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, 1997
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% 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% New York Stock Exchange
First Mortgage Bonds
Series S and Y New York Stock Exchange
The Union Light, None
Heat and Power
Company
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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 each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that such registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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. ( )
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 I(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 I(2) of Form 10-K.
As of February 28, 1998, the aggregate market value of the voting and nonvoting common equity of Cinergy Corp. held by nonaffiliates was $5.4 billion.
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 28, 1998, shares of Common Stock outstanding for each registrant were as listed:
Company Shares Cinergy Corp., par value $.01 per share 157,764,020 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 16, 1998, and the Information Statement of PSI Energy, Inc. dated March 23, 1998, 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 Page
Number Number
PART I
1 Business
Organization . . . . . . . . . . . . . . . . . . . . . .
CG&E . . . . . . . . . . . . . . . . . . . . . . . . . .
ULH&P. . . . . . . . . . . . . . . . . . . . . . . . . .
PSI. . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments. . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . .
Customer, Sales, and Revenue Data. . . . . . . . . . . .
Financial Information by Business Segment. . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . .
Regulatory 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
WVPA Settlement Agreement. . . . . . . . . . . . . . . .
Manufactured Gas Plant Claims. . . . . . . . . . . . . .
Skinner Landfill Remediation . . . . . . . . . . . . . .
United Scrap Lead Site . . . . . . . . . . . . . . . . .
Enertech 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. . . . . . . . . . . . . . . . . . . . . . . .
7A Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . .
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PART I
ITEM 1. BUSINESS
Cinergy, CG&E, PSI, and ULH&P
Organization
Cinergy Corp., a Delaware corporation (Cinergy or Company), is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Cinergy was created in the October 1994 merger of PSI Resources, Inc. (Resources) and The Cincinnati Gas & Electric Company (CG&E). Following the merger, Cinergy became the parent holding company of PSI Energy, Inc. (PSI), previously Resources' utility subsidiary, CG&E, Cinergy Investments, Inc. (Investments), and Cinergy Services, Inc. (Services).
Cinergy's two utility subsidiaries, CG&E and PSI, account for the majority of Cinergy's revenues and 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 five wholly-owned utility subsidiaries, The Union Light, Heat and Power Company (ULH&P), Miami Power Corporation, an Indiana corporation (Miami), The West Harrison Gas and Electric Company (West Harrison), an Indiana corporation, KO Transmission Company (KO Transmission), and Lawrenceburg Gas Company (Lawrenceburg), an Indiana corporation. In addition, CG&E has one wholly-owned non-utility subsidiary, 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 two 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, acquired an interest in an interstate natural gas pipeline in June 1996, to which CG&E was entitled as a result of a settlement with the Columbia Gas Transmission Corp. KO Transmission is 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' operations.
ULH&P
ULH&P, a Kentucky corporation, is engaged in the transmission, distribution, and sale of electric energy and 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 319 thousand 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 2.1 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 have 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 domestic non-utility and international businesses and interests. Investments holds the following non-utility subsidiaries and interests, which are more fully described below: Cinergy- Cadence, Inc.; Cinergy Capital & Trading, Inc. (Capital & Trading); Cinergy Communications, Inc. (Communications); Cinergy Engineering, Inc. (Engineering); Cinergy Global Power, Inc. (Cinergy Global); Cinergy Resources, Inc. (CRI); Cinergy Supply Network, Inc. (Supply); Cinergy Solutions, Inc. (Solutions); Cinergy Technology, Inc. (Technology); Cinergy UK, Inc. (Cinergy UK); and Enertech Associates, Inc. (Enertech).
Cinergy-Cadence, Inc., an Indiana corporation, is dedicated solely to holding Investment's one-third ownership interest in Cadence Network LLC (Cadence). Cadence was formed in the third quarter of 1997 as a joint venture with New Century Energies, Inc. and Florida Progress Corporation to provide a single source for both energy management services and products designed to lower energy costs for national customers that operate in multiple locations across the country. These services include consolidated billing, bill auditing, and usage analysis. Cadence commenced operations in the third quarter of 1997.
Capital & Trading, an Indiana corporation, was formed to engage in the business of marketing power, electricity futures, and trading related energy products and services and to provide consulting services in the wholesale power-related markets. In June 1997, Capital & Trading acquired the assets and personnel of Greenwich Energy Partners, which specialized in energy risk management, marketing, and proprietary arbitrage trading.
Communications, a Delaware corporation, is an exempt telecommunications company engaged or planning to be engaged in a variety of telecommunications activities including, but not limited to: right-of-way leasing, fiber installation, and radio tower construction and leasing.
Engineering, an Ohio corporation, provides engineering designs and engineering technical support in connection with various energy-related projects and proposals.
Cinergy Global, a Delaware corporation, holds substantially all of the equity of MPII (Zambia) B.V., a Netherlands company, which in turn, holds a 39% equity interest in Copperbelt Energy Corporation PLC (CEC), a corporation organized under the laws of the Republic of Zambia. CEC holds certain electric generation, transmission, and distribution assets formerly held by the Republic of Zambia through the Power Division of Zambia Consolidated Copper Mines Limited.
Cinergy Global also owns all of the equity of MPI International Limited (MPI International), a United Kingdom (UK) company. During the third quarter of 1997, MPI International assumed ownership of all of the projects in development and all future projects of Midlands Power International, a subsidiary of Midlands Electricity plc (Midlands) which is discussed below. Cinergy Global, through MPI International, will acquire and/or develop energy projects throughout the world.
CRI, 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, CRI took its portion of the partnership assets to continue in the gas marketing business. CRI competes with traditional, regulated local distribution companies by offering "merchant service" (i.e., acquiring natural gas for resale to end-use customers) and brokers gas to industrial and large commercial customers.
Recently, CRI expanded its business to include retail marketing of electricity. CRI is participating in a pilot program in Pennsylvania under which electric customers throughout the state will have the right to choose their electricity supplier. CRI began delivering power to Pennsylvania customers in December 1997.
Solutions, a Delaware corporation, was formed to market an array of energy-related products and services and develop, acquire, own, and operate certain energy-related projects. Solutions holds a 50% interest in Trigen-Cinergy Solutions LLC, a Delaware limited liability company (Trigen-Cinergy). Trigen- Cinergy was formed to build, own, and operate cogeneration and trigeneration facilities for industrial plants, office buildings, shopping centers, hospitals, universities, and other major energy users that can benefit from combined heat and power production economies. Trigen-Cinergy will also provide energy and asset management services, including fuel procurement, ancillary to its activities.
Solutions also holds a 51% interest in Trigen-Cinergy Solutions of Cincinnati LLC, an Ohio limited liability company (Trigen-Cinergy Cincinnati), which was formed in the third quarter of 1997. Effective August 1997, Cinergy Cooling Corp. was merged with and into Trigen-Cinergy Cincinnati, with Trigen-Cinergy Cincinnati being the surviving company jointly owned by Solutions (51%) and Trigen Solutions, Inc. (49%). Trigen-Cinergy Cincinnati has an exclusive franchise from the City of Cincinnati which permits it to maintain and operate a chilled water system in the downtown business district of Cincinnati, Ohio.
Supply, a Delaware corporation, was formed in January 1998 to broker transmission and distribution materials and services and to provide underground utility facilities location services.
Technology, an Indiana corporation, was created to manage certain existing technology-related investments of Cinergy, assess the market potential for technology-related product and service development opportunities, and form key alliances for technology-related product development.
Cinergy UK, a Delaware corporation, was formed to hold Cinergy's 50% interest in Avon Energy Partners Holdings, a UK unlimited liability company, and its wholly owned subsidiary, Avon Energy Partners PLC, a UK limited liability company (collectively, Avon Energy). During 1996, Avon Energy acquired all of the outstanding common stock of Midlands, a UK regional electric company. Midlands primarily distributes and supplies electricity to over 2.2 million industrial, commercial, and residential customers. In addition, Midlands, together with its subsidiaries, generates power, supplies natural gas to retail customers, and performs electrical contracting services. (See Note 1(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
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 demand-side management (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 Beheer-En Belegginsmaatschappij Bruwabel B.V. (Bruwabel) and its subsidiaries for the purpose of pursuing design, engineering, and development work involving energy privatization projects, primarily in the Czech Republic. In June 1996, Investments sold what remained of its investment in 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 12(d) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
PSI Recycling, Inc. (Recycling) was an Indiana corporation which recycled metal from CG&E and paper, metal, and other materials from PSI, its largest single supplier, and other sources. Investments sold the assets of Recycling in August 1996. Recycling was dissolved effective December 31, 1997.
Power Equipment Supply Co. (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. PESCO discontinued operations in early 1996 and was dissolved effective December 31, 1997.
CGE ECK, Inc., a Delaware corporation (CGE ECK), was created to hold CG&E's one-third interest in a Czech electric utility company, ECK s.r.o. After the Cinergy merger, CGE ECK reduced its ownership interest in ECK s.r.o. In mid- 1997, CGE ECK sold what remained of its interest in ECK s.r.o. and was dissolved effective December 31, 1997.
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 1997 are as follows:
Operating
Customers Revenues
Registrant Electric Gas Electric Gas
Cinergy and subsidiaries 1 412 552 456 651 88% 11%
CG&E and subsidiaries 737 502 456 651 79% 20%
PSI 675 052 N/A 98% N/A
ULH&P 117 835 77 944 70% 29%
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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 6% 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 15 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 12(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 Securities and Exchange Commission (SEC) under the PUHCA with respect to, among other things, issuances and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retentions of interests in non-utility businesses, intrasystem sales of certain goods and services, the method of keeping accounts, and access to books and records. In addition, the PUHCA generally limits registered holding companies to a single "integrated" public utility system, which the SEC traditionally has interpreted to prohibit a registered holding company, with limited exceptions, from owning both gas and electric properties. (Refer to the information appearing under the 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" and to Note 1(f) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
CG&E, ULH&P, Miami, and PSI are each subject to regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act with respect to the classification of accounts, rates for wholesale sales of electricity, interconnection agreements, and acquisitions and sales of certain utility properties. In addition, services by KO Transmission are 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 by KO Transmission 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 Public Utilities Commission of Ohio (PUCO) as to retail electric and gas rates, services, accounts, depreciation, issuance of securities, acquisitions and sales of certain utility properties, and in other respects as provided by Ohio law. Rates within municipalities in Ohio are subject to original regulation by the municipalities. The Ohio Power Siting Board has jurisdiction in Ohio over the location, construction, and initial operation of new electric generating facilities and certain electric and gas transmission lines presently used by CG&E. As to retail rates and other matters, ULH&P is regulated by the Kentucky Public Service Commission, and West Harrison and Lawrenceburg are regulated by the Indiana Utility Regulatory Commission (IURC).
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
Regulatory 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
Cinergy and other utilities in an eight-state region 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 "Midwest ISO" 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 an 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 Southern Power Company, Ohio Power Company (all doing business as American Electric Power Company, Inc. (AEP)), Central Illinois Public Service Company, East Kentucky Power Cooperative, Hoosier Energy Rural Electric Cooperative, Inc., Indianapolis Power and Light Company, Kentucky Utilities Company, Louisville Gas & Electric Company (LG&E), Northern Indiana Public Service Company, Southern Indiana Gas and Electric Company, The Dayton Power and Light Company, and Ohio Valley Electric Corporation.
Cinergy and PSI
PSI has a power supply relationship with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency (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 primarily from CG&E at rates regulated by the FERC.
Fuel Supply
Cinergy
Cinergy purchases approximately 25 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 Indiana, Illinois, Pennsylvania, and West Virginia for PSI and West Virginia, Ohio, Kentucky, 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 Clean Air Act Amendments of 1990. (See the information appearing under the caption "Environmental Issues" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.")
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
In 1997, CG&E and its utility subsidiaries, including ULH&P, purchased 44% of their natural gas supply 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. CG&E pays reservation charges for firm base and swing supplies. These charges guarantee delivery from the supplier during extreme weather and protect the supplier from fluctuations in daily prices associated with swing supplies.
As the trend of customers purchasing gas directly from gas marketers (suppliers) and using CG&E's facilities for transportation increases, CG&E and its subsidiaries seek to minimize contract commitment costs to firm suppliers, and reduce the amount of reservation charges paid to suppliers for firm supply. Accordingly, CG&E and its subsidiaries anticipate purchasing approximately 50% of their gas supply in the spot market and 50% from firm supply agreements in 1998.
Gas purchased by CG&E and its subsidiaries 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 originate from the Gulf of Mexico coastal area of Texas and Louisiana. CG&E and its subsidiaries have also obtained a limited supply originating 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 price competitiveness with alternative fuels. However, weather conditions, supply, demand, and storage inventories can cause significant price fluctuations.
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 1998 for Cinergy and its subsidiaries are forecasted to be as follows:
Registrant Expenditures
(in thousands)
CG&E and subsidiaries $3 742
PSI 3 387
Cinergy and subsidiaries $7 129
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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, 1997, was 7,609, of whom 4,312 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, 2,825 employees were represented by the International Brotherhood of Electrical Workers (IBEW), 407 were represented by the United Steelworkers of America (USWA), and 1,080 were represented by the Independent Utilities Union (IUU).
Employees assigned to Services at December 31, 1997, totaled 3,028, of whom 831 belonged to bargaining units. These bargaining unit employees were represented by the labor agreements previously discussed. Of Services' total employees, 540 were represented by the IUU, 1 was represented by the USWA, and 290 were represented by the IBEW (112 were represented by the agreement with PSI and 178 were represented by the agreement with CG&E).
Employees assigned to Cinergy Resources at December 31, 1997, totaled 13 non-union employees.
Cinergy and CG&E
The number of employees of CG&E and its subsidiaries at December 31, 1997, was 2,537, of whom CG&E employed 2,292, ULH&P employed 236, and Lawrenceburg employed 9.
CG&E and its subsidiaries have collective bargaining agreements with several union organizations. Of CG&E's and its subsidiaries' total employees, 540 were represented by the IUU, 406 were represented by the USWA, and 1,177 were represented by the IBEW. The current contract between CG&E and the IUU will expire in April 2001. CG&E and its subsidiaries have a contract with the USWA expiring May 15, 2002. The IBEW contract expires April 1, 2001.
Cinergy and PSI
The number of employees of PSI at December 31, 1997, was 2,030, of whom 1,358 were represented by the IBEW.
PSI's collective bargaining agreement with the IBEW will expire at the end of April 1999.
Cinergy and ULH&P
The number of employees of ULH&P at December 31, 1997, was 236, of whom 209 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, 61 employees were represented by the IBEW, 91 were represented by the USWA, and 57 were represented by the IUU.
The current contract between ULH&P and the IUU will expire in April 2001. ULH&P has agreements with the USWA and IBEW that will expire May 15, 2002, and April 1, 2001, 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 13 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
Cinergy, CG&E, and PSI
At December 31, 1997, 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 megawatts (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
William H. Zimmer Generating
Station 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 78
W.C. Beckjord Gas Turbine Station New Richmond, Ohio 100.00 Oil 245
Woodsdale Generating Station Butler County, Ohio 100.00 Gas 564
PSI
Steam Electric Generating Plants:
Gibson Generating Station:
(Units 1-4) Princeton, Indiana 100.00 Coal 2,532
(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.
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Cinergy and CG&E
CG&E
CG&E's 1997 peak load (exclusive of off-system transactions), which occurred on July 28, was 4,638 mw. For the period 1998 through 2007, peak load and kilowatt-hour (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 non-firm power transactions and any potential off-system, long-term firm power sales.
As of December 31, 1997, CG&E's transmission system consisted of 388 circuit miles of 345,000 volt line, 618 circuit miles of 138,000 volt line, 523 circuit miles of 69,000 volt line, and 116 circuit miles of lesser volt line, all within the states of Ohio and Kentucky. In addition, as of December 31, 1997, CG&E's distribution system consisted of 14,736 circuit miles, all within the state of Ohio. As of the same date, CG&E's transmission substations had a combined capacity of 14,845,106 kilovolt-amperes, and the distribution substations had a combined capacity of 5,951,348 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 1997, 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 are 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 5,718 miles of mains and service lines in southwestern Ohio.
Cinergy and PSI
PSI
PSI's 1997 peak load (exclusive of off-system transactions), which occurred on July 14, was 5,313 mw. For the period 1998 through 2007, peak load and kwh sales are each forecast 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 non-firm power transactions and any potential off-system, long-term firm power sales.
As of December 31, 1997, 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 2,429 circuit miles of 69,000 volt line, all within the state of Indiana. In addition, as of December 31, 1997, PSI's distribution system consisted of 19,707 circuit miles, all within the state of Indiana. As of the same date, PSI's transmission substations had a combined capacity of 21,700,155 kilovolt-amperes, and the distribution substations had a combined capacity of 6,322,409 kilovolt-amperes.
During 1997, 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, 1997, ULH&P owned 105 circuit miles of 69,000 volt electric transmission line, an electric distribution system consisting of 2,516 circuit miles, and a gas distribution system consisting of 1,307 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, 1997, Lawrenceburg owned a gas distribution system consisting of 172 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, 1997, 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.
As of December 31, 1997, KO Transmission owned a 32.67% interest in a 90-mile interstate natural gas pipeline and a 100% interest in a 2 1/4 mile natural gas pipeline. KO Transmission transports gas from southeast Kentucky northward to the service territories of CG&E and ULH&P, their primary customers.
ITEM 3. LEGAL PROCEEDINGS
Cinergy and PSI
WVPA Settlement Agreement
See Note 12(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
Manufactured Gas Plant Claims
See Note 12(b)(ii) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
Cinergy and CG&E
Skinner Landfill Remediation
In the first quarter of 1998, CG&E was notified, by the Allocator in a Court-mandated alternative dispute resolution (ADR) proceeding, that it had been identified as a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) with respect to the Skinner Landfill Superfund Site, which is located approximately 15 miles north of Cincinnati, Ohio. In March 1997, the Plaintiffs from the underlying CERCLA litigation brought suit in the United States District Court for the Southern District of Ohio, Western Division (the Court), against over 80 PRPs. In August 1997, the Court entered an order staying the litigation and requiring all parties to engage in a non-binding, confidential ADR process. The Allocator, which has been given authority by the Court to identify other parties that may be responsible for response costs, has informed CG&E that it was identified by a site owner, operator, or worker as one that had arranged for the disposal of waste at the landfill and has concluded that a reasonable basis exists for CG&E's participation in the ADR process. The plaintiffs claim to have expended almost $2 million in initial response actions at the site and the Allocator has indicated that the present value of the total site response costs is estimated at approximately $14 million. CG&E is currently participating in the ADR process. Based on information currently available, any potential liability allocated to CG&E would not be material to its financial condition or results of operations.
United Scrap Lead Site
See Note 12(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
Cinergy, CG&E, and PSI
Enertech Litigation
See Note 12(d) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
ULH&P
ULH&P has no material pending legal proceedings.
Cinergy, CG&E, PSI, and ULH&P
In addition to the above litigation, see "Regulatory Matters" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes 12(b), 12(c), and 12(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 I(2)(c).
EXECUTIVE OFFICERS OF THE REGISTRANTS (at February 28, 1998)
Age at
Dec. 31,
Name 1997 Office & Date Elected or in Job
Cinergy, CG&E, and PSI
Jackson H. Randolph 67 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
James E. Rogers 50 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
Cheryl M. Foley 50 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
Donald B. Ingle, Jr. 48 Vice President of Cinergy, CG&E, and PSI 1/
- 1997
President, Energy Services Business Unit
(ESBU) of Cinergy 1/ - 1997
Contract Consultant - Investments - 1995
President and Chief Executive Officer -
CornerStone Industries, Inc. 3/ - 1992
Elizabeth K. Lanier 2/ 46 Vice President and Chief of Staff of
Cinergy, CG&E, and PSI - 1996
Partner - Frost & Jacobs 3/ - 1984
J. Wayne Leonard 47 Vice President of Cinergy, CG&E, and PSI 4/
- 1997
President, Energy Commodities Business Unit
of Cinergy - 1996
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
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EXECUTIVE OFFICERS OF THE REGISTRANTS (continued)
Age at
Dec. 31,
Name 1997 Office & Date Elected or in Job
Madeleine W. Ludlow 43 Vice President and Chief Financial Officer
of Cinergy, CG&E, and PSI 4/ - 1997
Vice President - Enterprise Diversified
Holdings Incorporated (EDHI), a subsidiary
of Public Service Enterprise Group
Incorporated 3/ - 1996
Vice President and Treasurer - EDHI 3/ -
1992
William L. Sheafer 54 Vice President and Treasurer of Cinergy,
CG&E, and PSI - 1997
Treasurer of Cinergy and PSI - 1994
Treasurer of CG&E - 1987
John P. Steffen 45 Vice President and Comptroller of Cinergy,
CG&E, and PSI - 1998
Comptroller of Cinergy, CG&E, and PSI 5/ -
1997
Assistant Comptroller of CG&E - 1995
Assistant Comptroller of Cinergy and PSI -
1994
Assistant Controller of CG&E - 1991
Larry E. Thomas 52 Vice President of Cinergy, CG&E, and PSI -
1997
President, Energy Delivery Business Unit
of Cinergy - 1996
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
Cinergy and CG&E
William J. Grealis 6/ 52 President, ESBU of Cinergy 1/ - 1996
Vice President of Cinergy - 1995
President of CG&E - 1995
President of Investments - 1995
President, Gas Business Unit of CG&E - 1995
Partner - Akin, Gump, Strauss, Hauer
& Feld 3/ - 1978
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EXECUTIVE OFFICERS OF THE REGISTRANTS (continued)
Age at
Dec. 31,
Name 1997 Office & Date Elected or in Job
Cinergy and PSI
John M. Mutz 7/ 62 Vice President of Cinergy - 1995
President of PSI - 1994
President of Resources - 1993
Cinergy
John Bryant 51 Vice President of Cinergy - 1998
Managing Director of MPI International
Limited, Cinergy's international project
development subsidiary - 1997
Executive Generation Director - Midlands -
1996
Generation Director - Midlands - 1992
J. Joseph Hale, Jr. 48 Vice President of Cinergy - 1996
General Manager, Marketing
Operations of CG&E - 1995
President of Cinergy Foundation, Inc. 8/ -
1992
M. Stephen Harkness 49 Vice President of Cinergy - 1996
Executive Vice President and Chief
Operating Officer of Trigen-Cinergy 9/ -
1996
General Manager, Corporate Development
and Financial Services of Cinergy - 1994
Jerry W. Liggett 56 Vice President of Cinergy - 1996
Senior Manager, Human Resources
Strategy of Cinergy - 1995
General Manager, Employee Relations,
Compensation & Benefits of Cinergy - 1995
Executive Director, Human Resources
of PSI and Resources - 1990
Michael M. Sample 45 Vice President of Cinergy - 1996
General Manager, International
Investments of Cinergy - 1994
Vice President, Government Affairs
of PSI and Resources - 1991
Charles J. Winger 52 Vice President of Cinergy - 1997
Vice President and Comptroller of Cinergy,
CG&E, and PSI 5/ - 1997 Comptroller of CG&E
- 1995 Comptroller of Cinergy - 1994
Comptroller of Resources - 1988
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EXECUTIVE OFFICERS OF THE REGISTRANTS (continued)
ULH&P
Omitted pursuant to instruction I(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/ Mr. Ingle named as Acting President of ESBU during May 1997, succeeding Mr. Grealis; Mr. Ingle served in this capacity through September 1997, at which time he was named President of ESBU and Vice President of each of Cinergy, CG&E, and PSI, all effective October 1, 1997.
2/ Prior to becoming Vice President effective June 1, 1996, Ms. Lanier was a partner in the law firm of Frost & Jacobs located in Cincinnati, Ohio.
3/ Non-affiliate of Cinergy.
4/ Effective April 22, 1997, Mr. Leonard relinquished additional title of Chief Financial Officer and Ms. Ludlow appointed Vice President and Chief Financial Officer.
5/ Effective August 11, 1997, Mr. Steffen was appointed Comptroller of Cinergy, CG&E, and PSI, succeeding Mr. Winger, who retained office of Vice President of Cinergy.
6/ 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.
7/ Prior to becoming President of Resources, Mr. Mutz was President of Lilly Endowment, Inc., a private philanthropic foundation located in Indianapolis, Indiana.
8/ An affiliated public benefit corporation organized and operating exclusively for charitable purposes.
9/ Joint venture company formed by Cinergy and Trigen Energy Corporation.
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, 1998, Cinergy's most recent dividend record date, there were 73,018 common shareholders of record. The following table shows the high and low sales prices per share, if applicable, and the dividends on common stock declared by Cinergy, CG&E, PSI, and ULH&P for the past two years:
Market Price (a) Dividends Declared
High Low (per share) (in thousands)
1996
Cinergy
4th Quarter $34 1/4 $30 7/8 $.45
3rd Quarter 32 29 1/8 .43
2nd Quarter 32 27 1/2 .43
1st Quarter 32 1/8 28 1/4 .43
CG&E
4th Quarter $ 50 949 (b)
3rd Quarter 239 909 (b)
2nd Quarter 45 116 (b)
1st Quarter 41 995 (b)
PSI
4th Quarter 29 713 (b)
3rd Quarter 28 311 (b)
2nd Quarter 28 165 (b)
1st Quarter 25 887 (b)
ULH&P
4th Quarter 8.50 (b)
1997
Cinergy
4th Quarter 39 1/8 32 .45
3rd Quarter 35 1/4 32 5/16 .45
2nd Quarter 35 5/8 32 .45
1st Quarter 35 3/4 32 5/8 .45
CG&E
4th Quarter 42 600 (b)
3rd Quarter 42 600 (b)
2nd Quarter 42 600 (b)
1st Quarter 42 600 (b)
PSI
4th Quarter 28 400 (b)
3rd Quarter 28 400 (b)
2nd Quarter 28 400 (b)
1st Quarter 28 400 (b)
ULH&P
4th Quarter 17.00 (b)
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(a) Market price for CG&E, PSI, and ULH&P is not applicable.
(b) All of CG&E's and PSI's dividends were paid to Cinergy and all of ULH&P's dividends were paid to CG&E.
See Note 2(b) 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
1997 1996 1995 1994 1993
(in millions, except per share amounts)
Operating revenues (1) $4 353 $3 243 $3 023 $2 888 $2 833
Net income before extraordinary
item (1) 363 335 347 191 63
Net income (2) 253 335 347 191 63
Common stock
Earnings per share (3)
Net income before extraordinary
item 2.30 2.00 2.22 1.30 .43
Net income 1.61 2.00 2.22 1.30 .43
EPS-assuming dilution (3)
Net income before extraordinary
item 2.28 1.99 2.20 1.29 .43
Net income 1.59 1.99 2.20 1.29 .43
Dividends declared per share 1.80 1.74 1.72 1.50 1.46
Total assets (4) 8 858 8 725 8 103 8 037 7 696
Cumulative preferred stock of
subsidiaries subject to mandatory
redemption (5) - - 160 210 210
Long-term debt (6) 2 151 2 326 2 347 2 615 2 545
Long-term debt due within
one year (6) 85 140 202 60 -
CG&E
1997 1996 1995 1994 1993
(in millions)
Operating revenues (1) $2 452 $1 976 $1 848 $1 788 $1 752
Net income (loss) (1) 239 227 236 158 (9)
Total assets (4) 4 914 4 844 5 081 5 069 5 036
Cumulative preferred stock subject
to mandatory redemption (5) - - 160 210 210
Long-term debt (6) 1 324 1 381 1 518 1 738 1 729
Long-term debt due within
one year (6) - 130 152 - -
PSI
1997 1996 1995 1994 1993
(in millions)
Operating revenues (1) $1 958 $1 332 $1 248 $1 114 $1 092
Net income (1) 132 126 146 82 125
Total assets (4) 3 406 3 295 3 076 2 945 2 645
Long-term debt (6) 826 945 828 878 816
Long-term debt due within
one year (6) 85 10 50 60 -
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Cinergy, CG&E, and PSI
(1) See Notes 1 and 15 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
(2) See Notes 1 and 17 of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data."
(3) See Note 16 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
(4) See Notes 1(f) and 6 of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data."
(5) See Note 3 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
(6) See Note 4 and 8(b) 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 12 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 I(2)(a).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in this "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" reflect and elucidate the Companies' corporate vision of the future and, as a part of that, outline goals and aspirations, as well as specific projections. These goals and projections are considered forward-looking statements and are based on management's beliefs, as well as certain assumptions made by management. In addition to any assumptions and other factors that are referred to specifically in connection with these statements, other factors that could cause actual results to differ materially from those indicated in any forward-looking statements include, among others:
* Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages; unusual maintenance or repairs; unanticipated changes to fossil fuel costs, gas supply costs, or availability constraints due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints.
* Increased competition in the electric and gas utility industries, including effects of: industry restructuring; transmission system operation and/or administration; customer choice; and cogeneration.
* Regulatory factors such as unanticipated changes in rate-setting policies or procedures; recovery of investments made under traditional regulation, and the frequency and timing of rate increases.
* Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), state public utility commissions, state entities which regulate natural gas transmission, gathering and processing and similar entities with regulatory oversight.
* Economic conditions, including inflation rates and monetary fluctuations.
* Changing market conditions and a variety of other factors associated with physical energy and financial trading activities including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, currency exchange, interest rate, and warranty risks.
* Availability or cost of capital, resulting from changes in: Cinergy and its subsidiaries, interest rates, and securities ratings or market perceptions of the utility industry and energy-related industries.
* Employee workforce factors, including changes in key executives, collective bargaining agreements with union employees, or work stoppages.
* Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures.
* Costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters, including, but not limited to, those described in Note 12 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
* Changes in international, Federal, state, or local legislative requirements, such as changes in tax laws or rates; environmental laws and regulations.
Cinergy Corp. (Cinergy or Company) and its subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements.
Cinergy, CG&E, PSI, and ULH&P
THE COMPANIES
Cinergy, a Delaware corporation, is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Cinergy was created in the October 1994 merger of PSI Resources, Inc. and The Cincinnati Gas & Electric Company (CG&E). Cinergy is the parent holding company of PSI Energy, Inc. (PSI), CG&E, Cinergy Investments, Inc. (Investments), and Cinergy Services, Inc. (Services). CG&E is an operating utility primarily engaged in providing electric and gas service in the southwestern portion of Ohio and through its principal subsidiary, The Union Light, Heat and Power Company (ULH&P), in adjacent areas in Kentucky. PSI is an operating utility primarily engaged in providing electric service in north central, central, and southern Indiana. Services provides management, financial, administrative, engineering, legal, and other services to Cinergy, CG&E, PSI, and Investments. Cinergy conducts its international and non-regulated businesses through Investments and its subsidiaries.
FINANCIAL CONDITION
COMPETITIVE PRESSURES
ELECTRIC UTILITY INDUSTRY
Cinergy, CG&E, PSI, and ULH&P
Introduction
The electric utility industry is transitioning from a monopoly cost-of-service regulated environment to an industry in which companies will ultimately compete to be the customers' energy provider. This transition will continue to impact the operations, structure, and profitability of Cinergy. The effects of competition are already being felt in the wholesale power markets, where the increased numbers of power marketers and brokers are reducing the margins previously experienced.
Energy companies are positioning themselves for full competition through mergers and acquisitions, strategic alliances with other energy companies and energy-related businesses, and through the development of new products and services. Just as critical to Cinergy will be the regulatory outcome of the deregulation process in each of its three franchise states, as well as the outcome in other states where Cinergy plans to compete.
Deregulation Process
The FERC opened up the wholesale electric markets to competition in 1996 with Orders 888 and 889. The final rules provided for mandatory filing of open access/comparability transmission tariffs, provided for functional unbundling of all services, required utilities to use the filed tariffs for their own bulk power transactions, established an electronic bulletin board for transmission availability and pricing information, and established a contract-based approach to recover any potential "stranded" investments (explained below) as a result of customer choice at the wholesale level.
Customer choice at the end-user (i.e., retail) level currently remains under the jurisdiction of individual states (see State Developments). The deregulation process has varied greatly from state to state. Several states have enacted customer choice legislation, while many states are in the early stages of studying the issues. During the process of developing customer choice legislation, utilities have been required to consider issues such as the recovery of any stranded investment, ability to compete for incumbent customers, and the potential forced divestiture of generating assets. Cinergy continues to be an advocate of competition in the electric utility industry and continues to pursue customer choice legislation at both the state and Federal levels.
As the deregulation process has progressed, it has become clear that both scale and diversity of business are critical factors for success. Scale is critical for several reasons. A critical mass of customers allows the development of new products and back-office capabilities in a cost-effective manner. A larger balance sheet scale and diversity of commodities (i.e., gas and electric) allow the trading business to market risk intermediation products without taking excessive financial risks and to recover back-office costs in a low margin business. Merger and acquisition activity in the energy industry appears to be accelerating as companies attempt to create the desired scale.
Recent Developments
Stranded Investments Due to excess capacity in the industry and the declining cost of new technology, electricity prices in a competitive market may not fully cover the costs of past commitments made by utilities while under a cost- of-service regulated environment. Fixed costs which cannot be recovered through electricity sales at market prices are referred to as stranded investments. While the recovery of prudent past investments and commitments has been supported by FERC in Order 888 and at least partially in the states in which competition-related legislation has been passed, there is no guarantee that Cinergy or any other utility will receive full recovery of potential stranded investments. In addition, in those states which have legislated open competition, many have required the divestiture of generating assets in order to qualify and obtain recovery of stranded investments.
Midwest ISO During 1997, Cinergy collaborated with other Midwestern utility companies on a plan to join the transmission systems of the participating companies into a single regional system. The plan was filed with the FERC early in 1998 for approval. If approved, the new system would be managed independently by an Independent System Operator (ISO). The formation of a Midwest ISO, as it has become known, would ensure non-discriminatory open transmission access and system reliability, as well as the development of a regional transmission tariff, which would help eliminate the "pancaking" of transmission rates in a region.
Currently, there are eight utilities participating in the filing along with Cinergy. The proposed ISO consists of 32,000 miles of transmission lines and covers portions of eight Midwestern states, forming one of the largest ISOs in the country. FERC's approval of the plan is anticipated to come within a year.
Repeal of the PUHCA Currently, PUHCA creates a number of restrictions that make preparing for deregulation more difficult. PUHCA restricts the amount which can be invested outside the regulated utility, including foreign investments and investments in power plants. It also restricts potential merger partners to those that meet certain integration requirements.
In 1995, the SEC endorsed recommendations for reform of PUHCA. The recommendations called for repeal and, pending repeal, significant administrative reform of the 62-year-old statute. Since the release of the SEC's report, numerous bills have been introduced in both houses of the United States (US) Congress providing for the repeal or significant amendment of PUHCA. During 1997, a bill repealing PUHCA was introduced in the US Senate but was never brought to a vote. Legislation repealing PUHCA is anticipated to be reintroduced in the US Congress in 1998. Cinergy supports the repeal of this act either as part of comprehensive reform of the electric industry or as separate legislation.
Franchise Rights During 1997, several states enacted transition plans that included a variety of measures designed to create a "level playing field" for new competitors. In some cases, there has been a mandatory "divestiture" of existing customers. In others, the plans provide incentives which may encourage customers to switch suppliers by providing "above market" credits to those who switch from the incumbent utility. Also, some states have put varying restrictions on the incumbent utility's ability to compete for these customers.
Cinergy, CG&E, PSI, and ULH&P
State Developments
As previously mentioned, certain states have enacted legislation which will lead to complete retail competition within the next several years. These states generally have required up-front rate reductions and the opportunity for all customer classes to choose an electricity provider. A few states have phased in customer choice, but still provided for immediate rate reductions.
All states passing legislation have included some mechanism for recovery of stranded investment. However, states have varied on the methodology to be applied in determining the level of stranded investment, and divestiture of generation assets has been required in a few states.
As discussed below, the three states in which Cinergy operates public utility companies have all had legislation introduced which would provide for full retail customer choice. None of these states has yet passed legislation, but policymakers and stakeholders continue to work to resolve issues with an eye toward passage.
Cinergy and PSI
Indiana A customer choice bill (SB427) was introduced during the 1997 Indiana legislative session, with support from a coalition made up of Cinergy, the Indiana Manufacturers Association, the Indiana Industrial Energy Consumers, Inc., and one other Indiana investor-owned electric utility. After amendments were made, essentially stripping the bill of most of its provisions and turning it into a bill calling for the study of deregulation by a legislative committee known as the Regulatory Flexibility Committee (Study Committee), SB427 passed the legislature and was signed by the governor.
The Indiana Utility Regulatory Commission (IURC) issued a report titled "Energy Report: Public Policy Considerations" (Report) to the Study Committee in November 1997. The scope and purpose of the Report was to provide information to the Study Committee which would enable them to answer the question of whether retail customer choice was in the best interest of Indiana. Public policy issues listed by the Report for the Study Committee to consider were: jurisdiction over retail transmission; recovery of stranded investments; estimation methodology of any stranded investments allowed to be recovered; method for recovery of stranded investments; low-income and environmental programs; and impact of deregulation on state and local taxes. The Report's conclusion was: "In the long run, competition in the electricity market could be in the best interest of Indiana. Experience in other states has shown that the best outcomes and smoothest process to bring about customer choice in the electric industry have resulted from a cooperative effort led by the governor, the legislature and the state commission working together with all stakeholders. Indiana should be prepared to respond to competition created by other states, especially those surrounding Indiana, and to any Federal legislation that requires nationwide competition in the electricity market." As a result of the IURC report and other testimony to the Study Committee, the Study Committee recommended that they continue to study changes in the electric industry.
Another customer choice bill (SB 431), sponsored by, among others, those who supported the customer choice bill during 1997, was introduced in the Indiana Senate in January 1998. In the House of Representatives, House Bill 1190 (HB 1190) was introduced. This bill calls for a study by the IURC of the effects deregulation would have on Indiana. Although the legislature is much more knowledgeable on the customer choice issues as a result of the Study Committee's report and debating the 1997 customer choice bill, neither SB 431 or HB 1190 was passed during the 1998 legislative session.
Cinergy and CG&E
Ohio Although the Ohio legislature did not pass customer choice legislation during 1997, it did create the Joint Select Committee on Electric Industry Deregulation (Committee) to examine competition and restructuring issues. The Committee heard testimony from a variety of stakeholders on various customer choice issues throughout the spring of 1997. In December 1997, the Committee's chairpersons unveiled the outline of a plan designed to bring competition into Ohio's retail electric industry in the year 2000. The chairpersons' plan is based on five basic policies: all customers, including residential, can participate from the outset; the cost of electricity will decrease from the outset and continue to decrease at an accelerating rate for all customers during the transition period; current low-income assistance programs will be continued; current reliability and quality of service will be maintained; and open free markets will be established with lower prices driven by competition. The plan would provide for competition among utilities to begin January 1, 2000, with a five-year transition period.
Furthermore, the plan addresses the tax consequences of a deregulated environment through the creation of a revenue-neutral system. The current tax structure of Ohio subjects Ohio electric utility companies to certain state taxes which would not be paid by out-of-state competitors selling power in Ohio retail markets. The new system attempts to remedy this disadvantage while not diminishing the amount of tax revenues currently being collected by state and local governments.
The chairpersons were not able to get their plan adopted by the full committee. Some of the primary concerns that have been expressed are that the plan does not adequately address utilities' stranded investment concerns, and that the proposal to create retail marketing areas, or "buying pools," throughout the state during the transition period would be unduly disruptive in that customers who did not affirmatively elect to remain with their incumbent utility would be assigned to the buying pool under a Public Utility Commission of Ohio (PUCO) designed and administered bidding process. The chairpersons have announced intentions to introduce a bill in 1998.
Also in Ohio, a bill was introduced in November 1997 (HB 625) authorizing the issuance of electric utility rate reduction bonds that would permit utilities to securitize certain assets. The bill itself does not provide for retail competition but, rather, specifies financing issues a utility may engage in to prepare for competition. It is uncertain whether this bill or any bill providing for retail competition will be passed in Ohio in 1998.
Cinergy, CG&E and ULH&P
Kentucky In January 1998, the House Chairman of the Tourism, Development and Energy Committee introduced a customer choice bill (HB 443). The bill would allow persons and businesses in participating service areas to choose their supplier of electricity beginning January 1, 2000. It would also ensure a rate cap to prevent any increase in generation energy prices for six years, with certain exceptions. Because of its low electric rates, Kentucky has not to date been moving aggressively toward retail customer choice. It is uncertain whether HB 443 will be passed in Kentucky in 1998.
Cinergy
United Kingdom
Transition to full competition in the United Kingdom's (UK) electric utility industry began with the industry's privatization in 1991. When the industry was privatized, the generation, transmission, and regional distribution businesses were, in effect, unbundled into separate companies. The regional distribution companies, including Midlands Electricity plc (Midlands) (Cinergy, through a joint venture owns a 50% interest in Midlands, see Note 1(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data"), own no transmission facilities and are limited as to the amount of generation they may own. Third-party access to the transmission and local distribution systems was also put in place, enabling licensed suppliers to use these networks.
As a result of the transition plan, larger users of electricity have been free to choose their supplier since 1994 or earlier. Full competition for all customers was scheduled to be phased in beginning in April 1998. However, due to delays with the design and testing of information systems, the phase-in to full competition has been delayed to September 1998. Midlands' service territory is now scheduled to begin open competition in October 1998.
To date, new entrants to the industry have been limited to independent power producers, who compete with the formerly state-run generators by using new, efficient technology. There have been no major new entrants into the supply business from outside the industry. However, new entrants are expected to emerge as full competition opens.
A substantial portion of Midlands' operating profit is related to the distribution business, which will remain a regulated monopoly. Midlands intends to market both gas and electric service in the supply business, as all customers gain the ability to choose suppliers.
Cinergy, CG&E, and ULH&P
Gas Utility Industry
Customer Choice The PUCO approved CG&E's gas customer choice program during 1997. The plan, which made customer choice available to all residential and small commercial customers, went into effect in November 1997. As of January 30, 1998, approximately 7,300 customers have opted to participate in this program. Large industrial, commercial, and educational institution customers already had the ability to select their own gas supplier. In 1997, the PUCO approved two other gas customer choice programs in the state. Cinergy Resources, Inc. (CRI), Cinergy's gas retail marketing subsidiary, is one of many entities competing for customer gas supply business in these programs.
CG&E continues to provide the gas transportation service for all customers on its system without regard to the supplier of the gas commodity. CG&E receives a transportation charge from customers which is based on its current regulated rates.
Cinergy and CG&E
Loss of Transportation Customer Late in 1997, AK Steel, Cinergy's largest natural gas transportation customer, informed CG&E that it plans to build its own pipeline to connect directly to an interstate natural gas pipeline. The interruptible contract with CG&E, which represents approximately $7 million of annual revenues, will expire at the end of 1998. Under that contract, AK Steel purchases gas directly from other suppliers but uses CG&E's pipelines to deliver the gas. AK Steel is able to pursue this alternative because of its close proximity to an existing interstate pipeline. With few customers being similarly situated, Cinergy and CG&E do not currently anticipate others proceeding in a similar manner.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's Response to the Changing Competitive Environment
Cinergy believes competition will benefit electric customers individually and the economy as a whole. Cinergy has taken steps to prepare not only for the changing environment, but to assure fairness and consistency in the setting of rules and regulations in the various markets in which Cinergy competes. Cinergy's basic approach to the deregulation environment is to have set a goal to be a top five utility in five measures of scale and productivity within five years. Examples of steps taken to achieve this goal include the following:
Cinergy reorganized its operations into four strategic business units. This
functional unbundling separated Cinergy's business into Energy Services, Energy
Delivery, Energy Commodities, and International business units. Each business
unit is responsible for business expansion in its own markets.
Cinergy enhanced its international presence in 1996 by acquiring its
interest in Midlands, an electricity distribution company located in the UK. In
1997, Cinergy furthered its international development plans by acquiring the
development team and all rights to future projects of Midlands Power
International, a power development subsidiary of Midlands.
Cinergy formed a joint venture with Trigen Energy Corporation (Trigen) to
develop and operate cogeneration and trigeneration facilities throughout the US
and Canada which enables Cinergy to compete for customers outside its own
franchise territory prior to and following the arrival of retail competition.
Cinergy has partnered with two other energy companies to form Cadence
Network LLC which will provide a variety of innovative products and services to
multi-site national accounts customers. These services include consolidated
billing, bill auditing, and rate and usage analysis.
Cinergy has become a major participant in the marketing of power, resulting
in megawatt (mw) sales volume increases of 600% and 80% in 1997 and 1996,
respectively.
In 1997, Cinergy acquired Greenwich Energy Partners (Greenwich). Greenwich
is a small proprietary trader of energy commodities. Through its acquisition of
Greenwich, Cinergy became the first utility company to hold a seat on the New
York Mercantile Exchange (NYMEX). The NYMEX is the world's largest physical
commodity futures exchange and preeminent trading forum for energy and precious
metals.
In 1996, the NYMEX began trading electricity futures and options contracts
with contract delivery points in the western US. During the first half of 1998,
the NYMEX will begin trading contracts with delivery points located in the
Midwest, Mid-Atlantic, and Southern regions of the country. Cinergy's
transmission system was selected as the delivery point for the Midwest region.
Cinergy's acquisition of the NYMEX seat and its selection as a delivery point
for electricity futures trading demonstrates Cinergy's participation as a leader
in the evolving power markets.
Cinergy, CG&E, PSI, and ULH&P
Substantial Accounting Implications
Historically, regulated utilities have applied the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (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 in its generation, transmission, and distribution operations. 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 for the continued application of 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 recognition of regulatory assets.
Based on Cinergy's current regulatory orders and the regulatory environment in which it currently operates, the recognition of its regulatory assets as of December 31, 1997, is fully supported. However, in light of recent trends in customer choice legislation, the potential for future losses resulting from discontinuance of Statement 71 does exist. Such potential losses, if any, cannot be determined until such time as a legislated plan has been approved by each state in which Cinergy operates a franchise territory. Cinergy intends to continue its pursuit of competitive strategies which mitigate the potential impact of these issues on the financial condition of the Company.
Cinergy, CG&E, PSI, and ULH&P
SECURITIES RATINGS
The current ratings provided by the major credit rating agencies; Duff & Phelps Credit Rating Co. (D&P), Fitch Investors Service, LP (Fitch), Moody's Investors Service (Moody's), and Standard and Poor's (S&P), are included in the following table:
D&P Fitch Moody's S&P
Cinergy
Corporate Credit BBB+ BBB+ Baa2 BBB+
Commercial Paper D-2 F-2 P-2 A-2
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+
Commercial Paper D-1- F-2 P-2 Not rated
PSI
Secured Debt A- A A3 A-
Senior Unsecured Debt BBB+ A- Baa1 BBB+
Junior Unsecured Debt BBB BBB+ Baa2 BBB+
Preferred Stock BBB BBB+ baa1 BBB+
Commercial Paper D-1- F-2 P-2 Not rated
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
IURC Orders - PSI's Retail Rate Proceeding and Demand-Side Management (DSM) Proceeding In September 1996, the IURC issued an order (September 1996 Order) approving an overall average retail rate increase for PSI of 7.6% ($75.7 million annually). Among other things, the IURC authorized the inclusion in rates of the costs of a 262-mw clean coal power generating facility located at Wabash River Generating Station (Clean Coal Project) and the costs of a scrubber at Gibson Generating Station. The order also reflects a return on common equity of 11.0%, before the 100 basis points additional common equity return allowed as a merger savings sharing mechanism in the IURC's February 1995 order (February 1995 Order) discussed further herein, with an 8.21% overall rate of return on net original cost rate base.
In October 1996, The Office of the Utility Consumer Counselor (UCC) and the Citizens Action Coalition of Indiana, Inc. (CAC) filed a Joint Petition for Reconsideration and Rehearing of the September 1996 Order with the IURC. A settlement agreement with the UCC and CAC was approved in its entirety by the IURC in August 1997. This settlement agreement reduced the original rate increase by $2.1 million (.2%). Major provisions of the settlement agreement include: a) a $4.1 million increase in the annual amortization of certain regulatory assets; b) a retail rate reduction of $1 million annually; c) a $.9 million reduction in retail rates to reflect an August 31, 1995, cut-off date for costs to achieve merger savings instead of an October 31, 1996, cut-off date; and d) authorization to defer for subsequent recovery costs to achieve merger savings incurred between September 1, 1995, and October 31, 1996.
A settlement agreement between PSI and certain intervenors, in a proceeding established to review PSI's current and proposed DSM programs, was approved by the IURC in December 1996 (December 1996 DSM Order). Beginning January 1, 1997, and continuing through December 31, 2000, the settlement agreement allows PSI to recover $35 million per year through a non-bypassable charge in PSI's retail rates. The $35 million is designed to recover all previously incurred, but as yet unrecovered, DSM costs and all costs related to satisfying remaining commitments associated with a previous DSM settlement agreement. The $35 million also includes recovery of carrying costs. Further, the agreement authorizes PSI to spend up to $8 million annually on ongoing DSM programs through the year 1999 and to collect such amounts currently in retail rates.
February 1995 Order - Retail Rate Proceeding and Merger Savings Allocation Plan The IURC's February 1995 Order approved a settlement among PSI and certain intervenors authorizing PSI to increase retail rates $33.6 million before 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, to reflect the sharing with customers of non-fuel operation and maintenance expense merger savings (Non- fuel Merger Savings).
Additionally, the February 1995 Order provided PSI an opportunity to earn up to an additional 100 basis points above the common equity return authorized in the September 1996 Order until December 31, 1997. To be eligible for such additional earnings, PSI had to meet certain performance-related standards. PSI met those standards, which were measured in conjunction with quarterly fuel adjustment clause filings. Beginning January 1, 1998, the 100 basis point increment to the authorized common equity return will be phased out over a twelve-month period.
Effective with this order, PSI began recovering carrying costs on certain environmental-related projects under construction. This recovery continues until the date of an approved rate 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.
Coal Contract Buyout Costs In August 1996, PSI entered into a coal supply agreement with Eagle Coal Company (Eagle) for the supply of approximately three million tons of coal per year. The agreement, which terminates December 31, 2000, provides for a buyout fee of $179 million (including interest) to be included in the price of coal to PSI over the term of the contract. This fee represents the costs to Eagle of the buyout of the coal supply agreement between PSI and Exxon Coal and Minerals Company. The retail jurisdictional portion of the buyout charge, excluding the portion applicable to joint owners, is being recovered through the quarterly fuel adjustment clause, with carrying costs on unrecovered amounts, through December 2002. PSI has also filed a petition at the FERC for recovery of the wholesale jurisdictional portion of the buyout costs through the wholesale fuel adjustment clause. Generally, the FERC will allow recovery if the utility can demonstrate there will be net benefits to customers during the buyout cost recovery period. The FERC is expected to issue an order on PSI's petition early in 1998. (See Note 1(i) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
Cinergy and CG&E
Ohio
PUCO Order - CG&E's Gas Rate Proceeding In December 1996, the PUCO issued an order (December 1996 Order) approving an overall average increase in gas revenues for CG&E of 2.5% ($9.3 million annually). The PUCO established an overall rate of return of 9.7%, including a return on common equity of 12.0%. In developing this return on common equity, the PUCO considered, among other things, CG&E's efforts to reduce costs and increase operating efficiency and its proposals to allow residential customers to choose their natural gas supplier. The PUCO disallowed certain of CG&E's requests, including the requested working capital allowance, recovery of certain capitalized information systems development costs, and certain merger-related costs. These disallowances resulted in a pretax charge to earnings during the fourth quarter of 1996 of $20 million ($15 million net of taxes or $.10 per share basic, $.09 per share diluted). CG&E's request for a rehearing on the disallowed information systems costs and other aspects of the order was denied.
In April 1997, CG&E filed a notice of appeal with the Supreme Court of Ohio challenging the disallowance of information systems costs and the imputation of certain revenues. Cinergy and CG&E cannot predict what action the Supreme Court of Ohio may take with respect to this appeal.
Other In April 1994, the PUCO issued an order approving a settlement agreement among CG&E and certain intervenors which, among other things, resolved outstanding issues related to the merger. 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). In return, CG&E is allowed to retain all PUCO electric jurisdictional Non-fuel Merger Savings until 1999.
Consistent with the provisions of the settlement agreement and the December 1996 Order, CG&E expensed merger transaction costs and costs to achieve merger savings (Merger Costs) applicable to its PUCO jurisdiction of $5 million and $41 million (including $6 million as a result of the December 1996 Order) in 1995 and 1996, respectively. CG&E and its utility subsidiaries have deferred a portion of the Merger Costs incurred through December 31, 1996, for future recovery in customer rates.
Additionally, in December 1996, the PUCO issued an order applicable to CG&E's DSM programs. The order requires CG&E to spend up to one-half of the annual $5 million currently included in retail rates on PUCO-sanctioned low-income residential programs. The remaining portion of the $5 million is to be applied to the recovery of DSM cost deferrals. CG&E's participation in the low-income programs will be a factor considered by the PUCO in setting future rates of return and approving competitive transition plans.
Cinergy, CG&E, and ULH&P
Kentucky In exchange for the Kentucky Public Service Commission's (KPSC) 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 (which has not yet been filed) and extending to January 1, 2000. In addition, the KPSC has authorized concurrent recovery of costs related to various DSM programs of ULH&P.
ULH&P has deferred its portion of Merger Costs incurred through December 31, 1996, for future recovery in customer rates.
KPSC Order In July 1996, the KPSC issued an order authorizing a decrease in ULH&P's electric rates of approximately $1.8 million annually to reflect a reduction in the cost of electricity purchased from CG&E.
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. The key question under the relevant PUHCA standards is the amount of increased operating costs, if any, that would result from the gas operations being divested and operated on a stand-alone basis.
In its order approving the merger, the SEC reserved judgment over Cinergy's ownership of CG&E's gas operations for three years, at the end of which period Cinergy would be required to address the matter. In February 1998, Cinergy made a filing with the SEC setting forth its rationale for retention of the gas operations. The filing includes, among other things, a study showing that, if divested and operated on a stand-alone basis, the gas operations would bear significant increased operating costs, greater than those cited by the SEC in two 1997 cases permitting electric registered holding companies to acquire and retain gas properties. For these and other reasons stated in Cinergy's filing, Cinergy believes its retention of CG&E's gas properties meets all relevant standards under the PUHCA.
ENVIRONMENTAL ISSUES
Cinergy, CG&E, and PSI
Clean Air Act Amendments of 1990 (CAAA) The 1990 revisions to the Clean Air Act require reductions in both sulfur dioxide (SO2) and nitrogen oxide (NOx) 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 SO2 reduction objectives of the CAAA, emission allowances have been allocated by the US Environmental Protection Agency (EPA) to affected sources (e.g., Cinergy's electric generating units). Each allowance permits one ton of SO2 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 was based upon the compliance plans developed by PSI and CG&E and approved by the IURC and the PUCO, respectively. 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 SO2 emission requirements, Cinergy's current strategy includes a combination of switching to lower-sulfur coal blends and utilizing an emission allowance banking strategy. This cost-effective strategy will allow Cinergy to meet Phase II SO2 reduction requirements while maintaining optimal flexibility to meet changes in output due to increased customer choice, as well as potentially significant future environmental requirements. 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 capital cost options.
To meet NOx reductions required by Phase II, Cinergy may install additional low NOx burners on certain affected units in addition to the use of a system-wide NOx emission averaging strategy.
Cinergy is forecasting CAAA compliance capital expenditures of $19 million during the 1998 through 2002 period. Of these forecasted expenditures, $9 million relates to CG&E and $10 million relates to PSI. These 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.
Ambient Air Standards The EPA recently revised the National Ambient Air Quality Standards for ozone and fine particulate matter. These new rules increase the pressure for additional emissions reductions. On September 23, 1997, Cinergy announced a proposal to reduce its NOx emissions rate by two-thirds to 0.25 pounds of NOx per one million British thermal units (MMBtu). At that time, Cinergy's preliminary cost estimate for the two-thirds reduction was between $74 million and $204 million (stated in 1997 dollars). Subsequent to Cinergy's announcement, the EPA announced on October 10, 1997, its proposed call for revisions to State Implementation Plans (SIPs) for statewide reductions in NOx emissions, proposing utility NOx emissions at a rate of 0.15 pounds per MMBtu. The EPA's schedule calls for all reductions to be in place as early as 2002. These initiatives will force significant reductions in NOx emissions from many sources. The EPA has stated that electric utility generating facilities specifically are targeted. The final total level of NOx reductions will depend upon the outcome of the SIP revision process. Cinergy estimates that the capital costs for additional NOx controls at its facilities at the 0.15 pounds of Nox per MMBtu rate proposed by the EPA could exceed $524 million (stated in 1997 dollars) over the next five years depending upon the final level of reductions, details of a NOx trading program, and the time frame for implementation.
In February 1998, Cinergy joined with various utilities, labor groups, and other organizations from several Midwest, Great Lakes, Mid-Atlantic, and Southeast states in forming the Alliance for Constructive Air Policy (ACAP). This coalition is committed to working with policymakers to find cost-effective, equitable approaches for reducing ozone pollution in key regions of the country. The ACAP is developing an alternative to the EPA's proposed call for SIPs revisions to reduce NOx emissions (see discussion above). The ACAP's proposal is a two-step process to achieve reductions in NOx emissions. The first step involves NOx emission reductions of 55 percent from 1990 levels, or a reduction in the NOx emission rate to 0.35 pounds of NOx per MMBtu, whichever is less stringent, by 2004. The second step involves the development of enhanced subregional air quality modeling that would be used to determine if any additional reductions are necessary to reach local attainment. These additional reductions, if needed, would be implemented by 2007. The ACAP is also promoting the establishment of a subregional trading market for NOx emissions. This system would allow for a market-based approach to limiting emissions and would produce cost savings and incentives for the development of new technologies to improve air quality. Capital costs required for Cinergy to be in compliance under the ACAP's proposals would be significantly less than those under the current EPA proposal. But as stated above, final costs of compliance depend on the final level of reductions required, details of a NOx trading program, and the time frame for implementation and compliance.
The impact of the particulate standards cannot be determined at this time. The EPA estimates it will take up to five years to collect sufficient ambient air monitoring data. The states will then determine the sources of these particulates and determine a reduction strategy. The ultimate effect of the new standard could be requirements for newer and cleaner technologies and additional controls on conventional particulates and/or reductions in SO2 and NOx emissions from utility sources. Since these studies and determinations have not been made, Cinergy cannot predict the outcome or effect of the new particulate standards.
Global Climate Change On December 11, 1997, delegates to the United Nations' climate summit in Japan adopted a landmark environmental treaty (Kyoto Protocol) to deal with global warming. The Kyoto Protocol establishes legally binding greenhouse gas emission targets for developed nations. The Kyoto Protocol framework lacks details related to definitions, implementation, and enforcement plans. For the Kyoto Protocol to enter into force within the US it will have to be ratified by a two-thirds vote of the US Senate. In July 1997, the US Senate passed a resolution advising the Clinton Administration that they would not favorably consider a protocol which did not include commitments for all nations of the world, or that would cause harm to the US economy. The Kyoto Protocol, in its present form, is unlikely to be ratified by the US Senate since it does not meet the requirements of this resolution.
Significant uncertainty exists concerning the science of climate change, and the Clinton Administration's environmental and energy policies and how it intends to reduce greenhouse gas emissions. 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 US Department of Energy Climate Challenge Program, which Cinergy joined in 1995, are the most cost-effective means to limit greenhouse gas emissions.
Air Toxics The air toxics provisions of the CAAA exempted fossil-fueled steam utility plants from mandatory reduction of air toxics until the EPA completed a study. The final report issued in February 1998, confirmed utility air toxic emissions pose little risk to public health. It stated mercury is the pollutant with the greatest potential threat, while others require further study. A Mercury Study Report issued in December 1997, stated that mercury is not a risk to the average American and expressed uncertainty whether reductions in current domestic sources would reduce human mercury exposure. US utilities are a large domestic source, but they are negligible compared to global mercury emissions. The EPA was unable to show a feasible mercury control technology for coal-fired utilities. The EPA must determine the need for regulation by April 15, 1998. If more air toxics regulations are issued, the compliance cost could be significant. Cinergy cannot predict the outcome or effects of the EPA's determination.
Cinergy, CG&E, PSI, and ULH&P
Other As more fully discussed in Note 12(b)(ii) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data", PSI has received claims from Indiana Gas Company, Inc. (IGC) and Northern Indiana Public Service Company (NIPSCO) that PSI is a Potentially Responsible Party under the Comprehensive Environmental Response, Compensation and Liability Act with respect to certain manufactured gas plant (MGP) sites, and therefore responsible for the costs of investigating and remediating these sites.
In August 1997, NIPSCO filed suit against PSI seeking recovery from PSI of NIPSCO's past and future costs of investigating and remediating MGP related contamination at the Goshen, Indiana, MGP site. NIPSCO alleged that it has already incurred about $400,000 in response costs at the site and that remediation of the site will cost about $2.7 million. PSI denied liability in its answer to the complaint. The parties are currently engaged in the discovery process and the case has not yet been scheduled for trial.
Also, in August 1997, PSI reached an agreement with IGC settling IGC's claims that PSI should contribute to IGC's response costs related to 13 of the 19 MGP sites conveyed by PSI to IGC in 1945. This agreement requires PSI and IGC to share past and future response costs equally (50%/50%) at the 13 sites. Further, the parties must jointly approve future management of the sites and the decision to spend additional funds. The settlement does not address five sites PSI acquired from NIPSCO and subsequently sold to IGC.
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 or its predecessors. PSI continues to gather information pertaining to each of these MGP sites, including the 13 sites which are the subject of the agreement with IGC and the Goshen site which is the subject of NIPSCO's complaint. Reserves recorded, based on information currently available, are not material to Cinergy's financial condition or results of operations. However, as further investigation and remediation activities are undertaken at these sites, the potential liability for MGP sites could be material to Cinergy's financial condition or results of operations.
Refer to Note 12(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 AND OTHER INVESTING ACTIVITIES
Cinergy, CG&E, PSI, and ULH&P
Construction expenditures for the Cinergy system are forecasted to be approximately $375 million for 1998, and over the next five years (1998 - 2002), are forecasted to aggregate approximately $1.7 billion. Of these projected expenditures, approximately $191 million and $866 million relate to CG&E (including $37 million and $137 million for ULH&P) and $180 million and $858 million relate to PSI, for 1998, and over the next five years, respectively. Substantially all of these expenditures are for capital improvements to and expansion of Cinergy's operating facilities.
Cinergy is forecasting no investments in new generating facilities under the belief that excess supply in the market will continue in the near term. If deregulation of the generation component of the electric utility industry does not occur in the manner or in the time frame anticipated, and depending on capacity constraints, franchise demand requirements, and the regulatory requirements dictated for Integrated Resource Planning, Cinergy could be forced to make capital investments in new generating facilities in lieu of relying upon the existing market for its energy needs. (All forecasted amounts are in nominal dollars, exclude capital costs for additional NOx controls at Cinergy's facilities (see "Ambient Air Standards" in the "Environmental Issues" section herein), 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, all or any of which may change significantly.)
Cinergy
As discussed in the "Competitive Pressures" section, during 1996, Cinergy acquired a 50% interest in Midlands. Cinergy and GPU, Inc. (GPU) formed Avon Energy Partners Holdings (Avon Energy), a 50%/50% joint venture, and acquired the outstanding common stock of Midlands through Avon Energy's wholly-owned subsidiary for approximately $2.6 billion. Cinergy and GPU have each invested approximately $500 million in Avon Energy. Cinergy funded its investment through its credit facility. Avon Energy funded the remainder of the purchase price through the issuance of non-recourse debt (see Note 1(e) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data").
During 1996, Cinergy and Trigen formed a joint venture, Trigen-Cinergy Solutions LLC (Trigen-Cinergy). Cinergy may invest up to $100 million and provide guaranties of debt and other obligations in an aggregate amount not to exceed $250 million at any one time with respect to energy-related products and services, including those undertaken by Trigen-Cinergy. (See the "Competitive Pressures" section herein.)
With respect to international development, subject to identifying projects which meet Cinergy's investment objectives, Cinergy may invest or commit up to $100 million during 1998. Funding of these investments or commitments will be provided through additional debt borrowings. (See the "Competitive Pressures" section herein.)
Cinergy
Cinergy's net cash used in investing activities was $377 million in 1997, compared to $871 million and $363 million in 1996 and 1995, respectively. The decrease in 1997 was primarily attributable to the effect of Cinergy's investment in Midlands during 1996.
CG&E and ULH&P
CG&E and its subsidiaries' net cash used in investing activities was $166 million in 1997 (including $23 million for ULH&P), compared to $156 million and $147 million in 1996 and 1995 (including $19 million and $19 million for ULH&P), respectively. The increase in 1997 was primarily attributable to an increase in the amount of construction expenditures.
PSI
PSI's net cash used in investing activities was $152 million in 1997, compared to $198 million and $230 million and 1996 and 1995, respectively. The decrease in 1997 was primarily attributable to a decrease in the amount of construction expenditures for PSI.
OTHER COMMITMENTS
Cinergy, CG&E, PSI, and ULH&P
Securities Redemptions Mandatory redemptions of long-term debt total $501 million ($341 million for CG&E and its subsidiaries, including $20 million for ULH&P, and $160 million for PSI) during the period 1998 through 2002. On January 29, 1998, PSI gave notice of its intention to redeem on March 1, 1998, all outstanding shares of its 7.44% Series Cumulative Preferred Stock at a redemption price of $25 per share. On February 27, 1998, CG&E announced its intention to redeem on March 29, 1998, $41 million principal amount of its 7 3/8% Series First Mortgage Bonds (due November 1, 2001) at a redemption price of 100.30% and to redeem on March 30, 1998, the entire $100 million principal amount of its 8 1/2% Series First Mortgage Bonds (due September 1, 2022) at a redemption price of 100%, both through the maintenance and replacement fund (M&R Fund) provision of CG&E's first mortgage bond indenture. Additionally, on the same date, CG&E announced its intention to redeem on March 30, 1998, the remaining $19 million principal amount of its 7 3/8% Series First Mortgage Bonds (due November 1, 2001) at a redemption price of 100.87%. On March 24, 1998, ULH&P announced its intention to redeem on April 23, 1998, $6.3 million principal amount of its 8% Series First Mortgage Bonds (due October 1, 2003) at a redemption price of 100.85% through the M&R Fund provision of ULH&P's first mortgage bond indenture. Additionally, on the same date, ULH&P announced its intention to redeem on April 24, 1998, the remaining $3.7 million principal amount of its 8% Series First Mortgage Bonds (due October 1, 2003) at a redemption price of 101.73%. Cinergy will continue to evaluate opportunities for the refinancing of outstanding securities beyond mandatory redemption requirements.
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 an amount related to the net revenues of the respective company.
Cinergy
Windfall Profits Tax During the third quarter of 1997, a windfall profits tax was levied against Midlands. Cinergy's share of the tax to be paid by Midlands in two equal installments, due December 1, 1997, and 1998, is approximately 67 million pounds sterling ($109 million or $.69 per share, basic and diluted). Midlands borrowed the funds to finance the first installment. Cinergy expects Midlands will borrow funds as necessary to pay the final installment. As Cinergy's management believes this charge to be unusual in nature, and does not expect such a charge to recur, the tax was recorded as an extraordinary item in Cinergy's Consolidated Statement of Income during the third quarter of 1997. No related tax benefit was recorded for the charge as the windfall profits tax is not deductible for corporate income tax purposes in the UK, and Cinergy expects that benefits, if any, derived for US Federal income taxes will not be significant.
Cinergy, CG&E, PSI, and ULH&P
Year 2000 Costs Cinergy, like most owners of information systems, will be required to modify significant portions of its systems to accommodate requirements brought about by the turn of the century. During 1997, Cinergy incurred costs of approximately $5 million to modify existing computer systems and applications. Preliminary estimates of the remaining total costs to be incurred prior to 2000 are approximately $8 million. Maintenance or modification costs will be expensed as incurred, while the costs of new software will be capitalized and amortized over the software's useful life.
CAPITAL RESOURCES
Cinergy, CG&E, PSI, and ULH&P
Cinergy, CG&E and its subsidiaries (including ULH&P), and PSI forecast that their need for external funds during the 1998 through 2002 period will primarily be for the refinancing of existing securities. (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, all or any of which may change significantly.)
INTERNAL FUNDS
Cinergy, CG&E, PSI, and ULH&P
General Currently, the majority of Cinergy's revenues and corresponding cash flows are derived from cost-of-service regulated operations. Cinergy believes it is likely that the generation component of the electric utility industry will ultimately be deregulated. However, the timing and nature of the deregulation and restructuring of the industry 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
For the year ended December 31, 1997, Cinergy's cash provided from operating
activities was $753 million compared to $855 million and $736 million in 1996
and 1995, respectively. The decrease in 1997 was primarily due to CG&E's and
ULH&P's sales of accounts receivable during 1996. The decrease was offset, in
part, by PSI's payment in 1996 of $80 million in accordance with a 1989
settlement agreement between PSI and Wabash Valley Power Association, Inc.
(WVPA). (See Notes 6 and 12(e) of the "Notes to Financial Statements" in "Item
8. Financial Statements and Supplementary Data.")
CG&E and ULH&P
For the year ended December 31, 1997, CG&E and its subsidiaries' cash provided from operating activities was $439 million (including $40 million for ULH&P) compared to $680 million in 1996 (including $42 million for ULH&P) and $446 million in 1995 (including $37 million for ULH&P). The decrease in 1997 was primarily due to CG&E's and ULH&P's sales of accounts receivable during 1996.
PSI
For the year ended December 31, 1997, PSI's cash provided from operating activities was $332 million compared to $262 million in 1996 and $284 million in 1995. The increase in 1997 was primarily due to the reflection in 1996 of PSI's payment of $80 million in accordance with a 1989 settlement agreement between PSI and WVPA. (See Note 12(e) 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, CG&E currently has a regulatory order in effect which provides a mechanism for the retention of a portion of net Non-fuel Merger Savings.
COMMON STOCK
Cinergy
During 1997, 1996, and 1995, Cinergy issued 66 thousand, 15 thousand, and 2.6 million new shares, respectively, of common stock pursuant to its dividend reinvestment and stock purchase plan and various stock-based employee plans. In addition, Cinergy purchased 1.7 million and 1.2 million shares on the open market to satisfy substantially all of its 1997 and 1996 obligations, respectively, under these plans. Cinergy plans to continue using market purchases of common stock to satisfy all or at least a portion of its obligations under these plans.
LONG-TERM DEBT
Cinergy, CG&E, PSI, and ULH&P
As of December 31, 1997, CG&E, PSI, and ULH&P had state regulatory authority for long-term debt issuances of $300 million, $300 million, and $50 million, respectively. Regulatory approval to issue additional amounts of securities will be requested as needed. On March 19, 1998, PSI issued $100 million principal amount of its 7.25% JUnior Maturing Principal Securities (JUMPS). The JUMPS will mature on March 15, 2028. Proceeds from the sale were used to repay short-term indebtedness incurred in connection with the redemption on March 1, 1998, of all outstanding shares of PSI's 7.44% Series Cumulative Preferred Stock at a redemption price of $25 per share.
SHORT-TERM DEBT
Cinergy, CG&E, PSI, and ULH&P
Cinergy's utility subsidiaries had regulatory authority to borrow up to $853 million ($453 million for CG&E and its subsidiaries, including $50 million for ULH&P, and $400 million for PSI) as of December 31, 1997. In connection with this authority, committed lines have been established which permit borrowings of up to $270 million ($85 million for CG&E and $185 million for PSI), of which $140 million ($20 million for CG&E and $120 million for PSI) remained unused and available at December 31, 1997. Also, pursuant to this authority, uncommitted lines (short-term borrowings with various banks on an "as offered" basis) have been established. Under these arrangements, $154 million ($100 million for CG&E and $54 million for PSI) was unused and available at December 31, 1997. CG&E and PSI also have the capability to issue commercial paper which must be supported by committed lines (unsecured lines of credit) of the respective company. Neither CG&E nor PSI issued commercial paper in 1997 or 1996.
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 this arrangement, Cinergy system companies with surplus short-term funds, whether from internal or external sources, provide short-term loans to other system companies at rates that reflect (1) the actual costs of the external borrowing and/or (2) the costs of the internal funds which are set at the 30-day Federal Reserve "AA" industrial commercial paper rate. The SEC's approval of the money pool, pursuant to the PUHCA, extends through December 31, 2002. For amounts outstanding under this money pool arrangement at December 31, 1997, and December 31, 1996, see "Notes payable to affiliated companies" on the Consolidated Balance Sheets of CG&E and PSI and the Balance Sheets of ULH&P.
Cinergy
In 1997, Cinergy amended its existing credit facility. At year-end, Cinergy had two separate credit facilities, a $350 million acquisition commitment and a $400 million revolving credit facility, which provides credit support for Cinergy's newly instituted commercial paper program (see below). As of December 31, 1997, approximately $111 million of the $400 million revolving facility, excluding the amount reserved for commercial paper support, remained unused and available.
Cinergy's newly instituted commercial paper program is limited to a maximum outstanding principal amount of $200 million. As of December 31, 1997, approximately $161 million of commercial paper was outstanding under this program. The majority of the proceeds were used to reduce the acquisition commitment to the year-end level of $350 million. The entire $350 million was utilized to fund the acquisition of Midlands through Avon Energy and its wholly-owned subsidiary.
In addition, Cinergy UK, Inc., a subsidiary of Investments, which holds Cinergy's 50% investment in Avon Energy, entered into a $40 million non-recourse credit agreement in 1996, which was terminated in October of 1997. This agreement was replaced by a one year $115 million non-recourse revolving credit agreement, which had $81 million unused as of December 31, 1997.
On January 20, 1998, the SEC issued an order under the PUHCA permitting Cinergy to issue and sell from time to time through December 31, 2002: 1) short-term notes and commercial paper in an aggregate principal amount not to exceed $2 billion outstanding at any time; and 2) up to approximately 30 million additional shares of Cinergy common stock. Cinergy intends to use the net proceeds from the issuance and sale of the above mentioned securities for general corporate purposes.
Net cash used in financing activities totaled $343 million in 1997, as compared to $110 thousand and $410 million in 1996 and 1995, respectively. The change in cash flow from financing activities for 1997 primarily resulted from Cinergy borrowing under its credit facility in 1996 to fund the acquisition of Midlands.
CG&E and ULH&P
CG&E and its subsidiaries' net cash used in financing activities totaled $275 million (including $17 million for ULH&P) for 1997, as compared to $521 million (including $23 million for ULH&P) for 1995 and $339 million (including $17 million for ULH&P) for 1994. The change in cash flow from financing activities for 1997 was primarily attributable to CG&E's payments of common stock dividends to Cinergy during 1996.
PSI
PSI's net cash used in financing activities totaled $165 million for 1997, as compared to $77 million for 1996 and $45 million for 1995. The change in cash flow from financing activities for 1997 was primarily attributable to PSI's issuance of long-term debt in 1996.
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, of which $252 million ($167 million by CG&E and its subsidiaries, including $29 million by ULH&P, and $85 million by PSI), net of reserves, has been sold as of December 31, 1997. The Consolidated Balance Sheets of Cinergy, CG&E, and PSI and the Balance Sheets of ULH&P are net of the amounts sold at December 31, 1997 and 1996.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
Cinergy, CG&E, PSI, and ULH&P
The following discussions about Cinergy's market risk sensitive instruments and positions and risk management activities include forward-looking information and statements that involve risks and uncertainties. The forward-looking information and statements presented are only estimates of what may occur in the future, assuming certain adverse market conditions, due to their dependence on model characteristics and assumptions. As a result, actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, rather they merely present indications of reasonably possible losses.
Energy Commodities Sensitivity
Cinergy, CG&E, and PSI
During 1996 Cinergy functionally reorganized its operations into four strategic business units, including an energy commodities business unit. The energy commodities business unit includes Cinergy's power marketing and trading function, which was formally established in 1995 and was the natural successor of CG&E's and PSI's existing bulk power operations.
At present, the competitive electric power market is dominated by a small number of large participants (primarily utilities and a few power marketers), trading liquidity is limited, and pricing is not transparent. However, similar to the development of natural gas markets, the market for trading electricity is expected to develop rapidly and Cinergy plans to be a major participant.
The transactions associated with Cinergy's power marketing and trading function give rise to various risks, including market risk. Market risk represents the potential risk of loss from changes in the market value of a particular commitment arising from adverse changes in market rates and prices. Cinergy's power marketing and trading operations are actively conducted in all regions of the US. These operations subject Cinergy to the risks and volatilities associated with the energy commodities (e.g., primarily electricity) which it markets and trades. The wholesale power marketing and trading business continues to be very competitive and, as a result, margins have declined throughout the year. As Cinergy continues to develop and expand its power marketing and trading business (and due to its substantial investment in generating assets), its exposure to movements in the price of electricity and other energy commodities will become greater. As a result, Cinergy may be subject to increased earnings volatility.
Cinergy's power marketing and trading activities principally consist of marketing and trading over-the-counter contracts for the purchase and sale of electricity. The majority of these contracts commit Cinergy to purchase or sell electricity at fixed prices in the future (i.e., fixed-price forward purchase and sales contracts). Cinergy also markets and trades over-the-counter option contracts. The majority of these forward and option contracts require settlement by physical delivery of electricity or are netted out in accordance with industry trading standards. The use of these types of physical commodity instruments is designed to allow Cinergy to manage and hedge its contractual commitments, reduce its exposure relative to the volatility of cash market prices, and take advantage of selected arbitrage opportunities. The use of derivative commodity instruments intended to be settled in cash was not significant during 1997.
Cinergy values its portfolio of over-the-counter forward and option contracts using the aggregate lower of cost or market method. To the extent there are estimated net aggregate losses in the portfolio, Cinergy reserves for such losses. As these contracts are settled, actual gains and losses may differ from the estimated gains and losses utilized in calculating the aggregate lower of cost or market reserve due to changing market conditions.
Cinergy structures and modifies its net position to capture expected changes in future demand, seasonal market pricing characteristics, overall market sentiment, and price relationships between different time periods and trading regions. Therefore, at times, Cinergy creates a net open position or allows a net open position to continue when it believes future changes in prices and market conditions will make the positions profitable. Position imbalances may also occur because of the basic lack of liquidity in the wholesale power market itself. To the extent net open positions exist, Cinergy is exposed to the risk that fluctuating market prices of electric power may potentially impact its financial condition or results of operations adversely if prices do not move in the manner or direction expected.
Cinergy measures the risk inherent in its portfolio utilizing value-at-risk analysis and other methodologies, which simulate forward price curves in electric power markets to quantify estimates of the magnitude and probability of potential future losses related to open contract positions. Cinergy's value-at-risk expresses the potential loss in fair value of its forward contract and option position over a particular period of time, with a specified likelihood of occurrence, due to an adverse market movement. Cinergy reports value-at-risk as a percentage of its earnings, based on a 95% confidence interval, utilizing one day holding periods. On a one day basis as of December 31, 1997, Cinergy's value-at-risk for its power marketing and trading activities was less than 2% of Cinergy's "Income Before Interest and Other Charges". The value-at-risk model uses the variance-covariance statistical modeling technique and historical volatilities and correlations over the past 200 day period. The estimated market prices used to value these transactions for value-at-risk purposes reflect the use of established pricing models and various factors including quotations from exchanges and over-the-counter markets, price volatility factors, the time value of money, and location differentials.
Cinergy
Cinergy Capital & Trading, Inc. (CC&T), a subsidiary of Investments, specializing in energy risk management, marketing, and proprietary arbitrage trading, actively trades derivative commodity instruments, customarily settled in cash, including futures, forwards, swaps, and options. CRI also utilizes derivative commodity instruments, customarily settled in cash, to hedge purchases and sales of natural gas. The trading and hedging activities of CC&T and the hedging activities of CRI were not significant to Cinergy's financial condition or results of operations.
Cinergy, CG&E, PSI, and ULH&P
Credit risk represents the risk of loss which would occur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations with the Company. Concentrations of credit risk relate to significant customers or counterparties, or groups of customers or counterparties, possessing similar economic or industry characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Concentration of credit risk with respect to Cinergy's trade accounts receivable from electric and gas retail customers is limited due to Cinergy's large number of customers and diversified customer base of residential, commercial, and industrial customers. Sales for resale customers on Cinergy's electric system include traditional electric cooperatives and municipalities with which CG&E and PSI have long-standing relationships. Contracts for sales of electricity for resale outside of Cinergy's system are principally with power marketers, other investor owned utilities, electric cooperatives, and municipalities. As of December 31, 1997, approximately 65% of Cinergy's power marketing and trading activity represents commitments with 10 counterparties. The majority of these contracts are for terms of one year or less. As the competitive electric power market expands, counterparties will increasingly include new market entrants, such as other power marketers, brokers, and commodities traders. This increased level of new market entrants, as well as competitive pressures on the utility market participants, could increase Cinergy's exposure to credit risk. As of December 31, 1997, Cinergy's management believes nonperformance of contractual obligations by any one counterparty of Cinergy's power marketing and trading function would not result in losses which are significant to the financial condition or results of operations of Cinergy.
Cinergy, CG&E, and PSI
Cinergy's energy commodities business unit has established a risk management function and has implemented active risk management policies and procedures to manage and minimize its exposure to price risks and associated volatilities, other market risks, and credit risk. Cinergy maintains credit policies with regard to its counterparties in order to manage and minimize its exposure to credit risk. These policies include requiring parent company guaranties and various forms of collateral under certain circumstances and the use of mutual netting/closeout agreements. Cinergy manages, on a portfolio basis, the market risks inherent in its power marketing and trading transactions subject to parameters established by Cinergy's Risk Policy Committee. Market risks are monitored by the Risk Management Group of Cinergy's energy commodities business unit, which operates separately from the units which originate or actively manage the market risk exposures, to ensure compliance with Cinergy's stated risk management policies and procedures. These policies and procedures are reviewed and monitored on a continuous basis to ensure their responsiveness to changing market and business conditions. In addition, efforts are ongoing to develop systems to improve the timeliness and quality of market and credit risk information.
Exchange Rate Sensitivity
Cinergy
Cinergy has exposure to fluctuations in the US dollar/UK pound sterling exchange rate through its investment in Midlands. Cinergy used dollar denominated variable interest rate debt to fund this investment, and has hedged the exchange rate exposure related to this transaction through a currency swap executed in February 1997. Under the swap, Cinergy exchanged $500 million for 330 million pounds sterling. When the swap terminates in the year 2002, these amounts will be re-exchanged; that is, Cinergy will be repaid $500 million and will be obligated to repay to the counterparty 330 million pounds sterling. To fund this repayment, Cinergy could buy 330 million pounds sterling in the foreign exchange market at the prevailing spot rate or enter into a new currency swap.
The purpose of this swap is to hedge the value of Cinergy's investment in Midlands against changes in the dollar/sterling exchange rate. When the pound sterling weakens relative to the dollar, the dollar value of Cinergy's investment in Midlands as shown on its books declines; however, the value of the swap increases, offsetting the decline in the investment. The reverse is true when the pound sterling appreciates relative to the dollar. The translation gains and losses related to the principal exchange on the swap and on Cinergy's original investment in Midlands are recorded in the cumulative foreign currency translation adjustment which is reported as a separate component of common stock equity in the Consolidated Financial Statements.
In connection with this swap, Cinergy must pay semi-annual interest on its pound sterling obligation and will receive interest on the dollar notional amount. At December 31, 1997, the fair value of this swap, reflecting the semi-annual interest obligations through February 2002, and the final principal exchange, was $(48) million. This was largely offset by a $41 million currency translation gain to date on Cinergy's investment in Midlands.
The following table summarizes the details of the swap. (For presentation
purposes, the pound sterling payment obligation has been converted to US dollars
using the dollar/sterling spot exchange rate at December 31, 1997, of 1.64515.
The interest rates are based on the six-month London Interbank Offered Rate
(LIBOR) implied forward rates at December 31, 1997.)
Expected Maturity Date
There-
1998 1999 2000 2001 2002 after Total
Currency Swap ($US Equivalent in millions)
Receive principal ($US) $ - $ - $ - $ - $500 $ - $500
Average interest
receive rate - % - % - % - % 6.1% - % 6.1%
Pay principal (pound
sterling UK) $ - $ - $ - $ - $543 $ - $543
Average interest
pay rate - % - % - % - % 7.0% - % 7.0%
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Interest Rate Sensitivity
Cinergy, CG&E, PSI, and ULH&P
Cinergy's net exposure to changes in interest rates primarily consists of short-term debt instruments with floating interest rates that are benchmarked to US short-term money market indices. At December 31, 1997, this included (i) short-term bank loans and commercial paper totaling $870 million ($105 million for CG&E and $131 million for PSI), (ii) $244 million of pollution control related debt ($184 million for CG&E and $60 million for PSI) which is classified as other short-term obligations on Cinergy's, CG&E's, and PSI's respective Balance Sheets, and (iii) a $252 million sale of accounts receivable ($167 million sold by CG&E and its subsidiaries, including $29 million sold by ULH&P, and $85 million sold by PSI) (Cinergy's, CG&E's, PSI's, and ULH&P's respective Balance Sheets are net of this sale). At December 31, 1997, interest rates on bank loans, commercial paper, and the sale of accounts receivable approximated 6%, and the interest rate on the pollution control debt approximated 4%. Current forward yield curves project no significant change in applicable short-term interest rates over the next five years.
The following table presents the principal cash repayments and related weighted average interest rates by maturity date for Cinergy and certain of its utility subsidiaries' long-term fixed-rate debt, other debt and capital lease obligations as of December 31, 1997:
Expected Maturity Date
There- Fair
1998 1999 2000 2001 2002 after Total Value
(in millions)
Liabilities
Cinergy and Subsidiaries
Long-term Debt (a)
Fixed rate $ 35 $186 $ 31 $100 $149 $1 650 $2 151 $2 240
Average interest rate (b) 5.3% 6.3% 5.7% 6.1% 7.3% 7.2% 7.1%
Other (c) $ - $ - $ - $ - $ - $ 100 $ 100 $ 97
Average interest rate (b) -% -% -% -% -% 6.5% 6.5%
Capital Lease
Variable rate $ - $ - $ - $ 22 $ - $ - $ 22 $ 22
Average interest rate (b) -% -% -% 5.6% -% -% 5.6%
CG&E and Subsidiaries
Long-term Debt (a)
Fixed rate $ - $180 $ - $ 61 $100 $ 892 $1 233 $1 258
Average interest rate (b) -% 6.3% -% 7.4% 7.3% 7.2% 7.1%
Other (c) $ - $ - $ - $ - $ - $ 100 $ 100 $ 97
Average interest rate (b) -% -% -% -% -% 6.5% 6.5%
Capital Lease
Variable rate $ - $ - $ - $ 22 $ - $ - $ 22 $ 22
Average interest rate (b) -% -% -% 5.6% -% -% 5.6%
PSI
Long-term Debt (a)
Fixed rate $ 35 $ 6 $ 31 $ 39 $ 49 $ 758 $ 918 $ 982
Average interest rate (b) 5.3% 7.2% 5.7% 4.0% 7.3% 7.3% 7.1%
ULH&P
Long-term Debt (a)
Fixed rate $ - $ 20 $ - $ - $ - $ 25 $ 45 $ 46
Average interest rate (b) -% 6.5% -% -% -% 7.8% 7.2%
(a) Includes amounts reflected as long-term debt due within one year.
(b) For the long-term debt obligations, the weighted average interest rate
is based on the coupon rates of the debt that is maturing in the year
reported. For the capital lease, the interest rate is based on a spread
over 3-month LIBOR, and averaged to be approximately 6% in 1997. For
the variable rate Liquid Asset Notes with Coupon Exchange (LANCEs), the
current forward yield curve suggests the interest rate on these notes
would be fixed at 6.50% commencing October 1, 1999.
(c) Variable rate LANCEs.
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Cinergy, CG&E, and PSI
To manage Cinergy's exposure to fluctuations in interest rates and to lower funding costs, Cinergy constantly evaluates the use of, and has entered into, several interest rate swaps. Under these swaps, Cinergy or its subsidiaries agree with counterparties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated on an agreed notional amount. This interest differential paid or received is recognized in the Consolidated Statements of Income as a component of interest expense.
Through two interest rate swap agreements, Cinergy has effectively fixed the interest rate on the pound sterling denominated obligation created by the currency swap discussed above. Each contract requires Cinergy to pay semi-annually a fixed rate and receive a floating rate through February 2002. The combined notional amount of both swaps is 330 million pounds sterling. Translation gains and losses related to Cinergy's interest obligation, which is payable in pounds sterling, are recognized as a component of interest expense in the Consolidated Statements of Income.
At December 31, 1997, PSI had two interest rate swap agreements outstanding with notional amounts of $1OO million each. One contract, with three years remaining of a four-year term, requires PSI to pay a floating rate and receive a fixed rate. The second contract, with a six-month term, requires PSI to pay a fixed rate and receive a floating rate. In both cases, the floating rate is based on applicable LIBOR. The following table presents notional principal amounts and weighted average interest rates by contractual maturity dates for the interest rate swaps of Cinergy and PSI. The variable rates are the average implied forward rates during the contract based on the six month LIBOR yield curve at December 31, 1997. Although Cinergy's swaps require payments to be made in pounds sterling, the table reflects the dollar equivalent notional amounts based on spot market foreign currency exchange rates at December 31, 1997.
Expected Maturity Date There- Fair 1998 1999 2000 2001 2002 after Total Value
Interest Rate ($US Equivalent in millions)
Derivatives
Interest Rate Swaps
Receive fixed/pay
variable ($US) $ - $ - $100 $ - $ - $ - $100 $ -
Average pay rate 5.9% 6.0% 6.1% - % - % - % 6.0%
Average receive rate 6.1% 6.1% 6.1% - % - % - % 6.1%
Receive variable/pay
fixed ($US) $100 $ - $ - $ - $ - $ - $100 $ -
Average pay rate 6.0% - % - % - % - % - % 6.0%
Average receive rate 5.9% - % - % - % - % - % 5.9%
Receive variable/pay
fixed (pound
sterling UK) $ - $ - $ - $ - $543(a) $ - $543(a) $(3)
Average pay rate - % - % - % - % 7.1% - % 7.1%
Average receive rate - % - % - % - % 6.9% - % 6.9%
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(a) Notional converted to US dollars using the Sterling spot exchange rate at December 31, 1997, of 1.64515.
INFLATION
Cinergy, CG&E, PSI, and ULH&P
Cinergy believes that the recent inflation rates do not materially affect its financial condition or results of operations. However, under existing regulatory practice, only the historical cost of plant is recoverable from customers. As a result, cash flows designed to provide recovery of historical plant costs may not be adequate to replace plant in future years.
DIVIDEND RESTRICTIONS
Cinergy, CG&E, and PSI
See Note 2(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data."
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
Reference is made to "Item 8. Financial Statements and Supplementary Data."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cinergy, CG&E, PSI, and ULH&P
Reference is made to the "Market Risk Sensitive Instruments and Positions" section in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Index to Financial Statements and Financial Statement Schedules
Page Number
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, 1997. . . . . . . . .
Consolidated Balance Sheets at
December 31, 1997 and 1996 . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1997. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1997. . . . .
Results of Operations. . . . . . . . . . . . . . . . .
CG&E
Consolidated Statements of Income for the
three years ended December 31, 1997. . . . . . . . .
Consolidated Balance Sheets at
December 31, 1997 and 1996 . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1997. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1997. . . . .
Results of Operations. . . . . . . . . . . . . . . . .
PSI
Consolidated Statements of Income for the
three years ended December 31, 1997. . . . . . . . .
Consolidated Balance Sheets at
December 31, 1997 and 1996 . . . . . . . . . . . . .
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1997. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
for the three years ended December 31, 1997. . . . .
Results of Operations. . . . . . . . . . . . . . . . .
ULH&P
Statements of Income for the three years ended
December 31, 1997. . . . . . . . . . . . . . . . . .
Balance Sheets at December 31, 1997 and 1996 . . . . .
Statements of Changes in Common Stock Equity
for the three years ended December 31, 1997. . . . .
Statements of Cash Flows for the three years
ended December 31, 1997. . . . . . . . . . . . . . .
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, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, as listed in the index on page 53. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, 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 54 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 27, 1998
Cinergy Corp.
and Subsidiaries
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
1997 1996 1995
(in thousands, except per share amounts)
Operating Revenues
Electric $3 861 698 $2 768 706 $2 612 579
Gas 491 145 474 034 410 852
4 352 843 3 242 740 3 023 431
Operating Expenses
Fuel used in electric production 693 435 713 250 716 754
Gas purchased 266 158 249 116 206 250
Purchased and exchanged power 1 219 358 158 838 47 632
Other operation 637 945 598 434 520 590
Maintenance 176 471 193 908 182 180
Depreciation 289 077 282 763 279 759
Amortization of phase-in deferrals 13 483 13 598 9 091
Post-in-service deferred operating
expenses - net 4 362 (1 509) (2 500)
Income taxes (Note 11) 248 937 218 269 221 429
Taxes other than income taxes 265 024 257 815 255 533
3 814 250 2 684 482 2 436 718
Operating Income 538 593 558 258 586 713
Other Income and Expenses - Net
Allowance for equity funds used
during construction 98 1 225 1 964
Post-in-service carrying costs - 1 223 3 186
Phase-in deferred return 8 008 8 372 8 537
Equity in earnings of unconsolidated
subsidiaries (Note 1(e)) 60 392 25 430 -
Income taxes (Note 11) 35 937 19 536 7 358
Other - net (31 502) (40 464) (3 051)
72 933 15 322 17 994
Income Before Interest and Other Charges 611 526 573 580 604 707
Interest and Other Charges
Interest on long-term debt 181 772 190 617 213 911
Other interest 59 947 31 169 20 826
Allowance for borrowed funds used
during construction (5 400) (6 183) (8 065)
Preferred dividend requirements of
subsidiaries 12 569 23 180 30 853
248 888 238 783 257 525
Net Income Before Extraordinary Item $ 362 638 $ 334 797 $ 347 182
Extraordinary Item - Equity Share of
Windfall Profits Tax (Less Applicable
Income Taxes of $0) (Note 17) (109 400) - -
Net Income $ 253 238 $ 334 797 $ 347 182
Average Common Shares Outstanding 157 685 157 678 156 620
Earnings Per Common Share (Note 16)
Net income before extraordinary item $2.30 $2.00 $2.22
Net income $1.61 $2.00 $2.22
Earnings Per Common Share - Assuming
Dilution (Note 16)
Net income before extraordinary item $2.28 $1.99 $2.20
Net income $1.59 $1.99 $2.20
Dividends Declared Per Common Share $1.80 $1.74 $1.72
The accompanying notes are an integral part of these consolidated financial
statements.
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CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1997 1996
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $8 981 182 $8 809 786
Gas 746 903 713 829
Common 186 078 185 255
9 914 163 9 708 870
Accumulated depreciation 3 800 322 3 591 858
6 113 841 6 117 012
Construction work in progress 183 262 172 614
Total utility plant 6 297 103 6 289 626
Current Assets
Cash and temporary cash investments 53 310 19 327
Restricted deposits 2 319 1 721
Accounts receivable less accumulated provision
for doubtful accounts of $10,382 in 1997 and
$10,618 in 1996 (Note 6) 413 626 199 361
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 57 916 71 730
Gas stored for current use 29 174 32 951
Other materials and supplies 76 066 80 292
Prepayments and other 38 171 37 049
670 582 442 431
Other Assets
Regulatory assets (Note 1(f))
Amounts due from customers - income taxes 374 456 377 194
Post-in-service carrying costs and deferred
operating expenses 178 504 186 396
Coal contract buyout costs 122 485 138 171
Deferred demand-side management costs 109 596 134 742
Phase-in deferred return and depreciation 89 689 95 163
Deferred merger costs 90 346 93 999
Unamortized costs of reacquiring debt 66 242 70 518
Other 45 533 72 483
Investments in unconsolidated
subsidiaries (Note 1(e)) 537 720 592 660
Other 275 897 231 551
1 890 468 1 992 877
$8 858 153 $8 724 934
The accompanying notes are an integral part of these consolidated financial
statements.
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CINERGY CORP.
CAPITALIZATION AND LIABILITIES
December 31
1997 1996
(dollars in thousands)
Common Stock Equity (Note 2)
Common stock - $.01 par value;
authorized shares - 600,000,000;
outstanding shares - 157,744,658 in 1997
and 157,679,129 in 1996 $ 1 577 $ 1 577
Paid-in capital 1 573 064 1 590 735
Retained earnings 965 084 992 273
Cumulative foreign currency
translation adjustment (525) (131)
Total common stock equity 2 539 200 2 584 454
Cumulative Preferred Stock of Subsidiaries (Note 3)
Not subject to mandatory redemption 177 989 194 232
Long-term Debt (Note 4) 2 150 902 2 326 378
Total capitalization 4 868 091 5 105 064
Current Liabilities
Long-term debt due within one year (Note 4) 85 000 140 000
Notes payable and other short-term
obligations (Note 5) 1 114 028 922 217
Accounts payable 488 716 305 420
Accrued taxes 187 033 199 479
Accrued interest 46 622 55 590
Other 79 193 114 653
2 000 592 1 737 359
Other Liabilities
Deferred income taxes (Note 11) 1 248 543 1 146 263
Unamortized investment tax credits 166 262 175 935
Accrued pension and other postretirement
benefit costs (Notes 9 and 10) 297 142 263 319
Other 277 523 296 994
1 989 470 1 882 511
Commitments and Contingencies (Note 12)
$8 858 153 $8 724 934
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CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Cumulative
Foreign
Currency
Common Paid-in Retained Translation Total Common
Stock Capital Earnings Adjustment Stock Equity
(dollars in thousands)
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 57 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
Net income 334 797 334 797
Issuance of 8,988 shares of
common stock - net 311 311
Treasury shares purchased (4) (14 887) (14 891)
Treasury shares reissued 4 8 599 8 603
Dividends on common stock (see
page 57 for per share amounts) (274 358) (274 358)
Translation adjustments (131) (131)
Costs of reacquisition of
preferred stock of subsidiary (18 391) (18 391)
Other (338) 9 ____ (329)
Balance December 31, 1996 1 577 1 590 735 992 273 (131) 2 584 454
Net income 253 238 253 238
Issuance of 65,529 shares of
common stock - net 2 066 2 066
Treasury shares purchased (11) (46 199) (46 210)
Treasury shares reissued 11 26 729 26 740
Dividends on common stock (see
page 57 for per share amounts) (283 866) (283 866)
Translation adjustments (394) (394)
Other (267) 3 439 3 172
Balance December 31, 1997 $1 577 $1 573 064 $965 084 $(525) $2 539 200
The accompanying notes are an integral part of these consolidated financial statements.
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CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1997 1996 1995
(in thousands)
Operating Activities
Net income $253 238 $334 797 $347 182
Items providing or (using) cash:
Depreciation 289 077 282 763 279 759
Deferred income taxes and investment
tax credits - net 67 638 47 912 28 411
Equity in earnings of unconsolidated
subsidiaries (35 239) (25 430) -
Extraordinary item - equity share of windfall
profits tax 109 400 - -
Allowance for equity funds used during
construction (98) (1 225) (1 964)
Regulatory assets - net 71 310 39 282 33 324
Changes in current assets and current
liabilities
Restricted deposits (598) (358) (1 035)
Accounts receivable, net of reserves
on receivables sold (217 157) 132 749 (71 641)
Materials, supplies, and fuel 21 817 44 005 51 214
Accounts payable 183 296 37 281 1 672
Litigation settlement - (80 000) -
Accrued taxes and interest (21 414) (1 289) 52 233
Other items - net 32 175 44,604 16 538
Net cash provided by operating activities 753 445 855 091 735 693
Financing Activities
Issuance of common stock 2 066 311 60 139
Issuance of long-term debt 100 062 150 217 260 280
Funds on deposit from issuance of long-term debt - 973 9 987
Retirement of preferred stock of subsidiaries (16 269) (212 487) (93 466)
Redemption of long-term debt (336 312) (237 183) (398 833)
Change in short-term debt 191 811 572 417 20 900
Dividends on common stock (283 866) (274 358) (268 851)
Net cash used in financing activities (342 508) (110) (409 844)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (328 055) (323 013) (324 905)
Deferred demand-side management costs (19 867) (44 344) (57 571)
Investments in unconsolidated subsidiaries (29 032) (503 349) -
Equity investments in Argentine utilities - - 19 799
Net cash used in investing activities (376 954) (870 706) (362 677)
Net increase (decrease) in cash and temporary
cash investments 33 983 (15 725) (36 828)
Cash and temporary cash investments at beginning
of period 19 327 35 052 71 880
Cash and temporary cash investments at end of
period $ 53 310 $ 19 327 $ 35 052
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $235 948 $207 393 $218 357
Income taxes 140 655 141 917 140 189
The accompanying notes are an integral part of these consolidated financial statements.
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RESULTS OF OPERATIONS - CINERGY
Kilowatt-Hour (kwh) Sales
Increased activity in Cinergy's power marketing and trading operations led to higher non-firm power sales for resale and significantly contributed to the increase in total kwh sales of 78.7%, as compared to 1996. The increase in retail sales, which reflects a higher average number of commercial and industrial customers, was partially offset by a decline in residential sales as a result of mild weather. (See Note 1(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" and the "Market Risk Sensitive Instruments and Positions" section for discussions on Cinergy's power marketing and trading operations.)
Cinergy's total kwh sales in 1996, as compared to 1995, increased 11.0% reflecting an increase in sales to all customer classes. Increased activity in Cinergy's power marketing and trading operations led to higher non-firm power sales for resale. The increase in retail sales which reflects a higher average number of residential and commercial customers was partially offset by the return to more normal weather in 1996. The increase in industrial sales was due to growth in the primary metals sector.
As compared to 1994, total kwh sales in 1995 increased 4.1% reflecting higher 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.
Year-to-year changes in kwh sales for each major class of customers are shown below:
Increase (Decrease) from Prior Year
1997 1996 1995
Retail
Residential (3.8)% 2.4% 5.8%
Commercial 1.6 1.3 4.3
Industrial 2.9 3.3 4.6
Total retail .3 2.4 4.9
Sales for resale
Firm power obligations 15.5 10.5 1.7
Non-firm power transactions 460.3 82.0 (1.3)
Total sales for resale 363.9 59.6 (.4)
Total sales 78.7 11.0 4.1
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Cinergy currently forecasts a 2% annual compound growth rate in kwh sales over the 1998 through 2002 period. This forecast excludes non-firm power sales for resale and any potential new off-system, long-term firm power sales.
Thousand Cubic Feet (Mcf) Sales and Transportation
The milder weather experienced in 1997 contributed to a decrease in residential and commercial gas sales volumes and led to an 8.2% decrease in total sales volumes and a 1.1% decrease in total sales and transportation volumes, as compared to 1996. An increase in gas transportation volumes and a decline in industrial sales resulted from customers electing to purchase gas directly from suppliers using transportation services provided by Cinergy.
Mcf gas sales and transportation volumes increased 8.4% in 1996, as compared to 1995. Colder weather in the first half of 1996 led to increased gas sales to residential and commercial customers. Also contributing to the increase in total sales was an increase in the number of residential and commercial customers. Industrial sales decreased and gas transported increased as customers continued to purchase gas directly from suppliers.
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 the higher sales levels. 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.
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
1997 1996 1995
Retail
Residential (6.4)% 3.6% 10.5%
Commercial (9.7) 7.8 (2.0)
Industrial (8.8) (13.3) (26.6)
Total sales (8.2) 2.1 1.5
Gas transported 10.1 19.8 24.4
Total gas sold and transported (1.1) 8.4 8.6
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Operating Revenues
ELECTRIC OPERATING REVENUES
Increased kwh sales, as previously discussed, a full year's effects of PSI's retail rate increases approved in the September 1996 Order, as amended in August 1997, and the December 1996 DSM Order significantly contributed to the $1 billion (39%) increase in electric operating revenues, when compared to 1996. Also contributing to the increase was the return of approximately $13 million to customers in 1996 in accordance with the February 1995 Order. The February 1995 Order required all retail operating income above a certain rate of return to be refunded to customers. Partially offsetting these increases was the operation of CG&E's fuel adjustment clauses reflecting a lower average cost of fuel used in electric production.
The $156 million (6%) increase in 1996 electric operating revenues, as compared to 1995, is due, in large part, to the increase in kwh sales as previously discussed. Also contributing to the increase was the effect of PSI's September 1996 Order, as well as, a full year's effect of PSI's 4.3% retail rate increase approved in the February 1995 Order and PSI's 1.9% increase for carrying costs on construction work in progress property which was approved by the IURC in March 1995. These rate increases were offset by the return of approximately $10 million to PSI's customers in accordance with the February 1995 Order, the operation of CG&E's fuel adjustment clauses reflecting a lower average cost of fuel used in electric production, and a decrease in ULH&P's electric rates reflecting a reduction in the cost of electricity purchased from CG&E.
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 $167 million (7%) increase in electric operating revenues for 1995, when compared to 1994.
An analysis of electric operating revenues for the past three years is shown below:
1997 1996 1995
(dollars in millions)
Previous year's electric
operating revenues $2 769 $2 613 $2 446
Increase (Decrease) due to change in:
Price per kwh
Retail 9 (1) 54
Sales for resale
Firm power obligations (10) (4) (1)
Non-firm power transactions 113 - 4
Total change in price per kwh 112 (5) 57
Kwh sales
Retail 7 56 109
Sales for resale
Firm power obligations 14 9 1
Non-firm power transactions 956 94 (1)
Total change in kwh sales 977 159 109
Other 4 2 1
Current year's electric
operating revenues $3 862 $2 769 $2 613
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GAS OPERATING REVENUES
The increasing trend of industrial customers purchasing gas directly from producers and using CG&E facilities to transport the gas (see the "Mcf Sales and Transportation" section) continues to put downward pressure on gas operating revenues. Since providing transportation services does not necessitate recovery of the cost of gas purchased, 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.
CG&E's gas rate increase of 2.5% ($9 million annually) approved by the PUCO in the December 1996 Order and the operation of a gas cost recovery mechanism, reflecting a higher average cost per Mcf of gas purchased, contributed to the $17 million (4%) increase in gas operating revenues as compared to 1996. These increases were partially offset by the previously discussed changes in Mcf gas sales.
In 1996, gas operating revenues increased $63 million (15%), as compared to 1995. This increase is attributable to the increase in gas sales and transportation volumes. Also contributing to the increase was the operation of fuel adjustment clauses, reflecting a higher average cost per Mcf of gas purchased.
Gas operating revenues declined $32 million (7%) 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 per Mcf of gas purchased.
Operating Expenses
FUEL
Fuel Used in Electric Production Electric fuel costs declined $20 million (3%) when compared to 1996.
An analysis of fuel costs for the past three years is shown below:
1997 1996 1995
(in millions)
Previous year's fuel expense $713 $717 $713
Increase (Decrease) due to change in:
Price of fuel 7 (48) (23)
Deferred fuel cost (55) 42 (2)
Kwh generation 28 2 29
Current year's fuel expense $693 $713 $717
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Gas Purchased The increase in gas purchased expense of $17 million (7%) in 1997, as compared to 1996, reflects a higher average cost per Mcf of gas purchased. This increase was partially offset by a decline in the volumes of gas purchased.
Gas purchased increased $43 million (21%) in 1996, as compared to 1995, due to an increase in volumes purchased and a higher average cost per Mcf of gas purchased.
In 1995, gas purchased expense decreased $42 million (17%), as compared to 1994, primarily reflecting a decline in the average cost per Mcf of gas purchased.
PURCHASED AND EXCHANGED POWER
Purchased and exchanged power increased $1.1 billion and $111 million in 1997 and 1996, respectively. These increases primarily reflect increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. (See Note 1(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" and the "Market Risk Sensitive Instruments and Positions" section for discussions on Cinergy's power marketing and trading operations.)
OTHER OPERATION
Other operation expenses increased $40 million (7%) in 1997, as compared to 1996. This increase is primarily due to higher other operation expenses of PSI relating to the Clean Coal Project, amortization of deferred DSM expenses, and amortization of deferred expenses associated with the Clean Coal Project, all of which are being recovered in revenues pursuant to either the September 1996 Order or the December 1996 DSM Order. The effect of PSI discontinuing deferral of certain DSM-related costs in accordance with provisions of the December 1996 DSM Order also added to the increase. Further contributing to the increase is the effect of CG&E curtailing certain deferrals associated with its DSM programs for new participants after December 31, 1996, due to the December 1996 Order that changed the benefit/cost tests that DSM programs must surpass in Ohio in order for certain DSM-related costs to be eligible for deferral. These increases were partially offset by the effect of charges in 1996 for early retirement and severance programs and the December 1996 Order (see below).
Other operation expenses increased $78 million (15%) in 1996, as compared to 1995. This increase is due to a number of factors, including increased administrative and general expenses reflecting, in part, charges of $35 million for voluntary early retirement and severance programs and charges totaling $6 million related to the December 1996 Order.
In 1995, other operation expenses decreased $29 million (5%), 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.
MAINTENANCE
In 1997, maintenance costs decreased $17 million (9%), as compared to 1996. This decrease is primarily attributable to reduced outage related charges and other maintenance costs associated with PSI's and CG&E's electric production facilities. Reduced maintenance costs associated with PSI's electric transmission and distribution facilities also contributed to the decrease for 1997.
An increase of $12 million (6%) in maintenance costs for 1996, as compared to 1995, is primarily attributable to increased maintenance associated with the Clean Coal Project which began commercial operation in November 1995. Increased transmission and distribution expenses also contributed to the higher level of maintenance expense.
Maintenance costs decreased $19 million (9%) 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.
DEPRECIATION
In 1995, depreciation expense decreased $15 million (5%), 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.
AMORTIZATION OF PHASE-IN DEFERRALS AND PHASE-IN DEFERRED RETURN
Amortization of phase-in deferrals and phase-in deferred return reflect the PUCO-ordered phase-in plan for the Wm. H. Zimmer Generating Station (Zimmer). (See Note 1(k) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
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.")
TAXES OTHER THAN INCOME TAXES
Taxes other than income taxes increased $12 million (5%) in 1995, primarily due to increased property taxes resulting from a greater investment in taxable property 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.")
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES
The increase in equity in earnings of unconsolidated subsidiaries of $35 million for 1997, as compared to 1996, primarily reflects a full year's effect of the investment in Midlands. Midlands was purchased during the second quarter of 1996.
OTHER - NET
The $9 million change in other - net for 1997, as compared to 1996, is due, in part, to charges in 1996 of approximately $14 million associated with the December 1996 Order, a gain of approximately $4 million in 1997 on the sale of a PSI investment, and a loss of approximately $5 million in 1996 on the sale of a foreign subsidiary. These items were partially offset by gains of approximately $6 million in 1996 related to the sale of certain CG&E assets, approximately $2 million of increased expenses in 1997 associated with the sales of accounts receivable for PSI, CG&E, and ULH&P, and expenses of approximately $4 million resulting from the inclusion of the Greenwich acquisition in 1997.
In 1996, other - net changed $37 million, as compared to 1995, due to a number of factors including $4 million of interest received in 1995 on an income tax refund related to prior years, charges totaling $14 million associated with the December 1996 Order, expenses associated with CG&E's and ULH&P's sales of accounts receivable in 1996, and the effect of a $10 million gain in 1995 on the sale of Cinergy's investment in an Argentine utility.
The $31 million change in other - net in 1995, as compared to 1994, is due, in part, to interest on the income tax refund and the $10 million gain discussed above and charges of $17 million in 1994 for merger-related and other expenditures which cannot be recovered from customers.
Interest and Other Charges
INTEREST ON LONG-TERM DEBT
Interest on long-term debt decreased $23 million (11%) in 1996, as compared to 1995, due to the refinancing and redemptions of long-term debt by CG&E, PSI, and ULH&P during 1995 and 1996.
OTHER INTEREST
The $29 million increase in other interest, as compared to 1996, is primarily due to interest expense on increased short-term borrowings used to fund CG&E's redemption of first mortgage bonds and Cinergy's investments in non-regulated companies, including Avon Energy.
In 1996, other interest increased $10 million (50%), as compared to 1995, primarily reflecting increased interest expense on short-term borrowings used to fund Cinergy's investment in Avon Energy.
PREFERRED DIVIDEND REQUIREMENTS OF SUBSIDIARIES
Preferred dividend requirements of subsidiaries decreased $11 million (46%) and $8 million (25%) in 1997 and 1996, respectively. These decreases were primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer. (See Note 3(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
Extraordinary Item - Equity Share of Windfall Profits Tax
Extraordinary item - equity share of windfall profits tax represents the one- time charge for the windfall profits tax levied against Midlands as recorded in the third quarter of 1997. (See Note 17 of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
The Cincinnati
Gas & Electric
Company
and subsidiaries
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
1997 1996 1995
(in thousands)
Operating Revenues
Electric
Non-affiliated companies $1 920 915 $1 458 828 $1 407 119
Affiliated companies 35 341 43 180 30 104
Gas
Non-affiliated companies 491 145 474 034 410 852
Affiliated companies 4 475 7 -
2 451 876 1 976 049 1 848 075
Operating Expenses
Fuel used in electric production 300 487 349 197 327 353
Gas purchased 266 123 249 116 206 250
Purchased and exchanged power
Non-affiliated companies 583 065 46 333 13 870
Affiliated companies 12 473 21 921 42 575
Other operation 308 239 330 169 291 874
Maintenance 90 097 96 205 94 688
Depreciation 163 418 160 951 158 986
Amortization of phase-in deferrals 13 483 13 598 9 091
Amortization of post-in-service
deferred operating expenses 3 290 3 290 3 290
Income taxes (Note 11) 172 047 145 075 136 386
Taxes other than income taxes 211 303 207 904 203 680
2 124 025 1 623 759 1 488 043
Operating Income 327 851 352 290 360 032
Other Income and Expenses - Net
Allowance for equity funds
used during construction 98 1 225 1 790
Phase-in deferred return 8 008 8 372 8 537
Income taxes (Note 11) 33 286 9 139 4 587
Other - net (14 262) (21 296) 4 221
27 130 (2 560) 19 135
Income Before Interest 354 981 349 730 379 167
Interest
Interest on long-term debt 110 134 123 616 143 334
Other interest 10 327 2 793 3 486
Allowance for borrowed funds
used during construction (4 633) (3 859) (3 854)
115 828 122 550 142 966
Net Income 239 153 227 180 236 201
Preferred Dividend Requirement 868 10 643 17 673
Costs of Reacquisition of
Preferred Stock (Note 3(b)) - 18 391 -
Net Income Applicable to
Common Stock $ 238 285 $ 198 146 $ 218 528
The accompanying notes are an integral part of these consolidated financial
statements.
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THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1997 1996
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $4 700 631 $4 631 605
Gas 746 903 713 829
Common 186 078 185 255
5 633 612 5 530 689
Accumulated depreciation 2 008 005 1 868 579
3 625 607 3 662 110
Construction work in progress 118 133 95 984
Total utility plant 3 743 740 3 758 094
Current Assets
Cash and temporary cash investments 2 349 5 120
Restricted deposits 1 173 1 171
Notes receivable from affiliated companies 27 193 31 740
Accounts receivable less accumulated
provision for doubtful accounts of $9,199 in
1997 and $9,178 in 1996 (Note 6) 193 549 117 912
Accounts receivable from affiliated companies 35 507 2 453
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 29 682 29 865
Gas stored for current use 29 174 32 951
Other materials and supplies 49 111 52 023
Prepayments and other 31 827 32 433
399 565 305 668
Other Assets
Regulatory assets (Note 1(f))
Amounts due from customers - income taxes 350 515 344 126
Post-in-service carrying costs and deferred
operating expenses 134 672 141 492
Phase-in deferred return and depreciation 89 689 95 163
Deferred demand-side management costs 38 318 33 534
Deferred merger costs 16 557 17 709
Unamortized costs of reacquiring debt 36 575 38 439
Other 1 439 19 545
Other 103 368 89 908
771 133 779 916
$4 914 438 $4 843 678
The accompanying notes are an integral part of these consolidated financial
statements.
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THE CINCINNATI GAS & ELECTRIC COMPANY
CAPITALIZATION AND LIABILITIES
December 31
1997 1996
(dollars in thousands)
Common Stock Equity (Note 2)
Common stock - $8.50 par value;
authorized shares - 120,000,000;
outstanding shares - 89,663,086 in 1997 and
89,663,086 in 1996 $ 762 136 $ 762 136
Paid-in capital 534 649 536 276
Retained earnings 313 803 247 403
Total common stock equity 1 610 588 1 545 815
Cumulative Preferred Stock (Note 3)
Not subject to mandatory redemption 20 793 21 146
Long-term Debt (Note 4) 1 324 432 1 381 108
Total capitalization 2 955 813 2 948 069
Current Liabilities
Long-term debt due within one year (Note 4) - 130 000
Notes payable and other short-term
obligations (Note 5) 289 000 214 488
Notes payable to affiliated companies 12 253 103
Accounts payable 249 538 166 064
Accounts payable to affiliated companies 10 821 12 726
Accrued taxes 149 129 144 261
Accrued interest 25 430 30 570
Other 29 950 32 191
766 121 730 403
Other Liabilities
Deferred income taxes (Note 11) 794 396 767 085
Unamortized investment tax credits 116 966 123 185
Accrued pension and other postretirement
benefit costs (Notes 9 and 10) 180 566 165 282
Other 100 576 109 654
1 192 504 1 165 206
Commitments and Contingencies (Note 12)
$4 914 438 $4 843 678
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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, 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
Net income 227 180 227 180
Dividends on preferred stock (10 643) (10 643)
Dividends on common stock (377 969) (377 969)
Contribution from parent company 197 207 197 207
Costs of reacquisition of
preferred stock (18 391) (18 391)
Other (32) (32)
Balance December 31, 1996 762 136 536 276 247 403 1 545 815
Net income 239 153 239 153
Dividends on preferred stock (871) (871)
Dividends on common stock (170 400) (170 400)
Other (1 627) (1 482) (3 109)
Balance December 31, 1997 $762 136 $534 649 $313 803 $1 610 588
The accompanying notes are an integral part of these consolidated financial statements.
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THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
1997 1996 1995
(in thousands)
Operating Activities
Net income $239 153 $227 180 $236 201
Items providing or (using) cash:
Depreciation 163 418 160 951 158 986
Deferred income taxes and investment
tax credits - net 16 443 18 929 26 938
Allowance for equity funds used during
construction (98) (1 225) (1 790)
Regulatory assets - net 32 822 39 561 21 454
Changes in current assets and current
liabilities
Restricted deposits (2) (27) (1 046)
Accounts and notes receivable, net of
reserves on receivables sold (105 829) 156 182 (65 350)
Materials, supplies, and fuel 6 872 2 437 14 039
Accounts payable 81 569 19 587 38 386
Accrued taxes and interest (272) 10 165 17 533
Other items - net 4 629 46 601 297
Net cash provided by operating activities 438 705 680 341 445 648
Financing Activities
Issuance of long-term debt 100 062 - 260 280
Retirement of preferred stock (234) - (93 450)
Redemption of long-term debt (290 612) (162 583) (338 378)
Change in short-term debt 86 662 30 591 69 500
Dividends on preferred stock (871) (10 643) (17 673)
Dividends on common stock (170 400) (377 969) (219 550)
Net cash used in financing activities (275 393) (520 604) (339 271)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (156 499) (142 053) (138 325)
Deferred demand-side management costs (9 584) (19 176) (13 956)
Net cash used in investing activities (166 083) (161 229) (152 281)
Net decrease in cash and temporary cash investments (2 771) (1 492) (45 904)
Cash and temporary cash investments at beginning
of period 5 120 6 612 52 516
Cash and temporary cash investments at end of
period $ 2 349 $ 5 120 $ 6 612
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $115 801 $117 848 $137 892
Income taxes 106 154 109 034 79 769
The accompanying notes are an integral part of these consolidated financial statements.
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RESULTS OF OPERATIONS - CG&E
Kwh Sales
Increased activity in Cinergy's power marketing and trading operations led to higher non-firm power sales for resale and significantly contributed to the increase in total kwh sales of 72.6%, as compared to 1996. Partially offsetting this increase was a decline in residential sales, as a result of mild weather. Kwh sales (and related revenues and expenses) outside of Cinergy's control area resulting from Cinergy's power marketing and trading operations are allocated 50%/50% between CG&E and PSI. (See Note 1(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" and the "Market Risk Sensitive Instruments and Positions" section for discussions on Cinergy's power marketing and trading operations.)
CG&E's total kwh sales increased 10.6% in 1996, as compared to 1995, reflecting an increase in sales to all customer classes. The increase in retail sales, which reflects a higher average number of residential and commercial customers, was partially offset by the return to more normal weather in 1996. The increase in industrial sales was due to growth in the primary metals sector. Increased activity in Cinergy's power marketing and trading operations led to higher non-firm power sales for resale.
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.
Year-to-year changes in kwh sales for each major class of customers are shown below:
Increase (Decrease) from Prior Year
1997 1996 1995
Retail
Residential (6.8)% 4.7% 3.8%
Commercial 1.9 2.3 3.4
Industrial 4.1 3.4 3.9
Total retail (.5) 3.3 3.8
Sales for resale
Firm power obligations (8.4) 3.7 6.3
Non-firm power transactions 356.5 51.7 211.8
Total sales for resale 337.5 48.1 172.6
Total sales 72.6 10.6 15.3
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CG&E currently forecasts a 2% annual compound growth rate in kwh sales over the 1998 through 2002 period. This forecast excludes non-firm power sales for resale and any potential new off-system, long-term firm power sales.
Mcf Sales and Transportation
The milder weather experienced in 1997 contributed to a decrease in residential and commercial gas sales volumes and led to an 8.2% decrease in total sales volumes and a 1.1% decrease in total sales and transportation volumes, as compared to 1996. An increase in gas transportation volumes and a decline in industrial sales resulted from customers electing to purchase gas directly from suppliers, using transportation services provided by CG&E.
Mcf gas sales and transportation volumes increased 8.4% in 1996, as compared to 1995. Colder weather in the first half of 1996 led to increased gas sales to residential and commercial customers. Also contributing to the increase in total sales was an increase in the number of residential and commercial customers. Industrial sales decreased and gas transported increased as customers continued to purchase gas directly from suppliers.
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 the higher sales levels. 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.
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
1997 1996 1995
Retail
Residential (6.4)% 3.6% 10.5%
Commercial (9.7) 7.8 (2.0)
Industrial (8.8) (13.3) (26.6)
Total sales (8.2) 2.1 1.5
Gas transported 10.1 19.8 24.4
Total gas sold and transported (1.1) 8.4 8.6
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Operating Revenues
ELECTRIC OPERATING REVENUES
Electric operating revenues increased by $454 million (30%) in 1997 and $65 million (5%) in 1996. These increases primarily reflect the increased kwh sales, as previously discussed. Partially offsetting these increases was the operation of the fuel adjustment clause reflecting a lower average cost of fuel used in electric production.
Electric operating revenues increased $91 million (7%) 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.
An analysis of electric operating revenues for the past three years is shown below:
1997 1996 1995
(in millions)
Previous year's electric
operating revenues $1 502 $1 437 $1 346
Increase (Decrease) due to change in:
Price per kwh
Retail (44) (13) (10)
Sales for resale
Firm power obligations - - 1
Non-firm power transactions 107 (10) (9)
Total change in price per kwh 63 (23) (18)
Kwh sales
Retail (8) 44 49
Sales for resale
Firm power obligations (1) 1 1
Non-firm power transactions 395 41 60
Total change in kwh sales 386 86 110
Other 5 2 (1)
Current year's electric
operating revenues $1 956 $1 502 $1 437
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GAS OPERATING REVENUES
The increasing trend of industrial customers purchasing gas directly from producers and using CG&E facilities to transport the gas (see the "Mcf Sales and Transportation" section) continues to put downward pressure on gas operating revenues. Since providing transportation services does not necessitate recovery of the cost of gas purchased, 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.
CG&E's gas rate increase of 2.5% ($9 million annually) approved by the PUCO in the December 1996 Order and the operation of a gas cost recovery mechanism, reflecting a higher average cost per Mcf of gas purchased, contributed to the $22 million (5%) increase in gas operating revenues as compared to 1996. These increases were partially offset by the previously discussed changes in Mcf gas sales.
Gas operating revenues increased $63 million (15%) in 1996, as compared to 1995. This increase is attributable to the increase in gas sales and transportation volumes. Also contributing to the increase was the operation of the fuel adjustment clause, reflecting a higher average cost per Mcf of gas purchased.
In 1995, gas operating revenues declined $32 million (7%), as compared to 1994, as a result of the aforementioned trend toward increased transportation services and the operation of the fuel adjustment clause, reflecting a lower average cost per Mcf of gas purchased.
Operating Expenses
FUEL
Fuel Used in Electric Production Electric fuel costs decreased $49 million (14%) in 1997, when compared to 1996.
An analysis of fuel costs for the past three years is shown below:
1997 1996 1995
(in millions)
Previous year's fuel expense $349 $327 $325
Increase (Decrease) due to change in:
Price of fuel 8 (38) (10)
Deferred fuel cost (50) 34 (10)
Kwh generation (7) 26 22
Current year's fuel expense $300 $349 $327
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Gas Purchased The increase in gas purchased expense of $17 million (7%) in 1997, as compared to 1996, reflects a higher average cost per Mcf of gas purchased. This increase was partially offset by a decline in the volumes of gas purchased.
Gas purchased increased $43 million (21%) in 1996, as compared to 1995, due to an increase in volumes purchased and a higher average cost per Mcf of gas purchased.
In 1995, gas purchased expense decreased $42 million (17%), as compared to 1994, primarily reflecting a decline in the average cost per Mcf of gas purchased.
PURCHASED AND EXCHANGED POWER
Purchased and exchanged power increased $527 million and $12 million in 1997 and 1996, respectively. These increases primarily reflect increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. (See Note 1(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" and the "Market Risk Sensitive Instruments and Positions" section for discussion on Cinergy's power marketing and trading operations.)
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. This increase was partially offset by a decline in third-party, short-term power sales to other utilities.
OTHER OPERATION
Other operation expenses decreased $22 million (7%) in 1997, as compared to 1996. This decrease is primarily due to the effect of charges in 1996 for early retirement and severance programs and the December 1996 Order (see below). This decrease is partially offset by the effect of CG&E curtailing certain deferrals associated with its DSM programs for new participants after December 31, 1996, due to the December 1996 Order that changed the benefit/cost tests that DSM programs must surpass in Ohio in order for certain DSM-related costs to be eligible for deferral.
Other operation increased $38 million (13%) in 1996, as compared to 1995. This increase is attributable to higher administrative and general expenses reflecting, in part, charges of $30 million for voluntary early retirement and severance programs and charges totaling $6 million related to the December 1996 Order. The increase is partially offset by a decrease in electric distribution expenses.
In 1995, other operation expenses decreased $44 million (13%), 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.
MAINTENANCE
In 1997, maintenance costs decreased $6 million (6%), as compared to 1996. This decrease is primarily attributable to reduced outage related charges and other maintenance costs associated with electric production facilities. Reduced maintenance costs associated with electric distribution facilities also contributed to the decrease for 1997.
The decrease in maintenance expense of $12 million (11%) 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.
AMORTIZATION OF PHASE-IN DEFERRALS AND PHASE-IN DEFERRED RETURN
Amortization of phase-in deferrals and phase-in deferred return reflect the PUCO-ordered phase-in plan for Zimmer. (See Note 1(k) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
AMORTIZATION OF POST-IN-SERVICE DEFERRED OPERATING EXPENSES
Amortization of post-in-service deferred operating expenses reflect the amortization of certain deferrals as they are recovered through retail rates. These deferrals include 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. (See Note 1(h) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
Other Income and Expenses - Net
OTHER - NET
The $7 million change in other - net for 1997, as compared to 1996, is due primarily to charges in 1996 of approximately $14 million associated with the December 1996 Order. These charges were partially offset by gains of approximately $6 million in 1996 related to the sale of certain CG&E assets, and approximately $2 million of increased expenses in 1997 associated with the sales of accounts receivable for CG&E and ULH&P.
The change in other - net of $26 million in 1996, as compared to 1995, is due to a number of factors including $4 million of interest received in 1995 on an income tax refund related to prior years, charges totaling $14 million associated with the December 1996 Order, and expenses associated with CG&E's and ULH&P's sales of accounts receivable in 1996.
The increase in other - net of $11 million in 1995, as compared to 1994, is due, in part, to interest on the income tax refund discussed above and charges of $12 million in 1994 for merger-related and other expenditures which cannot be recovered from customers.
Interest and Other Charges
INTEREST ON LONG-TERM DEBT
In 1997, interest on long-term debt decreased $13 million (11%), as compared to 1996, primarily due to the redemptions and maturities of long-term debt in 1996 and 1997.
Interest on long-term debt decreased $20 million (14%) in 1996, as compared to 1995, due to the refinancing and redemptions of long-term debt in 1996 and 1995.
OTHER INTEREST
The $8 million increase in other interest, as compared to 1996, is primarily due to interest expense on increased short-term borrowings used to fund CG&E's redemption of first mortgage bonds.
PREFERRED DIVIDEND REQUIREMENT
Preferred dividend requirements decreased $10 million (92%) and $7 million (40%) in 1997 and 1996, respectively. These decreases were primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer. (See Note 3(b) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data.")
In 1995, CG&E's preferred dividend requirement decreased $5 million (21%), as compared to 1994. The decrease was attributable to the early redemption of preferred stock in April 1994 and July 1995.
PSI Energy, Inc.
and Subsidiaries
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
1997 1996 1995
(in thousands)
Operating Revenues
Non-affiliated companies $1 940 783 $1 309 878 $1 205 460
Affiliated companies 17 686 22 084 42 575
1 958 469 1 331 962 1 248 035
Operating Expenses
Fuel 392 948 364 053 389 401
Purchased and exchanged power
Non-affiliated companies 636 293 112 505 33 762
Affiliated companies 29 932 43 343 30 104
Other operation 344 878 268 478 228 508
Maintenance 86 374 97 703 87 492
Depreciation 125 659 121 812 120 773
Post-in-service deferred operating
expenses - net 1 072 (4 799) (5 790)
Income taxes (Note 11) 76 890 73 194 85 043
Taxes other than income taxes 53 721 49 911 51 853
1 747 767 1 126 200 1 021 146
Operating Income 210 702 205 762 226 889
Other Income and Expenses - Net
Allowance for equity funds
used during construction - - 174
Post-in-service carrying costs - 1 223 3 186
Income taxes (Note 11) (1 039) (3 997) 941
Other - net 6 997 1 878 (3 188)
5,958 (896) 1 113
Income Before Interest 216 660 204 866 228 002
Interest
Interest on long-term debt 71 638 67 001 70 577
Other interest 13 584 14 511 15 821
Allowance for borrowed funds
used during construction (767) (2 324) (4 211)
84 455 79 188 82 187
Net Income 132 205 125 678 145 815
Preferred Dividend Requirement 11 701 12 537 13 180
Net Income Applicable to Common Stock $ 120 504 $ 113 141 $ 132 635
The accompanying notes are an integral part of these consolidated financial
statements.
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PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1997 1996
(dollars in thousands)
Electric Utility Plant - Original Cost
In service $4 280 551 $4 178 181
Accumulated depreciation 1 792 317 1 723 279
2 488 234 2 454 902
Construction work in progress 65 129 76 630
Total electric utility plant 2 553 363 2 531 532
Current Assets
Cash and temporary cash investments 18 169 2 911
Restricted deposits 1 146 550
Notes receivable from affiliated companies 21 998 3
Accounts receivable less accumulated provision
for doubtful accounts of $1,183 in 1997 and
$1,269 in 1996 (Note 6) 198 008 74 289
Accounts receivable from affiliated companies 6 384 4 016
Materials, supplies, and fuel - at average cost
Fuel 28 234 41 865
Other materials and supplies 26 955 28 268
Prepayments and other 4 438 3 184
305 332 155 086
Other Assets
Regulatory assets (Note 1(f))
Amounts due from customers - income taxes 23 941 33 068
Post-in-service carrying costs and deferred
operating expenses 43 832 44 904
Coal contract buyout costs 122 485 138 171
Deferred demand-side management costs 71 278 101 208
Deferred merger costs 73 789 76 290
Unamortized costs of reacquiring debt 29 667 32 079
Other 44 094 52 938
Other 138 650 129 667
547 736 608 325
$3 406 431 $3 294 943
The accompanying notes are an integral part of these consolidated financial
statements.
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PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
December 31
1997 1996
(dollars in thousands)
Common Stock Equity (Note 2)
Common stock - without par value; $.01 stated
value; authorized shares - 60,000,000;
outstanding shares - 53,913,701 in 1997 and 1996 $ 539 $ 539
Paid-in capital 400 893 402 947
Retained earnings 636 228 626 089
Total common stock equity 1 037 660 1 029 575
Cumulative Preferred Stock (Note 3)
Not subject to mandatory redemption 157 196 173 086
Long-term Debt (Note 4) 826 470 945 270
Total capitalization 2 021 326 2 147 931
Current Liabilities
Long-term debt due within one year (Note 4) 85 000 10 000
Notes payable and other short-term
obligations (Note 5) 190 600 171 729
Notes payable to affiliated companies 16 435 13 186
Accounts payable 212 833 114 330
Accounts payable to affiliated companies 41 326 12 850
Accrued taxes 69 304 73 206
Accrued interest 21 369 24 045
Other 2 560 17 107
639 427 436 453
Other Liabilities
Deferred income taxes (Note 11) 403 535 372 997
Unamortized investment tax credits 49 296 52 750
Accrued pension and other postretirement
benefit costs (Notes 9 and 10) 116 576 98 037
Other 176 271 186 775
745 678 710 559
Commitments and Contingencies (Note 12)
$3 406 431 $3 294 943
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PSI ENERGY, INC.
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, 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
Net income 125 678 125 678
Dividends on preferred stock (12 629) (12 629)
Dividends on common stock (112 076) (112 076)
Other (306) (159) (465)
Balance December 31, 1996 539 402 947 626 089 1 029 575
Net income 132 205 132 205
Dividends on preferred stock (11 795) (11 795)
Dividends on common stock (113 600) (113 600)
Other (2 054) 3 329 1 275
Balance December 31, 1997 $539 $400 893 $636 228 $1 037 660
The accompanying notes are an integral part of these consolidated financial statements.
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PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1997 1996 1995
(in thousands)
Operating Activities
Net income $132 205 $125 678 $145 815
Items providing or (using) cash:
Depreciation 125 659 121 812 120 773
Deferred income taxes and investment
tax credits - net 35 661 29 925 5 201
Allowance for equity funds used during
construction - - (174)
Regulatory assets - net 38 488 (279) 11 870
Changes in current assets and current
liabilities
Restricted deposits (596) (336) 16
Accounts and notes receivable, net of
reserves on receivables sold (149 290) 2 722 (57 926)
Materials, supplies, and fuel 14 944 41 343 31 748
Accounts payable 126 979 10 363 (25 958)
Litigation settlement - (80 000) -
Accrued taxes and interest (6 578) 6 704 34 078
Other items - net 14 630 3 813 18 714
Net cash provided by operating activities 332 102 261 745 284 157
Financing Activities
Issuance of long-term debt - 150 217 -
Funds on deposit from issuance of long-term debt - 973 9 987
Retirement of preferred stock (16 035) (15 116) (16)
Redemption of long-term debt (45 700) (74 600) (60 455)
Change in short-term debt 22 120 (13 616) 4 958
Dividends on preferred stock (11 795) (12 629) (13 181)
Dividends on common stock (113 600) (112 076) -
Capital contribution from parent company - - 13 926
Net cash provided by (used in) financing
activities (165 010) (76 847) (44 781)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (141 552) (172 341) (186 580)
Deferred demand-side management costs (10 282) (25 168) (43 615)
Net cash used in investing activities (151 834) (197 509) (230 195)
Net increase (decrease) in cash and temporary
cash investments 15 258 (12 611) 9 181
Cash and temporary cash investments at beginning
of period 2 911 15 522 6 341
Cash and temporary cash investments at end of
period $ 18 169 $ 2 911 $ 15 522
Supplemental Disclosure Of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $ 82 959 $ 76 655 $ 80 465
Income taxes 58 671 37 048 60 148
The accompanying notes are an integral part of these consolidated financial statements.
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RESULTS OF OPERATIONS - PSI
Kwh Sales
Increased activity in Cinergy's power marketing and trading operations led to higher non-firm power sales for resale and significantly contributed to the increase in total kwh sales of 69.1%, as compared to 1996. The increase in retail sales reflects a higher average number of commercial and industrial customers, which was partially offset by a decrease in residential sales, as a result of mild weather. Kwh sales (and related revenues and expenses) outside of Cinergy's control area resulting from Cinergy's power marketing and trading operations are allocated 50%/50% between CG&E and PSI. (See Note 1(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" and the "Market Risk Sensitive Instruments and Positions" section for discussions on Cinergy's power marketing and trading operations.)
PSI's total kwh sales increased 11.0% in 1996, as compared to 1995. Increased activity in Cinergy's power marketing and trading operations led to higher non-firm power sales for resale. The increase in retail sales, which reflects a higher average number of residential and industrial customers, was partially offset by the return to more normal weather in 1996. The increase in industrial sales was due to growth in the primary metals and transportation equipment sectors.
As compared to 1994, total kwh sales in 1995 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.
Year-to-year changes in kwh sales for each major class of customers are shown below:
Increase (Decrease) from Prior Year
1997 1996 1995
Retail
Residential (.5)% - % 7.9%
Commercial 1.3 0.4 5.2
Industrial 2.1 3.3 5.1
Total retail 1.1 1.5 6.0
Sales for resale
Firm power obligations 18.7 11.4 1.1
Non-firm power transactions 277.9 51.6 10.2
Total sales for resale 219.1 40.2 7.4
Total sales 69.1 11.0 6.3
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PSI currently forecasts a 3% annual compound growth rate in kwh sales over the 1998 through 2002 period. This forecast excludes non-firm power sales for resale and any potential new off-system, long-term firm power sales.
Operating Revenues
Increased kwh sales, as previously discussed, a full year's effects of PSI's retail rate increases approved in the September 1996 Order, as amended in August 1997, and the December 1996 DSM Order significantly contributed to the $626 million (47%) increase in electric operating revenues, when compared to 1996. Also contributing to the increase was the return of approximately $13 million to customers in 1996 in accordance with the February 1995 Order. The February 1995 Order required all retail operating income above a certain rate of return to be refunded to customers.
Operating revenues increased $84 million (7%) in 1996, as compared to 1995, due, in large part, to the increase in kwh sales as previously discussed. Also contributing to the increase was the effect of a 7.6% retail rate increase approved in the September 1996 Order, as well as a full year's effect of a 4.3% retail rate increase approved in the February 1995 Order and a 1.9% increase for carrying costs on construction work in progress (CWIP) property which was approved by the IURC in March 1995. Partially offsetting these increases was the return of approximately $10 million to customers in accordance with the February 1995 Order.
Higher kwh sales and electric rate increases which became effective in February 1995 and March 1995 significantly contributed to the $134 million (12%) increase in operating revenues for 1995, when compared to 1994.
An analysis of operating revenues for the past three years is shown below:
1997 1996 1995
(in millions)
Previous year's operating revenues $1 332 $1 248 $1 114
Increase (Decrease) due to change in:
Price per kwh
Retail 56 8 68
Sales for resale
Firm power obligations (10) (3) (1)
Non-firm power transactions 93 - 1
Total change in price per kwh 139 5 68
Kwh sales
Retail 12 16 55
Sales for resale
Firm power obligations 14 8 1
Non-firm power transactions 451 55 9
Total change in kwh sales 477 79 65
Other 10 - 1
Current year's operating revenues $1 958 $1 332 $1 248
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Operating Expenses
FUEL
Electric fuel costs increased $29 million (8%) in 1997, when compared to 1996.
An analysis of fuel costs for the past three years is shown below:
1997 1996 1995
(in millions)
Previous year's fuel expense $364 $389 $387
Increase (Decrease) due to change in:
Price of fuel (2) (10) (13)
Deferred fuel cost (5) 8 8
Kwh generation 36 (23) 7
Current year's fuel expense $393 $364 $389
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PURCHASED AND EXCHANGED POWER
Purchased and exchanged power increased $510 million and $92 million in 1997 and 1996, respectively. These increases primarily reflect increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. (See Note 1(c) of the "Notes to Financial Statements" in "Item 8. Financial Statements and Supplementary Data" and the "Market Risk Sensitive Instruments and Positions" section for discussions on Cinergy's power marketing and trading operations.)
Purchased and exchanged power increased $22 million (54%) 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. This increase was partially offset by a decline in third party, short-term power sales to other utilities.
OTHER OPERATION
Other operation expenses increased $76 million (28%) in 1997, as compared to 1996. This increase is primarily due to higher other operation expenses relating to the Clean Coal Project, amortization of deferred DSM expenses, and amortization of deferred expenses associated with the Clean Coal Project, all of which are being recovered in revenues pursuant to either the September 1996 Order or the December 1996 DSM Order. The effect of discontinuing deferral of certain DSM-related costs in accordance with provisions of the December 1996 DSM Order also added to the increase. These increases were partially offset by the effect of charges in 1996 for early retirement and severance programs.
Other operation expenses increased approximately $40 million (17%) in 1996, as compared to 1995. This increase was due to a number of factors, including an increase related to the ongoing level and amortization of DSM expenses and an increase in production expenses associated with the operations of the Clean Coal Project, all of which are being recovered in revenues pursuant to the February 1995 and September 1996 Orders. Charges related to voluntary early retirement and severance programs and increased transmission costs also contributed to the higher level of other operation expenses.
In 1995, other operation expenses increased $15 million (7%), 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.
MAINTENANCE
In 1997, maintenance costs decreased $11 million (12%), as compared to 1996. This decrease is primarily attributable to reduced outage related charges and other maintenance costs associated with electric production facilities. Reduced maintenance costs associated with electric transmission and distribution facilities also contributed to the decrease for 1997.
An increase of $10 million (12%) in maintenance costs in 1996, as compared to 1995, is primarily attributable to increased maintenance associated with the Clean Coal Project which began commercial operation in November 1995. Increased transmission and distribution costs also contributed to the higher level of maintenance costs.
Maintenance costs decreased $7 million (7%) 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.
DEPRECIATION
In 1995, depreciation expense decreased $17 million (12%), 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.
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 $4 million (8%) in 1997, as compared to 1996, primarily due to an increase in the Indiana Corporate Gross Income Tax.
Taxes other than income taxes increased $6 million (12%) 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
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.")
OTHER - NET
The $5 million change in other - net for 1997, as compared to 1996, is primarily due to a gain in 1997 on the sale of a PSI investment.
Interest and Other Charges
INTEREST ON LONG-TERM DEBT
In 1997, interest on long-term debt increased $5 million (7%) over the prior year. The increase was primarily due to the net issuance of approximately $100 million of long-term debt during 1996 and 1997.
Interest on long-term debt decreased $4 million (5%) in 1996, as compared to 1995, due to the redemption of $135 million of long-term debt during the period from August 1995 through December 1996.
ALLOWANCE FOR BORROWED FUNDS USED DURING CONSTRUCTION
Allowance for borrowed funds used during construction decreased $2 million (45%) in 1996, as compared to 1995. This decrease is primarily attributable to a decrease in the average balance of CWIP, resulting from the Clean Coal Project being completed at the end of 1995.
Allowance for borrowed funds used during construction decreased $5 million (55%) 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
1997 1996 1995
(in thousands)
Operating Revenues
Electric $192 774 $190 900 $187 180
Gas 78 848 76 868 70 288
271 622 267 768 257 468
Operating Expenses
Electricity purchased from parent
company for resale 145 906 143 839 142 308
Gas purchased 44 354 41 185 36 745
Other operation 31 153 30 934 30 712
Maintenance 5 764 4 997 4 580
Depreciation 12 369 11 909 11 438
Income taxes (Note 11) 9 586 9 834 7 887
Taxes other than income taxes 4 055 4 036 3 968
253 187 246 734 237 638
Operating Income 18 435 21 034 19 830
Other Income and Expenses - Net
Allowance for equity funds used
during construction 97 (8) 71
Income taxes (Note 11) 1 100 (352) (44)
Other - net (1 947) (1 417) 6
(750) (1 777) 33
Income Before Interest 17 685 19 257 19 863
Interest
Interest on long-term debt 3 523 4 016 7 161
Other interest 1 396 703 728
Allowance for borrowed funds used
during construction (151) (58) (198)
4 768 4 661 7 691
Net Income $ 12 917 $ 14 596 $ 12 172
The accompanying notes are an integral part of these financial statements.
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THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
December 31
1997 1996
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $204 111 $195 053
Gas 155 167 148 203
Common 19 073 19 285
378 351 362 541
Accumulated depreciation 133 213 122 310
245 138 240 231
Construction work in progress 14 346 9 050
Total utility plant 259 484 249 281
Current Assets
Cash and temporary cash investments 546 1 197
Notes receivable from affiliated companies - 100
Accounts receivable less accumulated provision
for doubtful accounts of $996 in 1997 and
$1,024 in 1996 (Note 6) 7 308 12 763
Accounts receivable from affiliated companies 446 620
Materials, supplies, and fuel - at average cost
Gas stored for current use 5 401 6 351
Other materials and supplies 693 716
Income tax refundable - 1 670
Prepayments and other 385 370
14 779 23 787
Other Assets
Regulatory assets (Note 1(f))
Deferred merger costs 5 213 5 218
Unamortized costs of reacquiring debt 3 590 3 764
Other 2 262 2 357
Other 6 262 5 146
17 327 16 485
$291 590 $289 553
The accompanying notes are an integral part of these financial statements.
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THE UNION LIGHT, HEAT AND POWER COMPANY
CAPITALIZATION AND LIABILITIES
December 31
1997 1996
(dollars in thousands)
Common Stock Equity (Note 2)
Common stock - $15.00 par value;
authorized shares - 1,000,000;
outstanding shares - 585,333 in 1997
and 1996 $ 8 780 $ 8 780
Paid-in capital 18 683 18 839
Retained earnings 95 450 92 484
Total common stock equity 122 913 120 103
Long-term Debt (Note 4) 44 671 44 617
Total capitalization 167 584 164 720
Current Liabilities
Notes payable to affiliated companies 23 487 30 649
Accounts payable 11 097 12 018
Accounts payable to affiliated companies 19 712 16 771
Accrued taxes 6 332 84
Accrued interest 1 286 1 284
Other 4 364 5 248
66 278 66 054
Other Liabilities
Deferred income taxes (Note 11) 26 211 33 463
Unamortized investment tax credits 4 516 4 797
Accrued pension and other postretirement
benefit costs (Notes 9 and 10) 14 044 12 983
Income taxes refundable through rates 6 566 5 121
Other 6 391 2 415
57 728 58 779
Commitments and Contingencies (Note 12)
$291 590 $289 553
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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
(dollars in thousands)
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
Net income 14 596 14 596
Dividends on common stock (4 975) (4 975)
Balance December 31, 1996 8 780 18 839 92 484 120 103
Net income 12 917 12 917
Dividends on common stock (9 951) (9 951)
Other - (156) - (156)
Balance December 31, 1997 $8 780 $18 683 $95 450 $122 913
The accompanying notes are an integral part of these financial statements.
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THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
1997 1996 1995
(in thousands)
Operating Activities
Net income $12 917 $14 596 $12 172
Items providing or (using) cash:
Depreciation 12 369 11 909 11 438
Deferred income taxes and investment
tax credits - net (6 124) 9 857 652
Allowance for equity funds used during
construction (97) 8 (71)
Regulatory assets 100 (1 500) 170
Changes in current assets and current
liabilities
Accounts and notes receivable, net
of reserves on receivables sold 4 507 20 758 (4 003)
Materials, supplies, and fuel 973 (1 339) 1 894
Accounts payable 2 020 (4 690) 11 824
Accrued taxes and interest 7 920 (1 494) (1 607)
Other items - net 5 343 (6 554) 4 412
Net cash provided by operating activities 39 928 41 551 36 881
Financing Activities
Issuance of long-term debt - - 14 704
Redemption of long-term debt - (26 083) (37 036)
Change in short-term debt (7 162) 7 606 8 543
Dividends on common stock (9 951) (4 975) (3 512)
Net cash used in financing activities (17 113) (23 452) (17 301)
Investing Activities
Construction expenditures (less allowance for
equity funds used during construction) (23 466) (18 652) (18 901)
Net cash used in investing activities (23 466) (18 652) (18 901)
Net increase (decrease) in cash and temporary
cash investments (651) (553) 679
Cash and temporary cash investments at beginning
of period 1 197 1 750 1 071
Cash and temporary cash investments at end of
period $ 546 $ 1 197 $ 1 750
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest (net of amount capitalized) $ 4 490 $ 4 667 $ 8 121
Income taxes 2 859 1 240 7 727
The accompanying notes are an integral part of these financial statements.
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RESULTS OF OPERATIONS - ULH&P
Kwh Sales
Kwh sales decreased by 1.2%, compared to 1996. This decrease was a result of mild weather. This decline was partially offset by an increase in commercial sales, which reflects a higher average number of customers.
In 1996, total kwh sales increased 5.8% as compared to 1995, reflecting increased sales to all customer classes. The increase in retail sales, which reflects a higher average number of residential and commercial customers, was partially offset by the return to more normal weather in 1996. The increased industrial sales primarily reflect growth in the food products sector.
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.
ULH&P currently forecasts a 2% annual compound growth rate in kwh sales over the 1998 through 2002 period.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes decreased slightly, as compared to 1996. The milder weather experienced in 1997 contributed to a decrease in residential and commercial sales. Gas transportation volumes increased and industrial gas sales decreased as customers continued to purchase gas directly from suppliers using transportation services provided by ULH&P.
Mcf gas sales and transportation volumes increased 6.6%, as compared to 1995. Colder weather in the first quarter of 1996, cooler than normal weather early in the second quarter of 1996, and increases in the average number of customers led to increased sales to residential and commercial customers. This increase was partially offset by a decrease in industrial sales as customers continued to purchase gas directly from suppliers.
Total gas sales and transportation volumes increased 8.6% in 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.
Operating Revenues
ELECTRIC OPERATING REVENUES
Electric operating revenues increased $2 million (1%) in 1997, $4 million (2%) in 1996, and $10 million (5%) in 1995. The increase in 1997 was partially due to the effect of an order issued by the Kentucky Public Service Commission in July 1996. This order authorized a decrease in electric rates, retroactive to July 1995, reflecting a reduction in the cost of electricity purchased from CG&E. Partially offsetting this increase was a decline in kwh sales, as previously discussed. Increases in 1996 and 1995 reflect higher kwh sales, which was partially offset by the lower average cost of electricity purchased.
GAS OPERATING REVENUES
The increasing trend of industrial customers purchasing gas directly from producers and using ULH&P facilities to transport the gas (see the "Mcf Sales and Transportation" section) continues to put downward pressure on gas operating revenues. 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.
The $2 million (3%) increase in gas operating revenues in 1997, as compared to 1996, was due to the operation of the fuel adjustment clause reflecting a higher average cost per Mcf of gas purchased.
Gas operating revenues increased $7 million (9%) in 1996, as compared to 1995. The increase was primarily attributable to the operation of the fuel adjustment clause reflecting an increase in the average cost per Mcf of gas purchased and an increase in total volumes sold and transported.
In 1995, gas operating revenues declined $2 million (2%), as compared to 1994, as a result of the aforementioned trend toward increased transportation services and the operation of the fuel adjustment clause reflecting a lower average cost per Mcf of gas purchased.
Operating Expenses
ELECTRICITY PURCHASED FROM PARENT COMPANY FOR RESALE
Electricity purchased increased $7 million (6%) in 1995, as compared to 1994, due to an increase in volumes purchased.
GAS PURCHASED
The increase in gas purchased expense of $3 million (8%) in 1997, as compared to 1996, reflects a higher average cost per Mcf of gas purchased partially offset by a decline in the volumes of gas purchased.
Gas purchased increased $4 million (12%) in 1996, as compared to 1995, due to an increase in volumes purchased and a higher average cost per Mcf of gas purchased, as previously discussed.
In 1995, gas purchased expense decreased $4 million (9%) from 1994 primarily due to a decrease in the average cost per Mcf of gas purchased.
OTHER OPERATION
In 1995, other operation expense decreased $2 million (5%), as compared to 1994, due, in part, to decreased gas and electric distribution expenses and decreased gas production expenses.
MAINTENANCE
In 1997, maintenance costs increased $1 million (15%), as compared to 1996. This increase is primarily attributable to increased maintenance costs on electric distribution facilities.
In 1996, maintenance costs increased $.4 million (9%) as compared to 1995, primarily as a result of increased transmission and distribution costs.
Maintenance costs decreased $1 million (16%) in 1995, as compared to 1994, primarily as a result of reduced maintenance costs on gas and electric distribution facilities.
DEPRECIATION
Depreciation expense increased $1 million (8%) in 1995, as compared to 1994, primarily due to additions to electric and gas plant in service.
Other Income and Expenses - Net
OTHER - NET
The $.5 million change in other - net for 1997, as compared to 1996, is primarily due to increased expenses associated with ULH&P's sales of accounts receivable.
The decrease in other - net of $1 million in 1996, as compared to 1995, is primarily attributable to expenses associated with the sales of accounts receivables in 1996.
Interest and Other Charges
INTEREST ON LONG-TERM DEBT
The $.5 million (12%) decrease in interest on long-term debt, as compared to 1996, is primarily due to the redemption of $25 million of long-term debt in 1996.
Interest on long-term debt decreased $3 million (44%) in 1996, as compared to 1995, due to the redemption of $25 million and $35 million of long-term debt in 1996 and 1995, respectively.
OTHER INTEREST
The $1 million increase in other interest, as compared to 1996, is primarily due to increased short-term borrowings from affiliated companies through Cinergy's money pool arrangement.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Cinergy, CG&E, PSI, and ULH&P
(a) Nature of Operations Cinergy Corp., a Delaware corporation, (Cinergy or Company), is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Cinergy was created in the October 1994 merger of PSI Resources, Inc. (Resources) and The Cincinnati Gas & Electric Company (CG&E). Cinergy's utility subsidiaries are CG&E and PSI Energy, Inc. (PSI). CG&E, an Ohio combination electric and gas utility, and its five wholly-owned utility subsidiaries (including The Union Light, Heat and Power Company, a Kentucky combination electric and gas utility (ULH&P)), 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. The majority of Cinergy's operating revenues are derived from the sale of electricity and the sale and transportation of natural gas.
Cinergy's non-utility subsidiaries are Cinergy Investments, Inc. (Investments) and Cinergy Services, Inc. (Services). Investments, a Delaware corporation, is a non-utility subholding company that was formed to hold and operate Cinergy's non-utility businesses and interests. Investments' principal activities include investments in Midlands Electricity plc (Midlands), Cinergy Global Power, Inc., and Trigen-Cinergy Solutions LLC (Trigen-Cinergy). (See Note 1(e) for a further discussion of Midlands.) 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
(b) Presentation The accompanying Consolidated Financial Statements of Cinergy, CG&E, and PSI include the accounts of Cinergy, CG&E, and PSI, respectively, and their wholly-owned subsidiaries. Investments in business entities in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies (generally, 20% to 50% ownership) are accounted for using the equity method. All significant intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 12.)
Certain reclassifications of prior years' data have been made to conform with the current year's presentation.
Cinergy, CG&E, and PSI
(c) Power Marketing and Trading Cinergy's power marketing and trading function actively markets and trades over-the-counter forward and option contracts for the purchase and sale of electricity. The majority of these contracts are settled via physical delivery of electricity or netted out in accordance with industry trading standards. Option premiums are deferred and included in the Consolidated Balance Sheets and amortized to "Operating Revenues - Electric" or "Purchased and exchanged power" in the Consolidated Statements of Income over the term of the option contract. Cinergy values its portfolio of over-the-counter forward and option contracts using the aggregate lower of cost or market method. To the extent there are net aggregate losses in the portfolio, Cinergy reserves for such losses. Net gains are recognized when realized. Due to the lack of liquidity and the volatility currently experienced in the power markets, significant assumptions must be made by the Company when estimating current market values for purposes of the aggregate lower of cost or market comparison. It is possible that the actual gains and losses from the Company's power marketing and trading activities could differ substantially from the gains and losses estimated currently.
Cinergy, CG&E, and PSI
(d) Financial Derivatives Cinergy and its subsidiaries use derivative financial instruments to hedge exposures to foreign currency exchange rates, lower funding costs, and manage exposures to fluctuations in interest rates. Instruments used as hedges must be designated as a hedge at the inception of the contract and must be effective at reducing the risk associated with the exposure being hedged. Accordingly, changes in market values of designated hedge instruments must be highly correlated with changes in market values of the underlying hedged items at inception of the hedge and over the life of the hedge contract.
Cinergy utilizes a currency swap to hedge its pound sterling denominated net investment in Avon Energy Partners Holdings (Avon Energy). Accordingly, any translation gains or losses related to the principal exchange on the currency swap are recorded in the cumulative foreign currency translation adjustment which is a separate component of common stock equity. Aggregate translation losses related to the principal exchange of the currency swap are reflected in "Current Liabilities - Other" in the Consolidated Balance Sheets.
Interest rate swaps are accounted for under the accrual method. Accordingly, gains and losses based on any interest differential between fixed-rate and floating-rate interest amounts, calculated on agreed upon notional principal amounts, are recognized in the Consolidated Statements of Income as a component of interest expense as realized over the life of the agreement.
Cinergy
(e) Investments in Unconsolidated Subsidiaries
Except for Cinergy's investment in Avon Energy, investments in unconsolidated subsidiaries are not significant. In May 1996, Cinergy and GPU, Inc. (GPU), a Pennsylvania corporation, entered into a 50%/50% joint venture agreement and formed Avon Energy, incorporated in London, England. Avon Energy, through a wholly-owned subsidiary, immediately began acquiring the outstanding common stock of Midlands, a United Kingdom (UK) regional electric company. During the third quarter of 1996, Avon Energy completed the acquisition of substantially all of the outstanding common stock of Midlands. The total consideration paid by Avon Energy was approximately 1.7 billion pounds sterling ($2.6 billion at then existing currency exchange rates). The funds for the acquisition were obtained from Cinergy's and GPU's investment in Avon Energy of approximately 330 million pounds sterling each ($500 million each), with the remainder being obtained by Avon Energy through the issuance of non-recourse debt. As a result of the allocation of the purchase price, Avon Energy has recorded goodwill of approximately 1.4 billion pounds sterling ($2 billion) in connection with its acquisition of Midlands. The goodwill is being amortized on a straight-line basis over 40 years.
Summarized financial information for Avon Energy is as follows:
December 31, 1997
Avon Energy
Assets (in millions)
Property, plant, and equipment $1 890
Current assets 676
Other assets 2 148
Total assets $4 714
Capitalization and Liabilities
Total common shareholders' equity $1 006
Long-term debt 1 533
Other liabilities 2 175
Total capitalization and
liabilities $4 714
Cinergy's investments in unconsolidated
subsidiaries: Avon Energy $ 505
Other companies 33
Total investments in unconsolidated
subsidiaries $ 538
Year Ended
December 31, 1997
Avon Energy
(in millions)
Operating revenues $2 176
Net income before extraordinary item $ 127
Extraordinary item - windfall profits
tax (less applicable income taxes of $0) $ (219)
Net loss $ (92)
Cinergy's equity in earnings of Avon Energy
before extraordinary item $ 63
Cinergy's equity in extraordinary item $ (109)
Cinergy's equity in earnings of: Avon Energy $ (46)
Other companies (3)
Total equity in the earnings of unconsolidated
subsidiaries $ (49)
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During 1997, Cinergy received $25 million of dividends from Avon Energy.
The pro forma financial information for 1996 presented below assumes 100% of Midlands was acquired on January 1, 1996. The pro forma adjustments include recognition of equity in the estimated earnings of Avon Energy, an adjustment for interest expense on debt associated with Cinergy's investment in Avon Energy, and related income taxes. The estimated earnings of Avon Energy include the historical earnings of Midlands prior to its acquisition by Avon Energy, adjusted for the estimated effect of purchase accounting (including the amortization of goodwill) and conversion to United States (US) GAAP, interest expense on debt issued by Avon Energy associated with the acquisition, and related income taxes. The equity in earnings of Avon Energy has been converted from pounds sterling to dollars using the average exchange rate for 1996 of $1.53/pound sterling.
Year Ended December 31, 1996
Net Earnings Per Share(1)
Income Basic Diluted
(in millions, except
per share amounts)
Cinergy $335 $2.00(2) $1.99(2)
Pro forma adjustments:
Equity in earnings of Avon Energy 20
Interest expense (14)
Income taxes 6
Pro forma results $347 $2.08 $2.06
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(1) See Note 16.
(2) Earnings per share after a charge of $.12 per share for the cost of reacquiring preferred stock of CG&E through a tender offer.
Cinergy, CG&E, PSI, and ULH&P
(f) Regulation Cinergy, its utility subsidiaries (CG&E, together with its subsidiaries, and PSI), and certain of its non-utility subsidiaries are subject to regulation by the Securities and Exchange Commission (SEC) under the PUHCA. Cinergy's utility subsidiaries are also subject to regulation by the Federal Energy Regulatory Commission (FERC) and the state utility commissions of Indiana, Kentucky, and Ohio.
The accounting policies of Cinergy's utility subsidiaries conform to the accounting requirements and ratemaking practices of these regulatory authorities and to GAAP, including the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (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. Certain criteria must be met for regulatory assets to be recorded and for the continued application of 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 recognition of regulatory assets.
Based on Cinergy's current regulatory orders and the regulatory environment in which it currently operates, the recognition of its regulatory assets as of December 31, 1997, is fully supported. The regulatory assets of PSI and CG&E and its utility subsidiaries as of December 31 are as follows:
1997 1996
PSI CG&E 1/Cinergy PSI CG&E 1/Cinergy
(in millions)
Amounts due from customers -
income taxes (Note 1(g)) $ 24 $350 $ 374 $ 33 $344 $ 377
Post-in-service carrying costs and
deferred operating expenses
(Note 1(h)) 44 135 179 45 141 186
Coal contract buyout costs (Note 1(i)) 122 - 122 138 - 138
Deferred demand-side management (DSM)
costs (Note 1(j)) 71 39 110 102 33 135
Phase-in deferred return and
depreciation (Note 1(k)) - 90 90 - 95 95
Deferred merger costs (Note 1(l)) 74 16 90 76 18 94
Unamortized costs of reacquiring
debt (Note 1(m)) 30 36 66 32 39 71
Coal gasification services expenses
(Note 1(n)) 22 - 22 25 - 25
Other 22 2 24 28 20 48
Total $409 $668 $1 077 $479 $690 $1 169
1/ Includes $11 million related to ULH&P at both December 31, 1997, and 1996.
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PSI has previously received regulatory orders authorizing the recovery of $399 million of its total regulatory assets at December 31, 1997. CG&E has previously received regulatory orders authorizing the recovery of $595 million (including $4 million for ULH&P) of its total regulatory assets at December 31, 1997. Both PSI and CG&E (including ULH&P) will request recovery of additional amounts in future proceedings, which could include proceedings, if any, related to transition to customer choice in each applicable jurisdiction.
Cinergy, CG&E, PSI, and ULH&P
(g) Federal and State Income Taxes Under the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109), deferred tax assets and liabilities are recognized for the income tax consequences of transactions treated differently for financial reporting and tax return purposes, measured on the basis of statutory tax rates. 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 CG&E's utility subsidiaries. In accordance with the provisions of Statement 71, Cinergy, PSI, and CG&E have recorded a regulatory asset, "Amounts due from customers - income taxes," representing the probable recovery from customers of additional income taxes established under Statement 109. ULH&P has recorded a regulatory liability "Income taxes refundable through rates" representing the probable repayment to customers of income taxes established under Statement 109 to the extent deferred income taxes recovered in rates exceed amounts payable in future periods.
Cinergy, CG&E, and PSI
(h) Post-in-service Carrying Costs and Deferred Operating Expenses CG&E received various orders from the Public Utilities Commission of Ohio (PUCO) which permitted the deferral of carrying costs and non-fuel operating expenses (including depreciation) for the Wm. H. Zimmer Generating Station (Zimmer) and Woodsdale Generating Station (Woodsdale) units. 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 Indiana Utility Regulatory Commission (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 which are primarily environmental in nature. These projects include a 262-megawatt clean coal power generating facility located at the Wabash River Generating Station (Clean Coal Project) and a scrubber at Gibson Generating Station (Gibson). In a February 1995 order (February 1995 Order) and a September 1996 order (September 1996 Order), the IURC authorized the recovery of deferred costs incurred prior to August 31, 1995. These deferred costs are to be recovered over the remaining lives of the related assets. Deferrals incurred after this date will be requested for recovery in future proceedings. These proceedings could include proceedings, if any, related to transition to customer choice.
Cinergy and PSI
(i) Coal Contract Buyout Costs In August 1996, PSI entered into a coal supply agreement with Eagle Coal Company (Eagle) for the supply of approximately three million tons of coal per year. The agreement, which terminates December 31, 2000, provides for a buyout fee of $179 million (including interest) to be included in the price of coal to PSI over the term of the contract. This fee represents the costs to Eagle of the buyout of the coal supply agreement between PSI and Exxon Coal and Minerals Company. The retail jurisdictional portion of the buyout charge, excluding the portion applicable to joint owners, is being recovered through the quarterly fuel adjustment clause, with carrying costs on unrecovered amounts, through December 2002. PSI has also filed a petition at the FERC for recovery of the wholesale jurisdictional portion of the buyout costs through the wholesale fuel adjustment clause. Generally, the FERC will allow recovery if the utility can demonstrate there will be net benefits to customers during the buyout cost recovery period. The FERC is expected to issue an order on PSI's petition early in 1998.
Cinergy, CG&E, PSI, and ULH&P
(j) DSM A settlement agreement between PSI and certain intervenors, in a proceeding established to review PSI's current and proposed DSM programs, was approved by the IURC in December 1996. Beginning January 1, 1997, and continuing through December 31, 2000, the settlement agreement allows PSI to recover $35 million per year through a non-bypassable charge in PSI's retail rates. The $35 million is designed to recover all previously incurred, but as yet unrecovered, DSM costs and all costs related to satisfying remaining commitments associated with a previous DSM settlement agreement. The $35 million also includes recovery of carrying costs. Further, the agreement authorizes PSI to spend up to $8 million annually on ongoing DSM programs through the year 1999 and to collect such amounts currently in retail rates.
Additionally, in December 1996, the PUCO issued an order applicable to CG&E's DSM programs. The order requires CG&E to spend up to one-half of the annual $5 million currently included in retail rates on PUCO-sanctioned low-income residential programs. The remaining portion of the $5 million is to be applied to the recovery of DSM cost deferrals. CG&E's participation in the low-income programs will be a factor considered by the PUCO in setting future rates of return and approving competitive transition plans.
The Kentucky Public Service Commission has authorized concurrent recovery of costs related to various DSM programs of ULH&P.
Cinergy and CG&E
(k) Phase-in Deferred Return and Depreciation In May 1992, the PUCO issued an order (May 1992 Order) establishing a rate phase-in plan for Zimmer. In the first three years of the rate phase-in plan, 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 recognized as a regulatory asset and is being recovered over a seven-year period which began in May 1995.
Cinergy, CG&E, PSI, and ULH&P
(l) Deferred Merger Costs CG&E and its utility subsidiaries have deferred a portion of merger transaction costs and costs to achieve merger savings (collectively, Merger Costs) incurred through December 31, 1996, for future recovery in customer rates.
In accordance with various IURC orders, PSI has deferred Merger Costs incurred through October 31, 1996, and is recovering $44 million of these deferred costs incurred through August 31, 1995, over a ten-year period.
CG&E and PSI completed voluntary workforce reduction and severance programs in 1996. The pre-tax costs of these programs and the related accounting were as follows:
1996 Programs
(in millions)
CG&E 1/ PSI
Costs expensed $30 $ 5
Costs deferred 9 33
$39 $38
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1/ Includes $2 million related to ULH&P.
The above amounts reflect approximately $61 million ($31 million for CG&E and $30 million for PSI) of costs associated with additional pension benefits further discussed in Note 9.
Cinergy, CG&E, PSI, and ULH&P
(m) 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 1 to 24 years (4 to 24 years for CG&E and its subsidiaries, 1 to 24 years for PSI, and 11 to 23 for ULH&P).
Cinergy and PSI
(n) Coal Gasification Services Expenses In November 1995, upon commercial operation of the Clean Coal Project, PSI and Destec Energy, Inc. (Destec) began a 25-year contractual agreement for the provision of coal gasification services. The agreement requires PSI to pay Destec a base monthly fee including certain monthly operating expenses. Over the next five years (1998 through 2002), the base monthly fees and expenses are expected to total $201 million. PSI received authorization in the September 1996 Order for the inclusion of the costs of the Clean Coal Project in retail rates. PSI also received authorization to defer, for subsequent recovery in retail rates, the base monthly fees and expenses incurred prior to the effective date of the September 1996 Order.
Cinergy, CG&E, PSI, and ULH&P
(o) Utility Plant Utility plant is stated at the original cost of construction, which includes an allowance for funds used during construction (AFUDC) and a proportionate share of overhead costs. Construction overhead costs include salaries, payroll taxes, fringe benefits, and other expenses.
Substantially all utility plant is subject to the lien of each applicable company's first mortgage bond indenture.
Cinergy, CG&E, PSI, and ULH&P
(p) 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:
1997 1996 1995
Cinergy average 6.3% 7.1% 7.9%
CG&E and its utility
subsidiaries average 6.4 8.7 8.8
ULH&P average 6.9 8.8 7.0
PSI average 5.9 5.4 7.0
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Cinergy, CG&E, PSI, and ULH&P
(q) 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 average depreciation rates for utility plant are:
1997 1996 1995
PSI 3.0% 3.0% 3.1%
CG&E and its utility subsidiaries
Electric 2.9 2.9 2.9
Gas 2.9 2.8 2.8
Common 3.0 3.0 3.4
ULH&P
Electric 3.3 3.3 3.3
Gas 3.1 3.1 3.1
Common 5.0 5.1 5.1
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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
(r) Operating Revenues and Fuel Costs Cinergy's utility subsidiaries recognize revenues for electric and gas service rendered during the month, including revenues associated with 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. Any portion of these costs which are recoverable or refundable in future periods is deferred in the accompanying Balance Sheets. 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 September 1996 Order. Prior to January 1, 1998, this earnings test was calculated 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. Effective January 1, 1998, PSI will follow the provisions of the current Indiana statute, which are generally less stringent with regard to the earnings test.
Cinergy, CG&E, and ULH&P
(s) Order 636 In 1992, the FERC issued order 636 (Order 636). CG&E and certain of its utility subsidiaries are subject to 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 from customers transition costs incurred in complying with the order. 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'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 applicable utility subsidiaries and amortized as recovered from customers.
Cinergy, CG&E, PSI, and ULH&P
(t) Statements of Cash Flows All temporary cash investments with maturities of three months or less, when acquired, are reported as cash equivalents. See Notes 3(b) and 8(a)(i) for information concerning non-cash investing transactions during 1996.
Cinergy
(u) Translation of Foreign Currency All assets and liabilities reported in the balance sheets of foreign subsidiaries whose functional currency is other than the US dollar are translated at year-end exchange rates; income and expense items are translated at the average exchange rate prevailing during the month the respective transactions occur. Translation gains and losses are accumulated as a separate component of common stock equity.
2. 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, 1997, and shares issued in 1997, 1996, and 1995 for the Company's stock-based plans.
Shares
Reserved at Shares Issued
Dec. 31, 1997 1997 1996 1995
401(k) Savings Plans 6 469 373 - - 1 222 379
Dividend Reinvestment and
Stock Purchase Plan 1 798 486 - - 935 711
Directors' Deferred
Compensation Plan 200 000 - - -
Performance Shares Plan (PSP) 771 301 - 492 28 207
Employee Stock Purchase
and Savings Plan 1 932 384 - - 1 010
Stock Option Plan 4 558 777 22 219 15 007 403 997
1996 Long-term Incentive
Compensation Plan (LTIP) 6 956 386 43 614 - -
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Cinergy retired 304, 6,511, and 119,211 shares of common stock in 1997, 1996, and 1995, respectively, primarily representing shares tendered as payment for the exercise of previously granted stock options. In 1995, Cinergy issued 10 shares of common stock, representing the remainder of a non-officer employee award program granted in 1994.
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 its common stock is principally 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. 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-based Compensation Plans Cinergy has four stock-based compensation plans: the LTIP, the Stock Option Plan, the PSP, and the Employee Stock Purchase and Savings Plan. Cinergy ceased accrual of incentive compensation under the PSP as of December 31, 1996, and on January 1, 1997, implemented the LTIP.
Cinergy accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, under which stock option-type awards are recorded at intrinsic value. For 1997, 1996, and 1995, compensation cost related to Cinergy's stock-based compensation plans, before income taxes, recognized in the Consolidated Statements of Income was $6 million, $2 million, and $1 million, respectively.
Net income and earnings per share for 1997, 1996, and 1995, assuming compensation cost for these plans had been determined at fair value, consistent with the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement 123), would have been as follows:
1997 1996 1995
(in millions, except per share amounts)
Net income - as reported $253 $335 $347
- pro forma $251 $334 $346
Earnings per share - as reported $1.61 $2.00 $2.22
- pro forma $1.59 $1.99 $2.21
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Diluted earnings per share - as reported $1.59 $1.99 $2.20
- pro forma $1.58 $1.99 $2.20
In accordance with the provisions of Statement 123, in estimating the pro forma amounts, the fair value method of accounting was not applied to options granted prior to January 1, 1995. As a result, the pro forma effect on net income and earnings per share may not be representative of future years. In addition, the pro forma amounts reflect certain assumptions used in estimating fair values. These fair value assumptions are described under each applicable plan discussion below.
(i)LTIP In 1996, Cinergy adopted the LTIP. Under this plan, certain key employees may be granted stock options and restricted shares of Cinergy common stock. Stock options are granted at the fair market value of the shares on the date of grant. These options vest in three years and expire in 10 years from the date of grant. None of the stock options were exercisable as of December 31, 1997. Restricted shares are granted at the fair market value of the shares on the date of grant, discounted to reflect the inability to sell the shares during the three-year restriction period. In addition to the stock options and restricted shares, participants may earn additional shares if Cinergy's Total Shareholder Return (TSR) exceeds that of the average annual median TSR of a selected peer group. Conversely, if Cinergy's TSR falls below that of the peer group, participants would lose some or all of the restricted shares. Dividends on any restricted stock awards and additional performance shares will be paid in shares of common stock during the payout period in the years 2000 to 2002. No stock-based awards were made under the LTIP prior to 1997. In 1997, 425,938 performance-based restricted shares at a weighted average price of $29.95 and 369,600 stock options at a weighted average exercise price of $33.60 were granted to certain key employees. The number of shares of common stock to be awarded under the LTIP is limited in the aggregate to 7,000,000 shares.
LTIP stock option activity for 1997 is summarized as follows:
1997
Weighted
Average
Exercise
Number Price
Outstanding, beginning of year - -
Granted 369 600 $33.60
Outstanding, end of year 369 600 $33.60
Exercisable, end of year - -
Weighted average fair value of
options granted during the year $3.71
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The fair values of options granted were estimated as of the date of grant using a Black-Scholes option pricing model. The weighted averages for the assumptions used in determining the fair values of options granted were as follows:
1997
Risk-free interest rate 6.2%
Expected dividend yield 5.4%
Expected lives 6.5 yrs.
Expected common stock variance 1.7%
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(ii) Stock Option Plan The Cinergy Stock Option Plan is designed to align executive compensation with shareholder interests. Under the Stock Option Plan, incentive and non-qualified stock options, stock appreciation rights (SARs), and SARs in tandem with stock options may be granted to key employees, officers, and outside directors. Options are granted at the fair market value of the shares on the date of grant. Options vest over five years at a rate of 20% per year and expire 10 years from the date of grant. The total number of shares of common stock available under the Stock Option Plan may not exceed 5,000,000 shares. No stock options may be granted under the plan after October 24, 2004.
Stock Option Plan activity for 1997, 1996, and 1995 is summarized as follows (no SARs have been granted under this plan):
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
Outstanding, beginning of year 3 359 508 $23.61 3 652 956 $22.47 2 409 453 $19.74
Granted - - 220 000 29.75 1 672 500 24.91
Exercised (380 162) 21.71 (513 448) 18.16 (403 997) 16.16
Forfeited - - - - (25 000) 24.31
Outstanding, end of year 2 979 346 $23.85 3 359 508 $23.61 3 652 956 $22.47
Exercisable, end of year 1 259 859 $22.62 989 021 $21.12 895 456 $17.47
Weighted average fair value of
options granted during the year $ - $3.07 $2.41
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The fair values of options granted were estimated as of the date of grant using a Black-Scholes option pricing model. The weighted averages for the assumptions used in determining the fair values of options granted in 1996 and 1995 (no options were granted during 1997), were as follows:
1996 1995
Risk-free interest rate 6.3% 7.3%
Expected dividend yield 5.8% 6.9%
Expected lives 6.5 yrs. 6.5 yrs.
Expected common stock variance 1.8% 1.8%
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Price ranges, along with certain other information, for options outstanding under the Stock Option Plan at December 31, 1997, are as follows:
Outstanding Exercisable
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Contractual Exercise
Price Range Number Price Life Number Price
$13.14 - $17.35 234 179 $15.13 2.0 yrs. 234 179 $15.13
$22.88 - $25.19 2 311 744 $23.72 7.0 yrs. 897 257 $23.63
$28.81 - $31.56 433 423 $29.29 8.1 yrs. 128 423 $29.13
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(iii) PSP Cinergy's PSP is a long-term incentive plan developed to reward officers and other key employees for achieving corporate and individual goals. Under the PSP, participants are granted contingent shares of common stock. A percentage of these contingent shares is earned with respect to each participant based on the level of goal attainment at the completion of a performance cycle. Performance cycles consist of overlapping four-year periods, beginning every two years. Awards earned under the PSP are paid in two installments: one-half of the award is paid in the year immediately following the end of the performance cycle and one-half of the award is paid in the subsequent year. The most recently commenced four-year performance cycle under the PSP began January 1, 1996, and was scheduled to end December 31, 1999. As previously discussed, Cinergy implemented the LTIP effective January 1, 1997, and ceased accrual of incentive compensation under the PSP as of December 31, 1996. The total number of shares of common stock available under this plan may not exceed 800,000 shares. Final payouts for performance cycle four that began January 1, 1992, were made in 1997. Final payouts for cycles five and six, which began in January 1994 and January 1996, respectively, will be made in 1999.
The following table provides certain information regarding contingent shares granted under the PSP for the performance cycle which began January 1, 1996:
1996 Number of contingent shares granted 166 280 Fair value at date of grant (dollars in thousands) $ 3 508 Weighted average per share amounts $24.47
The fair values of contingent shares and the weighted average per share amounts are measured at the market price of a share of common stock as if it were vested and issued on the date of grant, adjusted for expected forfeitures and the estimated present value of dividends foregone during the related performance cycle.
(iv) Employee Stock Purchase and Savings Plan Cinergy's Employee Stock Purchase and Savings Plan allows essentially all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature. Under the Employee Stock Purchase and Savings Plan, after-tax funds are withheld from a participant's compensation during a 26-month offering period and are deposited in an interest-bearing account. At the end of the offering period, participants may apply amounts deposited in the account, plus interest, toward the purchase of shares of common stock at a purchase price equal to the fair market value of a share of common stock on the first date of the offering period, less five percent. Any funds not applied toward the purchase of shares are returned to the participant. A participant may elect to terminate participation in the plan at any time. Participation also will terminate if the participant's employment with Cinergy ceases. Upon termination of participation, all funds, including interest, are returned to the participant without penalty. A new offering period began January 1, 1997, and will end February 28, 1999. The purchase price under this offering is $31.825. The most recently completed offering period ended December 31, 1996. The purchase price under this offering was $21.7312. The total number of shares of common stock available under the Employee Stock Purchase and Savings Plan may not exceed 2,000,000.
Employee Stock Purchase and Savings Plan activity for 1997, 1996, and 1995 is summarized as follows:
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
Outstanding, beginning
of year - $ - 490 787 $21.73 217 604 $21.73
Granted 338 947 31.83 - - 328 362 21.73
Exercised (95) 31.83 (414 284) 21.73 (1 010) 21.73
Forfeited (12 485) 31.83 (76 503) 21.73 (54 169) 21.73
Outstanding, end of year 326 367 $31.83 - $ - 490 787 $21.73
Weighted average fair value of
options granted during the year $3.08 $ - $2.42
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The fair values of options granted were estimated as of the date of grant using a Black-Scholes option pricing model. The weighted averages for the assumptions used in determining the fair values of options granted were as follows:
1997 1995
Risk-free interest rate 5.9% 7.7%
Expected dividend yield 5.4% 7.3%
Expected lives 2.0 yrs. 2.0 yrs.
Expected common stock variance 1.6% 1.7%
3. Preferred Stock of Subsidiaries
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Cinergy, CG&E, and PSI
(a) Schedule of Cumulative Preferred Stock
December 31
CG&E 1997 1996
Authorized 6,000,000 shares (dollars in thousands)
Not subject to mandatory redemption
Par value $100 per share - outstanding
4% Series 169,834 shares in 1997 and 169,835 shares in 1996 $ 16 983 $ 16 984
4 3/4% Series 38,096 shares in 1997 and 41,621 shares in 1996 3 810 4 162
Total 20 793 21 146
PSI
Not subject to mandatory redemption
Par value $25 per share - authorized 5,000,000 shares - outstanding
4.32% Series 169,161 shares in 1997 and 169,162 in 1996 4 229 4 229
4.16% Series 148,763 shares in 1997 and 1996 3 719 3 719
7.44% Series 3,408,712 shares in 1997 and 1996 85 218 85 218
Par value $100 per share - authorized 5,000,000 shares - outstanding
3 1/2% Series 40,302 shares in 1997 and 40,567 shares in 1996 4 030 4 056
6 7/8% Series 600,000 shares in 1997 and 1996 60 000 60 000
7.15% Series 158,640 shares in 1996 - 15 864
Total 157 196 173 086
Total - Cinergy
Total not subject to mandatory redemption $177 989 $194 232
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Cinergy, CG&E, and PSI
(b) Changes in Cumulative Preferred Stock Outstanding
Changes in cumulative preferred stock outstanding during 1997, 1996, and 1995, were as follows:
Shares Par
Retired Value
(dollars in
thousands)
1997
Not subject to mandatory redemption
Par value $100 per share
CG&E
4% Series 1 $ 1
4 3/4% Series 3 525 352
PSI
3 1/2% Series 265 26
7.15% Series 158 640 15 864
Par value $25 per share
PSI
4.32% Series 1 -
1996
Not subject to mandatory redemption
Par value $100 per share
CG&E
4% Series 100 165 $10 016
4 3/4% Series 88 379 8 838
PSI
3 1/2% Series 276 29
Par value $25 per share
PSI
7.44% Series 591 288 14 782
Subject to mandatory redemption
Par value $100 per share
CG&E
7 7/8% Series 800 000 80 000
7 3/8% Series 800 000 80 000
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
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Cinergy and CG&E
During the third quarter of 1996, Cinergy commenced an offer to purchase any and all outstanding shares of preferred stock of CG&E. Cinergy purchased 1,788,544 shares of preferred stock and made a capital contribution to CG&E of all the shares it acquired and CG&E canceled the shares. The cost of reacquiring the preferred stock, totaling $18 million, represents the difference between the par value of the preferred stock purchased and the price paid (including fees paid to tender agents) and is reflected as a charge to "Retained Earnings" in the Consolidated Statements of Changes in Common Stock Equity and as a deduction from "Net Income" in the Consolidated Statements of Income for purposes of determining net income and earnings per share applicable to common stock for Cinergy. The 4 3/4% Series no longer meets listing requirements of the New York Stock Exchange (NYSE) and has been delisted.
Cinergy, CG&E, PSI, and ULH&P
4. Long-term Debt
(a) Schedule of Long-term Debt (excluding amounts reflected in current liabilities)
December 31
1997 1996
CG&E and Subsidiaries (dollars in thousands)
CG&E
First Mortgage Bonds
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
6.45% Series due February 15, 2004 110 000 110 000
8.95% Series due December 15, 2021 - 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 924 700 1 084 700
Pollution Control Notes
6.50% due November 15, 2022 12 721 12 721
Other Long-term Debt
6.90% Debentures due June 1, 2025
(Redeemable at the option of the holders on June 1, 2005) 150 000 150 000
8.28% Junior subordinated debentures due July 1, 2025 100 000 100 000
Variable rate Liquid Asset Notes with Coupon Exchange
(LANCEs) due October 1, 2007
(Redeemable at the option of CG&E)
(Variable interest rate sets at 6.50% commencing
October 1, 1999)
(Holders of not less than 66 2/3% in an
aggregate principal amount of the LANCEs have the one-time
right to convert from the 6.50% fixed rate to a LIBOR-
based floating rate at any interest rate payment date
between October 1, 1999 and October 1, 2002) 100 000 -
Total other long-term debt 350 000 250 000
Unamortized Premium and Discount - Net (8 860) (12 130)
Total - CG&E 1 278 561 1 335 291
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
Total first mortgage bonds 30 000 30 000
Other Long-term Debt
7.65% Debentures due July 15, 2025 15 000 15 000
Unamortized Premium and Discount - Net (329) (383)
Total - ULH&P 44 671 44 617
Lawrenceburg Gas Company (Lawrenceburg)
First Mortgage Bonds
9 3/4% Series due October 1, 2001 1 200 1 200
Total - CG&E and subsidiaries $1 324 432 $1 381 108
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 NN, 7.60%, due March 15, 2012 (Pollution Control) - 35 000
Series QQ, 8 1/4%, due June 15, 2013 (Pollution Control) 23 000 23 000
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 29 945
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 227 764 262 764
Secured Medium-term Notes
Series A, 7.15% to 8.88%, due January 6, 1999 to
June 1, 2022 290 000 290 000
Series B, 5.22% to 8.26%, due September 17, 1998
to August 22, 2022 195 000 230 000
(Series A and B, 7.66% weighted average interest rate
and 14 year weighted average remaining life)
Total secured medium-term notes 485 000 520 000
Other Long-term Debt
Series 1994A Promissory Note, non-interest bearing,
due January 3, 2001 19 825 19 825
6.25%, due December 15, 2005
(Notes are callable and/or putable on December 15, 1998) - 50 000
6.35% Debentures due November 15, 2006
(Redeemable in whole or in part at the option of the
holders on November 15, 2000) 100 000 100 000
Total other long-term debt 119 825 169 825
Unamortized Premium and Discount - Net (6 119) (7 319)
Total - PSI $ 826 470 $ 945 270
Total - Cinergy
First Mortgage Bonds $1 183 664 $1 378 664
Secured Medium-term Notes 485 000 520 000
Pollution Control Notes 12 721 12 721
Other Long-term Debt 484 825 434 825
Unamortized Premium and Discount - Net (15 308) (19 832)
Total long-term debt $2 150 902 $2 326 378
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(b) Mandatory Redemption and Other Requirements
Long-term debt maturities for the next five years (excluding $50 million of 6.25% notes, due December 15, 2005, which are callable and/or putable on December 15, 1998) are as follows:
Cinergy and CG&E and
Subsidiaries Subsidiaries PSI ULH&P
(in millions)
1998 $ 35 $ - $ 35 $ -
1999 186 180 6 20
2000 31 - 31 -
2001 100 61 39 -
2002 149 100 49 -
$501 $341 $160 $20
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On February 27, 1998, CG&E announced its intention to redeem on March 29, 1998, $41 million principal amount of its 7 3/8% Series First Mortgage Bonds (due November 1, 2001) at a redemption price of 100.30% and to redeem on March 30, 1998, the entire $100 million principal amount of its 8 1/2% Series First Mortgage Bonds (due September 1, 2022) at a redemption price of 100%, both through the maintenance and replacement fund (M&R Fund) provision of CG&E's first mortgage bond indenture. Additionally, on the same date, CG&E announced its intention to redeem on March 30, 1998, the remaining $19 million principal amount of its 7 3/8% Series First Mortgage Bonds (due November 1, 2001) at a redemption price of 100.87%. 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 an amount related to the net revenues of the respective company.
5. Notes Payable and Other Short-term Obligations
Cinergy, CG&E, PSI, and ULH&P
Obligations representing notes payable and other short-term obligations (excluding notes payable to affiliated companies) and weighted average interest rates were as follows:
Cinergy
December 31, 1997 December 31, 1996
Weighted Weighted
Established Average Established Average
Lines Outstanding Rate Lines Outstanding Rate
(in millions) (in millions)
Cinergy
Committed lines
Acquisition line $ 350 $ 350 6.25% $ 500 $477 5.96%
Revolving line 400 89 6.27 100 32 5.95
Commercial paper - 161 6.19 - - -
Utility subsidiaries
Committed lines 270 30 6.09 280 99 5.92
Uncommitted lines 360 206 6.19 285 78 6.03
Pollution control notes 244 244 4.08 209 209 3.96
Cinergy UK, Inc. 115 34 7.20 40 27 6.91
Total $1 739 $1 114 5.78% $1 414 $922 5.53%
CG&E
December 31, 1997 December 31, 1996
Weighted Weighted
Established Average Established Average
Lines Outstanding Rate Lines Outstanding Rate
(in millions) (in millions)
Committed lines $ 85 $ 15 6.13% $ 80 $ 15 5.85%
Uncommitted lines 190 90 6.19 140 15 6.11
Pollution control notes 184 184 4.08 184 184 3.96
Total $459 $289 4.85% $404 $214 4.25%
PSI
Committed lines $185 $ 15 6.06% $200 $ 84 5.94%
Uncommitted lines 170 116 6.19 145 63 6.01
Pollution control notes 60 60 4.08 25 25 3.99
Total $415 $191 5.52% $370 $172 5.69%
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Cinergy, CG&E, and PSI
Cinergy's committed lines are comprised of an acquisition line and a revolving line and are maintained by commitment fees which were immaterial during the 1995 through 1997 period. The established revolving line (as shown in the above table) also provides credit support for the newly instituted commercial paper program. Such program is limited to a maximum outstanding principal amount of $200 million. The majority of the proceeds from the commercial paper sales were used to reduce the acquisition line to the year-end level of $350 million. CG&E and PSI also have the capacity to issue commercial paper that must be supported by committed lines (unsecured lines of credit) of the respective company. Neither CG&E nor PSI issued commercial paper in 1997 or 1996.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's utility subsidiaries had regulatory authority to borrow up to $853 million ($453 million for CG&E and its subsidiaries, including $50 million for ULH&P, and $400 million for PSI) as of December 31, 1997. In connection with this authority, committed lines, as well as, uncommitted lines (short-term borrowings with various banks on an "as offered" basis) have been arranged. The established committed lines (as shown in the above table) include $100 million designated as backup for certain of the uncommitted lines at December 31, 1997. Further, the committed lines are maintained by commitment fees, which were immaterial during the 1995 through 1997 period.
Cinergy
In addition, Cinergy UK, Inc. (Cinergy UK), a subsidiary of Investments, which holds Cinergy's 50% investment in Avon Energy, entered into a $40 million non-recourse credit agreement in 1996, which was terminated in October of 1997. This agreement was replaced by a one-year $115 million non-recourse revolving credit agreement. The commitment fees paid for these lines were immaterial for the 1996 through 1997 period.
Cinergy, CG&E, PSI, and ULH&P
Amounts outstanding of the committed lines for Cinergy, the utility subsidiaries, and Cinergy UK 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.
Cinergy, CG&E, and PSI
Both CG&E and PSI have issued variable rate pollution control notes. Holders of these pollution control notes have the right to put their notes on any business day. Accordingly, these issuances are reflected in the Consolidated Balance Sheets as "Notes payable and other short-term obligations."
Cinergy, CG&E, PSI, and ULH&P
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 this arrangement, Cinergy system companies with surplus short-term funds, whether from internal or external sources, provide short-term loans to other system companies at rates that reflect (1) the actual costs of the external borrowing and/or (2) the costs of the internal funds which are set at the 30-day Federal Reserve "AA" industrial commercial paper rate. The SEC's approval of the money pool, pursuant to the PUHCA, extends through December 31, 2002. For amounts outstanding under this money pool arrangement at December 31, 1997 and December 31, 1996, see "Notes payable to affiliated companies" on the Consolidated Balance Sheets for CG&E and PSI and the Balance Sheets for ULH&P.
Cinergy, CG&E, PSI, and ULH&P
6. Sale of Accounts Receivable
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, of which $252 million ($167 million by CG&E and its subsidiaries, including $29 million by ULH&P, and $85 million by PSI), net of reserves, has been sold as of December 31, 1997. The Consolidated Balance Sheets of Cinergy, CG&E and PSI and the Balance Sheets of ULH&P are net of the amounts sold at December 31, 1997 and 1996.
7. Leases
Cinergy, CG&E, PSI, and ULH&P
(a) Operating Leases
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 are follows:
1997 1996 1995
(in millions)
Cinergy and subsidiaries $36 $31 $36
CG&E and subsidiaries 18 18 22
PSI 18 13 14
ULH&P 1 2 5
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Future minimum lease payments required under operating leases with remaining, non-cancelable lease terms in excess of one year as of December 31, 1997, are as follows:
Cinergy and CG&E and
Subsidiaries Subsidiaries PSI ULH&P*
(in millions, ULH&P in thousands)
1998 $ 36 $ 9 $11 $124
1999 29 9 7 110
2000 22 7 5 59
2001 13 5 3 -
2002 7 4 2 -
After 2002 26 22 3 -
$133 $56 $31 $293
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* Excludes amounts applicable to CG&E's non-cancelable leases allocated to ULH&P.
Cinergy and CG&E
(b) Capital Lease
In November 1996, CG&E entered into a sale-leaseback agreement for certain equipment at Woodsdale. The lease is a capital lease with an initial lease term of five years. At the end of the initial lease term, the lease may be renewed at mutually agreed upon terms or the equipment may be repurchased by CG&E at the original sale amount. The monthly lease payment, comprised of interest only, is based on the applicable London Interbank Offered Rate (LIBOR) and, therefore, the capital lease obligation will not be amortized over the initial lease term. The property under the capital lease is depreciated at the same rate as if the property were still owned by CG&E. CG&E recorded a capital lease obligation of $22 million, which represented the net book value of the equipment at the beginning of the lease.
8. Financial Instruments
Cinergy, CG&E, and PSI
(a) Financial Derivatives Cinergy has entered into financial derivative contracts for the purposes described below.
Cinergy
(i) Foreign Exchange Hedging Activity Cinergy has hedged its pound sterling denominated investment in Midlands through a currency swap. The currency swap requires Cinergy to exchange a series of pound sterling denominated cash flows for a series of dollar denominated cash flows based on Cinergy's initial exchange of $500 million for 330 million pounds sterling. Translation gains and losses related to the principal exchange on the currency swap have been recorded in the cumulative foreign currency translation adjustment which is reported as a separate component of common stock equity in the Consolidated Financial Statements of Cinergy. At December 31, 1997, translation losses of approximately $43 million related to the principal exchange of the currency swap have been reflected in "Current Liabilities - Other" in the Consolidated Balance Sheets of Cinergy.
Cinergy, CG&E, and PSI
(ii) Interest Rate Risk Management Cinergy and its subsidiaries enter into interest rate swaps to lower funding costs and manage exposures to fluctuations in interest rates. Under these interest rate swaps, Cinergy and its subsidiaries agree with counterparties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated on an agreed notional principal amount. At December 31, 1997, Cinergy has effectively fixed the interest rate applicable to the pound sterling denominated leg of its currency swap through two interest rate swap agreements. These contracts require Cinergy to pay a fixed rate and receive a floating rate. Both of the interest rate swaps are forward starting swaps that effectively fix the interest rate applicable to the ensuing four year period of the currency swap. These contracts have a total notional principal amount of 330 million pounds sterling. Translation gains and losses related to Cinergy's interest obligation, which is payable in pounds sterling, are recognized as a component of interest expense in the Consolidated Statements of Income. At December 31, 1997, PSI had two interest rate swap agreements outstanding with notional amounts of $100 million each. One contract, with three years remaining from a four-year term, requires PSI to pay a floating rate and receive a fixed rate. The second contract, with a six-month term, requires PSI to pay a fixed rate and receive a floating rate. In all cases, the floating rate is based on the applicable LIBOR and the interest differential paid or received is recognized in the Consolidated Statements of Income as a component of interest expense. The fair values of the interest rate swap agreements at December 31, 1997, were not significant.
Cinergy, CG&E, PSI, and ULH&P
(b) Fair Value of Other Financial Instruments
The estimated fair values of Cinergy's and its subsidiaries' other financial instruments were as follows (this information does not purport to be a valuation of the companies as a whole):
December 31 December 31
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Instruments (in millions; ULH&P in thousands)
Cinergy and Subsidiaries
First mortgage bonds and
other long-term debt (includes
amounts reflected as long-term
debt due within one year) $ 2 236 $ 2 337 $ 2 466 $ 2 472
CG&E and Subsidiaries
First mortgage bonds and
other long-term debt (includes
amounts reflected as long-term
debt due within one year) $ 1 324 $ 1 355 $ 1 511 $ 1 508
PSI
First mortgage bonds and
other long-term debt (includes
amounts reflected as long-term
debt due within one year) $ 912 $ 982 $ 955 $ 964
ULH&P
First mortgage bonds and
other long-term debt $44 671 $45 591 $44 617 $44 668
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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 and Other Short-Term Obligations 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 NYSE, on the present value of future cash flows. The discount rates used approximate the incremental borrowing costs for similar instruments.
Cinergy, CG&E, PSI, and ULH&P
(c) Concentrations of Credit Risk
Credit risk represents the risk of loss which would occur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations with the Company. Concentrations of credit risk relate to significant customers or counterparties, or groups of customers or counterparties, possessing similar economic or industry characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Concentration of credit risk with respect to Cinergy's trade accounts receivable from electric and gas retail customers is limited due to Cinergy's large number of customers and diversified customer base of residential, commercial, and industrial customers. Sales for resale customers on Cinergy's electric system include traditional electric cooperatives and municipalities with which CG&E and PSI have long-standing relationships. Contracts for sales of electricity for resale outside of Cinergy's system are principally with power marketers, other investor owned utilities, electric cooperatives, and municipalities. As of December 31, 1997, approximately 65% of Cinergy's power marketing and trading activity represents commitments with 10 counterparties. The majority of these contracts are for terms of one year or less. As the competitive electric power market expands, counterparties will increasingly include new market entrants, such as other power marketers, brokers, and commodities traders. This increased level of new market entrants, as well as competitive pressures on the utility market participants, could increase Cinergy's exposure to credit risk. As of December 31, 1997, Cinergy's management believes nonperformance of contractual obligations by any one counterparty of Cinergy's power marketing and trading function would not result in losses which are significant to the financial condition or results of operations of Cinergy.
Potential exposure to credit risk also exists from Cinergy's use of financial derivatives such as currency swaps and interest rate swaps. Because these financial instruments are transacted only with highly rated financial institutions, Cinergy does not anticipate nonperformance by any of the counterparties.
9. Pension Plans
Cinergy, CG&E, PSI, and ULH&P
Cinergy's defined benefit pension plans 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.
Cinergy's funding policy is to contribute annually to the plans an amount which is not less than the minimum amount required by the Employee Retirement Income Security Act of 1974 and not more than the maximum amount deductible for income tax purposes. Contributions applicable to the last three plan years are: $8 million for 1997, $7 million for 1996, and $18 million for 1995. Of these amounts, CG&E and its subsidiaries had contributions of $4 million applicable to the 1997 plan year and $7 million applicable to each of the 1996 and 1995 plan years. PSI had contributions of $4 million applicable to the 1997 plan year, no contributions for the 1996 plan year, and contributions of $11 million for the 1995 plan year. The plans' assets consist of investments in equity and fixed income securities.
Effective January 1, 1998, Cinergy reconfigured its defined benefit pension plans. The reconfigured plans cover the same employees as the previous plans and established a uniform final average pay formula for all employees. When an employee retires, he or she will receive the greater of the benefit accrued under the previous plan as of December 31, 1997, or the benefit accrued under the new plan as of the retirement date. The reconfiguration of the pension plans is not expected to have a significant impact on the Company's financial condition or results of operations.
Cinergy
Cinergy's pension cost for 1997, 1996, and 1995 included the following
components:
1997 1996 1995
(in millions)
Benefits earned during the period $ 19.8 $21.2 $ 18.5
Interest accrued on projected
benefit obligations 67.8 61.6 61.4
Return on plans' assets
Actual (186.6) (75.6) (119.3)
Deferred gain 123.8 14.4 58.8
Net amortizations 2.8 2.9 2.3
Net periodic pension cost $ 27.6 $24.5 $ 21.7
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CG&E and ULH&P
CG&E's and its subsidiaries' (including ULH&P's) pension cost for 1997, 1996, and 1995 included the following components:
1997 1996 1995
(in millions)
Benefits earned during the period $ 10.5 $11.2 $ 9.8
Interest accrued on projected
benefit obligations 41.2 38.6 38.8
Return on plans' assets
Actual (108.3) (53.8) (71.9)
Deferred gain 71.2 17.2 34.0
Net amortizations 1.8 2.1 1.5
Net periodic pension cost $ 16.4 $15.3 $12.2
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PSI
PSI's pension cost for 1997, 1996, and 1995 included the following components:
1997 1996 1995
(in millions)
Benefits earned during the period $ 9.3 $10.0 $ 8.7
Interest accrued on projected
benefit obligations 26.6 23.0 22.6
Return on plans' assets
Actual (78.3) (21.8) (47.4)
Deferred gain (loss) 52.6 (2.8) 24.8
Net amortizations 1.0 0.8 0.8
Net periodic pension cost $11.2 $ 9.2 $ 9.5
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Cinergy, CG&E, PSI, and ULH&P
During 1996, CG&E and its subsidiaries (including ULH&P) recognized an additional $31 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 (Statement 88). Additionally, during 1996, PSI recognized an additional $30 million of accrued pension cost in accordance with Statement 88. These amounts represent the costs associated with additional benefits extended in connection with voluntary workforce reduction programs (see Note 1(l)).
1997 1996 1995
Actuarial Assumptions:
For determination of projected benefit
obligations
Discount rate 7.5% 8.0% 7.5%
Rate of increase in future compensation 4.5 5.0 4.5
For determination of pension cost
Rate of return on plans' assets
PSI 9.0 9.0 9.0
CG&E and subsidiaries 9.0 9.0 9.5
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Cinergy
The following table reconciles the plans' funded status with amounts recorded in the Consolidated Financial Statements of Cinergy. Under the provisions of Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions (Statement 87), certain assets and obligations of the plans are deferred and recognized in the Consolidated Financial Statements of Cinergy in later years.
1997 1996
Plans' Plans' Plan's
Assets Exceed Assets Exceed Accumulated
Accumulated Accumulated Benefits
Benefits Benefits Exceed Assets
(in millions)
Actuarial present value
of benefits
Vested benefits $(731.6) $(423.1) $(241.6)
Non-vested benefits (35.5) (33.5) (10.1)
Accumulated benefit
obligations (767.1) (456.6) (251.7)
Effect of future
compensation
increases (193.2) (121.7) (53.3)
Projected benefit
obligations (960.3) (578.3) (305.0)
Plans' assets at fair value 888.1 531.6 234.1
Projected benefit
obligations in excess of
plans' assets (72.2) (46.7) (70.9)
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 (8.5) (6.7) (3.1)
Unrecognized net gain
resulting from experience
different from that
assumed and effects of
changes in assumptions (134.6) (48.4) (28.1)
Prior service cost not
yet recognized in net
periodic pension cost 46.6 33.6 23.2
Accrued pension cost at
December 31 $(168.7) $ (68.2) $ (78.9)
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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 Consolidated Financial Statements in later years.
1997 1996
Plans' Plan's Plan's
Assets Exceed Assets Exceed Accumulated
Accumulated Accumulated Benefits
Benefits Benefits Exceed Assets
(in millions)
Actuarial present value
of benefits
Vested benefits $(437.2) $(160.3) $(241.6)
Non-vested benefits (17.6) (17.0) (10.1)
Accumulated benefit
obligations (454.8) (177.3) (251.7)
Effect of future
compensation
increases (111.7) (53.2) (53.3)
Projected benefit
obligations (566.5) (230.5) (305.0)
Plans' assets at fair
value 528.1 223.3 234.1
Projected benefit
obligations in excess of
plans' assets (38.4) (7.2) (70.9)
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 (4.9) (2.4) (3.1)
Unrecognized net gain
resulting from experience
different from that
assumed and effects of
changes in assumptions (110.3) (40.1) (28.1)
Prior service cost not
yet recognized in net
periodic pension cost 30.7 16.1 23.2
Accrued pension cost at
December 31 $(122.9) $ (33.6) $ (78.9)
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PSI
The following table reconciles the plan's funded status with amounts recorded in the Consolidated Financial Statements of PSI. Under the provisions of Statement 87, certain assets and obligations of the plan are deferred and recognized in the Consolidated Financial Statements in later years.
1997 1996
(in millions)
Actuarial present value of benefits
Vested benefits $(294.4) $(262.8)
Non-vested benefits (17.9) (16.5)
Accumulated benefit obligation (312.3) (279.3)
Effect of future compensation
increases (81.5) (68.5)
Projected benefit obligation (393.8) (347.8)
Plan's assets at fair value 360.0 308.3
Projected benefit obligation in
excess of plan's assets (33.8) (39.5)
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 (3.6) (4.3)
Unrecognized net (gain) resulting
from experience different from that
assumed and effects of changes in
assumptions (24.3) (8.3)
Prior service cost not yet recognized
in net periodic pension cost 15.9 17.5
Accrued pension cost
at December 31 $ (45.8) $ (34.6)
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10. Other Postretirement Benefits
Cinergy, CG&E, PSI, and ULH&P
Cinergy provides certain health care and life insurance benefits to retired employees who have met minimum age and service requirements and their eligible dependents. The health care benefits include medical coverage, dental coverage, and prescription drugs and are subject to certain limitations, such as deductibles and co-payments. Prior to January 1, 1997, CG&E and PSI employees were covered under separate plans. Effective January 1, 1997, all Cinergy active employees are eligible to receive essentially the same postretirement health care benefits. Certain classes of employees, based on age, as well as all retirees, have been grandfathered under benefit provisions in place prior to January 1, 1997. 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. Implementation of pre-funding is subject to the outcome of negotiations with The Office of the Utility Consumer Counselor and approval by the IURC.
Postretirement benefit cost for 1997, 1996, and 1995 included the following components:
Cinergy
Health Life
Care Insurance Total
(in millions)
1997
Benefits earned during the period $ 3.0 $ .1 $ 3.1
Interest accrued on Accumulated Post-
retirement Benefit Obligation (APBO) 14.1 2.2 16.3
Net amortization and deferral .2 .1 .3
Amortization of transition obligations 4.7 .3 5.0
Net periodic postretirement benefit cost $22.0 $2.7 $24.7
1996
Benefits earned during the period $ 5.7 $ .1 $ 5.8
Interest accrued on APBO 16.5 2.2 18.7
Net amortization and deferral .3 - .3
Amortization of transition obligations 8.1 .3 8.4
Net periodic postretirement benefit cost $30.6 $2.6 $33.2
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
CG&E and ULH&P
Health Life
Care Insurance Total
(in millions)
1997
Benefits earned during the period $1.4 $ .1 $ 1.5
Interest accrued on APBO 5.0 2.0 7.0
Net amortization and deferral .2 .1 .3
Amortization of transition obligation 1.5 .4 1.9
Net periodic postretirement benefit cost $8.1 $2.6 $10.7
1996
Benefits earned during the period $ .7 $ .1 $ .8
Interest accrued on APBO 4.9 2.0 6.9
Amortization of transition obligation 2.6 .4 3.0
Net periodic postretirement benefit cost $8.2 $2.5 $10.7
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
PSI
Health Life
Care Insurance Total
(in millions)
1997
Benefits earned during the period $ 1.6 $ - $ 1.6
Interest accrued on APBO 9.1 .2 9.3
Amortization of transition obligation 3.2 (.1) 3.1
Net periodic postretirement benefit cost $13.9 $ .1 $14.0
1996
Benefits earned during the period $ 5.0 $ - $ 5.0
Interest accrued on APBO 11.6 .2 11.8
Net amortization and deferral .3 - .3
Amortization of transition obligation 5.5 (.1) 5.4
Net periodic postretirement benefit cost $22.4 $ .1 $22.5
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
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Cinergy, CG&E, PSI, and ULH&P
The following table reconciles 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, certain obligations of the plans are deferred and recognized in the Financial Statements in later years.
Cinergy
Health Life
Care Insurance Total
(in millions)
1997
Actuarial present value of benefits
Fully eligible active plan participants $ (9.9) $ (2.3) $ (12.2)
Other active plan participants (66.3) (1.1) (67.4)
Retirees and beneficiaries (113.6) (28.7) (142.3)
Projected APBO (189.8) (32.1) (221.9)
Unamortized transition obligations 70.7 .2 70.9
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 21.1 1.5 22.6
Accrued postretirement benefit obligations
at December 31, 1997 $ (98.0) $(30.4) $(128.4)
1996
Actuarial present value of benefits
Fully eligible active plan participants $ (13.7) $ (1.6) $ (15.3)
Other active plan participants (49.8) (1.5) (51.3)
Retirees and beneficiaries (118.0) (26.4) (144.4)
Projected APBO (181.5) (29.5) (211.0)
Unamortized transition obligations 75.4 .4 75.8
Unrecognized net loss (gain) resulting from
experience different from that assumed
and effects of changes in assumptions 19.5 (.5) 19.0
Accrued postretirement benefit obligations
at December 31, 1996 $ (86.6) $(29.6) $(116.2)
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Increasing the health care cost trend rate by one percentage point in each year would increase the APBO by approximately $24 million for 1997 and $21 million for 1996, and the aggregate of the service and interest cost components of the postretirement benefit cost by approximately $2 million for 1997, $4 million for 1996, and $3 million for 1995.
CG&E and ULH&P
Health Life
Care Insurance Total
(in millions)
1997
Actuarial present value of benefits
Fully eligible active plan participants $ (5.3) $ (2.2) $ (7.5)
Other active plan participants (32.9) (.9) (33.8)
Retirees and beneficiaries (30.2) (25.8) (56.0)
Projected APBO (68.4) (28.9) (97.3)
Unamortized transition obligation 23.0 2.1 25.1
Unrecognized prior service cost - .2 .2
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 13.6 .7 14.3
Accrued postretirement benefit obligation
at December 31, 1997 $ (31.8) $(25.9) $ (57.7)
1996
Actuarial present value of benefits
Fully eligible active plan participants $ (10.8) $ (1.6) $ (12.4)
Other active plan participants (24.2) (1.3) (25.5)
Retirees and beneficiaries (28.7) (23.6) (52.3)
Projected APBO (63.7) (26.5) (90.2)
Unamortized transition obligation 24.5 2.5 27.0
Unrecognized prior service cost - .3 .3
Unrecognized net loss (gain) resulting from
experience different from that assumed
and effects of changes in assumptions 11.5 (1.4) 10.1
Accrued postretirement benefit obligation
at December 31, 1996 $ (27.7) $(25.1) $ (52.8)
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Increasing the health care cost trend rate by one percentage point in each year would increase the APBO by approximately $9 million and $7 million for 1997 and 1996 respectively, and the aggregate of the service and interest cost components of the postretirement benefit cost by approximately $1 million for 1997, 1996, and 1995.
PSI
Health Life
Care Insurance Total
(in millions)
1997
Actuarial present value of benefits
Fully eligible active plan participants $ (4.6) $ (.1) $ (4.7)
Other active plan participants (33.4) (.2) (33.6)
Retirees and beneficiaries (83.4) (2.9) (86.3)
Projected APBO (121.4) (3.2) (124.6)
Unamortized transition obligation 47.7 (1.9) 45.8
Unrecognized prior service cost - (.2) (.2)
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 7.5 .7 8.2
Accrued postretirement benefit obligation
at December 31, 1997 $ (66.2) $ (4.6) $ (70.8)
1996
Actuarial present value of benefits
Fully eligible active plan participants $ (2.9) $ - $ (2.9)
Other active plan participants (25.6) (.2) (25.8)
Retirees and beneficiaries (89.3) (2.8) (92.1)
Projected APBO (117.8) (3.0) (120.8)
Unamortized transition obligation 50.9 (2.1) 48.8
Unrecognized prior service cost - (.3) (.3)
Unrecognized net loss resulting from
experience different from that assumed
and effects of changes in assumptions 8.0 .9 8.9
Accrued postretirement benefit obligation
at December 31, 1996 $ (58.9) $ (4.5) $ (63.4)
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Increasing the health care cost trend rate by one percentage point in each year would increase the APBO by approximately $15 million and $14 million for 1997 and 1996, respectively, and the aggregate of the service and interest cost components of the postretirement benefit cost for each of 1997, 1996, and 1995 by approximately $1 million, $3 million, and $2 million, respectively.
Cinergy, CG&E, PSI, and ULH&P
The following assumptions were used to determine the APBO:
1997 1996 1995
Discount rate 7.5% 8.0% 7.5%
Health care cost trend rate,
gradually declining to 5%
CG&E 7.0-8.0% 7.0-9.0% 8.0-11.0%
PSI 7.0-8.0 7.0-9.0 8.0-10.0
Year ultimate trend rates achieved
CG&E 2004 2004 2002
PSI 2004 2004 2007
11. Income Taxes
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Cinergy
Cinergy complies with the provisions of 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 Cinergy's net deferred income tax liability at December 31, 1997, and 1996, are as follows:
1997 1996
(in millions)
Deferred Income Tax Liability
Utility plant $1 076.8 $1 061.3
Unamortized costs of reacquiring debt 24.4 23.2
Deferred operating expenses
and carrying costs 70.4 73.5
Amounts due from customers - income taxes 129.4 129.4
Deferred DSM costs 31.7 43.4
Investment in unconsolidated subsidiary 55.0 13.5
Other 47.9 41.3
Total deferred income tax liability 1 435.6 1 385.6
Deferred Income Tax Asset
Unamortized investment tax credits 60.5 63.9
Deferred fuel costs - 12.9
Accrued pension and other benefit costs 63.3 60.4
Other 63.3 102.1
Total deferred income tax asset 187.1 239.3
Net Deferred Income Tax Liability $1 248.5 $1 146.3
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CG&E
CG&E and its subsidiaries comply with the provisions of 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 CG&E's net deferred income tax liability at December 31, 1997, and 1996, are as follows:
1997 1996
(in millions)
Deferred Income Tax Liability
Utility plant $683.3 $671.6
Unamortized costs of reacquiring debt 11.1 11.2
Deferred operating expenses
and carrying costs 62.0 73.5
Amounts due from customers - income taxes 121.9 120.7
Deferred DSM costs 11.7 6.0
Other 43.9 40.9
Total deferred income tax liability 933.9 923.9
Deferred Income Tax Asset
Unamortized investment tax credits 41.7 43.9
Accrued pension and other benefit costs 39.2 31.4
Other 58.6 81.5
Total deferred income tax asset 139.5 156.8
Net Deferred Income Tax Liability $794.4 $767.1
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PSI
PSI and its subsidiaries comply with the provisions of 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 PSI's net deferred income tax liability at December 31, 1997, and 1996, are as follows:
1997 1996
(in millions)
Deferred Income Tax Liability
Electric utility plant $393.5 $389.7
Unamortized costs of reacquiring debt 13.3 12.0
Amounts due from customers - income taxes 7.5 8.7
Deferred operating expenses
and accrued carrying costs 8.4 -
Deferred DSM costs 20.0 37.4
Other 3.7 -
Total deferred income tax liability 446.4 447.8
Deferred Income Tax Asset
Unamortized investment tax credits 18.8 20.0
Accrued pension and other benefit costs 24.1 29.0
Deferred fuel costs - 7.1
Other - 18.7
Total deferred income tax asset 42.9 74.8
Net Deferred Income Tax Liability $403.5 $373.0
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ULH&P
ULH&P complies with the provisions of 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 ULH&P's net deferred income tax liability at December 31, 1997, and 1996, are as follows:
1997 1996
(in thousands)
Deferred Income Tax Liability
Utility plant $34 001 $33 872
Unamortized costs of reacquiring debt 1 463 996
Deferred fuel costs - 5 459
Other 2 546 3 732
Total deferred income tax liability 38 010 44 059
Deferred Income Tax Asset
Unamortized investment tax credits 1 832 1 946
Amounts due to customers - income taxes 2 650 2 067
Deferred fuel costs 508 -
Accrued pension and other benefit costs 2 397 2 482
Other 4 412 4 101
Total deferred income tax asset 11 799 10 596
Net Deferred Income Tax Liability $26 211 $33 463
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Cinergy, CG&E, PSI, and ULH&P
Cinergy and its subsidiaries will participate in the filing of a consolidated Federal income tax return for the year ended December 31, 1997. The current tax liability is allocated among the members of the group pursuant to a tax sharing agreement consistent with Rule 45(c) of the PUHCA.
A summary of Federal and state income taxes charged (credited) to income and the allocation of such amounts is as follows:
Cinergy
1997 1996 1995
(in millions)
Current Income Taxes
Federal $133.3 $143.4 $175.3
State 12.1 7.5 10.4
Total current income taxes 145.4 150.9 185.7
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items 26.7 61.6 53.8
DSM costs (8.5) (1.9) 12.0
Pension and other benefit costs .9 (28.2) (21.8)
Litigation settlement 1.8 26.2 -
Fuel costs 4.4 8.8 .3
Other items - net 49.5 (15.4) (7.5)
Total deferred Federal income taxes 74.8 51.1 36.8
State 2.4 6.5 1.7
Total deferred income taxes 77.2 57.6 38.5
Investment Tax Credits - Net (9.6) (9.8) (10.1)
Total Income Taxes $213.0 $198.7 $214.1
Allocated to:
Operating income $248.9 $218.2 $221.4
Other income and expenses - net (35.9) (19.5) (7.3)
$213.0 $198.7 $214.1
CG&E
1997 1996 1995
(in millions)
Current Income Taxes
Federal $117.1 $115.5 $102.4
State 5.2 1.5 2.5
Total current income taxes 122.3 117.0 104.9
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items 13.6 36.6 33.9
DSM costs 7.5 .6 3.6
Pension and other benefit costs (2.8) (17.0) (10.7)
Fuel costs (5.5) 10.8 6.3
Other items - net 10.8 (8.1) (1.0)
Total deferred Federal income taxes 23.6 22.9 32.1
State (1.0) 2.2 .8
Total deferred income taxes 22.6 25.1 32.9
Investment Tax Credits - Net (6.2) (6.2) (6.0)
Total Income Taxes $138.7 $135.9 $131.8
Allocated to:
Operating income $172.0 $145.0 $136.4
Other income and expenses - net (33.3) (9.1) (4.6)
$138.7 $135.9 $131.8
PSI
1997 1996 1995
(in millions)
Current Income Taxes
Federal $35.5 $41.3 $71.4
State 6.8 6.0 7.5
Total current income taxes 42.3 47.3 78.9
Deferred Income Taxes
Federal
Depreciation and other electric utility
plant-related items 13.3 25.0 19.9
DSM costs (16.1) (2.5) 8.4
Pension and other benefit costs 3.7 (11.2) (11.1)
Litigation settlement 6.2 26.2 -
Fuel costs 9.9 (2.0) (6.0)
Coal contract buyout 5.5 - -
Destec payments 7.7 - -
Other items - net 5.6 (6.3) (3.0)
Total deferred Federal income taxes 35.8 29.2 8.2
State 3.3 4.3 1.1
Total deferred income taxes 39.1 33.5 9.3
Investment Tax Credits - Net (3.5) (3.6) (4.1)
Total Income Taxes $77.9 $77.2 $84.1
Allocated to:
Operating income $76.9 $73.2 $85.0
Other income and expenses - net 1.0 4.0 (.9)
$77.9 $77.2 $84.1
ULH&P
1997 1996 1995
(in thousands)
Current Income Taxes
Federal $11 607 $ 416 $5 955
State 3 002 (87) 1 324
Total current income taxes 14 609 329 7 279
Deferred Income Taxes
Federal
Depreciation and other utility plant-
related items 847 1 506 1 382
Pension and other benefit costs - (277) (381)
Fuel costs (5 486) 6 111 (534)
Unamortized costs of reacquiring debt (122) 458 808
Other items - net 12 291 (556)
Total deferred Federal income taxes (4 749) 8 089 719
State
Depreciation and other utility plant-
related items 287 425 390
Fuel costs (1 404) 1 570 (137)
Other items - net 23 55 (35)
Total deferred state income taxes (1 094) 2 050 218
Total deferred income taxes (5 843) 10 139 937
Investment Tax Credits - Net (280) (282) (285)
Total Income Taxes $ 8 486 $10 186 $7 931
Allocated to:
Operating income $ 9 586 $ 9 834 $7 887
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Other income and expenses - net (1 100) 352 44 $ 8 486 $10 186 $7 931
Cinergy, CG&E, PSI, and ULH&P
Federal income taxes, computed by applying the statutory Federal income tax rate to book income before extraordinary item and Federal income tax, are reconciled to Federal income tax expense reported in the Consolidated Statements of Income of Cinergy, CG&E, and PSI and the Statements of Income of ULH&P as follows:
Cinergy
1997 1996 1995
(in millions)
Statutory Federal income tax provision $196.4 $181.8 $192.2
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (9.6) (9.8) (10.1)
Depreciation and other utility plant-
related differences 11.7 14.1 9.0
Preferred dividend requirements of
subsidiaries 4.4 8.5 10.8
Foreign tax adjustments (13.2) (11.1) -
Other - net 8.8 1.2 .1
Federal income tax expense $198.5 $184.7 $202.0
CG&E
1997 1996 1995
(in millions)
Statutory Federal income tax provision $130.8 $125.8 $127.6
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (6.2) (6.2) (6.0)
Depreciation and other utility plant-
related differences 9.8 11.7 9.0
Preferred dividends - - 6.2
Other - net .1 .9 (8.3)
Federal income tax expense $134.5 $132.2 $128.5
PSI
1997 1996 1995
(in millions)
Statutory Federal income tax provision $ 70.0 $ 67.4 $ 77.5
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (3.5) (3.6) (4.1)
Other - net 1.3 3.1 2.1
Federal income tax expense $ 67.8 $ 66.9 $ 75.5
ULH&P
1997 1996 1995
(in thousands)
Statutory Federal income tax provision $6 823 $7 987 $6 496
Increases (Reductions) in taxes resulting from:
Amortization of investment tax credits (280) (282) (285)
Depreciation and other utility plant-
related differences 96 358 219
Other - net (61) 160 (41)
Federal income tax expense $6 578 $8 223 $6 389
12. Commitments and Contingencies
(a) Construction
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Cinergy, CG&E, PSI, and ULH&P
Cinergy currently forecasts the aggregate expenditures for its construction program for the 1998 through 2002 period to be $1.7 billion. Of these projected expenditures, approximately $866 million relates to CG&E and its subsidiaries, including $137 million for ULH&P, and $858 million relates to PSI.
(b) Manufactured Gas Plant (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 at least 21 MGP sites which PSI or its predecessors previously owned. In 1945, PSI sold 19 of these sites to Indiana Gas and Water Company, Inc. (now Indiana Gas Company, Inc. (IGC)), including the Shelbyville and Lafayette sites (discussed below). PSI or its predecessors acquired seven of the 21 MGP sites from Northern Indiana Public Service Company (NIPSCO), five of which were among the 19 sites PSI sold to IGC. The other two sites acquired from NIPSCO are located in Goshen (discussed below) and Warsaw, Indiana.
PSI has received claims from IGC and NIPSCO that PSI is a Potentially Responsible Party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) with respect to the 21 MGP sites, and therefore responsible for the costs of investigating and remediating these sites.
The Shelbyville MGP site has been the subject of an investigation and cleanup enforcement action by the Indiana Department of Environmental Management (IDEM) against IGC and PSI. Pursuant to an agreement, PSI and IGC have conducted investigation and remediation activities at the Shelbyville site and are sharing the costs of these activities. In 1997, PSI and IGC submitted a proposed agreed order to IDEM relative to the Shelbyville site, which, if accepted by IDEM, will result in a determination of whether the activities previously undertaken at the site are sufficient to adequately protect human health and the environment. Based upon environmental investigations and remediation completed to date, PSI believes that any further investigation and remediation required 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.
In August 1997, NIPSCO filed suit against PSI in the United States District Court for the Northern District of Indiana, South Bend Division, claiming, pursuant to CERCLA, recovery from PSI of NIPSCO's past and future costs of investigating and remediating MGP related contamination at the Goshen MGP site. NIPSCO alleged that it has already incurred about $400,000 in response costs at the site and that remediation of the site will cost about $2.7 million. PSI denied liability in its answer to the complaint. The parties are currently engaged in the discovery process and the case has not yet been scheduled for trial.
Also, in August 1997, PSI reached an agreement with IGC settling IGC's claims that PSI contribute to IGC's response costs related to 13 of the 19 MGP sites conveyed by PSI to IGC in 1945. This agreement requires PSI and IGC to share past and future response costs equally (50%/50%) at the 13 sites. Further, the parties must jointly approve future management of the sites and the decisions to spend additional funds. The settlement does not address the five sites PSI acquired from NIPSCO and subsequently sold to IGC (including the Lafayette site).
PSI has placed its insurance carriers on notice of IGC's, NIPSCO's, and IDEM's claims.
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 appealed this decision, which IGC contended was contrary to decisions made by other state utility commissions with respect to this issue. In January 1997, the Indiana Court of Appeals (Court of Appeals) affirmed the IURC's decision denying IGC's request for recovery of MGP costs. IGC petitioned the Indiana Supreme Court to review the Court of Appeals decision. In August 1997, the Indiana Supreme Court denied transfer of this case. Accordingly, the IURC's decision denying rate recovery for these costs by IGC remains intact. The IURC granted PSI's motion establishing a sub-docket to PSI's last retail rate proceeding, in which the IURC issued an order in September 1996, 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 site investigation and remediation costs ultimately incurred.
PSI continues to gather information pertaining to each of these MGP sites, including the 13 sites which are the subject of the agreement with IGC and the Goshen site which is the subject of NIPSCO's complaint. Reserves recorded, based on information currently available, are not material to Cinergy's financial condition or results of operations. However, as further investigation and remediation activities are undertaken at these sites, the potential liability for MGP sites could be material to Cinergy's financial condition or results of operations.
Cinergy, CG&E, and ULH&P
(iii) CG&E and its Utility Subsidiaries Lawrenceburg, a wholly-owned subsidiary of CG&E, also has a 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 implemented a remediation plan, and, on September 20, 1996, received a certificate of completion on the cleanup from the IDEM. The total costs incurred for the cleanup program were approximately $273,000.
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. CG&E and its utility subsidiaries have undertaken preliminary site assessments to obtain more information about some of the other potential MGP sites.
Cinergy and CG&E
(c) United Scrap Lead Site
The United States Environmental Protection Agency (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. In January 1998, CG&E executed a de minimis settlement agreement, which if accepted by the Federal District Court will resolve CG&E's potential liability for the site. Action on the proposed settlement is expected by the end of 1998.
Cinergy, CG&E, and PSI
(d) Enertech Associates, Inc. (Enertech) Litigation
In October 1995, a suit was filed in the Federal District Court for the Southern District of Ohio by three former employees of Enertech, formerly named Power International, Inc., a subsidiary of Investments, naming as defendants Enertech, 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 Enertech 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 are vigorously defending against the charges based upon meritorious defenses. Cinergy is currently unable to predict the outcome of this litigation.
Cinergy and PSI
(e) Wabash Valley Power Association, Inc. (WVPA)
In February 1989, PSI and WVPA entered into a settlement agreement to resolve all claims related to Marble Hill, a nuclear project canceled in 1984. Implementation of the settlement was contingent upon a number of events, including the conclusion of WVPA's bankruptcy proceeding, negotiation of certain terms and conditions with WVPA, the Rural Utilities Service (RUS), and the National Rural Utilities Cooperative Finance Corporation (CFC), and certain regulatory approvals. In December 1996, following the resolution of issues associated with WVPA's bankruptcy proceeding, PSI, on behalf of itself and its officers, paid $80 million on behalf of WVPA to the 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. In January 1997, an order dismissing the WVPA litigation against PSI and its officers with prejudice was entered by the United States District Court for the Southern District of Indiana. Negotiations among PSI, WVPA, the RUS, and the CFC continue regarding certain additional terms and conditions of the settlement agreement. Based on the current status of negotiations, the Company believes it has adequately reserved for any loss that would be material to its financial condition or results of operations. However, the Company cannot currently predict the outcome of these negotiations. Depending of the form of the final negotiated terms and conditions and the form of any regulatory approvals, the Company could be required to recognize additional losses of up to $90 million for accounting purposes. The recognition of this loss is not expected to have an immediate impact on Cinergy's cash flow. The Company believes that negotiations could be concluded and the final terms and conditions determined during 1998.
Cinergy, CG&E, and ULH&P
(f) Potential Divestiture of Gas Operations
Under the PUHCA, the divestiture of CG&E's gas operations may be required. The key question under the relevant PUHCA standards is the amount of increased operating costs, if any, that would result from the gas operations being divested and operated on a stand-alone basis.
In its order approving the merger, the SEC reserved judgment over Cinergy's ownership of CG&E's gas operations for three years, at the end of which period Cinergy would be required to address the matter. In February 1998, Cinergy made a filing with the SEC setting forth its rationale for retention of the gas operations. The filing includes, among other things, a study showing that, if divested and operated on a stand-alone basis, the gas operations would bear significant increased operating costs, greater than those cited by the SEC in two 1997 cases permitting electric registered holding companies to acquire and retain gas properties. For these and other reasons stated in Cinergy's filing, Cinergy believes its retention of CG&E's gas properties meets all relevant standards under the PUHCA.
Cinergy, CG&E, and PSI
13. Jointly Owned Plant
PSI is a joint owner of Gibson Unit 5 with WVPA and the Indiana Municipal Power Agency (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:
1997
Utility Plant Accumulated Construction
Share in Service Depreciation Work in Progress
(dollars in millions)
PSI
Production
Gibson (Unit 5) 50.05% $ 205 $ 97 $ 1
Transmission and local
facilities 94.28 1 918 673 32
CG&E
Production
Miami Fort Station
(Units 7 and 8) 64 208 117 4
W.C. Beckjord Station
(Unit 6) 37.5 41 25 1
J.M. Stuart Station 39 273 121 1
Conesville Station
(Unit 4) 40 72 37 2
Zimmer 46.5 1 216 239 5
East Bend Station 69 330 164 2
Killen Station 33 187 85 -
Transmission Various 63 31 1
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14. Quarterly Financial Data (unaudited)
Cinergy
Basic Diluted
Earnings Earnings
Operating Operating Net (Loss) (Loss)
Quarter Ended Revenues Income Income(Loss) Per Share Per Share
(in millions, except per share amounts)
1997
March 31 $1 030 $152 $114 $ .72 $ .71
June 30 865 105 55 .35 .35
September 30 1 355 140 (27)(a) (.16)(a) (.17)(a)
December 31 1 103 142 111 .70 .70
Total $4 353 $539 $253 (a) $1.61 (a) $1.59 (a)
1996
March 31 $ 884 $169 $110 $ .70 $ .69
June 30 717 113 56(b) .35(b) .35 (b)
September 30 766 150 98 .51(c) .51 (c)
December 31 876 126 71(b) .44(b) .44 (b)
Total $3 243 $558 $335(b) $2.00(b)(c) $1.99 (b)(c)
(a) For a discussion of the windfall profits tax levied against Midlands, which
was recorded in the third quarter as an extraordinary item, see Note 17.
Net income, basic earnings per share and diluted earnings per share during
the third quarter of 1997, before the extraordinary item, were $83 million,
$.53, and $.52, respectively. Total net income, basic earnings per share,
and diluted earnings per share for 1997, before the extraordinary item,
were $363 million, $2.30, and $2.28, respectively.
(b) In 1996, Cinergy recognized charges to earnings of approximately $55
million ($38 million, net of taxes or $.24 per share, basic and diluted)
primarily for charges related to voluntary early retirement and severance
programs and disallowances associated with the PUCO's December 1996 Order
in CG&E's gas rate proceeding. Of these charges, approximately $11 million,
net of taxes or $.07 per share (basic and diluted), was recognized in the
second quarter, and approximately $27 million, net of taxes or $.17 per
share (basic and diluted), was recognized in the fourth quarter. Of the
total $55 million charge, $41 million is reflected in "Operating Expenses -
Other operation" and $14 million is reflected in "Other Income and Expenses
- Net."
(c) In the third quarter of 1996, Cinergy incurred costs of $18 million or $.12
per share (basic and diluted), related to the reacquisition of 90% of
CG&E's preferred stock through a tender offer. (See Note 3(b).)
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CG&E
Operating Operating Net
Quarter Ended Revenues Income Income
(in millions)
1997
March 31 $ 614 $ 99 $ 68
June 30 487 65 37
September 30 712 78 52
December 31 639 86 82
Total $2 452 $328 $239
1996
March 31 $ 575 $120 $ 92
June 30 437 69(a) 39(a)
September 30 431 90 62
December 31 533 73(a) 34(a)
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Total $1 976 $352 $227
(a) In 1996, CG&E recognized charges to earnings of approximately $50 million ($35 million, net of taxes) primarily for charges related to voluntary early retirement and severance programs and disallowances associated with the PUCO's December 1996 Order in CG&E's gas rate proceeding. Of these charges, approximately $10 million, net of taxes, was recognized in the second quarter, and approximately $25 million, net of taxes, was recognized in the fourth quarter. Of the total $50 million charge, $36 million is reflected in "Operating Expenses - Other operation" and $14 million is reflected in "Other Income and Expenses - Net."
PSI
Operating Operating Net
Quarter Ended Revenues Income Income
(in millions)
1997
March 31 $ 424 $ 54 $ 33
June 30 390 41 23
September 30 651 61 41
December 31 493 55 35
Total $1 958 $211 $132
1996
March 31 $ 328 $ 50 $ 27
June 30 290 44(a) 25(a)
September 30 348 61 43
December 31 366 51(a) 31(a)
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Total $1 332 $206 $126
(a) In 1996, PSI recognized charges to earnings of approximately $5 million ($3 million, net of taxes) primarily for charges related to voluntary early retirement and severance programs. Of these charges, approximately $1 million, net of taxes, was recognized in the second quarter, and approximately $2 million, net of taxes, was recognized in the fourth quarter. The $5 million charge is reflected in "Operating Expenses - Other operation."
15. Financial Information by Business Segment
Cinergy
Operating Provision
Operating Operating Income for Construction
Year Ended Revenues Income Taxes Depreciation Expenditures
(in millions)
1997
Electric $3 862 $505 $229 $266 $247
Gas 491 34 20 23 44
Total $4 353 $539 $249 $289 $291
1996
Electric $2 769 $520 $204 $260 $276
Gas 474 38 14 23 32
Total $3 243 $558 $218 $283 $308
1995
Electric $2 612 $548 $209 $258 $286
Gas 411 39 12 22 36
Total $3 023 $587 $221 $280 $322
December 31
1997 1996 1995
(in millions)
Property, Plant, and Equipment - net
Electric $5 724 $5 737 $5 718
Gas 573 553 532
6 297 6 290 6 250
Other Corporate Assets 2 561 2 435 1 853
Total Assets $8 858 $8 725 $8 103
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For a discussion of the potential divestiture of CG&E's gas operations, see Note 12(f).
CG&E
Operating
Operating Operating Income Provision for Construction
Year Ended Revenues(1) Income Taxes Depreciation Expenditures
(in millions)
1997
Electric $1 956 $290 $152 $140 $105
Gas 496 38 20 23 44
Total $2 452 $328 $172 $163 $149
1996
Electric $1 502 $314 $131 $138 $109
Gas 474 38 14 23 32
Total $1 976 $352 $145 $161 $141
1995
Electric $1 437 $321 $124 $137 $101
Gas 411 39 12 22 36
Total $1 848 $360 $136 $159 $137
December 31
1997 1996 1995
(in millions)
Property, Plant, and Equipment - net
Electric $3 171 $3 205 $3 244
Gas 573 553 532
3 744 3 758 3 776
Other Corporate Assets 1 170 1 086 1 305
Total Assets $4 914 $4 844 $5 081
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For a discussion of the potential divestiture of CG&E's, including ULH&P's, gas operations, see Note 12(f).
ULH&P
Operating
Operating Operating Income Provision for Construction
Year Ended Revenues Income Taxes Depreciation Expenditures
(in thousands)
1997
Electric $192 774 $10 427 $6 549 $ 7 193 $14 115
Gas 78 848 8 008 3 037 5 176 9 448
Total $271 622 $18 435 $9 586 $12 369 $23 563
1996
Electric $190 900 $12 558 $5 644 $ 6 935 $ 9 571
Gas 76 868 8 476 4 190 4 974 9 073
Total $267 768 $21 034 $9 834 $11 909 $18 644
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
December 31
1997 1996 1995
(in thousands)
Property, Plant, and Equipment - net
Electric $147 869 $142 490 $138 482
Gas 111 615 106 791 104 749
259 484 249 281 243 231
Other Corporate Assets 32 106 40 272 54 911
Total Assets $291 590 $289 553 $298 142
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For a discussion of the potential divestiture of ULH&P's gas operations, see Note 12(f).
Cinergy
16. Earnings Per Share
Effective December 31, 1997, Cinergy adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share (Statement 128). Statement 128 replaces the calculation of primary and fully diluted earnings per share under previous accounting standards with basic and diluted earnings per share amounts. Previously reported earnings per share amounts have been restated to comply with the provisions of Statement 128.
The after-tax earnings per share impact of the extraordinary item - equity share of windfall profits tax in 1997 was $.69 for both basic and diluted earnings per share.
Presented below is a reconciliation of earnings per common share (basic EPS) and earnings per common share assuming dilution (diluted EPS).
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
1997
Earnings per common share:
Net income before extraordinary item $362 638 157 685 $2.30
Effect of dilutive securities:
Common stock options 928
Contingently issuable common stock 204
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $362 638 158 817 $2.28
1996
Net income $334 797
Less: costs of reacquisition of
preferred stock of subsidiary 18 391
Earnings per common share:
Net income applicable to common
stock 316 406 157 678 $2.00
Effect of dilutive securities:
Common stock options 923
Contingently issuable common stock 314
EPS--assuming dilution:
Net income applicable to common
stock plus assumed conversions $316 406 158 915 $1.99
1995
Earnings per common share:
Net income $347 182 156 620 $2.22
Effect of dilutive securities:
Common stock options 586
Contingently issuable common stock 316
EPS--assuming dilution:
Net income plus assumed conversions $347 182 157 522 $2.20
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Options to purchase shares of common stock that were excluded from the calculation of EPS--assuming dilution because the exercise prices of these options were greater than the average market price of the common shares during the year are summarized below:
Average
Exercise
Year Shares Price
1997 22 300 $35.25
1996 45 000 31.56
1995 215 000 28.81
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Cinergy
17. Extraordinary Item - Equity Share of Windfall Profits Tax
In May 1997, general elections were held in Great Britain which resulted in the Labour Party gaining control of the government. In July 1997, the Labour Government announced a windfall profits tax to be levied against a limited number of British companies, including Midlands, which had previously been owned and operated by the government. The tax, which was enacted into law during the third quarter of 1997, was intended to be a recovery of funds by the government due to the undervaluing of the companies subject to the tax when they were privatized by the government via public stock offerings several years ago.
Cinergy's share of the tax to be paid by Midlands in two equal installments, due December 1, 1997 and 1998, is approximately 67 million pounds sterling ($109 million or $.69 per share, basic and diluted). Midlands borrowed the funds to finance the first installment. Cinergy expects Midlands will borrow funds as necessary to pay the final installment. As Cinergy's management believes this charge to be unusual in nature, and does not expect such a charge to recur, the tax was recorded as an extraordinary item in Cinergy's Consolidated Statement of Income during the third quarter of 1997. No related tax benefit was recorded for the charge as the windfall profits tax is not deductible for corporate income tax purposes in the UK, and Cinergy expects that benefits, if any, derived for US Federal income taxes will not be significant.
18. Subsequent Events (Unaudited)
ULH&P
(a) Redemption of 8% Series First Mortgage Bonds On March 24, 1998, ULH&P announced its intention to redeem on April 23, 1998, $6.3 million principal amount of its 8% Series First Mortgage Bonds (due October 1, 2003) at a redemption price of 100.85% through the M&R Fund Provision of ULH&P's first mortgage bond indenture. Additionally, on the same date, ULH&P announced its intention to redeem on April 24, 1998, the remaining $3.7 million principal amount of its 8% Series First Mortgage Bonds (due October 1, 2003) at a redemption price of 101.73%.
PSI
(b) Issuance of 7.25% JUnior Maturing Principal Securities (JUMPS) On March 19, 1998, PSI issued $100 million principal amount of its 7.25% JUMPS. The JUMPS will mature on March 15, 2028. Proceeds from the sale were used to repay short-term indebtedness incurred in connection with the redemption on March 1, 1998, of all outstanding shares of PSI's 7.44% Series Cumulative Preferred Stock at a redemption price of $25 per share.
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 Corp.'s, a Delaware corporation (Cinergy or Company), 1998 Proxy Statement with respect to identification of directors and their current principal occupations.
CG&E
The directors of The Cincinnati Gas & Electric Company (CG&E) at February 28, 1998, included:
Jackson H. Randolph Mr. Randolph, age 67, is Chairman of CG&E. He has served as a director of CG&E since 1983, and his current term as director expires April 21, 1998.
James E. Rogers Mr. Rogers, age 50, is Vice Chairman and Chief Executive Officer of CG&E. He has served as a director of CG&E since 1994, and his current term as director expires April 21, 1998.
William J. Grealis Mr. Grealis, age 52, is President of CG&E. He has served as a director of CG&E since 1995, and his current term expires April 21, 1998.
PSI
Reference is made to PSI Energy, Inc.'s (PSI) 1998 Information Statement with respect to identification of directors and their current principal occupations.
ULH&P
Omitted pursuant to Instruction I(2)(c).
Executive Officers
Cinergy, CG&E, and PSI
The information included in Part I of this report on pages 18 through 20 under the caption "Executive Officers of the Registrants" 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 I(2)(c).
ITEM 11. EXECUTIVE COMPENSATION
Cinergy
Reference is made to Cinergy's 1998 Proxy Statement with respect to executive compensation.
CG&E
Reference is made to Cinergy's 1998 Proxy Statement with respect to executive compensation, except as to information pertaining to the compensation of directors and to the performance graph, which information is set forth below.
Compensation of Directors
Directors who are not employees (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 Cinergy 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 Cinergy board meeting multiplied by five. Retirement compensation is paid for as many years as the director served on the Cinergy 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.
Performance Graph
The following line graph compares the cumulative total shareholder return of the common stock of CG&E with the cumulative total returns during the same time period of the Standard & Poor's (S&P) Electric Utilities Index and the S&P 500 Stock Index. The graph tracks performance from January 1, 1993, through October 24, 1994, the final trading date of CG&E's common stock. The graph assumes a $100 investment on January 1, 1993, and reinvestment of all dividends.
Omitted is a line graph illustrating the following data.
1/1/93 1/1/94 10/24/94
CG&E Common Stock $100.00 $117.80 $103.70
S&P Electric Utilities Index $100.00 $112.60 $ 93.00
S&P 500 Stock Index $100.00 $110.10 $111.10
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PSI
Reference is made to PSI's 1998 Information Statement with respect to executive compensation.
ULH&P
Omitted pursuant to Instruction I(2)(c).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Cinergy
Reference is made to Cinergy's 1998 Proxy Statement with respect to security ownership of certain beneficial owners and management.
CG&E
Cinergy owns all the outstanding shares of common stock of CG&E. Pursuant to
Section 13(d) of the Securities Exchange Act of 1934, a beneficial owner of a
security is any person who directly or indirectly has or shares voting or
investment power over such security. No person or group is known by the
management of CG&E to be the beneficial owner of more than 5% of CG&E's class of
cumulative preferred stock as of December 31, 1997.
CG&E's directors and executive officers did not beneficially own shares of any series of the class of CG&E's cumulative preferred stock as of December 31, 1997. The beneficial ownership of Cinergy's common stock held by each director and named executive officer as of December 31, 1997, is set forth in the following table.
Amount and Nature
Name of Beneficial Owner(1) of Beneficial Ownership (2)
William J. Grealis 86,313 shares
J. Wayne Leonard 140,961 shares
Jackson H. Randolph 152,426 shares
James E. Rogers 339,254 shares
Larry E. Thomas 130,366 shares
All directors and executive 1,050,910 shares (2)
officers as a group (representing 0.67% of the class)
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(1) No individual listed beneficially owned more than 0.215% 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: Mr. Grealis - 55,887; Mr. Leonard - 97,611; Mr. Randolph - 50,000; Mr. Rogers - 145,629; Mr. Thomas - 74,104; and all directors and executive officers as a group - 497,698.
PSI
Reference is made to PSI's 1998 Information Statement with respect to security ownership of certain beneficial owners and management.
ULH&P
Omitted pursuant to Instruction I(2)(c).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Cinergy, CG&E, and PSI
None.
ULH&P
Omitted pursuant to Instruction I(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 53 and 54 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 Securities and Exchange Commission (SEC) and are incorporated herein by reference and made a part hereof. Exhibits identified with a pound sign (#) are being filed herewith by the registrant identified in the exhibit discussion below and are incorporated herein by reference with respect to any other designated registrant. Exhibits not so identified are filed herewith:
Exhibit
Designation Nature of Exhibit
Cinergy
3-a *Certificate of Incorporation of Cinergy
Corp., a Delaware corporation (Cinergy or
Company). (Exhibit to Cinergy's 1993 Form
10-K in File No. 1-11377.)
3-b By-laws of Cinergy as amended December 18,
1997.
CG&E
3-c *Amended Articles of Incorporation of The Cincinnati
Gas & Electric Company (CG&E) effective October 23,
1996. (Exhibit to CG&E's September 30, 1996, Form 10-Q
in File No. 1-1232.)
3-d *Regulations of CG&E as amended, April 25, 1996.
(Exhibit to CG&E's March 31, 1996, Form 10-Q in File
No. 1-1232.)
PSI
3-e *Amended Articles of Consolidation of PSI Energy, Inc.
(PSI), as amended to April 20, 1995. (Exhibit to PSI's
June 30, 1995, Form 10-Q in File No. 1-3543.)
3-f Amendment to Article D of the Amended Articles of
Consolidation of PSI Energy, Inc., effective July 10,
1997.
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Exhibit
Designation Nature of Exhibit
3-g *By-laws of PSI, as amended to December 17,
1996. (Exhibit to PSI's March 31, 1997, Form 10-Q
in File No. 1-3543.)
ULH&P
3-h *Restated Articles of Incorporation made effective May
7, 1976. (Exhibit to The Union Light, Heat and Power
Company's (ULH&P) Form 8-K, May 1976.)
3-i *By-laws of ULH&P as amended, adopted May 8,
1996. (Exhibit to ULH&P's March 31, 1996
Form 10-Q in File No. 2-7793.)
3-j Amendment to Restated Articles of Incorporation of
ULH&P (Article Third) and Amendment to the By-laws of
ULH&P (Article 1), both effective July 24, 1997.
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 *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-f *Forty-first Supplemental Indenture between PSI and
LaSalle National Bank dated June 15, 1988. (Exhibit to
PSI's 1988 Form 10-K in File No. 1-3543.)
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Exhibit
Designation Nature of Exhibit
4-g *Forty-second Supplemental Indenture between PSI and
LaSalle National Bank dated August 1, 1988. (Exhibit to
PSI's 1988 Form 10-K in File No. 1-3543.)
4-h *Forty-fourth Supplemental Indenture between PSI and
LaSalle National Bank dated March 15, 1990. (Exhibit to
PSI's 1990 Form 10-K in File No. 1-3543.)
4-i *Forty-fifth Supplemental Indenture between PSI and
LaSalle National Bank dated March 15, 1990. (Exhibit to
PSI's 1990 Form 10-K in File No. 1-3543.)
4-j *Forty-sixth Supplemental Indenture between PSI and
LaSalle National Bank dated June 1, 1990. (Exhibit to
PSI's 1991 Form 10-K in File No. 1-3543.)
4-k *Forty-seventh Supplemental Indenture between PSI and
LaSalle National Bank dated July 15, 1991. (Exhibit to
PSI's 1991 Form 10-K in File No. 1-3543.)
4-l *Forty-eighth Supplemental Indenture between PSI and
LaSalle National Bank dated July 15, 1992. (Exhibit to
PSI's 1992 Form 10-K in File No. 1-3543.)
4-m *Forty-ninth Supplemental Indenture between PSI and LaSalle
national Bank dated February 15, 1993. (Exhibit to PSI's 1992
Form 10-K in File No. 1-3543.)
4-n *Fiftieth Supplemental Indenture between PSI and
LaSalle National Bank dated February 15, 1993. (Exhibit
to PSI's 1992 Form 10-K in File No. 1-3543.)
4-o *Fifty-first Supplemental Indenture between PSI and
LaSalle National Bank dated February 1, 1994. (Exhibit
to PSI's 1993 Form 10-K in File No. 1-3543.)
4-p *Indenture (Secured Medium-term Notes, Series A), dated
July 15, 1991, between PSI and LaSalle National Bank,
as Trustee. (Exhibit to PSI's Form 10-K/A, Amendment
No. 2, dated July 15, 1993, in File No. 1-3543.)
4-q *Indenture (Secured Medium-term Notes, Series B), dated
July 15, 1992, between PSI and LaSalle National Bank,
as Trustee. (Exhibit to PSI's Form 10-K/A, Amendment
No. 2, dated July 15, 1993, in File No. 1-3543.)
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Exhibit
Designation Nature of Exhibit
4-r *Loan Agreement between PSI and the City of Princeton,
Indiana dated as of November 7, 1996. (Exhibit to PSI's
September 30, 1996, Form 10-Q in File No. 1-3543.)
4-s *Loan Agreement between PSI and the City of
Princeton, Indiana dated as of February 1,
1997. (Exhibit to Cinergy's 1996 Form 10-K
in File No. 1-11377.)
4-t *Indenture dated November 15, 1996, between PSI and The
Fifth Third Bank, as Trustee. (Exhibit to Cinergy's
1996 Form 10-K in File No. 1-11377.)
4-u *First Supplemental Indenture dated November 15, 1996,
between PSI and The Fifth Third Bank, as Trustee.
(Exhibit to Cinergy's 1996 Form 10-K in File No.
1-11377.)
4-v *Second Supplemental Indenture dated December 15, 1996,
between PSI and The Fifth Third Bank, as Trustee.
(Exhibit to Cinergy's 1996 Form 10-K in File No.
1-11377.)
4-w Third Supplemental Indenture dated as of March 15,
1998, between PSI and The Fifth Third Bank, as Trustee.
Cinergy and CG&E
4-x *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-y *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-z *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-aa *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-bb *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.)
|
Exhibit
Designation Nature of Exhibit
4-cc *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-dd *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-ee *Thirty-sixth Supplemental Indenture between
G&E and The Bank of New York dated as of
February 15, 1994. (Exhibit to CG&E's
Registration Statement No. 33-52335.)
4-ff *Thirty-seventh Supplemental Indenture
between CG&E and The Bank of New York dated
as of October 14, 1996. (Exhibit to
Cinergy's 1996 Form 10-K in File No. 1-11377.)
4-gg *Loan Agreement between CG&E and the 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-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 the 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-jj *Loan Agreement between CG&E and the 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-kk *Loan Agreement between CG&E and the 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-ll *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.)
|
Exhibit
Designation Nature of Exhibit
4-mm *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-nn *Loan Agreement between CG&E and the 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-oo *Loan Agreement between CG&E and the 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-pp *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-qq *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-rr *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-ss *Third Supplemental Indenture between CG&E and The
Fifth Third Bank dated as of October 9, 1997. (Exhibit
to CG&E'S September 30, 1997, Form 10-Q in File No.
1-1232.)
|
Cinergy, CG&E, and ULH&P
4-tt *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-uu *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.)
|
Exhibit
Designation Nature of Exhibit
4-vv *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-ww *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-xx *First Supplemental Indenture between ULH&P and The
Fifth Third Bank dated as of July 15, 1995. (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, 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, Cinergy Services, Inc.
(Services), CG&E, PSI, and James E. Rogers.
(Exhibit to Cinergy's, 1995 Form 10-K in
File No. 1-11377.)
10-d *+Employment Agreement dated January 1, 1995,
among Cinergy, CG&E, Services, Cinergy
Investments, Inc. (Investments), PSI, and
William J. Grealis. (Exhibit to Cinergy's
1994 Form 10-K in File No. 1-11377.)
10-e +First Amendment to Employment Agreement dated January
1, 1997, among Cinergy, CG&E, Services, Investments,
PSI, and William J. Grealis.
|
Exhibit
Designation Nature of Exhibit
10-f *+Employment Agreement dated October 24,
1994, among Cinergy, Services, CG&E, PSI,
and Larry E. Thomas. (Exhibit to Cinergy's
1995 Form 10-K in File No. 1-11377.)
10-g *+First Amendment to Employment Agreement
dated October 24, 1994, among Cinergy,
Services, CG&E, PSI, and Larry E. Thomas.
(Exhibit to Cinergy's 1995 Form 10-K in File
No. 1-11377.)
10-h *+Employment Agreement dated October 24,
1994, among Cinergy, Services, CG&E, PSI,
and J. Wayne Leonard. (Exhibit to Cinergy's
1995 Form 10-K in File No. 1-11377.)
10-i *+First Amendment to Employment Agreement
dated October 24, 1994, among Cinergy,
Services, CG&E, PSI, and J. Wayne Leonard.
(Exhibit to Cinergy's 1995 Form 10-K in File
No. 1-11377.)
10-j *+Employment Agreement dated October 24,
1994, among Cinergy, Services, CG&E, PSI,
and Cheryl M. Foley. (Exhibit to Cinergy's,
1995 Form 10-K in File No. 1-11377.)
10-k *+First Amendment to Employment Agreement
dated October 24, 1994, among Cinergy,
Services, CG&E, PSI, and Cheryl M. Foley.
(Exhibit to Cinergy's 1995 Form 10-K in File
No. 1-11377.)
10-l *+Employment Agreement dated June 1, 1996,
among Cinergy, Services, CG&E, PSI, and
Elizabeth K. Lanier. (Exhibit to Cinergy's
1996 Form 10-K in File No. 1-11377.)
10-m +Employment Agreement dated April 22, 1997,
among Cinergy, Services, CG&E, PSI, and
Madeleine W. Ludlow.
10-n +Employment Agreement dated October 1, 1997,
among Cinergy, Services, CG&E, PSI, and
Donald B. Ingle, Jr.
Cinergy and PSI
10-o *+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 in File No. 1-9941.)
|
Exhibit
Designation Nature of Exhibit
10-p *+First Amendment to Employment Agreement
dated August 30, 1996, among Cinergy, PSI,
and John M. Mutz. (Exhibit to Cinergy's
1996 Form 10-K in File No. 1-11377.)
10-q *+Deferred Compensation Agreement, effective
as of January 1, 1992, between PSI 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-r *+Split Dollar Life Insurance Agreement,
effective as of January 1, 1992, between PSI
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-s *+First Amendment to Split Dollar Life
Insurance Agreement between PSI 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-t *+PSI Union Employees' 401(k) Savings Plan as amended
and restated January 1, 1992. (Exhibit to PSI Resources
1992 Form 10-K in File No. 1-9941.)
10-u *Amendment to PSI Union Employees' 401(k) Savings Plan,
amended and restated December 17, 1996, with various
effective dates. (Exhibit to Cinergy's 1996 Form 10-K
in File No. 1-11377.)
10-v *+First Amendment to the PSI Union Employees' 401(k)
Savings Plan, dated December 31, 1995. (Exhibit to
Cinergy's 1995 Form 10-K in File No. 1-11377.)
10-w *+PSI Employees' 401(k) Savings Plan as amended and
restated January 1, 1992. (Exhibit to PSI Resources
1992 Form 10-K in File No. 1-9941.)
10-x *Amendment to PSI Employees' 401(k) Savings Plan,
amended and restated December 17, 1996, with various
effective dates. (Exhibit to Cinergy's 1996 Form 10-K
in File No. 1-11377.)
|
Exhibit
Designation Nature of Exhibit
10-y *+First Amendment to the PSI Employees'
401(k) Savings Plan, dated December 31,
1995. (Exhibit to Cinergy's 1995 Form 10-K
in File No. 1-11377.)
10-z *+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-aa *+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-bb *+Deferred Compensation Agreement between CG&E and
Jackson H. Randolph dated January 1, 1992. (Exhibit to
CG&E's 1992 Form 10-K in File No. 1-1232.)
10-cc *+Split Dollar Insurance Agreement, effective
as of May 1, 1993, between CG&E and Jackson
H. Randolph. (Exhibit to Cinergy's 1994
Form 10-K in File No. 1-11377.)
10-dd *+Amended and Restated Supplemental
Retirement Income Agreement between CG&E and
Jackson H. Randolph. (Exhibit to Cinergy's,
1995 Form 10-K in File No. 1-11377.)
10-ee *CG&E Deferred Compensation and Investment
Plan, as amended and restated, effective
January 1, 1995. (Exhibit to Cinergy's 1996
Form 10-K in File No. 1-11377.)
10-ff *CG&E Savings Incentive Plan, as amended and
restated, effective January 1, 1995.
(Exhibit to Cinergy's 1996 Form 10-K in File
No. 1-11377.)
10-gg +Amended and Restated Supplemental Executive Retirement
Income Agreement between CG&E and certain executive
officers.
10-hh *+Executive Severance Agreement between CG&E and
certain executive officers. (Exhibit to CG&E's 1989
Form 10-K in File No. 1-1232.)
|
Exhibit
Designation Nature of Exhibit
Cinergy
10-ii *+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-jj +1997 Amendments to Various Compensation and
Benefit Plans of Cinergy Corp., adopted
January 30, 1997.
10-kk *+Cinergy Stock Option Plan, adopted October 18, 1994,
effective October 24, 1994. (Exhibit to Cinergy's Form
S-8, filed October 19, 1994, in File No. 1-11377.)
10-ll *+Amendment to Cinergy Stock Option Plan, amended
October 22, 1996, effective November 1, 1996. (Exhibit
to Cinergy's September 30, 1996, Form 10-Q in File No.
1-11377.)
10-mm *+Cinergy Performance Shares Plan, adopted October 18,
1994, effective October 24, 1994. (Exhibit to Cinergy's
Form S-8, filed October 19, 1994, in File No. 1-11377.)
10-nn *+Amendment to Cinergy Performance Shares Plan, amended
October 22, 1996, effective November 1, 1996. (Exhibit
to Cinergy's September 30, 1996, Form 10-Q in File No.
1- 11377.)
10-oo *+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-pp *+Amendment to Cinergy Annual Incentive Plan, amended
January 25, 1996, effective January 1, 1996. (Exhibit
to Cinergy's 1996 10-K in File No. 1-11377.)
10-qq *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-rr *Amendment to Cinergy's Employee Stock Purchase and
Savings Plan, adopted April 26, 1996, effective January
1, 1996. (Exhibit to Cinergy's June 30, 1996, Form 10-Q
in File No. 1-11377.)
|
Exhibit
Designation Nature of Exhibit
10-ss *Amendment to Cinergy's Employee Stock Purchase and
Savings Plan, adopted October 22, 1996, effective
November 1, 1996. (Exhibit to Cinergy's September 30,
1996, Form 10-Q in File No. 1-11377.)
10-tt *+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-uu *+Amendment to Cinergy's Directors' Deferred Compensation Plan,
adopted October 22, 1996. (Exhibit to Cinergy's September 30,
1996, Form 10-Q in File No. 1-11377.)
10-vv *+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-ww *+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-xx *+Cinergy's 1996 Long-Term Incentive Compensation Plan,
adopted April 26, 1996. (Exhibit to Cinergy's Schedule
14A Definitive Proxy Statement filed March 13, 1996, in
File No. 1-11377.)
10-yy *+Amendment to Cinergy's 1996 Long-Term Incentive
Compensation Plan, adopted October 22, 1996, effective
November 1, 1996. (Exhibit to Cinergy's September 30,
1996, Form 10-Q in File No. 1-11377.)
10-zz *+Cinergy's 401(k) Excess Plan, adopted
December 17, 1996. (Exhibit to Cinergy's
1996 Form 10-K in File No. 1-11377.)
|
Exhibit
Designation Nature of Exhibit
10-aaa *+Cinergy's Nonqualified Deferred Incentive
Compensation Plan, adopted December 17,
1996. (Exhibit to Cinergy's 1996 Form 10-K
in File No. 1-11377.)
|
Cinergy, CG&E, and PSI
21 Subsidiaries of Cinergy, CG&E, and PSI
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).
|
+ 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 THREE YEARS ENDED DECEMBER 31, 1997
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
1997 $10 618 $12 582 $ 5 609 $ 18 427 $ - $10 382
1996 $94 409 $22 341 $ 9 503 $115 635 $ - $10 618
1995 $90 547 $33 921 $(8 489) $ 21 570 $ - $94 409 1/
1/ Includes $84,049 for the WVPA Marble Hill receivable. See Note 12(e) 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 THREE YEARS ENDED DECEMBER 31, 1997
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
1997 $9 178 $ 6 484 $ 5 609 $12 072 $ - $9 199
1996 $9 615 $17 297 $ 6 669 $24 403 $ - $9 178
1995 $8 999 $27 623 $(8 496) $18 511 $ - $9 615
|
PSI ENERGY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
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
1997 $ 1 269 $6 098 $ - $ 6 184 $ - $ 1 183
1996 $84 517 $5 041 $2 834 $91 123 $ - $ 1 269
1995 $81 272 $6 100 $ 7 $ 2 862 $ - $84 517 1/
1/ Includes $84,049 for the WVPA Marble Hill receivable. See Note 12(e) of the "Notes to Financial Statements" in "Item 8.
Financial Statements and Supplementary Data."
|
THE UNION LIGHT, HEAT AND POWER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1997
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
1997 $1 024 $1 579 $ 691 $2 298 $ - $ 996
1996 $1 035 $1 862 $1 577 $3 450 $ - $1 024
1995 $ 457 $3 010 $ - $2 432 $ - $1 035
|
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 26, 1998
By /s/ James E. Rogers
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 Registrants 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
Phillip R. Cox Director
Kenneth M. Duberstein Director
George C. Juilfs Director
Melvin Perelman Director
Thomas E. Petry Director
John J. Schiff, Jr. Director
Philip 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
Cheryl M. Foley Vice President, General Counsel,
Secretary, and Director
J. Wayne Leonard Vice President and Director
Larry E. Thomas Vice President and Director
Cinergy, CG&E, PSI, and ULH&P
/s/James E. Rogers Vice Chairman, Chief March 26, 1998
James E. Rogers Executive Officer, and Director
Attorney-in-fact for all President of Cinergy
the foregoing persons (Principal Executive Officer)
/s/Madeleine W. Ludlow Vice President and March 26, 1998
Madeleine W. Ludlow Chief Financial Officer
Director of ULH&P
(Principal Financial Officer)
/s/John P. Steffen Vice President and Comptroller March 26, 1998
John P. Steffen (Principal Accounting Officer)
|
BY-LAWS
OF
CINERGY CORP.
Adopted: October 24, 1994
Amended: January 25, 1996
Amended: December 18, 1997
TABLE OF CONTENTS
ARTICLE I
Offices and Headquarters
Section 1.1 Offices
1.2 Headquarters
ARTICLE II
Stockholders
Section 2.1 Annual Meeting
2.2 Special Meetings
2.3 Notice of Meetings
2.4 Quorum
2.5 Voting
2.6 Presiding Officer and Secretary
2.7 Proxies
2.8 List of Stockholders
ARTICLE III
Directors
Section 3.1 Number of Directors
3.2 Election and Term of Directors
3.3 Vacancies and Newly Created Directorships
3.4 Resignation
3.5 Meetings
3.6 Quorum and Voting
3.7 Written Consent of Directors in Lieu of a Meeting
3.8 Compensation
3.9 Contracts and Transactions Involving Directors
ARTICLE IV
Committees of the Board of Directors
Section 4.1 Appointment and Powers
ARTICLE V
Officers, Agents and Employees
Section 5.1 Appointment and Term of Office
5.2 The Chairman of the Board
Section 5.3 Vice-Chairman
5.4 Chief Executive Officer
5.5 The President
5.6 The Vice-Presidents
5.7 The Secretary
5.8 The Treasurer
5.9 The Comptroller
5.10 Compensation and Bond
ARTICLE VI
Indemnification
Section 6.1 Indemnification of Directors, Officers, Employees and Agents
6.2 Advances for Litigation Expenses
6.3 Indemnification Nonexclusive
6.4 Indemnity Insurance
6.5 Definitions
ARTICLE VII
Common Stock
Section 7.1 Certificates
7.2 Transfers of Stock
7.3 Lost, Stolen or Destroyed Certificates
7.4 Stockholder Record Date
7.5 Beneficial Owners
ARTICLE VIII
Seal
Section 8.1 Seal
ARTICLE IX
Waiver of Notice
Section 9.1 Waiver of Notice
ARTICLE X
Fiscal Year
Section 10.1 Fiscal Year
ARTICLE XI Contracts, Checks, etc.
Section 11.1 Contracts, Checks, etc
ARTICLE XII
Amendments
Section 12.1 Amendments
ARTICLE XIII
Dividends
Section 13.1 Dividends
|
BY-LAWS
OF
CINERGY CORP. (THE "CORPORATION")
ARTICLE I
Offices and Headquarters
Section 1.1 Offices. The location of the Corporation's principal office shall be in the City of Cincinnati, County of Hamilton, State of Ohio. The Corporation may, in addition to the aforesaid principal office, establish and maintain an office or offices elsewhere in Delaware, Ohio or Indiana or in such other states and places as the Board of Directors may from time to time find necessary or desirable, at which office or offices the books, documents, and papers of the Corporation may be kept.
Section 1.2 Headquarters. Subject to the sentence next following, the Corporation's headquarters and executive offices, shall be located in the City of Cincinnati, County of Hamilton, State of Ohio. The location of the Corporation's headquarters and executive offices may be changed from the City of Cincinnati, County of Hamilton, State of Ohio only by the affirmative vote of 80% of the full Board of Directors of the Corporation and not by the vote of any committee of the Board of Directors. As used in these By-Laws, the term "the full Board of Directors" shall mean all directors then in office together with any vacancies, however created. For the avoidance of doubt and as an example only, if the Board of Directors consists of 17 members and two vacancies exist, the affirmative vote of 14 of the 15 members of the Corporation's Board of Directors then in office would be required to authorize a change in location of the Corporation's headquarters and executive offices. The headquarters and executive offices of the Corporation's subsidiary, PSI Energy, Inc., shall be located in the City of Plainfield, Indiana and the headquarters and executive offices of the Corporation's subsidiary, The Cincinnati Gas & Electric Company, shall be located in the City of Cincinnati, Ohio.
ARTICLE II
Stockholders
Section 2.1 Annual Meeting. An annual meeting of stockholders of the Corporation for the election of directors and for the transaction of any other proper business shall be held at such time and date in each year as the Board of Directors may from time to time determine. The annual meeting in each year shall be held at such hour on said day and at such place within or without the State of Delaware as may be fixed by the Board of Directors, or if not so fixed, at the principal business office of the Corporation in the City of Cincinnati, County of Hamilton, State of Ohio. In addition to all other applicable requirements for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days nor more than 90 days prior to the annual meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholders to be timely must be so received not later than the close of business on the fifteenth day following the date on which such notice of the date of annual meeting was mailed or such public disclosure was made whichever first occurs. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the name and record address of the stockholder proposing such business; (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder; and (v) any material interest of the stockholder in the business.
Notwithstanding anything to the contrary in the By-Laws, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.1; provided, however, that nothing in this Section 2.1 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting.
Section 2.2 Special Meetings. A special meeting of the stockholders of the Corporation entitled to vote on any business to be considered at any such meeting may be called by the Chairman of the Board or the President or by a majority of the members of the Board of Directors then in office, acting with or without a meeting, or by the persons who hold 50% of all shares outstanding and entitled to vote thereat upon notice in writing, stating the time, place and purpose of the special meeting. The business transacted at the special meeting shall be confined to the purposes and objects stated in the call.
Section 2.3 Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, unless notice is waived in writing by all stockholders entitled to vote at the meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, and except as to any stockholder duly waiving notice, the written notice of any meeting shall be given personally or by mail, not less than 10 days nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the Corporation.
When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If, however, the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 2.4 Quorum. Except as otherwise provided by law or by the Certificate of Incorporation or by these By-Laws in respect of the vote required for a specified action, at any meeting of stockholders the holders of a majority of the outstanding stock entitled to vote thereat, either present, in person or represented by proxy, shall constitute a quorum for the transaction of any business, but the stockholders present, although less than a quorum, may adjourn the meeting to another time or place and, except as provided in the last paragraph of Section 2.3 of these By-Laws, notice need not be given of the adjourned meeting.
Section 2.5 Voting. Whenever directors are to be elected at a meeting, they shall be elected by a plurality of the votes cast at the meeting by the holders of stock entitled to vote. Whenever any corporate action, other than the election of directors, is to be taken by vote of stockholders at a meeting, it shall, except as otherwise required by law or by the Certificate of Incorporation or by these By-Laws, be authorized by a majority of the votes cast at the meeting by the holders of stock entitled to vote thereon.
Except as otherwise provided by law, or by the Certificate of Incorporation, each holder of record of stock of the Corporation entitled to vote on any matter at any meeting of stockholders shall be entitled to one (1) vote for each share of such stock standing in the name of such holder on the stock ledger of the Corporation on the record date for the determination of the stockholders entitled to vote at the meeting.
Upon the demand of any stockholder entitled to vote, the vote for directors or the vote on any other matter at a meeting shall be by written ballot, but otherwise the method of voting and the manner in which votes are counted shall be discretionary with the presiding officer at the meeting.
Section 2.6 Presiding Officer and Secretary. At every meeting of stockholders the Chairman of the Board, or, in his or her absence, the President, or, in his or her absence, the appointee of the meeting, shall preside. The Secretary, or, in his or her absence an Assistant Secretary, or if none be present, the appointee of the presiding officer of the meeting, shall act as secretary of the meeting.
Section 2.7 Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Every proxy shall be signed by the stockholder or by his duly authorized attorney. A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission if such transmission is submitted with information from which it may be determined that the transmission was authorized by the stockholder.
Section 2.8 List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
Directors
Section 3.1 Number of Directors. The Board of Directors shall consist of 17 directors. This number may be changed to an odd number not less than 15 and not more than 23 by a vote of not less than 75% of the full Board of Directors ("Supermajority Vote"). Any such determination made by the Board of Directors shall continue in effect unless and until changed by the Board of Directors by Supermajority Vote, but no such change shall affect the term of any director then in office.
Section 3.2 Election and Term of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Except as may be required by applicable law, no person who is, at the time of nomination, 70 years of age or older shall be eligible for election as a director. Nominations of persons as candidates for election as directors of the Corporation may be made at a meeting of stockholders (i) by or at the direction of the Board of Directors acting by Supermajority Vote (or by a unanimous vote of the remaining directors if a Supermajority Vote is not obtainable because the number of vacancies on the Board of Directors); or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth herein. Any nomination other than those governed by clause (i) of the preceding sentence shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal office of the Corporation in the State of Ohio not less than 50 days prior to the meeting; provided, however, that if less than 60 days' notice or prior public disclosure of the date of the meeting is given to stockholders or made public, to be timely notice by a stockholder must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice to the Secretary shall set forth: (a) as to each person whom the stockholder proposes to nominate for election as director: (i) the name, age, business address, and residence address of such person; (ii) the principal occupation or employment of such person; (iii) the class and number of any shares of capital stock of the Corporation that are beneficially owned by such person; and (iv) any other information relating to such person that is required to be disclosed in solicitations for proxies for the election of directors pursuant to any then existing rules or regulations promulgated under the Securities Exchange Act of 1934, as amended; and (b) as to the stockholder giving notice: (i) the name and record address of such stockholder; (ii) the class and number of shares of capital stock of the Corporation that are beneficially owned by such stockholder, and (iii) the period of time such stockholder has held such shares. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director. No person otherwise eligible for election as a director shall be eligible for election as a director unless nominated as set forth herein.
Commencing on October 24, 1994 (the "Classification Date") of the Board of Directors of the Corporation, the terms of office of the Board of Directors shall be divided into three (3) classes, Class I, Class II and Class III, as determined by the Board of Directors. All classes shall be as nearly equal in number as possible.
The terms of office of directors classified shall be as follows: (1) that of Class I shall expire at the annual meeting of stockholders that occurs within the first year after the Classification Date, (2) that of Class II shall expire at the annual meeting of stockholders that occurs within the second year after the Classification Date, and (3) that of Class III shall expire at the annual meeting of stockholders that occurs within the third year after the Classification Date. At each annual meeting of stockholders after the Classification Date, the successors to directors whose terms shall expire shall be elected to serve from the time of election and qualification until the third annual meeting following election and until a successor shall have been elected and qualified or until his earlier resignation, removal from office or death. As being under 70 years of age constitutes a continuing qualification for service on the Board of Directors, any director who reaches the age of 70 years while in office shall, except as limited by applicable law, promptly resign from the Corporation's Board of Directors.
Section 3.3 Vacancies and Newly Created Directorships. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by election at a meeting of stockholders. Except as otherwise provided by law, and notwithstanding the provision of Section 3.6, the remaining directors, whether or not constituting a majority of the whole authorized number of directors, may, by not less than a Supermajority Vote (or by a unanimous vote of the remaining directors if a Supermajority Vote is not obtainable because of the number of vacancies on the Board of Directors) fill any vacancy in the Board, however arising, for the unexpired term thereof. Any person elected to fill a vacancy in the Board shall hold office until the expiration of the term of office for the class to which he or she is elected and until a successor is elected and qualified or until his or her earlier resignation, removal from office or death.
Section 3.4 Resignation. Any director may resign at any time upon written notice to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof, and the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make such resignation effective.
Section 3.5 Meetings. Meetings of the Board of Directors, regular or special, may be held at any place within or without the State of Delaware. Members of the Board of Directors, or of any committee designated by the Board, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. An annual meeting of the Board of Directors shall be held after each annual election of directors. If such election occurs at an annual meeting of stockholders, the annual meeting of the Board of Directors shall be held at the same place and immediately following such meeting of stockholders, and no notice thereof need be given. The Board of Directors may fix times and places for regular meetings of the Board and no notice of such meetings need be given. A special meeting of the Board of Directors shall be held whenever called by the Chairman of the Board, the President or by the written request of at least two (2) members of the Board of Directors, at such time and place as shall be specified in the notice or waiver thereof. Notice of each special meeting shall be given by the Secretary or by a person calling the meeting to each director in writing, through the mail, not later than the second day before the meeting, or personally served or by telephone, telecopy, telegram, cablegram or radiogram, in each such cases, not later than the day before the meeting, and such notice shall be deemed to be given at the time when the same shall be transmitted.
Section 3.6 Quorum and Voting. A majority of the full Board of Directors shall constitute a quorum for the transaction of business, but, if there be less than a quorum at any meeting of the Board of Directors, a majority of the directors present may adjourn the meeting from time to time, and no further notice thereof need be given other than announcement at the meeting which shall be so adjourned. Except as otherwise provided by law, by the Certificate of Incorporation, or by these By-Laws (including, without limitation, where any Supermajority Vote or any other vote in excess of a majority is required), the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
Section 3.7 Written Consent of Directors in Lieu of a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.
Section 3.8 Compensation. Each director of the Corporation (other than directors who are salaried officers of the Corporation or any of its subsidiaries) shall be entitled to receive as compensation for services such reasonable compensation, which may include pension, disability and death benefits, as may be determined from time to time by the Board of Directors. Reasonable compensation may also be paid to any person other than a director officially called to attend any such meeting.
Section 3.9 Contracts and Transactions Involving Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
Committees of the Board of Directors
Section 4.1 Appointment and Powers. The Board of Directors shall, by resolution adopted by a majority of the Board, designate annually (subject to Article V hereof) six of their number to constitute an Executive Committee, and may delegate to such committee power to authorize the seal of the Corporation to be affixed to all papers which may require it and to exercise in the intervals between the meetings of the Board of Directors the powers of the Board in the management of the business and affairs of the Corporation; provided, however, that the Executive Committee shall not have the power or authority to take any action for which a Supermajority Vote or other vote in excess of a majority of the Board of Directors is required. Each member of the Executive Committee shall continue to be a member thereof only during the pleasure of a majority of the full Board of Directors.
The Executive Committee may act by a majority of its members at a meeting or by a writing signed by all of its members.
All action by the Executive Committee shall be reported to the Board of Directors at its meeting next succeeding such action.
Non-employee members of such Executive Committee shall be entitled to receive such fees and compensation as the Board of Directors may determine.
The Board of Directors may also appoint a Finance Committee, a Committee on Directors, an Audit Committee, a Public Policy Committee and a Compensation Committee and may also appoint such other standing or temporary committees from time to time as they may see fit, delegating to such committees all or any part of their own powers (subject to the provisions of these By-Laws); provided, however, that any compensation or benefits to be paid to an executive officer who is also a director must be approved by the Board of Directors. The members of such committees shall be entitled to receive such fees as the Board may determine.
The Board of Directors shall not amend, modify, vary or waive any of the terms of the Amended and Restated Agreement and Plan of Reorganization by and among The Cincinnati Gas & Electric Company, PSI Resources, Inc., PSI Energy, Inc., the Corporation, Cinergy Corp., an Ohio corporation, and Cinergy Sub, Inc. dated as of December 11, 1992, as amended and restated as of July 2, 1993 and as of September 10, 1993 and as further amended as of June 20, 1994, as of July 26, 1994 and as of September 30, 1994 (the "Merger Agreement") other than by a Supermajority Vote of the Board of Directors.
ARTICLE V
Officers, Agents and Employees
Section 5.1 Appointment and Term of Office. The executive officers of the Corporation, shall consist of a Chairman of the Board, a Vice-Chairman, a Chief Executive Officer, a President, one or more Vice-Presidents, a Secretary, a Treasurer and a Comptroller, all of whom shall be elected by the Board of Directors by a Supermajority Vote, and shall hold office for one (1) year and until their successors are chosen and qualified. Any number of such offices may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Any vacancy occurring in the office of the Chairman, Chief Executive Officer or President shall be filed by Supermajority Vote of the Board of Directors. The Chairman, Chief Executive Officer or President shall be subject to removal without cause only by Supermajority Vote of the Board of Directors at a special meeting of the Board of Directors called for that purpose.
The Board of Directors may appoint, and may delegate power to appoint, such other non-executive officers, agents and employees as it may deem necessary or proper, who shall hold their offices or positions for such terms, have such authority and perform such duties as may from time to time be determined by or pursuant to authorization of the Board of Directors.
Section 5.2 The Chairman of the Board. The Chairman of the Board shall be a director and shall preside at all meetings of the Board of Directors and, in the absence or inability to act of the Chief Executive Officer, meetings of stockholders and shall, subject to the Board's direction and control, be the Board's representative and medium of communication, and shall perform such other duties as may from time-to-time be assigned to the Chairman of the Board by Supermajority Vote of the Board of Directors. The Chairman of the Board shall direct the long-term strategic planning process of the Corporation and shall also lend his or her expertise to the President, as may be requested from time-to-time by the President. The Chairman shall be a member of the Executive Committee.
Section 5.3 Vice-Chairman. The Vice-Chairman of the Board shall be a director and shall preside at meetings of the Board of Directors in the absence or inability to act of the Chairman of the Board or meetings of stockholders in the absence or inability to act of the Chief Executive Officer and the Chairman of the Board. The Vice-Chairman shall perform such other duties as may from time-to-time be assigned to him or her by Supermajority Vote of the Board of Directors. The Vice-Chairman shall be a member of the Executive Committee and the Corporate Governance Committee.
Section 5.4 Chief Executive Officer. The Chief Executive Officer shall be a director and shall preside at all meetings of the stockholders, and, in the absence or inability to act of the Chairman of the Board and the Vice-Chairman, meetings of the Board of Directors, and shall submit a report of the operations of the Corporation for the fiscal year to the stockholders at their annual meeting and from time-to-time shall report to the Board of Directors all matters within his or her knowledge which the interests of the Corporation may require be brought to their notice. The Chief Executive Officer shall be the chairman of the Executive Committee and ex officio a member of all standing committees. Where the offices of President and Chief Executive Officer are held by different individuals, the President will report directly to the Chief Executive Officer.
Section 5.5 The President. The President shall be the chief operating officer of the Corporation. The President shall have general and active management and direction of the affairs of the Corporation, shall have supervision of all departments and of all officers of the Corporation, shall see that the orders and resolutions of the Board of Directors and of the Executive Committee are carried into effect, and shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. All corporate officers and functions except those reporting to the Chairman of the Board or the Chief Executive Officer shall report directly to the President.
Section 5.6 The Vice-Presidents. The Vice-Presidents shall perform such duties as the Board of Directors shall, from time to time, require. In the absence or incapacity of the President, the Vice President designated by the President or Board of Directors or Executive Committee shall exercise the powers and duties of the President.
Section 5.7 The Secretary. The Secretary shall attend all meetings of the Board of Directors, of the Executive Committee and any other committee of the Board of Directors and of the stockholders and act as clerk thereof and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for the standing committees when required.
The Secretary shall keep in safe custody the seal of the corporation and, whenever authorized by the Board of Directors or the Executive Committee, affix the seal to any instrument requiring the same.
The Secretary shall see that proper notice is given of all the meetings of the stockholders of the Corporation and of the Board of Directors and shall perform such other duties as may be prescribed from time to time by the Board of Directors, the Chairman, the Chief Executive Officer, or the President.
Assistant Secretaries. At the request of the Secretary, or in his or her absence or inability to act, the Assistant Secretary or, if there be more than one, the Assistant Secretary designated by the Secretary, shall perform the duties of the Secretary and when so acting shall have all the powers of and be subject to all the restrictions of the Secretary. The Assistant Secretaries shall perform such other duties as may from time to time be assigned to them by the President, the Secretary, or the Board of Directors.
Section 5.8 The Treasurer. The Treasurer shall be the financial officer of the Corporation, shall keep full and accurate accounts of all collections, receipts and disbursements in books belonging to the corporation, shall deposit all moneys and other valuables in the name and to the credit of the Corporation, in such depositories as may be directed by the Board of Directors, shall disburse the funds of the Corporation as may be ordered by the Board of Directors, the Chairman, the Chief Executive Officer, or the President, taking proper vouchers therefor, and shall render to the President, the Chief Executive Officer, the Chairman, and/or directors at all regular meetings of the Board, or whenever they may require it, and to the annual meeting of the stockholders, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation.
The Treasurer shall also perform such other duties as the Board of Directors, the Chairman, the Chief Executive Officer, or the President may from time to time require.
If required by the Board of Directors the Treasurer shall give the Corporation a bond in a form and in a sum with surety satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and the restoration to the Corporation in the case of his or her death, resignation or removal from office of all books, papers, vouchers, money and other property of whatever kind in his or her possession belonging to the Corporation.
Assistant Treasurers. At the request of the Treasurer, or in his or her absence or inability to act, the Assistant Treasurer or, if there be more than one, the Assistant Treasurer designated by the Treasurer, shall perform the duties of the Treasurer and when so acting shall have all the powers of and be subject to all the restrictions of the Treasurer. The Assistant Treasurers shall perform such other duties as may from time to time be assigned to them by the President, the Treasurer, or the Board of Directors.
Section 5.9 The Comptroller. The Comptroller shall have control over all accounts and records of the Corporation pertaining to moneys, properties, materials and supplies. He or she shall have executive direction over the bookkeeping and accounting departments and shall have general supervision over the records in all other departments pertaining to moneys, properties, materials and supplies. He or she shall have such other powers and duties as are incident to the office of Comptroller of a corporation and shall be subject at all times to the direction and control of the Board of Directors, the Chairman, the Chief Executive Officer, the President, or a Vice President.
Assistant Comptrollers. At the request of the Comptroller, or in his or her absence or inability to act, the Assistant Comptroller or, if there be more than one, the Assistant Comptroller designated by the Comptroller, shall perform the duties of the Comoptroller and when so acting shall have all the powers of and be subject to all the restrictions of the Comptroller. The Assistant Comptrollers shall perform such other duties as may from time to time be assigned to them by the President, the Comptroller, or the Board of Directors.
Section 5.10 Compensation and Bond. The compensation of the officers of the Corporation shall be fixed by the Compensation Committee of the Board of Directors, but this power may be delegated to any officer in respect of other officers under his or her control. The Corporation may secure the fidelity of any or all of its officers, agents or employees by bond or otherwise.
ARTICLE VI
Indemnification
Section 6.1 Indemnification of Directors, Officers, Employees and Agents. (A) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than any action or suit by or in the right of the Corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (specifically including employee benefit plans), shall be indemnified by the Corporation, if, as and to the extent authorized by applicable law, against expenses (specifically including attorney's fees), judgments, fines (specifically including any excise taxes assessed on a person with respect to an employee benefit plan) and amounts paid in settlement actually and reasonably incurred by him or her in connection with the defense or settlement of such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner he or she reasonably believed to be in and not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.
(B) The Corporation shall, to the extent not prohibited by applicable law, indemnify or agree to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgement in its favor by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, non-profit or for-profit, partnership, joint venture, trust or other enterprise (specifically including employee benefit plans), against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Corporation; provided that, no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
(C) To the extent that a director, officer, employee, or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in the paragraphs (A) or (B) of this Section, or in defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses, specifically including attorneys' fees, actually and reasonably incurred by him or her in connection therewith.
(D) Any indemnification under Paragraphs (A) and (B) of this Section, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in such Paragraphs (A) and (B). Such determination shall be made as follows: (1) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding; (2) if the quorum described in (D)(1) of this Section is not obtainable or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (3) by the stockholders.
Section 6.2 Advances for Litigation Expenses. Expenses (including attorneys' fees) incurred by a director, officer, employee, or agent of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding, shall be paid by the Corporation as they are incurred in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director, officer, employee, or agent: (1) to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI; and (2) to cooperate reasonably with the Corporation concerning the action, suit or proceeding.
Section 6.3 Indemnification Nonexclusive. The indemnification provided by this Article shall not be exclusive of and shall be in addition to any other rights granted to those seeking indemnification under the Certificate of Incorporation, these By-Laws, any agreement, any vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
Section 6.4 Indemnity Insurance. The Corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit, or self-insurance, on behalf of or for any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under this Article. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest.
Section 6.5 Definitions. For purposes of this Article: (1) a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall conclusively be deemed to have acted in a manner "not opposed to the best interests of the Corporation"; (2) a person shall be deemed to have acted in "good faith" and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise; (3) the term "another enterprise" as used in this Article VI shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent; and (4) references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger, which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, and agents.
ARTICLE VII
Common Stock
Section 7.1 Certificates. Certificates for stock of the Corporation shall be in such form as shall be approved by the Board of Directors and shall be signed in the name of the Corporation by the Chairman or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Such certificates may be sealed with the seal of the Corporation or a facsimile thereof. Any of or all the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
Section 7.2 Transfers of Stock. Transfers of stock shall be made only upon the books of the Corporation by the holder, in person or by duly authorized attorney, and on the surrender of the certificate or certificates for such stock properly endorsed. The Board of Directors shall have the power to make all such rules and regulations, not inconsistent with the Certificate of Incorporation and these By-Laws and the law, as the Board of Directors may deem appropriate concerning the issue, transfer and registration of certificates for stock of the Corporation. The Board of Directors or the Finance Committee may appoint one (1) or more transfer agents or registrars of transfers, or both, and may require all stock certificates to bear the signature of either or both.
Section 7.3 Lost, Stolen or Destroyed Certificates. The Corporation may issue a new stock certificate in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate or his or her legal representative to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. The Board of Directors may require such owner to satisfy other reasonable requirements.
Section 7.4 Stockholder Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than sixty days prior to any other action. Only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to give such consent, or to receive payment of such dividend or other distribution, or to exercise such rights in respect of any such change, conversion or exchange of stock, or to participate in such action, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any record date so fixed.
If no record date is fixed by the Board of Directors, (l) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the date on which notice is given, or, if notice is waived by all stockholders entitled to vote at the meeting, at the close of business on the day next preceding the day on which the meeting is held and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Section 7.5 Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
Seal
Section 8.1 Seal. The seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board of Directors, the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Waiver of Notice
Section 9.1 Waiver of Notice. Whenever notice is required to be given by statute, or under any provision of the Certificate of Incorporation or these By-Laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. In the case of a stockholder, such waiver of notice may be signed by such stockholder's attorney or proxy duly appointed in writing. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice.
ARTICLE X
Fiscal Year
Section 10.1 Fiscal Year. The Fiscal Year of the corporation shall begin on the first day of January and terminate on the thirty-first day of December each year.
ARTICLE XI
Contracts, Checks, etc.
Section 11.1 Contracts, Checks, etc. The Board of Directors or the Finance Committee may by resolution adopted at any meeting designate officers of the Corporation who may in the name of the Corporation execute contracts, checks, drafts, and orders for the payment of money in its behalf and, in the discretion of the Board of Directors or the Finance Committee, such officers may be so authorized to sign such contracts or checks singly without the necessity of counter-signature.
ARTICLE XII
Amendments
Section 12.1 Amendments. Except as set forth below, these By-Laws may be amended or repealed by the Board of Directors or by the affirmative vote of the holders of a majority of the issued and outstanding common stock of the Corporation, or by the unanimous written consent of the holders of the issued and outstanding common stock of the Corporation.
Notwithstanding the foregoing paragraph, the affirmative vote of the holders of
at least 80% of the issued and outstanding shares of common stock of the
Corporation shall be required to amend, alter or repeal, or adopt any provision
inconsistent with, the requirements of Section 2.2, Section 3.1, Section 3.2,
Section 3.3 or this paragraph of Section 12.1 of these ByLaws, in addition to
any requirements of law and any provisions of the Certificate of Incorporation,
any By-law, or any resolution of the Board of Directors adopted pursuant to the
Certificate of Incorporation (and notwithstanding that a lesser percentage may
be specified by law, the Certificate of Incorporation, these By-Laws, such
resolution, or otherwise).
Notwithstanding any of the foregoing, the affirmative vote of a majority of the
holders of the issued and outstanding common stock of the Corporation shall be
required to amend, alter or repeal, or adopt any provision inconsistent with (i)
any provision of these ByLaws requiring a Supermajority Vote of the Board of
Directors (including this provision of Section 12.1) or (ii) the
responsibilities of the Chief Executive Officer or President as set forth in
Section 5.4 or Section 5.5, and the Board of Directors shall not recommend any
such amendment to such provisions to the stockholders unless the proposed
amendment is approved by the Board of Directors acting by Supermajority Vote.
ARTICLE XIII
Dividends
Section 13.1 Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
PSI ENERGY, INC.
Effective July 10, 1997, the second paragraph of ARTICLE D of the Amended Articles of Consolidation of PSI Energy, Inc. was amended and now reads as set forth below:
The name and post office address of its resident agent are C T Corporation
System, One North Capitol Avenue, Indianapolis, Marion County, Indiana.
THE UNION LIGHT, HEAT AND POWER COMPANY
Effective July 24, 1997, ARTICLE THIRD of the Restated Articles of Incorporation of The Union Light, Heat and Power Company was amended and now reads as set forth below:
ARTICLE THIRD
The place in the Commonwealth of Kentucky where the registered office is located is C T Corporation System, c/o Kentucky Home Life Building, in the City of Louisville, and the County of Jefferson, and the principal place of business of the Company is located at 107 Brent Spence Square, in the City of Covington, and the County of Kenton.
Effective July 24, 1997, Section 1 of ARTICLE I of the By-Laws of The Union Light, Heat and Power Company was amended and now reads as set forth below:
ARTICLE I
Offices
Section 1. Offices. The registered office of the Corporation shall be located in the City of Louisville, Jefferson County, Commonwealth of Kentucky. The Corporation may establish branch offices and conduct and carry on business at such other places within or without the Commonwealth of Kentucky as the Board of Directors may from time to time fix or designate, and any business conducted or carried on at such other place or places shall be as binding and effectual as if transacted at the registered office of the Corporation.
PSI ENERGY, INC.
AND
THE FIFTH THIRD BANK,
Trustee
Third Supplemental Indenture
Dated as of March 15, 1998
To
Indenture
Dated as of November 15, 1996
7.25% JUnior Maturing Principal Securities ("JUMPS-SM-") Due 2028
THIRD SUPPLEMENTAL INDENTURE, dated as of March 15, 1998, between PSI Energy, Inc., a corporation duly organized and existing under the laws of the State of Indiana (herein called the "Company"), having its principal office at 1000 East Main Street, Plainfield, Indiana 46168, and The Fifth Third Bank, an Ohio banking corporation, as Trustee (herein called the "Trustee") under the Indenture dated as of November 15, 1996 between the Company and the Trustee, as supplemented (the "Indenture").
Recitals of the Company
The Company has executed and delivered the Indenture to the Trustee to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (the "Securities"), to be issued in one or more series as provided in the Indenture.
Pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of its Securities to be known as its 7.25% JUnior Maturing Principal Securities ("JUMPS-SM-") Due 2028 (herein called the "Debentures"), in this Third Supplemental Indenture.
All things necessary to make this Third Supplemental Indenture a valid agreement of the Company have been done.
Now, Therefore, This Third Supplemental Indenture Witnesseth:
For and in consideration of the premises and the purchase of the Debentures by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Debentures, as follows:
ARTICLE ONE
Terms of the Debentures
Section 101. There is hereby authorized a series of Securities designated the "7.25% JUnior Maturing Principal Securities ("JUMPS-SM-") Due 2028", limited in aggregate principal amount to $100,000,000 (except as provided in Section 301(2) of the Indenture). The Debentures shall mature and the principal shall be due and payable together with all accrued and unpaid interest thereon on March 15, 2028 and shall be issued in the form of a registered Global Security without coupons, registered in the name of Cede & Co., as nominee of the Depository Trust Company (the "Depositary").
Section 102. The provisions of Section 305 of the Indenture applicable to Global Securities shall apply to the Debentures.
Section 103. Interest on each of the Debentures shall be payable semiannually on March 15 and September 15 in each year (each an "Interest Payment Date"), commencing on September 15, 1998, at the rate per annum specified in the designation of the Debentures from March 15, 1998, or from the most recent Interest Payment Date to which interest has been paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the Person in whose name such Debenture (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day immediately preceding such Interest Payment Date. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. As used herein, "Business Day" means any day, other than a Saturday or Sunday, or a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to be closed.
Section 104. Subject to agreements with or the rules of the Depositary or any successor book-entry security system or similar system with respect to Global Securities, payments of interest will be made by check mailed to the Holder of each Debenture at the address shown in the Security Register, and payments of the principal amount of each Debenture will be made at maturity by check against presentation of the Debenture at the office or agency of the Trustee.
Section 105. The Debentures shall be issued in denominations of $1,000 or any integral multiple of $1,000.
Section 106. Principal and interest on the Debentures shall be payable in the coin or currency of the United States of America, which, at the time of payment, is legal tender for public and private debts.
Section 107. The Debentures shall be subject to defeasance and covenant defeasance, at the Company's option, as provided for in Sections 1302 and 1303 of the Indenture.
Section 108. Subject to the terms of Article Eleven of the Indenture, the
Company shall have the right to redeem the Debentures, in whole but not in part,
from time to time and at any time (such redemption, an "Optional Redemption",
and the date thereof, the "Optional Redemption Date"), upon not less than 30
days' notice to the holders, at a redemption price equal to the sum of (A) the
greater of (i) 100% of the principal amount of the Debentures to be redeemed or
(ii) the sum of the present values of the Remaining Scheduled Payments thereon
discounted to the Optional Redemption Date on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate plus 20
basis points, less the Applicable Accrued Interest Amount plus (B) the
Applicable Accrued Interest Amount.
"Applicable Accrued Interest Amount" means, at the Optional Redemption Date, the amount of interest accrued and unpaid from the prior interest payment date to the Optional Redemption Date on the Debentures subject to the Optional Redemption determined at the rate per annum shown in the title thereof, computed on the basis of a 360-day year of twelve 30-day months.
"Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Debentures to be redeemed pursuant to the Optional Redemption. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to the Optional Redemption Date, the average of the Reference Treasury Dealer Quotations for such Optional Redemption Date.
"Reference Treasury Dealer" means each of Salomon Brothers Inc, First Chicago Capital Markets, Inc., and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer") the Company will substitute therefor another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to any Debenture, the remaining scheduled payments of the principal thereof to be redeemed and interest thereon that would be due after the Optional Redemption Date but for the Optional Redemption.
"Treasury Rate" means, with respect to the Optional Redemption Date (if any), the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Optional Redemption Date.
Section 109. The Company shall have the right, at any time during the term of the Debentures, from time to time to extend the interest payment period of such Debentures for up to the earlier of 10 consecutive semiannual periods or the maturity of the Debentures (the "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest accrued and unpaid thereon (together with interest thereon at the rate specified for the Debentures to the extent permitted by applicable law); provided that, during such Extended Interest Payment Period, the Company shall not declare or pay any dividend on, or purchase, acquire or make a liquidation payment with respect to, any of its capital stock or make any guarantee payments with respect to the foregoing. Prior to the termination of any such Extended Interest Payment Period, the Company may further extend such period, provided that such period together with all such further extensions thereof shall not exceed 10 consecutive semiannual periods or extend beyond the maturity of the Debentures. Upon the termination of any Extended Interest Payment Period and upon the payment of all accrued and unpaid interest then due, the Company may select a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof.
The Company shall give the Holders of the Debentures and the Trustee written notice of its selection of such Extended Interest Payment Period 10 business days prior to the earlier of (i) the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice to Holders of the Debentures of the record or payment date of such interest payment, but in any event not less than two business days prior to such record date. The semiannual period in which any notice is given pursuant to this paragraph shall constitute one of the 10 semiannual periods which comprise the maximum Extended Interest Payment Period.
Section 110. The provisions of Article Fourteen of the Indenture shall apply with respect to the Debentures. Such Article provides, among other things, that the payment of principal, premium, if any, and interest on the Debentures are subordinate and subject in right of payment to the prior payment in full of all Senior Debt of the Company, whether outstanding at the date of this Third Supplemental Indenture or thereafter incurred.
ARTICLE TWO
Form of the Debentures
Section 201. The Debentures are to be substantially in the following form and shall include substantially the legend shown so long as the Debentures are Global Securities:
(FORM OF FACE OF DEBENTURE)
No. R-1 $100,000,000
CUSIP No. 693627AE1
PSI ENERGY, INC.
7.25% JUNIOR MATURING PRINCIPAL SECURITIES ("JUMPS-SM-")
DUE 2028
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
PSI ENERGY, INC., a corporation duly organized and existing under the laws of the State of Indiana (herein called the "Company", which term includes any successor Person under the Indenture hereafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of One Hundred Million and No/100 Dollars ($100,000,000) on March 15, 2028, and to pay interest thereon from March 15, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually (subject to deferral as set forth below), on March 15 and September 15, in each year, commencing September 15, 1998, at the rate of 7.25% per annum, until the principal hereof is paid or made available for payment. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture.
Payment of the principal of (and premium, if any) and interest on this Security will be made at the corporate trust office of the Trustee maintained for that purpose in the City of Cincinnati, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.
Any payment on this Security due on any day which is not a Business Day in the City of New York need not be made on such day, but may be made on the next succeeding Business Day with the same force and effect as if made on the due date and no interest shall accrue for the period from and after such date, unless such payment is a payment at maturity or upon redemption, in which case interest shall accrue thereon at the stated rate for such additional days.
As used herein, "Business Day" means any day, other than a Saturday or Sunday, or a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to be closed.
Reference is hereby made to the further provisions of this Security set forth on the reverse hereof including, without limitation, provisions subordinating the payment of the principal hereof and any premium and interest hereon to the payment in full of all Senior Debt as defined in the Indenture, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
In Witness Whereof, the Company has caused this instrument to be duly executed.
PSI ENERGY, INC.
By.............
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
THE FIFTH THIRD BANK,
as Trustee
By...............
Authorized Signatory
(FORM OF REVERSE OF DEBENTURE)
This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of November 15, 1996 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and The Fifth Third Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $100,000,000.
The indebtedness evidenced by the Securities of this series is, to the extent and in the manner provided in the Indenture, expressly subordinate and subject in right of payment to the prior payment in full of all Senior Debt of the Company (as defined in the Indenture) whether outstanding at the date of the Indenture or thereafter incurred, and this Security is issued subject to the provisions of the Indenture with respect to such subordination. Each holder and owner of this Security, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee in his or her behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee his or her attorney-in-fact for such purpose.
The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Security or certain restrictive covenants and Events of Default with respect to this Security upon compliance with certain conditions set forth in the Indenture.
The Securities of this series are subject to optional redemption, in whole but not in part, from time to time and at any time (such redemption, an "Optional Redemption", and the date thereof, the "Optional Redemption Date"), upon not less than 30 days' notice to the holders, at a redemption price equal to the sum of (A) the greater of (i) 100% of the principal amount of the Securities of this series to be redeemed or (ii) the sum of the present values of the Remaining Scheduled Payments thereon discounted to the Optional Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 20 basis points, less the Applicable Accrued Interest Amount plus (B) the Applicable Accrued Interest Amount.
"Applicable Accrued Interest Amount" means, at the Optional Redemption Date, the amount of interest accrued and unpaid from the prior interest payment date to the Optional Redemption Date on the Securities of this series subject to the Optional Redemption determined at the rate per annum shown in the title thereof, computed on the basis of a 360-day year of twelve 30-day months.
"Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series to be redeemed pursuant to the Optional Redemption. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to the Optional Redemption Date, the average of the Reference Treasury Dealer Quotations for such Optional Redemption Date.
"Reference Treasury Dealer" means each of Salomon Brothers Inc, First Chicago Capital Markets, Inc., and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer") the Company will substitute therefor another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to any Securities of this series, the remaining scheduled payments of the principal thereof to be redeemed and interest thereon that would be due after the Optional Redemption Date but for the Optional Redemption.
"Treasury Rate" means, with respect to the Optional Redemption Date (if any), the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Optional Redemption Date.
If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
The Company shall have the right, at any time during the term of the Securities, from time to time to extend the interest payment period of such Securities for up to the earlier of 10 consecutive semiannual periods or the maturity of the Securities (the "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest accrued and unpaid thereon (together with interest thereon at the rate specified for the Securities to the extent permitted by applicable law); provided that, during such Extended Interest Payment Period, the Company shall not declare or pay any dividend on, or purchase, acquire or make a liquidation payment with respect to, any of its capital stock or make any guarantee payments with respect to the foregoing. Prior to the termination of any such Extended Interest Payment Period, the Company may further extend such period, provided that such period together with all such further extensions thereof shall not exceed 10 consecutive semiannual periods or extend beyond the maturity of the Securities. Upon the termination of any Extended Interest Payment Period and upon the payment of all accrued and unpaid interest then due, the Company may select a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof.
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 35% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonably satisfactory indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
ARTICLE THREE
Original Issue of Debentures
Section 301. Debentures in the aggregate principal amount of $100,000,000, may, upon execution of this Third Supplemental Indenture, or from time to time thereafter, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Debentures upon a Company Order without any further action by the Company.
ARTICLE FOUR
Paying Agent and Security Registrar
Section 401. The Fifth Third Bank will be the Paying Agent and Security Registrar for the Debentures.
ARTICLE FIVE
Sundry Provisions
Section 501. Except as otherwise expressly provided in this Third Supplemental Indenture or in the form of Debenture or otherwise clearly required by the context hereof or thereof, all terms used herein or in said form of Debenture that are defined in the Indenture shall have the several meanings respectively assigned to them thereby.
Section 502. The Indenture, as supplemented by this Third Supplemental Indenture, is in all respects ratified and confirmed, and this Third Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided.
This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
In Witness Whereof, the parties hereto have caused this Third Supplemental Indenture to be duly executed as of the day and year first above written.
PSI ENERGY, INC.
By /s/ William L. Sheafer
William L. Sheafer
Vice President and Treasurer
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THE FIFTH THIRD BANK, as Trustee
By /s/ Kerry Byrne
Kerry Byrne
Vice President
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FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement date effective January 1, 1997, amends that certain Employment Agreement ("Employment Agreement") by and among Cinergy Corp., a Delaware corporation ('"Cinergy"), Cinergy Services, Inc., a Delaware corporation ("Cinergy Service"), Cinergy Investments, Inc., a Delaware corporation ("Cinergy Investments"), The Cincinnati Gas & Electric Company, an Ohio corporation ("CG&E"), PSI Energy, Inc., an Indiana corporation ("PSI"), and William J. Grealis (the "Executive") dated effective January 1, 1995. Cinergy, Cinergy Services, Cinergy Investments, CG&E, and PSI will sometimes be referred to in this First Amendment to Employment Agreement collectively as the "Corporation." This First Amendment to Employment Agreement amends the Employment Agreement as follows:
1. The substantive provisions of Section 1(b) are deleted in their entirety and replaced with the following:
"The Employment Period of the Executive as provided in Section 1(a) will commence on January 16, 1995 (the "Effective Date") and shall continue until June 30, 2000; provided, however; commencing on January 1, 1998, and each January 1 thereafter (the "Renewal Date"), the Employment Period of this Employment Agreement shall automatically be extended for one (1) additional year if neither the Corporation nor the Executive shall have given between December 1 and December 15 prior to each applicable Renewal Date written notice to the other of its intent to terminate this Employment Agreement."
2. Section (5)(a)(iii)(1)(B) is hereby amended by deleting the words "two (2) times the sum" and substituting the words "three (3) times the sum."
3. Section (5)(a)(iii)(2) is hereby amended by deleting the words "twenty-four month period" wherever it appears in Section (5)(a)(iii)(2) and substituting the words "thirty-six (36) month period."
4. All other provisions of the Employment Agreement remain unchanged by this First Amendment to Employment Agreement.
IN WITNESS WHEREOF, the Executive and the Corporation have caused this First Amendment to Employment Agreement to be executed effective as of the day and year first written above.
CINERGY CORP., CINERGY SERVICES, INC.,
CINERGY INVESTMENTS, INC., THE
CINCINNATI GAS & ELECTRIC COMPANY,
and PSI ENERGY, INC.
By: _____________________________
James E. Rogers
Vice Chairman and
Chief Executive Officer
Dated: ___________________________
EXECUTIVE
Dated: ___________________________
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made and entered into as of the 22nd day of April, 1997, by and among Cinergy Corp., a Delaware Corporation ("Cinergy"), Cinergy Services, Inc., a Delaware Corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio Corporation ("CG&E"), PSI Energy, Inc., an Indiana Corporation ("PSI"), and Madeleine W. Ludlow (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Agreement collectively as the "Corporation".
WHEREAS, the Corporation desires that the Executive become an employee in accordance with this Agreement;
WHEREAS, the Executive is willing to commit herself to the employ of the Corporation and any successor thereto, on the terms and conditions set forth in this Agreement and thus to forego opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement as of the date first set forth above setting forth the terms and conditions for the employment relationship of the Executive;
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows:
1. Employment and Term.
a. The Corporation agrees to employ the Executive, and the Executive agrees to be employed, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period").
b. The Employment Period of the Executive as provided in Section 1(a) will commence on April 22, 1997, (the "Effective Date") and shall continue until December 31, 2000; provided, however, commencing on January 1, 1999, and each January 1 thereafter (the "Renewal Date"), the Employment Period of this Agreement shall automatically be extended for one (1) additional year if neither the Corporation not the Executive shall have given between December 1 and December 15 prior to each applicable Renewal Date written notice to the other of its intent to terminate this Agreement.
2. Duties and Powers of Executive.
a. Position. The Executive shall serve the Corporation in such responsible executive capacity or capacities as the Board of Directors of Cinergy or Cinergy Services (the Board of Directors of Cinergy or Cinergy Services, as the case may be, may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to her from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Effective Date of this Agreement, the Executive shall initially serve as Vice President, and Chief Financial Officer for the Corporation, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy during the Employment Period.
b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Corporation, 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Corporation who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more that thirty (30) miles from the current principal place of business of the Corporation.
3. Compensation. The Executive shall receive the following compensation for her services under this Agreement.
a. Salary and Transition Allowance. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than $275,000.00. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Corporation under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, PSI or CG&E. In addition to the Annual Base Salary described in this Section, the Corporation shall pay to the Executive a transition allowance in the gross sum of $50,000.00 on the Effective Date or as soon thereafter as administratively feasible.
b. Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Corporation, the Executive shall be eligible, and the Corporation shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, performance unit, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Corporation who are considered Tier II executives for compensation purposes, including, but not limited to, Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, PSI's Supplemental Retirement Plan and PSI's Excess Benefit Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived her rights in writing.
c. Fringe Benefits and Perquisites. During the Employment Period and so long as the Executive is employed by the Corporation, the Executive shall be entitled to the following additional fringe benefits:
(i) The Corporation shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs;
(ii) The Corporation shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership charges of the Executive for membership in a country club selected by the Executive;
(iii) The Corporation shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Corporation's policy); and
(iv) The Corporation shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Corporation from time to time in effect, commensurate with her position and at least comparable to those received by other senior executives of the Corporation.
d. Expenses. The Corporation agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by her in the performance of her duties under this Agreement in accordance with the policies established from time to time by the Board.
e. Relocation Benefits. The Executive shall be entitled to reimbursement from the Corporation pursuant to the terms of the Corporation Relocation Program in effect as of the day and year first written above, as well as all actual expenses for temporary housing until such time as she has moved into a new primary residence in the general area of the Corporation's principal corporate office located in Cincinnati, Ohio. The expenses described in this Section shall be "grossed up" to provide for adverse tax consequences to the Executive.
4. Termination of Employment.
a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period.
b. By the Corporation for Cause. The Corporation may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Corporation (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or
The breach by the Executive of the confidentiality provisions set forth in
Section 8 of this Agreement, or
(iii) The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Corporation.
For purposes of this definition of "Cause," no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Corporation. Notwithstanding the above definition of "Cause", the Corporation may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Corporation in Section 5 shall apply.
c. By the Executive for Good Reason. The Executive may terminate her employment during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) The reduction in the Executive's Annual Base Salary as specified in Section
3(a) of this Agreement, or any other benefit or payment described in Section 3
of this Agreement, except for across-the-board salary reductions similarly
affecting all management personnel of Cinergy, Cinergy Services, CG&E, and PSI,
and changes to the employee benefits programs affecting all management personnel
of those Corporations, provided that such changes (either individually or in the
aggregate) will not result in a material adverse change with respect to the
benefits which the Executive was entitled to receive as of the Effective Date;
(ii) The material reduction without her consent of the Executive's title,
authority, duties or responsibilities from those in effect immediately prior to
the reduction;
(iii) Any breach by the Corporation of any other material provision (including but not limited to the place of performance as specified in Section 2(b);
(iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which she is qualified and able to perform based upon her education, training or experience; or
(v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement.
d. Notice of Termination. Any termination by the Corporation for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which:
(i) Indicates the specific termination provision in this Agreement relied upon;
(ii) To the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and
(iii) If the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Corporation to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Corporation under this Agreement or preclude the Executive or the Corporation from asserting such fact or circumstances in enforcing the Executive's or the Corporation's rights under this Agreement.
e. Date of Termination. "Date of Termination" means:
(i) If the Executive's employment is terminated by the Corporation for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be;
(ii) If the Executive's employment is terminated by the Corporation other than for Cause, the date on which the Corporation notifies the Executive of such termination; and
(iii) If the Executive's employment is terminated by reason of death, the date of death.
f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date:
(i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or
(ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation , other than (1) a merger or consolidation with would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or
During any period of two consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or
(iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale.
g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include:
(i) The Corporation or any of its subsidiaries;
(ii) A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries;
(iii) An underwriter temporarily holding securities pursuant to an offering of such securities; or
(iv) A corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Corporation.
5. Obligations of the Corporation Upon Termination.
a. Certain Terminations. During the Employment Period, if the Corporation shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate her employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"):
(i) The Corporation shall pay to the Executive a lump sum amount, in cash, equal to the sum of:
(1) the Executive's Annual Base Salary through the Date of Termination, and the Executive's Transition Allowance, in each case to the extent most previously paid;
(2) an amount equal to the Cinergy Annual Incentive Plan target percentage benefit for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365);
(3) an amount equal to her vested accrued benefit under the Cinergy Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan; and
(4) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid.
(The amounts specified in clauses (1), (2), (3) and (4) shall be referred to in
this Agreement as the "Accrued Obligations".) The amounts specified in this
Section 5(a)(i) shall be paid within thirty (30) days after the Date of
Termination. The Accrued Obligations described in this Section are payable to
the Executive regardless of whether a Change in Control has occurred.
(ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then:
(1) the Corporation shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan target percentage payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination;
(2) the Corporation shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had she remained in employment with the Corporation until the end of the Employment Period, each, where applicable, at the rate of the Annual Base Salary, and using the same goals and factors, in effect at the time Notice of Termination is given, under the Cinergy Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and the Cinergy Executive Supplemental Life Insurance Program minus the present value (discounted at the Prime Rate) of the benefits to which she is actually entitled under the above mentioned plans and programs;
(3) the Corporation shall pay the value of all deferred compensation amounts whether or not then payable; and
(4) the Corporation shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived her rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Corporation as in effect and applicable generally to other senior executives of the Corporation and their families during the ninety (90) day period immediately preceding the Date of Termination; provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility.
(iii) From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement:
(1) The Corporation shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of:
(A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and
(B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Corporation, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and
(2) For a thirty-six (36) month period after the Date of Termination, the Corporation shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Corporation by the Executive).
The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates her employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person.
b. Termination by the Corporation for Cause or by the Executive Other Than for
Good Reason. Subject to the provisions of Section 7 of this Agreement, if the
Executive's employment shall be terminated for Cause during the Employment
Period, or if the Executive terminates employment during the Employment Period
other than a termination for Good Reason, the Corporation shall have no further
obligations to the Executive under this Agreement other than the obligation to
pay to the Executive the Accrued Obligations and the amounts determined under
Section 5(c), plus any other earned but unpaid compensation, in each case to the
extent not previously paid.
c. Retirement Benefits on Termination. In addition to retirement benefits under PSI's Pension Plan, PSI's Supplemental Retirement Plan, and PSI's Excess Benefit Plan, or any successor thereto, the Executive shall be eligible to participate in any supplemental executive retirement plan (commonly referred to as a "SERP") sponsored by the Corporation.
d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Agreement for any reason.
e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Corporation shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any Person whose actions result in a Change in Control or any Person affiliated with the Corporation or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax,
(ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of
(1) the total amount of the Severance Benefits, or
(2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and
(iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Corporation, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Corporation shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits.
f. Other Fees and Expenses. The Corporation also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Corporation reasonably may require.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Corporation and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived her rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the date hereof with the Corporation. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Corporation at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement.
7. Full Settlement: Mitigation. Except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement, the Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Corporation, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Corporation agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute.
8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of Cinergy, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof (the "Cinergy Companies"), all secret, confidential information, knowledge or data relating to the Cinergy Companies, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Corporation and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Corporation or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it. The Executive understands that during the Employment Period, the Cinergy Companies may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Corporation in law and equity, this Agreement is subject to termination by the Corporation for Cause under Section 4(b) in the event the Executive violates any provision of this Section 8.
9. Successors.
a. This Agreement is personal to the Executive and, without the prior written consent of the Corporation, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.
b. This Agreement shall inure to the benefit of and be binding upon the Corporation, and its successors and assigns.
c. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place.
10. Miscellaneous.
a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Corporation to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto.
b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Madeleine W. Ludlow Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 If to the Corporation: Cinergy Corp. 221 East Fourth Street P. O. Box 960 Cincinnati, Ohio 45201-0960 Attn: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee.
c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
d. The Corporation may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
e. The Executive's or the Corporation's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Corporation may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Corporation to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
f. This instrument contains the entire agreement of the Executive and the Corporation with respect to the subject matter hereof; and all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded.
g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
h. The Corporation and the Executive agree that Cinergy shall be authorized to act for the Corporation with respect to all aspects pertaining to the administration and interpretation of this Agreement.
IN WITNESS WHEREOF, the Executive and the Corporation have caused this Agreement to be executed as of the day and year first above written.
CINERGY CORP., CINERGY SERVICES, INC.,
THE CINCINNATI GAS & ELECTRIC COMPANY,
AND PSI ENERGY, INC.
By: _________________________
James E. Rogers
Vice Chairman and Chief Executive Officer
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made and entered into as of the 1st day of October, 1997, by and among Cinergy Corp., a Delaware Corporation ("Cinergy"), Cinergy Services, Inc., a Delaware Corporation ("Cinergy Services"), The Cincinnati Gas & Electric Company, an Ohio Corporation ("CG&E"), PSI Energy, Inc., an Indiana Corporation ("PSI"), and Donald B. Ingle, Jr. (the "Executive"). Cinergy, Cinergy Services, CG&E, and PSI will sometimes be referred to in this Agreement collectively as the "Corporation".
WHEREAS, the Corporation desires that the Executive become an employee in accordance with this Agreement;
WHEREAS, the Executive is willing to commit himself to the employ of the Corporation and any successor thereto, on the terms and conditions set forth in this Agreement and thus to forego opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement as of the date first set forth above setting forth the terms and conditions for the employment relationship of the Executive;
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and agreements set forth below, it is hereby agreed as follows:
1. Employment and Term.
a. The Corporation agrees to employ the Executive, and the Executive agrees to be employed, in accordance with the terms and provisions of this Agreement for the period set forth below (the "Employment Period").
b. The Employment Period of the Executive as provided in Section 1(a) will commence on October 1, 1997, (the "Effective Date") and shall continue until December 31, 2000; provided, however, commencing on January 1, 1999, and each January 1 thereafter (the "Renewal Date"), the Employment Period of this Agreement shall automatically be extended for one (1) additional year if neither the Corporation nor the Executive shall have given between December 1 and December 15 prior to each applicable Renewal Date written notice to the other of its intent to terminate this Agreement.
2. Duties and Powers of Executive.
a. Position. The Executive shall serve the Corporation in such responsible executive capacity or capacities as the Board of Directors of Cinergy or Cinergy Services (the Board of Directors of Cinergy or Cinergy Services, as the case may be, may be referred to sometimes as the "Board") or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy may from time to time determine and shall have such responsibilities, duties and authority as may be assigned to him from time to time during the Employment Period by the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy that are consistent with such responsibilities, duties and authority. Upon the Effective Date of this Agreement, the Executive shall initially serve as President, Energy Services Business Unit for the Corporation, but consistent with the foregoing provisions of this Section 2(a), may be assigned to any other position or positions by either the Board or the Chief Executive Officer of Cinergy or the Chief Operating Officer of Cinergy during the Employment Period.
b. Place of Performance. In connection with the Executive's employment, the Executive shall be based at the principal executive offices of the Corporation, 221 East Fourth Street, Cincinnati, Ohio, and, except for required business travel to an extent substantially consistent with the present business travel obligations of executives of the Corporation who have positions of authority comparable to that of the Executive, the Executive shall not be required to relocate to a new principal place of business which is more than thirty (30) miles from the current principal place of business of the Corporation.
3. Compensation. The Executive shall receive the following compensation for his services under this Agreement.
a. Salary and Transition Allowance. The Executive's annual base salary (the "Annual Base Salary"), payable not less often than semi-monthly, shall be at the annual rate of not less than $300,000.00. The Board may, from time to time, direct such upward adjustments in the Annual Base Salary as the Board deems to be necessary or desirable, including without limitation adjustments in order to reflect increases in the cost of living. Any increase in the Annual Base Salary shall not serve to limit or reduce any other obligation of the Corporation under this Agreement. The Annual Base Salary shall not be reduced after any increase thereof except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, PSI or CG&E. In addition to the Annual Base Salary described in this Section, the Corporation shall pay to the Executive a transition allowance in the gross sum of $100,000.00 on the Effective Date or as soon thereafter as administratively feasible.
Retirement, Incentive, Welfare Benefit Plans and Other Benefits. During the Employment Period and so long as the Executive is employed by the Corporation, the Executive shall be eligible, and the Corporation shall take such actions as may be necessary or required to cause the Executive to become eligible, to participate in all short-term and long-term incentive, stock option, restricted stock, savings, retirement and welfare plans, practices, policies and programs applicable generally to employees and/or other senior executives of the Corporation who are considered Tier II executives for compensation purposes, including, but not limited to, Cinergy's Annual Incentive Plan, Cinergy's 1996 Long-Term Incentive Compensation Plan, Cinergy's Executive Supplemental Life Insurance Program, Cinergy's Nonqualified Deferred Incentive Compensation Plan, Cinergy's Excess 401(k) Plan, PSI's Employees' 401(k) Savings Plan, PSI's Pension Plan, PSI's Supplemental Retirement Plan and PSI's Excess Benefit Plan, or any successors thereto, except with respect to any plan, practice, policy or program to which the Executive has waived his rights in writing. In addition, the Corporation will take appropriate action to include the Executive as a participant in Cinergy's Annual Incentive Plan and Cinergy's 1996 Long-Term Incentive Compensation Plan retroactively to January 1, 1997, or otherwise provide an equivalent economic benefit.
With regard to the Executive's retirement benefits under PSI's Pension Plan,
PSI's Supplemental Retirement Plan, and PSI's Excess Benefit Plan, or any
successor thereto, the Executive shall be entitled to a "Contractual Retirement
Supplement" (paid from the Corporation's general assets) which gives the
Executive upon retirement on or after age fifty-five (55) a non-qualified
benefit that when added to the Executive's benefit under PSI's Pension Plan,
PSI's Supplemental Retirement Plan, and PSI's Excess Benefit Plan or any
successor thereto, and any previous employer's pension benefits, will provide
total retirement income equivalent to a full career employee with equal annual
earnings. For purposes of the preceding sentence, a "full career employee" shall
be considered an employee with thirty (30) full years of participation under
PSI's Pension Plan. If the Executive terminates employment prior to age
fifty-five (55), he shall be entitled to a "Contractual Retirement Supplement"
(paid from the Corporation's general assets) a non-qualified benefit that when
added to the Executive's benefit under PSI's Pension Plan, PSI's Supplemental
Retirement Plan, and PSI's Excess Benefit Plan, or any successor thereto, will
provide total retirement income equivalent to an employee who had twenty-two
(22) years of service with the Corporation as of October 1, 1997. c. Fringe
Benefits and Perquisites. During the Employment Period and so long as the
Executive is employed by the Corporation, the Executive shall be entitled to the
following additional fringe benefits:
(i) The Corporation shall furnish to the Executive an automobile and shall pay all of the related expenses for gasoline, insurance, maintenance and repairs;
(ii) The Corporation shall pay the initiation fee and the annual dues, assessments and other membership charges of the Executive for membership charges of the Executive for membership in a country club selected by the Executive;
(iii) The Corporation shall provide paid vacation for four (4) weeks per year (or longer if permitted by the Corporation's policy); and
(iv) The Corporation shall furnish to the Executive annual financial planning and tax preparation services. In addition, the Executive shall be entitled to receive such other fringe benefits in accordance with the plans, practices, programs and policies of the Corporation from time to time in effect, commensurate with his position and at least comparable to those received by other senior executives of the Corporation.
d. Expenses. The Corporation agrees to reimburse the Executive for all expenses, including those for travel and entertainment, properly incurred by him in the performance of his duties under this Agreement in accordance with the policies established from time to time by the Board.
e. Relocation Benefits. The Executive shall be entitled to reimbursement from the Corporation pursuant to the terms of the Corporation Relocation Program in effect as of the day and year first written above, as well as all actual expenses for temporary housing until such time as he has moved into a new primary residence in the general area of the Corporation's principal corporate office located in Cincinnati, Ohio. In addition, upon the termination of the Executive's employment for any reason under Section 4 of this Agreement, the Corporation shall purchase the Executive's primary residence in the general area of the Corporation's principal corporate office located in Cincinnati, Ohio at its fair market value. For purposes of this Section, the term "fair market value" shall have the same meaning as used in the Corporation's Relocation Program. The expenses described in this Section shall be "grossed up" to provide for adverse tax consequences to the Executive.
4. Termination of Employment.
a. Death. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period.
b. By the Corporation for Cause. The Corporation may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) The willful and continued failure by the Executive to substantially perform the Executive's duties with the Corporation (other than any such failure resulting from Executive's incapacity due to physical or mental illness) or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 4(c) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or The breach by the Executive of the confidentiality provisions set forth in Section 8 of this Agreement, or
(iii) The conviction of the Executive for the commission of a felony, including the entry of a guilty or nolo contendere plea, or any willful or grossly negligent action or inaction by the Executive that has a materially adverse effect on the Corporation.
For purposes of this definition of "Cause," no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Corporation. Notwithstanding the above definition of "Cause", the Corporation may terminate the Executive's employment during the Employment Period for a reason other than Cause, but the obligations placed upon the Corporation in Section 5 shall apply.
c. By the Executive for Good Reason. The Executive may terminate his employment during the Employment Period for Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) The reduction in the Executive's Annual Base Salary as specified in Section 3(a) of this Agreement, or any other benefit or payment described in Section 3 of this Agreement, except for across-the-board salary reductions similarly affecting all management personnel of Cinergy, Cinergy Services, CG&E, and PSI, and changes to the employee benefits programs affecting all management personnel of those Corporations, provided that such changes (either individually or in the aggregate) will not result in a material adverse change with respect to the benefits which the Executive was entitled to receive as of the Effective Date;
(ii) The material reduction without his consent of the Executive's title, authority, duties or responsibilities from those in effect immediately prior to the reduction;
(iii) Any breach by the Corporation of any other material provision (including but not limited to the place of performance as specified in Section 2(b));
(iv) The Executive's disability due to physical or mental illness or injury which precludes the Executive from performing any job for which he is qualified and able to perform based upon his education, training or experience; or
(v) Any event which constitutes a "Change in Control" as defined in Section 4(f) of this Agreement.
d. Notice of Termination. Any termination by the Corporation for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party to this Agreement given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which:
(i) Indicates the specific termination provision in this Agreement relied upon;
(ii) To the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and
(iii) If the Date of Termination (as defined in Section 4(e)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Corporation to set forth in the Notice of Termination any fact or circumstances which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Corporation under this Agreement or preclude the Executive or the Corporation from asserting such fact or circumstances in enforcing the Executive's or the Corporation's rights under this Agreement.
e. Date of Termination. "Date of Termination" means:
(i) If the Executive's employment is terminated by the Corporation for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be;
(ii) If the Executive's employment is terminated by the Corporation other than for Cause, the date on which the Corporation notifies the Executive of such termination; and
(iii) If the Executive's employment is terminated by reason of death, the date of death.
f. Change in Control. A "Change in Control" shall be deemed to have occurred if any of the following events occur after the Effective Date:
(i) Any "person" or "group" (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act") is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such Person any securities acquired directly from Cinergy or its affiliates) representing fifty percent (50%) or more of the combined voting power of Cinergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (1) of paragraph (ii) below; or
(ii) There is consummated a merger or consolidation of Cinergy or any direct or indirect subsidiary of Cinergy with any other corporation , other than (1) a merger or consolidation which would result in the voting securities of Cinergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least fifty percent (50%) of the combined voting power of the securities of Cinergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of Cinergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of Cinergy (not including in the securities beneficially owned by such person any securities acquired directly from Cinergy or its affiliates other than in connection with the acquisition by Cinergy or its affiliates of a business) representing twenty-five percent (25%) or more of the combined voting power of Cinergy's then outstanding securities; or
During any period of two (2) consecutive years, individuals who at the beginning of that period constitute Cinergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of Cinergy) whose appointment or election by Cinergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of Cinergy's Board of Directors; or
(iv) The shareholders of Cinergy approve a plan of complete liquidation or dissolution of Cinergy or there is consummated an agreement for the sale or disposition by Cinergy of all or substantially all of Cinergy's assets, other than a sale or disposition by Cinergy of all or substantially all of Cinergy's assets to an entity, at least sixty percent (60%) of the combined voting power of the voting securities of which are owned by shareholders of Cinergy in substantially the same proportions as their ownership of Cinergy immediately prior to such sale.
g. Person. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include:
(i) The Corporation or any of its subsidiaries;
(ii) A trustee or other fiduciary holding securities under an employee benefit plan of Cinergy or any of its subsidiaries;
(iii) An underwriter temporarily holding securities pursuant to an offering of such securities; or
(iv) A corporation owned, directly or indirectly, by the stockholders of Cinergy in substantially the same proportions as their ownership of stock of the Corporation.
5. Obligations of the Corporation Upon Termination.
a. Certain Terminations. During the Employment Period, if the Corporation shall terminate the Executive's employment (other than in the case of a termination for Cause), the Executive shall terminate his employment for Good Reason or the Executive's employment shall terminate by reason of death (termination in any such case referred to as "Termination"):
(i) The Corporation shall pay to the Executive a lump sum amount, in cash, equal to the sum of:
(1) the Executive's Annual Base Salary through the Date of Termination, and the Executive's Transition Allowance, in each case to the extent not previously paid;
(2) an amount equal to the Executive's target percentage benefit under Cinergy's Annual Incentive Plan for the fiscal year that includes the Date of Termination multiplied by a fraction the numerator of which shall be the number of days from the beginning of such fiscal year to and including the Date of Termination and the denominator of which shall be three hundred and sixty-five (365);
(3) an amount equal to the Executive's vested accrued benefit under the Cinergy Value Creation Plan under the Cinergy 1996 Long-Term Incentive Compensation Plan; and
(4) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid.
(The amounts specified in clauses (1), (2), (3) and (4) shall be referred to in
this Agreement as the "Accrued Obligations".) The amounts specified in this
Section 5(a)(i) shall be paid within thirty (30) days after the Date of
Termination. The Accrued Obligations described in this Section are payable to
the Executive regardless of whether a Change in Control has occurred.
(ii) Prior to the occurrence of a Change in Control, and in the event of Termination other than by reason of the Executive's death, then:
(1) the Corporation shall pay to the Executive a lump sum amount, in cash, equal to the present value discounted using an interest rate equal to the prime rate promulgated by CitiBank, N.A. and in effect as of the Date of Termination (the "Prime Rate") of the Annual Base Salary, and the Cinergy Annual Incentive Plan target percentage payable through the end of the Employment Period, each at the rate, and using the same goals and factors, in effect at the time Notice of Termination is given, and paid within thirty (30) days of the Date of Termination;
(2) the Corporation shall pay to the Executive the present value (discounted at the Prime Rate) of all amounts to which the Executive would have been entitled had he remained in employment with the Corporation until the end of the Employment Period, each, where applicable, at the rate of the Annual Base Salary, and using the same goals and factors, in effect at the time Notice of Termination is given, under the Cinergy Value Creation Plan of the Cinergy 1996 Long-Term Incentive Compensation Plan and the Cinergy Executive Supplemental Life Insurance Program minus the present value (discounted at the Prime Rate) of the benefits to which he is actually entitled under the above mentioned plans and programs;
(3) the Corporation shall pay the value of all deferred compensation amounts whether or not then payable; and
(4) the Corporation shall continue, until the end of the Employment Period, medical and welfare benefits to the Executive and/or the Executive's family at least equal to those which would have been provided if the Executive's employment had not been terminated (excluding benefits to which the Executive has waived his rights in writing), such benefits to be in accordance with the most favorable medical and welfare benefit plans, practices, programs or policies (the "M&W Plans") of the Corporation as in effect and applicable generally to other senior executives of the Corporation and their families during the ninety (90) day period immediately preceding the Date of Termination; provided, however, that if the Executive becomes employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the benefits under the M&W Plans shall be secondary to those provided under such other plan during such applicable period of eligibility.
(iii) From and after the occurrence of a Change in Control and in the event of Termination other than by reason of the Executive's death, then in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any other benefits payable pursuant to Section 5(a)(ii) of this Agreement:
(1) The Corporation shall pay to the Executive a lump sum severance payment, in cash, equal to the greater of:
(A) the present value of all amounts and benefits that would have been due under Sections 5(a)(ii) of this Agreement, excluding Section 5(a)(ii)(4), and
(B) three (3) times the sum of (x) the higher of the Executive's Annual Base Salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control, and (y) the higher of the amount paid to the Executive pursuant to all incentive compensation or bonus plans or programs maintained by the Corporation, in the year preceding that in which the Date of Termination occurs or in the year preceding that in which the Change in Control occurs; and
(2) For a thirty-six (36) month period after the Date of Termination, the Corporation shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), except for any benefits that were waived by the Executive in writing. Benefits otherwise receivable by the Executive pursuant to this Section 5(a)(iii)(2) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Corporation by the Executive).
The Executive's employment shall be deemed to have been terminated following a Change in Control of Cinergy without Cause or by the Executive for Good Reason if, in addition to all other applicable Terminations, the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with Cinergy or any of its subsidiaries or affiliates, the consummation of which will constitute a Change in Control or if the Executive terminates his employment for Good Reason prior to a Change in Control if the circumstances or event which constitutes Good Reason occurs at the direction of such Person.
b. Termination by the Corporation for Cause or by the Executive Other Than for
Good Reason. Subject to the provisions of Section 7 of this Agreement, if the
Executive's employment shall be terminated for Cause during the Employment
Period, or if the Executive terminates employment during the Employment Period
other than a termination for Good Reason, the Corporation shall have no further
obligations to the Executive under this Agreement other than the obligation to
pay to the Executive the Accrued Obligations and the amounts determined under
Section 5(c), plus any other earned but unpaid compensation, in each case to the
extent not previously paid.
c. Retirement Benefits on Termination. In addition to retirement benefits under PSI's Pension Plan, PSI's Supplemental Retirement Plan, and PSI's Excess Benefit Plan, or any successor thereto, and the Contractual Retirement Supplement, the Executive shall also be eligible to participate in any supplemental executive retirement plan (commonly referred to as a "SERP") sponsored by the Corporation.
d. Survival of Section 5(c). The provisions of Section 5(c) shall survive the expiration or termination of this Agreement for any reason.
e. Certain Tax Consequences. In the event that the Executive becomes entitled to the payments and benefits described in this Section 5 (the "Severance Benefits"), if any of the Severance Benefits will be subject to any excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Corporation shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of an Excise Tax on the Severance Benefits and any federal, state and local income and employment tax and Excise Tax upon the payment provided for by this Section 5, shall be equal to the Severance Benefits. For purposes of determining whether any of the Severance Benefits will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any Person whose actions result in a Change in Control or any Person affiliated with the Corporation or such Person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount as defined in Section 280G(b)(3) of the Code allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax,
(ii) the amount of the Severance Benefits that shall be treated as subject to the Excise Tax shall be equal to the lesser of
(1) the total amount of the Severance Benefits, or
(2) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and
(iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which would be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Corporation, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Corporation shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Benefits.
f. Other Fees and Expenses. The Corporation also shall pay to the Executive all legal fees and expenses incurred by the Executive as a result of a termination which entitles the Executive to the Severance Benefits (including all such fees and expenses, if any, incurred in disputing any such termination or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Corporation reasonably may require.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, plan, program, policy or practice provided by the Corporation and for which the Executive may qualify (except with respect to any benefit to which the Executive has waived his rights in writing), nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other contract or agreement entered into after the date hereof with the Corporation. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any benefit, plan, program, policy or practice of, or any contract or agreement entered into after the date hereof with, the Corporation at or subsequent to the Date of Termination, shall be payable in accordance with such benefit, plan, program, policy or practice, or contract or agreement, except as explicitly modified by this Agreement.
7. Full Settlement: Mitigation. Except as provided in Sections 5(a)(ii)(4) and 5(a)(iii)(2) of this Agreement, the Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. If the Executive finally prevails with respect to any dispute between the Corporation, the Executive or others as to the interpretation, terms, validity or enforceability of (including any dispute about the amount of any payment pursuant to) this Agreement, the Corporation agrees to pay all legal fees and expenses which the Executive may reasonably incur as a result of any such dispute.
8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of Cinergy, all of its subsidiary companies and affiliates, as well as all successors and assigns thereof (the "Cinergy Companies"), all secret, confidential, proprietary information, knowledge or data relating to the Cinergy Companies, and their respective businesses, that shall have been obtained by the Executive during the Executive's employment by the Corporation and that shall not have been or now or subsequently have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). During the Employment Period and thereafter, the Executive shall not, without the prior written consent of the Corporation or as may otherwise by required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it. The Executive understands that during the Employment Period, the Cinergy Companies may be required from time to time to make public disclosure of the terms or existence of the Executive's employment relationship in order to comply with various laws and legal requirements. In addition to all other remedies available to the Corporation in law and equity, this Agreement is subject to termination by the Corporation for Cause under Section 4(b) in the event the Executive violates any provision of this Section 8.
9. Successors.
a. This Agreement is personal to the Executive and, without the prior written consent of the Corporation, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.
b. This Agreement shall inure to the benefit of and be binding upon the Corporation, and its successors and assigns.
c. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place.
10. Miscellaneous.
a. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a committee thereof, shall have authority on behalf of the Corporation to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto.
b. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Donald B. Ingle, Jr.
Cinergy Corp.
221 East Fourth Street
P. O. Box 960
Cincinnati, Ohio 45201-0960
If to the Corporation:
Cinergy Corp.
221 East Fourth Street
P. O. Box 960
Cincinnati, Ohio 45201-0960
Attn: Chief Executive Officer
or to such other address as either party shall have furnished to the other in writing in accordance with this Agreement. All notices and communications shall be effective when actually received by the addressee.
c. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
d. The Corporation may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
e. The Executive's or the Corporation's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Corporation may have under this Agreement, including without limitation the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, or the right of the Corporation to terminate the Executive's employment for Cause pursuant to Section 4(b) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
f. This instrument contains the entire agreement of the Executive and the Corporation with respect to the subject matter hereof; and all promises, representations, understandings, arrangements and prior agreements are merged into this Agreement and accordingly superseded.
g. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
h. The Corporation and the Executive agree that Cinergy shall be authorized to act for the Corporation with respect to all aspects pertaining to the administration and interpretation of this Agreement.
IN WITNESS WHEREOF, the Executive and the Corporation have caused this Agreement to be executed as of the day and year first above written.
CINERGY CORP., CINERGY SERVICES, INC.,
THE CINCINNATI GAS & ELECTRIC COMPANY,
AND PSI ENERGY, INC.
By: _________________________
James E. Rogers
Vice Chairman and Chief Executive Officer
EXECUTIVE
AMENDED AND RESTATED SUPPLEMENTAL
EXECUTIVE RETIREMENT INCOME AGREEMENT
This Amended and Restated Supplemental Executive Retirement Income Agreement ("Agreement") is made as of the ___ day of ____________, 19__, by and between The Cincinnati Gas & Electric Company ("CG&E") and _________________ ("Executive").
WHEREAS, Executive and CG&E entered into a Supplemental Executive Retirement Income Agreement on the ___ day of __________, 19__, as amended on the ___ day of _____________, 19__;
WHEREAS, following the merger of PSI Resources, Inc. into Cinergy Corp. ("Cinergy") and Cinergy Sub, Inc. merging into CG&E, Executive remained an Officer of CG&E; and
WHEREAS, CG&E and Executive have agreed to freeze the benefits payable under the Agreement as part of the restructuring of the Executive's employment benefits.
NOW, THEREFORE, the parties agree:
1. Supplemental Retirement Benefit. The annual Supplemental Retirement Benefit of $____________ shall be paid to Executive or his Designee monthly for 180 months beginning ______________, in a monthly amount equal to $___________. However, at the sole discretion of CG&E's Board of Directors, consistent with the provisions of Section 5 of this Agreement, the Board may direct that the Supplemental Retirement Benefit be made in a lump sum in the amount of $__________ on ______________, or such other date as the Board may determine provided that the lump sum is reduced by five percent (5%) for each year the payment is accelerated, provided, however, that the maximum such reduction shall not exceed twenty-five percent (25%).
2. Designee. Any payments to be made after the death of Executive shall be made to the person or persons designated in writing to CG&E by Executive. In the absence of such written designation, the term Designee shall mean, and payment shall be made in the following descending order:
(i) Executive's surviving spouse while living;
(ii) Equally to Executive's children per stirpes; and
(iii) The estate of the last survivor of the persons named above.
3. Life Insurance Policies. In consideration of the benefits under this Agreement, the ------------------------ Executive consents to and will assist CG&E in the purchase of Key Person Life Insurance Policies on his life at any time and in any amount determined by CG&E. Such life insurance policies shall be owned by CG&E and shall be for the sole benefit of CG&E. Neither Executive nor his Designee, heirs or administrators shall have any right, title, or interest in the value or benefits under such policies.
4. Conditions. Executive will be entitled to the benefits herein even if terminated, unless such termination is for Cause. For purposes of this Agreement Cause shall mean:
(i) The commission of a felony; or
(ii) If Executive, without the written consent of CG&E, engages in any
activity which is adverse to the economic interests of CG&E, or if he
discloses any confidential information, not required by law, a court, or by the
regulatory hearing process.
If litigation shall be brought to enforce or interpret any provision contained within the Agreement, CG&E hereby agrees to indemnify the Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees to pay prejudgment interest on any money judgment obtained by the Executive, calculated at the prime interest rate in effect in Cincinnati, Ohio, from time to time and the earliest date that payment(s) to him should have been made under this Agreement.
5. Acceleration of Benefit Payments. CG&E hereby reserves to its Board of Directors the right to accelerate the payment of any of the benefits specified herein without the consent of Executive.
6. Assignability. Except to the extent that this provision may be contrary to law, no assignment, pledge, collateralization, or attachment of any of the benefits under this Agreement shall be valid or recognized by CG&E.
7. Employment Rights. This Agreement creates no right in Executive to continue in employment with CG&E for any specific length of time, nor does it create any other rights in Executive or obligation on the part of CG&E, except those set forth in this Agreement.
8. Binding Effect. The provisions of this Agreement shall insure to and be binding upon the designee, heirs, executors, and administrators of Executive, and upon the successors and assigns of CG&E, including any successor organization which succeeds to substantially all of the assets and business of CG&E. CG&E agrees that it will make appropriate provisions for the preservation of Executive's rights under this Agreement in any agreement or plan which it may enter into to effect any merger, consolidation, reorganization or transfer of assets. Upon such a merger, consolidation, reorganization, or transfer of assets, the term "CG&E" as used in this Agreement shall mean and shall refer to the successor organization, and this Agreement shall continue in full force and effect, binding on such successor organization.
9. Governing Law. This Agreement shall be governed by the laws of the State of Ohio.
10. Amendment. This Agreement may be altered, amended, or revoked only by a written instrument signed by both Executive and CG&E.
11. Prior Agreement. This Agreement supersedes any prior agreement between CG&E and Executive regarding Supplemental Executive Retirement Income.
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first above written.
WITNESS: THE CINCINNATI GAS &
ELECTRIC COMPANY
___________________________________ By: ____________________________________
Jackson H. Randolph
Chairman and Chief Executive Officer
|
WITNESS:
Adopted by the Cinergy Corp.
Board of Directors on January 30, 1997
1997 AMENDMENTS TO VARIOUS
COMPENSATION AND BENEFIT PLANS
OF CINERGY CORP.
This document sets forth amendments to various compensation and benefit plans of Cinergy Corp. with regard to the definition of "change in control" as contained in each of the plans. All amendments are effective January 1, 1997. Amendments to the following plans are set forth in this document:
NAME OF PLAN DATE PLAN ADOPTED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Stock Option Plan October 18, 1994
--------------------------------------------------------------------------------
Performance Shares Plan October 18, 1994
--------------------------------------------------------------------------------
Employee Stock Purchase and Savings Plan October 18, 1994
--------------------------------------------------------------------------------
Directors' Deferred Compensation Plan October 18, 1994
--------------------------------------------------------------------------------
Retirement Plan for Directors October 18, 1994
--------------------------------------------------------------------------------
Annual Incentive Plan October 18, 1994
--------------------------------------------------------------------------------
1996 Long-Term Incentive Compensation January 25, 1996
Plan (Approved by shareholders April 26, 1996)
--------------------------------------------------------------------------------
401(k) Excess Plan December 17, 1996
--------------------------------------------------------------------------------
Nonqualified Deferred Incentive December 17, 1996
Compensation Plan
--------------------------------------------------------------------------------
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(1) Explanation of Amendments
The definition of "change in control" of Cinergy Corp. contained in each of the above referenced plans, is a standard, uniform definition. Effective January 1, 1997, each of these plans is amended by substituting a new standard, uniform definition of "change in control" of Cinergy Corp.
(2) Amendment to the Cinergy Corp. Stock Option Plan
(a) Section 18.11 as Amended
Section 18.11, as hereby amended, reads as follows:
"18.11 Change in Control.
Notwithstanding anything in the Plan to the contrary, in the event of a Change in Control of CINergy each unexpired Option and Stock Appreciation Right shall be exercisable, beginning immediately, as to all remaining shares subject to the Option or subject to the Stock Appreciation Rights.
A 'Change in Control' of CINergy shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(1) Any 'person' or 'group' (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such Person any securities acquired directly from CINergy or its affiliates) representing 50% or more of the combined voting power of CINergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (2) below; or
(2) There is consummated a merger or consolidation of CINergy or any direct or indirect subsidiary of CINergy with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of CINergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of CINergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of CINergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such person any securities acquired directly from CINergy or its affiliates other than in connection with the acquisition by CINergy or its affiliates of a business) representing 25% or more of the combined voting power of CINergy's then outstanding securities; or
(3) During any period of two consecutive years, individuals who at the beginning of that period constitute CINergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CINergy) whose appointment or election by CINergy's Board of Directors or nomination for election by CINergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of CINergy's Board of Directors; or
(4) The shareholders of CINergy approve a plan of complete liquidation or dissolution of CINergy or there is consummated an agreement for the sale or disposition by CINergy of all or substantially all of CINergy's assets, other than a sale or disposition by CINergy of all or substantially all of CINergy's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of CINergy in substantially the same proportions as their ownership of CINergy immediately prior to such sale.
Notwithstanding the provisions of Article 13 (Amendment, Modification and Termination of the Plan), the foregoing provisions of this Section may not be amended by an amendment to the Plan effected within three years following a Change in Control.
If the immediate exercisability of ISOs arising from a 'Change in Control' as described above would cause the $100,000 limitation applicable to ISOs described in Section 9.5 (ISOs) to be exceeded for an Optionee, the Committee shall convert as of the effective date of the Change in Control all or a portion of the outstanding ISOs held by the Optionee to NSOs to the extent necessary to comply with the $100,000 limitation and to the extent permitted by Code Subsection 422(d). However, if the Committee determines that conversion is not permitted by the Code, the Committee shall not convert the Options and shall take any and all other steps necessary to accelerate the exercisability of the ISOs to the maximum extent possible under Code Subsection 422(d) without exceeding the $100,000 limitation described above."
(3) Amendment to the Cinergy Corp. Performance Shares Plan
(a) Article 14 as Amended
Article 14, as hereby amended, reads as follows:
"ARTICLE 14
CHANGE IN CONTROL
Notwithstanding anything in the Plan to the contrary, if a Change in Control of CINergy occurs, each Corporate Target Goal and Individual Goal in effect for any applicable Performance Period of each Employer's Long-Term Program shall be deemed achieved at the Incentive Factor level existing as of the date of the Change in Control and each Participant shall be entitled to receive a Performance Award adjusted to reflect the actual period of time between the beginning of the Performance Period and the date of the Change in Control. In addition, any installment of a Performance Award which has not been distributed under Article 8 (Distribution) as of the date of a Change in Control shall be immediately distributed to each Participant.
A 'Change in Control' of CINergy shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(1) Any 'person' or 'group' (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such Person any securities acquired directly from CINergy or its affiliates) representing 50% or more of the combined voting power of CINergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (2) below; or
(2) There is consummated a merger or consolidation of CINergy or any direct or indirect subsidiary of CINergy with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of CINergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of CINergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of CINergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such person any securities acquired directly from CINergy or its affiliates other than in connection with the acquisition by CINergy or its affiliates of a business) representing 25% or more of the combined voting power of CINergy's then outstanding securities; or
(3) During any period of two consecutive years, individuals who at the beginning of that period constitute CINergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CINergy) whose appointment or election by CINergy's Board of Directors or nomination for election by CINergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of CINergy's Board of Directors; or
(4) The shareholders of CINergy approve a plan of complete liquidation or dissolution of CINergy or there is consummated an agreement for the sale or disposition by CINergy of all or substantially all of CINergy's assets, other than a sale or disposition by CINergy of all or substantially all of CINergy's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of CINergy in substantially the same proportions as their ownership of CINergy immediately prior to such sale.
Notwithstanding the provisions of Article 17 (Amendment and Termination), the provisions of this Article may not be amended by an amendment to the Plan effected within three years following a Change in Control."
(4) Amendment to the Cinergy Corp. Employee Stock Purchase and Savings Plan
(a) Section 9.14 as Amended
Section 9.14, as hereby amended, reads as follows:
"9.14 Change in Control
Notwithstanding anything in the Plan to the contrary, if a Change in Control of CINergy occurs, an Eligible Employee shall have the right within three months from the Change in Control (unless the Purchase Date shall first occur in which event the right may be exercised only on or prior to the Purchase Date) to elect to purchase all or fewer than all of the shares which he is entitled to purchase as a result of his participation in the offering with the funds, including interest, if any, then on deposit in his Purchase Savings Account or to receive the funds in cash.
A 'Change in Control' of CINergy shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(1) Any 'person' or 'group' (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such Person any securities acquired directly from CINergy or its affiliates) representing 50% or more of the combined voting power of CINergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (2) below; or
(2) There is consummated a merger or consolidation of CINergy or any direct or indirect subsidiary of CINergy with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of CINergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of CINergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of CINergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such person any securities acquired directly from CINergy or its affiliates other than in connection with the acquisition by CINergy or its affiliates of a business) representing 25% or more of the combined voting power of CINergy's then outstanding securities; or
(3) During any period of two consecutive years, individuals who at the beginning of that period constitute CINergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CINergy) whose appointment or election by CINergy's Board of Directors or nomination for election by CINergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of CINergy's Board of Directors; or
(4) The shareholders of CINergy approve a plan of complete liquidation or dissolution of CINergy or there is consummated an agreement for the sale or disposition by CINergy of all or substantially all of CINergy's assets, other than a sale or disposition by CINergy of all or substantially all of CINergy's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of CINergy in substantially the same proportions as their ownership of CINergy immediately prior to such sale.
Notwithstanding the provisions of Article 11 (Amendments), the foregoing provisions of this Section may not be amended by an amendment to the Plan effected within three years following a Change in Control."
(5) Amendment to the Directors' Deferred Compensation Plan
(a) Article 12 as Amended
Article 12, as hereby amended, reads as follows:
"ARTICLE 12
CHANGE IN CONTROL
Notwithstanding any other Article, if a Change in Control of CINergy occurs, the Committee in its sole discretion may elect to accelerate the distribution of all Fees deferred under the Plan so that all deferred Fees shall be distributed to each Director and former Director (or, in the event of his death, to his Beneficiary) in a single lump sum payment no later than 30 days after the Change in Control occurs.
A 'Change in Control' of CINergy shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(1) Any 'person' or 'group' (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such Person any securities acquired directly from CINergy or its affiliates) representing 50% or more of the combined voting power of CINergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (2) below; or
(2) There is consummated a merger or consolidation of CINergy or any direct or indirect subsidiary of CINergy with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of CINergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of CINergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of CINergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such person any securities acquired directly from CINergy or its affiliates other than in connection with the acquisition by CINergy or its affiliates of a business) representing 25% or more of the combined voting power of CINergy's then outstanding securities; or
(3) During any period of two consecutive years, individuals who at the beginning of that period constitute CINergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CINergy) whose appointment or election by CINergy's Board of Directors or nomination for election by CINergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of CINergy's Board of Directors; or
(4) The shareholders of CINergy approve a plan of complete liquidation or dissolution of CINergy or there is consummated an agreement for the sale or disposition by CINergy of all or substantially all of CINergy's assets, other than a sale or disposition by CINergy of all or substantially all of CINergy's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of CINergy in substantially the same proportions as their ownership of CINergy immediately prior to such sale.
Notwithstanding the provisions of Article 11 (Amendment and Termination), the provisions of this Article may not be amended by an amendment effected within three years following a Change in Control."
(6) Amendment to the Cinergy Corp. Retirement Plan for Directors
(a) Article 15 as Amended
Article 15, as hereby amended, reads as follows:
"ARTICLE 15
PAYMENTS UPON CHANGE IN CONTROL
Notwithstanding anything contained in the Plan to the contrary, following a Change in Control of CINergy, each Participant (or Beneficiary, if appropriate) shall be entitled to receive a lump sum payment of the actuarial equivalent of benefits accrued and remaining unpaid as of the date of the Change in Control. The lump sum equivalent shall be calculated assuming the interest rate used by the Pension Benefit Guaranty Corporation in determining the value of immediate benefits as of the immediately preceding January 1.
A 'Change in Control' of CINergy shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(1) Any 'person' or 'group' (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such Person any securities acquired directly from CINergy or its affiliates) representing 50% or more of the combined voting power of CINergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (2) below; or
(2) There is consummated a merger or consolidation of CINergy or any direct or indirect subsidiary of CINergy with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of CINergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of CINergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of CINergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such person any securities acquired directly from CINergy or its affiliates other than in connection with the acquisition by CINergy or its affiliates of a business) representing 25% or more of the combined voting power of CINergy's then outstanding securities; or
(3) During any period of two consecutive years, individuals who at the beginning of that period constitute CINergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CINergy) whose appointment or election by CINergy's Board of Directors or nomination for election by CINergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of CINergy's Board of Directors; or
(4) The shareholders of CINergy approve a plan of complete liquidation or dissolution of CINergy or there is consummated an agreement for the sale or disposition by CINergy of all or substantially all of CINergy's assets, other than a sale or disposition by CINergy of all or substantially all of CINergy's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of CINergy in substantially the same proportions as their ownership of CINergy immediately prior to such sale.
Notwithstanding the provisions of Article 12 (Amendment and Termination), the provisions of this Article may not be amended by an amendment to the Plan effected within three years following a Change in Control."
(7) Amendment to the Cinergy Corp. Annual Incentive Plan
(a) Article 14 as Amended
Article 14, as hereby amended, reads as follows:
"ARTICLE 14
CHANGE IN CONTROL
Notwithstanding anything in the Plan to the contrary, if a Change in Control of CINergy occurs, each Corporate Target Goal and Individual Goal of each Employer's Annual Program shall be deemed to have been fully satisfied at the Maximum Incentive level and each Participant shall be entitled to receive an Incentive Award in the same manner as though the Maximum Incentive level had been obtained for the full Performance Period.
A 'Change in Control' of CINergy shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(1) Any 'person' or 'group' (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such Person any securities acquired directly from CINergy or its affiliates) representing 50% or more of the combined voting power of CINergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (2) below; or
(2) There is consummated a merger or consolidation of CINergy or any direct or indirect subsidiary of CINergy with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of CINergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of CINergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of CINergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such person any securities acquired directly from CINergy or its affiliates other than in connection with the acquisition by CINergy or its affiliates of a business) representing 25% or more of the combined voting power of CINergy's then outstanding securities; or
(3) During any period of two consecutive years, individuals who at the beginning of that period constitute CINergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CINergy) whose appointment or election by CINergy's Board of Directors or nomination for election by CINergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of CINergy's Board of Directors; or
(4) The shareholders of CINergy approve a plan of complete liquidation or dissolution of CINergy or there is consummated an agreement for the sale or disposition by CINergy of all or substantially all of CINergy's assets, other than a sale or disposition by CINergy of all or substantially all of CINergy's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of CINergy in substantially the same proportions as their ownership of CINergy immediately prior to such sale.
Notwithstanding the provisions of Article 18 (Amendment and Termination), the provisions of this Article may not be amended by an amendment to the Plan effected within three years following a Change in Control."
(8) Amendment to the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan
(a) Section 21.11 as Amended
Section 21.11, as hereby amended, reads as follows:
"21.11 Change in Control.
Notwithstanding anything in the Plan to the contrary, in the event of a Change
in Control of Cinergy, unless otherwise provided in the related Award Agreement:
(i) each unexpired Option and Stock Appreciation Right shall become exercisable
in full, (ii) all restrictions (other than restrictions imposed by law) and
conditions of all Restricted Stock (other than Restricted Stock subject to
Performance Measures), Dividend Equivalents and Other Stock-Based Awards then
outstanding shall be deemed satisfied subject to any holding period limitations,
(iii) all Performance Measures of all Performance Shares and Performance Awards,
Restricted Stock, Dividend Equivalents and Other Stock-Based Awards shall be
deemed fully satisfied at the maximum criteria levels.
A 'Change in Control' of CINergy shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(1) Any 'person' or 'group' (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such Person any securities acquired directly from CINergy or its affiliates) representing 50% or more of the combined voting power of CINergy's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (2) below; or
(2) There is consummated a merger or consolidation of CINergy or any direct or indirect subsidiary of CINergy with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of CINergy outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of CINergy or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of CINergy (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of CINergy (not including in the securities beneficially owned by such person any securities acquired directly from CINergy or its affiliates other than in connection with the acquisition by CINergy or its affiliates of a business) representing 25% or more of the combined voting power of CINergy's then outstanding securities; or
(3) During any period of two consecutive years, individuals who at the beginning of that period constitute CINergy's Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CINergy) whose appointment or election by CINergy's Board of Directors or nomination for election by CINergy's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of CINergy's Board of Directors; or
(4) The shareholders of CINergy approve a plan of complete liquidation or dissolution of CINergy or there is consummated an agreement for the sale or disposition by CINergy of all or substantially all of CINergy's assets, other than a sale or disposition by CINergy of all or substantially all of CINergy's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of CINergy in substantially the same proportions as their ownership of CINergy immediately prior to such sale.
Notwithstanding the provisions of Article 16 (Amendment, Modification and Termination of the Plan), the foregoing provisions of this Section may not be amended by an amendment to the Plan effected within three years following a Change in Control.
If the immediate exercisability of ISOs arising from a Change in Control as described above would cause the $100,000 limitation applicable to ISOs described in Section 8.1 (Types of Option) to be exceeded for an Optionee, the Committee shall convert as of the effective date of the Change in Control all or a portion of the outstanding ISOs held by the Optionee to NSOs to the extent necessary to comply with the $100,000 limitation and to the extent permitted by Code Subsection 422(d). However, if the Committee determines that conversion is not permitted by the Code, the Committee shall not convert the Options and shall take any and all other steps necessary to accelerate the exercisability of the ISOs to the maximum extent possible under Code Subsection 422(d) without exceeding the $100,000 limitation described above."
(9) Amendment to the Cinergy Corp. 401(k) Excess Plan
(a) Section 5.2 as Amended
Section 5.2, as hereby amended, reads as follows:
"5.2 Distribution Upon a Change in Control.
Notwithstanding any other Section, if a Change in Control occurs, the Committee in its sole discretion may elect to accelerate the distribution of a Participant's Accounts so that a Participant's Accounts shall be distributed to the Participant (or, in the event of his death, to his Beneficiary) in a single lump sum payment no later than 30 days after the Change in Control occurs.
A 'Change in Control' of the Company shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(1) Any 'person' or 'group' (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 50% or more of the combined voting power of the Company's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (2) below; or
(2) There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing 25% or more of the combined voting power of the Company's then outstanding securities; or
(3) During any period of two consecutive years, individuals who at the beginning of that period constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board of Directors; or
(4) The shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale."
(10) Amendment to the Cinergy Corp. Nonqualified Deferred Incentive Compensation Plan
a) Section 5.2 as Amended
Section 5.2, as hereby amended, reads as follows:
"5.2 Distribution Upon a Change in Control.
Notwithstanding any other Section, if a Change in Control occurs, the Committee in its sole discretion may elect to accelerate the distribution of a Participant's Account so that a Participant's Account shall be distributed to the Participant (or, in the event of his death, to his Beneficiary) in a single lump sum payment no later than 30 days after the Change in Control occurs.
A 'Change in Control' of the Company shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(1) Any 'person' or 'group' (within the meaning of Subsection 13(d) and Paragraph 14(d)(2) of the 1934 Act is or becomes the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 50% or more of the combined voting power of the Company's then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (2) below; or
(2) There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing 25% or more of the combined voting power of the Company's then outstanding securities; or
(3) During any period of two consecutive years, individuals who at the beginning of that period constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of that period or whose appointment, election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board of Directors; or
(4) The shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale."
These Amendments are executed and approved by the duly authorized officers of Cinergy Corp., effective as of January 1, 1997.
CINERGY CORP.
By: _____________________________
James E. Rogers
Vice Chairman and
Chief Executive Officer
Dated: ___________________________
Approved:
By: _____________________________
Cheryl M. Foley
Vice President, General Counsel
and Corporate Secretary
Dated: ___________________________
Subsidiary Listing
The following is a listing of the subsidiaries of each registrant and their state of incorporation or organization indented to show degree of remoteness from registrant.
State of Organization
Name of Company or Incorporation
Cinergy Corp. Delaware
The Cincinnati Gas & Electric Company Ohio
The Union Light, Heat and Power Company Kentucky
Lawrenceburg Gas Company Indiana
The West Harrison Gas and Electric Company Indiana
Miami Power Corporation Indiana
KO Transmission Company Kentucky
Tri-State Improvement Company Ohio
PSI Energy, Inc. Indiana
South Construction Company, Inc. Indiana
PSI Energy Argentina, Inc.* Indiana
Cinergy Services, Inc. Delaware
Cinergy Investments, Inc. Delaware
Cinergy-Cadence, Inc. Indiana
Cadence Network LLC (33 1/3%) Delaware
Cinergy Capital & Trading, Inc. Indiana
CinCap IV, LLC Delaware
Cinergy Communications, Inc. Delaware
Cinergy Engineering, Inc. Ohio
Cinergy International, Inc. Indiana
Cinergy Global Power, Inc. Delaware
Cinergy Global Hydrocarbons Pakistan
Cinergy MPI II, Inc. Cayman Islands
Cinergy MPI III, Inc. Cayman Islands
Cinergy MPI IV, Inc. Cayman Islands
Cinergy MPI V, Inc. Cayman Islands
Cinergy MPI VI, Inc. Cayman Islands
Cinergy MPI VII, Inc. Cayman Islands
Cinergy MPI VIII, Inc. Cayman Islands
Cinergy MPI IX, Inc. Cayman Islands
Cinergy MPI X, Inc. Cayman Islands
Cinergy MPI XI, Inc. Cayman Islands
Cinergy MPI XII, Inc. Cayman Islands
Cinergy MPI XIII, Inc. Cayman Islands
Cinergy MPI XIV, Inc. Cayman Islands
Cinergy MPI XV, Inc. Cayman Islands
MPII (Zambia) B.V. The Netherlands
Copperbelt Energy Corporation PLC (39%)* Zambia
MPI International Limited England
Cinergy Resources, Inc. Delaware
Cinergy Solutions, Inc. Delaware
(In Illinois d/b/a Cinergy Solutions of Illinois, Inc.,
In Ohio d/b/a Cinergy Solutions of Ohio, Inc.)
Trigen-Cinergy Solutions LLC (50%) Delaware
Trigen-Cinergy Solutions of Cincinnati LLC (51%) Ohio
Trigen-Cinergy Solutions of Illinois LLC (49%) Delaware
Cinergy Supply Network, Inc. Delaware
Cinergy Technology, Inc. Indiana
Cinergy UK, Inc. Delaware
Avon Energy Partners Holdings (50%) England
Avon Energy Partners PLC England
Midlands Electricity plc England
Enertech Associates, Inc. Ohio
PSI Argentina, Inc.* Indiana
Costanera Power Corp.* Indiana
PSI Power Resource Development, Inc. Indiana
PSI Sunnyside, Inc. Indiana
PSI T&D International, Inc. Indiana
PSI Yacyreta, Inc. Indiana
|
*EWG or foreign utility company
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by reference of our report, dated January 27, 1998, included in this Annual Report on Form 10-K for the year ended December 31, 1997, into (i) Cinergy Corp.'s previously filed Registration Statement Nos. 33-55267, 33-55291, 33-55293, 33- 55713, 33-56067, 33-56089, 33-56091, 33-56093, 33-56095 and 333- 17531; (ii) PSI Energy, Inc.'s previously filed Registration Statement Nos. 33-48612, 33-57064 and 333-10899; (iii) The Cincinnati Gas & Electric Company's previously filed Registration Statement Nos. 33-45116, 33-52335 and 33-58967; and (iv) The Union Light, Heat and Power Company's previously filed Registration Statement Nos. 33-40245 and 33-58965.
Arthur Andersen LLP
Cincinnati, Ohio,
March 26, 1998
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 3rd day of February, 1998.
/s/ Neil A. Armstrong Neil A. Armstrong |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp. and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 29th day of January, 1998.
/s/ James K. Baker James K. Baker |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp. and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 23rd day of January, 1998.
/s/ Michael G. Browning Michael G. Browning |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 3rd day of February, 1998.
/s/ Phillip R. Cox Phillip R. Cox |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 26th day of January, 1998.
/s/ Kenneth M. Duberstein Kenneth M. Duberstein |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of The Union Light, Heat and Power Company, the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 27th day of January, 1998.
/s/ Cheryl M. Foley Cheryl M. Foley |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of The Cincinnati Gas & Electric Company and The Union Light, Heat and Power Company, the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 23rd day of January, 1998.
/s/ William J. Grealis William J. Grealis |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp. and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 26th day of January, 1998.
/s/ John A. Hillenbrand II John A. Hillenbrand II |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 26th day of January, 1998.
/s/ George C. Juilfs George C. Juilfs |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of The Union Light, Heat and Power Company, the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 28th day of January, 1998.
/s/ J. Wayne Leonard J. Wayne Leonard |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of PSI Energy, Inc., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 26th day of January, 1998.
/s/ John M. Mutz John M. Mutz |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 23rd day of January, 1998.
/s/ Melvin Perelman Melvin Perelman |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 23rd day of January, 1998.
/s/ Thomas E. Petry Thomas E. Petry |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp., The Cincinnati Gas & Electric Company, The Union Light, Heat and Power Company, and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 28th day of January, 1998.
/s/ Jackson H. Randolph Jackson H. Randolph |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 27th day of January, 1998.
/s/ John J. Schiff, Jr. John J. Schiff, Jr. |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 28th day of January, 1998.
/s/ Philip R. Sharp Philip R. Sharp |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of each of Cinergy Corp. and PSI Energy, Inc., the Form 10-K Annual Report of each corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Reports so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 23rd day of January, 1998.
/s/ Van P. Smith Van P. Smith |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 26th day of January, 1998.
/s/ Dudley S. Taft Dudley S. Taft |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of The Union Light, Heat and Power Company, the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 26th day of January, 1998.
/s/ Larry E. Thomas Larry E. Thomas |
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned hereby constitutes and appoints each of James E. Rogers and Madeleine W. Ludlow, or either of them, the undersigned's true and lawful attorney-in-fact and agent to execute for and on behalf of the undersigned, in the undersigned's capacity as a director of Cinergy Corp., the Form 10-K Annual Report of said corporation for the fiscal year ended December 31, 1997, and to deliver said Form 10-K Annual Report so signed for filing with the Securities and Exchange Commission.
The undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or either of them, shall lawfully do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto caused this Power of Attorney to be executed on this 3rd day of February, 1998.
/s/ Oliver W. Waddell Oliver W. Waddell |
| ARTICLE UT |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD START | JAN 01 1997 |
| PERIOD END | DEC 31 1997 |
| PERIOD TYPE | 12 MOS |
| BOOK VALUE | PER BOOK |
| TOTAL NET UTILITY PLANT | 6,297,103 |
| OTHER PROPERTY AND INVEST | 0 |
| TOTAL CURRENT ASSETS | 670,582 |
| TOTAL DEFERRED CHARGES | 1,076,851 |
| OTHER ASSETS | 813,617 |
| TOTAL ASSETS | 8,858,153 |
| COMMON | 1,577 |
| CAPITAL SURPLUS PAID IN | 1,573,064 |
| RETAINED EARNINGS | 964,559 |
| TOTAL COMMON STOCKHOLDERS EQ | 2,539,200 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 177,989 |
| LONG TERM DEBT NET | 2,150,902 |
| SHORT TERM NOTES | 952,600 |
| LONG TERM NOTES PAYABLE | 0 |
| COMMERCIAL PAPER OBLIGATIONS | 161,428 |
| LONG TERM DEBT CURRENT PORT | 85,000 |
| PREFERRED STOCK CURRENT | 0 |
| CAPITAL LEASE OBLIGATIONS | 0 |
| LEASES CURRENT | 0 |
| OTHER ITEMS CAPITAL AND LIAB | 2,791,034 |
| TOT CAPITALIZATION AND LIAB | 8,858,153 |
| GROSS OPERATING REVENUE | 4,352,843 |
| INCOME TAX EXPENSE | 248,937 |
| OTHER OPERATING EXPENSES | 3,565,313 |
| TOTAL OPERATING EXPENSES | 3,814,250 |
| OPERATING INCOME LOSS | 538,593 |
| OTHER INCOME NET | 72,933 |
| INCOME BEFORE INTEREST EXPEN | 611,526 |
| TOTAL INTEREST EXPENSE | 240,669 |
| NET INCOME | 253,238 |
| PREFERRED STOCK DIVIDENDS | 0 |
| EARNINGS AVAILABLE FOR COMM | 253,238 |
| COMMON STOCK DIVIDENDS | 283,866 |
| TOTAL INTEREST ON BONDS | 181,772 |
| CASH FLOW OPERATIONS | 753,445 |
| EPS PRIMARY | 1.61 |
| EPS DILUTED | 1.59 |