ITEM 1. BUSINESS
Organization
CINergy Corp. (CINergy), a Delaware corporation, was created for the October 1994 merger of The Cincinnati Gas & Electric Company (CG&E) and PSI Resources, Inc. (Resources) and is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). The business combination was accounted for as a pooling of interests. Following the merger, CINergy became the parent holding company for CG&E, PSI Energy, Inc. (Energy), previously Resources' utility subsidiary, CINergy Investments, Inc. (Investments), and CINergy Services, Inc. (CINergy Services).
CINergy's two utility subsidiaries, CG&E and Energy, account for 99.7% of each of CINergy's total operating revenues and CINergy's total assets.
CG&E
CG&E, an Ohio corporation, is an electric and gas public utility company with four wholly-owned utility subsidiaries including The Union Light, Heat and Power Company (ULH&P), Miami Power Corporation (Miami), The West Harrison Gas and Electric Company (West Harrison), and Lawrenceburg Gas Company (Lawrenceburg). In addition, CG&E has two non-utility subsidiaries, KO Transmission Company (KO Transmission) and Tri-State Improvement Company (Tri- State), both of which are wholly-owned.
CG&E and its utility subsidiaries are primarily engaged in the production, transmission, distribution, and sale of electric energy and the sale and transportation of natural gas in the southwestern portion of Ohio and adjacent areas in Kentucky and Indiana. The area served with electricity, gas, or both covers approximately 3,000 square miles, has an estimated population of 1.8 million people, and includes the cities of Cincinnati and Middletown in Ohio, Covington and Newport in Kentucky, and Lawrenceburg in Indiana.
KO Transmission was incorporated in Kentucky in 1994 and will be used to acquire an interest in an interstate natural gas pipeline to which CG&E is entitled as a result of a settlement with the Columbia Gas Transmission Corp. It will have an office in Cincinnati and will be engaged in the transportation of natural gas in interstate commerce between Kentucky and Ohio. KO Transmission's portion of the pipeline will extend from central Kentucky to the Ohio River.
Tri-State, an Ohio corporation, is devoted to acquiring and holding property in Ohio, Kentucky, and Indiana for substations, electric and gas rights of way, office space, and other uses in CG&E's and its subsidiaries' utility operations.
Energy
Energy, 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 1.9 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 Energy 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 1.8 million customers. PSI Energy Argentina owns a small equity interest in this project and provides operating and consulting services.
South Construction Company, Inc. (South), another wholly-owned subsidiary of Energy 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 Energy's business (such as undeveloped real estate of Energy abutting an Energy office building) or which has some defect in title which is unacceptable to Energy. Most of the real estate to which South acquires title relates to Energy's utility business.
Investments
Investments, a non-utility subholding company organized in the state of Delaware in 1994, was formed to operate CINergy's non-utility businesses. Investments holds the following active non-utility subsidiaries and interests, which are more fully described below: Power International, Inc. (Power International), previously named Enertech Associates International, Inc., its direct subsidiary Beheer- En Belegginsmaatschappij Bruwabel B.V. (Bruwabel) and its indirect subsidiary Power International s.r.o.; CG&E Resource Marketing, Inc. (Resource Marketing) and its interest in U.S. Energy Partners; CGE ECK, Inc. (CGE ECK) and its interest in ECK s.r.o.; PSI Recycling, Inc.; Power Equipment Supply Co. (PESCO); Wholesale Power Services, Inc. (Wholesale Power); and PSI Argentina, Inc. (PSI Argentina) and its subsidiary Costanera Power Corp. (Costanera).
Power International was incorporated in Ohio 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, and construction and/or operation of generation, co-generation, and independent power production facilities, and project development. Power International has established a regional and international consulting services practice and has had activities in Ohio, Kentucky, Indiana, and a number of foreign countries, including Kazakhstan. In addition, Power International renders consulting services in the Czech Republic. To comply with Czech law and to facilitate its operations in the Czech Republic and the tax-efficient treatment of earnings from those operations, certain Power International operations are conducted through wholly-owned direct and indirect subsidiaries -- Bruwabel, which was organized under Dutch law and is a direct subsidiary of Power International, and Power International s.r.o., which was organized under Czech law and is a subsidiary of Bruwabel. Bruwabel's business is conducted in the Netherlands, while Power International s.r.o. conducts business in the Czech Republic.
Resource Marketing was incorporated in Delaware in 1994 and has an office in Cincinnati. It was formed to hold CG&E's interest in U.S. Energy Partners, a gas marketing partnership that was formed under Delaware law in 1994. U.S. Energy Partners will compete with traditional regulated local distribution companies by offering "merchant service" (i.e., acquiring natural gas and selling it to customers) and will broker gas to industrial and large commercial customers, with the initial aim, among other things, of recapturing former customers of CG&E's gas utility business.
CGE ECK was incorporated in Delaware in 1994 and was formed as the vehicle for an investment in ECK s.r.o., a Czech limited liability company which owns and operates a generating facility in the Czech Republic. At present, CGE ECK holds an approximate 3% interest in ECK s.r.o. and intends to dispose of that interest.
PSI Recycling, Inc. is an Indiana corporation which recycles metal from CG&E and paper, metal, and other materials from Energy, its largest single supplier, and other sources.
PESCO was incorporated in Indiana to sell equipment and parts from an Energy generating plant which was cancelled, the Marble Hill nuclear project. PESCO also buys equipment for resale, brokers equipment, and sells equipment on consignment for others.
Wholesale Power, an Indiana corporation, was formed to engage in the business of brokering power, emission allowances, electricity futures, and related products and services and to provide consulting services in the wholesale power-related markets. In addition, Wholesale Power was formed to create, market, and maintain the services of an "electronic bulletin board" for the bulk power market.
PSI Argentina was formed as an Indiana corporation to own foreign generating facilities. PSI Argentina has a wholly-owned subsidiary, Costanera, also formed to own foreign generating facilities. Costanera is a member of a multinational consortium which has controlling ownership of the 1,260-megawatt (mw) Costanera power plant serving Buenos Aires, Argentina. Costanera owns a small equity interest in this project, and PSI Argentina provides consulting services to the project.
CINergy Services
CINergy Services was incorporated in the state of Delaware in 1994 to serve as the service company for the CINergy system. CINergy Services provides CG&E, Energy, and the other companies of the CINergy system with a variety of administrative, management, and support services.
Customer, Sales, and Revenue Data
Approximately 83% and 15% of CINergy's operating revenues are derived from the sale of electricity and the sale and transportation of natural gas, respectively. The service territory of CG&E and its subsidiaries is heavily populated and characterized by a stable residential customer base and a diverse mix of industrial customers. Similarly, the area served by Energy is a residential, agricultural, and widely diversified industrial territory. As of December 31, 1994, CG&E, its subsidiaries, and Energy supplied electric service to over 1.3 million customers, and CG&E and its subsidiaries provided gas service to more than 429,000 customers. 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. No one customer accounts for more than 5% of electric or gas operating revenues of CG&E and its subsidiaries or the electric operating revenues of Energy. Sales of electricity and gas sales and transportation are affected by seasonal weather patterns, and, therefore, operating revenues and associated operating expenses are not distributed evenly during the year.
Financial Information by Business Segment
For financial information by business segment, see Note 19 of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and Supplementary Data". For a discussion of the potential divestiture of CG&E's gas operations, see Note 16(e) of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and Supplementary Data".
Regulation
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 caption "Potential Divestiture of Gas Operations" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".)
CG&E, ULH&P, Miami, and Energy are each subject to regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act with respect to the classification of accounts, rates for wholesale sales of electricity, interconnection agreements, and acquisitions and sales of certain utility properties. In addition, services by KO Transmission will be rendered in accordance with terms and conditions and at rates contained in a gas tariff filed with the FERC. Transportation of gas between CG&E and ULH&P is subject to regulation by the FERC under the Natural Gas Act.
CG&E, as a public utility under the laws of Ohio, is also subject to regulation by the Public Utilities Commission of Ohio (PUCO) as to retail electric and gas rates, services, accounts, depreciation, issuance of securities, acquisitions and sales of certain utility properties, and in other respects as provided by Ohio law. Rates within municipalities in Ohio are subject to original regulation by the municipalities. The Ohio Power Siting Board, a division of the PUCO, has jurisdiction in Ohio over the location, construction, and initial operation of new electric generating facilities and certain electric and gas transmission lines presently utilized by CG&E. As to retail rates and other matters, ULH&P is regulated by the Kentucky Public Service Commission (KPSC), and West Harrison and Lawrenceburg are regulated by the Indiana Utility Regulatory Commission (IURC).
Energy, 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.
Rate Matters
Refer to the information appearing under the caption "Regulatory Matters" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
Power Supply
CG&E, Energy, and 27 other electric utilities in an eight-state area are participating in the East Central Area Reliability Coordination Agreement for the purpose of coordinating the planning and operation of generating and transmission facilities to provide for maximum reliability of regional bulk power supply.
In addition to the intercompany tie between CG&E's and Energy's electric systems, CINergy's electric system, which is operated by CINergy Services, is interconnected with the electric systems of Central Illinois Public Service Company, East Kentucky Power Cooperative, Inc. (East Kentucky), Hoosier Energy R.E.C., Inc., Indiana Michigan Power Company, Indianapolis Power and Light Company, Kentucky Utilities Company, Louisville Gas and Electric Company, Northern Indiana Public Service Company, Southern Indiana Gas and Electric Company, Columbus Southern Power Company, The Dayton Power and Light Company, Ohio Valley Electric Corporation, Ohio Power Company, and Tennessee Valley Authority.
CG&E and East Kentucky have an agreement for the interchange of electric power, subject to availability, during certain times of the year through March 2000. Under the agreement, CG&E, a summer peaking company, has the right to obtain up to 150 mw of electricity through March 31, 1997, and up to 50 mw from April 1, 1997, through March 31, 2000, from East Kentucky during the months of June, July, and August. East Kentucky, a winter peaking company, has the right to receive up to 150 mw through March 31, 1997, and up to 50 mw from April 1, 1997, through March 31, 2000, from CG&E in December, January, and February. In addition, Energy 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 Energy to a joint transmission and local facilities agreement.
Fuel Supply
A major portion of the coal required by CG&E and Energy is obtained through both long- and short-term coal supply agreements, with the remaining requirements purchased on the spot market. The prices to be paid under most of these contracts are subject to adjustment to reflect suppliers' costs and certain other factors. In addition, some of these agreements include extension options and termination provisions pertaining to coal quality. The coal delivered under these contracts is primarily from mines located in Illinois, Indiana, Ohio, Kentucky, West Virginia, and Pennsylvania.
CG&E and Energy monitor alternative sources to assure a continuing availability of economical fuel supplies. The companies intend to continue purchasing a portion of their coal requirements on the spot market and, at the present time, are investigating the use of low-sulfur coal in connection with their plans to comply with the Clean Air Act Amendments of 1990 (see the information appearing under the caption "Environmental Issues" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations").
The companies believe they will be able to obtain sufficient coal to meet future generating requirements. However, both CG&E and Energy are unable to predict the extent to which coal availability and price may ultimately be affected by future environmental requirements. Presently, CG&E and Energy 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.
Gas Supply
The FERC's Order 636 restructured the operations of gas pipelines and the supply portfolios of gas distribution companies. As gas pipelines unbundled their historic service of supply aggregating, direct term contracting by gas distribution companies with producers and marketers diminished the once prominent spot market (see the information appearing under the caption "Order 636" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations").
CG&E and its subsidiaries now obtain the majority of their natural gas supply (89%) from firm supply agreements, with remaining volumes purchased in the spot market. These firm contracts feature dual levels of gas supply: base load for continuous supply for CG&E's and its subsidiaries' core requirements, and "swing" load, which is gas available on a daily basis for changes in demand. While a premium is paid for the swing load, the use of industry indices to price firm gas volumes on a monthly basis ensures that the price CG&E and its subsidiaries pay remains economically competitive.
Gas is transported on interstate pipelines either directly to CG&E's and its subsidiaries' distribution systems, or it is injected into pipeline storage facilities for withdrawal and delivery in the future. Most of CG&E's and its subsidiaries' gas supplies are sourced from the Gulf of Mexico coastal area. CG&E and its subsidiaries have also obtained limited supply sourced from the Appalachian region and the mid-continent (Arkansas - Oklahoma) basin, and from methane gas recovered from an Ohio landfill. Over the long-term, natural gas is expected to retain its competitiveness with alternative fuels; however, the costs of discovery and development of new sources of supply will influence prices.
Competition
Refer to the information appearing under the caption "Competitive Pressures" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
Capital Requirements
Refer to the information appearing under the caption "Capital Requirements" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
Environmental Matters
CINergy's utilities' 1995 construction expenditures for environmental compliance are forecasted to be $16 million. In addition, refer to the information appearing in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
Employees
The number of employees of CINergy and its subsidiaries at December 31, 1994, was 8,868, of whom 5,019 belonged to bargaining units. These bargaining unit employees were represented by labor agreements between CG&E and its utility subsidiaries or Energy and the applicable union organization. Approximately 3,318 employees were represented by the International Brotherhood of Electrical Workers (IBEW), 475 were represented by the United Steelworkers of America (USWA), and 1,226 were represented by the Independent Utilities Union (IUU).
The current contract between CG&E and the IUU will expire in March 1998. CG&E also has a three-year agreement with the USWA, expiring May 15, 1997. The agreements between CG&E and the IBEW local 1347 and between Energy and the IBEW local 1393 expire April 1, 1997, and April 30, 1996, respectively.
ITEM 2.
ITEM 2. PROPERTIES
Substantially all utility plant is subject to the lien of each applicable company's first mortgage bond indenture.
In addition to the information further discussed herein, refer to the information appearing under the caption "New Generation" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 17 of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and Supplementary Data".
CG&E
CG&E wholly owns and operates seven steam electric generating units at two different stations and 20 rapid-start internal combustion generating units at four different stations. In addition, CG&E operates five commonly owned steam electric generating units at four different stations, in all of which CG&E has an undivided interest. CG&E also has an undivided interest in six commonly owned steam electric generating units at three separate stations which are not operated by CG&E. All of these properties are located in Ohio, with the exception of one of the jointly owned stations operated by CG&E which is located in Kentucky. CG&E-owned system generating capability as of December 31, 1994, was 5,374 mw.
CG&E's 1994 summer peak load, which occurred on July 20, was 4,326 mw, and its 1994 winter peak load, which occurred on January 18, was 4,077 mw, exclusive of off-system transactions. For the period 1995 through 2004, summer and winter peak load and kilowatt-hour (kwh) sales are each forecasted to have annual growth rates of 2%. These forecasts reflect CG&E's assessment of DSM, load growth, alternative fuel choices, population growth, and housing starts. These forecasts exclude non-firm power transactions and any potential off- system, long-term firm power sales.
As of December 31, 1994, CG&E's transmission system consisted of 388 circuit miles of 345,000 volt line, 604 circuit miles of 138,000 volt line, 475 circuit miles of 69,000 volt line, and 117 circuit miles of lesser volt line, all within the states of Ohio and Kentucky. In addition, as of December 31, 1994, CG&E's distribution system consisted of 14,388 circuit miles, all within the state of Ohio. As of the same date, CG&E's transmission substations had a combined capacity of 14,845,106 kilovolt-amperes, and the distribution substations had a combined capacity of 5,860,802 kilovolt-amperes. A portion of CG&E's total transmission system is jointly owned, primarily in connection with the previously mentioned jointly owned electric generating units.
During 1994, almost all of the electricity generated by units owned by CG&E or in which it has an ownership interest was produced by coal-fired generating units. Those units generate most of the electric requirements of CG&E and its subsidiaries.
CG&E owns two underground caverns, one with a seven million gallon capacity and one with an eight million gallon capacity, for the storage of liquid propane and related vaporization and mixing plants. Both of the storage caverns are located in Ohio and used primarily to augment CG&E's supply of natural gas during periods of peak demand and emergencies. CG&E also owns natural gas distribution systems consisting of 5,341 miles of mains and service lines in southwestern Ohio.
Energy
Energy operates six steam electric generating stations, one hydroelectric generating station, and 16 rapid-start internal combustion generating units, all within the state of Indiana. Energy owns all of the above, except for 49.95% of Gibson Generating Station Unit 5 which is jointly owned by WVPA (25%) and IMPA (24.95%). Energy-owned system generating capability as of December 31, 1994, was 5,800 mw.
Energy's 1994 summer peak load, which occurred on June 20, was 4,869 mw, and its 1994 winter peak load, which occurred on January 18, was 4,644 mw, exclusive of off-system transactions. For the period 1995 through 2004, summer and winter peak load and kwh sales are each forecasted to have annual growth rates of 2%. These forecasts reflect Energy's assessment of DSM, load growth, alternative fuel choices, population growth, and housing starts. These forecasts exclude non-firm power transactions and any potential off- system, long-term firm power sales.
As of December 31, 1994, Energy's transmission system consisted of 719 circuit miles of 345,000 volt line, 656 circuit miles of 230,000 volt line, 1,594 circuit miles of 138,000 volt line, and 2,426 circuit miles of 69,000 volt line, all within the state of Indiana. In addition, as of December 31, 1994, Energy's distribution system consisted of 19,012 circuit miles, all within the state of Indiana. As of the same date, Energy's transmission substations had a combined capacity of 21,450,755 kilovolt-amperes, and the distribution substations had a combined capacity of 6,051,420 kilovolt-amperes.
For the year ended December 31, 1994, 99% and 1% of Energy's kwh production were obtained from coal-fired generation and hydroelectric generation, respectively.
ULH&P
As of December 31, 1994, ULH&P owned 104 circuit miles of 69,000 volt electric transmission line, an electric distribution system consisting of 2,468 circuit miles, and a gas distribution system consisting of 1,190 miles of mains and service lines in northern Kentucky. ULH&P also owns a seven million gallon capacity underground cavern for the storage of liquid propane and a related vaporization and mixing plant and feeder lines, located in northern Kentucky and adjacent to one of the gas lines that transports natural gas to CG&E. The cavern and vaporization and mixing plant are used primarily to augment CG&E's and ULH&P's supply of natural gas during periods of peak demand and emergencies.
Other Subsidiaries
As of December 31, 1994, Lawrenceburg owned a gas distribution system consisting of 166 miles of mains and service lines in Indiana adjacent to the western part of CG&E's service area. Lawrenceburg is connected with and sells gas at wholesale to the city of Aurora, Indiana, and is also connected within Indiana with the lines of Texas Gas Transmission Corporation and Texas Eastern Transmission Corporation.
As of December 31, 1994, West Harrison owned a small electric distribution system consisting of 10 circuit miles in Indiana adjacent to CG&E's service area. As of the same date, Miami owned 40 miles of 138,000 volt transmission line connecting the lines of Louisville Gas and Electric Company with those of CG&E.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Merger Litigation
The original merger agreement between CG&E and Resources was amended in response to a June 1993 ruling by the IURC, which dismissed a petition by Energy for approval of the transfer of its license or property to CINergy Corp., an Ohio corporation. The IURC held that such transfer could not be made to a corporation incorporated outside of Indiana. The original structure provided that Resources, Energy, and CG&E would be merged into CINergy Corp. Under this structure, Energy and CG&E would have become operating divisions of CINergy Corp., ceasing to exist as separate corporations, and CINergy Corp. would not have been required to register as a public utility holding company under the PUHCA. Energy appealed the IURC's decision, and in October 1994, the Indiana Court of Appeals reversed the IURC's decision. This decision by the Indiana Court of Appeals did not alter the consummation of the merger establishing CINergy as a registered holding company.
Shareholder Litigation
In March 1993, in conjunction with a proposed tender offer for Resources, IPALCO Enterprises, Inc. filed suit in the United States District Court for the Southern District of Indiana, Indianapolis Division (District Court), against Resources, CINergy, James E. Rogers, Energy, and CG&E (IPALCO Action). The IPALCO Action was subsequently dismissed in November 1993. In March 1993 and in the weeks following, six suits with claims similar to the IPALCO Action were filed by purported shareholders of Resources (Shareholder Litigation). Four of the suits were filed in the District Court, and two were filed in state courts, although one of those two was subsequently consolidated with the four in the District Court.
In January 1994, the parties to the Shareholder Litigation executed a Stipulation and Agreement of Dismissal (Stipulation) settling and dismissing with prejudice all of the parties' claims except for plaintiffs' petitions for fees and expenses and defendants' right to object thereto. An agreement in principle has been reached in the Shareholder Litigation which contemplates that counsel for all plaintiffs will receive from Energy a portion of the fees and expenses claimed. The parties have agreed to provide notice to affected shareholders of a hearing during which the order on the fees and expenses will be considered by the District Court. Pending such order, the agreed upon fees and expenses will be deposited into an interest-bearing escrow account.
Fuel Litigation
(a) Amax Coal Company Energy has initiated several arbitration proceedings to resolve disputes, including disputes related to price and coal quality, which have arisen under long-term coal supply agreements between Amax Coal Company (Amax) and Energy. In October 1994, Energy and Amax entered into an interim agreement, effective through 1996, which provides, in part, that the price pursuant to the 3.6 million ton per year Wabash Mine long-term contract will remain fixed through 1995. During 1996, the price may be reduced as a result of arbitration, but it may not be increased. In addition, the parties agreed to waive all rights to recover damages or other amounts based upon the parties' claims against each other for past periods. Accordingly, the interim agreement eliminated any liability on the part of Energy to Amax's claims through 1995. The interim agreement also provides that the parties will arbitrate any remaining disputes during 1995. Such arbitration decisions will serve to establish various rights and obligations of the parties, and the price beginning in 1996.
(b) Exxon Corporation Energy was involved in litigation with Exxon Coal USA, Inc. and Exxon Corporation (Exxon) regarding the price for coal delivered under a coal supply contract. In June 1994, the United States Supreme Court denied Energy's request for review of a ruling by the United States Court of Appeals for the Seventh Circuit, which established the contract price at $30 per ton and reversed the trial court's decision holding that the price should be $23.266 per ton. The IURC has authorized Energy to recover the additional cost through the fuel adjustment clause process. In addition, in August 1994, Energy announced that it had resolved the two remaining lawsuits with Exxon related to coal quality, price and price components, and Exxon's claims against Energy for Energy's failure to take coal after Energy terminated its contract pursuant to a December 1992 court decision. This August 1994 settlement concluded all outstanding litigation between Energy and Exxon with no significant effect on Energy's financial condition.
In addition to the above litigation, see Notes 2 and 16(b), 16(c), 16(d), and 16(e) of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and Supplementary Data".
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT (at February 28, 1995)
Age at Dec. 31, Name 1994 Office & Date Elected or in Job
Jackson H. Randolph 64 Chairman and Chief Executive Officer of CINergy, CG&E, and Energy - 1994 Chairman, President and Chief Executive Officer of CG&E - 1993 President and Chief Executive Officer of CG&E - 1986
James E. Rogers 47 Vice Chairman, President and Chief Operating Officer of CINergy - 1994 Vice Chairman and Chief Operating Officer of CG&E and Energy - 1994 Chairman and Chief Executive Officer of Resources - 1993 Chairman, President and Chief Executive Officer of Energy - 1990 Chairman, President and Chief Executive Officer of Resources - 1988 Chairman and Chief Executive Officer of Energy - 1988
Terry E. Bruck 49 Group Vice President, Wholesale Power and Transmission Operations of CG&E - 1995 Group Vice President, Wholesale Power and Transmission Operations of CINergy - 1994 Vice President, Electric Operations of CG&E - 1988
Cheryl M. Foley 47 Vice President, General Counsel and Corporate Secretary of CG&E - 1995 Vice President, General Counsel and Corporate Secretary of CINergy - 1994 Vice President, General Counsel and Secretary of Resources and Energy - 1991 Vice President and General Counsel of Resources - 1990 Vice President and General Counsel of Energy - 1989
William J. Grealis 1/ 49 Vice President of CINergy - 1995 President, Gas Business Unit of CG&E - 1995 President of Investments - 1995 Partner - Akin, Gump, Strauss, Hauer & Feld - 1978 2/
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Age at Dec. 31, Name 1994 Office & Date Elected or in Job
J. Wayne Leonard 44 Group Vice President and Chief Financial Officer of CG&E - 1995 Group Vice President and Chief Financial Officer of CINergy - 1994 Senior Vice President and Chief Financial Officer of Resources and Energy - 1992 Vice President and Chief Financial Officer of Resources and Energy - 1989
John M. Mutz 3/ 59 Vice President of CINergy - 1995 4/ President of Energy - 1994 President of Resources - 1993 President - Lilly Endowment, Inc. 2/ - 1989
Stephen G. Salay 57 Group Vice President, Power Operations of CG&E - 1995 Group Vice President, Power Operations of CINergy - 1994 Vice President, Electric Production and Fuel Supply of CG&E - 1988
William L. Sheafer 51 Treasurer of CINergy and Energy - 1994 Treasurer of CG&E - 1987
George H. Stinson 49 Vice President of CINergy - 1995 4/ President of CG&E - 1994 Vice President, Gas Operations of CG&E - 1991 Manager, Gas Operations of CG&E - 1990 Manager, CG&E's Miami Fort Station - 1980
Larry E. Thomas 49 Group Vice President, Reengineering and Operations Services of CG&E - 1995 Group Vice President, Reengineering and Operations Services of CINergy - 1994 Senior Vice President and Chief Operations Officer of Energy - 1992 Senior Vice President and Chief Operating Officer, Customer Operations of Energy - Senior Vice President, Customer Operations of Energy - 1986
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Age at Dec. 31, Name 1994 Office & Date Elected or in Job
Charles J. Winger 49 Comptroller of CG&E - 1995 Comptroller of CINergy - 1994 Comptroller of Resources - 1988 Comptroller of Energy - 1984
Under the Amended and Restated Agreement and Plan of Reorganization (the Merger Agreement) by and among CG&E, Resources, Energy, and CINergy, a Delaware corporation, dated as of December 11, 1992, as amended on July 2, 1993, and as of September 10, 1993, Jackson H. Randolph will be entitled to serve as Chairman and Chief Executive Officer (CEO) of CINergy until November 30, 1995, and Chairman of CINergy until November 30, 2000. James E. Rogers will be entitled to serve as Vice Chairman, President and Chief Operating Officer of CINergy until November 30, 1995, at which time he will be entitled to serve as Vice Chairman, President and CEO.
None of the officers are related in any manner. Executive officers of CINergy are elected to the offices set opposite their respective names until the next annual meeting of the Board of Directors and until their successors shall have been duly elected and shall have been qualified.
1/ Prior to becoming President of Investments, Mr. Grealis was a partner in the Washington, D.C. law firm of Akin, Gump, Strauss, Hauer & Feld. In addition, prior to the merger, Mr. Grealis was President of PSI Investments, Inc. on an interim basis beginning in 1992.
2/ Non-affiliates of CINergy.
3/ Prior to becoming President of Resources, Mr. Mutz was president of Lilly Endowment, Inc., a private philanthropic foundation located in Indianapolis, Indiana, and also served two terms as lieutenant governor of Indiana.
4/ Mr. Mutz and Mr. Stinson were elected Vice Presidents of CINergy effective March 3, 1995.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 6, 1995, CINergy's most recent dividend record date, there were 85,305 common shareholders of record.
Trading of CG&E's and Resources' common stock ended at the close of the market October 24, 1994. Trading of CINergy's common stock began upon the opening of the market October 25, 1994. The following table shows the high and low sales prices of CG&E's, Resources', and CINergy's common stock and the dividends declared per share by each company for the past two years:
High Low Dividend (a) 1994 1993 1994 1993 1994 1993 CG&E 4th Quarter $23 3/8 $29 5/8 $21 7/8 $26 1/8 $.3272 $.43 3rd Quarter 23 1/4 29 20 7/8 27 1/8 .43 .415 2nd Quarter 23 7/8 27 3/4 21 24 1/4 .43 .415 1st Quarter 27 3/4 27 23 5/8 23 7/8 .43 .415
Resources 4th Quarter 23 1/2 27 22 24 1/2 .1805 .31 3rd Quarter 23 1/8 26 1/4 20 3/4 23 1/2 .31 .28 2nd Quarter 23 1/8 24 1/4 19 5/8 21 5/8 .31 .28 1st Quarter 26 5/8 24 1/2 22 3/4 19 1/2 .31 .28
CINergy 4th Quarter 24 - 20 3/4 - .1028 -
(a) The prorated fourth quarter dividends for CG&E and Resources were determined by multiplying that portion of each company's regular dividend by a fraction equal to the number of days from their last respective common dividend payment dates (August 15, 1994, for CG&E, September 1, 1994, for Resources) to and including the closing date of the merger, divided by the number of days in the quarterly period for each respective company (92 for CG&E, 91 for Resources). These respective prorated dividends were in addition to, but paid separately from, the partial CINergy common stock dividend, which was determined by prorating CINergy's 43 cents per share quarterly dividend for the remainder of the quarter ending November 15, 1994.
Future increases in CINergy's common dividend will continue to be influenced by the financial conditions of CG&E and Energy.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
See "Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MERGER CONSUMMATION
CINergy Corp. (CINergy or Company) was created for the October 1994 merger of The Cincinnati Gas & Electric Company (CG&E) and PSI Resources, Inc. (Resources) and is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). The business combination was accounted for as a pooling of interests. Each outstanding share of common stock of Resources and CG&E was exchanged for 1.023 shares and one share, respectively, of CINergy common stock. Following the merger, CINergy became the parent holding company of CG&E and PSI Energy, Inc. (Energy), previously Resources' utility subsidiary. The outstanding preferred stock and debt securities of Energy, CG&E, and CG&E's utility subsidiaries were not affected by the merger.
FINANCIAL CONDITION
Competitive Pressures
Electric Utility Industry
Introduction The primary factor influencing the future profitability of CINergy is the changing competitive environment for energy services and the related commoditization of electric power markets. Changes in the industry include more competition in wholesale power markets and the imminent likelihood of "customer choice" by large industrial customers and, ultimately, by all retail customers. For an electric utility to be successful in this competitive environment, it is critical that regulatory reform keep pace with the competitive realities facing electric utilities and their customers. Strict adherence to traditional, cost-based rate of return regulation will significantly disadvantage a utility's ability to successfully compete to supply customer needs. For example, performance-based regulation (e.g., price caps) would likely add substantial flexibility for the franchise utility in the transition to a fully competitive environment.
Pressures for "Customer Choice" The granting of choice to end-user customers, commonly referred to as retail wheeling, would allow a customer within a particular utility's service territory to buy power directly from another source using the power lines of the local utility for delivery. The regulatory and legislative reform to facilitate this result is primarily driven by large industrial energy users' needs for low-cost power to remain competitive in the global marketplace. These industrial customers are intensifying their efforts to change the regulatory process that currently denies them access to lower-cost power. The current restrictions on access to low-cost power are exacerbated by cost-of-service regulation which has produced average industrial rates to customers that vary substantially across the United States (from approximately 3 cents per kilowatt-hour [kwh] to 10 cents per kwh).
Federal Law, the New Competitors, and the Commoditization of Electric Power Markets The Energy Policy Act of 1992 (Energy Act), the most comprehensive energy legislation enacted since the late 1970s, has essentially provided for open competition at the wholesale level. The Energy Act created a new class of wholesale power providers, exempt wholesale generators (EWGs), that are not subject to the restrictive requirements of the PUHCA nor the ownership restrictions of the Public Utility Regulatory Policies Act of 1978. However, due to excess capacity in the industry, EWGs have not yet significantly affected competition in the wholesale power market. To date, the primary impetus for increased wholesale competition has been the provision of the Energy Act that granted the Federal Energy Regulatory Commission (FERC) the authority to order wholesale transmission access. This provision, combined with the excess capacity in the bulk-power markets, has resulted in the emergence of power marketers and brokers.
Brokers are intermediaries between buyers and sellers (i.e., they do not take title to the power). Power marketers are entities licensed by the FERC to conduct bulk power trades at market-based prices. They manage portfolios of power contracts (which they have title to) and owned generation and package energy products for customers of bulk power, including price risk management contracts such as options on fixed price energy or guaranteed fixed price contracts.
As regulatory issues such as transmission pricing are resolved, power marketers and brokers will become more significant factors in wholesale power markets and, ultimately, the retail markets. With respect to transmission pricing, the FERC recently issued a policy statement indicating its intent to allow flexibility in pricing, permitting parties to submit either traditional, cost-based plans or pricing schemes based on non-traditional designs. The transmission pricing policy enumerates five principles that the FERC will consider in approving future proposals, including cost-based rates, adherence to the FERC's comparability standard, economic efficiency, fairness, and practicality.
States' Role in Customer Choice (Retail Wheeling) As discussed above, the Energy Act allows real competition in the wholesale power market; however, it prohibits the FERC from ordering utilities to provide transmission access to retail customers (retail wheeling) and is silent with respect to the states' role and authority in this issue.
Several states are currently reviewing retail wheeling proposals. In particular, the California Public Utilities Commission proposed a plan in 1994 that would allow all customers to choose their electric supplier by the year 2002. However, it is currently anticipated that implementation of this proposal could be substantially delayed due to the complex issues involved (e.g., exclusive use of a power pool run by an impartial third party vs. bilateral contract arrangements). In addition to California, Michigan regulators have proposed a limited retail wheeling experiment, and Wisconsin regulators are reviewing numerous proposals for restructuring that state's electric supply and related services. Connecticut regulators, on the other hand, recently decided to delay consideration of retail wheeling until new capacity is needed in the state (approximately the year 2007).
A significant issue for states and utilities to resolve with respect to retail wheeling is the regulatory treatment of any stranded investments, or costs without a customer. California's proposal and a recent proposal by the FERC contain mechanisms for recovery by the franchise utility of certain sunk costs or investments "stranded" by the loss of the monopoly franchise; however, there are numerous arguments being advanced against the collection of stranded costs. For example, there are concerns that an efficient competitive market cannot exist if regulators allow recovery in the future of all uncollected past costs. Given that the most severe electric competition is expected to be in the commodity sector, stranded costs are usually considered uneconomical generating property. In addition, stranded costs could include assets created by the actions of regulators (i.e., regulatory assets) under the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71), or operating costs such as fuel supply contracts. The substantial accounting implications from the loss of franchise territory and related regulatory protections are discussed further herein.
CINergy's Response to the Changing Competitive Environment CINergy supports increased competition in the electric utility industry. In fact, the foresight that competition was about to substantially increase and that retail wheeling was inevitable was a catalyst for the merger (which was announced in 1992). CINergy possesses certain competitive advantages (e.g., low-cost generation) that could be substantially eroded by restrictive regulations that lag the development of a competitive market and limit the Company's ability to preempt the competition in responding to customer needs. As such, CINergy has chosen to initiate the retail wheeling debate and be a leader in establishing the "ground rules" in its franchise area.
Energy recently announced its plans to offer its larger industrial customers some form of retail wheeling in Indiana. Energy plans to submit a proposal that would permit certain customers to choose their electric supplier. In return, Energy would require some form of reciprocal arrangement (i.e., the opportunity to similarly compete for customers of the selected supplier). Under this proposal, Energy would be free to negotiate specific contracts with customers who choose to give up the protection of the franchise obligation to serve. Energy intends for these contractual relationships to satisfy customer needs, while at the same time provide an appropriate risk-return relationship for investors. In addition to the above proposal, Energy, along with other Indiana utilities, proposed legislation in 1995 that would allow the Indiana Utility Regulatory Commission (IURC) to adopt alternative regulatory schemes such as performance-based regulation and the use of more flexible pricing mechanisms. Energy is also participating in a series of informal conferences sponsored by the IURC to discuss the consequences of competition and appropriate responses thereto.
With respect to Ohio, a retail wheeling bill was introduced in early 1994 that would have given customers the ability to purchase power from their provider of choice and would have required utilities to provide access to their transmission lines for delivery of the electric service. No action was taken on the bill in 1994; however, similar legislation may be introduced in 1995. CG&E is also participating in roundtable discussions being held by the Public Utilities Commission of Ohio (PUCO) to more fully consider the emerging competitive environment.
CINergy will continue to aggressively pursue any legislative or regulatory reforms necessary to provide the opportunity for its success in a competitive environment.
CINergy's Competitive Position As stand-alone companies, CG&E and Energy were well positioned to succeed in a more competitive environment -- as a combined organization, CINergy believes it is even better positioned to compete in such an environment. The merger (1) combines two low-cost providers, resulting in savings in nominal dollars of approximately $1.5 billion over the first 10 years; (2) enhances the companies' transmission capabilities; (3) diversifies the customer base; and (4) creates a financially stronger company -- all of which improve an already competitively strong position. CINergy's strategy will be to aggressively build on its cost advantage by continually focusing on flexible strategies that are directed toward reducing the cost structure and shifting the cost mix from fixed to variable. CG&E and Energy have industrial rates that are below the national average (based on 1993 data) and own generating plants that are consistently ranked among the most efficient in the country.
CINergy believes its low-cost position and strategic initiatives will allow it to maintain, and perhaps expand, its wholesale market share and its current base of industrial customers. Recent successes in these markets include Energy's 10-year agreement to serve the power needs of Blue Ridge Power Agency, a group of municipal utilities organized in Virginia, and CG&E's 14- year agreement to provide power to a municipal utility serving a portion of Cleveland, Ohio. Also, CG&E's and Energy's low industrial rates have produced regional leadership over the last five years (1989 through 1993) with respect to growth in industrial kwh sales.
In addition, CINergy intends to aggressively pursue the substantial opportunities that exist in the electricity markets for power marketing and brokering. These opportunities are being created by the increasing commoditization of electricity. CINergy believes that the ability to identify and manage various business risks and innovative packaging of power supply services and products based upon superior acquisition and analysis of information will be key factors that will ensure successful participation in these markets. CINergy's strategy for success in this business is to leverage the Company's understanding of customer needs and the intricacies of operating in power markets with new skills and expertise of operating in commodity markets that are being developed and selectively acquired from outside the industry.
Outsiders' View of CINergy's Competitive Position Major credit rating agencies have issued reports recognizing the increased risk in the electric utility industry due to competition. Specifically, in conjunction with fundamentally changing the way it evaluates the credit quality of electric utilities, Standard & Poor's has categorized each electric utility's business position in one of seven categories ranging from "Above Average" to "Below Average". As a result, Standard & Poor's placed Energy in the second highest category, "Somewhat Above Average", and CG&E in the third highest category, "High Average". In addition, Moody's recently issued a credit report stating its belief that Energy is well positioned to compete in a more competitive environment. At the same time, certain sell-side equity analysts have placed CINergy near the top of their lists of those best equipped to handle increasing competitive pressures. CINergy believes these actions support its position that its competitive strategy will be successful.
With respect to accessing financial markets for capital needs, U.S. utilities must compete for capital in world markets where some forecasts indicate that as much as $250 billion will be needed by the year 2000 for state-owned electricity privatization. These forecasts enforce CINergy's belief that regulatory reform establishing a market structure for utilities similar to that already existing in other countries is critical in order to successfully compete for not only customers, but also capital.
Despite the numerous published reports discussing the increased business risk that investors face from deregulation of the electric utility industry, the 1994 decline in electric utility stocks, taken as a whole, can be substantially attributed to historical relationships of common stock prices to changes in interest rates. Therefore, electric utility stocks could see additional pressures to reflect the increased fundamental business risk as markets become more workably competitive, particularly, without regulatory recognition through higher allowed returns and increased flexibility (e.g., price caps) in order to compete. On the other hand, there is an increasingly large disparity between the fundamental valuation measures (e.g., yield, market-to-book ratio) of low-cost producers, like CINergy, and high-cost producers. For example, it should be noted that the merger of Resources and CG&E combined two utilities whose common stocks have outperformed the industry average for the five-year period 1990 through 1994.
Gas Utility Industry
Customer Choice Energy's retail wheeling proposal discussed above is consistent with a recent step taken by CG&E to extend a program to its natural gas customers that is the equivalent of electric retail wheeling. For several years, large-volume commercial and industrial customers in Ohio and Kentucky have been able to purchase natural gas directly from suppliers and have it transported by CG&E or The Union Light, Heat and Power Company (ULH&P). In September 1994, CG&E implemented a new firm transportation service which allows all non-residential customers of CG&E to purchase gas directly from suppliers, up to approximately 5% of CG&E's peak load. The suppliers assume the risk and obligation associated with supplying the contractual volumes, while CG&E retains responsibility for delivering the gas through its distribution system. This new service affords commercial and industrial customers greater choice in competitively contracting for their energy requirements.
Order 636 In April 1992, the FERC issued Order 636, which restructured operations between interstate gas pipelines and their customers for gas sales and transportation services. Order 636 mandated changes to the way CG&E and ULH&P purchase gas supplies and contract for transportation and storage services, resulting in increased risks in meeting the gas demands of their customers.
CG&E and ULH&P are responding to the supply risks and opportunities of Order 636 by introducing innovations to their supply strategy including contracting with major southwest producers for firm gas supply agreements with flexible, extremely market sensitive pricing, marketing short-term unused pipeline capacity and storage gas to other companies throughout the country through use of electronic bulletin boards, and restructuring their allotment of interstate pipeline capacity among delivering pipelines.
Order 636 also allowed pipelines to recover transition costs they incurred in complying with the order from customers, including CG&E and ULH&P. In July 1994, the PUCO issued an order approving a stipulation between CG&E and its domestic and industrial customer groups providing for recovery of these pipeline transition costs. CG&E is presently recovering its Order 636 transition costs pursuant to a PUCO approved tariff. ULH&P recovers such costs through its gas cost recovery mechanism.
Substantial Accounting Implications
A potential outcome of the changing competitive environment could be the inability of regulated utilities to continue application of Statement 71, the linchpin of regulated industry accounting, which allows the deferral of costs (i.e., regulatory assets) to future periods based on assurances of a regulator as to the recoverability of the costs in rates charged to customers. In connection with assessing the financial exposure related to stranded costs, regulatory assets would have to be evaluated to determine the portion for which deferral could be continued based on the existence of the necessary regulatory assurances.
Although CINergy's current regulatory orders and regulatory environment fully support the recognition of its regulatory assets, the ultimate outcome of the changing competitive environment could result in CINergy discontinuing application of Statement 71 for all or part of its business. Such an event would require the write-off of the portion of any regulatory asset for which no regulatory assurance of recovery continues to exist. No evidence currently exists that would support a write-off of any portion of CINergy's regulatory assets. CINergy intends to pursue competitive strategies that would mitigate the impact of this issue on the financial condition of the Company (see Note 1(c) of the "Notes to Consolidated Financial Statements" in "Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of CINergy Corp.:
We have audited the consolidated balance sheets and schedules of cumulative preferred stock of subsidiaries and long-term debt of CINERGY CORP. (a Delaware Corporation) and its subsidiary companies as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in common stock equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CINergy Corp. and subsidiary companies as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Notes 11 and 15 to the consolidated financial statements, the Company changed its methods of accounting for postretirement health care benefits and income taxes effective January 1, 1993.
As more fully discussed in Note 16 to the consolidated financial statements, Wabash Valley Power Association, Inc. (WVPA) filed suit in 1984 against PSI Energy, Inc. (Energy), a subsidiary of CINergy Corp., for $478 million plus interest and other damages to recover its share of Marble Hill Nuclear Project costs. Energy and its officers reached a settlement with WVPA in 1989 that is subject to approval of judicial and regulatory authorities and has recorded an estimated loss related to the litigation. The eventual outcome of this litigation cannot presently be determined.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules listed in Item 14 are presented for purposes of complying with the Securities and Exchange Commission's Rules and Regulations under the Securities Exchange Act of 1934 and are not a required part of the basic financial statements. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP Cincinnati, Ohio, January 23, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Merger On October 24, 1994, PSI Resources, Inc. (Resources) was merged with and into CINergy Corp. (CINergy or Company), and a subsidiary of CINergy was merged with and into The Cincinnati Gas & Electric Company (CG&E). Each outstanding share of common stock of Resources and CG&E was exchanged for 1.023 shares and one share, respectively, of CINergy common stock, resulting in the issuance of approximately 148 million shares of CINergy common stock, par value $.01 per share. The outstanding preferred stock and debt securities of CG&E, its utility subsidiaries, and PSI Energy, Inc. (Energy), previously Resources' utility subsidiary, were not affected by the merger. Following the merger, CINergy became the parent holding company of CG&E and Energy. The merger was accounted for as a pooling of interests, and the Consolidated Financial Statements, along with the related notes, are presented as if the merger was consummated as of the beginning of the earliest period presented. Due to immateriality, no adjustments were made to conform the accounting policies of the two companies.
Resources' and CG&E's consolidated operating revenues and net income for the nine months ended September 30, 1994, and each of the two years ended December 31, 1993, and 1992, were as follows:
(i) See Note 2(b) for information on the write-off of a portion of Wm. H. Zimmer Generating Station (Zimmer).
(b) Consolidation Policy The accompanying Consolidated Financial Statements include the accounts of CINergy and its subsidiaries after elimination of significant intercompany transactions and balances.
(c) Regulation CINergy, its utility subsidiaries (CG&E, together with its subsidiaries, and Energy), and certain of its non-utility subsidiaries are subject to regulation by the Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935 (PUHCA). CINergy's utility subsidiaries are also subject to regulation by the Federal Energy Regulatory Commission (FERC) and the state utility commissions of Indiana, Ohio, and Kentucky. The accounting policies of CINergy's utility subsidiaries conform to the accounting requirements and ratemaking practices of these regulatory authorities and to generally accepted accounting principles, including the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71).
Regulatory assets represent probable future revenue to CINergy's utility subsidiaries associated with deferred costs to be recovered from customers through the ratemaking process. The following regulatory assets of Energy and CG&E and its utility subsidiaries are reflected in the Consolidated Balance Sheets as of December 31:
In February 1995, the Indiana Utility Regulatory Commission (IURC) issued an order (February 1995 Order) which approved a rate settlement agreement among Energy and certain intervenors (see Note 2(a)(ii)). This order, together with previous regulatory orders, provides for recovery of $153 million of Energy's regulatory assets as of December 31, 1994. In addition, testimony to be filed in 1995 in connection with Energy's July 1994 retail rate petition will include a request for additional recovery of regulatory assets, including approximately $100 million of the balance at December 31, 1994.
CG&E currently has regulatory orders in effect which provide for the recovery of $704 million of its regulatory assets as of December 31, 1994, and will request recovery of the remaining amounts in its next rate proceedings in each applicable jurisdiction.
See Note 1(g), (h), (i), (j), and (l) for additional information regarding phase-in deferred return and depreciation, post-in-service carrying costs and deferred operating expenses, deferred DSM costs, amounts due from customers - income taxes, and costs of reacquiring debt, respectively. For additional information regarding deferred merger costs, postretirement benefit costs, and 1992 workforce reduction costs, see Notes 2(a)(ii), 2(b), 11, and 12.
Although CINergy's current regulatory orders and regulatory environment fully support the recognition of these regulatory assets, the ultimate outcome of the changing competitive environment discussed in the "Competitive Pressures" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" could result in CINergy discontinuing application of Statement 71 for all or part of its business. Such an event would require the write-off of the portion of any regulatory asset for which no regulatory assurance of recovery continues to exist. No evidence currently exists that would support a write-off of any portion of CINergy's regulatory assets. CINergy intends to pursue competitive strategies that would mitigate the impact of this issue on the financial condition of the Company.
(d) Utility Plant Utility plant is stated at the original cost of construction, which includes an allowance for funds used during construction (AFUDC) and a proportionate share of overhead costs. Construction overhead costs include salaries, payroll taxes, fringe benefits, and other expenses.
Substantially all utility plant is subject to the lien of each applicable company's first mortgage bond indenture.
(e) AFUDC 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". For CINergy's utility subsidiaries, AFUDC accrual rates averaged 6.9% in 1994, 9.2% in 1993, and 9.5% in 1992, and are compounded semi- annually.
(f) Depreciation and Maintenance Provisions for depreciation are determined by using the straight-line method applied to the cost of depreciable plant in service. The rates are based on periodic studies of the estimated service lives and net cost of removal of the properties. The depreciation rates for utility plant during each of the following three years were:
1994 1993 1992
Electric - Energy . . . . . . . 3.8% 3.8% 3.8% Electric - CG&E and its utility subsidiaries. . . . . 2.9 2.9 2.9 Gas - CG&E and its utility subsidiaries. . . . . 2.8 2.7 2.6 Common - CG&E and its utility subsidiaries. . . . . 3.4 3.3 3.1
In May 1992, the Public Utilities Commission of Ohio (PUCO) issued an order (May 1992 Order) which authorized changes in depreciation accrual rates on CG&E's electric and common plant. The changes resulted in an annual decrease in depreciation expense of about $9 million. In accordance with the IURC's February 1995 Order discussed further herein, Energy's annual depreciation expense will decrease by approximately $30 million.
For CINergy's operating 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.
(g) Phase-in Deferred Return and Depreciation In the May 1992 Order, the PUCO authorized CG&E to begin recovering the cost of Zimmer through an increase in electric revenues of $116.4 million to be phased in over a three-year period under a plan that met the requirements of Statement of Financial Accounting Standards No. 92, Regulated Enterprises - Accounting for Phase-in Plans. The phase-in plan was designed so that the three rate increases would provide revenues sufficient to recover all operating expenses and provide a fair rate of return on plant investment. In the first three years of the phase-in plan, rates charged to customers did not fully recover depreciation expense and return on shareholders' investment. This deficiency has been deferred on the Consolidated Balance Sheets and will be recovered over a seven-year period beginning in May 1995, at which point the revenue levels authorized pursuant to the phase-in plan are designed to be sufficient to recover annual operating expenses, a fair return on the unrecovered investment, and annual amortization of the deferred depreciation and deferred return recorded during the first three years of the plan.
(h) Post-in-service Carrying Costs and Deferred Operating Expenses In accordance with a March 1991 order by the PUCO, CG&E capitalized carrying costs for Zimmer from the time it was placed in service in March 1991 until the effective date of new rates authorized by the PUCO's May 1992 Order which reflected Zimmer. CG&E began recovering these carrying costs over the useful life of Zimmer in accordance with a stipulation approved by the PUCO in August 1993 (August 1993 Order) (see Note 2(b)).
Effective in January 1992, the PUCO authorized CG&E to defer Zimmer depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes which were not being recovered in rates charged to customers. The PUCO also authorized CG&E to accrue carrying costs on the deferred expenses. In its May 1992 Order, the PUCO authorized CG&E to begin recovering these deferred expenses and associated carrying costs over a 10-year period.
In May 1992, the first three units at CG&E's Woodsdale Generating Station (Woodsdale) began commercial operation, and, in July 1992, two additional units were declared operational. In accordance with an October 1992 order issued by the PUCO, CG&E deferred carrying costs on the first five units at Woodsdale and deferred depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes from the time these units were placed in service until the effective date of new rates approved in the August 1993 Order which reflected the Woodsdale units. CG&E began recovering the carrying costs over the useful life of Woodsdale and the deferred expenses over a 10-year period in accordance with the August 1993 Order (see Note 2(b)).
In January 1993, Energy received authority from the IURC to continue accrual of the debt component of AFUDC and to defer depreciation expense on the combustion turbine generating unit constructed at its Cayuga Generating Station and major environmental compliance projects from the date the projects are placed in service until the effective date of an order in a general retail rate proceeding. The February 1995 Order authorizes Energy to begin recovering amounts deferred as of May 31, 1994 ($9 million), for AFUDC continuation and July 31, 1993 ($1 million), for depreciation expense over the remaining lives of the related utility plant. Additionally, the February 1995 Order authorizes Energy to continue deferral of the applicable AFUDC and depreciation recorded after the above cut-off dates through February 1995, for subsequent recovery in an IURC order associated with Energy's July 1994 retail rate petition which is currently pending before the IURC. The February 1995 Order also authorizes Energy to continue the accrual of the debt component of AFUDC and to defer depreciation expenses on two major environmental projects from the date the projects are placed in service until the projects' costs are reflected in retail electric rates.
(i) DSM Costs Energy is authorized by the February 1995 Order to amortize and recover DSM expenditures deferred through July 1993 ($35 million), together with carrying costs, over a five-year period. Deferred DSM expenditures as of February 1995, which are not included for recovery in the February 1995 Order, will continue to be deferred, with carrying costs, for recovery in subsequent rate proceedings. In addition, base rates will include recovery of $23 million of DSM expenditures on an annual basis. Future deferral of DSM expenditures will be the amount by which actual annual expenditures exceed the base level of $23 million. If DSM expenditures in any calendar year are less than the $23 million in base rates, the unamortized balance of deferred DSM expenditures would be reduced by such difference.
In the August 1993 Order, CG&E was authorized to recover approximately $5 million of costs associated with DSM programs for domestic customers. The PUCO has also permitted CG&E to defer future expenditures of approved DSM programs with carrying costs for future recovery. In addition, CG&E has applications pending for approval by the PUCO for deferral of the costs of additional DSM programs.
(j) Federal and State Income Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities. Investment tax credits utilized to reduce Federal income taxes payable have been deferred for financial reporting purposes and are being amortized over the useful lives of the property which gave rise to such credits.
Income tax provisions reflected in customer rates are regulated by the various regulatory commissions overseeing the regulated business operations of Energy, CG&E, and CG&E's utility subsidiaries. To the extent deferred income taxes are not reflected in rates charged to customers, income taxes payable in future years are recoverable from customers as paid. These amounts are reflected in the accompanying Consolidated Financial Statements as a regulatory asset on the basis of their probable recovery in future periods.
(k) Operating Revenues and Fuel Costs
(i) Energy Energy recognizes revenues for electric service rendered during the month, which includes revenues for sales unbilled at the end of each month. Revenues reflect fuel cost charges based on the actual costs of fuel. Fuel cost charges applicable to all of Energy's metered kilowatt-hour sales are included in customer billings based on the estimated costs of fuel. Customer bills are adjusted in subsequent months to reflect the difference between actual and estimated costs of fuel. Indiana law subjects the recovery of fuel costs to a determination that such recovery will not result in earning a return in excess of that allowed by the IURC in its last general rate order.
(ii) CG&E CG&E and its utility subsidiaries recognize revenues for electric and gas service rendered during the month, which includes revenues for sales unbilled at the end of each month. CG&E and its Kentucky subsidiary, The Union Light, Heat and Power Company (ULH&P), expense the costs of electricity and gas purchased and the cost of fuel used in electric production as recovered through revenues and defer the portion of these costs recoverable or refundable in future periods.
(l) Debt Discount, Premium, and Issuance Expense and Costs of Reacquiring Debt Debt discount, premium, and issuance expense on Energy's, CG&E's, and CG&E's utility subsidiaries' outstanding long-term debt are amortized over the lives of the respective issues.
In accordance with established ratemaking practices, CINergy's utility subsidiaries are deferring costs (principally call premiums) from the reacquisition of long-term debt and are amortizing such amounts over periods ranging from one year to 18 years.
(m) Order 636 In April 1992, the FERC issued Order 636, which restructured operations between interstate gas pipelines and their customers for gas sales and transportation services. Order 636 also allowed pipelines to recover transition costs they incurred in complying with the order from customers, including CG&E and ULH&P. In July 1994, the PUCO issued an order approving a stipulation between CG&E and its domestic and industrial customer groups providing for recovery of these pipeline transition costs. CG&E presently is recovering its Order 636 transition costs pursuant to a PUCO approved tariff. ULH&P recovers such costs through its gas cost recovery mechanism. These costs are deferred as incurred by CG&E and ULH&P and amortized as recovered from customers.
(n) Consolidated Statements of Cash Flows All temporary cash investments with maturities of three months or less, when acquired, are reported as cash equivalents. CINergy and its subsidiaries had no material non-cash investing or financing transactions during the years 1992 through 1994.
2. Rates
(a) Energy
(i) Settlement Agreement - IURC's June 1987 and April 1990 Orders In December 1993, the IURC issued an order (December 1993 Order) approving a settlement agreement entered into by Energy, the appellants, and certain other intervenors which resolved the outstanding issues related to the appeals of the IURC's April 1990 retail rate order (April 1990 Order) and the IURC's June 1987 tax order (June 1987 Order). The December 1993 Order provided for Energy to refund $150 million to its retail customers ($119 million applicable to the June 1987 Order and $31 million applicable to the April 1990 Order). The December 1993 Order further provided for Energy to reduce its retail rates by 1.5% (approximately $13.5 million on an annual basis) to reflect a return on common equity of 14.25%. The refunds and rate reduction commenced in December 1993.
Energy had previously recognized a loss of $139 million for the June 1987 Order. The difference between the $139 million and the $119 million portion of the refund applicable to the June 1987 Order is reflected in the Consolidated Statement of Income for the year ended December 31, 1993, as a reduction of the loss. The $31 million portion of the refund applicable to the April 1990 Order is reflected in the Consolidated Statement of Income for the same period as a reduction in operating revenues.
(ii) February 1995 Order - Retail Rate Proceeding and Merger Savings Allocation Plan The IURC issued the February 1995 Order approving a settlement agreement entered into by Energy, the Office of the Utility Consumer Counselor, Citizens Action Coalition of Indiana, Inc., and the PSI- Industrial Group concerning Energy's petition for a $93 million retail rate increase ($103 million including carrying costs attributable to certain environmental expenditures not included in Energy's base retail electric rates) and Energy's previously filed plan for the allocation of its portion of merger savings between Energy's customers and CINergy's shareholders.
The February 1995 Order authorizes Energy to increase annual retail rates $33.6 million, effective February 1995. The increase excludes reductions for customer credits for non-fuel operation and maintenance expense merger savings (Non-fuel Merger Savings) and increases for carrying costs attributable to certain environmental expenditures not included in Energy's base retail electric rates, both of which are further discussed herein. The increase includes the recovery of the costs of postretirement benefits other than pensions on an accrual basis, the recovery of DSM expenditures, the recovery of a portion of amounts deferred for AFUDC continuation and depreciation expense, and the adoption of lower depreciation rates, which will reduce annual depreciation expense by approximately $30 million. This rate increase reflects an 11.9% return on common equity with an 8.25% overall rate of return on net original cost rate base.
Additionally, the February 1995 Order provides a mechanism to allocate Energy's share of net Non-fuel Merger Savings through December 31, 1997, between Energy's customers and CINergy's shareholders. CINergy currently anticipates that the estimated nominal merger savings of $1.5 billion will be apportioned approximately equally between CG&E and Energy. In essence, the mechanism guarantees Energy's customers 50% of Energy's portion of the projected net Non-fuel Merger Savings. Energy's customers will receive these merger savings via credits to base rates of $4.4 million in 1995, an additional $2.2 million in 1996, and an additional $2.4 million in 1997. After 1997, the accumulated credits will continue until the effective date of an order in an Energy general retail rate proceeding. Energy will have to achieve these levels of merger savings in order to realize the 11.9% return on equity. This arrangement for sharing of merger savings allows Energy to recover its portion of transaction costs (currently estimated at $27 million) and costs to achieve merger savings (currently estimated at $21 million) over a 10-year period.
The February 1995 Order also provides Energy with a financial incentive to achieve, or exceed, merger savings projections and enhance operating efficiencies by allowing Energy to earn up to a 13.25% return on common equity until the effective date of an order in connection with Energy's July 1994 retail rate petition, which is currently pending before the IURC. Energy expects an order in this proceeding in the second quarter of 1996. Upon the effective date of an order relating to the July 1994 retail rate petition, the February 1995 Order provides Energy an opportunity to earn an additional 100 basis points above the common equity return to be granted by the IURC in such rate proceeding until December 31, 1997. In order to be eligible for such additional earnings, Energy must meet certain service-related conditions. Any mechanism for sharing of merger savings after December 31, 1997, will be determined in subsequent regulatory proceedings.
Finally, the February 1995 Order includes ratemaking and accounting mechanisms to address regulatory lag. The February 1995 Order approves Energy's proposal for current recovery of carrying costs associated with environmental compliance projects and the applicable portion of the Wabash River Clean Coal Project (Clean Coal Project) not included in Energy's base retail electric rates. The Clean Coal Project, which is located at the Wabash River Generating Station, is a 262-megawatt clean coal power generating facility planned to be placed in service during the third quarter of 1995. The February 1995 Order also includes provisions for the deferral of certain operating costs associated with the Clean Coal Project, together with the debt component of carrying costs thereon, and continued accrual of the debt component of carrying costs (to the extent not reflected in rates currently) and deferral of depreciation expense on the Clean Coal Project and a scrubber at Gibson Generating Station (Gibson) until the projects' costs are fully reflected in retail electric rates.
(iii) July 1994 Retail Rate Petition In addition to the rate petition addressed in the February 1995 Order, Energy filed a petition in July 1994 with the IURC for a retail rate increase to recover, among other things, the costs of the Clean Coal Project and the scrubber at Gibson which was placed in service in September 1994. These two projects were previously approved by the IURC. Energy initially estimated a rate increase of 8%. Energy is currently evaluating how the rate settlement and the ability to earn a cash return during construction on certain projects, as previously discussed, will affect the estimated rate increase. Energy intends to file testimony supporting its rate increase request in May 1995 and, as previously discussed, anticipates an order in this proceeding in the second quarter of 1996. Energy cannot predict what action the IURC may take with respect to this proposed rate increase.
(b) CG&E
In its May 1992 Order authorizing the phase-in of Zimmer costs into customer rates, the PUCO disallowed from rates approximately $230 million, representing costs related to Zimmer for nuclear fuel, nuclear wind-down activities during the conversion to a coal-fired facility, and a portion of the AFUDC accrued on Zimmer.
Pursuant to an appeal by CG&E of the May 1992 Order, the Supreme Court of Ohio (Court) ruled in November 1993 (November 1993 Ruling) that the PUCO does not have the authority to order a phase-in of amounts granted in a rate proceeding and remanded the case to the PUCO to set rates that provide the gross annual revenues determined in accordance with Ohio statutes. However, the Court upheld the PUCO's disallowance of Zimmer costs, and, as a result, CG&E wrote off Zimmer costs of approximately $223 million, net of taxes, in the fourth quarter of 1993.
In April 1994, the PUCO issued an order approving a settlement agreement between CG&E, the PUCO Staff, the Ohio Office of Consumers' Counsel, and other intervenors which addressed the issues raised in the November 1993 Ruling. As part of the settlement, CG&E did not seek early implementation of the third phase of the authorized rate increase and will not seek accelerated recovery of deferrals related to the phase-in plan. These deferrals will be recovered over the remaining seven-year period as contemplated in the May 1992 Order. In addition, CG&E agreed to a moratorium on increases in base electric rates until January 1, 1999 (except under certain circumstances), and, in return, is allowed to retain all PUCO electric jurisdictional Non-fuel Merger Savings until 1999.
In the August 1993 Order, the PUCO authorized annual increases of approximately $41 million (5%) in electric revenues and $19 million (6%) in gas revenues that were effective immediately. The August 1993 Order precludes CG&E from increasing gas base rates prior to June 1, 1995, except for rate filings made under certain circumstances.
In 1994, CG&E expensed $32 million of merger transaction costs and costs to achieve merger savings applicable to its PUCO electric jurisdiction. The remaining merger-related costs allocable to PUCO electric jurisdictional customers will be expensed as incurred. CG&E and its utility subsidiaries intend to continue deferring the non-PUCO electric jurisdictional portion of merger transaction costs and costs to achieve merger savings (current estimate of $14 million) for future recovery in customer rates.
(c) ULH&P
In mid-1993, the Kentucky Public Service Commission (KPSC) issued orders authorizing ULH&P to increase annual gas revenues by $4.2 million.
In exchange for the KPSC's support of the merger, in May 1994, ULH&P accepted the KPSC's request for an electric rate moratorium commencing after ULH&P's next retail rate case and extending to January 1, 2000. The KPSC also required CG&E and ULH&P to agree that, for 12 months from consummation of the merger, no filings will be made to adjust CG&E's base purchase power rate charged to ULH&P or ULH&P's base electric rates.
3. Common Stock
The following table reflects the shares of CINergy common stock reserved for issuance at December 31, 1994, and issued in 1994, 1993, and 1992, for the stock-based plans, including previous plans of Resources and CG&E. Shares issued prior to merger consummation have been adjusted for Resources' merger conversion ratio of 1.023.
Shares Reserved at Shares Issued Dec. 31, 1994 1994 1993 1992
401(k) Savings Plans. . . . . . 7 691 752 1 458 631 1 152 096 1 193 926
Dividend Reinvestment and Stock Purchase Plan . . . . . 2 734 197 1 127 881 944 168 941 128
Directors' Deferred Compensation Plan . . . . . . 200 000 77 61 266 -
Performance Shares Plan* . . . 800 000 27 116 28 447 26 156
Employee Stock Purchase and Savings Plan. . . . . . . 1 933 394 140 039 244 129 528
Stock Option Plan . . . . . . . 5 000 000 25 575 139 026 -
*A long-term incentive compensation plan for certain participants designated by the Compensation Committee of CINergy's Board of Directors.
In addition to the issuances of common stock previously discussed, Resources issued 1,118,671 shares of common stock in 1993 to the trustee of its two Master Trust Agreements as required as a result of the announcement of the merger. Prior to consummation of the merger in October 1994, Resources issued an additional 16,518 shares to the trustee and distributed 98,400 shares (reflected in the above table as shares issued in 1994) to participants of certain benefit plans. As a result of the merger consummation, in December 1994, CINergy retired the remaining 1,036,789 shares held by the trustee.
In December 1994, CINergy publicly issued 7,089,000 shares of common stock under a shelf registration statement for the sale of up to eight million shares. In addition, upon consummation of the merger, CINergy awarded five shares of common stock to all non-officer employees for an additional issuance of 43,605 shares under this shelf registration statement.
4. Stock Option Plan
Resources' 1989 Stock Option Plan was merged into and made a part of CINergy's Stock Option Plan at merger consummation. Under CINergy's Stock Option Plan, incentive and non-qualified stock options and stock appreciation rights may be granted to key employees, officers, and outside directors. Common stock granted under the Stock Option Plan may not exceed five million shares. Options are granted at the fair market value of the shares on the date of grant, except that non-qualified stock options were granted to two executive officers under Resources' 1989 Stock Option Plan at an option price equal to 91% of the fair market value of the shares at the date of grant. Options vest over five years and have a purchase term of up to 10 years. All options granted prior to November 1993, but not previously vested, became vested upon approval of the merger by Resources' shareholders. No incentive stock options may be granted under the plan after October 24, 2004.
The Stock Option Plan activity for 1992, 1993, and 1994, adjusted for Resources' merger conversion ratio of 1.023, is summarized as follows:
Range of Shares Subject Option Prices to Option Per Share
Balance at December 31, 1991. . . . . . . . 1 212 129 $12.26 to 16.92 Options Granted . . . . . . . . . . . . . . 25 575 17.35 Options Cancelled . . . . . . . . . . . . . (51 150) 16.56
Balance at December 31, 1992. . . . . . . . 1 186 554 $12.26 to 17.35 Options Exercised . . . . . . . . . . . . . (139 026) 12.26 to 16.56
Balance at December 31, 1993. . . . . . . . 1 047 528 $12.50 to 17.35 Options Granted . . . . . . . . . . . . . . 1 387 500 22.88 Options Exercised . . . . . . . . . . . . . (25 575) 13.14 to 16.56
Balance at December 31, 1994. . . . . . . . 2 409 453 $12.50 to 22.88
Shares Reserved for Future Grants At December 31, 1992. . . . . . . . . . 1 368 263 At December 31, 1993. . . . . . . . . . 1 368 263 At December 31, 1994. . . . . . . . . . 2 590 547
In addition, 1,395,000 options were granted to various employees on January 24, 1995, at an option price of $24.31 per share. An additional 25,000 options were granted on February 6, 1995, at an option price of $24.625 per share.
No stock appreciation rights have been granted under this plan. The total options exercisable at December 31, 1994, 1993, and 1992, were 1,021,953, 1,047,528, and 731,343, respectively.
5. Common Stock of Subsidiaries
CINergy owns all of the common stock of CG&E and Energy. No common dividends can be paid by CG&E or Energy if dividends are in arrears on their preferred stock. The ability of CINergy to pay dividends to holders of CINergy common stock will depend on the ability of CG&E and Energy to pay common dividends to CINergy.
6. Preferred Stock of Subsidiaries
Changes in preferred stock outstanding during 1994, 1993, and 1992, were as follows:
Shares Issued Par (Retired) Value (dollars in thousands) Cumulative preferred stock Not subject to mandatory redemption Par value $100 per share Energy 3 1/2% Series. . . . . . . . . . . . . . (598) $ (60) CG&E 9.28 % Series. . . . . . . . . . . . . . (400 000) (40 000)
Cumulative preferred stock Not subject to mandatory redemption Par value $25 per share Energy 7.44 % Series. . . . . . . . . . . . . . 4 000 000 100 000 Par value $100 per share Energy 3 1/2% Series. . . . . . . . . . . . . . (237) (24) 8.52 % Series. . . . . . . . . . . . . . (211 190) (21 119) 8.38 % Series. . . . . . . . . . . . . . (162 520) (16 252) 8.96 % Series. . . . . . . . . . . . . . (216 900) (21 690) 6 7/8% Series. . . . . . . . . . . . . . 600 000 60 000
Cumulative preferred stock Not subject to mandatory redemption Par value $100 per share Energy 3 1/2% Series. . . . . . . . . . . . . . (10) (1) CG&E 9.52 % Series. . . . . . . . . . . . . . (450 000) (45 000) 9.30 % Series. . . . . . . . . . . . . . (350 000) (35 000) Subject to mandatory redemption Par value $100 per share Energy 13.25% Series. . . . . . . . . . . . . . (255 000) (25 500) CG&E 7 3/8% Series. . . . . . . . . . . . . . 800 000 80 000 10.20% Series. . . . . . . . . . . . . . (365 000) (36 500)
Currently, Energy can sell up to an additional $40 million of preferred stock under an effective shelf registration statement and IURC authority.
7. Preferred Stock of Subsidiary with Mandatory Redemption
CG&E's preferred stock redemption requirements for the next five years are $2.5 million in each of 1996 and 1997 and $6.5 million in each of 1998 and 1999.
CG&E's Cumulative Preferred Stock, 9.15% Series is subject to mandatory redemption each July 1, beginning in 1996, in an amount sufficient to retire 25,000 shares, and CG&E's 7 3/8% Series is subject to mandatory redemption each August 1, beginning in 1998, in an amount sufficient to retire 40,000 shares, each at $100 per share, plus accrued dividends. For both series, CG&E has the noncumulative option to redeem up to a like amount of additional shares in each year. CG&E has the option to satisfy the mandatory redemption requirements in whole or in part by crediting shares acquired by CG&E. To the extent CG&E does not satisfy its mandatory sinking fund obligation in any year, such obligation must be satisfied in the succeeding year or years. If CG&E is in arrears in the redemption pursuant to the mandatory sinking fund requirement, CG&E shall not purchase or otherwise acquire for value, or pay dividends on, common stock.
8. Long-term Debt
CINergy's long-term debt maturities, excluding sinking fund requirements, for the next five years are $60 million in 1995, $50 million in 1996, $140 million in 1997, $35 million in 1998, and $186 million in 1999.
The first mortgage bond indentures of both CG&E and ULH&P provide that so long as any series of bonds issued prior to 1976 and 1978, respectively, are outstanding, CG&E and ULH&P will pay to the trustee as a Maintenance and Replacement Fund (M&R Fund), on or before April 30 of each year, in cash, unfunded property additions, or principal amount of first mortgage bonds of any series issued under the mortgages, a formularized amount related to the net revenues of CG&E and ULH&P. For 1994, the M&R Fund requirements (payable on or before April 30, 1995) for CG&E and ULH&P are approximately $114 million and $5 million, respectively.
Most of CG&E's and ULH&P's first mortgage bonds are redeemable at par value, plus accrued interest, through cash deposited to satisfy the annual M&R Fund requirement. On March 24, 1995, CG&E announced its intention to redeem, beginning May 1, 1995, $114 million principal amount of its 10.125% and 9.70% first mortgage bonds at par with cash deposited in the M&R Fund. ULH&P also announced its intention to redeem $5 million principal amount of its 10.25% first mortgage bonds (due June 1, 2020) at par with cash deposited in the M&R Fund, and to redeem the remaining amount of such bonds at the redemption price of 107.34% on June 1, 1995.
9. Sale of Accounts Receivable and Interest Rate Swap
Energy has an agreement through January 1996 to sell, with limited recourse, an undivided percentage interest in certain of its accounts receivable from customers up to a maximum of $90 million. As of December 31, 1994, Energy's obligation under the limited recourse provision is $20 million. The refund provided for by the December 1993 Order, as previously discussed (see Note 2(a)(i)), reduced accounts receivable available for sale at December 31, 1993, to $40 million. Accounts receivable on the Consolidated Balance Sheets are net of the $87 million and $40 million interest sold at December 31, 1994, and December 31, 1993, respectively. The excess of $90 million over the accounts receivable available for sale at December 31, 1993, is reflected in the Consolidated Balance Sheet as "Advance under accounts receivable purchase agreement".
As a hedge against floating rate conditions, effective February 1, 1991, Energy entered into an interest rate swap agreement which effectively changed Energy's variable interest rate exposure on its $90 million (the notional principal amount) sale of accounts receivable to a fixed rate of 8.19%. Costs associated with the interest rate swap agreement are included in "Other - net" in the Consolidated Statements of Income. The interest rate swap agreement matures January 31, 1996. In the event of nonperformance by the other parties to the interest rate swap agreement, Energy would be exposed to floating rate conditions.
10. Pension Plans
The defined benefit pension plans of CINergy's subsidiaries cover substantially all employees meeting certain minimum age and service requirements. Plan benefits are determined under a final average pay formula with consideration of years of participation, age at retirement, and the applicable average Social Security wage base or benefit amount.
The funding policies of the operating subsidiaries are to contribute annually to the plans an amount which is not less than the minimum amount required by the Employee Retirement Income Security Act of 1974 and not more than the maximum amount deductible for income tax purposes. Contributions for the 1994, 1993, and 1992 plan years were $3.5 million, $11.3 million, and $7.4 million, respectively. The plans' assets consist of investments in equity and fixed income securities.
CINergy's pension cost for 1994, 1993, and 1992 included the following components: 1994 1993 1992 (in millions)
Benefits earned during the period . . . . . . . $ 19.4 $ 16.9 $ 15.9 Interest accrued on projected benefit obligations . . . . . . . . . . . . . 54.9 53.9 48.7 Actual (return) loss on plans' assets . . . . . 8.0 (69.9) (51.1) Net amortization and deferral . . . . . . . . . (66.3) 15.4 (.1)
Net periodic pension cost . . . . . . . . . . . $ 16.0 $ 16.3 $ 13.4
Additionally, during 1992 and 1994, CG&E recognized $28.4 million and $15.6 million, respectively, of accrued pension cost in accordance with Statement of Financial Accounting Standards No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. These amounts represented the costs associated with additional benefits extended in connection with voluntary early retirement programs and workforce reductions in those years (see Note 12).
The following table reconciles the plans' funded status with amounts recorded in the Consolidated Financial Statements. Under the provisions of Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions (Statement 87), certain assets and obligations of the plans are deferred and recognized in the Consolidated Financial Statements in subsequent periods.
1994 1993 Plans' Plan's Plans' Assets Exceed Accumulated Assets Exceed Accumulated Benefits Accumulated Benefits Exceed Assets Benefits (in millions) Actuarial present value of benefits Vested benefits . . . . . . . . $(320.7) $(206.5) $(534.2) Non-vested benefits . . . . . . (25.5) (11.0) (40.8)
Accumulated benefit obligations . . . . . . . . (346.2) (217.5) (575.0)
Effect of future compensation increases . . . . . . . . . . (120.3) (52.2) (165.7)
Projected benefit obligations . . . . . . . . (466.5) (269.7) (740.7)
Plans' assets at fair value . . . 438.4 198.7 689.1
Projected benefit obligations in excess of plans' assets . . . . (28.1) (71.0) (51.6)
Remaining balance of plans' net assets existing at date of initial application of Statement 87 to be recognized as a reduction of pension cost in future periods. . . . . (8.6) (3.8) (13.8)
Unrecognized net gain resulting from experience different from that assumed and effects of changes in assumptions . . . . . . . . . . (7.9) (1.9) (16.9)
Prior service cost not yet recognized in net periodic pension cost. . . . . . . . . . 38.1 18.2 44.1
Accrued pension cost at December 31 . . . . . . . . . . $ (6.5) $ (58.5) $ (38.2)
11. Other Postretirement Benefits
CINergy's subsidiaries provide certain health care and life insurance benefits to retired employees and their eligible dependents. The health care benefits include medical coverage and prescription drugs. Additionally, Energy provides dental benefits. Prior to 1993, the cost of retiree health care was charged to expense as claims were paid. The cost of life insurance benefits provided by Energy was charged to expense at retirement. The accounting for life insurance benefits provided by CG&E is further discussed herein. CG&E does not currently pre-fund its obligations for these postretirement benefits. Energy, in connection with the settlement which resulted in the February 1995 Order, agreed to begin funding its obligation for these postretirement benefits.
Effective with the first quarter of 1993, CINergy's subsidiaries implemented the provisions of Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions (Statement 106). Under the provisions of Statement 106, the costs of health care and life insurance benefits provided to retirees are recognized for accounting purposes during periods of employee service (accrual basis). The unrecognized and unfunded Accumulated Postretirement Benefit Obligations (APBO) existing at the date of initial application of Statement 106 (i.e., the transition obligations) of $159.3 million are being amortized over a 20-year period.
Life insurance benefits are fully paid by CG&E for qualified employees. Eligibility to receive postretirement coverage is limited to those employees who participated in the plans and earned the right to postretirement benefits prior to January 1, 1991. In 1988, CG&E and its subsidiaries recognized the actuarially determined APBO for postretirement life insurance benefits earned by retirees. The portion of the APBO applicable to active employees is being amortized over 15 years, the employees' estimated remaining service lives. The accounting for CG&E's postretirement life insurance benefits was not affected by the adoption of Statement 106.
Postretirement benefit cost for 1994 and 1993 included the following components: Health Life Care Insurance Total (in millions) Benefits earned during the period. . . . . . $ 5.2 $ .2 $ 5.4 Interest accrued on APBO . . . . . . . . . . 13.8 2.2 16.0 Net amortization and deferral. . . . . . . . .1 - .1 Amortization of transition obligations . . . 8.1 .3 8.4
Net periodic postretirement benefit cost . . $27.2 $2.7 $29.9
Benefits earned during the period. . . . . . $ 4.3 $ .2 $ 4.5 Interest accrued on APBO . . . . . . . . . . 13.4 2.1 15.5 Amortization of transition obligations . . . 8.1 .3 8.4
Net periodic postretirement benefit cost . . $25.8 $2.6 $28.4
The following table reconciles the APBO of the health care and life insurance plans with amounts recorded in the Consolidated Financial Statements. Under the provisions of Statement 106, certain obligations of the plans are deferred and recognized in the Consolidated Financial Statements in subsequent periods.
Health Life Care Insurance Total (in millions) Actuarial present value of benefits Fully eligible active plan participants. . $ (11.4) $ (.9) $ (12.3) Other active plan participants . . . . . . (84.3) (2.3) (86.6) Retirees and beneficiaries . . . . . . . . (92.0) (23.5) (115.5) Projected APBO . . . . . . . . . . . . . (187.7) (26.7) (214.4) Unamortized transition obligations . . . . . 145.2 1.0 146.2 Unrecognized net (gain) loss resulting from experience different from that assumed and effects of changes in assumptions. . . 2.2 (2.6) (.4) Accrued postretirement benefit obligations at December 31, 1994 . . . . . . . . . . . $ (40.3) $(28.3) $ (68.6)
Actuarial present value of benefits Fully eligible active plan participants. . $ (13.9) $ (1.7) $ (15.6) Other active plan participants . . . . . . (90.6) (3.5) (94.1) Retirees and beneficiaries . . . . . . . . (82.4) (24.1) (106.5) Projected APBO . . . . . . . . . . . . . (186.9) (29.3) (216.2) Unamortized transition obligations . . . . . 153.8 1.2 155.0 Unrecognized net loss resulting from experience different from that assumed and effects of changes in assumptions. . . 12.9 .6 13.5 Accrued postretirement benefit obligations at December 31, 1993 . . . . . . . . . . . $ (20.2) $(27.5) $ (47.7)
The following assumptions were used to determine the APBO:
1994 1993 1992
Discount rate. . . . . . . . . . 8.50% 7.50% 8.25-8.50%
Health care cost trend rate, gradually declining to 5% CG&E . . . . . . . . . . . . . 9.00-12.00% 10.00-13.00% 12.00-15.00% Energy . . . . . . . . . . . . 8.00-12.00 8.00-12.00 8.00-12.00
Year ultimate trend rates achieved CG&E . . . . . . . . . . . . . 2002 2002 2003 Energy . . . . . . . . . . . . 2007 2007 2007
Increasing the health care cost trend rate by one percentage point in each year would increase the APBO by approximately $27 million and $29.5 million for 1994 and 1993, respectively, and the aggregate of the service and interest cost components of the postretirement benefit cost for 1994 and 1993 by approximately $3.7 million and $3.4 million, respectively.
CG&E and its subsidiaries began amortizing the transition obligation for health care costs over 20 years in accordance with Statement 106. The majority of CG&E's and its subsidiaries' postretirement benefit costs are subject to PUCO jurisdiction. The PUCO authorized CG&E to begin recovering these costs in September 1993. The adoption of Statement 106 did not have a material effect on the results of operations of CG&E and its subsidiaries.
In accordance with the February 1995 Order, Energy will recover the cost of postretirement benefits other than pensions on an accrual basis commencing February 1995. Prior to the recovery of these costs in customers' rates on an accrual basis, the difference between postretirement benefit costs determined in accordance with the provisions of Statement 106 and the costs determined in accordance with Energy's previous accounting practice was deferred for future recovery. Energy's deferrals totaled $21 million as of December 31, 1994. Commencing February 1995, approximately $6 million of costs deferred for the period January 1, 1993, through July 31, 1993, will be recovered over a five- year period. Recovery over a five-year period of the remaining deferrals is being requested in Energy's July 1994 retail rate petition.
12. Workforce Reductions
In 1992, CG&E and its subsidiaries eliminated 464 positions. The workforce reduction was accomplished through a voluntary early retirement program and involuntary separations. At December 31, 1992, the accrued liability associated with the workforce reduction was $30.4 million (including $28.4 million of additional pension costs previously discussed in Note 10). In accordance with the August 1993 Order, CG&E is recovering the majority of these costs through rates over a period of three years.
Additionally, in an effort to begin to realize merger savings, CG&E and Energy completed voluntary workforce reduction programs in 1994. Under the programs, 284 employees elected to terminate their employment with the companies, resulting in a combined pre-tax cost of approximately $28.7 million ($17.4 million for CG&E, including $15.6 million of additional pension costs previously discussed in Note 10, and $11.3 million for Energy). In the third quarter of 1994, CG&E expensed $11 million representing the PUCO electric jurisdictional portion of these costs. The remaining $6.4 million of costs have been deferred as costs to achieve merger savings for future recovery through rates. The cost of Energy's voluntary workforce reduction plan was deferred as costs to achieve merger savings. In accordance with the February 1995 Order, Energy began amortization of costs to achieve merger savings October 1, 1994.
13. Notes Payable
The operating subsidiary companies of CINergy had authority to borrow up to $575 million as of December 31, 1994. In connection with this authority, CINergy's subsidiaries have established unsecured lines of credit (Committed Lines) which currently permit borrowings of up to $343 million, of which $208 million remained unused. CG&E and Energy also issue commercial paper from time to time. All outstanding commercial paper is supported by Committed Lines of the respective companies. Additionally, this authority allows the subsidiary companies of CINergy to arrange for additional short-term borrowings with various banks on an "as offered" basis (Uncommitted Lines). All Uncommitted Lines provide for maturities of up to 365 days with various interest rate options.
Amounts outstanding under the Committed Lines would become immediately due upon an event of default which includes non-payment, default under other agreements governing company indebtedness, bankruptcy, or insolvency. Certain of the Uncommitted Lines have similar default provisions. The lines are maintained by compensating balances or commitment fees. Commitment fees for the Committed Lines were immaterial during the 1992 through 1994 period.
In addition, CINergy has a $100 million credit facility which expires on September 27, 1997, of which $25 million remained unused at December 31, 1994. The facility may be increased to a maximum of $300 million, and the Company has an annual option of extending the term of the facility by one year.
For the years 1994, 1993, and 1992, CINergy's short-term borrowings outstanding at various times were as follows: Weighted Weighted Maximum Average Average Average Amount Amount Interest Balance Interest Outstanding Outstanding Rate at Rate at at Any During the During Dec. 31 Dec. 31 Month-end Year the Year (dollars in millions) Bank loans. . . . . . $228.9 6.11% $377.4 $284.7 4.79% Commercial paper. . . - - 7.9 1.0 4.22
Bank loans. . . . . . 177.7 3.45 194.3 115.1 3.52 Commercial paper. . . - - 44.8 14.1 3.37
Bank loans. . . . . . 177.7 3.89 211.2 112.9 4.04 Commercial paper. . . 13.0 4.22 43.7 11.3 3.82
14. Fair Values of Financial Instruments
The estimated fair values of CINergy's and its subsidiaries' financial instruments were as follows (this information does not purport to be a valuation of CINergy as a whole):
December 31 December 31 1994 1993 Carrying Fair Carrying Fair Financial Instrument Amount Value Amount Value (in millions)
Long-term debt (includes amounts due within one year) First mortgage bonds. . . . . $2 041 $2 018 $1 919 $2 161 Other long-term debt. . . . . 735 700 726 773 Cumulative preferred stock of subsidiary - subject to mandatory redemption. . . . . . 210 221 210 230
The following methods and assumptions were used to estimate the fair values of each major class of financial instrument:
Cash and temporary cash investments, restricted deposits, and notes payable Due to the short period to maturity, the carrying amounts reflected on the Consolidated Balance Sheets approximate fair values.
Long-term debt The fair values of long-term debt issues were estimated based on the latest quoted market prices or, if not listed on the New York Stock Exchange (NYSE), on the present value of future cash flows. The discount rates used approximate the incremental borrowing costs for similar instruments.
Cumulative preferred stock of subsidiary - subject to mandatory redemption The aggregate fair value of preferred stock subject to mandatory redemption was based on the latest closing prices quoted on the NYSE for each series.
15. Income Taxes
Effective with the first quarter of 1993, CINergy and its subsidiaries implemented the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109). Statement 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities. Net-of-tax accounting and reporting is prohibited. CINergy and its subsidiaries adopted this new accounting standard as the cumulative effect of a change in accounting principle with no restatement of prior periods. The adoption of Statement 109 had no material effect on CINergy's consolidated earnings.
In August 1993, Congress enacted the Omnibus Budget Reconciliation Act of 1993, which included a provision to increase the Federal corporate income tax rate from 34% to 35%, retroactive to January 1, 1993. In accordance with the provisions of Statement 109, the income tax rate increase resulted in an increase in the net deferred income tax liability and recognition of a regulatory asset to reflect expected future recovery of the increased liability through rates charged to customers.
The significant components of CINergy's net deferred income tax liability at December 31, 1994, and 1993, are as follows:
1994 1993 (in millions) Deferred Income Tax Liabilities Utility plant . . . . . . . . . . . . . . . . $ 947.8 $ 937.0 Unamortized costs of reacquiring debt . . . . 26.1 24.8 Deferred operating expenses, phase-in deferred return, and accrued carrying costs. . . . . . . . . 87.8 74.8 Amounts due from customers - income taxes . . 112.1 109.7 Deferred demand-side management costs . . . . 39.8 22.1 Other . . . . . . . . . . . . . . . . . . . . 47.2 37.2 Total deferred income tax liabilities . . . 1 260.8 1 205.6
Deferred Income Tax Assets Unamortized investment tax credits. . . . . . 70.8 74.4 Litigation settlement . . . . . . . . . . . . 29.8 29.8 Deferred fuel costs . . . . . . . . . . . . . 13.1 15.3 Accrued pension and other benefit costs . . . 33.7 21.3 Other . . . . . . . . . . . . . . . . . . . . 42.3 45.9 Total deferred income tax assets. . . . . . 189.7 186.7
Net Deferred Income Tax Liability . . . . . . . $1 071.1 $1 018.9
A summary of Federal and state income taxes charged (credited) to income and the allocation of such amounts is as follows:
1994 1993 1992 (in millions)
Current Income Taxes Federal . . . . . . . . . . . . . . . . . . . $104.1 $ 49.1 $ 67.6 State . . . . . . . . . . . . . . . . . . . . 6.5 1.3 7.2 Total current income taxes. . . . . . . . 110.6 50.4 74.8
Deferred Income Taxes Federal Depreciation and other utility plant- related items . . . . . . . . . . . . . . 62.2 58.4 52.3 Loss related to settlement of the IURC's June 1987 and April 1990 Orders (Note 2). (5.2) 45.9 - Property taxes. . . . . . . . . . . . . . . (13.3) (9.3) 6.4 Demand-side management costs. . . . . . . . 14.5 11.7 5.3 Write-off of a portion of Zimmer (Note 2) . - (11.0) - Pension and other benefit costs . . . . . . (12.5) (4.2) (2.3) Post-in-service deferred operating expenses. . . . . . . . . . . . . . . . . (1.6) 4.7 4.0 Other items - net . . . . . . . . . . . . . (5.4) 3.2 (2.6) Total deferred Federal income taxes . . . 38.7 99.4 63.1
State . . . . . . . . . . . . . . . . . . . . 2.7 7.5 2.5
Total deferred income taxes . . . . . . . 41.4 106.9 65.6
Investment Tax Credits - Net. . . . . . . . . . (10.4) (10.3) (10.2)
Total Income Taxes. . . . . . . . . . . . $141.6 $147.0 $130.2
Allocated to: Operating income. . . . . . . . . . . . . . . $152.2 $172.6 $160.4 Other income and expenses - net . . . . . . . (10.6) (25.6) (30.2) $141.6 $147.0 $130.2
Federal income taxes, computed by applying the statutory Federal income tax rate to book income before Federal income tax, are reconciled to Federal income tax expense reported in the Consolidated Statements of Income as follows:
1994 1993 1992 (in millions)
Statutory Federal income tax provision. . . . . $121.0 $ 70.2 $133.1 Increases (Reductions) in taxes resulting from: Amortization of investment tax credits. . . . (10.4) (10.0) (9.9) Depreciation and other utility plant- related differences . . . . . . . . . . . . 13.5 13.1 9.7 Preferred dividend requirements of subsidiaries. . . . . . . . . . . . . . . . 12.4 13.3 11.9 AFUDC equity. . . . . . . . . . . . . . . . . (2.2) (5.0) (5.0) Deferred operating expenses, phase-in deferred return, and accrued carrying costs. . . . . . . . . . . . . . . (6.5) (9.3) (21.5) Write-off of a portion of Zimmer. . . . . . . - 69.4 - Other - net . . . . . . . . . . . . . . . . . 4.6 (3.5) 2.2 Federal income tax expense. . . . . . . . . . . $132.4 $138.2 $120.5
16. Commitments and Contingencies
(a) Construction CINergy will have substantial commitments in connection with its construction program. Aggregate expenditures for CINergy's construction program for the 1995 through 1999 period are currently estimated to be approximately $2.1 billion.
In connection with Energy's Clean Coal Project, Energy has a 25-year contractual agreement with Destec Energy, Inc. (Destec) which requires Energy to pay Destec a fixed monthly fee plus certain monthly operating expenses once the facility is operational. Over the next five years (1995 through 1999), the fixed fee will be $56 million, and the variable fee is estimated at $95 million. As previously discussed, Energy received authorization in the February 1995 Order to defer these costs for subsequent recovery in an IURC order associated with Energy's July 1994 retail rate petition.
(b) Manufactured Gas Plants
(i) Energy Coal tar residues and other substances associated with manufactured gas plant (MGP) sites have been found at former MGP sites in Indiana, including, but not limited to, sites in Shelbyville and Lafayette, two sites previously owned by Energy. Energy has identified at least 21 MGP sites which it previously owned, including 19 it sold in 1945 to Indiana Gas and Water Company, Inc. (now Indiana Gas Company [IGC]), including the Shelbyville and Lafayette sites.
The Shelbyville site has been the subject of an investigation and cleanup enforcement action by the Indiana Department of Environmental Management (IDEM) against IGC and Energy. Without admitting liability, Energy and IGC have conducted an investigation and remedial activities at the Shelbyville site. Energy and IGC are sharing equally in the costs of investigation and cleanup of this site.
In 1992, the IDEM issued an order to IGC, naming IGC as a potentially responsible party (PRP) as defined by the Comprehensive Environmental Response, Compensation and Liability Act (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 the site.
In April 1993, IGC filed testimony with the IURC seeking recovery of costs incurred in complying with Federal, state, and local environmental regulations related to MGP sites in which it has an interest, including sites acquired from Energy. In its testimony, IGC stated that it would also seek to recover a portion of these costs from other PRPs, including previous owners. IGC has informed Energy of the basis for IGC's position that Energy, as a PRP under CERCLA, should contribute to IGC's response costs related to investigating and remediating contamination at MGP sites which Energy sold to IGC. The IURC has not ruled on IGC's petition. In its July 1994 retail rate petition, Energy is seeking approval to defer, and subsequently recover through rates, any costs it incurs for investigation and remediation of previously owned MGP sites.
Except for the Shelbyville site, Energy has not assumed any responsibility to reimburse IGC for its costs for investigating and cleaning up MGP sites. With respect to the Shelbyville site, based upon environmental investigations completed to date, Energy believes that any further required investigation and remediation will not have a material adverse effect on its financial condition or results of operations. At this time, it is premature for Energy to predict the nature, extent, and costs of, or Energy's responsibility for, any environmental investigations and remediations which may be required at other MGP sites owned, or previously owned, by Energy.
(ii) CG&E and its Utility Subsidiaries Lawrenceburg Gas Company (Lawrenceburg), a wholly-owned subsidiary of CG&E, also has an MGP site which is under investigation to determine a remediation strategy. Total cleanup cost is currently estimated to be approximately $750,000. Lawrenceburg has applied to have the site included in the IDEM's voluntary cleanup program. CG&E and its utility subsidiaries are aware of other potential sites where MGP activities may have occurred at some time in the past. None of these sites are known to present a risk to the environment. Except for the Lawrenceburg site, neither CG&E nor its utility subsidiaries have undertaken responsibility for investigating other potential MGP sites.
(c) Wabash Valley Power Association, Inc. (WVPA) Litigation In February 1984, WVPA discontinued payments to Energy for its 17% share of Marble Hill, a nuclear project jointly owned by Energy and WVPA which was cancelled by Energy in 1984, and filed suit against Energy in the United States District Court for the Southern District of Indiana (Indiana District Court), seeking $478 million plus interest and other damages to recover its Marble Hill costs. The suit was amended to include as defendants several officers of Energy along with certain contractors and their officers involved in the Marble Hill project, and to allege claims against all defendants under the Racketeer Influenced and Corrupt Organizations Act (RICO). Claims proven and damages allowed under RICO may be trebled and attorneys' fees assessed against the defendants. The suit was further amended to add claims of common law fraud, constructive fraud and deceit, and negligent misrepresentation against Energy and the other defendants.
In 1985, Energy and WVPA entered into an agreement under which Energy agreed to place in escrow 17% of all salvage proceeds received from the sales of Marble Hill equipment, materials, and nuclear fuel after May 23, 1985, as a result of WVPA's filing for protection under Chapter 11 of the Federal Bankruptcy Code.
In 1989, Energy and its officers reached a settlement with WVPA which, if approved by judicial and regulatory authorities, will settle the suit filed by WVPA. The settlement is also contingent on the resolution of the WVPA bankruptcy proceeding.
The principal terms of the settlement are:
. Energy, on behalf of itself and its officers, will pay $80 million on behalf of WVPA to Rural Utility Services (RUS), previously called the Rural Electrification Administration, and the National Rural Utilities Cooperative Finance Corporation (CFC). The $80 million obligation, net of insurance proceeds, other credits, and applicable income tax effects, was charged to income in 1988 and 1989.
. WVPA will transfer its 17% ownership interest in the site to Energy, and Energy will assume responsibility for all future costs associated with the site, excluding WVPA's 17% share of future salvage program expenses. Additionally, RUS and CFC will receive the balance in the salvage escrow account and 17% of future salvage proceeds, net of related salvage program expenses.
. Energy will enter into a 35-year take-or-pay power supply agreement for the sale of 70 megawatts of firm power to WVPA. This power will be supplied from Gibson Unit 1 and will be priced at Energy's firm power rates for service to WVPA. The difference between the revenues received from WVPA and the costs of operating Gibson Unit 1 (the Margin) will be remitted annually by Energy, on behalf of itself and its officers, to RUS and CFC to discharge a $90 million obligation, plus accrued interest. If, at the end of the term of the power supply agreement, the $90 million obligation plus accrued interest has not been fully discharged, Energy must do so within 60 days. The settlement provides that in the event Energy is party to a merger or acquisition, Energy and WVPA will use their best efforts to obtain regulatory approval to price the power sale exclusive of the effects of the merger or acquisition.
Certain aspects of the settlement are subject to approval by the FERC and potentially by the IURC and the Michigan Public Service Commission. At such time as the necessary approvals from these regulatory authorities are received, Energy will record a $90 million regulatory asset. Concurrently, a $90 million obligation to RUS and CFC will be recorded as a long-term commitment. Recognition of the asset is based, in part, on projections which indicate that the Margin will be sufficient to discharge the $90 million obligation to RUS and CFC, plus accrued interest, within the 35-year term of the power supply agreement. If, in some future period, projections indicate the Margin would not be sufficient to discharge the obligation plus accrued interest within the 35-year term, the deficiency would be recognized as a loss.
RUS has proposed a plan of reorganization which, similar to WVPA's plan, incorporates the settlement agreement. However, RUS's plan provides for full recovery of principal and interest on WVPA's debt to RUS, which is substantially in excess of the amount to be recovered under WVPA's proposed plan. In 1991, the United States Bankruptcy Court for the Southern District of Indiana (Bankruptcy Court) confirmed WVPA's plan of reorganization and denied confirmation of RUS's opposing plan. The Bankruptcy Court's approval of WVPA's reorganization plan is contingent upon WVPA's receipt of regulatory approval to change its rates. RUS appealed the Bankruptcy Court's decision to the Indiana District Court. In June 1994, the Indiana District Court ruled in favor of WVPA's plan. RUS subsequently appealed this decision. Energy cannot predict the outcome of this appeal, nor is it known whether WVPA can obtain regulatory approval to change its rates. If reasonable progress is not made in satisfying conditions to the settlement by February 1, 1996, either party may terminate the settlement agreement.
(d) 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.
(e) Potential Divestiture of Gas Operations Under the PUHCA, the divestiture of CG&E's gas operations may be required. In its order approving the merger, the SEC reserved judgement over CINergy's ownership of the gas operations for a period of three years. In November 1994, the SEC requested comments on the modernization of the PUHCA given the industry's movement toward a more competitive environment, including whether or not a utility registered under the PUHCA may own a combination system (i.e., electric and gas). CINergy believes it has a justifiable basis for retention of its gas operations and will continue its pursuit of SEC approval to retain the gas portion of the business. If divestiture is ultimately required, the SEC has historically allowed companies sufficient time to accomplish divestitures in a manner that protects shareholder value. Further, CINergy believes that divestiture of the gas operations, if required, would not have a material effect on merger savings. See Note 19 for financial information by business segments.
17. Jointly Owned Plant
Energy is a joint owner of Gibson Unit 5 with WVPA and the Indiana Municipal Power Agency (IMPA). Additionally, Energy 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 Energy. 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 Energy's and CG&E's portions of all operating costs associated with the commonly owned facilities.
Energy's and CG&E's investments in jointly owned plant are as follows:
18. Quarterly Financial Data (unaudited)
19. Financial Information by Business Segments
For a discussion of the potential divestiture of CG&E's gas operations, see Note 16(e).
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
Reference is made to CINergy Corp.'s (CINergy) 1995 Proxy Statement with respect to identification of directors and their current principal occupations.
Executive Officers
The information included in Part I of this report on pages 14 through 16 under the caption "Executive Officers of the Registrant" is referenced in reliance upon General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to CINergy's 1995 Proxy Statement with respect to executive compensation.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to CINergy's 1995 Proxy Statement with respect to security ownership of certain beneficial owners, security ownership of management, and changes in control.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
Refer to the page captioned "Index to Financial Statements and Financial Statement Schedules", page 44 of this report, for an index of the financial statements and financial statement schedules included in this report.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the last quarter of 1994:
Date of Report Items Filed
October 24, 1994 Item 2. Acquisition or Disposition of Assets Item 5. Other Events Item 7. Financial Statements and Exhibits
November 23, 1994 Item 7. Financial Statements and Exhibits
December 29, 1994 Item 7. Financial Statements and Exhibits
(c) Exhibits.
Copies of the documents listed below which are identified with an asterisk (*) have heretofore been filed with the Securities and Exchange Commission and are incorporated herein by reference and made a part hereof. Exhibits not so identified are filed herewith.
Exhibit Designation Nature of Exhibit
3-a *Certificate of Incorporation of CINergy Corp. (CINergy). (Exhibit to CINergy's Annual Report on Form 10-K for the year ended December 31, 1993.)
3-b By-laws of CINergy as adopted October 24, 1994.
4-a *Original Indenture (First Mortgage Bonds) dated September 1, 1939, between PSI Energy, Inc. (Energy) 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).
Exhibit Designation Nature of Exhibit
4-b *Nineteenth Supplemental Indenture between Energy and The First National Bank of Chicago dated January 1, 1972. (Exhibit to File No. 2-42545.)
4-c *Twenty-third Supplemental Indenture between Energy and The First National Bank of Chicago dated January 1, 1977. (Exhibit to File No. 2-57828.)
4-d *Twenty-fifth Supplemental Indenture between Energy and The First National Bank of Chicago dated September 1, 1978. (Exhibit to File No. 2-62543.)
4-e *Twenty-seventh Supplemental Indenture between Energy and The First National Bank of Chicago dated March 1, 1979. (Exhibit to File No. 2-63753.)
4-f *Thirty-fifth Supplemental Indenture between Energy and The First National Bank of Chicago dated March 30, 1984. (Exhibit to Energy's 1984 Form 10-K in File No. 1-3543.)
4-g *Thirty-ninth Supplemental Indenture between Energy and The First National Bank of Chicago dated March 15, 1987. (Exhibit to Energy's 1987 Form 10-K in File No. 1-3543.)
4-h *Forty-first Supplemental Indenture between Energy and The First National Bank of Chicago dated June 15, 1988. (Exhibit to Energy's 1988 Form 10-K in File No. 1-3543.)
4-i *Forty-second Supplemental Indenture between Energy and The First National Bank of Chicago dated August 1, 1988. (Exhibit to Energy's 1988 Form 10-K in File No. 1-3543.)
4-j *Forty-fourth Supplemental Indenture between Energy and The First National Bank of Chicago dated March 15, 1990. (Exhibit to Energy's 1990 Form 10-K in File No. 1-3543.)
4-k *Forty-fifth Supplemental Indenture between Energy and The First National Bank of Chicago dated March 15, 1990. (Exhibit to Energy's 1990 Form 10-K in File No. 1-3543.)
Exhibit Designation Nature of Exhibit
4-l *Forty-sixth Supplemental Indenture between Energy and The First National Bank of Chicago dated June 1, 1990. (Exhibit to Energy's 1991 Form 10-K in File No. 1-3543.)
4-m *Forty-seventh Supplemental Indenture between Energy and The First National Bank of Chicago dated July 15, 1991. (Exhibit to Energy's 1991 Form 10-K in File No. 1-3543.)
4-n *Forty-eighth Supplemental Indenture between Energy and The First National Bank of Chicago dated July 15, 1992. (Exhibit to Energy's 1992 Form 10-K in File No. 1-3543.)
4-o *Forty-ninth Supplemental Indenture between Energy and The First National Bank of Chicago dated February 15, 1993. (Exhibit to Energy's 1992 Form 10-K in File No. 1- 3543.)
4-p *Fiftieth Supplemental Indenture between Energy and The First National Bank of Chicago dated February 15, 1993. (Exhibit to Energy's 1992 Form 10-K in File No. 1- 3543.)
4-q *Fifty-first Supplemental Indenture between Energy and The First National Bank of Chicago dated February 1, 1994. (Exhibit to Energy's 1993 Form 10-K in File No. 1-3543.)
4-r *Indenture (Secured Medium-term Notes, Series A), dated July 15, 1991, between Energy and The First National Bank of Chicago, as Trustee. (Exhibit to Energy's Form 10-K/A in File No. 1-3543, Amendment No. 2, dated July 15, 1993.)
4-s *Indenture (Secured Medium-term Notes, Series B), dated July 15, 1992, between Energy and The First National Bank of Chicago, as Trustee. (Exhibit to Energy's Form 10-K/A in File No. 1-3543, Amendment No. 2, dated July 15, 1993.)
Exhibit Designation Nature of Exhibit
4-t *Original Indenture (First Mortgage Bonds) between The Cincinnati Gas & Electric Company (CG&E) and The Bank of New York (as Trustee) dated as of August 1, 1936. (Exhibit to CG&E's Registration Statement No. 2-2374.)
4-u *Tenth Supplemental Indenture between CG&E and The Bank of New York dated as of July 1, 1967. (Exhibit to CG&E's Registration Statement No. 2-26549.)
4-v *Eleventh Supplemental Indenture between CG&E and The Bank of New York dated as of May 1, 1969. (Exhibit to CG&E's Registration Statement No. 2-32063.)
4-w *Thirteenth Supplemental Indenture between CG&E and The Bank of New York dated as of November 1, 1971. (Exhibit to CG&E's Registration Statement No. 2-41974.)
4-x *Fourteenth Supplemental Indenture between CG&E and The Bank of New York dated as of November 2, 1972. (Exhibit to CG&E's Registration Statement No. 2-60961.)
4-y *Fifteenth Supplemental Indenture between CG&E and The Bank of New York dated as of August 1, 1973. (Exhibit to CG&E's Registration Statement No. 2-60961.)
4-z *Twenty-fifth Supplemental Indenture between CG&E and The Bank of New York dated as of December 1, 1985. (Exhibit to CG&E's 1985 Form 10-K in File No. 1-1232.)
4-aa *Twenty-ninth Supplemental Indenture between CG&E and The Bank of New York dated as of June 15, 1989. (Exhibit to CG&E's June 30, 1989, Form 10-Q in File No. 1-1232.)
4-bb *Thirtieth Supplemental Indenture between CG&E and The Bank of New York dated as of May 1, 1990. (Exhibit to CG&E's June 30, 1990, Form 10-Q in File No. 1-1232.)
Exhibit Designation Nature of Exhibit
4-cc *Thirty-first Supplemental Indenture between CG&E and The Bank of New York dated as of December 1, 1990. (Exhibit to CG&E's 1990 Form 10-K in File No. 1-1232.)
4-dd *Thirty-second Supplemental Indenture between CG&E and The Bank of New York dated as of December 15, 1991. (Exhibit to CG&E's Registration Statement No. 33-45115.)
4-ee *Thirty-third Supplemental Indenture between CG&E and The Bank of New York dated as of September 1, 1992. (Exhibit to CG&E's Registration Statement No. 33-53578.)
4-ff *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-gg *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-hh *Thirty-sixth Supplemental Indenture between CG&E and The Bank of New York dated as of February 15, 1994. (Exhibit to CG&E's Registration Statement No. 33-52335.)
4-ii *Loan Agreement between CG&E and County of Boone, Kentucky dated as of February 1, 1985. (Exhibit to CG&E's 1984 Form 10-K in File No. 1-1232.)
4-jj *Loan Agreement between CG&E and State of Ohio Air Quality Development Authority dated as of December 1, 1985. (Exhibit to CG&E's 1985 Form 10-K in File No. 1-1232.)
4-kk *Loan Agreement between CG&E and State of Ohio Air Quality Development Authority dated as of December 1, 1985. (Exhibit to CG&E's 1985 Form 10-K in File No. 1-1232.)
4-ll *Loan Agreement between CG&E and State of Ohio Air Quality Development Authority dated as of December 1, 1985. (Exhibit to CG&E's 1985 Form 10-K in File No. 1-1232.)
Exhibit Designation Nature of Exhibit
4-mm *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-nn *Loan Agreement between CG&E and State of Ohio Water Development Authority dated as of January 1, 1994. (Exhibit to CG&E's 1993 Form 10-K in File No. 1-1232.)
4-oo *Loan Agreement between CG&E and State of Ohio Air Quality Development Authority dated as of January 1, 1994. (Exhibit to CG&E's 1993 Form 10-K in File No. 1-1232.)
4-pp *Loan Agreement between CG&E and County of Boone, Kentucky dated as of January 1, 1994. (Exhibit to CG&E's 1993 Form 10-K in File No. 1-1232.)
4-qq *Original Indenture (First Mortgage Bonds) between The Union Light, Heat and Power Company (ULH&P) and The Bank of New York dated as of February 1, 1949. (Exhibit to ULH&P's Registration Statement No. 2-7793.)
4-rr *Fifth Supplemental Indenture between ULH&P and The Bank of New York dated as of January 1, 1967. (Exhibit to CG&E's Registration Statement No. 2-60961.)
4-ss *Seventh Supplemental Indenture between ULH&P and The Bank of New York dated as of October 1, 1973. (Exhibit to CG&E's Registration Statement No. 2-60961.)
4-tt *Eighth Supplemental Indenture between ULH&P and The Bank of New York dated as of December 1, 1978. (Exhibit to CG&E's Registration Statement No. 2-63591.)
4-uu *Tenth Supplemental Indenture between ULH&P and The Bank of New York dated as of July 1, 1989. (Exhibit to CG&E's June 30, 1989, Form 10-Q in File No. 1-1232.)
4-vv *Eleventh Supplemental Indenture between ULH&P and The Bank of New York dated as of June 1, 1990. (Exhibit to CG&E's June 30, 1990, Form 10-Q in File No. 1-1232.)
Exhibit Designation Nature of Exhibit
4-ww *Twelfth Supplemental Indenture between ULH&P and The Bank of New York dated as of November 15, 1990. (Exhibit to ULH&P's 1990 Form 10-K in File No. 2-7793.)
4-xx *Thirteenth Supplemental Indenture between ULH&P and The Bank of New York dated as of August 1, 1992. (Exhibit to ULH&P's 1992 Form 10-K in File No. 2-7793.)
10-a *Energy Union Employees' 401(k) Savings Plan, amended and restated October 24, 1994, effective January 1, 1992. (Exhibit to CINergy's Form S-8, filed October 18, 1994.)
10-b *Energy Employees' 401(k) Savings Plan, amended and restated October 24, 1994, effective January 1, 1992. (Exhibit to CINergy's Form S-8, filed October 18, 1994.)
10-c *CG&E Deferred Compensation and Investment Plan, as amended, effective January 1, 1989. (Exhibit to CINergy's Form S-8, filed August 30, 1994.)
10-d *CG&E Savings Incentive Plan, as amended, effective January 1, 1989. (Exhibit to CINergy's Form S-8, filed August 30, 1994.)
10-e +Amended and Restated Employment Agreement dated October 24, 1994, among CG&E, CINergy Corp. (an Ohio corporation), CINergy (a Delaware corporation), PSI Resources, Inc., Energy, and Jackson H. Randolph.
10-f *+Amended and Restated Employment Agreement dated July 2, 1993, among PSI Resources, Inc., Energy, 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-g *+Employment Agreement dated October 4, 1993, among CINergy, Energy, and John M. Mutz. (Exhibit to PSI Resources, Inc.'s September 30, 1993, Form 10-Q, File No. 1-9941.)
Exhibit Designation Nature of Exhibit
10-h +Employment Agreement dated January 1, 1995, among CINergy, CG&E, CINergy Services, Inc., CINergy Investments, Inc., Energy, and William J. Grealis.
10-i *+CINergy Stock Option Plan, adopted October 18, 1994, effective October 24, 1994. (Exhibit to CINergy's Form S-8, filed October 19, 1994.)
10-j *+CINergy Performance Shares Plan, adopted October 18, 1994, effective October 24, 1994. (Exhibit to CINergy's Form S-8, filed October 19, 1994.)
10-k +CINergy Annual Incentive Plan, adopted October 18, 1994, effective October 24, 1994.
10-l *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-m Amendment to CINergy Employee Stock Purchase and Savings Plan, adopted January 25, 1995, retroactively effective January 1, 1995.
10-n *+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-o +CINergy Retirement Plan for Directors, adopted October 18, 1994, effective October 24, 1994.
10-p +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 Designation Nature of Exhibit
10-q *Text of Settlement Agreement dated October 27, 1993, by and among PSI Resources, Inc., Energy, CG&E, CINergy, IPALCO Enterprises, Inc., Indianapolis Power & Light Company, James E. Rogers, John R. Hodowal, and Ramon L. Humke (together with the exhibits and schedules thereto). (Exhibit to PSI Resources, Inc.'s Form 8-K dated October 27, 1993.)
10-r *+Deferred Compensation Agreement between Jackson H. Randolph and CINergy dated January 1, 1992. (Exhibit to CG&E's 1992 Form 10-K in File No. 1-1232.)
10-s +Split Dollar Insurance Agreement, effective as of May 1, 1993, between CINergy and Jackson H. Randolph.
10-t *+Deferred Compensation Agreement, effective as of January 1, 1992, between CINergy and James E. Rogers, Jr. (Exhibit to Energy's Form 10-K/A in File No. 1-3543, Amendment No. 1, dated April 29, 1993.)
10-u *+Split Dollar Life Insurance Agreement, effective as of January 1, 1992, between CINergy and James E. Rogers, Jr. (Exhibit to Energy's Form 10-K/A in File No. 1-3543, Amendment No. 1, dated April 29, 1993.)
10-v *+First Amendment to Split Dollar Life Insurance Agreement between CINergy and James E. Rogers, Jr. dated December 11, 1992. (Exhibit to Energy's Form 10-K/A in File No. 1-3543, Amendment No. 1, dated April 29, 1993.)
10-w *+Energy Supplemental Retirement Plan amended and restated December 16, 1992, retroactively effective January 1, 1989. (Exhibit to Energy's 1992 Form 10-K in File No. 1-3543.)
10-x *+Energy Excess Benefit Plan, formerly named the Supplemental Pension Plan, amended and restated December 16, 1992, retroactively effective January 1, 1989. (Exhibit to Energy's 1992 Form 10-K in File No. 1-3543.)
Exhibit Designation Nature of Exhibit
10-y *+Supplemental Executive Retirement Income Plan between CG&E and certain executive officers. (Exhibit to CG&E's 1988 Form 10-K in File No. 1-1232.)
10-z *+Amendment to Supplemental Executive Retirement Income Plan between CG&E and certain executive officers. (Exhibit to CG&E's 1992 Form 10-K in File No 1-1232.)
10-aa *+Executive Severance Agreement between CG&E and certain executive officers. (Exhibit to CG&E's 1989 Form 10-K in File No. 1-1232.)
10-bb *+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.)
21 *Subsidiaries of CINergy. (Exhibit to CINergy's Form U5B, filed January 23, 1995.)
23 Consent of Independent Public Accountants.
24 Power of Attorney.
27 Financial Data Schedule (included in electronic submission only).
99-a 1994 Form 11-K Annual Report of CINergy Directors' Deferred Compensation Plan. (To be filed by amendment.)
99-b 1994 Form 11-K Annual Report of CINergy Employee Stock Purchase and Savings Plan. (To be filed by amendment.)
_________________________
+ Management contract, compensation plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CINERGY CORP. Registrant
Dated: March 28, 1995
By Jackson H. Randolph Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date Neil A. Armstrong Director James K. Baker Director Hugh A. Barker Director Michael G. Browning Director Clement L. Buenger Director Phillip R. Cox Director Kenneth M. Duberstein Director John A. Hillenbrand, II Director George C. Juilfs Director Melvin Perelman, Ph.D. Director Thomas E. Petry Director John J. Schiff, Jr. Director Van P. Smith Director Dudley S. Taft Director Oliver W. Waddell Director
James E. Rogers Vice Chairman, President, March 28, 1995 Attorney-in-fact for all Chief Operating Officer the foregoing persons and Director
J. Wayne Leonard Group Vice President March 28, 1995 and Chief Financial Officer (Principal Financial Officer)
Jackson H. Randolph Chairman, Chief Executive March 28, 1995 Officer and Director (Principal Executive Officer)
Charles J. Winger Comptroller March 28, 1995 (Principal Accounting Officer)