-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GM5RbpsStI4QWwtRvE51JpKNXgYvfwN8PmSBOVjXal3Qeqh2TLlicJFUsHJOoCa6 rJGoIIEnYTCNXao13Rzfxw== 0000020290-97-000010.txt : 19971117 0000020290-97-000010.hdr.sgml : 19971117 ACCESSION NUMBER: 0000020290-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINCINNATI GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000020290 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 310240030 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01232 FILM NUMBER: 97717846 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST ROOM 362-ANNEX CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5133812000 10-Q 1 THE CINCINNATI GAS & ELECTRIC CO. 10-Q FOR 09/30/97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address, and Telephone Number Identification No. 1-11377 CINERGY CORP. 31-1385023 (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030 (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-3543 PSI ENERGY, INC. 35-0594457 (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (317) 839-9611 2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080 (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format. As of October 31, 1997, shares of Common Stock outstanding for each registrant were as listed: Company Shares Cinergy Corp., par value $.01 per share 157,679,129 The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086 PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701 The Union Light, Heat and Power Company, par value $15.00 per share 585,333 TABLE OF CONTENTS Item Page Number Number Glossary of Terms . . . . . . . . . . . . . . . . . . . 3 PART I. FINANCIAL INFORMATION 1 Financial Statements Cinergy Corp. Consolidated Balance Sheets . . . . . . . . . . . . . 7 Consolidated Statements of Income . . . . . . . . . . 9 Consolidated Statements of Changes in Common Stock Equity. . . . . . . . . . . . . . . . . . . . 10 Consolidated Statements of Cash Flows . . . . . . . . 11 Results of Operations . . . . . . . . . . . . . . . . 12 The Cincinnati Gas & Electric Company Consolidated Balance Sheets . . . . . . . . . . . . . 23 Consolidated Statements of Income . . . . . . . . . . 25 Consolidated Statements of Cash Flows . . . . . . . . 26 Results of Operations . . . . . . . . . . . . . . . . 27 PSI Energy, Inc. Consolidated Balance Sheets . . . . . . . . . . . . . 34 Consolidated Statements of Income . . . . . . . . . . 36 Consolidated Statements of Cash Flows . . . . . . . . 37 Results of Operations . . . . . . . . . . . . . . . . 38 The Union Light, Heat and Power Company Balance Sheets. . . . . . . . . . . . . . . . . . . . 44 Statements of Income. . . . . . . . . . . . . . . . . 46 Statements of Cash Flows. . . . . . . . . . . . . . . 47 Results of Operations . . . . . . . . . . . . . . . . 48 Notes to Financial Statements . . . . . . . . . . . . . 51 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 57 PART II. OTHER INFORMATION 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 61 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 61 Signature . . . . . . . . . . . . . . . . . . . . . . . 62 GLOSSARY OF TERMS The following abbreviations or acronyms used in the text of this combined Form 10-Q are defined below: TERM DEFINITION_________________________ 1996 Form Combined 1996 Annual Report on Form 10-K filed separately by 10-K Cinergy, CG&E, PSI, and ULH&P August 1997 An IURC order issued in August 1997 Order Avon Energy Avon Energy Partners Holdings, an Unlimited Liability Company and its wholly-owned subsidiary Avon Energy Partners PLC, a Limited Liability Company Beckjord CG&E's W. C. Beckjord Station Btu British thermal unit CAC Citizens Action Coalition of Indiana, Inc. Cadence\tab Cadence Network LLC \tab Capital & Cinergy Capital & Trading, Inc. (a subsidiary of Trading Investments) CERCLA Comprehensive Environmental Response, Compensation and Liability Act CG&E The Cincinnati Gas & Electric Company (a subsidiary of Cinergy) Cinergy, CIN, Cinergy Corp. or Company Cinergy UK Cinergy UK, Inc. (a subsidiary of Investments) which holds Cinergy's 50% investment in Avon Energy Clean Coal A joint arrangement by PSI and Destec Energy, Inc. for a Project 262-megawatt clean coal power generating facility located at Wabash River Generating Station D&P Duff & Phelps Credit Rating Co. December 1996 A PUCO order issued in December 1996 on CG&E's gas rate Order proceeding December 1996 An IURC order issued in December 1996 on PSI's DSM DSM Order proceeding DSM Demand-side management EPA U.S. Environmental Protection Agency FASB Financial Accounting Standards Board February 1995 An IURC order issued in February 1995 Order GLOSSARY OF TERMS (Continued) TERM DEFINITION_________________________ Fitch Fitch Investors Service, Inc. GEP Greenwich Energy Partners L.P. Gibson PSI's Gibson Generating Station IGC Indiana Gas Company, Inc. Investments Cinergy Investments, Inc. (a subsidiary of Cinergy) IURC Indiana Utility Regulatory Commission KPSC Kentucky Public Service Commission kwh Kilowatt-hour LANCEs Debentures in the form of Liquid Asset Notes with Coupon Exchange LIBOR London Interbank Offered Rate M&R Fund Maintenance and Replacement Fund Mcf Thousand cubic feet MGP Manufactured Gas Plant Miami Fort CG&E's Miami Fort Generating Station Midlands Midlands Electricity plc Moody's Moody's Investors Service NAAQS National Ambient Air Quality Standards NIPSCO Northern Indiana Public Service Company NOx Nitrogen Oxide Opinion 15 Accounting Principles Board Opinion 15, Earnings Per Share PSI PSI Energy, Inc. (a subsidiary of Cinergy) PUCO Public Utilities Commission of Ohio PUHCA Public Utility Holding Company Act of 1935 S&P Standard & Poor's SEC Securities and Exchange Commission September 1996 An IURC order issued in September 1996 on PSI's retail rate Order proceeding SIP State Implementation Plan Statement 14 Statement of Financial Accounting Standards No. 14, Financial Reporting for Segments of a Business Enterprise GLOSSARY OF TERMS (Continued) TERM DEFINITION_________________________ Statement 128 Statement of Financial Accounting Standards No. 128, Earnings Per Share Statement 130 Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income Statement 131 Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information UCC The Indiana Office of the Utility Consumer Counselor ULH&P The Union Light, Heat and Power Company (a wholly-owned subsidiary of CG&E) UK United Kingdom Zimmer CG&E's William H. Zimmer Generating Station CINERGY CORP. AND SUBSIDIARY COMPANIES
CINERGY CORP. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1997 1996 (dollars in thousands) Utility Plant - Original Cost In service Electric $8,944,741 $8,809,786 Gas 737,681 713,829 Common 187,733 185,255 9,870,155 9,708,870 Accumulated depreciation 3,758,974 3,591,858 6,111,181 6,117,012 Construction work in progress 169,689 172,614 Total utility plant 6,280,870 6,289,626 Current Assets Cash and temporary cash investments 58,234 19,327 Restricted deposits 1,950 1,721 Notes receivable 163 321 Accounts receivable less accumulated provision for doubtful accounts of $11,401 at September 30, 1997, and $10,618 at December 31, 1996 378,164 199,040 Materials, supplies, and fuel - at average cost Fuel for use in electric production 57,771 71,730 Gas stored for current use 37,680 32,951 Other materials and supplies 79,651 80,292 Property taxes applicable to subsequent year 30,895 123,580 Prepayments and other 28,438 37,049 672,946 566,011 Other Assets Regulatory assets Amounts due from customers - income taxes 368,338 377,194 Post-in-service carrying costs and deferred operating expenses 180,477 186,396 Coal contract buyout costs 125,029 138,171 Deferred merger costs 91,862 93,999 Deferred demand-side management costs 115,731 134,742 Phase-in deferred return and depreciation 91,057 95,163 Unamortized costs of reacquiring debt 67,777 70,518 Other 57,120 72,483 Investments in unconsolidated subsidiaries 469,420 592,660 Other 262,595 231,551 1,829,406 1,992,877 $8,783,222 $8,848,514 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CAPITALIZATION AND LIABILITIES September 30 December 31 1997 1996 (dollars in thousands) Common Stock Equity Common stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 157,679,129 at September 30, 1997, and December 31, 1996 $ 1,577 $ 1,577 Paid-in capital 1,571,527 1,590,735 Retained earnings 922,209 992,273 Cumulative foreign currency translation adjustment (1,234) (131) Total common stock equity 2,494,079 2,584,454 Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 178,116 194,232 Long-term Debt 2,098,619 2,326,378 Total capitalization 4,770,814 5,105,064 Current Liabilities Long-term debt due within one year 35,000 140,000 Notes payable and other short-term obligations 1,245,345 922,217 Accounts payable 480,585 305,420 Accrued taxes 266,480 323,059 Accrued interest 42,203 55,590 Other 65,465 114,653 2,135,078 1,860,939 Other Liabilities Deferred income taxes 1,147,148 1,146,263 Unamortized investment tax credits 168,694 175,935 Accrued pension and other postretirement benefit costs 287,353 263,319 Other 274,135 296,994 1,877,330 1,882,511 $8,783,222 $8,848,514
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date Twelve Months Ended September 30 September 30 September 30 1997 1996 1997 1996 1997 1996 (in thousands, except per share amounts) Operating Revenues Electric $1,315,165 $724,917 $2,923,655 $2,060,471 $3,631,890 $2,699,657 Gas 39,941 40,787 326,964 306,062 494,936 451,137 1,355,106 765,704 3,250,619 2,366,533 4,126,826 3,150,794 Operating Expenses Fuel used in electric production 197,116 184,093 507,464 539,350 681,364 710,556 Gas purchased 15,622 17,133 175,416 150,313 274,219 226,328 Purchased and exchanged power 607,281 37,020 963,237 95,443 1,026,632 110,083 Other operation 157,089 129,009 478,989 423,769 653,654 572,376 Maintenance 42,498 45,903 139,553 137,709 195,752 192,055 Depreciation 72,385 70,811 216,112 211,603 287,272 281,011 Amortization of phase-in deferrals 3,371 3,399 10,112 10,198 13,512 13,607 Amortization of post-in-service deferred operating expenses 1,091 (930) 3,272 (2,637) 4,400 (2,997) Income taxes 52,172 65,456 156,028 172,459 201,838 220,718 Taxes other than income taxes 67,002 63,549 203,215 196,095 264,935 259,562 1,215,627 615,443 2,853,398 1,934,302 3,603,578 2,583,299 Operating Income 139,479 150,261 397,221 432,231 523,248 567,495 Other Income and Expenses - Net Allowance for equity funds used during construction (182) 358 189 1,206 208 2,444 Post-in-service carrying costs - 391 - 1,228 (5) 1,231 Phase-in deferred return 2,002 2,093 6,006 6,279 8,099 8,413 Equity in earnings of unconsolidated subsidiary 3,782 8,014 42,462 10,447 57,445 10,447 Income taxes 3,211 3,538 7,655 9,085 18,106 10,493 Other - net (4,172) (4,758) (14,879) (18,384) (36,959) (19,211) 4,641 9,636 41,433 9,861 46,894 13,817 Income Before Interest and Other Charges 144,120 159,897 438,654 442,092 570,142 581,312 Interest and Other Charges Interest on long-term debt 43,525 46,522 137,777 143,678 184,716 196,935 Other interest 16,542 10,305 43,839 18,497 56,511 22,803 Allowance for borrowed funds used during construction (1,623) (1,455) (4,719) (4,235) (6,667) (5,976) Preferred dividend requirements of subsidiaries 3,142 6,495 9,617 19,941 12,856 26,710 61,586 61,867 186,514 177,881 247,416 240,472 Net Income Before Extraordinary Item $ 82,534 $ 98,030 $ 252,140 $ 264,211 $ 322,726 $ 340,840 Extraordinary Item - Equity Share of Windfall Profits Tax (less applicable income taxes of $0) (Note 5) (109,400) - (109,400) - (109,400) - Net Income (Loss) $ (26,866) $ 98,030 $ 142,740 $ 264,211 $ 213,326 $ 340,840 Costs of Reacquisition of Preferred Stock of Subsidiary - (18,175) - (18,175) (216) (18,175) Net Income (Loss) Applicable to Common Stock $ (26,866) $ 79,855 $ 142,740 $ 246,036 $ 213,110 $ 322,665 Average Common Shares Outstanding 157,679 157,679 157,679 157,678 157,679 157,633 Earnings Per Common Share Net income before extraordinary item $ 0.53 $ 0.63 $ 1.60 $ 1.68 $ 2.04 $ 2.17 Extraordinary item (0.69) - (0.69) - (0.69) - Net income (loss) $ (0.16) $ 0.63 $ 0.91 $ 1.68 $ 1.35 $ 2.17 Costs of reacquisition of preferred stock of subsidiary - (0.12) - (0.12) - (0.12) Net income (loss) applicable to common stock $ (0.16) $ 0.51 $ 0.91 $ 1.56 $ 1.35 $ 2.05 Dividends Declared Per Common Share $ 0.45 $ 0.43 $ 1.35 $ 1.29 $ 1.80 $ 1.72 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (unaudited) Cumulative Foreign Currency Common Paid-in Retained Translation Total Common Stock Capital Earnings Adjustment Stock Equity (dollars in thousands) Quarter Ended September 30, 1997 Balance July 1, 1997 $1,577 $1,570,533 $1,019,957 $ (720) $2,591,347 Net loss (26,866) (26,866) Dividends on common stock (See page 9 for per share amounts) (71,000) (71,000) Translation adjustments (514) (514) Other 994 118 1,112 Balance September 30, 1997 $1,577 $1,571,527 $ 922,209 $(1,234) $2,494,079 Quarter Ended September 30, 1996 Balance July 1, 1996 $1,577 $1,594,920 $ 981,003 $ (567) $2,576,933 Net income 98,030 98,030 Dividends on common stock (See page 9 for per share amounts) (67,802) (67,802) Translation adjustments (17) (17) Costs of reacquisition of preferred stock of subsidiary (18,175) (18,175) Other (2,527) (17) (2,544) Balance September 30, 1996 $1,577 $1,592,393 $ 993,039 $ (584) $2,586,425 Nine Months Ended September 30, 1997 Balance January 1, 1997 $1,577 $1,590,735 $ 992,273 $ (131) $2,584,454 Net income 142,740 142,740 Dividends on common stock (See page 9 for per share amounts) (212,910) (212,910) Translation adjustments (1,103) (1,103) Other (19,208) 106 (19,102) Balance September 30, 1997 $1,577 $1,571,527 $ 922,209 $(1,234) $2,494,079 Nine Months Ended September 30, 1996 Balance January 1, 1996 $1,577 $1,597,050 $ 950,216 $ - $2,548,843 Net income 264,211 264,211 Issuance of 8,988 shares of common stock - net 311 311 Dividends on common stock (See page 9 for per share amounts) (203,402) (203,402) Translation adjustments (584) (584) Costs of reacquisition of preferred stock of subsidiary (18,175) (18,175) Other (4,968) 189 (4,779) Balance September 30, 1996 $1,577 $1,592,393 $ 993,039 $ (584) $2,586,425 Twelve Months Ended September 30, 1997 Balance October 1, 1996 $1,577 $1,592,393 $ 993,039 $ (584) $2,586,425 Net income 213,326 213,326 Dividends on common stock (See page 9 for per share amounts) (283,866) (283,866) Translation adjustments (650) (650) Costs of reacquisition of preferred stock of subsidiary (216) (216) Other (20,866) (74) (20,940) Balance September 30, 1997 $1,577 $1,571,527 $ 922,209 $(1,234) $2,494,079 Twelve Months Ended September 30, 1996 Balance October 1, 1995 $1,572 $1,585,470 $ 941,652 $ - $2,528,694 Net income 340,840 340,840 Issuance of 539,343 shares of common stock - net 5 11,920 11,925 Common stock issuance expenses (38) (38) Dividends on common stock (See page 9 for per share amounts) (271,002) (271,002) Translation adjustments (584) (584) Costs of reacquisition of preferred stock of subsidiary (18,175) (18,175) Other (4,959) (276) (5,235) Balance September 30, 1996 $1,577 $1,592,393 $ 993,039 $ (584) $2,586,425 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date Twelve Months Ended September 30 September 30 1997 1996 1997 1996 (in thousands) Operating Activities Net income $ 142,740 $ 264,211 $ 213,326 $ 340,840 Items providing (using) cash currently: Depreciation 216,112 211,603 287,272 281,011 Deferred income taxes and investment tax credits - net 4,698 34,061 18,549 34,636 Equity in unconsolidated subsidiary (17,309) (10,447) (32,292) (10,447) Extraordinary item - equity share of windfall profits tax 109,400 - 109,400 - Allowance for equity funds used during construction (189) (1,206) (208) (2,444) Regulatory assets - net 57,316 (450) 97,048 9,845 Changes in current assets and current liabilities Restricted deposits (229) (357) (230) (1,400) Accounts and notes receivable, net of reserves on receivables sold (180,916) 227,237 (275,404) 123,562 Materials, supplies, and fuel 9,871 23,525 30,351 48,522 Accounts payable 175,165 (5,959) 218,405 89,126 Litigation settlement - - (80,000) - Accrued taxes and interest 22,719 (8,734) 36,922 19,678 Other items - net (25,845) (32,556) 44,557 (4,889) Net cash provided by operating activities 513,533 700,928 667,696 928,040 Financing Activities Issuance of common stock - 311 - 11,887 Issuance of long-term debt - - 150,217 - Funds on deposit from issuance of long-term debt - 973 - 86,276 Retirement of preferred stock of subsidiaries (16,182) (209,559) (19,110) (209,567) Redemption of long-term debt (336,312) (207,583) (365,912) (307,863) Change in short-term debt 323,128 651,654 243,891 533,454 Dividends on common stock (212,910) (203,402) (283,866) (271,002) Net cash provided by (used in) financing activities (242,276) 32,394 (274,780) (156,815) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (215,389) (203,977) (334,425) (296,939) Deferred demand-side management costs (16,961) (32,426) (28,879) (49,557) Investment in unconsolidated subsidiary - (503,349) - (503,349) Sale of investment in Argentine utility - - - 19,799 Net cash used in investing activities (232,350) (739,752) (363,304) (830,046) Net increase (decrease) in cash and temporary cash investments 38,907 (6,430) 29,612 (58,821) Cash and temporary cash investments at beginning of period 19,327 35,052 28,622 87,443 Cash and temporary cash investments at end of period $ 58,234 $ 28,622 $ 58,234 $ 28,622 The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. Below is information concerning the consolidated results of operations for Cinergy for the quarter, nine months, and twelve months ended September 30, 1997. For information concerning the results of operations for each of the other registrants for the same quarter and nine months ended, see the discussion under the heading RESULTS OF OPERATIONS following the financial statements of each company. RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 Kwh Sales Kwh sales increased 165.9% for the quarter ended September 30, 1997, from the comparable period of last year, primarily reflecting increased activity in Cinergy's power marketing and trading operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales levels were increased industrial and commercial sales, primarily reflecting growth in the primary metals sector and an increase in the number of commercial customers, respectively. These increases were partially offset by decreased residential sales for the quarter ended September 30, 1997, as compared to the same period last year, as a result of mild weather. Mcf Sales and Transportation Mcf gas sales for the quarter ended September 30, 1997, decreased 1.5% while Mcf transportation volumes increased 12.6%, when compared to the same period in 1996. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by Cinergy. Operating Revenues Electric Operating Revenues Electric operating revenues for the quarter ended September 30, 1997, increased $590 million (81%), as compared to the same period last year, primarily as a result of the increased kwh sales as previously discussed. Also contributing to the increase were the effects of the December 1996 DSM Order and the September 1996 Order (as amended by the August 1997 Order). An analysis of electric operating revenues is shown below: Quarter Ended September 30 (in millions) Electric operating revenues - September 30, 1996 $ 725 Increase (Decrease) due to change in: Price per kwh Retail 16 Sales for resale Firm power obligations (3) Non-firm power transactions 5 Total change in price per kwh 18 Kwh sales Retail 9 Sales for resale Firm power obligations 7 Non-firm power transactions 556 Total change in kwh sales 572 Electric operating revenues - September 30, 1997 $1 315 Gas Operating Revenues The increasing trend of industrial customers purchasing gas directly from producers and utilizing Cinergy facilities to transport the gas continues to put downward pressure on gas operating revenues. When Cinergy sells gas, the sales price reflects the cost of gas purchased by Cinergy to support the sale plus the costs to deliver the gas. When gas is transported, Cinergy does not incur any purchased gas costs but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Operating Expenses Fuel Used in Electric Production Electric fuel costs increased $13 million (7%), as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended September 30 (in millions) Fuel expense - September 30, 1996 $184 Increase (Decrease) due to change in: Price of fuel 6 Deferred fuel cost (1) Kwh generation 8 Fuel expense - September 30, 1997 $197 Gas Purchased Gas purchased for the quarter ended September 30, 1997, decreased $2 million (9%), when compared to the same period last year, reflecting decreased volumes purchased which were partially offset by an increase in the average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power increased $570 million for the quarter ended September 30, 1997, when compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Other Operation Other operation expenses for the quarter ended September 30, 1997, increased $28 million (22%), as compared to the same period of 1996. This increase is due, in part, to higher other operation expenses of PSI, primarily associated with the Clean Coal Project, amortization of deferred DSM expenses, and amortization of deferred expenses associated with the Clean Coal Project, all of which are being recovered in revenues pursuant to either the September 1996 Order or the December 1996 DSM Order. The effect of PSI discontinuing deferral of certain DSM-related costs in accordance with provisions of the December 1996 DSM Order also added to the increase. Further contributing to the increase is the effect of CG&E curtailing certain deferrals, associated with its DSM programs, for new participants after December 31, 1996, due to a December 1996 order issued by the PUCO that changed the benefit/cost tests that DSM programs must surpass in Ohio in order for certain DSM-related costs to be eligible for deferral. Maintenance For the quarter ended September 30, 1997, maintenance expenses decreased $3 million (7%), when compared to the quarter ended September 30, 1996. This decrease is due, in part, to reduced outage related charges associated with PSI's electric production facilities and reduced maintenance associated with CG&E's electric production facilities. Partially offsetting this decrease was an increase in maintenance expenses associated with CG&E's electric distribution facilities. Amortization of Post-in-service Deferred Operating Expenses Amortization of post-in-service deferred operating expenses reflects the amortization and related recovery in rates of various deferrals of depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes on certain generating units and other utility plant from the in-service date until the related plant was reflected in retail rates. Taxes Other Than Income Taxes The $3 million (5%) increase in taxes other than income taxes for the quarter ended September 30, 1997, as compared to the same period last year, is primarily due to an increase in the Ohio Gross Receipts Tax. Other Income and Expenses - Net Equity in Earnings of Unconsolidated Subsidiary The decrease in equity in earnings of unconsolidated subsidiary of $4 million (53%) for the quarter ended September 30, 1997, as compared to the same period in 1996, primarily resulted from the successful closing, in the third quarter of 1996, of a power development project by Midlands' international development business. Interest and Other Charges Interest on Long-term Debt Interest on long-term debt decreased $3 million (6%) for the quarter ended September 30, 1997, as compared to the same period last year, primarily reflecting the net redemption of approximately $200 million of long-term debt by CG&E and PSI during the period from August 1996 through September 1997. Other Interest Other interest increased $6 million (61%) for the quarter ended September 30, 1997, as compared to the same period last year, primarily reflecting interest expense on increased short-term borrowings used to fund CG&E's redemption of first mortgage bonds and Cinergy's investment in non-regulated companies, including Avon Energy. Preferred Dividend Requirements of Subsidiaries Preferred dividend requirements of subsidiaries decreased $3 million (52%) for the quarter ended September 30, 1997, as compared to the same period of 1996. This decrease is primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer in September 1996. Extraordinary Item - Equity Share of Windfall Profits Tax Extraordinary item - equity share of windfall profits tax represents the one-time charge for the windfall profits tax levied against Midlands and recorded in the third quarter of 1997. (See Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information.") Costs of Reacquisition of Preferred Stock of Subsidiary Costs of reacquisition of preferred stock of subsidiary represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Kwh Sales Kwh sales increased 90.1% for the nine months ended September 30, 1997, from the comparable period of last year, primarily reflecting increased activity in Cinergy's power marketing and trading operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales levels were increased industrial and commercial sales, primarily reflecting growth in the food products and primary metals sectors and an increase in the number of commercial customers, respectively. These increases were partially offset by decreased residential sales for the first nine months of 1997, as compared to the same period last year, as a result of mild weather. Mcf Sales and Transportation Mcf gas sales for the nine months ended September 30, 1997, decreased 11.2%, while Mcf transportation volumes increased 9.1%, when compared to the same period in 1996. Decreased Mcf sales reflect, in part, cold weather during the first nine months of 1996, as compared to mild weather during the same period of 1997, and were partially offset by increases in residential and commercial customers. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by Cinergy. Operating Revenues Electric Operating Revenues Electric operating revenues for the nine months ended September 30, 1997, increased $864 million (42%), as compared to the same period last year, primarily as a result of the increased kwh sales as previously discussed. Also contributing to the increase were the effects of the December 1996 DSM Order and the September 1996 Order (as amended by the August 1997 Order), and the return of approximately $13 million to customers in 1996 in accordance with the February 1995 Order. The February 1995 Order required all retail operating income above a certain rate of return to be refunded to customers. Partially offsetting these increases was the operation of CG&E's fuel adjustment clauses reflecting a lower average cost per kwh. An analysis of electric operating revenues is shown below: Nine Months Ended September 30 (in millions) Electric operating revenues - September 30, 1996 $2 060 Increase (Decrease) due to change in: Price per kwh Retail 21 Sales for resale Firm power obligations (9) Non-firm power transactions 32 Total change in price per kwh 44 Kwh sales Retail (14) Sales for resale Firm power obligations 8 Non-firm power transactions 826 Total change in kwh sales 820 Electric operating revenues - September 30, 1997 $2 924 Gas Operating Revenues For a discussion of the continued trend of downward pressure on gas operating revenues from increased transportation services, refer to the discussion under the caption "Gas Operating Revenues" for Cinergy in "Results of Operations for the Quarter Ended September 30, 1997." Gas operating revenues increased $21 million (7%) for the nine months ended September 30, 1997, when compared to the same period last year. Contributing to the increase was the December 1996 Order approving an overall average increase in gas revenues for CG&E of 2.5% ($9 million annually) and the operation of a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased. This increase was partially offset by the previously discussed changes in Mcf gas sales. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $32 million (6%), as compared to the same period last year. An analysis of these fuel costs is shown below: Nine Months Ended September 30 (in millions) Fuel expense - September 30, 1996 $539 Increase (Decrease) due to change in: Price of fuel (1) Deferred fuel cost (37) Kwh generation 6 Fuel expense - September 30, 1997 $507 Gas Purchased Gas purchased for the nine months ended September 30, 1997, increased $25 million (17%), when compared to the same period last year, reflecting an increase in the average cost per Mcf of gas purchased which was partially offset by a decrease in volumes purchased. Purchased and Exchanged Power Purchased and exchanged power increased $868 million for the nine months ended September 30, 1997, when compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Other Operation Other operation expenses for the first nine months of 1997 increased by $55 million (13%), as compared to the same period of 1996. This increase is primarily due to higher other operation expenses of PSI relating to the Clean Coal Project, amortization of deferred DSM expenses, and amortization of deferred expenses associated with the Clean Coal Project, all of which are being recovered in revenues pursuant to either the September 1996 Order or the December 1996 DSM Order. The effect of PSI discontinuing deferral of certain DSM-related costs in accordance with provisions of the December 1996 DSM Order also added to the increase. Further contributing to the increase is the effect of CG&E curtailing certain deferrals, associated with its DSM programs, for new participants after December 31, 1996, due to a December 1996 order issued by the PUCO that changed the benefit/cost tests that DSM programs must surpass in Ohio in order for certain DSM- related costs to be eligible for deferral. These increases were partially offset by the effect of CGE's charges in the second quarter of 1996 for early retirement and severance programs. Amortization of Post-in-service Deferred Operating Expenses Amortization of post-in-service deferred operating expenses reflects the amortization and related recovery in rates of various deferrals of depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes on certain generating units and other utility plant from the in-service date until the related plant was reflected in retail rates. Other Income and Expenses - Net Equity in Earnings of Unconsolidated Subsidiary The increase in equity in earnings of unconsolidated subsidiary of $32 million for the nine months ended September 30, 1997, as compared to the same period last year, primarily reflects the effect of the investment in Midlands for a full nine months in 1997. Midlands was purchased during the second quarter of 1996. Other - net The change in other - net of $4 million (19%) for the nine months ended September 30, 1997, from the same period of 1996, is primarily due to a gain of approximately $4 million in 1997 on the sale of a PSI investment and a loss of approximately $5 million in 1996 on the sale of a foreign subsidiary. A number of miscellaneous items, including expenses of approximately $2 million associated with the acquisition of GEP's assets, in the nine months ended 1997, partially offset these increases. Interest and Other Charges Other Interest Other interest increased $25 million for the nine months ended September 30, 1997, as compared to the same period last year, primarily reflecting interest expense on increased short-term borrowings used to fund CG&E's redemption of first mortgage bonds and Cinergy's investment in non-regulated companies, including Avon Energy. Preferred Dividend Requirements of Subsidiaries Preferred dividend requirements of subsidiaries decreased $10 million (52%) for the nine months ended September 30, 1997, as compared to the same period of 1996. This decrease is primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer in September 1996. Extraordinary Item - Equity Share of Windfall Profits Tax Extraordinary item - equity share of windfall profits tax represents the one-time charge for the windfall profits tax levied against Midlands and recorded in the third quarter of 1997. (See Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information.") Costs of Reacquisition of Preferred Stock of Subsidiary Costs of reacquisition of preferred stock represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997 Kwh Sales Kwh sales increased 73.4% for the twelve months ended September 30, 1997, from the comparable period of last year, primarily reflecting increased activity in Cinergy's power marketing and trading operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales levels were increased industrial and commercial sales, primarily reflecting growth in the primary metals sector and an increase in the number of commercial customers, respectively. These increases were partially offset by decreased residential sales for the twelve months ended September 30, 1997, as compared to the same period last year, as a result of mild weather. Mcf Sales and Transportation Mcf gas sales for the twelve months ended September 30, 1997, decreased 10.7% while Mcf transportation volumes increased 10.4%, when compared to the same period in 1996. Decreased Mcf sales reflect, in part, cold weather during the twelve months ended September 1996, as compared to mild weather during the same period of 1997, and were partially offset by an increase in the number of residential, commercial and industrial customers. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by Cinergy. Operating Revenues Electric Operating Revenues Electric operating revenues increased $932 million (35%) for the twelve months ended September 30, 1997, from the comparable period last year, reflecting increased kwh sales as previously discussed and the effects of the December 1996 DSM Order, the September 1996 Order (as amended by the August 1997 Order), and the return of approximately $16 million to customers in 1996 in accordance with the February 1995 Order. The February 1995 Order required all retail operating income above a certain rate of return to be refunded to customers. These increases were partially offset by the operation of CG&E's fuel adjustment clauses reflecting a lower average cost per kwh. An analysis of electric operating revenues is shown below: Twelve Months Ended September 30 (in millions) Electric operating revenues - September 30, 1996 $2 700 Increase (Decrease) due to change in: Price per kwh Retail 34 Sales for resale Firm power obligations (9) Non-firm power transactions 30 Total change in price per kwh 55 Kwh sales Retail (8) Sales for resale Firm power obligations 10 Non-firm power transactions 873 Total change in kwh sales 875 Other 2 Electric operating revenues - September 30, 1997 $3 632 Gas Operating Revenues For a discussion of the continued trend of downward pressure on gas operating revenues from increased transportation services, refer to the discussion under the caption "Gas Operating Revenues" for Cinergy in "Results of Operations for the Quarter Ended September 30, 1997." Gas operating revenues increased $44 million (10%) for the twelve months ended September 30, 1997, when compared to the same period last year. Contributing to the increase was the December 1996 Order approving an overall average increase in gas revenues for CG&E of 2.5% ($9 million annually) and the operation of a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased. This increase was partially offset by the previously discussed changes in Mcf gas sales. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $29 million (4%), as compared to the same period last year. An analysis of these fuel costs is shown below: Twelve Months Ended September 30 (in millions) Fuel expense - September 30, 1996 $711 Increase (Decrease) due to change in: Price of fuel (11) Deferred fuel cost (25) Kwh generation 6 Fuel expense - September 30, 1997 $681 Gas Purchased Gas purchased for the twelve months ended September 30, 1997, increased $48 million (21%) when compared to the same period last year, reflecting an increase in the average cost per Mcf of gas purchased which was partially offset by a decrease in volumes purchased. Purchased and Exchanged Power Purchased and exchanged power increased $917 million for the twelve months ended September 30, 1997, when compared to the same period of last year, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Other Operation Other operation increased $81 million (14%) for the twelve months ended September 30, 1997, as compared to the same period last year, due, in part, to expenses associated with the Clean Coal Project and increases related to the amortization of DSM deferred expenses and the amortization of deferred expenses associated with the Clean Coal Project, all of which are being recovered in revenues pursuant to the September 1996 Order and the December 1996 DSM Order. Also contributing to the increase were the charges for disallowances associated with the December 1996 Order and the effect of PSI discontinuing deferral of certain DSM-related costs in accordance with provisions of the December 1996 DSM Order. Further adding to the increase is the effect of CG&E curtailing certain deferrals, associated with its DSM programs, for new participants after December 31, 1996, due to a December 1996 order issued by the PUCO that changed the benefit/cost tests that DSM programs must surpass in Ohio in order for certain DSM- related costs to be eligible for deferral. Amortization of Post-in-service Deferred Operating Expenses Amortization of post-in-service deferred operating expenses reflects the amortization and related recovery in rates of various deferrals of depreciation, operation and maintenance expenses (exclusive of fuel costs), and property taxes on certain generating units and other utility plant from the in-service date until the related plant was reflected in retail rates. Other Income and Expenses - Net Equity in Earnings of Unconsolidated Subsidiary The increase in equity in earnings of unconsolidated subsidiary of $47 million for the twelve months ended September 30, 1997, as compared to the same period last year, represents the effect of the investment in Midlands for a full twelve month period ending September 1997. Midlands was purchased during the second quarter of 1996. Other - net The change in other - net of $18 million (92%) for the twelve months ended September 30, 1997, as compared to the same period last year, is primarily due to charges of approximately $14 million associated with the December 1996 Order and increased expenses of approximately $13 million associated with the sales of accounts receivable for PSI, CG&E, and ULH&P. These expenses were partially offset by a gain of approximately $4 million in 1997 on the sale of a PSI investment and a loss of approximately $5 million in 1996 on the sale of a foreign subsidiary. Interest and Other Charges Interest on Long-term Debt Interest on long-term debt decreased $12 million (6%) for the twelve months ended September 30, 1997, as compared to the same period last year, primarily reflecting the net redemption of approximately $360 million of long-term debt by CG&E, PSI, and ULH&P during the period from January 1996 through September 1997. Other Interest Other interest increased $34 million for the twelve months ended September 30, 1997, as compared to the same period last year, primarily reflecting interest expense on increased short-term borrowings used to fund CG&E's redemption of first mortgage bonds and Cinergy's investment in non-regulated companies, including Avon Energy. Preferred Dividend Requirements of Subsidiaries The decrease in preferred dividend requirements of subsidiaries of $14 million (52%) for the twelve months ended September 30, 1997, from the same period of 1996, is primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer in September 1996. Extraordinary Item - Equity Share of Windfall Profits Tax Extraordinary item - equity share of windfall profits tax represents the one-time charge for the windfall profits tax levied against Midlands and recorded in the third quarter of 1997. (See Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information.") Costs of Reacquisition of Preferred Stock of Subsidiary Costs of reacquisition of preferred stock of subsidiary represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. THE CINCINNATI GAS & ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1997 1996 (dollars in thousands) Utility Plant - Original Cost In service Electric $4,684,367 $4,631,605 Gas 737,681 713,829 Common 187,733 185,255 5,609,781 5,530,689 Accumulated depreciation 1,978,151 1,868,579 3,631,630 3,662,110 Construction work in progress 109,394 95,984 Total utility plant 3,741,024 3,758,094 Current Assets Cash and temporary cash investments 8,211 5,120 Restricted deposits 1,173 1,171 Notes receivable from affiliated companies 9,764 31,740 Accounts receivable less accumulated provision for doubtful accounts of $10,373 at September 30, 1997, and $9,178 at December 31, 1996 176,933 117,912 Accounts receivable from affiliated companies 8,725 2,453 Materials, supplies, and fuel - at average cost Fuel for use in electric production 26,796 29,865 Gas stored for current use 37,680 32,951 Other materials and supplies 49,948 52,023 Property taxes applicable to subsequent year 30,895 123,580 Prepayments and other 23,245 32,433 373,370 429,248 Other Assets Regulatory assets Amounts due from customers - income taxes 332,677 344,126 Post-in-service carrying costs and deferred operating expenses 136,377 141,492 Deferred merger costs 16,975 17,709 Deferred demand-side management costs 37,048 33,534 Phase-in deferred return and depreciation 91,057 95,163 Unamortized costs of reacquiring debt 37,472 38,439 Other 8,192 19,545 Other 97,823 89,908 757,621 779,916 $4,872,015 $4,967,258 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CAPITALIZATION AND LIABILITIES September 30 December 31 1997 1996 (dollars in thousands) Common Stock Equity Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at September 30, 1997, and December 31, 1996 $ 762,136 $ 762,136 Paid-in capital 534,612 536,276 Retained earnings 275,399 247,403 Total common stock equity 1,572,147 1,545,815 Cumulative Preferred Stock Not subject to mandatory redemption 20,907 21,146 Long-term Debt 1,222,831 1,381,108 Total capitalization 2,815,885 2,948,069 Current Liabilities Long-term debt due within one year - 130,000 Notes payable and other short-term obligations 358,000 214,488 Notes payable to affiliated companies 35,435 103 Accounts payable 246,398 166,064 Accounts payable to affiliated companies 17,937 12,726 Accrued taxes 171,721 267,841 Accrued interest 26,870 30,570 Other 28,087 32,191 884,448 853,983 Other Liabilities Deferred income taxes 776,653 767,085 Unamortized investment tax credits 118,539 123,185 Accrued pension and other postretirement benefit costs 175,473 165,282 Other 101,017 109,654 1,171,682 1,165,206 $4,872,015 $4,967,258
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date September 30 September 30 1997 1996 1997 1996 (in thousands) Operating Revenues Electric Non-affiliated companies $667,301 $382,718 $1,467,043 $1,109,300 Affiliated companies 5,071 7,634 18,931 27,889 Gas Non-affiliated companies 39,941 40,787 326,964 306,062 Affiliated companies 3 4 5 5 712,316 431,143 1,812,943 1,443,256 Operating Expenses Fuel used in electric production 88,741 82,449 219,338 267,007 Gas purchased 15,601 17,133 175,395 150,313 Purchased and exchanged power Non-affiliated companies 295,528 10,355 460,299 24,021 Affiliated companies 3,094 5,821 7,731 14,576 Other operation 75,842 66,786 235,014 235,513 Maintenance 21,009 22,844 72,302 68,745 Depreciation 40,834 40,322 122,116 120,557 Amortization of phase-in deferrals 3,371 3,399 10,112 10,198 Amortization of post-in-service deferred operating expenses 823 786 2,468 2,431 Income taxes 36,014 41,675 106,851 115,902 Taxes other than income taxes 52,980 49,820 159,001 154,733 633,837 341,390 1,570,627 1,163,996 Operating Income 78,479 89,753 242,316 279,260 Other Income and Expenses - Net Allowance for equity funds used during construction (52) 358 154 1,206 Phase-in deferred return 2,002 2,093 6,006 6,279 Income taxes 3,290 819 10,026 4,299 Other - net (3,782) (1,505) (12,818) (6,095) 1,458 1,765 3,368 5,689 Income Before Interest 79,937 91,518 245,684 284,949 Interest Interest on long-term debt 25,973 30,304 83,849 93,392 Other interest 3,002 522 7,260 1,466 Allowance for borrowed funds used during construction (1,342) (813) (3,482) (2,598) 27,633 30,013 87,627 92,260 Net Income $ 52,304 $ 61,505 $ 158,057 $ 192,689 Preferred Dividend Requirement 217 3,475 653 10,423 Costs of reacquisition of preferred stock - 18,175 - 18,175 Net Income Applicable to Common Stock $ 52,087 $ 39,855 $ 157,404 $ 164,091 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date September 30 1997 1996 (in thousands) Operating Activities Net income $ 158,057 $ 192,689 Items providing (using) cash currently: Depreciation 122,116 120,557 Deferred income taxes and investment tax credits - net 18,238 31,408 Allowance for equity funds used during construction (154) (1,206) Regulatory assets - net 22,261 25,226 Changes in current assets and current liabilities Restricted deposits (2) (27) Accounts and notes receivable, net of reserves on receivables sold (42,472) 201,972 Materials, supplies, and fuel 415 (2,379) Accounts payable 85,545 (33,609) Accrued taxes and interest (7,135) 5,974 Other items - net 329 (9,326) Net cash provided by operating activities 357,198 531,279 Financing Activities Retirement of preferred stock (158) - Redemption of long-term debt (290,612) (157,583) Change in short-term debt 178,844 83,600 Dividends on preferred stock (655) (10,423) Dividends on common stock (127,800) (327,020) Net cash used in financing activities (240,381) (411,426) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (106,612) (95,677) Deferred demand-side management costs (7,114) (14,070) Net cash used in investing activities (113,726) (109,747) Net increase in cash and temporary cash investments 3,091 10,106 Cash and temporary cash investments at beginning of period 5,120 6,612 Cash and temporary cash investments at end of period $ 8,211 $ 16,718 The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 Kwh Sales For the quarter ended September 30, 1997, kwh sales increased 185.3% when compared to the same period last year primarily due to increased activity in Cinergy's power marketing and trading operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales were increased industrial and commercial sales, primarily reflecting growth in the primary metals sector and an increase in the number of commercial customers, respectively. These increases were partially offset by decreased residential sales for the quarter ended September 30, 1997, as compared to the same period last year, as a result of mild weather. Mcf Sales and Transportation Mcf gas sales for the quarter ended September 30, 1997, decreased 1.5% while Mcf transportation volumes increased 12.6%, when compared to the same period in 1996. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by CG&E. Operating Revenues Electric Operating Revenues Electric operating revenues for the quarter ended September 30, 1997, increased $282 million (72%), from the comparable period of last year, primarily reflecting increased kwh sales as previously discussed. An analysis of electric operating revenues is shown below: Quarter Ended September 30 (in millions) Electric operating revenues - September 30, 1996 $390 Increase (Decrease) due to change in: Price per kwh Retail (2) Sales for resale Non-firm power transactions 19 Total change in price per kwh 17 Kwh sales Retail 10 Sales for resale Non-firm power transactions 255 Total change in kwh sales 265 Electric operating revenues - September 30, 1997 $672 Gas Operating Revenues The increasing trend of industrial customers purchasing gas directly from producers and utilizing CG&E facilities to transport the gas continues to put downward pressure on gas operating revenues. When CG&E sells gas, the sales price reflects the cost of gas purchased by CG&E to support the sale plus the costs to deliver the gas. When gas is transported, CG&E does not incur any purchased gas costs but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Operating Expenses Fuel Used in Electric Production Electric fuel costs increased $7 million (8%) for the quarter ended September 30, 1997, as compared to the same period last year. An analysis of these fuel costs is shown below: Quarter Ended September 30 (in millions) Fuel expense - September 30, 1996 $82 Increase due to change in: Price of fuel 3 Deferred fuel cost 1 Kwh generation 3 Fuel expense - September 30, 1997 $89 Gas Purchased Gas purchased for the quarter ended September 30 1997, decreased $2 million (9%), when compared to the same period last year, reflecting decreased volumes purchased which were partially offset by an increase in the average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power for the quarter ended September 30, 1997, increased $282 million over the comparable period of 1996, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Other Operation Other operation expenses increased $9 million (14%) for the quarter ended September 30, 1997, as compared to the same period of 1996. This increase is primarily attributable to the effect of CG&E curtailing certain deferrals related to its DSM programs for new participants after December 31, 1996, due to a December 1996 order issued by the PUCO that changed the benefit/cost tests that DSM programs must surpass in Ohio in order for certain DSM-related costs to be eligible for deferral. Maintenance The $2 million (8%) decrease in maintenance expenses for the quarter ended September 30, 1997, as compared to the same period of 1996, is primarily associated with electric production facilities. Partially offsetting this decrease was an increase in maintenance expenses associated with electric distribution facilities. Taxes Other Than Income Taxes The $3 million (6%) increase in taxes other than income taxes for the quarter ended September 30, 1997, as compared to the same period last year, is primarily due to an increase in the Ohio Gross Receipts Tax. Other Income and Expenses - Net Other - net The change in other - net of $2 million for the quarter ended September 30, 1997, as compared to the same period last year, is primarily attributable to a decrease in interest income due to a reduction in short-term loans to affiliated companies through Cinergy's money pool arrangement. Interest Interest on Long-term Debt Interest on long-term debt decreased $4 million (14%) for the quarter ended September 30, 1997, as compared to the same period of 1996, primarily due to the redemption of $290 million of long-term debt during 1997. Other Interest The $2 million increase in other interest for the third quarter of 1997, as compared to the third quarter of 1996, is primarily due to increased interest expense on short-term borrowings used to fund the acquisition of approximately 90% of the outstanding preferred stock of CG&E during the third quarter of 1996 and the redemption of first mortgage bonds. Preferred Dividend Requirement The preferred dividend requirement decreased $3 million (94%) for the third quarter of 1997, as compared to the same period in 1996. This decrease is primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer during the third quarter of 1996. Costs of Reacquisition of Preferred Stock Costs of reacquisition of preferred stock represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Kwh Sales Kwh sales increased 93.2% for the nine months ended September 30, 1997, from the comparable period of last year, primarily reflecting increased activity in Cinergy's power marketing and trading operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales levels were increased industrial and commercial sales, primarily reflecting growth in the primary metals and food products sectors and an increase in the number of commercial customers, respectively. These increases were partially offset by decreased residential sales for the first nine months of 1997, as compared to the same period last year, as a result of mild weather. Mcf Sales and Transportation Mcf gas sales for the nine months ended September 30, 1997, decreased 11.2%, while Mcf transportation volumes increased 9.1%, when compared to the same period in 1996. Decreased Mcf sales reflect, in part, cold weather during the first nine months of 1996, as compared to the mild weather during the same period of 1997, and were partially offset by an increase in residential and commercial customers. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by CG&E. Operating Revenues Electric Operating Revenues Electric operating revenues for the nine months ended September 30, 1997, increased $349 million (31%), as compared to the same period last year. This increase primarily reflects the increased kwh sales as previously discussed. Partially offsetting this increase was the operation of CG&E's fuel adjustment clauses reflecting a lower average cost per kwh. An analysis of electric operating revenues is shown below: Nine Months Ended September 30 (in millions) Electric operating revenues - September 30, 1996 $1 137 Increase (Decrease) due to change in: Price per kwh Retail (42) Sales for resale Non-firm power transactions 37 Total change in price per kwh (5) Kwh sales Retail (18) Sales for resale Firm power obligations (1) Non-firm power transactions 374 Total change in kwh sales 355 Other (1) Electric operating revenues - September 30, 1997 $1 486 Gas Operating Revenues For a discussion of the continued trend of downward pressure on gas operating revenues from increased transportation services, refer to the discussion under the caption "Gas Operating Revenues" for CG&E in "Results of Operations for the Quarter Ended September 30, 1997." Gas operating revenues increased $21 million (7%) for the nine months ended September 30, 1997, when compared to the same period last year. Contributing to the increase was the December 1996 Order approving an overall average increase in gas revenues for CG&E of 2.5% ($9 million annually) and the operation of a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased. This increase was partially offset by the previously discussed changes in Mcf gas sales. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $48 million (18%) for the nine months ended September 30, 1997, as compared to the same period last year. An analysis of these fuel costs is shown below: Nine Months Ended September 30 (in millions) Fuel expense - September 30, 1996 $267 Increase (Decrease) due to change in: Price of fuel 2 Deferred fuel cost (47) Kwh generation (3) Fuel expense - September 30, 1997 $219 Gas Purchased Gas purchased for the nine months ended September 30, 1997, increased $25 million (17%) when compared to the same period last year, reflecting an increase in the average cost per Mcf of gas purchased which was partially offset by a decrease in volumes purchased. Purchased and Exchanged Power Purchased and exchanged power for the nine months ended September 30, 1997, increased $429 million over the comparable period of 1996, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Maintenance The $4 million (5%) increase in maintenance expenses for the nine months ended September 30, 1997, as compared to the same period of 1996, is primarily due to scheduled outages at Beckjord and Miami Fort, and a forced outage at Zimmer, all of which occurred during the first quarter of 1997. Increased maintenance expenses, associated with electric distribution facilities, for the current nine month time period also contributed to the higher level of expenses. Other Income and Expenses - Net Other - net The change in other - net of $7 million in the first nine months of 1997, as compared to the same period of 1996, is attributable, in part, to a decrease in interest income due to a reduction in short-term loans to affiliated companies through Cinergy's money pool arrangement. Also contributing to the increase was a higher level of expenses associated with CG&E's and ULH&P's sales of accounts receivables. Interest Interest on Long-term Debt Interest on long-term debt decreased $10 million (10%) for the nine months ended September 30, 1997, as compared to the same period of 1996, primarily due to the redemption or maturity of $290 million of long-term debt during the period from March 1997 to September 1997. Other Interest The $6 million increase in other interest for the first nine months of 1997, as compared to the first nine months of 1996, is primarily due to increased interest expense on short-term borrowings used to fund the acquisition of approximately 90% of the outstanding preferred stock of CG&E during the third quarter of 1996 and the redemption of first mortgage bonds. Preferred Dividend Requirement The preferred dividend requirement decreased $10 million (94%) for the first nine months of 1997, as compared to the same period in 1996. This decrease is primarily attributable to the reacquisition of approximately 90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer during the third quarter of 1996. Costs of Reacquisition of Preferred Stock Costs of reacquisition of preferred stock represents the difference between the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender offer in September 1996 and the purchase price paid (including tender fees paid to dealer managers) by Cinergy for these shares. PSI ENERGY, INC. AND SUBSIDIARY COMPANIES
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1997 1996 (dollars in thousands) Electric Utility Plant - Original Cost In service $4,260,374 $4,178,181 Accumulated depreciation 1,780,823 1,723,279 2,479,551 2,454,902 Construction work in progress 60,295 76,630 Total electric utility plant 2,539,846 2,531,532 Current Assets Cash and temporary cash investments 21,230 2,911 Restricted deposits 777 550 Notes receivable 138 299 Notes receivable from affiliated companies 50,511 3 Accounts receivable less accumulated provision for doubtful accounts of $808 at September 30, 1997, and $1,269 at December 31, 1996 182,792 73,990 Accounts receivable from affiliated companies 17,582 4,016 Materials, supplies, and fuel - at average cost Fuel 30,975 41,865 Other materials and supplies 29,702 28,268 Prepayments and other 4,681 3,184 338,388 155,086 Other Assets Regulatory assets Amounts due from customers - income taxes 35,661 33,068 Post-in-service carrying costs and deferred operating expenses 44,100 44,904 Coal contract buyout costs 125,029 138,171 Deferred merger costs 74,887 76,290 Deferred demand-side management costs 78,683 101,208 Unamortized costs of reacquiring debt 30,305 32,079 Other 48,928 52,938 Other 134,972 129,667 572,565 608,325 $3,450,799 $3,294,943 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CAPITALIZATION AND LIABILITIES September 30 December 31 1997 1996 (dollars in thousands) Common Stock Equity Common stock - without par value; $0.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at September 30, 1997, and December 31, 1996 $ 539 $ 539 Paid-in capital 400,855 402,947 Retained earnings 628,538 626,089 Total common stock equity 1,029,932 1,029,575 Cumulative Preferred Stock Not subject to mandatory redemption 157,209 173,086 Long-term Debt 875,788 945,270 Total capitalization 2,062,929 2,147,931 Current Liabilities Long-term debt due within one year 35,000 10,000 Notes payable and other short-term obligations 310,345 171,729 Notes payable to affiliated companies - 13,186 Accounts payable 222,932 114,330 Accounts payable to affiliated companies 4,555 12,850 Accrued taxes 98,693 73,206 Accrued interest 14,482 24,045 Other 2,688 17,107 688,695 436,453 Other Liabilities Deferred income taxes 364,635 372,997 Unamortized investment tax credits 50,156 52,750 Accrued pension and other postretirement benefit costs 111,880 98,037 Other 172,504 186,775 699,175 710,559 $3,450,799 $3,294,943
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date September 30 September 30 1997 1996 1997 1996 (in thousands) Operating Revenues Non-affiliated companies $647,864 $342,199 $1,456,612 $951,171 Affiliated companies 3,123 5,856 7,768 14,691 650,987 348,055 1,464,380 965,862 Operating Expenses Fuel 108,375 101,644 288,126 272,343 Purchased and exchanged power Non-affiliated companies 311,753 26,665 502,938 71,422 Affiliated companies 5,100 7,669 18,968 28,004 Other operation 81,253 62,434 243,040 188,443 Maintenance 21,489 23,059 67,251 68,964 Depreciation 31,551 30,489 93,996 91,046 Amortization of post-in-service deferred operating expenses 268 (1,716) 804 (5,068) Income taxes 16,159 23,445 49,451 55,597 Taxes other than income taxes 14,011 13,729 44,191 41,361 589,959 287,418 1,308,765 812,112 Operating Income 61,028 60,637 155,615 153,750 Other Income and Expenses - Net Allowance for equity funds used during construction (130) - 35 - Post-in-service carrying costs - 391 - 1,228 Income taxes (5,795) (2,438) (6,639) (3,332) Other - net 6,946 3,280 11,019 1,420 1,021 1,233 4,415 (684) Income Before Interest 62,049 61,870 160,030 153,066 Interest Interest on long-term debt 17,552 16,218 53,928 50,286 Other interest 4,098 3,790 10,630 10,386 Allowance for borrowed funds used during construction (281) (642) (1,237) (1,637) 21,369 19,366 63,321 59,035 Net Income $ 40,680 $ 42,504 $ 96,709 $ 94,031 Preferred Dividend Requirement 2,925 3,020 8,964 9,518 Net Income Applicable to Common Stock $ 37,755 $ 39,484 $ 87,745 $ 84,513 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Year to Date September 30 1997 1996 (in thousands) Operating Activities Net income $ 96,709 $ 94,031 Items providing (using) cash currently: Depreciation 93,996 91,046 Deferred income taxes and investment tax credits - net (13,548) 5,145 Allowance for equity funds used during construction (35) - Regulatory assets - net 35,055 (25,676) Changes in current assets and current liabilities Restricted deposits (227) (335) Accounts and notes receivable, net of reserves on receivables sold (175,510) 23,039 Materials, supplies, and fuel 9,456 25,679 Accounts payable 100,307 17,058 Accrued taxes and interest 15,924 (12,467) Other items - net (6,985) (810) Net cash provided by operating activities 155,142 216,710 Financing Activities Funds on deposit from issuance of long-term debt - 973 Retirement of preferred stock (16,024) (15,114) Redemption of long-term debt (45,700) (50,000) Change in short-term debt 125,430 63,500 Dividends on preferred stock (9,059) (9,609) Dividends on common stock (85,200) (82,363) Net cash used in financing activities (30,553) (92,613) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (96,423) (107,061) Deferred demand-side management costs (9,847) (18,356) Net cash used in investing activities (106,270) (125,417) Net increase (decrease) in cash and temporary cash investments 18,319 (1,320) Cash and temporary cash investments at beginning of period 2,911 15,522 Cash and temporary cash investments at end of period $ 21,230 $ 14,202 The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 Kwh Sales Kwh sales increased 129.9% for the third quarter of 1997, from the comparable period last year, primarily due to higher non-firm power sales for resale resulting from increased activity in Cinergy's power marketing and trading operations. Also contributing to the higher kwh sales levels were increased industrial and commercial sales, primarily reflecting growth in the primary metals and transportation sectors and an increase in the number of commercial customers, respectively. These increases were partially offset by decreased residential sales for the quarter ended September 30, 1997, as compared to the same period last year, as a result of mild weather. Operating Revenues Operating revenues increased $303 million (87%) for the quarter ended September 30, 1997, when compared to the same period last year, reflecting, in part, increased kwh sales as previously discussed. Also contributing to the increase were the effects of the December 1996 DSM Order the September 1996 Order (as amended by the August 1997 Order). An analysis of operating revenues is shown below: Quarter Ended September 30 (in millions) Operating revenues - September 30, 1996 $348 Increase (Decrease) due to change in: Price per kwh Retail 17 Sales for resale Firm power obligations (2) Non-firm power transactions 45 Total change in price per kwh 60 Kwh sales Sales for resale Firm power obligations 7 Non-firm power transactions 236 Total change in kwh sales 243 Operating revenues - September 30, 1997 $651 Operating Expenses Fuel Fuel costs increased $7 million (7%) for the third quarter of 1997, as compared to the same period last year. An analysis of fuel costs is shown below: Quarter Ended September 30 (in millions) Fuel expense - September 30, 1996 $102 Increase (Decrease) due to change in: Price of fuel 2 Deferred fuel cost (1) Kwh generation 6 Fuel expense - September 30, 1997 $109 Purchased and Exchanged Power For the quarter ended September 30, 1997, purchased and exchanged power increased $283 million, as compared to the same period last year, due primarily to increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Other Operation Other operation expenses increased $19 million (30%) for the quarter ended September 30, 1997, as compared to the same period last year. This increase is primarily due to increased production expenses associated with the Clean Coal Project and increases related to the amortization of deferred DSM expenses and the amortization of deferred expenses associated with the Clean Coal Project, all of which are being recovered in revenues pursuant to either the September 1996 Order or the December 1996 DSM Order. Also contributing to the increase is the effect of discontinuing deferral of certain DSM-related costs in accordance with provisions of the December 1996 DSM Order. Maintenance The $2 million (7%) decrease in maintenance expenses for the third quarter of 1997, as compared to the same period of 1996, is primarily due to reduced outage related charges associated with PSI's production facilities. Amortization of the Post-in-service Deferred Operating Expenses Amortization of post-in-service deferred operating expenses reflects the amortization and related recovery in rates of depreciation deferred on certain major projects, primarily environmental in nature, from the in-service date until the related projects are reflected in retail rates. Other Income and Expenses - Net Other - net The change of $4 million for other - net for the quarter ended September 30, 1997, as compared to the same period of 1996, is primarily attributable to a gain of approximately $4 million in 1997 on the sale of an investment and an increase in interest income related to an increase of $.5 million in short-term loans to affiliated companies through Cinergy's money pool arrangement. Interest Interest on Long-term Debt Interest on long-term debt increased $1 million (8%) for the quarter ended September 30, 1997, as compared to the same period of 1996. The increase was primarily due to the net issuance of approximately $100 million of long-term debt during the third and fourth quarters of 1996. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Kwh Sales For the nine months ended September 30, 1997, kwh sales increased 73.1%, when compared to the same period last year, primarily due to increased activity in Cinergy's power marketing and trading operations which led to higher non-firm power sales for resale. Also contributing to the higher kwh sales was an increase in industrial sales primarily reflecting growth in the primary metals sector. Partially offsetting these increases were the effects of mild weather during the period. Operating Revenues Total operating revenues increased $498 million (52%) for the nine months ended September 30, 1997, when compared to the same period last year, primarily as a result of the increased kwh sales as previously discussed. Also contributing to the increase were the effects of the December 1996 DSM Order and the September 1996 Order (as amended by the August 1997 Order), and the return of approximately $13 million to customers in 1996 in accordance with the February 1995 Order. The February 1995 Order required all retail operating income above a certain rate of return to be refunded to customers. An analysis of operating revenues is shown below: Nine Months Ended September 30 (in millions) Operating revenues - September 30, 1996 $ 966 Increase (Decrease) due to change in: Price per kwh Retail 65 Sales for resale Firm power obligations (9) Non-firm power transactions 77 Total change in price per kwh 133 Kwh sales Retail 1 Sales for resale Firm power obligations 8 Non-firm power transactions 355 Total change in kwh sales 364 Other 1 Operating revenues - September 30, 1997 $1 464 Operating Expenses Fuel Fuel costs for the nine months ended September 30, 1997, increased $16 million (6%) when compared to the same period last year. An analysis of fuel costs is shown below: Nine Months Ended September 30 (in millions) Fuel expense - September 30, 1996 $272 Increase (Decrease) due to change in: Price of fuel (4) Deferred fuel cost 10 Kwh generation 10 Fuel expense - September 30, 1997 $288 Purchased and Exchanged Power For the nine months ended September 30, 1997, purchased and exchanged power increased $422 million, as compared to the same period last year, primarily reflecting increased purchases of non-firm power for resale to others as a result of increased activity in Cinergy's power marketing and trading operations. Other Operation Other operation expenses increased $55 million (29%) for the nine months ended September 30, 1997, as compared to the same period last year. This increase was primarily due to increased production expenses associated with the Clean Coal Project and increases related to the amortization of deferred DSM expenses and the amortization of deferred expenses associated with the Clean Coal Project, all of which are being recovered in revenues pursuant to either the September 1996 Order or the December 1996 DSM Order. Also contributing to the increase is the effect of discontinuing deferral of certain DSM-related costs in accordance with provisions of the December 1996 DSM Order. Amortization of Post-in-service Deferred Operating Expenses Amortization of post-in-service deferred operating expenses reflects the amortization and related recovery in rates of depreciation deferred on certain major projects, primarily environmental in nature, from the in- service date until the related projects are reflected in retail rates. Taxes Other than Income Taxes The $3 million (7%) increase in taxes other than income taxes for the nine months ended September 30, 1997, as compared to the same period last year, is primarily due to an increase in the Indiana Corporate Gross Income Tax. Other Income and Expenses - Net Other - net The change of $10 million for other - net for the nine months ended September 30, 1997, as compared to the same period of 1996, is due to a number of factors, including a gain of approximately $4 million in 1997 on the sale of an investment and an increase of approximately $1 million in interest income related to an increase in short-term loans to affiliated companies through Cinergy's money pool arrangement. Interest Interest on Long-term Debt Interest on long-term debt increased $4 million (7%) for the nine month period ended September 30, 1997, as compared to the same period of 1996. The increase was primarily due to the net issuance of approximately $90 million of long-term debt during the period from August 1996 to March 1997. THE UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1997 1996 (dollars in thousands) Utility Plant - Original Cost In service Electric $202,941 $195,053 Gas 152,758 148,203 Common 19,233 19,285 374,932 362,541 Accumulated depreciation 131,039 122,310 243,893 240,231 Construction work in progress 10,035 9,050 Total utility plant 253,928 249,281 Current Assets Cash and temporary cash investments 2,790 1,197 Notes receivable from affiliated companies - 100 Accounts receivable less accumulated provision for doubtful accounts of $1,350 at September 30, 1997, and $1,024 at December 31, 1996 4,657 12,763 Accounts receivable from affiliated companies 325 620 Materials, supplies, and fuel - at average cost Gas stored for current use 6,727 6,351 Other materials and supplies 694 716 Property taxes applicable to subsequent year 650 2,600 Prepayments and other 520 370 16,363 24,717 Other Assets Regulatory assets Deferred merger costs 5,218 5,218 Unamortized costs of reacquiring debt 3,628 3,764 Other 2,669 2,357 Other 7,000 5,146 18,515 16,485 $288,806 $290,483 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY CAPITALIZATION AND LIABILITIES September 30 December 31 1997 1996 (dollars in thousands) Common Stock Equity Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 at September 30, 1997, and December 31, 1996 $ 8,780 $ 8,780 Paid-in capital 18,683 18,839 Retained earnings 97,025 92,484 Total common stock equity 124,488 120,103 Long-term Debt 44,657 44,617 Total capitalization 169,145 164,720 Current Liabilities Notes payable to affiliated companies 24,661 30,649 Accounts payable 4,312 12,018 Accounts payable to affiliated companies 14,658 16,771 Accrued taxes 5,895 1,014 Accrued interest 957 1,284 Other 4,089 5,248 54,572 66,984 Other Liabilities Deferred income taxes 31,495 33,463 Unamortized investment tax credits 4,587 4,797 Accrued pension and other postretirement benefit costs 13,693 12,983 Income taxes refundable through rates 6,978 5,121 Other 8,336 2,415 65,089 58,779 $288,806 $290,483
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF INCOME (unaudited) Quarter Ended Year to Date September 30 September 30 1997 1996 1997 1996 (in thousands) Operating Revenues Electric $56,666 $52,704 $152,560 $147,970 Gas Non-affiliated companies 8,581 5,646 53,369 50,713 Affiliated companies 66 14 256 81 65,313 58,364 206,185 198,764 Operating Expenses Electricity purchased from parent company for resale 44,237 39,850 113,992 109,337 Gas purchased 3,002 2,129 30,006 26,252 Other operation 7,968 7,268 24,705 23,664 Maintenance 1,434 1,093 4,493 3,445 Depreciation 3,048 3,013 9,229 8,887 Income taxes 1,003 1,067 6,648 7,824 Taxes other than income taxes 905 986 3,119 3,092 61,597 55,406 192,192 182,501 Operating Income 3,716 2,958 13,993 16,263 Other Income and Expenses - Net Allowance for equity funds used during construction 10 42 33 21 Income taxes 272 4 570 31 Other - net (606) (436) (1,567) (1,079) (324) (390) (964) (1,027) Income Before Interest 3,392 2,568 13,029 15,236 Interest Interest on long-term debt 881 881 2,643 3,135 Other interest 317 167 951 433 Allowance for borrowed funds used during construction (45) (26) (82) (90) 1,153 1,022 3,512 3,478 Net Income $ 2,239 $ 1,546 $ 9,517 $ 11,758 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS (unaudited) Year to Date September 30 1997 1996 (in thousands) Operating Activities Net income $ 9,517 $ 11,758 Items providing (using) cash currently: Depreciation 9,229 8,887 Deferred income taxes and investment tax credits - net (322) 7,607 Allowance for equity funds used during construction (33) (21) Regulatory assets - net (312) 80 Changes in current assets and current liabilities Accounts and notes receivable, net of reserves on receivables sold 7,687 29,590 Materials, supplies, and fuel (354) (2,621) Accounts payable (9,819) (11,463) Accrued taxes and interest 6,504 1,446 Other items - net 5,267 (3,866) Net cash provided by operating activities 27,364 41,397 Financing Activities Redemption of long-term debt - (26,083) Change in short-term debt (5,988) (1,450) Dividends on common stock (4,975) - Net cash used in financing activities (10,963) (27,533) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (14,808) (12,827) Net cash used in investing activities (14,808) (12,827) Net increase in cash and temporary cash investment 1,593 1,037 Cash and temporary cash investments at beginning of period 1,197 1,750 Cash and temporary cash investments at end of period $ 2,790 $ 2,787 The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 Kwh Sales Kwh sales increased 6.6% for the quarter ended September 30, 1997, from the comparable period last year, primarily due to growth in residential and commercial sales reflecting, in part, an increase in the number of customers. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the quarter ended September 30, 1997, increased 31.5%, when compared to the same period in 1996. This increase is primarily attributable to an adjustment resulting from the annual reconciliation performed during the third quarter related to unbilled Mcf gas sales. An increase in the number of residential customers and the trend of industrial customers purchasing gas directly from suppliers, using transportation services provided by ULH&P, also contributed to the increase. Operating Revenues Electric Operating Revenues Electric operating revenues for the quarter ended September 30, 1997, increased $4 million (8%), as compared to the same period last year, as a result of the increased kwh sales as previously discussed. Gas Operating Revenues The increasing trend of industrial customers purchasing gas directly from producers and utilizing ULH&P facilities to transport the gas continues to put downward pressure on gas operating revenues. When ULH&P sells gas, the sales price reflects the cost of gas purchased by ULH&P to support the sale plus the costs to deliver the gas. When gas is transported, ULH&P does not incur any purchased gas costs but delivers gas the customer has purchased from other sources. Since providing transportation services does not necessitate recovery of gas purchased costs, the revenue per Mcf transported is less than the revenue per Mcf sold. As a result, a higher relative volume of gas transported to gas sold translates into lower gas operating revenues. Gas operating revenues increased $3 million (52.8%) in the third quarter of 1997, when compared to the same period of last year. The increase is primarily attributable to the previously discussed increase in Mcf gas sales and the operation of a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased increased $4.4 million (11%) for the quarter ended September 30, 1997, as compared to the same period last year. This increase is primarily attributable to higher kwh purchased. Gas Purchased Gas purchased for the quarter ended September 30, 1997, increased $.9 million (41%) from the third quarter of last year, reflecting an increase in the average cost per Mcf of gas purchased. Other Operation The $.7 million (10%) increase in other operation expenses for the third quarter of 1997, as compared to the same period of 1996, is primarily due to higher administrative and general expenses. Partially offsetting this increase were lower gas distribution and electric transmission expenses. Maintenance The $.3 million (31%) increase in maintenance expenses for the third quarter of 1997, as compared to the same period of 1996, is primarily due to increased maintenance expenses associated with gas and electric distribution facilities. This increase was partially offset by decreased maintenance expenses associated with gas production facilities. Other Income and Expenses - Net Other - net The change in other - net of $.2 million (39%) for the quarter ended September 30, 1997, as compared to the same period of 1996, is primarily attributable to a higher level of expenses associated with the sales of accounts receivables and a decrease in interest income related to a reduction in short-term loans to affiliated companies through Cinergy's money pool arrangement. Interest Other Interest Other interest charges increased $.2 million (90%) for the quarter ended September 30, 1997, as compared to the same period of 1996, primarily due to increased short-term borrowings. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Kwh Sales Kwh sales remained relatively constant for the nine months ended September 30, 1997, from the comparable period of last year. Increased industrial and commercial sales, primarily reflecting growth in the primary metals sector and an increase in the number of commercial customers, respectively, were substantially offset by decreased residential sales as a result of mild weather. Mcf Sales and Transportation For the nine months ended September 30, 1997, Mcf gas sales and transportation volumes decreased 2.3%, as compared to the same period in 1996. Decreased Mcf gas sales reflect, in part, cold weather during the first nine months of 1996, as compared to the same period of 1997, and were slightly offset by an increase in the number of residential customers. Industrial sales declined and gas transportation volumes increased as customers continued the trend of purchasing gas directly from suppliers, using transportation services provided by ULH&P. Operating Revenues Gas Operating Revenues For a discussion of the continued trend of downward pressure on gas operating revenues from increased transportation services, refer to the discussion under the caption "Gas Operating Revenues" for ULH&P in "Results of Operations for the Quarter Ended September 30, 1997." Gas operating revenues increased $3 million (6%) for the nine month period ended September 30, 1997, when compared to the same period of last year. This increase is primarily attributable to the operation of a gas cost recovery mechanism reflecting a higher average cost per Mcf of gas purchased and was partially offset by the effect of the previously discussed changes in Mcf gas sales. Operating Expenses Maintenance The $1.0 million (30%) increase in maintenance expenses for the nine months ended September 30, 1997, as compared to the same period of 1996, is primarily due to increased maintenance expenses associated with gas and electric distribution facilities. This increase is partially offset by decreased maintenance expenses associated with gas production facilities. Other Income and Expenses - Net Other - net The change of $.5 million (45%) for other - net for the nine months ended September 30, 1997, as compared to the same period of 1996, is primarily attributed to a higher level of expenses associated with the sales of accounts receivables. Interest Interest on Long-term Debt Interest charges decreased $.5 million (16%) for the nine months ended September 30, 1997, from the same period of 1996, primarily due to the redemption of $10 million of long-term debt in May 1996. Other Interest Other interest charges increased $.5 million for the nine months ended September 30, 1997, as compared to the same period of 1996, primarily due to increased short-term borrowings used to fund the redemption of first mortgage bonds. This increase was partially offset by interest charges recorded in 1996 on customer rate refunds. NOTES TO FINANCIAL STATEMENTS Cinergy, CG&E, PSI, and ULH&P 1. These Financial Statements reflect all adjustments (which include only normal, recurring adjustments) necessary in the opinion of the registrants for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 1996 Form 10-K of the registrants. Certain amounts in the 1996 Financial Statements have been reclassified to conform to the 1997 presentation. Cinergy and CG&E 2. In March 1997, CG&E retired $16 million principal amount of its 8.95% Series First Mortgage Bonds, due December 15, 2021. In April 1997, CG&E redeemed the remaining $84 million principal amount of such bonds at a price of 100% through the M&R Fund provisions of its first mortgage bond indenture. CG&E also redeemed, in April 1997, the entire $60 million principal amount of its 8 1/8% Series First Mortgage Bonds, due August 1, 2003, at a redemption price of 100.72% through the M&R Fund. Cinergy and PSI On September 1, 1997, PSI redeemed all outstanding shares of its 7.15% Cumulative Preferred Stock (158,640 shares) at a redemption price of $101 per share. Cinergy and PSI 3. In February 1997, the City of Princeton, Indiana, loaned the proceeds from the sale of its $35 million Pollution Control Revenue Refunding Bonds, 1997 Series, to PSI. Proceeds from the issuance were used to refund, in March 1997, the outstanding $35 million City of Princeton, Indiana, 7.60% Pollution Control Refunding Revenue Bonds, 1987 Series, which previously refunded the City of Princeton, Indiana, 12.75% Pollution Control Revenue Bonds 1982 Series B, which were issued to finance PSI's portion of the costs of acquiring and constructing PSI's undivided interest in certain pollution control and solid waste disposal facilities at Gibson. The 1997 Series bonds were issued in an initial daily rate mode and will mature April 1, 2022, subject to redemption prior to maturity. Pursuant to the loan agreement between PSI and Princeton, PSI will make loan payments sufficient to pay, when due, principal and interest on the 1997 Series bonds. Holders of the 1997 Series and the 1996 Series bonds have the right to put their bonds on any business day. Accordingly, these issuances are reflected in the Consolidated Balance Sheets as "Notes payable and other short-term obligations." Cinergy and CG&E On October 9, 1997, CG&E issued and sold $100 million principal amount of its LANCEs. The LANCEs will mature on October 1, 2007 but are subject to optional redemption prior to that date. Interest on the LANCEs will float during the first two years at LIBOR plus an agreed upon spread, with a fixed rate being set at 6.50% commencing October 1, 1999. Holders of not less than 66 2/3% in aggregate principal amount of the LANCEs shall have the one-time right to convert from the 6.50% fixed rate to a floating rate of LIBOR plus an agreed upon spread at any interest rate payment date between October 1, 1999 and October 1, 2002. Proceeds from the sale were used to repay a portion of CG&E's outstanding short-term indebtedness. Cinergy, CG&E, PSI, and ULH&P 4. In February 1997, the FASB issued Statement 128, which is effective December 31, 1997, for Cinergy. Statement 128 replaces the calculation and disclosure of primary and fully diluted earnings per share under Opinion 15 with basic and diluted earnings per share. Statement 128 also requires certain disclosures regarding the determination of earnings per share amounts presented in the accompanying income statements that were not previously required under Opinion 15. Earnings per share presented in the accompanying income statements has been computed in accordance with the provisions of Opinion 15. Earnings per share for the quarter, year to date, and twelve months ended September 30, 1997, determined in accordance with the provisions of Statement 128, would not have been significantly different from amounts shown. Cinergy, CG&E, PSI, and ULH&P In June 1997, the FASB issued Statement 130, which is effective for fiscal years beginning after December 15, 1997. Statement 130 establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. Cinergy, CG&E, PSI, and ULH&P In June 1997, the FASB issued Statement 131, which supersedes Statement 14. It is effective for fiscal years beginning after December 15, 1997, with less detailed disclosures being required for interim periods beginning the first quarter of 1999. Statement 131 requires that companies disclose segment information based on how management makes decisions for allocating resources to and measuring the performance of segments. It also requires certain entity-wide disclosures to be made about revenues generated by types of products and services, revenues generated from operations and the dollar amount of long-lived asset balances maintained in the country of domicile as well as foreign countries in which there are material operations, and the identity of and amount of revenues generated from major customers. Cinergy 5. Cinergy accounts for its 50% investment in Avon Energy, which owns 100% of Midlands, using the equity method of accounting. Avon Energy acquired Midlands during the second and third quarters of 1996, with substantially all of the Midlands' common stock being acquired during the second quarter. Accordingly, Midlands' results are fully reflected in the quarter, year to date, and twelve months ended September 30, 1997. During the third quarter, a "windfall profits tax" was enacted into law in the UK. The tax was levied against a limited number of British companies, including Midlands. The tax is intended to be recovery of funds by the government due to the under valuing of the companies subject to the tax when they were privatized by the government via public stock offerings several years ago. Cinergy's share of the tax to be paid by Midlands is approximately $109 million, to be paid in two equal installments due December 1, 1997 and 1998. As management believes this charge to be unusual in nature, and does not expect such a charge to reoccur, the tax has been recorded as an extraordinary item in the Consolidated Statement of Income during the third quarter. No related tax benefit has been recorded for the charge as the windfall profits tax is not deductible for corporate income tax purposes in the UK, and Cinergy expects that benefits, if any, derived for U.S. Federal income taxes will not be significant. Also, during the third quarter, legislation lowering the UK corporate tax rate from 33% to 31% was enacted into law. As a result, deferred tax liabilities at Avon Energy and Midlands were adjusted downward. The amount of this adjustment, after giving effect to U.S. Federal income taxes with respect to Cinergy's investment in Avon Energy, was not significant. Cinergy and CG&E 6. As discussed in the 1996 Form 10-K, the PUCO issued its December 1996 Order approving an overall average increase in gas revenues for CG&E of 2.5% ($9.3 million annually). The PUCO disallowed certain of CG&E's requests, including the requested working capital allowance, recovery of certain capitalized information systems development costs, and certain merger-related costs. These disallowances resulted in a pretax charge to earnings during the fourth quarter of $20 million ($15 million net of taxes or $.10 per share). CG&E's request for a rehearing on the disallowed information systems costs and other aspects of the order was denied. On April 14, 1997, CG&E filed a notice of appeal with the Supreme Court of Ohio challenging the disallowance of information systems costs and the exclusion of certain imputed revenues. Cinergy and CG&E cannot predict what action the Supreme Court of Ohio may take with respect to this appeal. Cinergy, CG&E, and PSI 7. Cinergy and its subsidiaries use derivative financial instruments to hedge exposures to foreign currency exchange rates, lower funding costs and reduce exposures to fluctuations in interest rates. Instruments used as hedges must be designated as a hedge at the inception of the contract and must be effective at reducing the risk associated with the exposure being hedged. Accordingly, changes in market values of designated hedge instruments must be highly correlated with changes in market values of the underlying hedged items at inception of the hedge and over the life of the hedge contract. Cinergy uses a currency swap to hedge exposures to fluctuations in foreign currency exchange rates. The currency swap is accounted for as a hedge of Cinergy's pound sterling denominated net investment in Avon Energy. Accordingly, any translation gains or losses on the currency swap are recorded in the cumulative foreign currency translation adjustment which is a separate component of common stock equity and the estimated fair value of the currency swap is reflected in "Other Liabilities - Other" in the Consolidated Balance Sheets. Cinergy and its subsidiaries enter into interest rate swap agreements to lower funding costs and manage exposures to fluctuations in interest rates. Interest rate swaps are accounted for under the accrual method. Accordingly, gains and losses based on any interest differential between fixed-rate and floating-rate interest amounts, calculated on agreed upon notional principal amounts, are recognized in the Consolidated Statements of Income as a component of interest expense as realized over the life of the agreement. Cinergy actively markets and trades over-the-counter contracts for the purchase and sale of electricity. The majority of these contracts are fixed-price forward purchase and sales contracts, which require physical delivery of electricity. Cinergy also enters into option contracts, the majority of these being on physical electricity. To the extent options are exercised, they are settled via physical delivery of electricity or netted out in accordance with industry trading standards. Option premiums are deferred and included in the Consolidated Balance Sheet and amortized to "Operating Revenues - Electric" or "Purchased and exchanged power" in the Consolidated Statement of Income over the term of the option contract. Cinergy values its portfolio of over-the-counter and option contracts using the aggregate lower of cost or market method. To the extent there are net aggregate losses in the portfolio, Cinergy will reserve for such losses. Net gains are recognized when realized. The use of these types of derivative instruments allows Cinergy to manage and hedge its contractual commitments, reduce its exposure relative to the volatility of cash market prices, and take advantage of selected arbitrage opportunities. Option contracts and derivative instruments requiring settlement in cash are used on a limited basis and the impacts of such instruments are not significant to Cinergy's Consolidated Financial Statements. During June 1997, Capital & Trading acquired the assets of GEP. Capital & Trading specializes in energy risk management, marketing, and proprietary arbitrage trading. Capital & Trading actively trades derivative commodity instruments including futures, forwards, swaps, and options. Capital & Trading accounts for these derivatives at fair value with unrealized gains and losses reflected in its statement of operations. At September 30, 1997, the operations of Capital & Trading were not significant to the Consolidated Financial Statements of Cinergy. Cinergy, CG&E, PSI, and ULH&P 8. As discussed in the 1996 Form 10-K, in March 1997, Cinergy's utility subsidiaries, including CG&E, PSI, and ULH&P and other Cinergy system companies, which participate in the money pooling arrangement, filed an application with the SEC under the PUHCA requesting authorization of the money pool through December 31, 2002. In May 1997, the SEC issued an order authorizing Cinergy's utility subsidiaries and other Cinergy system companies to continue use of the money pool and granting other financing transactions for which the companies requested approval, in each case, through December 31, 2002. Cinergy and PSI 9. As discussed in the 1996 Form 10-K, the UCC and the CAC filed a Joint Petition for the Reconsideration and Rehearing of the September 1996 Order with the IURC in October of 1996. A settlement agreement was filed May 27, 1997, with the IURC regarding the petition for rehearing and/or reconsideration filed by the UCC and the CAC in PSI's latest rate order dated October 2, 1996. On August 27, 1997, the IURC issued an order which approved the settlement agreement in its entirety. The settlement agreement reduces the original rate increase by $2.1 million (.2%). Major provisions of the settlement agreement include PSI increasing annual amortization of certain regulatory assets by $4.1 million, the reflection of an August 31, 1995 cut-off date for costs to achieve merger savings with amounts subsequent to that date and prior to October 31, 1996 being deferred for subsequent recovery (reduces rates $.9 million annually), and PSI reducing its jurisdictional revenues by $1 million annually in addition to the $.9 million reduction related to costs to achieve merger savings. Cinergy, CG&E, and ULH&P 10. As discussed in the 1996 Form 10-K, under the PUHCA, the divestiture of CG&E's gas operations may be required. In its order approving the merger, the SEC reserved judgment over Cinergy's ownership of CG&E's gas operations for three years, at the end of which period Cinergy would be required to address the matter, in light of the applicable requirements under the PUHCA, on the merits. In August 1997, the SEC issued an order permitting another electric registered holding company to retain gas operations comparable in size to those of CG&E. On October 17, 1997, Cinergy made a filing with the SEC requesting a deferral on the gas retention issue for an additional year, until October 21, 1998, in order to afford Cinergy sufficient time to prepare a revised and updated economic analysis of a hypothetical divestiture of the CG&E gas operations in light of and consistent with, the SEC's recent order noted above. That analysis is relevant to the SEC's ultimate determination on this question. Cinergy believes it has a justifiable basis for retention of its gas operations and will continue its pursuit of SEC approval. Cinergy and PSI 11. As discussed in the 1996 Form 10-K, IGC and PSI had entered into negotiations regarding IGC's claim that PSI should contribute to IGC's response costs related to investigating and remediating contamination at 18 of the 19 MGP sites which PSI sold to IGC. In August 1997, PSI reached an agreement with IGC settling IGC's claims against PSI pursuant to CERCLA and other laws for contribution to IGC's past and future response costs involving 13 MGP sites conveyed by PSI to IGC in 1945. The agreement with IGC calls for sharing past and future response costs equally (50/50) at the 13 sites. Further, the parties must jointly approve future management of the sites and the decisions to spend additional funds. The settlement does not address five sites PSI acquired from NIPSCO and subsequently sold to IGC (including the Lafayette site). Resolution of liability on these five sites will require further negotiations among all three companies. On August 29, 1997, NIPSCO filed suit against PSI in the United States District Court for the Northern District of Indiana, South Bend Division, claiming, pursuant to CERCLA, recovery from PSI of NIPSCO's past and future costs of investigating and remediating MGP related contamination at the Goshen MGP site. NIPSCO alleged that PSI and its predecessors previously owned and operated the Goshen MGP. NIPSCO also alleged that it has already incurred about $400,000 in response costs at the site and that remediation of the site will cost about $2.7 million. PSI denied liability in its answer to the complaint. The case has not yet been scheduled for trial. PSI has notified its general liability insurance carriers of the settlement with IGC and the NIPSCO lawsuit. Based on information received to date, PSI's potential exposure to probable and reasonably estimable liabilities associated with various MGP sites, including the 13 sites which are the subject of the agreement with IGC and the Goshen site which is the subject of NIPSCO's complaint, would not be material to its financial condition or results of operations. However, further investigation and remediation activities at these sites may indicate that the potential liability for MGP sites could be material. As also discussed in the 1996 Form 10-K, IGC petitioned the Indiana Supreme Court to review the January 1997 Court of Appeals decision. The Court of Appeals decision affirmed the IURC's denial of IGC's request for recovery of MGP costs. In August 1997, the Indiana Supreme Court denied transfer of this case. Accordingly, the IURC's decision denying rate recovery for these costs by IGC remains intact. PSI is unable to predict the extent to which it will be able to recover through rates any MGP site investigation and remediation costs ultimately incurred. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Recent Developments Cinergy Securities Ratings In October 1997, Cinergy's newly instituted commercial paper program received credit ratings of A-2, D-2, P-2, and F-2 from S&P, D&P, Moody's, and Fitch, respectively. For additional information relating to such commercial paper program, see "CAPITAL RESOURCES-Short-term Debt" herein. During the second quarter of 1997, S&P, D&P, and Fitch assigned a BBB+ rating to Cinergy and Moody's assigned a Baa2 rating to Cinergy. These ratings are not assigned to specific issues of long-term debt, rather they are indicative corporate ratings. In assigning the rating, Fitch stated, "The ratings primarily reflect the credit strength and favorable competitive position of CIN's two domestic operating companies, which are the principal source of the parent company's cash flow." Cinergy Joint Venture In September 1997, Cinergy announced a joint venture with Florida Progress Corporation and New Century Energies to form Cadence. The three owners will each have a one-third interest in the new company. Cadence will provide a single source for both energy management services and products designed to lower energy costs for national companies that operate in multiple locations across the country. Cinergy, CG&E, PSI and ULH&P Ambient Air Standards The EPA recently revised the NAAQS for ozone and fine particulate matter. These new rules increase the pressure for additional emissions reductions. On September 23, 1997, Cinergy announced a proposal to reduce its NOx emissions rate by two-thirds to .25 pounds of NOx per million Btu. Cinergy's preliminary cost estimate for the two-thirds reduction was between $74 and $204 million. Subsequent to Cinergy's announcement, the EPA announced on October 10, 1997, its proposed call for revisions to SIPs for state wide reductions in NOx emissions, proposing utility NOx emissions at a rate of .15 pounds per million Btu. The EPA's schedule calls for all reductions to be in place by 2002. These initiatives will force significant reductions in NOx emissions from many sources. The EPA has stated that electric utility generating facilities specifically are targeted. The final total level of NOx reductions will depend upon the outcome of the SIP revision process. Reductions could be as high as 85% from 1990 levels during the summer ozone season. Cinergy estimates that the capital costs for additional NOx controls at its facilities at the rate proposed by the EPA could exceed $540 million over the next five years depending upon the final level of reductions and the time frame. The impact of the particulate standards cannot be determined at this time. The EPA estimates it will take up to five years to collect sufficient ambient air monitoring data. The states will then determine the sources of these particulates and determine a reduction strategy. The ultimate effect of the new standard could be requirements for newer and cleaner technologies and additional controls on conventional particulates and/or reductions in sulfur dioxide and NOx emissions from utility sources. Since these studies and determinations have not been made, Cinergy cannot predict the outcome or effect of the new particulate standards on its operation. Regulatory Matters Cinergy and CG&E CG&E's Gas Rate Proceeding See Note 6 of the "Notes to Financial Statements" in "Part I. Financial Information." Cinergy and CG&E CG&E's Customer Choice Pilot On July 2, 1997, the PUCO approved implementation of a pilot program which will allow residential customers to choose their gas supplier and have CG&E transport the gas for them effective November 1, 1997. The pilot extends to residential customers the choice that has been available for several years to large volume commercial and industrial customers. Cinergy, CG&E, and ULH&P Potential Divestiture of Gas Operations Under the PUHCA, the divestiture of CG&E's gas operations may be required. In its order approving the merger, the SEC reserved judgment over Cinergy's ownership of CG&E's gas operations for three years, at the end of which period Cinergy would be required to address the matter, in light of the applicable requirements under the PUHCA, on the merits. In August 1997, the SEC issued an order permitting another electric registered holding company to retain gas operations comparable in size to those of CG&E. On October 17, 1997, Cinergy made a filing with the SEC requesting a deferral on the gas retention issue for an additional year, until October 21, 1998, in order to afford Cinergy sufficient time to prepare a revised and updated economic analysis of a hypothetical divestiture of the CG&E gas operations in light of and consistent with, the SEC's recent order noted above. That analysis is relevant to the SEC's ultimate determination on this question. Cinergy believes it has a justifiable basis for retention of its gas operations and will continue its pursuit of SEC approval. Cinergy and PSI PSI's Retail Rate Proceeding See Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information." Accounting Issues Cinergy, CG&E, PSI, and ULH&P New Accounting Standards See Note 4 of the "Notes to Financial Statements" in "Part I. Financial Information." CAPITAL RESOURCES Cinergy, CG&E, PSI, and ULH&P Long-term Debt For information regarding recent securities issuances and redemptions, see Notes 2 and 3 of the "Notes to Financial Statements" in "Part I. Financial Information." In June 1997, CG&E received from the PUCO authorization through June 1998, to, among other things: 1) issue and sell up to $400 million of debt securities; and 2) enter into $200 million of capital lease obligations. Also in June 1997, the KPSC authorized ULH&P to, among other things, issue and sell through September 1999, up to $50 million of long-term debt. On September 10, 1997, PSI received authorization from the IURC through March 31, 1999, to, among other things: 1) issue and sell up to $300 million of debt securities; and 2) enter into $100 million of capital lease obligations. Cinergy, CG&E, PSI, and ULH&P Short-term Debt The operating subsidiary companies of Cinergy have the following short-term debt authorizations and lines of credit: Committed Unused Authorized Lines__ Lines (in millions) Cinergy & Subsidiaries $853 $275 $162 CG&E & Subsidiaries 453 90 60 PSI 400 185 102 ULH&P 50 - - Cinergy's $500 million acquisition commitment and $200 million revolving agreement have $11 million and $127 million, respectively, unused as of September 30, 1997. Both facilities expire in May 2001. The revolving credit agreement was increased to $400 million on October 28, 1997, to provide credit support for Cinergy's newly instituted commercial paper program. Such program is limited to a maximum outstanding principal amount of $200 million. As of November 13, 1997, Cinergy had sold $150 million of commercial paper under this program, the proceeds of which were used to repay $150 million of the $500 million acquisition commitment. Cinergy UK's $40 million non-recourse credit agreement was terminated on October 22, 1997. This agreement was replaced by a $115 million non-recourse credit agreement which has $45 million outstanding as of November 13, 1997. Lastly, as discussed in Note 5 of the "Notes to Financial Statements" in "Part I. Financial Information," a windfall profits tax was levied against Midlands. This tax will be paid in two equal installments due December 1, 1997 and 1998. Cinergy anticipates that Midlands and/or Avon Energy will borrow the funds to finance the tax payments. POWER MARKETING AND TRADING Cinergy, CG&E, and PSI As discussed in the 1996 Form 10-K, the transactions associated with Cinergy's power marketing and trading function give rise to market risk and credit risk. Market risk represents the potential risk of loss from changes in the market value of a particular commitment arising from adverse changes in market rates and prices. Credit risk represents the potential risk of loss which would occur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. Cinergy's power marketing and trading operations are actively conducted in all regions of the United States. These operations subject Cinergy to the risks and volatilities associated with the energy commodities which it markets and trades. The wholesale power marketing and trading business continues to be very competitive and, as a result, margins have declined throughout the year. As Cinergy continues to develop and expand its power marketing and trading business (and due to its substantial investment in generating assets), its exposure to movements in the price of electricity and other energy commodities will become greater. As a result, Cinergy may ultimately be subject to increased earnings volatility. Cinergy has established a risk management function and has implemented active risk management policies and procedures designed to manage the Company's exposure to market and credit risks. These policies and procedures are reviewed and monitored on a continuous basis to ensure their responsiveness to changing market and business conditions. RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P Reference is made to "ITEM 1. FINANCIAL STATEMENTS" in "PART I. FINANCIAL INFORMATION. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Cinergy, CG&E, and PSI See Notes 6, 9, and 11 of the "Notes to Financial Statements" in "Part I. Financial Information." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit Designation Nature of Exhibit Cinergy and CG&E\tab \tab 4-a Third Supplemental Indenture between CG&E and The Fifth Third Bank, as Trustee dated October 9, 1997. Cinergy, CG&E, PSI, and ULH&P 27 Financial Data Schedules (included in electronic submission only). Cinergy, CG&E, PSI, and ULH&P (b) No reports on Form 8-K were filed during the quarter. SIGNATURES Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy, CG&E, PSI, and ULH&P, these statements reflect all adjustments (which include only normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized. CINERGY CORP. THE CINCINNATI GAS & ELECTRIC COMPANY PSI ENERGY, INC. THE UNION LIGHT, HEAT AND POWER COMPANY Registrants Date: November 13, 1997 John P. Steffen Duly Authorized Officer and Chief Accounting Officer EX-27 2 CG&E 09/30/97 10-Q
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1997 JAN-01-1997 SEP-30-1997 9-MOS PER-BOOK 3,741,024 0 373,370 659,798 97,823 4,872,015 762,136 534,612 275,399 1,572,147 0 20,907 1,222,831 393,435 0 0 0 0 0 0 1,662,695 4,872,015 1,812,943 106,851 1,463,776 1,570,627 242,316 3,368 245,684 87,627 158,057 653 157,404 127,800 83,849 357,198 0.00 0.00
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