utility regulatory commissions. PSI
currently has a proceeding pending before the IURC to address its ongoing DSM
programs.
Cinergy, CG&E, PSI, and ULH&P
Securities Redemptions In January 1996, CG&E retired $5 million principal
amount of its 10.20% first mortgage bonds (due December 1, 2020).
Additionally, CG&E redeemed on February 15, 1996, the remaining $131.5 million
principal amount of these bonds at a price of 100% through the M&R Fund
provision of its first mortgage bond indenture. ULH&P also redeemed on the
same date $9 million principal amount of its 10 1/4% first mortgage bonds (due
November 15, 2020) at a price of 107.20% and the remaining $6 million
principal amount of such bonds at a price of 100% through its M&R Fund
provision. M&R Fund provisions contained in CG&E's, PSI's, and ULH&P's first
mortgage bond indentures require cash payments, bond retirements, or pledges
of unfunded property additions each year based on a formularized amount
related to the net revenues of the respective company.
Mandatory redemptions of long-term debt and cumulative preferred stock total
$456 million ($322 million for CG&E, including $20 million for ULH&P, and $134
million for PSI) during the period 1996 through 2000. Cinergy will continue
to evaluate opportunities for the refinancing of outstanding securities beyond
mandatory redemption requirements.
Cinergy, CG&E, PSI, and ULH&P
1996 Voluntary Workforce Reduction Program In January 1996, Cinergy announced
a voluntary workforce reduction program which provides enhanced retirement
and/or severance benefits to eligible employees. The program is being offered
in conjunction with a corporate-wide initiative to redesign Cinergy's business
processes to achieve additional merger savings and further enhance Cinergy's
low-cost position. There are 840 employees who meet certain age and service
requirements and are potentially eligible for enhanced retirement benefits
under this program. Eligible employees who do not meet age and service
requirements would receive severance benefits upon resignation from their
employment. Program costs will not be known until after the participation
election period ends on May 15, 1996 (see Note 13(g) of the "Notes to
Financial Statements" in "Item 8. Financial Statements and Supplementary
Data"). A significant portion of these benefits will be eligible for funding
from qualified retirement plan assets.
Cinergy and PSI
Other Funds are required for a payment of $80 million in accordance with the
settlement of PSI's WVPA litigation. The timing of this payment, which could
occur in 1996, is dependent on the outcome of various issues related to WVPA's
bankruptcy proceeding (see Notes 13(e) and 17 of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data").
CAPITAL RESOURCES
Cinergy, CG&E, PSI, and ULH&P
Cinergy forecasts that its, CG&E and its subsidiaries', PSI's, and ULH&P's
need, if any, for external funds during the 1996 through 2000 period will
primarily be for the refinancing of long-term debt and preferred stock, as
previously discussed. (This forecast reflects nominal dollars and assumptions
as to the economy, capital markets, construction programs, legislative and
regulatory actions, frequency and timing of rate increases, and other related
factors which may change significantly.)
INTERNAL FUNDS
Cinergy, CG&E, PSI, and ULH&P
General Currently, substantially all of Cinergy's revenues and corresponding
cash flows are derived from the cost-of-service regulated operations of CG&E
and its subsidiaries, including ULH&P, and PSI. As previously discussed in
the "Competitive Pressures" section, Cinergy believes the generation segment
of the electric utility industry will ultimately be deregulated. However, the
timing and nature of the restructuring is uncertain. In the interim, revenues
provided by cost-of-service regulated operations are anticipated to continue
as the primary source of funds for Cinergy. As a result of its low-cost
position and market strategy, over the long term, Cinergy believes it will be
successful in a more competitive environment. However, as the industry
becomes more competitive, future cash flows from Cinergy's operations could be
subject to a higher degree of volatility than under the present regulatory
structure.
Cinergy and PSI
Contribution from Parent Company In December 1994, Cinergy publicly issued
approximately 7.1 million shares of common stock. The net proceeds of
approximately $160 million were contributed to the equity capital of PSI for
general corporate purposes, including repayment of short-term indebtedness
incurred for construction financing.
Cinergy and PSI
Regulatory Lag Ratemaking And Accounting Mechanisms As previously discussed
in the "Regulatory Matters" section, PSI is currently recovering carrying
costs on certain major projects prior to receipt of an order reflecting the
projects in rates. To the extent carrying costs are not recovered currently
on these projects, PSI has approval for deferral of carrying costs until such
projects are reflected in rates (see Note 1(h) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data").
Cinergy, CG&E, PSI, and ULH&P
Merger Savings As previously discussed in the "Regulatory Matters" section,
PSI and CG&E currently have regulatory orders in effect which provide
mechanisms for the retention of a portion of net Non-fuel Merger Savings.
Cinergy, CG&E, PSI, and ULH&P
DSM Costs In addition to the recovery of previous deferrals of DSM program
costs, the February 1995 Order authorized recovery by PSI of $23 million of
DSM expenditures on an annual basis. Pursuant to the February 1995 Order, DSM
expenditures in excess of this $23 million base level are being deferred for
future recovery in rates. If DSM expenditures in any calendar year are less
than the $23 million in base rates, the unamortized balance of deferred DSM
expenditures will be reduced by such difference. In its current retail rate
proceeding, PSI has requested similar treatment of DSM costs, including an
increase in the ongoing annual expense level from $23 million to $39 million.
The August 1993 Order authorized CG&E to recover annually approximately $5
million of costs associated with DSM programs for residential customers. In
1995, the PUCO authorized the deferral, with carrying costs, of the
expenditures associated with a number of approved DSM programs to the extent
such expenditures are in excess of the $5 million already being recovered.
CG&E is also requesting PUCO approval to defer the costs of additional DSM
programs. In addition, the KPSC has authorized recovery of costs related to
various DSM programs of ULH&P.
See Note 1(g) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".
COMMON STOCK
Cinergy
During 1995, 1994, and 1993, Cinergy issued 2.6 million, 2.8 million, and 2.3
million shares, respectively, of common stock pursuant to its dividend
reinvestment and stock purchase plan and various stock-based employee plans.
Historically, Cinergy has satisfied its obligations under these plans through
the issuance of additional shares of common stock. In the future and to the
extent possible, Cinergy plans to use market purchases of outstanding common
stock to satisfy all or at least a portion of its obligations under these
plans. At December 31, 1995, 15.8 million shares were reserved for issuance
under Cinergy's stock-based plans.
LONG-TERM DEBT AND PREFERRED STOCK
Cinergy, CG&E, PSI, and ULH&P
As of December 31, 1995, CG&E, PSI, and ULH&P had state regulatory authority
for long-term debt issuances of $250 million, $298 million, and $40 million,
respectively. Additionally, PSI had IURC authority to issue up to $40 million
of preferred stock. Regulatory approval to issue additional amounts of debt
securities and preferred stock will be requested as needed.
SHORT-TERM DEBT
Cinergy, CG&E, PSI, and ULH&P
Cinergy's subsidiaries had regulatory authority to borrow up to $838 million
($438 million for CG&E and its subsidiaries, including $35 million for ULH&P,
and $400 million for PSI) as of December 31, 1995. In connection with this
authority, Committed Lines have been established which permit borrowings of up
to $322 million ($106 million for CG&E and its subsidiaries, including $30
million for ULH&P, and $215 million for PSI) of which $182 million ($106
million for CG&E and its subsidiaries, including $30 million for ULH&P, and
$74 million for PSI) remained unused at December 31, 1995. CG&E and PSI also
issue commercial paper from time to time. All outstanding commercial paper is
supported by Committed Lines of the respective company. Additionally,
pursuant to this authority, Uncommitted Lines are arranged with various banks.
All Uncommitted Lines provide for maturities of up to 365 days with various
interest rate options.
To better manage cash and working capital requirements, Cinergy's utility
subsidiaries, including CG&E, PSI, and ULH&P, participate in a money pooling
arrangement. Under the money pool, participants with surplus short-term
funds, whether from internal sources, bank loans, or commercial paper sales,
provide short-term loans to other system companies at rates that approximate
the cost of the funds in the money pool. The SEC's approval, pursuant to the
PUHCA, of the money pool extends through May 31, 1997.
In addition, Cinergy has a $100 million credit facility which expires in
September 1997 and was unused at December 31, 1995. The facility may be
increased to a maximum of $300 million, and the Company has an annual option
of extending the term of the facility by one year. This credit facility will
be used for general corporate purposes and funding non-utility business
ventures.
SALE OF ACCOUNTS RECEIVABLE
Cinergy, CG&E, PSI, and ULH&P
In January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on a
revolving basis, undivided percentage interests in certain of their accounts
receivable up to an aggregate maximum of $350 million. PSI had a similar
agreement, which expired in January 1996, to sell up to $90 million of its
accounts receivable.
Cinergy, CG&E, PSI, and ULH&P
ACCOUNTING CHANGES
See the information on Statement 121 provided herein under the caption
"Substantial Accounting Implications" and Note 1(d) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".
Cinergy, CG&E, PSI, and ULH&P
INFLATION
Over the past several years, the rate of inflation has been relatively low.
Cinergy 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.
Cinergy, CG&E, and PSI
DIVIDEND RESTRICTIONS
See Notes 3(b) and 4(c) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
Cinergy, CG&E, PSI, and ULH&P
RESULTS OF OPERATIONS
Reference is made to "ITEM 8. Financial Statements and Supplementary Data".
Index to Financial Statements and Financial Statement Schedules
Financial Statements
Cinergy, CG&E, PSI, and ULH&P
Report of Independent Public Accountants. . . . . . . .
Cinergy
Consolidated Statements of Income for the
three years ended December 31, 1995 . . . . . . . . .
Consolidated Balance Sheets at
December 31, 1995 and 1994 . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1995. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1995. . . . .
Results of Operations. . . . . . . . . . . . . . . . .
CG&E
Consolidated Statements of Income for the
three years ended December 31, 1995. . . . . . . . .
Consolidated Balance Sheets at
December 31, 1995 and 1994 . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1995. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1995. . . . .
Results of Operations. . . . . . . . . . . . . . . . .
PSI
Consolidated Statements of Income for the
three years ended December 31, 1995. . . . . . . . .
Consolidated Balance Sheets at
December 31, 1995 and 1994 . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1995. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1995. . . . .
Results of Operations. . . . . . . . . . . . . . . . .
ULH&P
Statements of Income for the three years ended
December 31, 1995. . . . . . . . . . . . . . . . . .
Balance Sheets at December 31, 1995 and 1994 . . . . .
Statements of Changes in Common Stock Equity
for the three years ended December 31, 1995. . . . .
Statements of Cash Flows for the three years
ended December 31, 1995. . . . . . . . . . . . . . .
Results of Operations. . . . . . . . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . . .
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Cinergy . . . . . . . . . . . . . . . . . . . . . .
CG&E. . . . . . . . . . . . . . . . . . . . . . . .
PSI . . . . . . . . . . . . . . . . . . . . . . . .
ULH&P . . . . . . . . . . . . . . . . . . . . . . .
The information required to be submitted in schedules other than those
indicated above has been included in the balance sheets, the 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 Cinergy Corp., The Cincinnati Gas & Electric
Company, PSI Energy, Inc., and The Union Light, Heat and Power Company:
We have audited the financial statements of Cinergy Corp. (a Delaware
Corporation), The Cincinnati Gas & Electric Company (an Ohio Corporation), PSI
Energy, Inc. (an Indiana Corporation), and The Union Light, Heat and Power
Company (a Kentucky Corporation), as of December 31, 1995 and 1994, and for
each of the three years in the period ended December 31, 1995, as listed in
the index on page 46. These financial statements and the schedules referred
to below are the responsibility of management. Our responsibility is to
express an opinion on these financial statements and schedules 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 Cinergy Corp., The Cincinnati
Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental financial statement
schedules listed in the index on page 47 pursuant to 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 financial
statement schedules have been subjected to the auditing procedures applied in
our audits of the basic financial statements and, in our opinion, are fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Cincinnati, Ohio,
January 25, 1996
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
1995 1994 1993
(in thousands, except per share amounts)
Operating Revenues (Note 2)
Electric $2 620 581 $2 455 537 $2 374 242
Gas 410 852 442 398 469 296
3 031 433 2 897 935 2 843 538
Operating Expenses
Fuel used in electric production 716 754 712 993 733 159
Gas purchased 206 250 248 293 280 836
Purchased and exchanged power 47 632 49 082 36 209
Other operation 534 587 563 650 456 590
Maintenance 182 180 200 959 192 877
Depreciation 279 759 294 395 278 882
Amortization of phase-in deferrals 9 091 - -
Post-in-service deferred operating
expenses - net (2 500) (5 998) (11 540)
Phase-in deferred depreciation - (2 161) (8 524)
Income taxes (Note 12) 219 462 152 181 172 637
Taxes other than income taxes 256 086 244 051 229 148
2 449 301 2 457 445 2 360 274
Operating Income 582 132 440 490 483 264
Other Income and Expenses - Net
Allowance for equity funds used
during construction 1 964 6 201 14 327
Post-in-service carrying costs 3 186 9 780 18 105
Phase-in deferred return 8 537 15 351 35 334
Reduction of loss related to the
IURC's June 1987 Order - - 20 134
Write-off of a portion of Zimmer - - (234 844)
Income taxes (Note 12)
Related to the IURC's June 1987
Order - - (7 444)
Related to the write-off of a
portion of Zimmer - - 12 085
Other 5 391 10 609 21 043
Other - net 3 497 (28 444) (40 299)
22 575 13 497 (161 559)
Income Before Interest and Other Charges 604 707 453 987 321 705
Interest and Other Charges
Interest on long-term debt 213 911 219 248 225 990
Other interest 20 826 20 370 7 923
Allowance for borrowed funds used
during construction (8 065) (12 332) (12 740)
Preferred dividend requirements of
subsidiaries 30 853 35 559 37 985
257 525 262 845 259 158
Net Income $ 347 182 $ 191 142 $ 62 547
Average Common Shares Outstanding 156 620 147 426 144 226
Earnings Per Common Share $2.22 $1.30 $.43
Dividends Declared Per Common Share $1.72 $1.50 $1.46
The accompanying notes are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1995 1994_
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $8 617 695 $8 292 625
Gas 680 339 645 602
Common 184 663 185 718
9 482 697 9 123 945
Accumulated depreciation 3 367 401 3 163 802
6 115 296 5 960 143
CWIP 135 852 238 750
Total utility plant 6 251 148 6 198 893
Current Assets
Cash and temporary cash investments 35 052 71 880
Restricted deposits 2 336 11 288
Accounts receivable less accumulated provision
of $10,360 in 1995 and $9,716 in 1994
for doubtful accounts (Note 7) 371 150 299 509
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 122 409 156 028
Gas stored for current use 21 493 31 284
Other materials and supplies 85 076 92 880
Property taxes applicable to subsequent year 116 822 112 420
Prepayments and other 32 347 36 416
786 685 811 705
Other Assets
Regulatory assets
Amounts due from customers - income taxes 423 493 408 514
Post-in-service carrying costs and deferred
operating expenses 187 190 185 280
Phase-in deferred return and depreciation 100 388 100 943
Deferred DSM costs 129 400 104 127
Deferred merger costs 56 824 49 658
Unamortized costs of reacquiring debt 73 904 70 424
Other 74 911 86 389
Other 136 121 133 909
1 182 231 1 139 244
$8 220 064 $8 149 842
The accompanying notes are an integral part of these consolidated financial statements.
CINERGY CORP.
CAPITALIZATION AND LIABILITIES
December 31
1995 1994
(dollars in thousands)
Common Stock Equity (Note 3)
Common stock - $.01 par value;
authorized shares - 600,000,000;
outstanding shares - 157,670,141 in 1995
and 155,198,038 in 1994 $ 1 577 $ 1 552
Paid-in capital 1 597 050 1 535 658
Retained earnings 950 216 877 061
Total common stock equity 2 548 843 2 414 271
Cumulative Preferred Stock of Subsidiaries
(Note 4)
Not subject to mandatory redemption 227 897 267 929
Subject to mandatory redemption 160 000 210 000
Long-term Debt (Note 5) 2 530 766 2 715 269
Total capitalization 5 467 506 5 607 469
Current Liabilities
Long-term debt due within one year (Note 5) 201 900 60 400
Notes payable (Note 6) 165 800 228 900
Accounts payable 263 403 266 467
Litigation settlement (Note 13(e)) 80 000 80 000
Accrued taxes 317 185 258 041
Accrued interest 55 995 58 504
Other 61 938 52 092
1 146 221 1 004 404
Other Liabilities
Deferred income taxes (Note 12) 1 120 900 1 071 104
Unamortized investment tax credits 185 726 195 878
Accrued pension and other postretirement
benefit costs (Notes 10 and 11) 171 771 133 578
Other 127 940 137 409
1 606 337 1 537 969
Commitments and Contingencies (Note 13)
$8 220 064 $8 149 842
CINERGY CORP.
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, 1992 $1 430 $1 260 474 $1 055 040 $2 316 944
Net income 62 547 62 547
Issuance of 3,443,918 shares of
common stock 23 57 159 57 182
Common stock issuance expenses (145) (145)
Costs of issuing and retiring
preferred stock of subsidiaries (5 062) (5 062)
Dividends on common stock (see
page 50 for per share amounts) (209 861) (209 861)
Other 76 76
Balance December 31, 1993 1 453 1 312 426 907 802 2 221 681
Net income 191 142 191 142
Issuance of 9,830,042 shares of
common stock 99 227 882 227 981
Common stock issuance expenses (5 225) (5 225)
Dividends on common stock (see
page 50 for per share amounts) (221 362) (221 362)
Other 575 (521) 54
Balance December 31, 1994 1 552 1 535 658 877 061 2 414 271
Net income 347 182 347 182
Issuance of 2,472,103 shares of
common stock - net 25 60 343 60 368
Common stock issuance expenses (229) (229)
Dividends on common stock (see
page 50 for per share amounts) (268 851) (268 851)
Other 1 278 (5 176) (3 898)
Balance December 31, 1995 $1 577 $1 597 050 $ 950 216 $2 548 843
The accompanying notes are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1995 1994 1993
(in thousands)
Operating Activities
Net income $ 347 182 $ 191 142 $ 62 547
Items providing (using) cash currently:
Depreciation 279 759 294 395 278 882
Deferred income taxes and investment
tax credits - net 28 411 30 926 96 470
Allowance for equity funds used during
construction (1 964) (6 201) (14 327)
Regulatory assets - net 1 026 (58 165) (85 786)
Write-off of a portion of Zimmer - - 234 844
Changes in current assets and current
liabilities
Restricted deposits (1 035) 10 046 40
Accounts receivable (71 641) 40 550 (24 152)
Materials, supplies, and fuel 51 214 (45 949) 61 969
Accounts payable (3 064) (8 191) 62 508
Advance under accounts receivable purchase
agreement - (49 940) 49 940
Accrued taxes and interest 56 635 5 753 7 257
Other items - net 16 872 36 890 (83 481)
Net cash provided by (used in) operating
activities 703 395 441 256 646 711
Financing Activities
Issuance of common stock 60 139 222 756 57 037
Issuance of preferred stock of subsidiaries - - 156 325
Issuance of long-term debt 344 280 420 935 538 704
Funds on deposit from issuance of long-term debt 9 987 27 897 (31 342)
Retirement of preferred stock of subsidiaries (93 466) (40 426) (60 107)
Redemption of long-term debt (398 833) (313 682) (502 335)
Change in short-term debt (63 100) 51 186 (13 033)
Dividends on common stock (268 851) (221 362) (209 861)
Net cash provided by (used in) financing
activities (409 844) 147 304 (64 612)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (324 905) (480 533) (549 028)
Deferred DSM costs - net (25 273) (47 268) (33 763)
Equity investments in Argentine utilities 19 799 - (206)
Net cash provided by (used in) investing
activities (330 379) (527 801) (582 997)
Net increase (decrease) in cash and temporary
cash investments (36 828) 60 759 (898)
Cash and temporary cash investments at beginning
of period 71 880 11 121 12 019
Cash and temporary cash investments at end of
period $ 35 052 $ 71 880 $ 11 121
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $ 218 357 $ 211 163 $ 213 774
Income taxes 140 189 96 680 81 327
The accompanying notes are an integral part of these consolidated financial statements.
RESULTS OF OPERATIONS - CINERGY
Kwh Sales
Cinergy's total kwh sales in 1995, as compared to 1994, increased 4.1%,
reflecting increased sales to all retail customer classes. Contributing
significantly to this increase were higher residential and commercial sales
due to warmer weather during the 1995 summer cooling season and colder weather
during the fourth quarter of 1995. Additionally, increased sales to
industrial customers, reflecting growth in the primary metals and chemicals
sectors, contributed to the increased kwh sales level. These increases were
offset, in part, by a decline in non-firm power sales for resale.
Total kwh sales increased 2.8% in 1994, as compared to 1993, due in large part
to non-firm power sales for resale, reflecting third party, short-term power
sales to other utilities through PSI's system and direct power sales by PSI to
other utilities. This increase was partially offset by CG&E's reduced power
sales to other utilities in 1994. Also significantly contributing to the
total kwh sales levels were increased sales to industrial customers. This
increase reflected growth in the primary metals and transportation equipment
sectors. Commercial sales increased due, in part, to new customers. A
decrease in residential sales resulted from the milder weather experienced
during the third and fourth quarters of 1994.
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
and transportation equipment sectors resulted in increased industrial sales.
Partially offsetting these increases was a reduction in non-firm power sales
for resale, which reflected a significant decrease in third party, short-term
power sales to other utilities through PSI's system.
Year-to-year changes in kwh sales for each major class of customers are shown
below:
Increase (Decrease) from Prior Year
1995 1994 1993_
Retail
Residential 5.8 % (1.7)% 10.3 %
Commercial 4.3 1.9 6.3
Industrial 4.6 4.6 4.2
Total retail 4.9 1.6 6.9
Sales for resale
Firm power obligations 1.7 2.5 2.6
Non-firm power transactions (1.3) 14.4 (5.3)
Total sales for resale (.4) 10.5 (2.8)
Total sales 4.1 2.8 5.3
Cinergy currently forecasts a 2% annual compound growth rate in kwh sales over
the 1996 through 2005 period. This forecast does not reflect the effects of
DSM programs and excludes non-firm power sales for resale and any potential
new off-system, long-term firm power sales.
Mcf Sales and Transportation
Total gas sales and transportation volumes increased 8.6% in 1995, as compared
to 1994. Increased sales to residential customers, resulting from colder
weather during the fourth quarter of 1995 and an increase in the number of
customers, contributed to higher retail sales. Additionally, increases in
commercial and industrial transportation volumes, which resulted from
customers electing to purchase gas directly from suppliers, more than offset
declines in industrial and commercial sales. The increased transportation
volumes mainly reflect industrial demand for gas transportation services in
the primary metals, food products, and paper products sectors.
The milder weather experienced in 1994 contributed to a decrease in
residential and commercial gas sales volumes and led to the decrease in total
Mcf sales and transportation of 1.2% in 1994, as compared to 1993. An
increase in gas transportation volumes to industrial customers, mainly in the
primary metals sector, partially offset this decrease.
The increase in retail Mcf sales of 5.4% in 1993, when compared to 1992, was
primarily attributable to higher residential 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.
Year-to-year changes in Mcf sales for each major class of customers and Mcf
transportation volumes are shown below:
Increase (Decrease) from Prior Year
1995 1994 1993_
Retail
Residential 10.5 % (10.2)% 9.5 %
Commercial (2.0) (1.5) 1.1
Industrial (26.6) (9.9) (.8)
Total retail 1.5 (6.7) 5.4
Gas transported 24.4 13.9 12.7
Total gas sold and transported 8.6 (1.2) 7.2
Operating Revenues
ELECTRIC OPERATING REVENUES
Higher retail kwh sales, PSI's electric rate increases which became effective
in February 1995 and March 1995, and a full year's effect of CG&E's electric
rate increase which became effective in May 1994, significantly contributed to
the $165 million (6.7%) increase in electric operating revenues for 1995, when
compared to 1994.
Electric operating revenues increased $82 million (3.4%) in 1994, as compared
to 1993, as a result of CG&E's electric rate increases which became effective
in May 1993, August 1993, and May 1994, PSI's increased kwh sales, and the
effects of PSI's $31 million refund to retail customers accrued in June 1993
as a result of the settlement of the IURC's April 1990 Order.
Electric operating revenues increased $155 million (7.0%) in 1993 primarily as
a result of greater kwh sales and electric rate increases granted to CG&E in
1993 and 1992. These increases were partially offset by the refund resulting
from the settlement of the April 1990 Order.
An analysis of electric operating revenues for the past three years is shown
below:
1995 1994 1993_
(in millions)
Previous year's electric
operating revenues $2 456 $2 374 $2 219
Increase (Decrease) due to change in:
Price per kwh
Retail 54 32 12
Sales for resale
Firm power obligations (1) 1 (1)
Non-firm power transactions 4 - 10
Total change in price per kwh 57 33 21
Kwh sales
Retail 109 34 138
Sales for resale
Firm power obligations 1 2 2
Non-firm power transactions (1) 14 (5)
Total change in kwh sales 109 50 135
Other (1) (1) (1)
Current year's electric
operating revenues $2 621 $2 456 $2 374
GAS OPERATING REVENUES
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing CG&E facilities to transport the gas (see the "Mcf
Sales and Transportation" section) continues to put downward pressure on gas
operating revenues. When Cinergy sells gas, the sales price reflects the cost
of gas purchased by Cinergy to support the sale plus the costs to deliver the
gas. When gas is transported, Cinergy does not incur any purchased gas costs
but delivers gas the customer has purchased from other sources. Since
providing transportation services does not necessitate recovery of gas
purchased costs, the revenue per Mcf transported is less than the revenue per
Mcf sold. As a result, a higher relative volume of gas transported to gas
sold translates into lower gas operating revenues.
In 1995, gas operating revenues declined $32 million (7.1%), as compared to
1994, as a result of the aforementioned trend toward increased transportation
services and the operation of fuel adjustment clauses reflecting a lower
average cost of gas purchased.
Gas operating revenues decreased $27 million (5.7%) in 1994, as 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.
In 1993, gas operating revenues increased $75 million (19.1%) as a result of
rate increases granted in 1993, higher volumes of gas sold, and the operation
of fuel adjustment clauses reflecting an increase in the average cost of gas
purchased.
Operating Expenses
FUEL
Fuel Used in Electric Production Electric fuel costs, Cinergy's largest
operating expense, remained relatively constant in 1995, showing less than a
1% increase when compared to 1994.
An analysis of these fuel costs for the past three years is shown below:
1995 1994 1993
(in millions)
Previous year's fuel expense $713 $733 $707
Increase (Decrease) due to change in:
Price of fuel (25) (39) (2)
Kwh generation 29 19 28
Current year's fuel expense $717 $713 $733
Gas Purchased In 1995, gas purchased expense decreased $42 million (16.9%),
as compared to 1994, reflecting a decline in the average cost per Mcf of gas
purchased of 17.2%.
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 increased $53 million (23.0%) in 1993 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%.
PURCHASED AND EXCHANGED POWER
Purchased and exchanged power increased $13 million (35.6%) in 1994, as
compared to 1993, reflecting an increase in third party, short-term power
sales to other utilities through PSI's system and increased purchases of other
non-firm power by PSI primarily to serve its own load.
In 1993, PSI increased its purchases of non-firm power primarily to serve its
own load, which resulted in an increase in purchased and exchanged power costs
of $16 million (78.0%).
OTHER OPERATION
In 1995, other operation expenses decreased $29 million (5.2%), as compared to
1994. Charges of $62 million in 1994 for Merger Costs and other expenditures
which cannot be recovered from customers under the merger savings sharing
mechanisms authorized by regulators significantly contributed to the decrease.
In addition, emphasis on achieving merger savings and other cost reductions
led to lower operating costs for 1995. These decreases were partially offset
by the recognition of postretirement benefit costs on an accrual basis, an
increase in the ongoing level of DSM expenses, and the amortization of
deferred postretirement benefit costs, deferred Merger Costs, and deferred DSM
costs, all of which are being recovered in revenues pursuant to the February
1995 Order.
Other operation expenses increased $107 million (23.4%) in 1994, as compared
to 1993, due to a number of factors including the previously discussed charges
of $62 million, fuel litigation expenses of $8 million incurred by PSI, and
increased electric production and distribution expenses.
MAINTENANCE
Maintenance costs decreased $19 million (9.3%) in 1995, as compared to 1994,
primarily due to improved scheduling of routine maintenance on electric
generating units. Lower maintenance costs on gas and electric distribution
facilities also contributed to this decrease.
Increased maintenance on a number of PSI's generating stations and the initial
costs of PSI's new distribution line clearing program resulted in increased
maintenance expenses of $8 million (4.2%) in 1994.
DEPRECIATION
In 1995, depreciation expense decreased $15 million (5.0%), when compared to
1994, due in large part to the adoption of lower depreciation rates for PSI
effective in March 1995. This decrease was partially offset by the effect of
additions to utility plant.
Depreciation expense increased $16 million (5.6%) in 1994, as compared to
1993, primarily as a result of additions to electric utility plant.
Depreciation expense increased $21 million (8.1%) 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, the sixth unit which was placed in commercial
operation in 1993, and other additions to electric utility plant.
POST-IN-SERVICE DEFERRED OPERATING EXPENSES - NET
Post-in-service deferred operating expenses - net reflect various deferrals of
depreciation, operation and maintenance expenses (exclusive of fuel costs),
and property taxes on certain generating units and other utility plant from
the in-service date until the related plant is reflected in retail rates, net
of amortization of these deferrals as they are recovered through retail rates.
(See Note 1(h) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".)
PHASE-IN DEFERRED DEPRECIATION AND RETURN AND AMORTIZATION OF PHASE-IN
DEFERRALS
Phase-in deferred depreciation, phase-in deferred return, and amortization of
phase-in deferrals reflect the PUCO-ordered phase-in plan for Zimmer. (See
Note 1(f) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".)
TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes increased $12 million (4.9%) in 1995, $15
million (6.5%) in 1994, and $13 million (5.8%) in 1993, 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
POST-IN-SERVICE CARRYING COSTS
Post-in-service carrying costs reflect the deferral of carrying costs on
certain generating units and other utility plant from the in-service date
until the related plant is reflected in retail rates. (See Note 1(h) of the
"Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data".)
REDUCTION OF LOSS RELATED TO THE JUNE 1987 ORDER
The December 1993 Order resolved open issues related to the June 1987 Order
which addressed the effect on PSI of the 1987 reduction in the Federal income
tax rate. The December 1993 Order provided for PSI to refund $119 million to
its retail customers, which was a reduction of $20 million from the loss
previously recognized.
WRITE-OFF OF A PORTION OF ZIMMER
In the May 1992 Order authorizing the rate phase-in plan for Zimmer, the PUCO
disallowed from rates approximately $230 million of Zimmer costs. Upon
appeal, the Supreme Court of Ohio upheld the PUCO's decision, and CG&E wrote
off Zimmer costs of approximately $223 million, net of taxes, in November
1993.
OTHER - NET
Other - net increased $32 million in 1995, as compared to 1994, due in part to
$4 million of interest on an income tax refund related to prior years, a $10
million gain on the sale of Cinergy's investment in an Argentine utility, and
charges of $17 million in 1994 for merger-related and other expenditures which
cannot be recovered from customers.
In 1994, other - net increased $12 million, as compared to 1993, primarily as
a result of the write-off during 1993 of $22 million related to the defense
against the IPALCO hostile takeover attempt. The increase was offset, in
part, by the charges in 1994 of $17 million previously discussed.
The decrease in other - net of $38 million in 1993, as compared to 1992, was
primarily the result of the previously discussed write-off of IPALCO defense
costs in 1993.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
1995 1994 1993
(in thousands)
Operating Revenues (Note 2)
Electric (including $30,104, $4,667,
and $930 from affiliated companies
for 1995, 1994, and 1993,
respectively) 1 437 223 1 345 787 1 282 445
Gas 410 852 442 398 469 296
1 848 075 1 788 185 1 751 741
Operating Expenses
Fuel used in electric production 327 353 325 470 333 279
Gas purchased 206 250 248 293 280 836
Purchased and exchanged power
Non-affiliated companies 13 870 12 349 12 865
Affiliated companies 42 575 8 583 9 594
Other operation 291 874 336 030 257 407
Maintenance 94 688 106 810 108 857
Depreciation 158 986 156 676 152 061
Amortization of phase-in deferrals 9 091 - -
Post-in-service deferred operating
expenses - net 3 290 3 290 (6 471)
Phase-in deferred depreciation - (2 161) (8 524)
Income taxes (Note 12) 136 386 104 128 108 970
Taxes other than income taxes 203 680 197 381 183 367
1 488 043 1 496 849 1 432 241
Operating Income 360 032 291 336 319 500
Other Income and Expenses - Net
Allowance for equity funds used
during construction 1 790 1 971 3 154
Post-in-service carrying costs - - 12 100
Phase-in deferred return 8 537 15 351 35 334
Write-off of a portion of Zimmer - - (234 844)
Income taxes (Note 12)
Related to the write-off of a
portion of Zimmer - - 12 085
Other 4 587 6 619 9 405
Other - net 4 221 (6 726) (9 551)
19 135 17 215 (172 317)
Income Before Interest 379 167 308 551 147 183
Interest
Interest on long-term debt 143 334 150 386 157 044
Other interest 3 486 2 831 2 449
Allowance for borrowed funds used
during construction (3 854) (2 977) (3 586)
142 966 150 240 155 907
Net Income (Loss) 236 201 158 311 (8 724)
Preferred Dividend Requirement 17 673 22 377 25 160
Net Income (Loss) Applicable to
Common Stock $ 218 528 $ 135 934 $ (33 884)
The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1995 1994
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $4 564 711 $4 502 840
Gas 680 339 645 602
Common 183 422 185 718
5 428 472 5 334 160
Accumulated depreciation 1 730 232 1 613 505
3 698 240 3 720 655
CWIP 77 661 74 989
Total utility plant 3 775 901 3 795 644
Current Assets
Cash and temporary cash investments 6 612 52 516
Restricted deposits 1 144 98
Accounts receivable less accumulated
provision of $9,615 in 1995 and $8,999 in 1994
for doubtful accounts (Note 7) 292 493 265 132
Accounts receivable from affiliated companies 21 409 3 888
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 40 395 42 167
Gas stored for current use 21 493 31 284
Other materials and supplies 55 388 57 864
Property taxes applicable to subsequent year 116 822 112 420
Prepayments and other 30 572 31 327
586 328 596 696
Other Assets
Regulatory assets
Amounts due from customers - income taxes 397 155 381 380
Post-in-service carrying costs and deferred
operating expenses 148 316 155 138
Phase-in deferred return and depreciation 100 388 100 943
Deferred DSM costs 19 158 10 002
Deferred merger costs 14 538 12 013
Unamortized costs of reacquiring debt 39 428 33 426
Other 41 025 56 359
Other 54 691 40 064
814 699 789 325
$5 176 928 $5 181 665
The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CAPITALIZATION AND LIABILITIES
December 31
1995 1994
(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 1995
and 1994 $ 762 136 $ 762 136
Paid-in capital 339 101 337 874
Retained earnings 427 226 432 962
Total common stock equity 1 528 463 1 532 972
Cumulative Preferred Stock (Note 4)
Not subject to mandatory redemption 40 000 80 000
Subject to mandatory redemption 160 000 210 000
Long-term Debt (Note 5) 1 702 650 1 837 757
Total capitalization 3 431 113 3 660 729
Current Liabilities
Long-term debt due within one year (Note 5) 151 500 - Notes payable (Note 6)
- 14 500
Accounts payable 133 999 120 817
Accrued taxes 250 189 227 651
Accrued interest 31 299 31 902
Other 45 145 32 658
612 132 427 528
Other Liabilities
Deferred income taxes (Note 12) 795 385 747 060
Unamortized investment tax credits 129 372 135 417
Accrued pension and other postretirement
benefit costs (Notes 10 and 11) 117 641 102 254
Other 91 285 108 677
1 133 683 1 093 408
Commitments and Contingencies (Note 13)
$5 176 928 $5 181 665
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, 1992 $734 307 $284 486 $ 636 337 $1 655 130
Net income (loss) (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
Net income 236 201 236 201
Dividends on preferred stock (17 673) (17 673)
Dividends on common stock (219 550) (219 550)
Other 1 227 (4 714) (3 487)
Balance December 31, 1995 $762 136 $339 101 $ 427 226 $1 528 463
The accompanying notes are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
1995 1994 1993
(in thousands)
Operating Activities
Net income (loss) $ 236 201 $ 158 311 $ (8 724)
Items providing (using) cash currently:
Depreciation 158 986 156 676 152 061
Deferred income taxes and investment
tax credits - net 26 938 13 680 23 635
Allowance for equity funds used during
construction (1 790) (1 971) (3 154)
Regulatory assets - net 16 654 (21 248) (55 832)
Write-off of a portion of Zimmer - - 234 844
Changes in current assets and current
liabilities
Restricted deposits (1 046) 22 109
Accounts receivable (44 882) 43 145 (38 040)
Materials, supplies, and fuel 14 039 21 202 3 567
Accounts payable 13 182 (8 093) 5 352
Accrued taxes and interest 21 935 8 211 15 711
Other items - net 631 77 462 14 505
Net cash provided by (used in) operating
activities 440 848 447 397 344 034
Financing Activities
Issuance of common stock - 36 711 43 953
Issuance of long-term debt 344 280 311 957 297 000
Retirement of preferred stock of subsidiaries (93 450) (40 400) -
Redemption of long-term debt (338 378) (313 522) (294 455)
Change in short-term debt (14 500) (16 500) (15 500)
Dividends on preferred stock (17 673) (22 377) (25 160)
Dividends on common stock (219 550) (158 970) (145 942)
Net cash provided by (used in) financing
activities (339 271) (203 101) (140 104)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (138 325) (189 954) (198 585)
Deferred DSM costs - net (9 156) (6 396) (3 027)
Net cash provided by (used in) investing
activities (147 481) (196 350) (201 612)
Net increase (decrease) in cash and temporary
cash investments (45 904) 47 946 2 318
Cash and temporary cash investments at beginning
of period 52 516 4 570 2 252
Cash and temporary cash investments at end of
period $ 6 612 $ 52 516 $ 4 570
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $ 137 892 $ 142 380 $ 151 867
Income taxes 79 769 88 639 53 786
The accompanying notes are an integral part of these consolidated financial statements.
RESULTS OF OPERATIONS - CG&E
Kwh Sales
Kwh sales for 1995 increased 15.3% over 1994, reflecting increased sales to
all customer classes. Significantly contributing to this increase were higher
non-firm power sales for resale primarily due to increased sales to PSI, as a
result of the coordination of CG&E's and PSI's electric dispatch systems.
Higher residential and commercial sales resulted primarily from warmer weather
during the 1995 summer cooling season and colder weather during the fourth
quarter of 1995. Additionally, increased sales to industrial customers were
mainly attributable to growth in the primary metals and chemicals sectors.
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
residential 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.
Year-to-year changes in kwh sales for each major class of customers are shown
below:
Increase (Decrease) from Prior Year
1995 1994 1993
Retail
Residential 3.8% (2.0)% 8.6 %
Commercial 3.4 2.3 5.4
Industrial 3.9 4.3 2.4
Total retail 3.8 1.1 5.8
Sales for resale
Firm power obligations 6.3 1.7 6.1
Non-firm power transactions 211.8 (29.3) (.4)
Total sales for resale 172.6 (24.9) 1.1
Total sales 15.3 (1.2) 5.3
CG&E currently forecasts a 2% annual compound growth rate in kwh sales over
the 1996 through 2005 period. This forecast does not reflect the effects of
DSM programs and excludes non-firm power sales for resale and any potential
new off-system, long-term firm power sales.
Mcf Sales and Transportation
Total gas sales and transportation volumes increased 8.6% in 1995, as compared
to 1994. Increased sales to residential customers, resulting from colder
weather during the fourth quarter of 1995 and an increase in the number of
customers, contributed to higher retail sales. Additionally, increases in
commercial and industrial transportation volumes, which resulted from
customers electing to purchase gas directly from suppliers, more than offset
declines in industrial and commercial sales. The increased transportation
volumes mainly reflect industrial demand for gas transportation services in
the primary metals, food products, and paper products sectors.
The milder weather experienced in 1994 contributed to a decrease in
residential and commercial gas sales volumes and led to the decrease in total
Mcf sales and transportation of 1.2% in 1994, as compared to 1993. An
increase in gas transportation volumes to industrial customers, mainly in the
primary metals sector, partially offset this decrease.
The increase in retail Mcf sales of 5.4% in 1993, when compared to 1992, was
primarily attributable to higher residential 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.
Year-to-year changes in Mcf sales for each major class of customers and Mcf
transportation volumes are shown below:
Increase (Decrease) from Prior Year
1995 1994 1993
Retail
Residential 10.5 % (10.2)% 9.5 %
Commercial (2.0) (1.5) 1.1
Industrial (26.6) (9.9) (.8)
Total retail 1.5 (6.7) 5.4
Gas transported 24.4 13.9 12.7
Total gas sold and transported 8.6 (1.2) 7.2
Operating Revenues
ELECTRIC OPERATING REVENUES
Electric operating revenues increased $91 million (6.8%) in 1995, as compared
to 1994. This increase reflects the higher kwh sales, as previously discussed
and a full year's effect of CG&E's electric rate increase which became
effective in May 1994. This increase was partially offset by the operation of
fuel adjustment clauses reflecting a lower average cost of fuel used in
electric production.
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.
An analysis of electric operating revenues for the past three years is shown
below:
1995 1994 1993
(in millions)
Previous year's electric
operating revenues $1 346 $1 282 $1 159
Increase (Decrease) due to change in:
Price per kwh
Retail (10) 55 49
Sales for resale
Firm power obligations 1 - -
Non-firm power transactions (9) 3 5
Total change in price per kwh (18) 58 54
Kwh sales
Retail 49 14 66
Sales for resale
Firm power obligations 1 - 1
Non-firm power transactions 60 (9) 1
Total change in kwh sales 110 5 68
Other (1) 1 1
Current year's electric
operating revenues $1 437 $1 346 $1 282
GAS OPERATING REVENUES
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing CG&E facilities to transport the gas (see the "Mcf
Sales and Transportation" section) continues to put downward pressure on gas
operating revenues. When Cinergy sells gas, the sales price reflects the cost
of gas purchased by Cinergy to support the sale plus the costs to deliver the
gas. When gas is transported, Cinergy does not incur any purchased gas costs
but delivers gas the customer has purchased from other sources. Since
providing transportation services does not necessitate recovery of gas
purchased costs, the revenue per Mcf transported is less than the revenue per
Mcf sold. As a result, a higher relative volume of gas transported to gas
sold translates into lower gas operating revenues.
In 1995, gas operating revenues declined $32 million (7.1%), as compared to
1994, as a result of the aforementioned trend toward increased transportation
services and the operation of fuel adjustment clauses reflecting a lower
average cost of gas purchased.
Gas operating revenues decreased $27 million (5.7%)in 1994, as 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.
In 1993, gas operating revenues increased $75 million (19.1%) as a result of
rate increases granted in 1993, higher volumes of gas sold, and the operation
of fuel adjustment clauses reflecting an increase in the average cost of gas
purchased.
Operating Expenses
FUEL
Fuel Used in Electric Production Electric fuel costs remained relatively
constant in 1995, showing less than a 1% increase when compared to 1994.
An analysis of these fuel costs for the past three years is shown below:
1995 1994 1993
(in millions)
Previous year's fuel expense $325 $333 $321
Increase (Decrease) due to change in:
Price of fuel (20) (9) (8)
Kwh generation 22 1 20
Current year's fuel expense $327 $325 $333
Gas Purchased In 1995, gas purchased expense decreased $42 million (16.9%),
as compared to 1994, reflecting a decline in the average cost per Mcf of gas
purchased of 17.2%.
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 increased $53 million (23.0%) in 1993 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%.
PURCHASED AND EXCHANGED POWER
Purchased and exchanged power costs increased $36 million in 1995, as compared
to 1994, reflecting increased purchases from PSI resulting from the
coordination of PSI's and CG&E's electric dispatch systems. These increases
were partially offset by a decline in third party, short-term power sales to
other utilities.
OTHER OPERATION
In 1995, other operation expenses decreased $44 million (13.1%), as compared
to 1994. Charges of $52 million in 1994 for Merger Costs and other
expenditures which cannot be recovered from customers under the merger savings
sharing mechanism authorized by the PUCO, significantly contributed to the
decrease. In addition, emphasis on achieving merger savings and other cost
reductions led to lower operating costs for 1995. The decrease was partially
offset by the write-off of obsolete inventory in December 1995.
Other operation expenses increased $79 million (30.5%) in 1994, as compared to
1993, due to a number of factors including the previously discussed charges of
$52 million and increased electric production and distribution expenses.
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.
MAINTENANCE
The decrease in maintenance expense of $12 million (11.3%) in 1995, as
compared to 1994, was primarily attributable to improved scheduling of routine
maintenance on electric generating units. Lower maintenance costs on gas and
electric distribution facilities also contributed to the decline.
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.
POST-IN-SERVICE DEFERRED OPERATING EXPENSES - NET
Post-in-service deferred operating expenses - net reflect various deferrals of
depreciation, operation and maintenance expenses (exclusive of fuel costs),
and property taxes on certain generating units and other utility plant from
the in-service date until the related plant is reflected in retail rates, net
of amortization of these deferrals as they are recovered through retail rates.
(See Note 1(h) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".)
PHASE-IN DEFERRED DEPRECIATION AND RETURN AND AMORTIZATION OF PHASE-IN
DEFERRALS
Phase-in deferred depreciation, phase-in deferred return, and amortization of
phase-in deferrals reflect the PUCO-ordered phase-in plan for Zimmer. (See
Note 1(f) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".)
TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes increased $6 million (3.2%) in 1995, $14 million
(7.6%) in 1994, and $9 million (5.3%) in 1993, 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
POST-IN-SERVICE CARRYING COSTS
Post-in-service carrying costs reflect the deferral of carrying costs on
certain generating units from the in-service date until the related plant is
reflected in retail rates. (See Note 1(h) of the "Notes to Financial
Statements" in "Item 8. Financial Statements and Supplementary Data".)
WRITE-OFF OF A PORTION OF ZIMMER
In the May 1992 Order authorizing the rate phase-in plan for Zimmer, the PUCO
disallowed from rates approximately $230 million of Zimmer costs. Upon
appeal, the Supreme Court of Ohio upheld the PUCO's decision, and CG&E wrote
off Zimmer costs of approximately $223 million, net of taxes, in November
1993.
OTHER - NET
The increase in other - net of $11 million in 1995, as compared to 1994, is
due in part to $4 million of interest on an income tax refund related to prior
years and charges of $12 million in 1994 for merger-related and other
expenditures which cannot be recovered from customers.
PREFERRED DIVIDEND REQUIREMENT
CG&E's preferred dividend requirement decreased $5 million (21.0%) for 1995,
as compared to 1994. The decrease was attributable to the early redemption of
400,000 shares of $100 par value, 9.28% Series Cumulative Preferred Stock in
April 1994, along with the early redemption of 400,000 and 500,000 shares of
$100 par value Cumulative Preferred Stock, 7.44% Series and 9.15% Series,
respectively, on July 1, 1995.
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
1995 1994 1993
(in thousands)
Operating Revenues (Note 2)
Revenues (including $42,575, $8,583,
and $9,594 for affiliated companies
for 1995, 1994, and 1993,
respectively) 1 248 035 1 113 512 1 092 222
Operating Expenses
Fuel 389 401 387 523 399 880
Purchased and exchanged power
Non-affiliated companies 33 762 36 733 23 343
Affiliated companies 30 104 4 667 930
Other operation 228 508 213 122 186 695
Maintenance 87 492 94 149 84 020
Depreciation 120 773 137 719 126 821
Post-in-service deferred operating
expenses - net (5 790) (9 288) (5 069)
Income taxes (Note 12) 85 043 50 366 64 911
Taxes other than income taxes 51 853 46 335 45 477
1 021 146 961 326 927 008
Operating Income 226 889 152 186 165 214
Other Income and Expenses - Net
Allowance for equity funds used
during construction 174 4 230 11 173
Post-in-service carrying costs 3 186 9 780 6 005
Reduction of loss related to the
IURC's June 1987 Order - - 20 134
Income taxes (Note 12)
Related to the IURC's June 1987
Order - - (7 444)
Other 941 (1 312) 3 202
Other - net (3 188) (7 893) (9 403)
1 113 4 805 23 667
Income Before Interest 228 002 156 991 188 881
Interest
Interest on long-term debt 70 577 68 862 68 946
Other interest 15 821 15 292 4 191
Allowance for borrowed funds used
during construction (4 211) (9 355) (9 154)
82 187 74 799 63 983
Net Income 145 815 82 192 124 898
Preferred Dividend Requirement 13 180 13 182 12 825
Net Income Applicable to
Common Stock $ 132 635 $ 69 010 $ 112 073
The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1995 1994
(dollars in thousands)
Electric Utility Plant - Original Cost
In service $4 052 984 $3 789 785
Accumulated depreciation 1 637 169 1 550 297
2 415 815 2 239 488
CWIP 58 191 163 761
Total electric utility plant 2 474 006 2 403 249
Current Assets
Cash and temporary cash investments 15 522 6 341
Restricted deposits 1 187 11 190
Accounts receivable less accumulated provision
of $468 in 1995 and $440 in 1994 for doubtful
accounts (Note 7) 73 419 32 030
Accounts receivable from affiliated companies - net 20 568 4 031
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 82 014 113 861
Other materials and supplies 29 462 29 363
Prepayments and other 1 234 4 758
223 406 201 574
Other Assets
Regulatory assets
Amounts due from customers - income taxes 26 338 27 134
Post-in-service carrying costs and deferred
operating expenses 38 874 30 142
Deferred DSM costs 110 242 94 125
Deferred merger costs 42 286 37 645
Unamortized costs of reacquiring debt 34 476 36 998
Other 33 886 30 030
Other 92 056 84 027
378 158 340 101
$3 075 570 $2 944 924
The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
December 31
1995 1994
(dollars in thousands)
Common Stock Equity (Note 3)
Common stock - without par value; $.01 stated
value; authorized shares - 60,000,000;
outstanding shares - 53,913,701 in 1995 and 1994 $ 539 $ 539
Paid-in capital 403 253 389 309
Accumulated earnings subsequent to November
30, 1986, quasi-reorganization 625 275 493 103
Total common stock equity 1 029 067 882 951
Cumulative Preferred Stock (Note 4)
Not subject to mandatory redemption 187 897 187 929
Long-term Debt (Note 5) 828 116 877 512
Total capitalization 2 045 080 1 948 392
Current Liabilities
Long-term debt due within one year 50 400 60 400
Notes payable (Note 6) 198 531 193 573
Accounts payable 116 817 142 775
Litigation settlement (Note 13(e)) 80 000 80 000
Accrued taxes 65 851 30 784
Accrued interest 24 696 25 685
Other 16 000 18 684
552 295 551 901
Other Liabilities
Deferred income taxes (Note 12) 331 876 324 738
Unamortized investment tax credits 56 354 60 461
Accrued pension and other postretirement
benefit costs (Notes 10 and 11) 54 130 31 324
Other 35 835 28 108
478 195 444 631
Commitments and Contingencies (Note 13)
$3 075 570 $2 944 924
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Common Paid-in Accumulated Total Common
Stock Capital Earnings Stock Equity
(in thousands)
Balance December 31, 1992 $539 $221 812 $432 747 $ 655 098
Net income 124 898 124 898
Costs of issuing and retiring
preferred stock (5 062) (5 062)
Dividends on preferred stock (12 288) (12 288)
Dividends on common stock (62 191) (62 191)
Contribution from parent company 12 538 12 538
Other 76 76
Balance December 31, 1993 539 229 288 483 242 713 069
Net income 82 192 82 192
Dividends on preferred stock (13 182) (13 182)
Dividends on common stock (59 142) (59 142)
Contribution from parent company 159 999 159 999
Other 22 (7) 15
Balance December 31, 1994 539 389 309 493 103 882 951
Net income 145 815 145 815
Dividends on preferred stock (13 181) (13 181)
Contribution from parent company 13 926 13 926
Other 18 (462) (444)
Balance December 31, 1995 $539 $403 253 $625 275 $1 029 067
The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1995 1994 1993
(in thousands)
Operating Activities
Net income $ 145 815 $ 82 192 $ 124 898
Items providing (using) cash currently:
Depreciation 120 773 137 719 126 821
Deferred income taxes and investment
tax credits - net 5 201 24 127 68 103
Allowance for equity funds used during
construction (174) (4 230) (11 173)
Regulatory assets - net (15 628) (36 917) (29 954)
Changes in current assets and current
liabilities
Restricted deposits 16 10 024 (69)
Accounts receivable (57 926) (7 404) 7 168
Income tax refunds - 28 900 (28 900)
Materials, supplies, and fuel 31 748 (66 697) 59 421
Accounts payable (25 958) (1 318) 56 415
Advance under accounts receivable purchase
agreement - (49 940) 49 940
Accrued taxes and interest 34 078 (2 928) (8 504)
Other items - net 18 714 (71 554) (70 049)
Net cash provided by (used in) operating
activities 256 659 41 974 344 117
Financing Activities
Issuance of preferred stock - - 156 325
Issuance of long-term debt - 108 978 241 704
Funds on deposit from issuance of long-term debt 9 987 27 897 (31 342)
Retirement of preferred stock (16) (26) (60 107)
Redemption of long-term debt (60 455) (160) (207 880)
Change in short-term debt 4 958 66 872 5 900
Dividends on preferred stock (13 181) (13 182) (12 288)
Dividends on common stock - (59 142) (62 191)
Capital contribution from parent company 13 926 159 999 12 538
Net cash provided by (used in) financing
activities (44 781) 291 236 42 659
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (186 580) (290 579) (350 319)
Deferred DSM costs - net (16 117) (40 872) (30 736)
Equity investment in Argentine utility - - (10 200)
Net cash provided by (used in) investing
activities (202 697) (331 451) (391 255)
Net increase (decrease) in cash and temporary
cash investments 9 181 1 759 (4 479)
Cash and temporary cash investments at beginning
of period 6 341 4 582 9 061
Cash and temporary cash investments at end of
period $ 15 522 $ 6 341 $ 4 582
Supplemental Disclosure Of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $ 80 465 $ 67 150 $ 60 653
Income taxes 60 148 8 162 41 376
The accompanying notes are an integral part of these consolidated financial statements.
RESULTS OF OPERATIONS - PSI
Kwh Sales
Kwh sales in 1995, as compared to 1994, increased 6.3%, reflecting increased
sales to all customer classes. Contributing significantly to this increase
were higher residential and commercial sales due to warmer weather during the
1995 summer cooling season, colder weather during the fourth quarter of 1995,
and an increase in the number of residential and commercial customers.
Increased sales to industrial customers, reflecting growth in the primary
metals, chemicals, and food products sectors, also contributed to the
increased kwh sales level. This increase also reflects higher non-firm power
sales for resale resulting from an increase in sales to CG&E reflecting the
coordination of PSI's and CG&E's electric dispatch systems.
Total kwh sales increased 6.3% in 1994, as compared to 1993, due in large part
to non-firm power sales for resale, reflecting third party, short-term power
sales to other utilities through PSI's system and direct power sales by PSI to
other utilities. Also contributing to the total kwh sales levels were
increased sales to industrial customers. This increase reflected growth in
the primary metals and transportation equipment sectors. A decrease in
residential sales resulted from the milder weather experienced during the
third and fourth quarters of 1994.
New customers and a return to more normal weather contributed to the 3.6%
increase in total kwh sales in 1993, as compared to 1992. In addition, growth
in the primary metals, transportation equipment, precision instruments, and
photographic and optical goods sectors resulted in increased industrial sales.
Partially offsetting these increases was a reduction in non-firm power sales
for resale, which reflected a significant decrease in sales associated with
third party, short-term power sales to other utilities through PSI's system.
Year-to-year changes in kwh sales for each major class of customers are shown
below:
Increase (Decrease) from Prior Year
1995 1994 1993
Retail
Residential 7.9% (1.4)% 12.2 %
Commercial 5.2 1.4 7.2
Industrial 5.1 4.9 5.5
Total retail 6.0 2.0 8.0
Sales for resale
Firm power obligations 1.1 2.6 2.2
Non-firm power transactions 10.2 33.5 (15.4)
Total sales for resale 7.4 22.4 (9.8)
Total sales 6.3 6.3 3.6
PSI currently forecasts a 2% annual compound growth rate in kwh sales over the
1996 through 2005 period. This forecast does not reflect the effects of DSM
programs and excludes non-firm power sales for resale and any potential new
off-system, long-term firm power sales.
Operating Revenues
Higher kwh sales and electric rate increases which became effective in
February 1995 and March 1995 significantly contributed to the $134 million
(12.1%) increase in operating revenues for 1995, when compared to 1994.
Operating revenues increased $22 million (1.9%) in 1994, as compared to 1993,
as a result of increased kwh sales, the effects of a $31 million refund to
retail customers accrued in June 1993 as a result of the settlement of the
April 1990 Order, and increased fuel costs. Partially offsetting these
increases were the 1.5% retail rate reduction resulting from the IURC's
December 1993 Order and the return of approximately $11 million (an increase
of $9 million when compared to 1993) to customers in connection with certain
provisions of Indiana law which limit the level of retail operating income as
determined in quarterly fuel adjustment clause proceedings.
In 1993, operating revenues increased $26 million (2.5%), as compared to 1992,
reflecting increased kwh sales which were offset, in part, by the refund
resulting from the settlement of the April 1990 Order.
An analysis of operating revenues for the past three years is shown below:
1995 1994 1993
(in millions)
Previous year's operating revenues $1 114 $1 092 $1 066
Increase (Decrease) due to change in:
Price per kwh
Retail 68 (23) (38)
Sales for resale
Firm power obligations (1) 2 (1)
Non-firm power transactions 1 - 7
Total change in price per kwh 68 (21) (32)
Kwh sales
Retail 55 18 71
Sales for resale
Firm power obligations 1 2 2
Non-firm power transactions 9 23 (12)
Total change in kwh sales 65 43 61
Other 1 - (3)
Current year's operating revenues $1 248 $1 114 $1 092
Operating Expenses
FUEL
Fuel costs, PSI's largest operating expense, remained relatively constant in
1995, showing less than a 1% increase when compared to 1994.
An analysis of these fuel costs for the past three years is shown below:
1995 1994 1993
(in millions)
Previous year's fuel expense $387 $400 $386
Increase (Decrease) due to change in:
Price of fuel (5) (30) 5
Kwh generation 7 17 9
Current year's fuel expense $389 $387 $400
PURCHASED AND EXCHANGED POWER
Purchased and exchanged power costs increased $22 million (54.3%) in 1995, as
compared to 1994, reflecting increased purchases from CG&E as a result of the
coordination of PSI's and CG&E's electric dispatch systems. These increases
were partially offset by a decline in third party, short-term power sales to
other utilities.
Purchased and exchanged power increased $17 million (70.6%) in 1994, as
compared to 1993, reflecting an increase in third party, short-term power
sales to other utilities through PSI's system and increased purchases of other
non-firm power by PSI primarily to serve its own load.
In 1993, PSI increased its purchases of non-firm power primarily to serve its
own load, which resulted in an increase in purchased and exchanged power costs
of $11 million (76.8%), as compared to 1992.
OTHER OPERATION
In 1995, other operation expenses increased $15 million (7.2%), as compared to
1994. This increase was due to a number of factors, including the recognition
of postretirement benefit costs on an accrual basis, an increase in the
ongoing level of DSM expenses, and the amortization of deferred postretirement
benefit costs, deferred Merger Costs, and deferred DSM costs, all of which are
being recovered in revenues pursuant to the February 1995 Order. These
increases were partially offset by charges of $10 million in 1994 for
severance benefits to former officers of PSI which cannot be recovered from
customers under the merger savings sharing mechanisms authorized by the IURC.
In addition, emphasis on achieving merger savings and other cost reductions
also partially offset the increase in other operation expenses.
Other operation expenses increased $26 million (14.2%) in 1994, as compared to
1993, due to a number of factors including the previously discussed charges of
$10 million and fuel litigation expenses of $8 million.
MAINTENANCE
Maintenance costs decreased $7 million (7.1%) in 1995, as compared to 1994,
primarily due to improved scheduling of routine maintenance on generating
units and lower maintenance costs on transmission and distribution facilities.
Maintenance on a number of PSI's generating stations and the initial costs of
a new distribution line clearing program resulted in increased maintenance
expenses of $10 million (12.1%) in 1994.
DEPRECIATION
In 1995, depreciation expense decreased $17 million (12.3%), when compared to
1994, due in large part to the adoption of lower depreciation rates effective
in March 1995. This decrease was partially offset by the effect of additions
to utility plant.
Additions to electric utility plant led to increases in depreciation expense
of $11 million (8.6%), and $10 million (8.3%) in 1994 and 1993, respectively.
POST-IN-SERVICE DEFERRED OPERATING EXPENSES - NET
Post-in-service deferred operating expenses - net reflect the deferral of
depreciation on certain major projects, primarily environmental in nature,
from the in-service date until the related projects are reflected in retail
rates, net of amortization of these deferrals as they are recovered. (See
Note 1(h) of the "Notes to Financial Statements" in "Item 8. Financial
Statements and Supplementary Data".)
TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes increased $6 million (11.9%) in 1995, as
compared to 1994, primarily due to increased property taxes resulting from a
greater investment in taxable property.
Other Income and Expenses - Net
ALLOWANCE FOR EQUITY FUNDS USED DURING CONSTRUCTION
In 1995, allowance for equity funds used during construction decreased $4
million (95.9%), as compared to 1994, primarily due to a decrease in the
average balance of CWIP.
A decrease of $7 million (62.1%) in allowance for equity funds used during
construction in 1994, as compared to 1993, was due to an increase in
borrowings of short-term debt which resulted in a decrease in the equity rate.
The equity component of AFUDC increased in 1993, as compared to 1992,
primarily as a result of increased construction.
POST-IN-SERVICE CARRYING COSTS
Post-in-service carrying costs reflect the deferral of carrying costs on
certain major projects, primarily environmental in nature, from the in-service
date until the related projects are reflected in retail rates. (See Note 1(h)
of the "Notes to Financial Statements" in "Item 8. Financial Statements and
Supplementary Data".)
REDUCTION OF LOSS RELATED TO THE JUNE 1987 ORDER
The December 1993 Order resolved open issues related to the June 1987 Order
which addressed the effect on PSI of the 1987 reduction in the Federal income
tax rate. The December 1993 Order provided for PSI to refund $119 million to
its retail customers, which was a reduction of $20 million from the loss
previously recognized.
Interest
ALLOWANCE FOR BORROWED FUNDS USED DURING CONSTRUCTION
Allowance for borrowed funds used during construction decreased $5 million
(55.0%) in 1995, as compared to 1994, primarily as a result of a decrease in
the average balance of CWIP which was partially offset by an increase in the
debt component of the AFUDC rate.
The Union Light, Heat and Power Company
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
1995 1994 1993
(in thousands)
Operating Revenues (Note 2)
Electric $187 180 $177 564 $175 712
Gas 70 288 71 971 75 744
257 468 249 535 251 456
Operating Expenses
Electricity purchased from parent
company for resale 142 308 134 887 134 290
Gas purchased 36 745 40 508 43 380
Other operation 30 712 32 289 30 396
Maintenance 4 580 5 473 6 267
Depreciation 11 438 10 644 9 813
Income taxes (Note 12) 7 887 5 342 5 751
Taxes other than income taxes 3 968 4 002 3 623
237 638 233 145 233 520
Operating Income 19 830 16 390 17 936
Other Income and Expenses - Net
Allowance for equity funds used
during construction 71 78 297
Income taxes (Note 12) (44) 56 46
Other - net 6 236 (580)
33 370 (237)
Income Before Interest 19 863 16 760 17 699
Interest
Interest on long-term debt 7 161 8 161 8 297
Other interest 728 395 331
Allowance for borrowed funds used
during construction (198) (183) (268)
7 691 8 373 8 360
Net Income $ 12 172 $ 8 387 $ 9 339
The accompanying notes are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
December 31
1995 1994
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $188 508 $179 098
Gas 140 604 134 103
Common 19 068 19 122
348 180 332 323
Accumulated depreciation 112 812 104 113
235 368 228 210
CWIP 7 863 8 638
Total utility plant 243 231 236 848
Current Assets
Cash and temporary cash investments 1 750 1 071
Accounts receivable less accumulated provision
of $1,035 in 1995 and $457 in 1994 for doubtful
accounts (Note 7) 37 895 33 892
Materials, supplies, and fuel - at average cost
Gas stored for current use 4 513 6 216
Other materials and supplies 1 215 1 406
Property taxes applicable to subsequent year 2 350 2 200
Prepayments and other 485 593
48 208 45 378
Other Assets
Regulatory assets
Deferred merger costs 1 785 1 785
Unamortized costs of reacquiring debt 2 526 -
Other 2 548 2 718
Other 1 499 399
8 358 4 902
$299 797 $287 128
The accompanying notes are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
CAPITALIZATION AND LIABILITIES
December 31
1995 1994
(dollars in thousands)
Common Stock Equity (Note 3)
Common stock - $15.00 par value;
authorized shares - 1,000,000;
outstanding shares - 585,333 in 1995
and 1994 $ 8 780 $ 8 780
Paid-in capital 18 839 18 839
Retained earnings 82 863 74 203
Total common stock equity 110 482 101 822
Long-term Debt (Note 5) 54 377 89 238
Total capitalization 164 859 191 060
Current Liabilities
Long-term debt due within one year (Note 5) 15 000 -
Notes payable (Note 6) - 14 500
Accounts payable 11 057 6 049
Accounts payable to affiliated companies 44 708 15 606
Accrued taxes 1 993 2 876
Accrued interest 1 549 2 123
Other 5 505 4 123
79 812 45 277
Other Liabilities
Deferred income taxes (Note 12) 23 728 23 226
Unamortized investment tax credits 5 079 5 364
Accrued pension and other postretirement
benefit costs (Notes 10 and 11) 12 202 10 356
Amounts due to customers - income taxes 4 717 4 282
Other 9 400 7 563
55 126 50 791
Commitments and Contingencies (Note 13)
$299 797 $287 128
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Common Paid-in Retained Total Common
Stock Capital Earnings Stock Equity
(in thousands)
Balance December 31, 1992 $8 780 $18 839 $62 915 $ 90 534
Net income 9 339 9 339
Dividends on common stock (2 927) (2 927)
Balance December 31, 1993 8 780 18 839 69 327 96 946
Net income 8 387 8 387
Dividends on common stock (3 511) (3 511)
Balance December 31, 1994 8 780 18 839 74 203 101 822
Net income 12 172 12 172
Dividends on common stock (3 512) (3 512)
Balance December 31, 1995 $8 780 $18 839 $82 863 $110 482
The accompanying notes are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
1995 1994 1993
(in thousands)
Operating Activities
Net income $ 12 172 $ 8 387 $ 9 339
Items providing (using) cash currently:
Depreciation 11 438 10 644 9 813
Deferred income taxes and investment
tax credits - net 652 2 042 999
Allowance for equity funds used during
construction (71) (78) (297)
Regulatory assets - net 170 (1 615) 116
Changes in current assets and current
liabilities
Accounts receivable (4 003) 8 801 (5 859)
Materials, supplies, and fuel 1 894 1 043 (1 583)
Accounts payable 34 110 (2 377) 2 311
Accrued taxes and interest (1 457) 3 307 (1 390)
Other items - net 5 019 2 780 2 294
Net cash provided by (used in) operating
activities 59 924 32 934 15 743
Financing Activities
Issuance of long-term debt 14 704 - -
Redemption of long-term debt (37 036) - (6 500)
Change in short-term debt (14 500) (10 500) 18 500
Dividends on common stock (3 512) (3 511) (2 927)
Net cash provided by (used in) financing
activities (40 344) (14 011) 9 073
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (18 901) (20 329) (24 127)
Net cash provided by (used in) investing
activities (18 901) (20 329) (24 127)
Net increase (decrease) in cash and temporary
cash investments 679 (1 406) 689
Cash and temporary cash investments at beginning
of period 1 071 2 477 1 788
Cash and temporary cash investments at end of
period $ 1 750 $ 1 071 $ 2 477
Supplemental Disclosure of Cash Flow Information
Cash Paid During the year for:
Interest (net of amount capitalized) $ 8 121 $ 8 281 $ 8 404
Income taxes 7 727 4 714 4 001
The accompanying notes are an integral part of these financial statements.
RESULTS OF OPERATIONS - ULH&P
Kwh Sales
ULH&P's total kwh sales in 1995, as compared to 1994, increased 7.2%
reflecting increased sales to all customer classes. The increase in
residential and commercial kwh sales was due to warmer weather during the 1995
summer cooling season and colder weather during the fourth quarter of 1995 and
an increase in the average number of customers. The increased industrial
sales primarily reflect growth in the primary metals sector.
Total kwh sales increased 2.8% in 1994, as compared to 1993, primarily due to
increased retail sales to commercial and industrial customers. Industrial
sales reflected a higher level of economic activity, including growth in the
primary metals, industrial machinery, food products, and rubber and plastic
products sectors. The increase in commercial sales was due, in part, to new
customers. A decrease in residential sales resulted from the milder weather
experienced during the third and fourth quarters of 1994.
A return to more normal weather contributed to the 5.8% increase in total kwh
sales in 1993, as compared to 1992. In addition, growth in the food products,
industrial machinery, transportation equipment, and fabricated metal products
sectors resulted in increased industrial sales.
Year-to-year changes in kwh sales for each major class of customers are shown
below:
Increase (Decrease) from Prior Year
1995 1994 1993
Retail
Residential 10.0% (4.6)% 6.6%
Commercial 5.6 6.0 5.8
Industrial 5.2 7.2 4.4
Total retail 7.2 2.8 5.9
Firm power sales for resale 7.4 5.1 4.7
Total sales 7.2 2.8 5.8
ULH&P currently forecasts a 2% annual compound growth rate in kwh sales over
the 1996 through 2005 period. This forecast does not reflect the effects of
DSM programs and excludes any potential new off-system, long-term firm power
sales.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes increased 8.6% for 1995, as compared
to 1994. The colder weather during the fourth quarter of 1995 primarily
attributed to the increase in residential and commercial sales. These
increases were partially offset by a decline in industrial sales resulting
from customers electing to purchase directly from suppliers, creating
additional demand for transportation services provided by ULH&P. The
increased transportation volumes mainly reflect industrial demand for gas
transportation services in the paper products sector.
The milder weather experienced in 1994 contributed to a decrease in
residential gas sales volumes and led to the decrease in total Mcf sales and
transportation of 4.3%, as compared to 1993. The increase in gas
transportation more than offset the decrease in industrial sales volumes and
was attributable to additional demand for gas transportation services by
industrial customers mainly in the primary metals, paper products, and food
products sectors.
The increase in Mcf sales and transportation of 5.8% in 1993, when compared to
1992, was attributable to higher sales to retail customers. This increase was
primarily attributable to higher sales to residential customers caused by the
return to more normal weather during the 1993 heating season and the addition
of a number of customers to ULH&P's gas system during the year. Gas
transportation volumes for 1993 decreased largely as a result of lower
industrial demand for gas transportation services in the paper products
sector. However, the decrease in Mcf transported was more than offset by the
increase in Mcf sold to industrial customers.
Year-to-year changes in Mcf sales for each major class of customers and Mcf
transportation volumes are shown below:
Increase (Decrease) from Prior Year
1995 1994 1993
Retail
Residential 9.5 % (11.2)% 8.2 %
Commercial 3.8 4.1 4.1
Industrial (8.4) (9.2) 23.9
Total retail 6.0 (6.6) 8.3
Gas transported 24.3 12.9 (10.5)
Total gas sold and transported 8.6 (4.3) 5.8
Operating Revenues
ELECTRIC OPERATING REVENUES
Electric operating revenues increased $9.6 million (5.4%) in 1995, and $1.9
million (1.1%) in 1994. These increases reflect higher kwh sales, as
previously discussed. In 1993, electric operating revenues increased $16.0
million (10.0%) due to an increase in kwh sales and the full effect of a rate
increase that became effective in May 1992.
An analysis of electric operating revenues for the past three years is shown
below:
1995 1994 1993
(in thousands)
Previous year's electric
operating revenues $177 564 $175 712 $159 690
Increase (Decrease) due to change in:
Price per kwh
Retail (3 934) (3 095) 6 355
Firm power sales for resale 24 170 82
Total change in price per kwh (3 910) (2 925) 6 437
Kwh sales
Retail 13 363 4 761 9 196
Firm power sales for resale 157 92 78
Total change in kwh sales 13 520 4 853 9 274
Other 6 (76) 311
Current year's electric
operating revenues $187 180 $177 564 $175 712
GAS OPERATING REVENUES
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing ULH&P facilities to transport the gas (see the "Mcf
Sales and Transportation" section) continues to put downward pressure on gas
operating revenues. When ULH&P sells gas, the sales price reflects the cost
of gas purchased by ULH&P to support the sale plus the costs to deliver the
gas. When gas is transported, ULH&P does not incur any purchased gas costs
but delivers gas the customer has purchased from other sources. Since
providing transportation services does not necessitate recovery of gas
purchased costs, the revenue per Mcf transported is less than the revenue per
Mcf sold. As a result, a higher relative volume of gas transported to gas
sold translates into lower gas operating revenues.
Gas operating revenues declined $1.7 million (2.3%) in 1995, as compared to
1994 as a result of the aforementioned trend toward increased transportation
services and the operation of fuel adjustment clauses reflecting a lower
average cost of gas purchased.
In 1994, gas operating revenues decreased $3.8 million (5.0%), as compared to
1993, primarily as a result of a decline in total volumes sold and transported
of 4.3%. This decrease was partially offset by the effect of a gas rate
increase which became effective in mid-1993.
Gas operating revenues increased $13.1 million (21.0%) in 1993 due to the
operation of the fuel adjustment clause reflecting an increase in the cost of
gas purchased, the mid-1993 rate increase, and a 5.8% increase in total
volumes sold and transported.
Operating Expenses
ELECTRICITY PURCHASED FROM PARENT COMPANY FOR RESALE
Electricity purchased increased $7.4 million (5.5%) in 1995 due to an 8.1%
increase in volumes purchased. In 1993, electricity purchased increased
$7.1 million (5.6%) due to a 6.3% increase in volumes purchased.
GAS PURCHASED
In 1995, gas purchased expense decreased $3.8 million (9.3%) from 1994
primarily due to a 13.7% decrease in the average cost per Mcf of gas
purchased. Gas purchased expense in 1994 decreased $2.9 million (6.6%) due to
a 5.2% decrease in volumes purchased. In 1993, gas purchased expense
increased $8.0 million (22.5%) due to an 11.8% increase in the average cost
per Mcf of gas purchased and to a 9.5% increase in volumes purchased.
OTHER OPERATION
In 1995, other operation expense decreased $1.6 million (4.9%), as compared to
1994, due, in part, to decreased gas and electric distribution expenses and
decreased gas production expenses. In 1994, other operation expense increased
$1.9 million (6.2%), as compared to 1993, due primarily to increased gas and
electric distribution expenses and increased wages and benefits. Other
operation expense decreased $1.2 million (3.8%) in 1993 due to a number of
factors including reduced electric and gas distribution expenses and cost
control efforts.
MAINTENANCE
Maintenance expense decreased $.9 million (16.3%) in 1995 and $.8 million
(12.7%) in 1994 primarily as a result of reduced maintenance costs on gas and
electric distribution facilities.
DEPRECIATION
Depreciation expense increased $.8 million (7.5%) in 1995, as compared to
1994, primarily due to additions to electric and gas plant in service.
Increases in 1994 and 1993 of $.8 million (8.5%) and $1.5 million (18.0%),
respectively, were due to increases in depreciable plant in service and the
adoption of higher depreciation rates on gas and common plant in accordance
with a KPSC rate order issued in 1993.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Cinergy, CG&E, PSI, and ULH&P
(a) Consolidation Policy Cinergy, a Delaware corporation, was created in the
October 1994 merger of Resources and CG&E. Cinergy's subsidiaries are CG&E,
PSI, Investments, and Services. The accompanying Financial Statements include
the accounts of Cinergy and its subsidiaries after elimination of significant
intercompany transactions and balances.
At merger consummation, each outstanding share of common stock of Resources
and CG&E was exchanged for 1.023 shares and one share, 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, its utility subsidiaries
(including ULH&P), and PSI were not affected by the merger. The merger was
accounted for as a pooling of interests, and the Financial Statements, along
with the related notes, are presented as if the merger was consummated as of
the beginning of the earliest period presented.
Resources' and CG&E's consolidated operating revenues and net income for the
nine months ended September 30, 1994, and the year ended December 31, 1993,
were as follows:
Resources CG&E Eliminations(i) Cinergy
(in millions)
Nine months ended September
30, 1994 (unaudited)
Operating revenues $ 849(ii) $1 363 $ (7) $2 205
Net income 60 146 - 206
Year ended December 31, 1993
Operating revenues 1 102(ii) 1 752 (10) 2 844
Net income (loss) 97 (34)(iii) - 63
(i) Eliminations of intercompany power sales.
(ii) Reflects reclassifications from previously reported amounts to
conform to the 1995 presentation.
(iii) Reflects write-off of a portion of Zimmer ($223 million, net of
taxes).
Cinergy, CG&E, PSI, and ULH&P
(b) Nature of Operations Cinergy is a registered holding company under the
PUHCA. CG&E, an Ohio combination electric and gas utility, and its four
wholly-owned utility subsidiaries (including ULH&P, a Kentucky combination
electric and gas utility) are primarily engaged in the production,
transmission, distribution, and sale of electric energy and/or the sale and
transportation of natural gas in the southwestern portion of Ohio and adjacent
areas in Kentucky and Indiana. PSI, an Indiana electric utility and
previously Resources' utility subsidiary, is engaged in the production,
transmission, distribution, and sale of electric energy in north central,
central, and southern Indiana. Investments, a Delaware corporation, is a non-
utility subholding company that was formed to operate Cinergy's non-utility
businesses and interests. Services, a Delaware corporation, is the service
company for the Cinergy system, providing member companies with a variety of
administrative, management, and support services. The majority of Cinergy's
operating revenues are derived from the sale of electricity and the sale and
transportation of natural gas.
Cinergy, CG&E, PSI, and ULH&P
(c) Management's Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities. Estimates are also required with respect to the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. (See Note 13.)
Cinergy, CG&E, PSI, and ULH&P
(d) Regulation Cinergy, its utility subsidiaries, and certain of its non-
utility subsidiaries are subject to regulation by the SEC under the PUHCA.
Cinergy's utility subsidiaries are also subject to regulation by the FERC and
the state utility commissions of Ohio, Kentucky, and Indiana. The accounting
policies of Cinergy's utility subsidiaries conform to the accounting
requirements and ratemaking practices of these regulatory authorities and to
generally accepted accounting principles, including the provisions of
Statement 71.
Under the provisions of Statement 71, regulatory assets represent probable
future revenue associated with deferred costs to be recovered from customers
through the ratemaking process. The following regulatory assets of PSI and
CG&E and its utility subsidiaries are reflected in the Balance Sheets as of
December 31:
1995 1994
PSI CG&E 1/ Cinergy PSI CG&E 1/ Cinergy
(in millions)
Amounts due from customers -
income taxes $ 27 $397 $ 424 $ 27 $382 $ 409
Post-in-service carrying
costs and deferred
operating expenses 39 148 187 30 155 185
Phase-in deferred return
and depreciation - 100 100 - 101 101
Deferred DSM costs 110 19 129 94 10 104
Deferred merger costs 42 15 57 38 12 50
Unamortized costs of
reacquiring debt 34 40 74 37 33 70
Postretirement benefit
costs 21 4 25 21 4 25
1992 workforce reduction
costs - 8 8 - 17 17
Other 13 29 42 9 35 44
Total $286 $760 $1 046 $256 $749 $1 005
1/ Includes $7 million and $5 million related to ULH&P at December 31, 1995
and 1994, respectively.
PSI has previously received regulatory orders authorizing the recovery of $149
million of its total regulatory assets at December 31, 1995, and is currently
requesting recovery of an additional $119 million. CG&E has previously
received regulatory orders authorizing the recovery of $701 million (including
$3 million for ULH&P) of its total regulatory assets at December 31, 1995, and
is currently requesting recovery of an additional $11 million. Both PSI and
CG&E (including ULH&P) will request recovery of additional amounts in future
rate proceedings in each applicable jurisdiction. (See Note 2.)
See Note 1(e), (f), (g), (h), (i), (j), and (k) for additional information
regarding amounts due from customers - income taxes, phase-in deferred return
and depreciation, deferred DSM costs, post-in-service carrying costs and
deferred operating expenses, deferred merger costs, costs of reacquiring debt,
and 1992 workforce reduction costs, respectively. For additional information
regarding postretirement benefit costs, see Note 11.
Certain criteria must be met in order to continue to apply the provisions of
Statement 71, including regulated rates designed to recover the specific
utility's costs. Failure to satisfy the criteria in Statement 71 would
eliminate the basis for reporting regulatory assets. Although Cinergy's
utility subsidiaries' current regulatory orders and regulatory environment
fully support the continued recognition of their 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
Cinergy's utility subsidiaries discontinuing application of Statement 71 for
all or part of their business. Such an event would require the write-off of
the portion of any regulatory asset for which sufficient regulatory assurance
of future recovery no longer exists. No evidence currently exists that would
support a write-off of any portion of Cinergy's utility subsidiaries'
regulatory assets.
In March 1995, the FASB issued Statement 121, which is effective in January
1996 for Cinergy and its utility subsidiaries. Statement 121, which addresses
the identification and measurement of asset impairments for all enterprises,
will be particularly relevant for electric utilities as a result of the
potential for deregulation of the generation segment of the business.
Statement 121 requires recognition of impairment losses on long-lived assets
when book values exceed expected future cash flows. Based on the regulatory
environment in which Cinergy currently operates, compliance with the
provisions of Statement 121 is not expected to have an adverse effect on its
financial condition or results of operations. However, this conclusion may
change in the future as competitive pressures and potential restructuring
influence the electric utility industry.
Cinergy and its utility subsidiaries intend to continue their pursuit of
competitive strategies that mitigate the potential impact of these issues on
the financial condition of the companies (see the "Competitive Pressures"
section of "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations").
Cinergy, CG&E, PSI, and ULH&P
(e) 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 PSI,
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. The future revenues associated
with these amounts are reflected in the accompanying Financial Statements as a
regulatory asset based on the probable recovery through customers' rates in
future periods. Conversely, to the extent deferred income taxes recovered in
rates exceed amounts payable in future periods, such amounts are reflected in
the accompanying Financial Statements as "Income taxes refundable through
rates" on the basis of their probable repayment in future years.
Cinergy and CG&E
(f) Phase-in Deferred Return and Depreciation In the first three years of a
rate phase-in plan for Zimmer included in the May 1992 Order by the PUCO,
rates charged to customers did not fully recover depreciation expense and
return on investment. In accordance with the provisions of the May 1992
Order, this deficiency has been deferred on the Consolidated Balance Sheets
and is being recovered over a seven-year period beginning in May 1995.
Cinergy, CG&E, PSI, and ULH&P
(g) DSM In February 1995, the IURC issued the February 1995 Order approving
a rate settlement agreement among PSI and certain intervenors which authorized
the recovery of DSM expenditures deferred through July 1993 ($35 million),
together with carrying costs. In addition, base rates include recovery of $23
million of DSM expenditures on an annual basis. Under the February 1995
Order, current deferral of DSM expenditures is the amount by which actual
annual expenditures exceed the base level of $23 million. If DSM expenditures
in any calendar year are less than the $23 million in base rates, the
unamortized balance of deferred DSM expenditures is reduced by such
difference. In its current retail rate proceeding, PSI has requested recovery
of DSM expenditures deferred between July 1993 and August 1995, together with
carrying costs, and an increase in the ongoing annual expense level from $23
million to $39 million (see Note 2(a)). DSM expenditures subsequent to August
1995 in excess of the annual ongoing level in base rates are being deferred,
with carrying costs, for recovery in a subsequent rate proceeding.
In the August 1993 Order, CG&E was authorized to recover approximately $5
million annually of costs associated with DSM programs for residential
customers. In 1995, the PUCO authorized the deferral, with carrying costs, of
the expenditures associated with a number of approved DSM programs to the
extent such expenditures are in excess of the $5 million already being
recovered. CG&E is also requesting PUCO approval to defer the costs of
additional DSM programs. Additionally, the KPSC has authorized recovery of
costs related to various DSM programs of ULH&P.
Cinergy, CG&E, and PSI
(h) Post-in-service Carrying Costs and Deferred Operating Expenses CG&E
received various orders from the PUCO which permitted the deferral of carrying
costs and non-fuel operating expenses (including depreciation) for Zimmer and
Woodsdale. Effective with the dates of the PUCO's orders reflecting the units
in customer rates, the deferrals of post-in-service carrying costs are being
recovered over the lives of the applicable units and the deferred non-fuel
operating expenses are being recovered over a 10-year period.
PSI received authority from the IURC for the accrual of the debt component of
carrying costs (to the extent not recovered currently in retail rates) and the
deferral of depreciation expense on certain major projects, primarily
environmental in nature, including the Clean Coal Project and a scrubber at
Gibson. These deferrals are either being recovered currently over the
remaining lives of the related assets in accordance with the February 1995
Order, have been requested for recovery in PSI's current retail rate
proceeding, or will be requested for recovery in a subsequent PSI retail rate
proceeding.
Cinergy, CG&E, PSI, and ULH&P
(i) Merger Costs CG&E and its utility subsidiaries are deferring the non-
PUCO electric jurisdictional portion of Merger Costs for future recovery in
customer rates, including $6 million requested for recovery in CG&E's current
gas rate proceeding. In accordance with the February 1995 Order, PSI is
deferring Merger Costs it incurs through October 31, 1996, and is recovering
the deferrals over a 10-year period as an offset against merger savings.
In 1994, CG&E and PSI completed voluntary workforce reduction programs. As a
result of the programs, the Cinergy subsidiaries incurred a combined pre-tax
cost of approximately $28.8 million ($17.4 million for CG&E and its
subsidiaries($1.8 million for ULH&P), including $15.6 million of additional
pension costs further discussed in Note 10, and $11.4 million for PSI). 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. The cost of
PSI's voluntary workforce reduction program was deferred as a cost to achieve
merger savings.
Cinergy, CG&E, PSI, and ULH&P
(j) Debt Discount, Premium, and Issuance Expenses and Costs of Reacquiring
Debt Debt discount, premium, and issuance expenses on outstanding long-term
debt of Cinergy's utility subsidiaries are amortized over the lives of the
respective issues.
In accordance with established ratemaking practices, Cinergy's utility
subsidiaries have deferred costs (principally call premiums) from the
reacquisition of long-term debt and are amortizing such amounts over periods
ranging from one to 25 years (three to 17 years for PSI, one to 25 years for
CG&E and its subsidiaries, and 24 years for ULH&P).
Cinergy, CG&E, and ULH&P
(k) 1992 Workforce Reduction Costs In 1992, CG&E and its subsidiaries
incurred $30.4 million (of which approximately $3 million related to ULH&P) in
connection with a workforce reduction program. In accordance with the August
1993 Order, CG&E is recovering the majority of these costs through rates over
a three-year period. ULH&P is recovering the gas portion of these costs
through rates over a 10-year period.
Cinergy, CG&E, PSI, and ULH&P
(l) Utility Plant Utility plant is stated at the original cost of
construction, which includes 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.
Cinergy, CG&E, PSI, and ULH&P
(m) AFUDC Cinergy's 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 were as follows, and are compounded semi-
annually:
1995 1994 1993
Cinergy Average 7.9% 6.9% 9.2%
CG&E and utility
subsidiaries Average 8.8 9.1 8.3
ULH&P Average 7.0 5.9 8.8
PSI 7.0 6.4 9.5
Cinergy, CG&E, PSI, and ULH&P
(n) 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:
1995 1994 1993_
PSI 3.1% 3.8% 3.8%
CG&E and its utility subsidiaries
Electric 2.9 2.9 2.9
Gas 2.8 2.8 2.7
Common 3.4 3.4 3.3
ULH&P
Electric 3.3 3.3 3.4
Gas 3.1 3.1 2.9
Common 5.1 5.1 4.1
In accordance with the February 1995 Order, revised depreciation rates for PSI
were implemented in March 1995. This change resulted in a decrease in annual
depreciation expense of approximately $30 million.
In a July 1993 rate order, the KPSC authorized changes in depreciation accrual
rates on ULH&P's gas and common plant. The changes resulted in an increase in
depreciation expense of approximately $.5 million for 1993.
For Cinergy's utility subsidiaries, 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.
Cinergy, CG&E, PSI, and ULH&P
(o) Operating Revenues and Fuel Costs Cinergy's utility subsidiaries
recognize revenues for electric and gas service rendered during the month,
which include revenues for sales unbilled at the end of each month. The costs
of electricity and gas purchased and the cost of fuel used in electric
production are expensed as recovered through revenues, and any portion of
these costs recoverable or refundable in future periods is deferred in the
accompanying Balance Sheets. In accordance with the settlement agreement
approved in the February 1995 Order and the Indiana statute in effect at the
time of the settlement agreement, PSI's recovery of fuel costs is subject to a
determination that such recovery will not result in PSI earning a return in
excess of that allowed in the February 1995 Order.
Cinergy, CG&E, and ULH&P
(p) Order 636 In 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 its utility subsidiaries. In July 1994, the PUCO issued an
order approving a stipulation between CG&E and its residential and industrial
customer groups providing for recovery of these pipeline transition costs.
CG&E presently is recovering its Order 636 transition costs pursuant to a
PUCO-approved tariff. CG&E's utility subsidiaries, including ULH&P, recover
such costs through their gas cost recovery mechanisms. These costs are
deferred as incurred by CG&E and its utility subsidiaries and amortized as
recovered from customers.
Cinergy, CG&E, PSI, and ULH&P
(q) Statements of Cash Flows All temporary cash investments with maturities
of three months or less, when acquired, are reported as cash equivalents.
Cinergy and its subsidiaries had no material non-cash investing or financing
transactions during the years 1993 through 1995.
Cinergy, CG&E, PSI, and ULH&P
(r) Reclassification Certain amounts in the 1993 and 1994 Financial
Statements have been reclassified to conform to the 1995 presentation.
2. Rates
Cinergy and PSI
(a) PSI's Current Retail Rate Proceeding PSI currently has pending before
the IURC a retail rate increase request of 11.1% ($111.2 million annually).
Major components of the increase include the costs of the Clean Coal Project,
increased DSM costs, the costs of a scrubber at Gibson, and other investments
in utility plant. Both the Clean Coal Project and the scrubber at Gibson were
previously approved by the IURC. The request also reflects a return on common
equity of 11.9%, before the 100 basis points additional common equity return
allowed as a merger savings sharing mechanism in the February 1995 Order, with
an 8.6% overall rate of return on net original cost rate base. The UCC filed
testimony with the IURC recommending a 4.7% ($47.3 million annually) retail
rate increase. The primary differences between PSI's request and the UCC's
proposal are the requested return on common equity and DSM costs. The UCC
recommended the requested increase in DSM costs be excluded from this
proceeding and addressed in a separate currently pending proceeding
specifically established to review PSI's current and proposed DSM programs.
An order in the rate proceeding is anticipated by the end of the second
quarter of 1996. Cinergy cannot predict what action the IURC may take with
respect to this proposed rate increase. (See Note 17 for an event subsequent
to the date of the auditor's report.)
Cinergy and CG&E
(b) CG&E's Current Gas Rate Proceeding In January 1996, CG&E filed a request
with the PUCO supporting a gas rate increase of 7.8% ($26.7 million annually).
The increase, anticipated to be effective in November 1996, is being
requested, in part, to recover capital investments made since CG&E's last gas
rate increase in 1993. The proposed rate design includes a pilot program that
would allow 8,000 to 12,000 residential customers to choose their natural gas
supplier with CG&E providing transportation services to the customers'
premises. Settlement discussions with gas customer representatives, which
began in July 1995, are ongoing. Cinergy cannot predict the outcome of the
settlement discussions nor what actions the PUCO may take with respect to the
proposed rate increase.
3. Common Stock
(a) Changes in Common Stock Outstanding
Cinergy
The following table reflects the shares of Cinergy common stock reserved for
issuance at December 31, 1995, and issued in 1995, 1994, and 1993, for the
Company's stock-based plans, including previous plans of Resources and CG&E.
Shares issued prior to merger consummation have been adjusted for Resources'
merger conversion ratio of 1.023.
Shares
Reserved at Shares Issued
Dec. 31, 1995 1995 1994 1993
401(k) Savings Plans 6 469 373 1 222 379 1 458 631 1 152 096
Dividend Reinvestment and
Stock Purchase Plan 1 798 486 935 711 1 127 881 944 168
Directors' Deferred
Compensation Plan 200 000 - 77 61 266
Performance Shares Plan* 771 793 28 207 27 116 28 447
Employee Stock Purchase
and Savings Plan 1 932 384 1 010 140 039 244
Stock Option Plan 4 596 003 403 997 25 575 139 026
*A long-term incentive compensation plan for certain participants designated
by the Compensation Committee of Cinergy's Board of Directors.
In addition to the issuances of common stock previously discussed, Resources
issued 1,118,671 shares of common stock in 1993 to the trustee of its two
Master Trust Agreements as required as a result of the announcement of the
merger. Prior to consummation of the merger in October 1994, Resources issued
an additional 16,518 shares to the trustee and distributed 98,400 shares
(reflected in the above table as shares issued in 1994) to participants of
certain benefit plans. As a result of the merger consummation, in December
1994, Cinergy retired the remaining 1,036,789 shares held by the trustee.
In December 1994, Cinergy publicly issued 7,089,000 shares of common stock
under a shelf registration statement for the sale of up to eight million
shares. In addition, upon consummation of the merger, Cinergy awarded five
shares of common stock to all non-officer employees for additional issuances
under this shelf registration statement of 43,605 shares and 10 shares in 1994
and 1995, respectively.
During 1995, Cinergy retired 119,211 shares of common stock, primarily
representing shares tendered as payment for the exercise of previously granted
stock options.
CG&E
CG&E issued 1,601,003 shares of common stock in 1994 (prior to the merger),
and 1,673,058 shares in 1993, for its stock-based compensation and dividend
reinvestment plans. After merger consummation, the common stock issued to
CG&E's 401(k) Savings Plans is 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.
ULH&P
All of ULH&P's common stock is held by CG&E.
Cinergy, CG&E, and PSI
(b) Dividend Restrictions Cinergy owns all of the common stock of CG&E and
PSI. The ability of Cinergy to pay dividends to holders of Cinergy common
stock is dependent on the ability of CG&E and PSI to pay common dividends to
Cinergy. CG&E and PSI cannot purchase or otherwise acquire for value or pay
dividends on their common stock if dividends are in arrears on their preferred
stock or if they are in arrears in the redemption of preferred stock pursuant
to mandatory redemption requirements. The amount of common stock dividends
that each company can pay also may be limited by certain capitalization and
earnings requirements. Currently, these requirements do not impact the
ability of either company to pay dividends on common stock.
Cinergy
(c) Stock Option Plan The Stock Option Plan, which succeeded a similar plan
of Resources, is designed to align executive compensation with shareholder
interests. Under the Stock Option Plan, incentive and non-qualified stock
options and stock appreciation rights may be granted to key employees,
officers, and outside directors. Common stock granted under the Stock Option
Plan may not exceed five million shares. Options are granted at the fair
market value of the shares on the date of grant, except that non-qualified
stock options were granted to two executive officers under Resources' stock
option plan at an option price equal to 91% of the fair market value of the
shares at the date of grant. Options vest over five years and have a purchase
term of up to 10 years. All options granted prior to November 1993, but not
previously vested, became vested upon approval of the merger by Resources'
shareholders. No incentive stock options may be granted under the plan after
October 24, 2004.
The Stock Option Plan activity for 1993, 1994, and 1995, adjusted for
Resources' merger conversion ratio of 1.023, is summarized as follows:
Range of
Shares Subject Option Prices
to Option Per Share
Balance at December 31, 1992 1 186 554 $12.26 to 17.35
Options Exercised (139 026) 12.26 to 16.56
Balance at December 31, 1993 1 047 528 $12.50 to 17.35
Options Granted 1 387 500 22.88
Options Exercised (25 575) 13.14 to 16.56
Balance at December 31, 1994 2 409 453 $12.50 to 22.88
Options Granted 1 672 500 24.31 to 28.81
Options Exercised _(403 997) 12.50 to 17.35
Balance at December 31, 1995 3 677 956 $12.50 to 28.81
Shares Reserved for Future Grants
At December 31, 1993 1 368 263
At December 31, 1994 2 590 547
At December 31, 1995 918 047
In addition, 45,000 options were granted to various employees in January 1996,
at an option price of $31.56 per share.
No stock appreciation rights have been granted under this plan. The total
options exercisable at December 31, 1995, 1994, and 1993, were 895,456,
1,021,953, and 1,047,528, respectively.
4. Preferred Stock of Subsidiaries
Cinergy, CG&E, and PSI
(a) Schedule of Cumulative Preferred Stock
December 31
1995 1994
(dollars in thousands)
CG&E
Authorized 6,000,000 shares
Not subject to mandatory redemption
Par value $100 per share - outstanding
4% Series 270,000 shares in 1995 and 1994 $ 27 000 $ 27 000
4 3/4% Series 130,000 shares in 1995 and 1994 13 000 13 000
7.44% Series 400,000 shares in 1994 - 40 000
Total 40 000 80 000
Subject to mandatory redemption
Par value $100 per share - outstanding
9.15% Series 500,000 shares in 1994 - 50 000
7 7/8% Series 800,000 shares in 1995 and 1994
(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 1995 and 1994
(redeemable, upon call, after August 1, 2002 at $100) 80 000 80 000
Total 160 000 210 000
PSI
Not subject to mandatory redemption
Par value $25 per share - authorized 5,000,000 shares - outstanding
4.32% Series 169,162 shares in 1995 and 1994 4 229 4 229
4.16% Series 148,763 shares in 1995 and 1994 3 719 3 719
7.44% Series 4,000,000 shares in 1995 and 1994 100 000 100 000
Par value $100 per share - authorized 5,000,000 shares - outstanding
3 1/2% Series 40,843 shares in 1995 and 41,172 shares in 1994 4 085 4 117
6 7/8% Series 600,000 shares in 1995 and 1994 60 000 60 000
7.15% Series 158,640 shares in 1995 and 1994 15 864 15 864
Total 187 897 187 929
Total - Cinergy
Total not subject to mandatory redemption $227 897 $267 929
Total subject to mandatory redemption $160 000 $210 000
Cinergy, CG&E, and PSI
(b) Changes in Cumulative Preferred Stock Outstanding Changes in cumulative
preferred stock outstanding during 1995, 1994, and 1993, were as follows:
Shares
Issued Par
(Retired) Value
(in thousands)
1995
Not subject to mandatory redemption
Par value $100 per share
CG&E
7.44 % Series (400 000) $(40 000)
PSI
3 1/2% Series (329) (32)
Subject to mandatory redemption
Par value $100 per share
CG&E
9.15 % Series (500 000) (50 000)
1994
Not subject to mandatory redemption
Par value $100 per share
CG&E
9.28 % Series (400 000) (40 000)
PSI
3 1/2% Series (598) (60)
1993
Not subject to mandatory redemption
Par value $25 per share
PSI
7.44 % Series 4 000 000 100 000
Par value $100 per share
PSI
3 1/2% Series (237) (24)
8.52 % Series (211 190) (21 119)
8.38 % Series (162 520) (16 252)
8.96 % Series (216 900) (21 690)
6 7/8% Series 600 000 60 000
Cinergy and CG&E
(c) Cumulative Preferred Stock with Mandatory Redemption In each of 1998,
1999, and 2000, CG&E is required to redeem $4 million of its 7 3/8% Series
Cumulative Preferred Stock, which is subject to mandatory redemption each
August 1, beginning in 1998, in an amount sufficient to retire 40,000 shares,
at a price of $100 per share, plus accrued dividends. In addition, CG&E, at
its option, may redeem up to a like amount of shares in any given year, at a
price of $100 per share. CG&E may satisfy this sinking fund requirement, in
whole or in part, by crediting shares acquired during the year. To the extent
CG&E does not satisfy the sinking fund obligation in any year, such obligation
must be satisfied in the succeeding year or years. CG&E may not purchase or
otherwise acquire for value or pay dividends on its common stock if it is in
arrears in the redemption of preferred stock pursuant to the mandatory sinking
fund requirements.
Cinergy, CG&E, PSI, and ULH&P
5. Long-term Debt
(a) Schedule of Long-term Debt (excluding amounts due within one year)
December 31
1995 1994
(dollars in thousands)
CG&E and Subsidiaries
CG&E
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 110 000 110 000
7 3/8% Series due May 1, 1999 50 000 50 000
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 110 000 110 000
10 1/8% Series due December 1, 2015 (Pollution Control) - 84 000
9.70% Series due June 15, 2019 - 100 000
10 1/8% Series due May 1, 2020 - 100 000
10.20% Series due December 1, 2020 - 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 due January 1, 2024 (Pollution Control) 46 700 46 700
5 1/2% Series due January 1, 2024 (Pollution Control) 48 000 48 000
Total first mortgage bonds 1 214 700 1 648 700
Pollution Control Notes
Variable rate due August 1, 2013 and December 1, 2015 100 000 100 000
Variable rate due September 1, 2030 84 000 -
6.50% due November 15, 2022 12 721 12 721
Total pollution control notes 196 721 112 721
Other Long-term Debt
6.90% unsecured debentures due June 1, 2025 150 000 -
8.28% junior subordinated debentures due July 1, 2025 100 000 -
Total other long-term debt 250 000 -
Unamortized Premium and Discount - Net (14 348) (14 102)
Total - CG&E 1 647 073 1 747 319
ULH&P
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
10 1/4% Series due June 1, 2020 and November 15, 2020 - 30 000
Total first mortgage bonds 40 000 90 000
Other Long-term Debt
7.65% unsecured debentures due July 15, 2025 15 000 -
Unamortized Premium and Discount - Net (623) (762)
Total - ULH&P 54 377 89 238
Lawrenceburg
First Mortgage Bonds
9 3/4% Series due October 1, 2001 1 200 1 200
Total - CG&E and Subsidiaries $1 702 650 $1 837 757
PSI
First Mortgage Bonds
Series S, 7%, due January 1, 2002 $ 26 429 $ 26 429
Series Y, 7 5/8%, due January 1, 2007 24 140 24 140
Series BB, 6 5/8%, due March 1, 2004 (Pollution Control) 5 000 5 000
Series NN, 7.60%, due March 15, 2012 (Pollution Control) 35 000 35 000
Series QQ, 8 1/4%, due June 15, 2013 (Pollution Control) 23 000 23 000
Series RR, 9 3/4%, due August 1, 1996 - 50 000
Series TT, 7 3/8%, due March 15, 2012 (Pollution Control) 10 000 10 000
Series UU, 7 1/2%, due March 15, 2015 (Pollution Control) 14 250 14 250
Series YY, 5.60%, due February 15, 2023 (Pollution Control) 29 945 30 000
Series ZZ, 5 3/4%, due February 15, 2028 (Pollution Control) 50 000 50 000
Series AAA, 7 1/8%, due February 1, 2024 50 000 50 000
Total first mortgage bonds 267 764 317 819
Secured Medium-term Notes
Series A, 6.65% to 8.88%, due January 3, 1997 to June 1, 2022 300 000 300 000
Series B, 5.22% to 8.26%, due September 17, 1998
to August 22, 2022 230 000 230 000
(Series A and B, 7.64% weighted average interest rate
and 16 year weighted average remaining life)
Total secured medium-term notes 530 000 530 000
Pollution Control Notes
5 3/4%, due December 15, 1996 to December 15, 2003 19 200 19 600
Other Long-term Debt
Series 1994A Promissory Note, non-interest bearing,
due January 3, 2001 19 825 19 825
Unamortized Premium and Discount - Net (8 673) (9 732)
Total - PSI $ 828 116 $ 877 512
Total - Cinergy and Subsidiaries
First Mortgage Bonds $1 523 664 $2 057 719
Secured Medium-term Notes 530 000 530 000
Pollution Control Notes 215 921 132 321
Other Long-term Debt 284 825 19 825
Unamortized Premium and Discount - Net (23 644) (24 596)
Total long-term debt $2 530 766 $2 715 269
Cinergy, CG&E, PSI, and ULH&P
(b) Mandatory Redemption and Other Requirements Long-term debt maturities
for the next five years are as follows:
Cinergy and CG&E and
Subsidiaries Subsidiaries PSI ULH&P
(in millions)
1996 $ 50 $ - $ 50 $ -
1997 140 130 10 -
1998 36 - 36 -
1999 187 180 7 20
2000 31 - 31 -
$444 $310 $134 $20
In January 1996, CG&E retired $5 million principal amount of its 10.20% first
mortgage bonds (due December 1, 2020). Additionally, CG&E redeemed in
February 1996, the remaining $131.5 million principal amount of these bonds at
a price of 100% through the M&R Fund provision of its first mortgage bond
indenture. ULH&P also redeemed, in February 1996, $9 million principal amount
of its 10 1/4% first mortgage bonds (due November 15, 2020) at a price of
107.20% and the remaining $6 million principal amount of such bonds at a price
of 100% through its M&R Fund provision. The first mortgage bonds retired in
January and February 1996 by CG&E and ULH&P have been classified as "Long-term
debt due within one year" in the appropriate Balance Sheets. M&R Fund
provisions contained in CG&E's, PSI's, and ULH&P's first mortgage bond
indentures require cash payments, bond retirements, or pledges of unfunded
property additions each year based on a formularized amount related to the net
revenues of the respective company.
6. Notes Payable
Cinergy, CG&E, PSI, and ULH&P
Cinergy's subsidiaries had regulatory authority to borrow up to $838 million
($438 million for CG&E and its subsidiaries, including $35 million for ULH&P,
and $400 million for PSI) as of December 31, 1995. In connection with this
authority, Committed Lines have been established which permit borrowings of up
to $322 million ($106 million for CG&E and its subsidiaries, including $30
million for ULH&P, and $215 million for PSI), of which $182 million ($106
million for CG&E and its subsidiaries, including $30 million for ULH&P, and
$74 million for PSI) remained unused at December 31, 1995. CG&E and PSI also
issue commercial paper from time to time. All outstanding commercial paper is
supported by Committed Lines of the respective company. Additionally,
pursuant to this authority, Uncommitted Lines are arranged with various banks.
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 1993 through 1995 period.
To better manage cash and working capital requirements, Cinergy's utility
subsidiaries, including CG&E, PSI, and ULH&P, participate in a money pooling
arrangement. Under the money pool, participants with surplus short-term
funds, whether from internal sources, bank loans, or commercial paper sales,
provide short-term loans to other system companies at rates that approximate
the costs of the funds in the money pool. The SEC's approval, pursuant to the
PUHCA, of the money pool extends through May 31, 1997.
In addition, Cinergy has a $100 million credit facility which expires in
September 1997 and was unused at December 31, 1995. The facility may be
increased to a maximum of $300 million, and the Company has an annual option
of extending the term of the facility by one year. This credit facility will
be used for general corporate purposes and funding non-utility business
ventures.
The weighted average interest rates on short-term borrowings outstanding at
December 31, 1995 and 1994, were as follows:
1995 1994_
Cinergy and subsidiaries 5.97% 6.11%
CG&E and subsidiaries - 6.14
PSI 5.97 6.11
ULH&P - 6.14
7. Sale of Accounts Receivable
Cinergy, CG&E, PSI, and ULH&P
In January 1996, CG&E, PSI, and ULH&P entered into an agreement to sell, on a
revolving basis, undivided percentage interests in certain of their accounts
receivable up to an aggregate maximum of $350 million. PSI had a similar
agreement, which expired in January 1996, to sell up to $90 million of its
accounts receivable. Accounts receivable on the Consolidated Balance Sheets
of Cinergy and PSI are net of a $90 million and $87 million interest sold
under the prior PSI agreement at December 31, 1995 and 1994, respectively.
8. Leases
Cinergy, CG&E, PSI, and ULH&P
Cinergy and its subsidiaries have entered into operating lease agreements
covering various facilities and properties, including office space and
computer, communications, and transportation equipment. Total rental payments
on operating leases for each of the past three years were as follows:
1995 1994 1993
(in millions)
Cinergy and subsidiaries $36 $36 $35
CG&E and subsidiaries 22 22 22
PSI 14 14 13
ULH&P 5 5 4
Future minimum lease payments required under operating leases with remaining,
non-cancelable lease terms in excess of one year as of December 31, 1995, are
as follows:
Cinergy and CG&E and
Subsidiaries Subsidiaries PSI ULH&P*
(in millions, ULH&P in thousands)
1996 $28 $13 $12 $35
1997 22 10 9 24
1998 14 5 6 12
1999 7 4 3 -
2000 5 2 1 -
After 2000 20 17 3 -
$96 $51 $34 $71
* Excludes amounts applicable to CG&E's non-cancelable leases allocated to
ULH&P.
Cinergy, CG&E, PSI, and ULH&P
9. Fair Values of Financial Instruments
The estimated fair values of Cinergy's and its subsidiaries' financial
instruments were as follows (this information does not purport to be a
valuation of the companies as a whole):
December 31 December 31
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value_
(in millions; ULH&P in thousands)
Financial Instruments
Cinergy and Subsidiaries
First mortgage bonds and
other long-term debt (includes
amounts due within one year) $ 2 733 $ 2 837 $ 2 776 $ 2 718
Cumulative preferred stock of
subsidiary - subject to
mandatory redemption 160 163 210 221
CG&E and Subsidiaries
First mortgage bonds and
other long-term debt (includes
amounts due within one year) $ 1 855 $ 1 912 $ 1 838 $ 1 806
Cumulative preferred stock -
subject to mandatory redemption 160 163 210 221
PSI
First mortgage bonds and
other long-term debt (includes
amounts due within one year) $ 878 $ 925 $ 938 $ 912
ULH&P
First mortgage bonds and
other long-term debt (includes
amounts due within one year) $69 377 $72 804 $89 238 $91 361
The following methods and assumptions were used to estimate the fair values of
each major class of financial instruments:
Cash and temporary cash investments, restricted deposits, and notes payable
Due to the short period to maturity, the carrying amounts reflected on the
Balance Sheets approximate fair values.
First mortgage bonds and other long-term debt The fair values of long-term
debt issues were estimated based on the latest quoted market prices or, if not
listed on the New York Stock Exchange (NYSE), 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 NYSE for each series or, if no trades
occurred during the period, on the present value of future cash flows using
discount rates that approximate the incremental borrowing costs for similar
instruments.
10. Pension Plans
Cinergy, CG&E, PSI, and ULH&P
The defined benefit pension plans of Cinergy's 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 policies of the operating subsidiaries are 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. Contributions applicable
to the 1995, 1994, and 1993 plan years for Cinergy's subsidiaries were $15.4
million, $3.5 million, and $11.3 million, respectively. Of these amounts,
CG&E and its subsidiaries contributed $6.8 million and $3.1 million for the
1995 and 1993 plan years, respectively. There were no contributions made for
the 1994 plan year by CG&E and its subsidiaries. PSI's contributions were
$8.6 million, $3.5 million, and $8.2 million for the 1995, 1994, and 1993 plan
years, respectively. The plans' assets consist of investments in equity and
fixed income securities.
Cinergy
Cinergy's pension cost for 1995, 1994, and 1993 included the following
components:
1995 1994 1993
(in millions)
Benefits earned during the period $ 18.5 $ 19.4 $ 16.9
Interest accrued on projected
benefit obligations 61.4 54.9 53.9
Actual (return) loss on plans' assets (119.3) 8.0 (69.9)
Net amortization and deferral 61.1 (66.3) 15.4
Net periodic pension cost $ 21.7 $ 16.0 $ 16.3
CG&E and ULH&P
CG&E's and its subsidiaries' (including ULH&P's) pension cost for 1995, 1994,
and 1993 included the following components:
1995 1994 1993
(in millions)
Benefits earned during the period $ 9.8 $ 10.7 $ 9.2
Interest accrued on projected
benefit obligations 38.8 35.1 34.5
Actual (return) loss on plans' assets (71.9) 5.6 (31.4)
Net amortization and deferral 35.5 (43.2) (4.7)
Net periodic pension cost $ 12.2 $ 8.2 $ 7.6
PSI
PSI's pension cost for 1995, 1994, and 1993 included the following components:
1995 1994 1993
(in millions)
Benefits earned during the period $ 8.7 $ 8.7 $ 7.7
Interest accrued on projected
benefit obligation 22.6 19.8 19.4
Actual (return) loss on plan assets (47.4) 2.4 (38.5)
Net amortization and deferral 25.6 (23.1) 20.1
Net periodic pension cost $ 9.5 $ 7.8 $ 8.7
Cinergy, CG&E, and ULH&P
During 1994, CG&E and its subsidiaries (including ULH&P) recognized an
additional $15.6 million 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. This amount represents the costs associated with
additional benefits extended in connection with a voluntary workforce
reduction program (see Note 1(i)).
Cinergy, CG&E, PSI, and ULH&P
1995 1994 1993
Actuarial Assumptions:
For determination of projected benefit
obligations
Discount rate 7.50% 8.50% 7.50%
Rate of increase in future compensation
PSI 4.50 5.50 4.50-5.00
CG&E and subsidiaries 4.50 5.50 5.00
For determination of pension cost
Rate of return on plans' assets
PSI 9.00 9.00 9.00
CG&E and subsidiaries 9.50 9.50 9.50
Cinergy
The following table reconciles the plans' funded status with amounts recorded
in the Consolidated Financial Statements. Under the
provisions of Statement 87, certain assets and obligations of the plans are
deferred and recognized in the Consolidated Financial
Statements in subsequent periods.
1995 1994
Plans' Plan's Plans' Plan's
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
(in millions)
Actuarial present value
of benefits
Vested benefits $(376.9) $(227.3) $(320.7) $(206.5)
Non-vested benefits (35.1) (16.0) (25.5) (11.0)
Accumulated benefit
obligations (412.0) (243.3) (346.2) (217.5)
Effect of future
compensation
increases (120.3) (53.2) (120.3) (52.2)
Projected benefit
obligations (532.3) (296.5) (466.5) (269.7)
Plans' assets at fair value 500.6 220.0 438.4 198.7
Projected benefit
obligations in excess of
plans' assets (31.7) (76.5) (28.1) (71.0)
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 (7.7) (3.4) (8.6) (3.8)
Unrecognized net gain
resulting from experience
different from that
assumed and effects of
changes in assumptions (14.1) (1.3) (7.9) (1.9)
Prior service cost not
yet recognized in net
periodic pension cost 35.2 16.8 38.1 18.2
Accrued pension cost at
December 31 $ (18.3) $ (64.4) $ (6.5) $ (58.5)
CG&E and ULH&P
The following table reconciles the plans' funded status with amounts recorded
in the Consolidated Financial Statements of CG&E. Under the provisions of
Statement 87, certain assets and obligations of the plans are deferred and
recognized in the Financial Statements in subsequent periods.
1995 1994
Plan's Plan's Plan's Plan's
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
(in millions)
Actuarial present value
of benefits
Vested benefits $(138.3) $(227.3) $(123.2) $(206.5)
Non-vested benefits (25.5) (16.0) (17.5) (11.0)
Accumulated benefit
obligations (163.8) (243.3) (140.7) (217.5)
Effect of future
compensation
increases (54.8) (53.2) (53.0) (52.2)
Projected benefit
obligations (218.6) (296.5) (193.7) (269.7)
Plans' assets at fair
value 209.3 220.0 182.1 198.7
Projected benefit
obligations in excess of
plans' assets (9.3) (76.5) (11.6) (71.0)
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 (2.7) (3.4) (2.9) (3.8)
Unrecognized net gain
resulting from experience
different from that
assumed and effects of
changes in assumptions (18.9) (1.3) (13.6) (1.9)
Prior service cost not
yet recognized in net
periodic pension cost 19.5 16.8 20.9 18.2
Accrued pension cost at
December 31 $ (11.4) $ (64.4) $ (7.2) $ (58.5)
PSI
The following table reconciles the plan's funded status with amounts recorded
in the Consolidated Financial Statements. Under the provisions of Statement
87, certain assets and obligations of the plan are deferred and recognized in
the Consolidated Financial Statements in subsequent periods.
1995 1994
(in millions)
Actuarial present value of benefits
Vested benefits $(238.6) $(197.5)
Non-vested benefits (9.6) (8.0)
Accumulated benefit obligation (248.2) (205.5)
Effect of future compensation
increases (65.5) (67.3)
Projected benefit obligation (313.7) (272.8)
Plan's assets at fair value 291.3 256.3
Projected benefit obligation in
excess of plan's assets (22.4) (16.5)
Remaining balance of plan's net
assets existing at date of initial
application of Statement 87 to be
recognized as a reduction of
pension cost in future periods (5.0) (5.7)
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 4.8 5.7
Prior service cost not yet recognized
in net periodic pension cost 15.7 17.2
Prepaid (Accrued) pension cost
at December 31 $ (6.9) $ .7
11. Other Postretirement Benefits
Cinergy, CG&E, PSI, and ULH&P
Cinergy's 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. Additionally, PSI provides
dental benefits. PSI employees must meet minimum age and service requirements
to be eligible for these postretirement benefits. All retirees of CG&E and
its subsidiaries are eligible to receive health care benefits, while life
insurance is provided to retirees who participated in the plans and earned the
right to postretirement life insurance benefits prior to January 1, 1991. The
health care and dental benefits provided are subject to certain limitations,
such as deductibles and co-payments. Neither CG&E and its subsidiaries nor
PSI currently pre-fund their obligations for these postretirement benefits;
however, PSI, in connection with the settlement which resulted in the February
1995 Order, agreed to begin pre-funding.
Postretirement benefit cost for 1995, 1994, and 1993 included the following
components:
Cinergy
Health Life
Care Insurance Total
(in millions)
1995
Benefits earned during the period $ 4.4 $ .1 $ 4.5
Interest accrued on APBO 15.6 2.2 17.8
Amortization of transition obligations 8.1 .3 8.4
Net periodic postretirement benefit cost $28.1 $2.6 $30.7
1994
Benefits earned during the period $ 5.2 $ .2 $ 5.4
Interest accrued on APBO 13.8 2.2 16.0
Net amortization and deferral .1 - .1
Amortization of transition obligations 8.1 .3 8.4
Net periodic postretirement benefit cost $27.2 $2.7 $29.9
1993
Benefits earned during the period $ 4.3 $ .2 $ 4.5
Interest accrued on APBO 13.4 2.1 15.5
Amortization of transition obligations 8.1 .3 8.4
Net periodic postretirement benefit cost $25.8 $2.6 $28.4
CG&E and ULH&P
Health Life
Care Insurance Total
(in millions)
1995
Benefits earned during the period $ .4 $ .1 $ .5
Interest accrued on APBO 4.5 2.0 6.5
Amortization of transition obligation 2.6 .4 3.0
Net periodic postretirement benefit cost $7.5 $2.5 $10.0
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
PSI
Health Life
Care Insurance Total
(in millions)
1995
Benefits earned during the period $ 4.0 $ - $ 4.0
Interest accrued on APBO 11.1 .2 11.3
Amortization of transition obligation 5.5 (.1) 5.4
Net periodic postretirement benefit cost $20.6 $ .1 $20.7
1994
Benefits earned during the period $ 4.3 $ .1 $ 4.4
Interest accrued on APBO 9.9 .2 10.1
Net amortization and deferral .1 - .1
Amortization of transition obligation 5.5 (.1) 5.4
Net periodic postretirement benefit cost $19.8 $ .2 $20.0
1993
Benefits earned during the period $ 3.3 $ .1 $ 3.4
Interest accrued on APBO 9.2 .1 9.3
Amortization of transition obligation 5.5 (.1) 5.4
Net periodic postretirement benefit cost $18.0 $ .1 $18.1
Cinergy, CG&E, PSI, and ULH&P
The following tables reconcile the APBO of the health care and life insurance
plans with amounts recorded in the Financial Statements. Under the provisions
of Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions (Statement 106), certain
obligations of the plans are deferred and recognized in the Financial
Statements in subsequent periods.
Cinergy
Health Life
Care Insurance Total_
(in millions)
1995
Actuarial present value of benefits
Fully eligible active plan participants $ (11.7) $ (1.1) $ (12.8)
Other active plan participants (112.0) (2.7) (114.7)
Retirees and beneficiaries (99.2) (26.4) (125.6)
Projected APBO (222.9) (30.2) (253.1)
Unamortized transition obligations 137.1 .7 137.8
Unrecognized prior service cost (.3) - (.3)
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 26.1 .5 26.6
Accrued postretirement benefit obligations
at December 31, 1995 $ (60.0) $(29.0) $ (89.0)
1994
Actuarial present value of benefits
Fully eligible active plan participants $ (11.4) $ (.9) $ (12.3)
Other active plan participants (84.3) (2.3) (86.6)
Retirees and beneficiaries (92.0) (23.5) (115.5)
Projected APBO (187.7) (26.7) (214.4)
Unamortized transition obligations 145.2 1.0 146.2
Unrecognized net (gain) loss resulting
from experience different from that
assumed and effects of changes in
assumptions 2.2 (2.6) (.4)
Accrued postretirement benefit obligations
at December 31, 1994 $ (40.3) $(28.3) $ (68.6)
Increasing the health care cost trend rate by one percentage point in each
year would increase the APBO by approximately $37 million and $27 million for
1995 and 1994, respectively, and the aggregate of the service and interest
cost components of the postretirement benefit cost for each of 1995, 1994, and
1993 by approximately $3.4 million, $3.7 million, and $3.4 million,
respectively.
CG&E and ULH&P
Health Life
Care Insurance Total_
(in millions)
1995
Actuarial present value of benefits
Fully eligible active plan participants $ (2.7) $ (.9) $ (3.6)
Other active plan participants (32.0) (2.0) (34.0)
Retirees and beneficiaries (30.5) (24.5) (55.0)
Projected APBO (65.2) (27.4) (92.6)
Unamortized transition obligation 43.4 2.9 46.3
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 4.4 .1 4.5
Accrued postretirement benefit obligation
at December 31, 1995 $ (17.4) $(24.4) $ (41.8)
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)
Increasing the health care cost trend rate by one percentage point in each
year would increase the APBO by approximately $12.7 million and $10.0 million
for 1995 and 1994, respectively, and the aggregate of the service and interest
cost components of the postretirement benefit cost for 1995 by approximately
$1.0 million and each of 1994 and 1993 by approximately $1.2 million.
PSI
Health Life
Care Insurance Total_
(in millions)
1995
Actuarial present value of benefits
Fully eligible active plan participants $ (9.0) $ (.2) $ (9.2)
Other active plan participants (80.0) (.7) (80.7)
Retirees and beneficiaries (68.7) (1.9) (70.6)
Projected APBO (157.7) (2.8) (160.5)
Unamortized transition obligation 93.7 (2.2) 91.5
Unrecognized prior service cost (.3) - (.3)
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 21.7 .4 22.1
Accrued postretirement benefit obligation
at December 31, 1995 $ (42.6) $ (4.6) $ (47.2)
1994
Actuarial present value of benefits
Fully eligible active plan participants $ (9.2) $ (.1) $ (9.3)
Other active plan participants (58.0) (.5) (58.5)
Retirees and beneficiaries (66.8) (1.8) (68.6)
Projected APBO (134.0) (2.4) (136.4)
Unamortized transition obligation 99.1 (2.3) 96.8
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 7.4 .1 7.5
Accrued postretirement benefit obligation
at December 31, 1994 $ (27.5) $ (4.6) $ (32.1)
Increasing the health care cost trend rate by one percentage point in each
year would increase the APBO by approximately $24 million and $17 million for
1995 and 1994, respectively, and the aggregate of the service and interest
cost components of the postretirement benefit cost for each of 1995, 1994, and
1993 by approximately $2.4 million, $2.5 million, and $2 million,
respectively.
Cinergy, CG&E, PSI, and ULH&P
The following assumptions were used to determine the APBO:
1995 1994 1993
Discount rate 7.50% 8.50% 7.50%
Health care cost trend rate,
gradually declining to 5%
CG&E and subsidiaries 8.00-11.00% 9.00-12.00% 10.00-13.00%
PSI 8.00-10.00 8.00-12.00 8.00-12.00
Year ultimate trend rates achieved
CG&E and subsidiaries 2002 2002 2002
PSI 2007 2007 2007
Cinergy, CG&E, and ULH&P
The majority of CG&E's and its subsidiaries' postretirement benefit costs are
subject to PUCO jurisdiction. The PUCO has authorized CG&E to recover these
costs on an accrual basis. Prior to the recovery of these health care costs
in customers' rates on an accrual basis, the PUCO authorized CG&E to defer for
future recovery the difference between postretirement benefit costs determined
in accordance with the provisions of Statement 106 and the costs determined in
accordance with CG&E's previous accounting practice. CG&E's deferrals totaled
$4 million as of December 31, 1995. CG&E is requesting authorization for
recovery of the gas portion of these costs in its current gas rate proceeding.
CG&E will request authorization to begin recovering the electric portion of
these costs in its next retail rate proceeding.
Cinergy and PSI
In accordance with the February 1995 Order, PSI is recovering the cost of
postretirement benefits other than pensions on an accrual basis. Prior to the
recovery of these costs in customers' rates on an accrual basis, the
difference between postretirement benefit costs determined in accordance with
the provisions of Statement 106 and the costs determined in accordance with
PSI's previous accounting practice was deferred for future recovery. PSI's
deferrals totaled $21 million as of December 31, 1995. Commencing in February
1995, approximately $6 million of costs deferred for the period January 1,
1993, through July 31, 1993, are being recovered over a five-year period.
Recovery over a five-year period of the remaining deferrals is being requested
in PSI's current retail rate proceeding.
12. Income Taxes
Cinergy, CG&E, PSI, and ULH&P
Cinergy and its subsidiaries comply with 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.
The significant components of each registrant's net deferred income tax
liability at December 31, 1995, and 1994, are as follows:
Cinergy
1995 1994
(in millions)
Deferred Income Tax Liabilities
Utility plant $ 981.8 $ 947.8
Unamortized costs of reacquiring debt 28.8 26.1
Deferred operating expenses
and carrying costs 86.6 87.8
Amounts due from customers - income taxes 143.4 112.1
Deferred DSM costs 47.3 39.8
Other 36.4 47.2
Total deferred income tax liabilities 1 324.3 1 260.8
Deferred Income Tax Assets
Unamortized investment tax credits 67.5 70.8
Litigation settlement 29.8 29.8
Deferred fuel costs 13.0 13.1
Accrued pension and other benefit costs 41.1 33.7
Other 52.0 42.3
Total deferred income tax assets 203.4 189.7
Net Deferred Income Tax Liability $1 120.9 $1 071.1
CG&E
1995 1994
(in millions)
Deferred Income Tax Liabilities
Utility plant $663.8 $639.8
Unamortized costs of reacquiring debt 14.2 10.3
Deferred operating expenses
and carrying costs 76.2 76.4
Amounts due from customers - income taxes 139.8 108.5
Deferred DSM costs 5.6 2.6
Other 25.5 37.1
Total deferred income tax liabilities 925.1 874.7
Deferred Income Tax Assets
Unamortized investment tax credits 46.1 47.9
Deferred fuel costs 8.1 10.0
Accrued pension and other benefit costs 28.7 27.6
Other 46.8 42.1
Total deferred income tax assets 129.7 127.6
Net Deferred Income Tax Liability $795.4 $747.1
PSI
1995 1994_
(in millions)
Deferred Income Tax Liabilities
Electric utility plant $315.7 $308.0
Unamortized costs of reacquiring debt 14.6 15.8
Deferred operating expenses
and accrued carrying costs 12.5 11.4
Deferred DSM costs 41.7 37.2
Other 13.0 13.7
Total deferred income tax liabilities 397.5 386.1
Deferred Income Tax Assets
Unamortized investment tax credits 21.4 22.9
Litigation settlement 29.8 29.8
Accrued pension and other benefit costs 13.4 6.1
Other 1.0 2.6
Total deferred income tax assets 65.6 61.4
Net Deferred Income Tax Liability $331.9 $324.7
ULH&P
1995 1994
(in thousands)
Deferred Income Tax Liabilities
Utility plant $32 104 $30 637
Other 3 852 3 740
Total deferred income tax liabilities 35 956 34 377
Deferred Income Tax Assets
Unamortized investment tax credits 2 060 2 175
Amounts due to customers - income taxes 1 904 1 810
Deferred fuel costs 1 857 1 773
Accrued pension and other benefit costs 2 365 2 179
Other 4 042 3 214
Total deferred income tax assets 12 228 11 151
Net Deferred Income Tax Liability $23 728 $23 226
Cinergy, CG&E, PSI, and ULH&P
A summary of Federal and state income taxes charged (credited) to income and
the allocation of such amounts is as follows:
Cinergy
1995 1994 1993
(in millions)
Current Income Taxes
Federal $175.3 $104.1 $ 49.1
State 10.4 6.5 1.3
Total current income taxes 185.7 110.6 50.4
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items 53.8 62.2 58.4
Loss related to the June 1987 Order - (5.2) 45.9
Property taxes - (13.3) (9.3)
DSM costs 12.0 14.5 11.7
Write-off of a portion of Zimmer - - (11.0)
Pension and other benefit costs (20.8) (12.5) (4.2)
Deferred operating expenses and
carrying costs (1.6) (1.6) 4.7
Other items - net (6.6) (5.4) 3.2
Total deferred Federal income taxes 36.8 38.7 99.4
State 1.7 2.7 7.5
Total deferred income taxes 38.5 41.4 106.9
Investment Tax Credits - Net (10.1) (10.4) (10.3)
Total Income Taxes $214.1 $141.6 $147.0
Allocated to:
Operating income $219.4 $152.2 $172.6
Other income and expenses - net (5.3) (10.6) (25.6)
$214.1 $141.6 $147.0
CG&E
1995 1994 1993
(in millions)
Current Income Taxes
Federal $102.4 $ 82.3 $ 61.8
State 2.5 1.5 2.0
Total current income taxes 104.9 83.8 63.8
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items 33.9 42.9 48.4
Property taxes - (11.3) (11.3)
Unrecovered gas costs - net 3.8 (6.8) .7
Pension and other benefit costs (10.7) (8.4) (5.5)
Write-off of a portion of Zimmer - - (11.0)
Deferred fuel costs - net (1.3) 5.3 (4.2)
Deferred operating expenses
and carrying costs (1.6) (1.6) 4.7
DSM costs 3.6 1.9 1.2
Other items - net 4.4 (2.8) 6.3
Total deferred Federal income taxes 32.1 19.2 29.3
State .8 .6 .5
Total deferred income taxes 32.9 19.8 29.8
Investment Tax Credits - Net (6.0) (6.1) (6.1)
Total Income Taxes $131.8 $ 97.5 $ 87.5
Allocated to:
Operating income $136.4 $104.1 $109.0
Other income and expenses - net (4.6) (6.6) (21.5)
$131.8 $ 97.5 $ 87.5
PSI
1995 1994 1993
(in millions)
Current Income Taxes
Federal $71.4 $22.0 $ .6
State 7.5 5.5 .4
Total current income taxes 78.9 27.5 1.0
Deferred Income Taxes
Federal
Depreciation and other electric utility
plant-related items 19.9 19.2 9.6
Loss related to the June 1987 Order - (5.2) 45.9
Property taxes - (2.0) 2.0
DSM costs 8.4 12.6 10.6
Pension and other benefit costs (10.1) (1.8) -
Deferred fuel costs - net (6.0) .7 (1.8)
Other items - net (4.0) 2.8 (.9)
Total deferred Federal income taxes 8.2 26.3 65.4
State 1.1 2.2 7.0
Total deferred income taxes 9.3 28.5 72.4
Investment Tax Credits - Net (4.1) (4.3) (4.2)
Total Income Taxes $84.1 $51.7 $69.2
Allocated to:
Operating income $85.0 $50.4 $64.9
Other income and expenses - net (.9) 1.3 4.3
$84.1 $51.7 $69.2
ULH&P
1995 1994 1993
(in thousands)
Current Income Taxes
Federal $5 955 $2 746 $3 580
State 1 324 498 1 126
Total current income taxes 7 279 3 244 4 706
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items 1 382 1 727 1 664
Unrecovered gas costs - net (277) (741) 575
Pension and other benefit costs (381) (349) (329)
Deferred fuel costs - net (257) 764 (685)
Unamortized costs of reacquiring debt 808 - -
Other items - net (556) 280 (147)
Total deferred Federal income taxes 719 1 681 1 078
State
Depreciation and other utility plant-
related items 390 656 431
Other items - net (172) (8) (222)
Total deferred state income taxes 218 648 209
Total deferred income taxes 937 2 329 1 287
Investment Tax Credits - Net (285) (287) (288)
Total Income Taxes $7 931 $5 286 $5 705
Allocated to:
Operating income $7 887 $5 342 $5 751
Other income and expenses - net 44 (56) (46)
$7 931 $5 286 $5 705
Cinergy, CG&E, PSI, and ULH&P
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 Statements of Income for each registrant as
follows:
Cinergy
1995 1994 1993
(in millions)
Statutory Federal income tax provision $191.2 $109.8 $ 68.1
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (10.1) (10.4) (10.0)
Depreciation and other utility plant-
related differences 9.0 13.5 13.1
Preferred dividend requirements of
subsidiaries 10.8 12.4 13.3
AFUDC equity (.6) (2.2) (5.0)
Phase-in deferred return (.6) (3.1) (7.2)
Write-off of a portion of Zimmer - - 69.4
Other - net 2.3 12.4 (3.5)
Federal income tax expense $202.0 $132.4 $138.2
CG&E
Statutory Federal income tax provision $121.4 $81.0 $17.9
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (6.0) (6.1) (5.8)
Depreciation and other utility plant-
related differences 9.0 8.2 6.9
Preferred dividends 6.2 7.8 8.8
AFUDC equity (.6) (.7) (1.1)
Phase-in deferred return (.6) (3.1) (7.2)
Write-off of a portion of Zimmer - - 69.4
Other - net (.9) 8.3 (3.9)
Federal income tax expense $128.5 $95.4 $85.0
PSI
1995 1994 1993
(in millions)
Statutory Federal income tax provision $77.5 $44.2 $65.3
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (4.1) (4.3) (4.2)
Depreciation and other electric utility
plant-related differences - 1.8 4.1
AFUDC equity - (1.5) (3.9)
Other - net 2.1 3.8 .5
Federal income tax expense $75.5 $44.0 $61.8
ULH&P
1995 1994 1993
(in thousands)
Statutory Federal income tax provision $6 496 $4 385 $4 798
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (285) (287) (288)
Depreciation and other utility plant-
related differences 219 138 108
AFUDC equity (25) (27) (104)
Other - net (16) (69) (144)
Federal income tax expense $6 389 $4 140 $4 370
13. Commitments and Contingencies
(a) Construction and Other Expenditures
Cinergy, CG&E, PSI, and ULH&P
Cinergy and its subsidiaries will have commitments in connection with their
forecasted construction programs. Aggregate expenditures for Cinergy's
construction program for the 1996 through 2000 period are currently forecasted
to be $2.1 billion. Of these projected expenditures, approximately $1.1
billion relates to CG&E, including $102 million for ULH&P, and $1.0 billion
relates to PSI.
Cinergy and PSI
In November 1995, a 25-year contractual agreement between PSI and Destec
Energy, Inc. (Destec) for the provision of coal gasification services began
upon commercial operation of the Clean Coal Project. The agreement requires
PSI to pay Destec a base monthly fee including certain monthly operating
expenses. Over the next five years (1996 through 2000), the fixed component
of the base monthly fee is expected to total $63 million, and the variable
expenses are estimated at $105 million in nominal dollars. PSI's currently
pending retail rate increase request includes recovery of the operating costs,
including gasification services, associated with the Clean Coal Project. PSI
received authorization in the February 1995 Order to defer for future recovery
the costs incurred prior to the order in its current retail rate proceeding.
(b) MGP Sites
Cinergy, CG&E, PSI, and ULH&P
(i) General Prior to the 1950s, gas was produced at MGP sites through a
process that involved the heating of coal and/or oil. The gas produced from
this process was sold for residential, commercial, and industrial uses.
Cinergy and PSI
(ii) PSI Coal tar residues, related hydrocarbons, and various metals
associated with MGP sites have been found at former MGP sites in Indiana,
including, but not limited to, Shelbyville and Lafayette, two sites previously
owned by PSI. PSI has identified at least 21 MGP sites which it previously
owned, including 19 it sold in 1945 to IGC, including the Shelbyville and
Lafayette sites. IGC has informed PSI of the basis for its claim that PSI, as
a PRP under the CERCLA, should contribute to IGC's response costs related to
investigating and remediating contamination at MGP sites which PSI sold to
IGC.
The Shelbyville site has been the subject of an investigation and cleanup
enforcement action by the IDEM against IGC and PSI. Without admitting
liability, PSI and IGC have conducted an investigation and remedial activities
at the Shelbyville site. PSI and IGC are sharing the costs of the Shelbyville
site, and based upon environmental investigations and remediation completed to
date, PSI believes that any further required investigation and remediation for
this site will not have a material adverse effect on its financial condition
or results of operations.
In 1992, the IDEM issued an order to IGC, naming IGC as a PRP as defined in
the CERCLA, which requires investigation and remediation of the Lafayette MGP
site. IGC entered into an agreed order with the IDEM for the removal of MGP
contamination at that site.
During 1995, PSI received notification from NIPSCO alleging PSI is a PRP under
the CERCLA with respect to contamination associated with MGP sites previously
owned and/or operated by both PSI and NIPSCO (or their predecessors). The
notification included seven sites, five of which PSI acquired from NIPSCO and
subsequently sold to IGC.
PSI has placed its insurance carriers on notice of IGC's and NIPSCO's claims.
IGC and PSI have entered into discussions regarding IGC's claim; however, with
the exception of the Shelbyville site, PSI has not assumed any responsibility
to reimburse IGC or NIPSCO for their costs of investigating and remediating
MGP sites. It is premature, at this time, to predict the nature, extent, and
ultimate costs of, or PSI's responsibility for, environmental investigations
and remediations at MGP sites owned or previously owned by PSI. Information
available to PSI regarding the current status of investigation and/or
remediation at the sites identified in IGC's claim indicates PSI's potential
exposure to probable and reasonably estimable liabilities associated with
these MGP sites would not be material to its financial condition or results of
operations. However, further investigation and remediation activities at
these sites and the additional sites identified in NIPSCO's claim may indicate
that the potential liability for MGP sites could be material.
In May 1995, the IURC denied IGC's request for recovery of costs incurred in
complying with Federal, state, and local environmental regulations related to
MGP sites in which IGC has an interest, including sites acquired from PSI.
IGC has appealed this decision, which IGC contends is contrary to decisions
made by other state utility commissions with respect to this issue. In August
1995, the IURC granted PSI's motion to establish a sub-docket to PSI's pending
retail rate proceeding to consider its request for rate recovery of any MGP
site-related costs it may incur. PSI is unable to predict the extent to which
it will be able to recover through rates any MGP costs ultimately incurred.
Cinergy, CG&E, and ULH&P
(iii) CG&E and its Utility Subsidiaries Lawrenceburg also has an MGP
site. In May 1995, Lawrenceburg and the IDEM reached an agreement to include
the Lawrenceburg MGP site in the IDEM's voluntary cleanup program.
Lawrenceburg is currently implementing a remediation plan, and total cleanup
costs are not expected to exceed amounts previously accrued of $400,000.
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 is
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.
Cinergy and CG&E
(c) United Scrap Lead Site The EPA alleges that CG&E is a PRP under the
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.
Cinergy, CG&E, and PSI
(d) Power International Litigation On October 25, 1995, a suit was filed in
the Federal District Court for the Southern District of Ohio by three former
employees of Power International, a subsidiary of Investments, naming as
defendants Power International, Cinergy, Investments, CG&E, PSI, James E.
Rogers, and William J. Grealis. (Mr. Rogers and/or Mr. Grealis are officers
and/or directors of the foregoing companies.) The lawsuit, which stems from
the termination of employment of the three former employees, alleges that they
entered into employment contracts with Power International based on the
opportunity to participate in potential profits from future investments in
energy projects in central and eastern Europe. The suit alleges causes of
action based upon, among other theories, breach of contract related to the
events surrounding the termination of their employment and fraud and
misrepresentation related to the level of financial support for future
projects. The suit alleges compensatory damages of $154 million based upon
assumed future success of potential future investments and punitive damages of
three times that amount. All defendants intend to defend vigorously against
the charges based upon meritorious defenses. Cinergy, CG&E, and PSI are
currently unable to predict the outcome of this litigation.
Cinergy and PSI
(e) WVPA Litigation In 1984, WVPA discontinued payments to PSI for its 17%
share of Marble Hill, a nuclear project jointly owned by PSI and WVPA which
was canceled by PSI in 1984, and filed suit against PSI in the United States
District Court for the Southern District of Indiana (Indiana District Court),
seeking $478 million plus interest and other damages to recover its Marble
Hill costs. The suit was amended to include as defendants several officers of
PSI along with certain contractors and their officers involved in the Marble
Hill project, and to allege claims against all defendants under the Racketeer
Influenced and Corrupt Organizations Act (RICO). Claims proven and damages
allowed under RICO may be trebled and attorneys' fees assessed against the
defendants. The suit was further amended to add claims of common law fraud,
constructive fraud and deceit, and negligent misrepresentation against PSI and
the other defendants.
In 1985, PSI and WVPA entered into an agreement under which PSI agreed to
place in escrow 17% of all salvage proceeds received from the sales of Marble
Hill equipment, materials, and nuclear fuel after May 23, 1985, as a result of
WVPA's filing for protection under Chapter 11 of the Federal Bankruptcy Code.
In 1989, PSI and its officers reached a settlement with WVPA which, if
approved by judicial and regulatory authorities, will settle the suit filed by
WVPA. The settlement is also contingent on the resolution of the WVPA
bankruptcy proceeding.
The principal terms of the settlement are:
PSI, on behalf of itself and its officers, will pay $80 million on behalf
of WVPA to RUS and the CFC. The $80 million obligation, net of insurance
proceeds, other credits, and applicable income tax effects, was charged to
income in 1988 and 1989.
WVPA will transfer its 17% ownership interest in the site to PSI, and PSI
will assume responsibility for all future costs associated with the site,
excluding WVPA's 17% share of future salvage program expenses. Additionally,
RUS and the CFC will receive the balance in the salvage escrow account and 17%
of future salvage proceeds, net of related salvage program expenses.
PSI will enter into a 35-year, take-or-pay power supply agreement for the
sale of 70 megawatts of firm power to WVPA. This power will be supplied from
Gibson Unit 1 and will be priced at PSI's firm power rates for service to
WVPA. The difference between the revenues received from WVPA and the costs of
operating Gibson Unit 1 (the Margin) will be remitted annually by PSI, on
behalf of itself and its officers, to RUS and the CFC to discharge a $90
million obligation, plus accrued interest. If, at the end of the term of the
power supply agreement, the $90 million obligation plus accrued interest has
not been fully discharged, PSI must do so within 60 days. The settlement
provides that in the event PSI is party to a merger or acquisition, PSI and
WVPA will use their best efforts to obtain regulatory approval to price the
power sale exclusive of the effects of the merger or acquisition.
Certain aspects of the settlement are subject to approval by the FERC and
potentially by the IURC and the Michigan Public Service Commission. At such
time as the necessary approvals from these regulatory authorities are
received, PSI will record a $90 million regulatory asset. Concurrently, a $90
million obligation to RUS and the CFC will be recorded as a long-term
commitment. Recognition of the asset is based, in part, on projections which
indicate that the Margin will be sufficient to discharge the $90 million
obligation to RUS and the CFC, plus accrued interest, within the 35-year term
of the power supply agreement. If, in some future period, projections
indicate the Margin would not be sufficient to discharge the obligation plus
accrued interest within the 35-year term, the deficiency would be recognized
as a loss.
RUS has proposed a plan of reorganization which, similar to WVPA's plan,
incorporates the settlement agreement. However, RUS's plan provides for full
recovery of principal and interest on WVPA's debt to RUS, which is
substantially in excess of the amount to be recovered under WVPA's proposed
plan. In 1991, the United States Bankruptcy Court for the Southern District
of Indiana (Bankruptcy Court) confirmed WVPA's plan of reorganization and
denied confirmation of RUS's opposing plan. The Bankruptcy Court's approval
of WVPA's reorganization plan is contingent upon WVPA's receipt of regulatory
approval to change its rates. RUS appealed the Bankruptcy Court's decision to
the Indiana District Court. In June 1994, the Indiana District Court ruled in
favor of WVPA's plan. RUS subsequently appealed this decision, and on
December 28, 1995, the Seventh Circuit Court of Appeals affirmed the decision
of the Indiana District Court. PSI cannot predict whether RUS will appeal
this decision to the U.S. Supreme Court, and if appealed, the outcome of such
appeal, nor is it known whether WVPA can obtain regulatory approval to change
its rates. If reasonable progress is not made in satisfying conditions to the
settlement by February 1, 1997, either party may terminate the settlement
agreement. (See Note 17 for an event subsequent to the date of the auditor's
report.)
Cinergy, CG&E, and ULH&P
(f) Potential Divestiture of Gas Operations Under the PUHCA, the divestiture
of CG&E's, including ULH&P's, gas operations may be required. In its order
approving the merger, the SEC reserved judgment over Cinergy's ownership of
the gas operations for a period of three years. However, in June 1995, the
SEC endorsed recommendations for reform/repeal of the PUHCA, including
allowing registered holding companies to own combination electric and gas
utility companies, provided the affected states agree. In addition,
legislation providing for the repeal of the PUHCA is currently pending before
Congress.
Regardless of the outcome of the proposals to reform/repeal the PUHCA, Cinergy
believes it has a justifiable basis for retention of its gas operations and
will continue its pursuit of SEC approval. 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 segment.
Cinergy, CG&E, PSI, and ULH&P
(g) 1996 Voluntary Workforce Reduction Program In January 1996, Cinergy
announced a voluntary workforce reduction program which provides enhanced
retirement and/or severance benefits to eligible employees. There are 840
employees who meet certain age and service requirements and are potentially
eligible for enhanced retirement benefits under this program. Eligible
employees who do not meet age and service requirements would receive severance
benefits upon resignation from their employment. Program costs will not be
known until after the participation election period ends on May 15, 1996.
Cinergy intends to classify these costs as costs to achieve merger savings
which, consistent with the merger savings sharing mechanisms previously
approved by regulators, will result in the portion of these costs allocable to
Ohio electric jurisdictional customers (approximately 38%) being charged to
earnings in the second quarter of 1996, and the remaining costs allocable to
other jurisdictions being deferred for future recovery through rates as an
offset against merger savings. (See Note 1(i).) A significant portion of
these benefits will be eligible for funding from qualified retirement plan
assets.
Cinergy, CG&E, and PSI
14. Jointly Owned Plant
PSI is a joint owner of Gibson Unit 5 with WVPA and IMPA. Additionally, PSI
is a co-owner with WVPA and IMPA of certain transmission property and local
facilities. These facilities constitute part of the integrated transmission
and distribution systems which are operated and maintained by PSI. 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
PSI's and CG&E's portions of all operating costs associated with the commonly
owned facilities.
PSI's and CG&E's investments in jointly owned plant are as follows:
1995
Utility Plant Accumulated Construction
Share in Service Depreciation Work in Progress
(dollars in millions)
PSI
Production
Gibson (Unit 5) 50.05% $ 204 $ 97 $ -
Transmission and local
facilities 94.01 1 747 598 30
CG&E
Production
Miami Fort Station
(Units 7 and 8) 64 205 105 1
W.C. Beckjord Station
(Unit 6) 37.5 41 22 -
J.M. Stuart Station 39 267 108 4
Conesville Station
(Unit 4) 40 71 33 1
Zimmer 46.5 1 212 168 3
East Bend Station 69 330 148 1
Killen Station 33 186 76 -
Transmission Various 62 29 -
15. Quarterly Financial Data (unaudited)
Cinergy
Net Earnings
Operating Operating Income (Loss)
Quarter Ended Revenues Income (Loss) Per Share
(in millions, except per share amounts)
1995
March 31 $ 809 $161 $102 $ .65
June 30 668 120 60 .39
September 30 768 168 109 .69
December 31 786 133 76 .49
Total $3 031 $582 $347 $2.22
1994
March 31 $ 851 $155 $ 99 $ .68
June 30 662 106 49 .33
September 30 692 118(a) 58 (a) .40 (a)
December 31 693 61(a) (15)(a) (.11)(a)
Total $2 898 $440 $191 $1.30
(a) In 1994, Cinergy recognized charges to earnings of approximately $79
million ($56 million, net of taxes) or 38 cents per share primarily for
certain merger-related and other expenditures which cannot be recovered
from customers under the merger savings sharing mechanisms authorized by
regulators. Of these charges, approximately $46 million, net of taxes
(31 cents per share), was recognized in the fourth quarter, and
approximately $8 million, net of taxes (5 cents per share), was
recognized in the third quarter. The charges include the PUCO electric
jurisdictional portion of Merger Costs incurred through December 31,
1994, previously capitalized information systems development costs, and
severance benefits to former officers of CG&E and PSI. Of the total $79
million charge, $62 million is reflected in "Operating Expenses - Other
operation" and $17 million is reflected in "Other Income and Expenses -
Net".
CG&E
Net
Operating Operating Income
Quarter Ended Revenues Income (Loss)
(in millions)
1995
March 31 $ 525 $109 $ 77
June 30 393 71 40
September 30 435 98 69
December 31 495 82 50
Total $1 848 $360 $236
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
(a) In 1994, CG&E recognized charges to earnings of approximately $64
million ($46 million, net of taxes) primarily for certain merger-related
and other expenditures which cannot be recovered from customers under the
merger savings sharing mechanism authorized by the PUCO. Of these
charges, approximately $39 million, net of taxes, was recognized in the
fourth quarter and approximately $7 million, net of taxes, was recognized
in the third quarter. The charges include the PUCO electric
jurisdictional portion of Merger Costs 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".
PSI
Net
Operating Operating Income
Quarter Ended Revenues Income (Loss)
(in millions)
1995
March 31 $ 299 $ 53 $ 33
June 30 290 49 29
September 30 343 70 50
December 31 316 55 34
Total $1 248 $227 $146
1994
March 31 $ 288 $ 48 $ 35
June 30 272 37 19
September 30 284 38 20
December 31 270 29 (a) 8 (a)
Total $1 114 $152 $ 82
(a) In the fourth quarter of 1994, PSI recognized a charge to earnings of
approximately $10 million ($6 million, net of taxes) for severance
benefits to former officers of PSI which cannot be recovered from
customers under the merger savings sharing mechanism authorized by the
IURC. The total $10 million charge is reflected in "Operating Expenses -
Other operation".
16. Financial Information by Business Segment
Cinergy
Operating
Operating Operating Income Provision for Construction
Year Ended Revenues Income Taxes Depreciation Expenditures
(in millions)
1995
Electric $2 620 $543 $207 $258 $286
Gas 411 39 12 22 36
Total $3 031 $582 $219 $280 $322
1994
Electric $2 456 $412 $144 $274 $432
Gas 442 28 8 20 42
Total $2 898 $440 $152 $294 $474
1993
Electric $2 374 $450 $166 $261 $517
Gas 469 33 7 18 45
Total $2 843 $483 $173 $279 $562
December 31
1995 1994 1993_
(in millions)
Property, Plant, and Equipment - net
Electric $5 719 $5 680 $5 519
Gas 532 519 504
6 251 6 199 6 023
Other Corporate Assets 1 969 1 951 1 781
Total Assets $8 220 $8 150 $7 804
For a discussion of the potential divestiture of CG&E's, including ULH&P's,
gas operations, see Note 13(f).
CG&E
Operating
Operating Operating Income Provision for Construction
Year Ended Revenues Income Taxes Depreciation Expenditures
(in millions)
1995
Electric $1 437 $321 $124 $137 $101
Gas 411 39 12 22 36
Total $1 848 $360 $136 $159 $137
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
CG&E Continued
December 31
1995 1994 1993_
(in millions)
Property, Plant, and Equipment - net
Electric $3 244 $3 277 $3 282
Gas 532 519 504
3 776 3 796 3 786
Other Corporate Assets 1 401 1 386 1 358
Total Assets $5 177 $5 182 $5 144
For a discussion of the potential divestiture of CG&E's, including ULH&P's,
gas operations, see Note 13(f).
ULH&P
Operating
Operating Operating Income Provision for Construction
Year Ended Revenues Income Taxes Depreciation Expenditures
(in thousands)
1995
Electric $187 180 $11 425 $4 500 $ 6 679 $10 909
Gas 70 288 8 405 3 387 4 759 8 063
Total $257 468 $19 830 $7 887 $11 438 $18 972
1994
Electric $177 564 $ 9 736 $3 007 $ 6 213 $12 127
Gas 71 971 6 654 2 335 4 431 8 277
Total $249 535 $16 390 $5 342 $10 644 $20 404
1993
Electric $175 712 $ 9 821 $3 078 $ 5 798 $16 291
Gas 75 744 8 115 2 673 4 015 8 133
Total $251 456 $17 936 $5 751 $ 9 813 $24 424
December 31
1995 1994 1993
(in thousands)
Property, Plant, and Equipment - net
Electric $138 482 $134 508 $130 054
Gas 104 749 102 340 98 445
243 231 236 848 228 499
Other Corporate Assets 56 566 50 280 57 546
Total Assets $299 797 $287 128 $286 045
For a discussion of the potential divestiture of ULH&P's gas operations, see
Note 13(f).
17. Subsequent Events (unaudited)
(a) PSI's Current Retail Rate Proceeding In connection with the filing of
its proposed retail rate order with the IURC in March 1996, PSI reduced its
requested retail rate increase to 10.3% ($102.9 million annually) from 11.2%
($111.2 million annually). (See Note 2(a).)
(b) WVPA Litigation RUS has requested a rehearing by the Seventh Circuit
Court of Appeals. PSI cannot predict the disposition of the rehearing request
or whether RUS will appeal an unfavorable decision to the U.S. Supreme Court,
and in the event of such an appeal, the outcome of such appeal. (See Note
13(e).)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Cinergy, CG&E, PSI, and ULH&P
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Board of Directors
Cinergy
Reference is made to Cinergy's 1996 Proxy Statement with respect to
identification of directors and their current principal occupations.
CG&E
The directors of CG&E at February 29, 1996, included:
Jackson H. Randolph Mr. Randolph, age 65, is Chairman of CG&E. He has served
as a director of CG&E since 1983, and his current term as director expires
April 25, 1996.
James E. Rogers Mr. Rogers, age 48, is Vice Chairman and Chief Executive
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 25, 1996.
William J. Grealis Mr. Grealis, age 50, is President of CG&E. He has served
as a director of CG&E since September 1, 1995, and his current term expires
April 25, 1996.
PSI
Reference is made to PSI's 1996 Information Statement with respect to
identification of directors and their current principal occupations.
ULH&P
Omitted pursuant to Instruction J(2)(c).
Executive Officers
Cinergy, CG&E, and PSI
The information included in Part I of this report on pages 21 through 23 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.
ULH&P
Omitted pursuant to Instruction J(2)(c).
ITEM 11. EXECUTIVE COMPENSATION
Cinergy
Reference is made to Cinergy's 1996 Proxy Statement with respect to executive
compensation.
CG&E
Board Compensation Committee Report on Executive Compensation
The executive compensation program of Cinergy and its subsidiaries is
administered by the Compensation Committee of Cinergy's Board of Directors
(the "Committee"). The Committee establishes the compensation philosophy and
the compensation of the chief executive officer and all other executive
officers of Cinergy and its subsidiaries. The Committee also recommends and
administers compensation plans for all executive officers and key employees.
The 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), and an "outside director" (of
Cinergy) within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code").
Compensation Philosophy
The Committee reported in Cinergy's 1995 proxy statement that although its
executive compensation philosophy was developing, it expressed an intent to
emphasize incentive compensation, both short-term and long-term, in order to
tie the interests of the executive officers and Cinergy's shareholders. At
that time, the Committee anticipated that base salary, annual cash incentives,
and long-term incentives would play an integral part in Cinergy's executive
compensation program.
With assistance from an independent compensation and benefits consulting firm
which conducted a study of existing executive compensation program structures,
the Committee has formulated an integrated executive compensation philosophy
which includes base salary, and annual and long-term incentives. The
consulting firm has also advised as to the retention, modification or
replacement of certain existing compensation and benefits plans and as to plan
design generally.
Cinergy and its subsidiaries seek to provide a total compensation program that
will attract, retain, and motivate the high quality employees needed to
provide superior service to its customers and to maximize returns to its
shareholders. Base salaries for the executive group will be targeted at the
median of comparably sized utility companies based on kilowatt hours sold.
Because of the low-cost position of Cinergy and its subsidiaries, kilowatt
hours sold is considered to be a better size measure than revenues for
constructing a comparator group. Base salary levels will be reviewed
annually. Salary increases will be based on such factors as corporate
financial results, each individual's performance, and the executive's role and
skills. The executive compensation program seeks to link executive and
shareholder interests through cash-based and equity-based incentive plans, in
order to reward corporate and individual performance and balance short-term
and long-term considerations. Thus, annual and long-term incentive plans will
be structured to provide opportunities that are competitive with general
industry companies.
This philosophy will result in a compensation mix for the chief executive
officer and senior officers, including executive officers, consisting of
annual incentive and long-term incentives that will account for at least 50%
of the employee's total compensation.
During 1995, the Committee adopted a charter which supports Cinergy's
executive compensation philosophy and the Committee's role in designing and
implementing that philosophy. Pursuant to the charter, the Committee:
- - reviews and determines the annual base salaries, annual incentives, and
long-term incentives of the executive officers of Cinergy and its
subsidiaries, and develops an appropriate balance between short-term and long-
term incentives while focusing on long-term shareholder interests; and
- - reviews the operation of the executive compensation programs; establishes
and periodically reviews policies for the administration of these programs;
and takes steps, if appropriate, to modify such programs and to design and
implement new executive compensation programs.
Consistent with its charter and its executive compensation philosophy, the
Committee has reviewed Cinergy's existing short-term and long-term incentive
plans and has concluded that it would be in the best interests of Cinergy and
its shareholders to modify the Annual Incentive Plan and to adopt a new long-
term incentive compensation plan.
Under the proposed amendment to the Annual Incentive Plan, the maximum award
opportunity for "covered employees", as that term is defined in Code Section
162(m), would be one million dollars. Currently, the maximum award is 75% of
annual base salary. Expressing the maximum possible award for covered
employees in this manner is consistent with regulations issued by the Internal
Revenue Service (the "IRS") in December, 1995.
The proposed 1996 Long-Term Incentive Compensation Plan would allow Cinergy
flexibility to design long-term incentive compensation programs which will
help achieve its goals. The adoption of this plan is subject to approval by
Cinergy's shareholders. The 1996 Long-Term Incentive Compensation Plan is
intended, in part, to replace Cinergy's Performance Shares Plan.
Annual Incentive Plan
For 1995, executive officers were eligible for incentives under Cinergy's
Annual Incentive Plan. Approximately 400 key employees participated in the
plan in 1995 and were granted cash awards to the extent that certain pre-
determined corporate and individual goals were attained during that year.
Graduated standards for achievement were developed to encourage each
employee's contribution. The potential awards ranged from 2.5% to 55% of the
annual salary of the participant (including deferred compensation), depending
upon the achievement levels and the participant's position. The Committee
reviewed and approved both the plan goals at the beginning of the year and the
achievements at the end of the year.
For 1995, the Annual Incentive Plan used a combination of corporate and
individual goals. Achievement of corporate goals and achievement of
individual goals each accounted for 50% of the total possible award. The
portion of the payout in March, 1996, attributable to the corporate goals was
based on 1995 achievement in two areas: (1) earnings per share; and (2) non-
fuel operation and maintenance merger savings. The earnings per share goal
accounted for 37.5% and the merger savings goal constituted 12.5% of the total
possible award. The achievement level for each of the corporate goals was at
the maximum award level for 1995.
In 1995, incentive awards for each executive officer reflected individual
achievement as well as Cinergy's attainment of its corporate goals.
Individual performance goals for each executive varied from executive to
executive; however, all related to the achievement of Cinergy's overall
strategic vision of becoming a premier general energy services company.
For each executive officer, the Committee assessed the extent to which each
person contributed toward the accomplishment of Cinergy's vision in 1995.
Although its determinations were subjective, the Committee believed that its
assessment accurately measured the performance of each executive officer.
Based upon the extraordinary efforts of the executive officers in 1995, the
Committee determined that a maximum award was payable to each.
For 1996, Cinergy's Annual Incentive Plan will again use a combination of
corporate and individual goals. The corporate goal will account for 50% of
the total possible award and achievement of individual goals will account for
the remaining 50%. The corporate goal for 1996 will be based on earnings per
share. For 1996, approximately 400 key employees will participate in the
plan. The potential awards will range from 2.5% to 90% of the participant's
annual salary, depending upon the achievement levels and the participant's
position.
Other Compensation Decisions
The Committee, at its discretion, can award other forms of compensation in
recognition of outstanding service to Cinergy or any of its subsidiaries.
Consistent with that philosophy, the Committee approved in 1995 special
performance awards for Messrs. Leonard and Thomas and Ms. Foley for exemplary
performance associated with consummation of the corporate reorganization
resulting in the formation of Cinergy (as set forth in footnotes to the
Summary Compensation Table).
Long-Term Incentive Plan and Stock Option Plan
Cinergy's Performance Shares Plan (the "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 Committee. The executive officers named in the compensation
tables 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 Resources'
performance shares plan was merged into the Performance Shares Plan effective
as of October 24, 1994, the then existing Resources performance cycles of
1992-1995 and 1994-1997 became performance cycles under the Performance Shares
Plan. Awards earned under the 1992-1995 performance cycle by executive
officers are paid in two installments: one-half of the award was paid in
February, 1996, and the remaining portion will be paid in February, 1997. The
dollar value of the awards to Messrs. Rogers, Leonard, and Thomas and Ms.
Foley, paid in February 1995 and earned under the 1990-1993 performance cycle,
are set forth in the Summary Compensation Table. The next overlapping four
year performance cycle under the Performance Shares Plan began January 1, 1996
and will end December 31, 1999. As mentioned previously, the 1996 Long-Term
Incentive Compensation Plan is intended, in part, to replace the Performance
Shares Plan; the details of the transition have yet to be determined.
Cinergy's executive officers and other key employees are also eligible for
grants under Cinergy's Stock Option Plan in amounts determined to be
appropriate by the Committee. The 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 1995 base salary was determined pursuant to an employment
agreement with Cinergy dated December 11, 1992, as amended and restated
effective October 24, 1994 (see Employment Agreements and Severance
Arrangements discussed further herein). For 1995, Mr. Randolph also earned
incentive compensation under the Annual Incentive Plan in the amount of
$321,750, of which 50% was based on achievement of corporate goals and 50% was
based upon the Committee's determination of his achievement of individual
goals.
Mr. Rogers' 1995 base salary was determined pursuant to an employment
agreement with Cinergy dated December 11, 1992, as amended and restated
effective July 2, 1993 (see Employment Agreements and Severance Arrangements
discussed further herein). For 1995, Mr. Rogers also earned incentive
compensation under the Annual Incentive Plan in the amount of $321,750, of
which 50% was based on achievement of corporate goals and 50% was based upon
the Committee's determination of his achievement of individual goals.
Giving consideration to the accomplishments of 1995 leading to a total return
to Cinergy shareholders of 39.1% and an increase in earnings per share of 17%,
the latter adjusted for the effects of weather and non-recurring items,
sufficient goals were met to obtain the maximum award available. Other goals
pertaining to budgeting, reengineering, development of a comprehensive human
resource strategy, enhancement of top management team effectiveness, and
elevation of Cinergy's impact in community involvement were also met. The
relative importance in meeting these goals was equal in the determination of
awards.
Summary
The Committee has established its executive compensation philosophy which
emphasizes incentive compensation, both short-term and long-term, in order to
tie the interests of the executive officers and shareholders. Base salary,
annual cash incentives, and long-term incentives are an integral part of
executive compensation. The Committee has determined that the Annual
Incentive Plan should be modified to increase the maximum amount which can be
awarded under that plan to "covered employees" under Code Section 162(m), and
that the proposed 1996 Long-Term Incentive Compensation Plan is needed to
provide flexibility in designing competitive long-term incentive programs in
order to attract and retain qualified and highly motivated executive employees
in the future.
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 for certain executive officers exceeds one million dollars in any
one year. Under 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 Committee
has reviewed the final regulations issued by the IRS and will continue to
review the application of these rules to future compensation; however, the
Committee intends to compensate executives on performance achieved, both
corporate and individual.
Summary Compensation Table
The following table sets forth the compensation of Messrs. Rogers and
Randolph, each of whom served as chief executive officer at different periods
during 1995, and each of the additional four most highly compensated executive
officers (these six executive officers sometimes hereinafter collectively
referred to as the "named executive officers") for services to Cinergy and its
subsidiaries, including CG&E, during the calendar years ended December 31,
1995, 1994, and 1993. (The data presented includes, for Mr. Randolph
compensation from CG&E, and for the remaining named executive officers
compensation from PSI, for the periods prior to October 24, 1994.)
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Annual Restricted Securities Other
Compen- Stock Underlying LTIP Compen-
Name and Salary Bonus(1) sation Awards Options/SARs Payouts(2) sation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
James E. Rogers 1995 535,000 321,750 15,322 0 0 283,427 135,676 (3)
Vice Chairman 1994 433,144 265,729 64,417 0 250,000 273,720 285,393
and CEO 1993 402,408 239,324 0 0 0 193,618 83,968
Jackson H. Randolph 1995 535,000 321,750 11,594 0 0 0 104,112 (3)
Chairman of the Board 1994 470,000 255,750 5,719 0 250,000 0 92,724
1993 425,000 200,000 3,512 0 0 0 84,886
William J. Grealis (4) 1995 276,000 103,500 37,677 0 100,000 0 116,136 (5)
President, and
President Investments
J. Wayne Leonard 1995 250,008 93,753 17,385 0 0 83,974 49,726 (5)
Group Vice President 1994 211,208 79,203 32,146 0 100,000 81,132 93,555
and CFO 1993 187,168 92,568 0 0 0 62,210 6,762
Larry E. Thomas 1995 240,000 90,000 1,794 0 0 80,066 29,464 (5)
Group Vice President 1994 209,540 78,578 29,078 0 100,000 77,345 53,945
and Chief 1993 187,168 67,568 0 0 0 56,339 6,762
Transformation Officer
Cheryl M. Foley 1995 230,004 86,252 5,284 0 0 80,462 58,646 (5)
Vice President, General 1994 200,510 75,191 30,732 0 100,000 77,714 59,618
Counsel, and Secretary 1993 179,036 89,632 0 0 0 59,866 0
(1) The amounts appearing in this column reflect the Annual Incentive Plan awards earned during the year listed and paid in the
following year.
(2) The amounts appearing in this column for 1995 and 1994 reflect the values of the shares and cash earned under Resources
performance shares plan, as predecessor to Cinergy's Performance Shares Plan, by Messrs. Rogers, Leonard, and Thomas and Ms. Foley
during the four-year cycle from 1990 through 1993; the amounts reflected for 1993 were earned by such four officers under such
plan during the two-year cycle from 1990 through 1991.
(3) Amount includes for Messrs. Rogers and Randolph, respectively: a deferred compensation award in the amount of $50,000
pursuant to the terms of each officer's Deferred Compensation Agreement; employer matching contributions under the PSI and CG&E
401(k) plans of $9,240 and $4,125; above-market interest on amounts deferred pursuant to the Deferred Compensation Agreements of
$21,202 and $31,413; and benefits under Split Dollar Life Insurance Agreements of $16,584 and $18,574. Also includes for Mr.
Rogers insurance premiums paid with respect to executive/group-term life insurance and relocation compensation in the amounts of
$5,290 and $33,360, respectively.
(4) Mr. Grealis became President of Investments and President of CG&E's Gas Operations effective January 16, 1995, and President
of CG&E effective September 1, 1995.
(5) Amount includes for Messrs. Grealis, Leonard, and Thomas and Ms. Foley, respectively: insurance premiums paid with respect
to executive/group-term life insurance of $2,651, $1,927, $5,682, and $3,441; and relocation compensation in the amounts of
$45,958, $8,797, $4,800, and $25,205. Includes for Messrs. Grealis, Leonard, and Thomas, respectively, employer matching
contributions under the PSI 401(k) plan of $1,344, $9,002, and $8,982. Includes for Mr. Grealis a profession transition allowance
and supplemental life insurance of $50,000 and $16,183, respectively. Includes for Messrs. Leonard, and Thomas and Ms. Foley,
respectively, special performance awards in the amounts of $30,000, $10,000, and $30,000.
Option/SAR Grants Table
The following table sets forth information concerning options to purchase
Cinergy common stock granted to Mr. Grealis, the only named executive officer
granted such options during 1995.
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term___
(a) (b) (c) (d) (e) (f) (g)
Number of %
Securities of Total
Underlying Options/SARs Exercise
Options/SARs Granted to or Base
Granted Employees in Price Expiration 5% 10%
Name (#) Fiscal Year ($/Sh) Date ($) ($)
William J. Grealis 100,000 6.02% 24.3125 1/24/2005 671,710 1,484,300
Aggregated Option/SAR Exercises and Year-End Option/SAR Value Table
The following table sets forth information concerning stock options exercised
by the named executive officers during 1995, including the values realized for
such options exercised, which represent the positive spread between the
respective exercise prices and market prices on dates of exercises, and the
numbers of shares for which options were held as of December 31, 1995,
including the values for "in-the-money" options, which represent the positive
spread between the respective exercise prices of outstanding stock options and
the market price of the shares of Cinergy common stock as of December 31,
1995, which was $30.625 per share.
(a) (b) (c) (d) (e)
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End FY-End
Shares Acquired Value (#) ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
James E. Rogers 39,622 465,570 189,403/200,000 2,906,442/1,550,000
Jackson H. Randolph 0 N/A 50,000/200,00 387,500/1,550,000
William J. Grealis 0 N/A 0/100,000 0/775,000
J. Wayne Leonard 13,539 137,161 57,611/80,000 684,123/620,000
Larry E. Thomas 20,043 161,713 51,107/80,000 592,623/620,000
Cheryl M. Foley 13,753 126,435 57,397/80,000 681,112/620,000
Long-Term Incentive Plan Awards Table
The following table sets forth the potential payouts of an award contingently
granted under the Performance Shares Plan to Mr. Grealis, the only named
executive officer granted such award during 1995.
Estimated Future Payouts
under Non-Stock Price-Based Plans
(a) (b) (c) (d) (e) (f)
Number of Performance or
Shares, Units or Other Period Threshold Target Maximum
Other Rights Until Maturation Shares Shares Shares
Name (#) or Payout (#) (#) (#)
William J. Grealis 2,042 1994 - 1997 (1) 4,085 (1)
(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 salary. The performance shares vest based upon the achievement of long-term corporate and
individual goals established by the Committee 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 contingently granted will be made if the aggregate of the pre-established goals are met.
There is no minimum (threshold) award and the Committee may enhance the target award in recognition of exemplary performance or
achievement as to individual goals. Awards are made in cash and 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 either CG&E's non-
contributory management pension plan (the "CG&E Pension Plan") or PSI's non-
contributory pension plan (the "PSI Pension Plan"). Mr. Randolph is covered
under the terms of the CG&E Pension Plan. Messrs. Rogers, Grealis, Leonard,
and Thomas and Ms. Foley are covered under the terms of the PSI 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 ten calendar
years immediately preceding retirement. The IRS annually establishes a dollar
limit, indexed to inflation, of the amount of pay permitted for consideration
under the terms of the plan, which for 1995 was $150,000. Covered
compensation is the average social security taxable wage base over a 35-year
period. The accrued annual benefit payable to Mr. Randolph upon his
retirement under the terms of the plan is $106,211 based upon IRS limits and
credited service of 37 years.
Cinergy and Mr. Randolph have entered into an Amended and Restated
Supplemental Executive Retirement Income Agreement which in effect freezes as
of December 31, 1994, the accrual of benefits payable to Mr. Randolph under
CG&E's Supplemental Executive Retirement Plan upon his retirement, death, or
disability. Under the amended agreement, the annual supplemental retirement
benefit of $511,654 shall be paid to Mr. Randolph or his beneficiary in
monthly installments of $42,638 for 180 months beginning December 1, 2000.
The PSI Pension Plan covers all of its employees who meet certain minimum age
and service requirements. Compensation utilized to determine benefits under
the PSI Pension Plan includes substantially all salaries and annual incentive
compensation, including deferred compensation for Mr. Rogers. PSI Pension
Plan benefits are determined under a final average pay formula with
consideration of years of service to a maximum of 30, age at retirement and
the applicable average social security wage base. PSI also maintains an
Excess Benefit Plan which is designed to restore pension benefits to those
individuals whose benefits under the PSI Pension Plan would otherwise exceed
the limits imposed by the Code. Each of the named executive officers, with
the exception of Mr. Randolph, participates in the Excess Benefit Plan.
The following pension plan table illustrates the estimated annual benefits
payable as a straight-life annuity under both plans to participants who retire
at age 62. Such benefits are not subject to any deduction for social security
or other offset amounts.
Years of Service
Compensation 5 10 15 20 25 30
$ 300,000 $23,190 $ 46,380 $ 69,575 $ 92,765 $115,955 $139,145
400,000 31,190 62,380 93,575 124,765 155,955 187,145
500,000 39,190 78,380 117,575 156,765 195,955 235,145
600,000 47,190 94,380 141,575 188,765 235,955 283,145
700,000 55,190 110,380 165,575 220,765 275,955 331,145
800,000 63,190 126,380 189,575 252,765 315,955 379,145
900,000 71,190 142,380 213,575 284,765 355,955 427,145
1,000,000 79,190 158,380 237,575 316,765 395,955 475,145
1,100,000 87,190 174,380 261,575 348,765 435,955 523,145
The estimated credited years of service at age 62 for each of the named
executive officers covered under the terms of the PSI Pension Plan are as
follows: Mr. Rogers, 20.22 years; Mr. Grealis, 11.69 years; Mr. Leonard, 30
years; Mr. Thomas, 30 years; and Ms. Foley, 19.22 years.
Messrs. Rogers and Grealis and Ms. Foley also participate in the PSI
Supplemental Retirement Plan, which is designed to provide coverage to
employees, previously designated by the board of directors of PSI, who will
not otherwise qualify for full retirement benefits under the PSI Pension Plan.
The benefit provided by the PSI Supplemental Retirement Plan will be an amount
equal to that which a covered employee with maximum permitted years of
participation (30 years) would have received under the PSI Pension Plan,
reduced by the actual benefit provided by the PSI Pension Plan and the Excess
Benefit Plan, and further reduced by benefits the covered employee will be
eligible to receive from retirement plans from previous self-employment and
from previous employers. The estimated annual benefit payable at age 62 under
the PSI Supplemental Retirement Plan is $192,158 for Mr. Rogers, $3,230 for
Mr. Grealis, and $54,624 for Ms. Foley.
Cinergy has an Executive Supplemental Life Insurance Program, which provides
key management personnel, including the named executive officers, with
additional life insurance coverage during employment, and post-retirement
deferred compensation. At the later of age 55 or retirement, the
participant's life insurance coverage under the program will be canceled. At
that time, the participant will receive the total amount of coverage in the
form of deferred compensation payable in ten equal annual installments. The
annual benefit payable, at the later of age 55 or retirement, to each of the
named executive officers is $15,000 per year over ten years.
Employment Agreements and Severance Arrangements
Cinergy entered into individual employment agreements with Mr. Randolph and
Mr. Rogers (each sometimes hereinafter individually referred to as the
"Executive") effective as of October 24, 1994.
Pursuant to his employment agreement, Mr. Randolph served as Chairman and
Chief Executive Officer of Cinergy until November 30, 1995, at which time he
relinquished the position of Chief Executive Officer; he will continue to
serve as Chairman of the Board of Cinergy until November 30, 2000. Mr. Rogers
served as Vice Chairman, President and Chief Operating Officer of Cinergy
until November 30, 1995, and thereafter has served as Vice Chairman, President
and Chief Executive Officer of Cinergy. Mr. Rogers' agreement is for a term
of three years; however, as amended in December 1995, on each annual
anniversary date it will be automatically extended for an additional year,
unless either Cinergy or Mr. Rogers gives timely notice otherwise.
During the terms of their agreements, Messrs. Randolph and Rogers will receive
minimum annual base salaries of $465,000 and $422,722, respectively. Each
will also be paid an annual incentive award of up to a maximum of no less than
55% of his annual salary pursuant to Cinergy's 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 Cinergy
employees and executives.
If the Executive's employment terminates as a result of death, his beneficiary
will receive a lump sum cash amount equal to the sum of (a) the Executive's
annual base salary through the termination date to the extent not previously
paid, (b) a pro rata portion of the benefit under Cinergy's Annual Incentive
Plan calculated based upon the termination date, and (c) any compensation
previously deferred but not yet paid to the Executive (with accrued interest
or earnings thereon) and any unpaid accrued vacation pay. In addition to
these accrued amounts, if Cinergy terminates the Executive's employment
without "cause" or the Executive terminates his employment for "good reason"
(as each is defined in the employment agreements), Cinergy will pay to the
Executive (a) a lump sum cash amount equal to the present value of his annual
base salary and benefit under Cinergy's 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 the Executive would have been entitled had he remained
in employment until the end of the term of employment under Cinergy's
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 the Executive and his family through the end of the term of
employment. If the Executive's employment is terminated by Cinergy for cause
or by the Executive without good reason, the Executive will receive unpaid
annual base salary accrued through the termination date and any accrued
deferred compensation.
Mr. Randolph has a severance agreement with Cinergy which provides that if,
within three years after October 24, 1994, he terminates his employment for
good cause or his employment is terminated by Cinergy other than for
disability or cause, Cinergy will pay him a cash amount equal to 300% of his
annualized compensation for the most recent five years ending before October
24, 1994, less $1,000, plus a cash "gross-up" payment equal to the federal
excise tax due on such amount, if any.
Cinergy and Mr. Grealis entered into an employment agreement which commenced
on January 16, 1995, and shall continue until June 30, 2000; provided,
however, commencing on January 1, 1999, and each January 1, 1999, and each
January 1 thereafter, the term of the employment agreement may be extended for
one additional year upon mutual agreement. Pursuant to the terms of his
agreement, Mr. Grealis initially served as President of Investments and
President of CG&E's Gas Operations. However, Mr. Grealis may be further
assigned such other responsible executive capacity or capacities as the boards
of directors of Cinergy or Services or Cinergy's chief executive officer may
from time to time determine. Effective September 1, 1995, Mr. Grealis was
named to the position of President of CG&E in addition to retaining the
position of President of Investments. During the term of his agreement, Mr.
Grealis will receive a minimum annualized base salary of $288,000, will be
eligible to participate in all other incentive, stock option, performance
award, savings, retirement and welfare benefit plans applicable generally to
Cinergy employees and executives, and will receive other fringe benefits. In
connection with his retirement, the employment agreement provides that Mr.
Grealis will receive an annual benefit of no less than $283,000 payable as a
straight-life annuity at age 62.
Cinergy entered into individual employment agreements with Messrs. Leonard and
Thomas and Ms. Foley, which shall continue until December 31, 1997; provided,
however, effective January 1, 1996, and each January 1 thereafter, the term of
each such employment agreement may be extended for one additional year upon
mutual agreement. Pursuant to the terms of their respective agreements, Mr.
Leonard has served as Group Vice President and Chief Financial Officer of
Cinergy and its subsidiaries, Mr. Thomas initially served as Group Vice
President, Reengineering and Operation Services of Cinergy and its
subsidiaries, and Ms. Foley has served as Vice President, General Counsel and
Secretary of Cinergy and its subsidiaries. However, each such officer may be
further assigned such other responsible executive capacity or capacities as
the boards of directors of Cinergy or Services or Cinergy's chief executive
officer may from time to time determine. Effective September 1, 1995, Mr.
Thomas was named to the position of Group Vice President and Chief
Transformation Officer. During the term of their agreements, Messrs. Leonard
and Thomas and Ms. Foley will receive minimum annual base salaries of
$250,000, $240,000, and $230,000, respectively, and each will be eligible to
participate in all other incentive, stock option, performance award, savings,
retirement and welfare benefit plans applicable generally to Cinergy employees
and executives, and will receive other fringe benefits.
If the employment of Messrs. Grealis, Leonard, or Thomas or Ms. Foley (each
sometimes hereinafter individually referred to as the "officer") is terminated
as a result of death, for cause, or by the officer without good reason, the
officer or the officer's beneficiary will be paid a lump sum cash amount equal
to (a) the officer's unpaid annual base salary through the termination date,
(b) a pro rata portion of the officer's award under Cinergy's Annual Incentive
Plan, (c) the officer's vested accrued benefits under Cinergy's Performance
Shares Plan, and (d) any unpaid deferred compensation (including accrued
interest or earnings) and unpaid accrued vacation pay. If, instead, the
officer's employment is terminated prior to a change in control (as defined)
without cause or by the officer for good reason, the officer will be paid (a)
a lump sum cash amount equal to the present value of the officer's annual base
salary and target annual incentive award payable through the end of the term
of the agreement, at the rate and applying the same goals and factors in
effect at the time of notice of such termination, (b) the present value of all
benefits to which the officer would have been entitled had the officer
remained in employment until the end of the term of the agreement under
Cinergy's 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 vested or payable, and (d) continued medical
and welfare benefits through the end of the term of the agreement.
If the employment of any such officer (as defined above) is terminated after a
change in control, the officer will be paid a lump sum cash payment equal to
the greater of (i) three times (two times in the case of Mr. Grealis) the sum
of the officer's annual base salary immediately prior to the date of the
officer's termination of employment or, if higher, the date of the change in
control, plus all incentive compensation or bonus plan amounts in effect prior
to the date of the officer's termination of employment or, if higher, prior to
the change in control, and (ii) the present value of all annual base salary,
bonuses and incentive compensation and retirement benefits that would
otherwise be due under the agreement plus deferred compensation and executive
life insurance benefits. In addition, the officer will be provided life,
disability, accident and health insurance benefits for thirty-six months
(twenty-four months in the case of Mr. Grealis), reduced to the extent
comparable benefits are received, without cost, by the officer.
Deferred Compensation Agreements
Mr. Randolph and CG&E, and Mr. Rogers and Resources, entered into deferred
compensation agreements effective as of January 1, 1992 (the "Deferred
Compensation Agreements"), pursuant to which each such officer is credited
with a $50,000 base salary increase in the form of deferred compensation.
Such amount is deferred annually, in the case of both Mr. Randolph and Mr.
Rogers, for a five-year period beginning January 1, 1992, and ending December
31, 1996, and in the case of Mr. Rogers, for an additional five-year period
beginning January 1, 1997 and ending December 31, 2001. The Deferred
Compensation Agreements were assumed by Cinergy effective as of October 24,
1994.
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.
In general, Mr. Rogers' Deferred Compensation Agreement provides that if his
employment terminates for any reason, other than death, prior to January 1,
1997, he will receive a lump sum cash payment equal to the total amount
deferred for the first five-year period described above plus interest. If Mr.
Rogers' employment terminates for any reason, other than death, on or after
January 1, 1997, he will receive an annual cash benefit over a 15-year period
beginning the first January following termination of his employment, but in no
event earlier than January 2003 nor later than January 2010. The annual cash
benefit amount payable for such 15-year period ranges from $179,000 per year
if payment begins in January 2003, to $554,400 per year if payment commences
in January 2010. Comparable amounts are payable to Mr. Rogers in the event
his employment is terminated for disability prior to January 1, 1997, or if
Mr. Rogers dies (i) prior to January 1, 1997, while employed or disabled, or
(ii) on or after January 1, 1997, but before commencement of payment of the
15-year payments described above; provided, however, if Mr. Rogers becomes
disabled prior to the completion of the first award period, the amounts paid
will be proportionately reduced based on the ratio of the amount deferred to
the date of disability to the total amount that would have been deferred to
the end of the first award period. In addition, if Mr. Rogers' employment
terminates for any reason, other than death or disability, on or after January
1, 1997, but before January 1, 2002, he will receive a lump sum cash payment
equal to the total amount deferred during the second five-year period
described above plus interest. Additionally, if Mr. Rogers' employment
terminates for any reason, other than death or disability, on or after January
1, 2002, he will receive an additional annual benefit for a 15-year period
beginning the first January following termination of his employment, but in no
event earlier than January 2008 nor later than January 2010. The annual cash
benefit amount payable for such period ranges from $179,000 per year if
payment begins in January 2008, to $247,000 per year if payment begins in
January 2010. Provided that Mr. Rogers is employed on January 1, 1997,
comparable amounts are payable to Mr. Rogers in the event his employment is
terminated for disability prior to January 1, 2002, or if Mr. Rogers dies (i)
prior to January 1, 2002, while employed or disabled, or (ii) on or after
January 1, 2002, but before commencement of payment of benefits; provided,
however, if Mr. Rogers becomes disabled prior to the completion of the second
award period, his payments will be proportionately reduced in the same manner
as described above for disability during the first award period.
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 of Cinergy and its subsidiaries, including
CG&E, serves on the board of directors of Cincinnati Financial Corporation.
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 S&P Electric Utilities Index and the S&P 500 Stock Index.
The graph tracks performance from January 1, 1991, through October 24, 1994,
the final trading date of CG&E's common stock. The graph assumes a $100
investment on January 1, 1991, and reinvestment of all dividends.
[OMITTED IS A LINE GRAPH ILLUSTRATING THE FOLLOWING DATA]
1/1/91 1/1/92 1/1/93 1/1/94 10/24/94
CG&E Common Stock $100 $145 $144 $169 $149
S&P Electric Utilities Index $100 $130 $138 $155 $128
S&P 500 Stock Index $100 $130 $140 $155 $156
Directors' Compensation
Directors who are not employees (the "non-employee directors") receive an
annual retainer fee of $8,000 plus a fee of $1,000 for each CG&E board of
directors' meeting attended; however, any non-employee director of CG&E who
also serves as a non-employee 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
Grealis) will receive no remuneration for their services as directors.
Under Cinergy's 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 Cinergy common
stock.
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 Cinergy's Retirement Plan for Directors, non-employee directors with
five or more years of service will receive annual retirement compensation in
an amount equal to the annual CG&E board retainer fee in effect at the time of
termination of service as a director, plus the product of the fee paid for
attendance at a CG&E board meeting multiplied by five. Retirement
compensation is 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, Services, CG&E, or PSI. Prior service by non-employee
directors of CG&E, PSI, or Resources is credited under this plan.
PSI
Reference is made to PSI's 1996 Information Statement with respect to
executive compensation.
ULH&P
Omitted pursuant to Instruction J(2)(c).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Cinergy
Reference is made to Cinergy's 1996 Proxy Statement with respect to security
ownership of certain beneficial owners and security ownership of management.
CG&E
Cinergy owns all the outstanding shares of common stock of CG&E. The only two
holders of record known by management of CG&E to be the beneficial owners of
more than 5% of the class of CG&E's cumulative preferred stock as of December
31, 1995 are set forth in the following table.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
U. S. Leasing International, Inc. 282,500 shares 14.13%
733 Front Street
San Francisco, CA 94111
Household Finance Corporation 105,000 shares 5.25%
2700 Sanders Road
Prospect Heights, IL 60070
CG&E's directors and executive officers did not beneficially own any shares of
any series of the class of CG&E's cumulative preferred stock as of December
31, 1995. The beneficial ownership of Cinergy's common stock held by each
director and named executive officer as of December 31, 1995 is set forth in
the following table.
Amount and Nature
Name of Beneficial Owner(1) of Beneficial Ownership (2)
Cheryl M. Foley 71,592 shares
William J. Grealis 300 shares
J. Wayne Leonard 74,060 shares
Jackson H. Randolph 75,658 shares
James E. Rogers 252,582 shares
Larry E. Thomas 75,640 shares
All directors and executive 666,772 shares (2)
officers as a group (representing 0.42% of the class)
(1) No individual listed beneficially owned more than 0.16% of the
outstanding shares of Cinergy common stock.
(2) Includes shares which there is a right to acquire within 60 days
pursuant to the exercise of stock options in the following amounts: Ms.
Foley - 57,397; Mr. Leonard - 57,611; Mr. Randolph - 50,000; Mr. Rogers
- - 189,403; Mr. Thomas - 51,107; and all directors and executive officers
as a group - 491,093.
PSI
Reference is made to PSI's 1996 Information Statement with respect to security
ownership of certain beneficial owners and security ownership of management.
ULH&P
Omitted pursuant to Instruction J(2)(c).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Cinergy, CG&E, and PSI
None.
ULH&P
Omitted pursuant to Instruction J(2)(c).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
Cinergy, CG&E, PSI, and ULH&P
Refer to the page captioned "Index to Financial Statements and Financial
Statement Schedules", pages 46 and 47 of this report, for an index of the
financial statements and financial statement schedules included in this
report.
(b) Reports on Form 8-K.
Cinergy, CG&E, PSI, and ULH&P
None
(c) Exhibits.
Copies of the documents listed below which are identified with an asterisk (*)
have heretofore been filed with the SEC and are incorporated herein by
reference and made a part hereof. Exhibits not so identified are filed
herewith.
Exhibit
Designation Nature of Exhibit
Cinergy
3-a *Certificate of Incorporation of Cinergy. (Exhibit to Cinergy's
1993 Form 10-K in File No. 1-11377.)
3-b *By-laws of Cinergy as amended January 25, 1996. (Exhibit to
Cinergy's Form U-1 Declaration filed February 23, 1996, in File No. 70-
8807.)
CG&E
3-c *Amended Articles of Incorporation of CG&E effective January 24,
1994. (Exhibit to CG&E's 1993 Form 10-K in File No. 1-1232.)
3-d *Regulations of CG&E as amended, adopted June 16, 1995. (Exhibit to
CG&E's Form 8-A dated July 24, 1995.)
PSI
3-e *Amended Articles of Consolidation of PSI, as amended to April 20,
1995. (Exhibit to PSI's June 30, 1995, Form 10-Q in File No. 1-3543.)
3-f By-laws of PSI, as amended January 25, 1996.
ULH&P
3-g *Restated Articles of Incorporation made effective May 7, 1976.
(Exhibit to ULH&P's Form 8-K, May 1976.)
3-h *By-laws of ULH&P as amended, adopted by shareholders June 16,
1995. (Exhibit to ULH&P's June 30, 1995, Form 10-Q in File No. 2-
7793.)
Cinergy and PSI
4-a *Original Indenture (First Mortgage Bonds) dated September 1, 1939,
between PSI and The First National Bank of Chicago, as Trustee (Exhibit A-
Part 3 in File No. 70-258), and LaSalle National Bank as Successor Trustee
(Supplemental Indenture dated March 30, 1984).
4-b *Nineteenth Supplemental Indenture between PSI and The First
National Bank of Chicago dated January 1, 1972. (Exhibit to File No. 2-
42545.)
4-c *Twenty-third Supplemental Indenture between PSI and The First
National Bank of Chicago dated January 1, 1977. (Exhibit to File No. 2-
57828.)
4-d *Twenty-fifth Supplemental Indenture between PSI and The First
National Bank of Chicago dated September 1, 1978. (Exhibit to File No. 2-
62543.)
4-e *Twenty-seventh Supplemental Indenture between PSI and The First
National Bank of Chicago dated March 1, 1979. (Exhibit to File No. 2-
63753.)
4-f *Thirty-fifth Supplemental Indenture between PSI and The First
National Bank of Chicago dated March 30, 1984. (Exhibit to PSI's 1984 Form
10-K in File No. 1-3543.)
4-g *Thirty-ninth Supplemental Indenture between PSI and The First
National Bank of Chicago dated March 15, 1987. (Exhibit to PSI's 1987 Form
10-K in File No. 1-3543.)
4-h *Forty-first Supplemental Indenture between PSI and The First
National Bank of Chicago dated June 15, 1988. (Exhibit to PSI's 1988 Form
10-K in File No. 1-3543.)
4-i *Forty-second Supplemental Indenture between PSI and The First
National Bank of Chicago dated August 1, 1988. (Exhibit to PSI's 1988 Form
10-K in File No. 1-3543.)
4-j *Forty-fourth Supplemental Indenture between PSI and The First
National Bank of Chicago dated March 15, 1990. (Exhibit to PSI's 1990 Form
10-K in File No. 1-3543.)
4-k *Forty-fifth Supplemental Indenture between PSI and The First
National Bank of Chicago dated March 15, 1990. (Exhibit to PSI's 1990 Form
10-K in File No. 1-3543.)
4-l *Forty-sixth Supplemental Indenture between PSI and The First
National Bank of Chicago dated June 1, 1990. (Exhibit to PSI's 1991 Form
10-K in File No. 1-3543.)
4-m *Forty-seventh Supplemental Indenture between PSI and The First
National Bank of Chicago dated July 15, 1991. (Exhibit to PSI's 1991 Form
10-K in File No. 1-3543.)
4-n *Forty-eighth Supplemental Indenture between PSI and The First
National Bank of Chicago dated July 15, 1992. (Exhibit to PSI's 1992 Form
10-K in File No. 1-3543.)
4-o *Forty-ninth Supplemental Indenture between PSI and The First
National Bank of Chicago dated February 15, 1993. (Exhibit to PSI's 1992
Form 10-K in File No. 1-3543.)
4-p *Fiftieth Supplemental Indenture between PSI and The First National
Bank of Chicago dated February 15, 1993. (Exhibit to PSI's 1992 Form 10-K
in File No. 1-3543.)
4-q *Fifty-first Supplemental Indenture between PSI and The First
National Bank of Chicago dated February 1, 1994. (Exhibit to PSI's 1993
Form 10-K in File No. 1-3543.)
4-r *Indenture (Secured Medium-term Notes, Series A), dated July 15,
1991, between PSI and The First National Bank of Chicago, as Trustee.
(Exhibit to PSI's Form 10-K/A, Amendment No. 2, dated July 15, 1993, in
File No. 1-3543.)
4-s *Indenture (Secured Medium-term Notes, Series B), dated July 15,
1992, between PSI and The First National Bank of Chicago, as Trustee.
(Exhibit to PSI's Form 10-K/A, Amendment No. 2, dated July 15, 1993, in
File No. 1-3543.)
Cinergy and CG&E
4-t *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-u *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-v *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.)
4-w *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-x *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-y *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-z *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-aa *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-bb *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.)
4-cc *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-dd *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-ee *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-ff *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-gg *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-hh *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-ii *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-jj *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-kk *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.)
4-ll *Original Indenture (Unsecured Debt Securities) between CG&E and
The Fifth Third Bank dated as of May 15, 1995. (Exhibit to CG&E's Form 8-A
dated July 24, 1995, in File No. 1-1232.)
4-mm *First Supplemental Indenture between CG&E and The Fifth Third Bank
dated as of June 1, 1995. (Exhibit to CG&E's June 30, 1995, Form 10-Q in
File No. 1-1232.)
4-nn *Second Supplemental Indenture between CG&E and The Fifth Third
Bank dated as of June 30, 1995. (Exhibit to CG&E's Form 8-A dated July 24,
1995, in File No. 1-1232.)
4-oo *Loan Agreement between CG&E and the State of Ohio Air Quality
Development Authority dated as of September 13, 1995. (Exhibit to CG&E's
September 30, 1995, Form 10-Q in File No. 1-1232.)
4-pp *Loan Agreement between CG&E and the State of Ohio Air Quality
Development Authority dated as of September 13, 1995. (Exhibit to CG&E's
September 30, 1995, Form 10-Q in File No. 1-1232.)
Cinergy, CG&E, and ULH&P
4-qq *Original Indenture (First Mortgage Bonds) between 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-rr *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-ss *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-tt *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-uu *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.)
4-vv *Original Indenture (Unsecured Debt Securities) between ULH&P and
the Fifth Third Bank dated as of July 1, 1995. (Exhibit to ULH&P's June
30, 1995, Form 10-Q in File No. 2-7793)
4-ww *First Supplemental Indenture between ULH&P and The Fifth Third
Bank dated as of July 15, (Exhibit to ULH&P's June 30, 1995, Form 10-Q in
File No. 2-7793.)
Cinergy, CG&E, and PSI
10-a *+Amended and Restated Employment Agreement dated October 24, 1994,
among CG&E, Cinergy Corp. (an Ohio corporation), Cinergy (a Delaware
corporation), PSI Resources, Inc., PSI, and Jackson H. Randolph. (Exhibit
to Cinergy's 1994 Form 10-K in File No. 1-11377.)
10-b *+Amended and Restated Employment Agreement dated July 2, 1993,
among PSI Resources, Inc., PSI, CG&E, Cinergy, Cinergy Sub, Inc., and James
E. Rogers, Jr. (Exhibit to Cinergy's Amendment No. 3 to Form S-4, filed
October 8, 1993.)
10-c +First Amendment to Amended and Restated Employment Agreement dated
December 12, 1995, retroactively effective to October 24, 1994, amended and
restated July 2, 1993, among Cinergy, Services, CG&E, PSI, and James E.
Rogers.
10-d *+Employment Agreement dated January 1, 1995, among Cinergy, CG&E,
Services, Inc., Investments, PSI, and William J. Grealis. (Exhibit to
Cinergy's 1994 Form 10-K in File No. 1-11377.)
10-e Employment Agreement dated October 24, 1994, among Cinergy,
Services, CG&E, PSI, and Larry E. Thomas.
10-f First Amendment to Employment Agreement dated October 24, 1994,
among Cinergy, Services, CG&E, PSI, and Larry E. Thomas.
10-g Employment Agreement dated October 24, 1994, among Cinergy,
Services, CG&E, PSI, and J. Wayne Leonard.
10-h First Amendment to Employment Agreement dated October 24, 1994,
among Cinergy, Services, CG&E, PSI, and J. Wayne Leonard.
10-i Employment Agreement dated October 24, 1994, among Cinergy,
Services, CG&E, PSI, and Cheryl M. Foley.
10-j First Amendment to Employment Agreement dated October 24, 1994,
among Cinergy, Services, CG&E, PSI, and Cheryl M. Foley.
Cinergy and PSI
10-k First Amendment to the PSI Union Employees' 401(k) Savings Plan, dated
December 31, 1995.
10-l First Amendment to the PSI Employees' 401(k) Savings Plan, dated
December 31, 1995.
10-m *+Employment Agreement dated October 4, 1993, among Cinergy, PSI,
and John M. Mutz. (Exhibit to PSI Resources, Inc.'s September 30, 1993,
Form 10-Q, File No. 1-9941.)
10-n *+Deferred Compensation Agreement, effective as of January 1, 1992,
between Cinergy and James E. Rogers, Jr. (Exhibit to PSI's Form 10-K/A in
File No. 1-3543, Amendment No. 1, dated April 29, 1993.)
10-o *+Split Dollar Life Insurance Agreement, effective as of January 1,
1992, between Cinergy and James E. Rogers, Jr. (Exhibit to PSI's Form 10-
K/A in File No. 1-3543, Amendment No. 1, dated April 29, 1993.)
10-p *+First Amendment to Split Dollar Life Insurance Agreement between
Cinergy and James E. Rogers, Jr. dated December 11, 1992. (Exhibit to
PSI's Form 10-K/A in File No. 1-3543, Amendment No. 1, dated April 29,
1993.)
10-q *+PSI Supplemental Retirement Plan amended and restated December
16, 1992, retroactively effective January 1, 1989. (Exhibit to PSI's 1992
Form 10-K in File No. 1-3543.)
10-r *+PSI Excess Benefit Plan, formerly named the Supplemental Pension
Plan, amended and restated December 16, 1992, retroactively effective
January 1, 1989. (Exhibit to PSI's 1992 Form 10-K in File No. 1-3543.)
Cinergy and CG&E
10-s *CG&E Deferred Compensation and Investment Plan, as amended,
effective January 1, 1989. (Exhibit to Cinergy's Form S-8, filed August 30,
1994.)
10-t *CG&E Savings Incentive Plan, as amended, effective January 1,
1989. (Exhibit to Cinergy's Form S-8, filed August 30, 1994.)
10-u *+Deferred Compensation Agreement between Jackson H. Randolph and
Cinergy dated January 1, 1992. (Exhibit to CG&E's 1992 Form 10-K in File
No. 1-1232.)
10-v *+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-w *+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.)
10-x +Amended and Restated Supplemental Retirement Income Plan between
CG&E and Jackson H. Randolph.
10-y *+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-z *+Executive Severance Agreement between CG&E and certain executive
officers. (Exhibit to CG&E's 1989 Form 10-K in File No. 1-1232.)
Cinergy
10-aa *+Cinergy Stock Option Plan, adopted October 18, 1994, effective
October 24, 1994. (Exhibit to Cinergy's Form S-8, filed October 19, 1994.)
10-bb *+Cinergy Performance Shares Plan, adopted October 18, 1994,
effective October 24, 1994. (Exhibit to Cinergy's Form S-8, filed October
19, 1994.)
10-cc *+Cinergy Annual Incentive Plan, adopted October 18, 1994,
effective October 24, 1994. (Exhibit to Cinergy's 1994 Form 10-K in File
No. 1-11377.)
10-dd *Cinergy Employee Stock Purchase and Savings Plan, adopted October
18, 1994, effective October 24, 1994. (Exhibit to Cinergy's Form S-8,
filed October 19, 1994.)
10-ee *Amendment to Cinergy Employee Stock Purchase and Savings Plan,
adopted January 25, 1995, retroactively effective January 1, 1995.
(Exhibit to Cinergy's 1994 Form 10-K in File No. 1-11377.)
10-ff *+Cinergy Directors' Deferred Compensation Plan, adopted October
18, 1994, effective October 24, 1994. (Exhibit to Cinergy's Form S-8,
filed October 19, 1994.)
10-gg *+Cinergy Retirement Plan for Directors, adopted October 18, 1994,
effective October 24, 1994. (Exhibit to Cinergy's 1994 Form 10-K in File
No. 1-11377.)
10-hh *+Cinergy Executive Supplemental Life Insurance Program adopted
October 18, 1994, effective October 24, 1994, consisting of Defined Benefit
Deferred Compensation Agreement, Executive Supplemental Life Insurance
Program Split Dollar Agreement I, and Executive Supplemental Life Insurance
Program Split Dollar Agreement II. (Exhibit to Cinergy's 1994 Form 10-K in
File No. 1-11377.)
10-ii *+Split Dollar Insurance Agreement, effective as of May 1, 1993,
between Cinergy and Jackson H. Randolph. (Exhibit to Cinergy's 1994 Form
10-K in File No. 1-11377.)
Cinergy and PSI
10-jj *PSI Union Employees' 401(k) Savings Plan, amended and restated
October 24, 1994, effective January 1, 1992. (Exhibit to Cinergy's Form S-8,
filed October 18, 1994.)
10-kk *PSI Employees' 401(k) Savings Plan, amended and restated October 24,
1994, effective January 1, 1992. (Exhibit to Cinergy's Form S-8, filed
October 18, 1994.)
Cinergy
21 Subsidiaries of Cinergy
Cinergy, CG&E, PSI, and ULH&P
23 Consent of Independent Public Accountants.
24 Power of Attorney.
27 Financial Data Schedules (included in electronic submission only).
Cinergy
99-a 1995 Form 11-K Annual Report of Cinergy Directors' Deferred
Compensation Plan.
99-b 1995 Form 11-K Annual Report of Cinergy Employee Stock Purchase and
Savings Plan. (To be filed by amendment.)
____________
+ Management contract, compensation plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
CINERGY CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995
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 $ 90 547 $ 72 804 $(47 322) $21 620 $ - $ 94 409 1/
Miscellaneous Materials & Supplies
Provisions 5 693 614 - 1 364 73 4 870
Accumulated Depreciation 3 163 802 276 226 4 435 79 602 2/ (2 540) 3 367 401
Other Accumulated Provisions
Deferred Income Taxes 3/ $1 071 104 $ 56 336 $ 11 235 $17 775 $ - $1 120 900
Accrued Pension and Other
Postretirement Benefit Costs 133 578 34 765 12 989 9 561 - 171 771
Environmental Liability 8 750 - - 511 - 8 239
Injuries & Damages 4 310 7 402 - 6 444 - 5 268
Other 42 270 4 815 4 374 2 910 456 48 093
$1 260 012 $ 103 318 $ 28 598 $37 201 $ 456 $1 354 271
1/ Includes $84,049 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in
"Item 8. Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" for further information with respect to deferred income taxes.
CINERGY CORP.
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 $ 93 735 $ 31 145 $15 010 $49 343 $ - $ 90 547 1/
Miscellaneous Materials & Supplies
Provisions 6 852 405 - 638 926 5 693
Accumulated Depreciation 2 928 184 307 386 4 793 76 698 2/ (137) 3 163 802
Other Accumulated Provisions
Deferred Income Taxes 3/ $1 018 891 $ 78 028 $ 8 985 $34 800 $ - $1 071 104
Accrued Pension and Other
Postretirement Benefit Costs 85 953 37 180 22 806 11 912 449 133 578
Environmental Liability 8 000 - 750 - - 8 750
Injuries & Damages 3 578 9 836 - 9 104 - 4 310
Other 30 275 10 628 3 973 2 162 444 42 270
$1 146 697 $ 135 672 $36 514 $57 978 $ 893 $1 260 012
1/ Includes $80,832 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in
"Item 8. Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" for further information with respect to deferred income taxes.
CINERGY CORP.
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 $ 88 651 $ 24 260 $ 1 032 $20 208 $ - $ 93 735 1/
Miscellaneous Materials & Supplies
Provisions 8 844 554 - 2 356 190 6 852
Accumulated Depreciation 2 742 910 277 342 4 827 80 089 2/ 16 806 2 928 184
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 494 910 $155 738 $417 125 $48 882 $ - $1 018 891
Accrued Pension and Other
Postretirement Benefit Costs 59 393 20 905 21 719 15 970 94 85 953
Environmental Liability 5 000 3 000 - - - 8 000
Injuries & Damages 5 212 7 563 - 9 197 - 3 578
Other 20 818 11 380 1 313 3 218 18 30 275
$ 585 333 $198 586 $440 157 $77 267 $ 112 $1 146 697
1/ Includes $78,174 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to 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, 1995
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 $ 8 999 $ 66 506 $(47 329) $ 18 561 $ - $ 9 615
Accumulated Depreciation 1 613 505 155 453 4 137 42 863 1/ - 1 730 232
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 747 060 $ 20 594 $ 15 343 $(12 388) $ - $ 795 385
Accrued Pension and Other
Postretirement Benefit Costs 102 254 13 185 4 202 2 000 - 117 641
Environmental Liability 8 750 - - 511 - 8 239
Injuries & Damages 771 5 121 - 4 672 - 1 220
Other 22 089 2 045 388 1 485 - 23 037
$ 880 924 $ 40 945 $ 19 933 $ (3 720) $ - $ 945 522
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data."
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
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to 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
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
PSI ENERGY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995
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 $ 81 272 $ 6 100 $ 7 $ 2 862 $ - $ 84 517 1/
Miscellaneous Materials & Supplies
Provisions 5 693 614 - 1 364 73 4 870
Accumulated Depreciation 1 550 297 120 773 298 36 739 2/ (2 540) 1 637 169
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 324 738 $ 35 656 $(2 170) $26 348 $ - $ 331 876
Accrued Pension and Other
Postretirement Benefit Costs 31 324 21 580 8 787 7 561 - 54 130
Injuries & Damages 3 539 2 281 - 1 772 - 4 048
Other 20 176 2 551 3 986 1 425 456 24 832
$ 379 777 $ 62 068 $10 603 $37 106 $ 456 $ 414 886
1/ Includes $84,049 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
PSI ENERGY, INC.
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 $ 78 567 $ 5 495 $ - $ 2 790 $ - $ 81 272 1/
Miscellaneous Materials & Supplies
Provisions 6 852 405 - 638 926 5 693
Accumulated Depreciation 1 455 871 137 719 479 43 909 2/ (137) 1 550 297
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 281 417 $ 73 145 $14 933 $44 757 $ - $ 324 738
Accrued Pension and Other
Postretirement Benefit Costs 14 097 10 614 17 563 10 501 449 31 324
Injuries & Damages 3 104 4 324 - 3 889 - 3 539
Other 16 235 2 435 3 593 1 643 444 20 176
$ 314 853 $ 90 518 $36 089 $60 790 $ 893 $ 379 777
1/ Includes $80,832 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
PSI ENERGY, INC.
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 $ 76 275 $ 4 459 $ - $ 2 167 $ - $ 78 567 1/
Miscellaneous Materials & Supplies
Provisions 8 844 554 - 2 356 190 6 852
Accumulated Depreciation 1 380 442 126 821 392 52 067 2/ (283) 1 455 871
Other Accumulated Provisions
Deferred Income Taxes 3/ $ 188 252 $109 967 $20 818 $37 620 $ - $ 281 417
Accrued Pension and Other
Postretirement Benefit Costs 231 10 596 16 253 12 889 94 14 097
Injuries & Damages 4 134 2 529 - 3 559 - 3 104
Other 16 203 2 044 790 2 784 18 16 235
$ 208 820 $125 136 $37 861 $56 852 $ 112 $ 314 853
1/ Includes $78,174 for the WVPA Marble Hill receivable. See Note 13(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data".
2/ Includes property retired at original cost or estimated original cost less the net cost of removal.
3/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
THE UNION LIGHT, HEAT AND POWER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995
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 $ 457 $ 9 220 $(6 198) $ 2 444 $ - $ 1 035
Accumulated Depreciation 104 113 11 438 831 3 570 1/ - 112 812
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 23 226 $ (3 105) $ (435) $(4 042) $ - $ 23 728
Accrued Pension and Other
Postretirement Benefit Costs 10 356 1 156 773 83 - 12 202
Environmental Liability 800 - - - - 800
Injuries & Damages 210 1 185 - 795 - 600
Other 285 - 32 - - 317
$ 34 877 $ (764) $ 370 $(3 164) $ - $ 37 647
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary
Data" for further information with respect to deferred income taxes.
THE UNION LIGHT, HEAT AND POWER 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 $ 1 609 $ 2 502 $ 11 $ 3 665 $ - $ 457
Accumulated Depreciation 96 164 11 066 823 3 940 1/ - 104 113
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 20 487 $ 1 993 $(2 904) $(3 650) $ - $ 23 226
Accrued Pension and Other
Postretirement Benefit Costs 7 273 1 024 2 200 141 - 10 356
Environmental Liability 800 - - - - 800
Injuries & Damages 125 806 - 721 - 210
Other 242 24 19 - - 285
$ 28 927 $ 3 847 $ (685) $(2 788) $ - $ 34 877
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
2/ See Notes 1(e) and 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" for
further information with respect to deferred income taxes.
THE UNION LIGHT, HEAT AND POWER 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 $ 1 001 $ 2 632 $ 3 $ 2 027 $ - $ 1 609
Accumulated Depreciation 89 132 9 655 865 3 488 1/ - 96 164
Other Accumulated Provisions
Deferred Income Taxes 2/ $ 27 609 $ 1 204 $(9 251) $ (925) $ - $ 20 487
Accrued Pension and Other
Postretirement Benefit Costs 6 014 1 237 341 319 - 7 273
Environmental Liability 800 - - - - 800
Injuries & Damages 143 642 - 660 - 125
Other - 242 - - - 242
$ 34 566 $ 3 325 $(8 910) $ 54 $ - $ 28 927
1/ Includes property retired at original cost or estimated original cost less the net cost of removal.
. 2/ See Notes 1(e) and 12 of the "Notes to 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, Cinergy Corp., The Cincinnati Gas & Electric Company,
PSI Energy, Inc., and The Union Light, Heat and Power Company have each duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants
Dated: March 27, 1996
By James E. Rogers
Vice 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
Cinergy, CG&E, PSI, and ULH&P
Jackson H. Randolph Chairman
Cinergy
Neil A. Armstrong Director
Clement L. Buenger Director
Phillip R. Cox Director
Kenneth M. Duberstein Director
George C. Juilfs Director
Melvin Perelman, Ph.D. Director
Thomas E. Petry Director
John J. Schiff, Jr. Director
Phillip R. Sharp Director
Dudley S. Taft Director
Oliver W. Waddell Director
Cinergy and PSI
James K. Baker Director
Michael G. Browning Director
John A. Hillenbrand II Director
Van P. Smith Director
CG&E and ULH&P
William J. Grealis President and Director
PSI
John M. Mutz President and Director
ULH&P
Terry E. Bruck Group Vice President and Director
Cheryl M. Foley Vice President, General Counsel,
Secretary, and Director
Stephen G. Salay Director
Cinergy, CG&E, PSI, and ULH&P
James E. Rogers Vice Chairman, Chief March 27, 1996
Attorney-in-fact for all Executive Officer, and Director
the foregoing persons President of Cinergy
(Principal Executive Officer)
J. Wayne Leonard Group Vice President and March 27, 1996
Chief Financial Officer
Director of ULH&P
(Principal Financial Officer)
Charles J. Winger Comptroller March 27, 1996
(Principal Accounting Officer)