-----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, LoB6ohitIeL7wtGt2FVE5q8FD4tZzmKwd1oTJGn6c5ERZ6pd3kwSgPiPVwYHjxlD pYgmqvotCUy5VVB9pxtQsQ== 0000072843-96-000007.txt : 19961209 0000072843-96-000007.hdr.sgml : 19961209 ACCESSION NUMBER: 0000072843-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHERN INDIANA PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000072843 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 350552990 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04125 FILM NUMBER: 96662657 BUSINESS ADDRESS: STREET 1: 5265 HOHMAN AVE CITY: HAMMOND STATE: IN ZIP: 46320-1775 BUSINESS PHONE: 2198535200 MAIL ADDRESS: STREET 1: 5265 HOHMAN AVENUE CITY: HAMMOND STATE: IN ZIP: 46320-1775 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1996 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to ________________ Commission file number 1-4125 NORTHERN INDIANA PUBLIC SERVICE COMPANY (Exact name of registrant as specified in its charter) Indiana 35-0552990 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5265 Hohman Avenue, Hammond, Indiana 46320-1775 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (219) 853-5200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- As of October 31, 1996, 73,282,258 common shares were outstanding. NIPSCO INDUSTRIES, INC. Part I. FINANCIAL INFORMATION Item I. FINANCIAL STATEMENTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors of NIPSCO Industries, Inc.: We have audited the accompanying consolidated balance sheet of Northern Indiana Public Service Company (an Indiana corporation and a wholly owned subsidiary of NIPSCO Industries, Inc.) and subsidiaries as of September 30, 1996, and December 31, 1995, and the related consolidated statements of income, retained earnings and cash flows for the three, nine, and twelve month periods ended September 30, 1996 and 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northern Indiana Public Service Company and subsidiaries as of September 30, 1996, and December 31, 1995, and the results of their operations and their cash flows for the three, nine, and twelve month periods ended September 30, 1996 and 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Chicago, Illinois October 23, 1996
CONSOLIDATED BALANCE SHEET September 30, December 31, ASSETS 1996 1995 ============ ============ (Dollars in thousands) UTILITY PLANT, AT ORIGINAL COST (INCLUDING CONSTRUCTION WORK IN PROGRESS OF $139,809 AND $145,078, RESPECTIVELY) (NOTE 2): Electric $ 4,006,616 $ 3,935,103 Gas 1,171,588 1,143,021 Common 350,079 350,168 ------------ ------------ 5,528,283 5,428,292 Less - Accumulated provision for depreciation and amortization 2,477,378 2,330,879 ------------ ------------ Total Utility Plant 3,050,905 3,097,413 ------------ ------------ OTHER PROPERTY AND INVESTMENTS 8,585 8,787 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents 11,291 11,478 Accounts receivable, less reserve of $6,092 and $6,418, respectively (Note 2) 51,026 96,076 Fuel adjustment clause (Note 2) 9,807 10,301 Gas cost adjustment clause (Note 2) 58,568 4,113 Materials and supplies, at average cost 56,670 63,824 Electric production fuel, at average cost 31,198 14,258 Natural gas in storage, at last-in, first-out cost (Note 2) 65,622 53,413 Prepayments and other 16,997 13,050 ------------ ------------ Total Current Assets 301,179 266,513 ------------ ------------ OTHER ASSETS: Regulatory assets (Note 2) 212,740 211,859 Deferred charges and other noncurrent assets 56,151 21,627 ------------ ------------ Total Other Assets 268,891 233,486 ------------ ------------ $ 3,629,560 $ 3,606,199 ============ ============ The accompanying notes to consolidated financial statements are an integral part of this statement.
CONSOLIDATED BALANCE SHEET September 30, December 31, CAPITALIZATION AND LIABILITIES 1996 1995 ============ ============ (Dollars in thousands) CAPITALIZATION: Common stock - without par value - authorized 75,000,000 shares, issued and outstanding 73,282,258 shares (Note 13) $ 859,488 $ 859,488 Additional paid-in capital 12,520 12,500 Retained earnings (see accompanying statement) (Note 12) 140,387 144,839 ------------ ------------ Common shareholders' equity 1,012,395 1,016,827 Cumulative preferred stocks (Note 9) Series without mandatory redemption provisions (Note 10) 81,129 81,325 Series with mandatory redemption provisions (Note 11) 61,801 63,651 Long-term debt excluding amounts due within one year (Note 15) 992,894 1,058,741 ------------ ------------ Total Capitalization 2,148,219 2,220,544 ------------ ------------ CURRENT LIABILITIES - Current portion of long-term debt (Note 16) 65,747 80,000 Short-term borrowings (Note 17) 274,700 163,600 Accounts payable 124,517 135,639 Sinking funds due within one year (Notes 11 and 15) 3,078 2,621 Dividends declared on common and preferred stocks 46,478 49,851 Customer deposits 14,253 10,230 Taxes accrued 35,314 31,247 Interest accrued 16,814 7,170 Accrued employment costs 37,266 45,771 Other accruals 19,417 30,790 ------------ ------------ Total Current Liabilities 637,584 556,919 ------------ ------------ OTHER: Deferred income taxes (Note 6) 593,775 587,809 Deferred investment tax credits, being amortized over life of related property (Note 6) 109,091 114,386 Deferred credits 41,026 41,038 Accrued liability for postretirement benefits (Note 8) 97,638 73,682 Other noncurrent liabilities 2,227 11,821 ------------ ------------ Total Other 843,757 828,736 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 5, 18, and 19) $ 3,629,560 $ 3,606,199 ============ ============ The accompanying notes to consolidated financial statements are an integral part of this statement.
CONSOLIDATED STATEMENT OF INCOME Three Months Nine Months Ended September 30, Ended September 30, ---------------------- ---------------------- 1996 1995 1996 1995 ========== ========== ========== ========== (Dollars in thousands) Operating Revenues: (Notes 2, 4, and 21) Gas $ 71,846 $ 66,411 $ 482,228 $ 433,152 Electric 276,776 296,731 769,432 780,222 ---------- ---------- ---------- ---------- 348,622 363,142 1,251,660 1,213,374 ---------- ---------- ---------- ---------- Cost of Energy: (Note 2) Gas costs 39,400 34,996 283,619 253,047 Fuel for electric generation 62,346 69,612 172,732 179,309 Power purchased 15,356 13,126 41,639 35,259 ---------- ---------- ---------- ---------- 117,102 117,734 497,990 467,615 ---------- ---------- ---------- ---------- Operating Margin 231,520 245,408 753,670 745,759 ---------- ---------- ---------- ---------- Operating Expenses and Taxes (except income): Operation 68,772 71,007 213,399 206,090 Maintenance (Note 2) 16,674 18,551 53,548 57,925 Depreciation and amortization (Note 2) 54,157 49,958 160,121 147,366 Taxes (except income) 16,481 17,117 53,394 53,704 ---------- ---------- ---------- ---------- 156,084 156,633 480,462 465,085 ---------- ---------- ---------- ---------- Operating Income Before Utility Income Taxes 75,436 88,775 273,208 280,674 ---------- ---------- ---------- ---------- Utility Income Taxes (Note 6) 18,422 24,946 74,486 80,271 ---------- ---------- ---------- ---------- Operating Income 57,014 63,829 198,722 200,403 ---------- ---------- ---------- ---------- Other Income (Deductions) (Note 2) 2,196 (956) 249 (2,534) ---------- ---------- ---------- ---------- Income Before Interest and Other Charges 59,210 62,873 198,971 197,869 ---------- ---------- ---------- ---------- Interest and Other Charges: Interest on long-term debt 16,943 18,127 52,498 54,205 Other interest 3,292 1,463 7,436 5,848 Allowance for borrowed funds used during construction and carrying charges (Note 2) (273) (436) (718) (3,513) Amortization of premium, reacquisition premium, discount and expense on debt, net 1,051 1,078 3,206 3,038 ---------- ---------- ---------- ---------- 21,013 20,232 62,422 59,578 ---------- ---------- ---------- ---------- Net Income 38,197 42,641 136,549 138,291 Dividend requirements on preferred shares 2,174 2,231 6,551 6,821 ---------- ---------- ---------- ---------- Balance available for common shares $ 36,023 $ 40,410 $ 129,998 $ 131,470 ========== ========== ========== ========== Dividends declared $ 45,200 $ 48,500 $ 134,450 $ 137,225 ========== ========== ========== ========== Twelve Months Ended September 30, ---------------------- 1996 1995 ========== ========== (Dollars in thousands) Operating Revenues: (Notes 2, 4, and 21) Gas $ 682,431 $ 606,610 Electric 1,020,133 1,019,572 ---------- ---------- 1,702,564 1,626,182 ---------- ---------- Cost of Energy: (Note 2) Gas costs 397,059 355,927 Fuel for electric generation 235,760 241,505 Power purchased 50,061 39,777 ---------- ---------- 682,880 637,209 ---------- ---------- Operating Margin 1,019,684 988,973 ---------- ---------- Operating Expenses and Taxes (except income): Operation 285,992 273,125 Maintenance (Note 2) 72,576 77,607 Depreciation and amortization (Note 2) 211,014 196,100 Taxes (except income) 71,521 71,021 ---------- ---------- 641,103 617,853 ---------- ---------- Operating Income Before Utility Income Taxes 378,581 371,120 ---------- ---------- Utility Income Taxes (Note 6) 100,789 104,573 ---------- ---------- Operating Income 277,792 266,547 ---------- ---------- Other Income (Deductions) (Note 2) (836) 2,288 ---------- ---------- Income Before Interest and Other Charges 276,956 268,835 ---------- ---------- Interest and Other Charges: Interest on long-term debt 70,632 71,103 Other interest 9,983 8,947 Allowance for borrowed funds used during construction and carrying charges (Note 2) (525) (4,922) Amortization of premium, reacquisition premium, discount and expense on debt, net 4,287 4,011 ---------- ---------- 84,377 79,139 ---------- ---------- Net Income 192,579 189,696 Dividend requirements on preferred shares 8,776 9,118 ---------- ---------- Balance available for common shares $ 183,803 $ 180,578 ========== ========== Dividends declared $ 182,950 $ 180,475 ========== ========== The accompanying notes to consolidated financial statements are an integral part of this statement.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS Three Months Nine Months Twelve Months Ended September 30, Ended September 30, Ended September 30, 1996 1995 1996 1995 1996 1995 ========= ========= ========= ========= ========= ========= (Dollars in thousands) BALANCE AT BEGINNING OF PERIOD $ 149,564 $ 147,624 $ 144,839 $ 145,289 $ 139,534 $ 139,431 ADD: Net income 38,197 42,641 136,549 138,291 192,579 189,696 --------- --------- --------- --------- --------- --------- 187,761 190,265 281,388 283,580 332,113 329,127 --------- --------- --------- --------- --------- --------- LESS: Dividends Cumulative Preferred stocks - 4-1/4% series 222 223 667 669 889 893 4-1/2% series 90 90 270 270 360 360 4.22% series 113 113 337 337 448 448 4.88% series 122 122 366 366 488 488 7.44% series 77 77 233 233 312 312 7.50% series 65 65 196 196 261 261 8.85% series 193 221 599 682 820 931 7-3/4% series 103 113 307 339 417 459 8.35% series 134 150 435 472 585 634 6.50% series 699 699 2,096 2,096 2,795 2,795 Adjustable Rate, Series A 356 358 1,045 1,161 1,401 1,537 Common shares 45,200 48,500 134,450 137,225 182,950 180,475 --------- --------- --------- --------- --------- --------- 47,374 50,731 141,001 144,046 191,726 189,593 --------- --------- --------- --------- --------- --------- BALANCE AT END OF PERIOD $ 140,387 $ 139,534 $ 140,387 $ 139,534 $ 140,387 $ 139,534 ========= ========= ========= ========= ========= ========= The accompanying notes to consolidated financial statements are an integral part of this statement.
CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended September 30, ----------------------- 1996 1995 ========= ========= (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 38,197 $ 42,641 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH: Depreciation and amortization 54,157 49,958 Deferred federal and state operating income taxes, net credits, net 1,611 4,199 Deferred investment tax credits, net (1,974) (1,860) Advance contract payment 475 0 Change in certain assets and liabilities - Accounts receivable, net 15,299 6,375 Electric production fuel (301) 2,915 Materials and supplies 2,930 1,203 Natural gas in storage (42,878) (28,829) Accounts payable (6,314) (1,142) Taxes accrued (22,487) (18,497) Fuel adjustment clause 1,816 (5,763) Gas cost adjustment clause (9,462) (3,518) Accrued employment costs (335) 767 Other accruals (1,817) (388) Other, net 20,541 11,230 --------- --------- Net cash provided by operating activities 49,458 59,291 --------- --------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Construction expenditures (42,125) (35,965) Other, net 1,134 2,162 --------- --------- Net cash used in investing activities (40,991) (33,803) --------- --------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Issuance of long-term debt 0 0 Issuance of short-term debt 376,700 64,400 Net change in commercial paper (400) 42,300 Retirement of long-term debt (80,000) (97,298) Retirement of short-term debt (254,200) 0 Retirement of preferred shares (600) (1,008) Cash dividends paid on common shares (45,000) (43,975) Cash dividends paid on preferred shares (2,176) (3,013) Other, net 121 254 --------- --------- Net cash used in financing activities (5,555) (38,340) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,912 (12,852) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,379 20,628 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,291 $ 7,776 ========= ========= Nine Months Ended September 30, ----------------------- 1996 1995 ========= ========= (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 136,549 $ 138,291 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH: Depreciation and amortization 160,121 147,366 Deferred federal and state operating income taxes, net credits, net 14,345 (17,916) Deferred investment tax credits, net (5,295) (5,578) Advance contract payment (17,575) 0 Change in certain assets and liabilities - Accounts receivable, net 45,050 26,610 Electric production fuel (16,940) 1,544 Materials and supplies 7,154 (591) Natural gas in storage (12,209) 9,031 Accounts payable (11,122) (40,477) Taxes accrued (16,036) 14,218 Fuel adjustment clause 494 (7,069) Gas cost adjustment clause (54,455) 53,014 Accrued employment costs (8,505) (2,387) Other accruals (11,373) 27,889 Other, net 21,831 13,626 --------- --------- Net cash provided by operating activities 232,034 357,571 --------- --------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Construction expenditures (120,124) (131,205) Other, net 2,787 1,460 --------- --------- Net cash used in investing activities (117,337) (129,745) --------- --------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Issuance of long-term debt 0 168,386 Issuance of short-term debt 834,700 451,100 Net change in commercial paper 43,200 (114,200) Retirement of long-term debt (80,000) (119,744) Retirement of short-term debt (766,800) (479,400) Retirement of preferred shares (2,046) (6,339) Cash dividends paid on common shares (137,750) (131,160) Cash dividends paid on preferred shares (6,588) (9,264) Other, net 400 (423) --------- --------- Net cash used in financing activities (114,884) (241,044) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (187) (13,218) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,478 20,994 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,291 $ 7,776 ========= ========= Twelve Months Ended September 30, ----------------------- 1996 1995 ========= ========= (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 192,579 $ 189,696 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH: Depreciation and amortization 211,014 196,100 Deferred federal and state operating income taxes, net 29,014 (21,419) Deferred investment tax credits, net (7,153) (7,350) Advance contract payment (17,575) 0 Change in certain assets and liabilities - Accounts receivable, net 3,341 (11,432) Electric production fuel (14,395) 3,794 Materials and supplies 7,756 1,330 Natural gas in storage (2,191) 17,911 Accounts payable 22,976 (27,934) Taxes accrued (41,410) 40,983 Fuel adjustment clause (1,124) (3,795) Gas cost adjustment clause (83,738) 5,230 Accrued employment costs (3,607) 492 Other accruals (18,146) 25,146 Other, net 9,093 30,858 --------- --------- Net cash provided by operating activities 286,434 439,610 --------- --------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Construction expenditures (174,479) (176,659) Other, net 577 7,007 --------- --------- Net cash used in investing activities (173,902) (169,652) --------- --------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Issuance of long-term debt 0 169,668 Issuance of short-term debt 1,326,800 692,050 Net change in commercial paper 45,700 (85,900) Retirement of long-term debt (81,124) (71,977) Retirement of short-term debt (1,204,500) (774,700) Retirement of preferred shares (2,802) (14,643) Cash dividends paid on common shares (187,065) (173,202) Cash dividends paid on preferred shares (6,565) (11,833) Other, net 539 (423) --------- --------- Net cash used in financing activities (109,017) (270,960) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,515 (1,002) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,776 8,778 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,291 $ 7,776 ========= ========= The accompanying notes to consolidated financial statements are an integral part of this statement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) HOLDING COMPANY STRUCTURE: NIPSCO Industries, Inc. (Industries) was incorporated in Indiana on September 22, 1987 and became the parent of Northern Indiana Public Service Company (Northern Indiana) on March 3, 1988. Northern Indiana is a public utility operating company supplying electricity and gas to the public in the northern third of Indiana. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION. The consolidated financial statements include the accounts of Northern Indiana and its two subsidiaries, Shore Line Shops, Inc. and NIPSCO Exploration Company, Inc. All significant intercompany items have been eliminated in consolidation. Certain reclassifications were made to conform the prior years' financial statements to the current presentation. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. OPERATING REVENUES. Revenues are recorded based on estimated service rendered, but are billed to customers monthly on a cycle basis. DEPRECIATION AND MAINTENANCE. Northern Indiana provides depreciation on a straight-line method over the remaining service lives of the electric, gas, and common properties. The provisions, as a percentage of the cost of depreciable utility plant, were approximately 4.3%, 4.2%, and 4.2%, for the three-month, nine-month, and twelve-month periods ended September 30, 1996, respectively; and 4.0%, 4.1%, and 4.1% for the three-month, nine-month, and twelve-month periods ended September 30, 1995. The depreciation rates for electric and gas properties were 3.55% and 4.92%, respectively. Northern Indiana follows the practice of charging maintenance and repairs, including the cost of renewals of minor items of property, to maintenance expense accounts, except for repairs of transportation and service equipment which are charged to clearing accounts and redistributed to operating expense and other accounts. When property which represents a retirement unit is replaced or removed, the cost of such property is credited to utility plant, and such cost, together with the cost of removal less salvage, is charged to the accumulated provision for depreciation. AMORTIZATION OF SOFTWARE COSTS. Northern Indiana amortizes capitalized software costs using the straight-line method based on estimated economic lives. COAL RESERVES. Northern Indiana has a long-term mining contract to mine its coal reserves through the year 2001. The costs of these reserves are being recovered through the rate-making process as such coal reserves are used to produce electricity. POWER PURCHASED. Power purchases and net interchange power with other electric utilities under interconnection agreements are included in Cost of Energy under the caption "Power purchased." ACCOUNTS RECEIVABLE. At September 30, 1996, Northern Indiana had sold $100 million of its accounts receivable under a sales agreement which expires May 31, 1997. The September 30, 1996 and December 31, 1995 accounts receivable balances include approximately $12.1 million and $6.9 million, respectively, due from associated companies. STATEMENT OF CASH FLOWS. For the purposes of the Consolidated Statement of Cash Flows, Northern Indiana considers temporary cash investments with an original maturity of three months or less to be cash equivalents. Cash paid during the periods reported for income taxes and interest was as follows:
Three Months Nine Months Twelve Months Ended September 30, Ended September 30, Ended September 30, ------------------ ------------------ ------------------ 1996 1995 1996 1995 1996 1995 ======== ======== ======== ======== ======== ======== (Dollars in thousands) Income taxes $ 19,305 $ 30,500 $ 73,473 $ 78,807 $123,153 $105,723 Interest, net of amounts capitalized $ 11,900 $ 13,549 $ 48,751 $ 49,661 $ 79,725 $ 72,013
FUEL ADJUSTMENT CLAUSE. All metered electric rates contain a provision for adjustment in charges for electric energy to reflect increases and decreases in the cost of fuel and the fuel cost of purchased power through operation of a fuel adjustment clause. As prescribed by order of the Indiana Utility Regulatory Commission (Commission) applicable to metered retail rates, the adjustment factor has been calculated based on the estimated cost of fuel and the fuel cost of purchased power in a future three-month period. If two statutory requirements relating to expense and return levels are satisfied, any under-recovery or over-recovery caused by variances between estimated and actual cost in a given three-month period will be included in a future filing. Northern Indiana records any under-recovery or over-recovery as a current asset or current liability until such time as it is billed or refunded to its customers. The fuel adjustment factor is subject to a quarterly hearing by the Commission and remains in effect for a three-month period. GAS COST ADJUSTMENT CLAUSE. All metered gas rates contain an adjustment factor which reflects the cost of purchased gas, contracted gas storage, and storage transportation charges. Northern Indiana records any under-recovery or over-recovery as a current asset or current liability until such time as it is billed or refunded to its customers. The gas cost adjustment factor is subject to a quarterly hearing by the Commission and remains in effect for a three-month period. If the statutory requirement relating to the level of return is satisfied, any under-recovery or over-recovery caused by variances between estimated and actual cost in a given three-month period will be included in a future filing. See Note 4, FERC Order No. 636 for a discussion of gas transition cost charges. NATURAL GAS IN STORAGE. Natural gas in storage is valued using the last-in, first-out (LIFO) inventory methodology. Based on the average cost of gas purchased in September 1996 and December 1995 the estimated replacement cost of gas in storage (current and non-current) at September 30, 1996 and December 31, 1995 exceeded the stated LIFO cost by approximately $20 million and $30 million, respectively. AFFILIATED COMPANY TRANSACTIONS. Pursuant to agreement, effective July 1, 1996, Northern Indiana receives executive, financial, gas supply, sales and marketing, and administrative and general services from an affiliate, NIPSCO Industries Management Services Company (Services), a wholly-owned subsidiary of Industries. The costs of these services are charged to Northern Indiana based on payroll and expenses incurred by Services' employees for the benefit of Northern Indiana. These costs which totalled $8.4 million for the three-month period ended September 30, 1996 consist primarily of employee compensation and benefits. Northern Indiana purchased natural gas and transportation services from affiliated companies in the amounts of $4.5, $14.1, and $20.6 million representing 6.1%, 5.1%, and 5.4% of Northern Indiana's total gas costs for the three-month, nine-month, and twelve-month periods ended September 30, 1996,respectively. Northern Indiana subleases a portion of office facilities to affiliated companies for a monthly fee, which includes operating expenses, based on space utilization. REGULATORY ASSETS. Northern Indiana's operations are subject to the regulation of the Federal Energy Regulatory Commission (FERC). Accordingly, Northern Indiana's accounting policies are subject to the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." Northern Indiana monitors changes in market and regulatory conditions, and the resulting impact of such changes in order to continue to apply the provisions of SFAS No. 71 to some or all of its operations. The regulatory assets identified below represent probable future revenue to Northern Indiana associated with certain incurred costs as these costs are recovered through the rate-making process. If a portion of Northern Indiana's operations becomes no longer subject to the provisions of SFAS No. 71, a write-off of certain of the regulatory assets identified below might be required. Regulatory assets were comprised of the following items and were reflected in the Consolidated Balance Sheet as follows:
September 30, December 31, 1996 1995 ============= ============= (Dollars in thousands) Unamortized reacquisition premium on debt (Note 15) $ 50,756 $ 53,354 Unamortized R.M. Schahfer Unit 17 and Unit 18 carrying charges and deferred depreciation (See below) 71,818 74,981 Bailly scrubber carrying charges and deferred depreciation (See below) 11,050 11,517 Deferral of SFAS No. 106 expense not recovered (Note 8) 81,924 64,624 FERC Order No. 636 transition costs (Note 4) 31,579 25,038 ------------- ------------- 247,127 229,514 Less: Current portion of regulatory assets 34,387 17,655 ------------- ------------- $ 212,740 $ 211,859 ============= =============
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement imposes stricter criteria for retention of regulatory assets by requiring that such assets be probable of future recovery at each balance sheet date. Northern Indiana adopted this standard on January 1, 1996 and adoption did not impact its financial position or results of operations. CARRYING CHARGES AND DEFERRED DEPRECIATION. Upon completion of R. M. Schahfer Units 17 and 18, Northern Indiana capitalized the carrying charges and deferred depreciation in accordance with orders of the Commission until the cost of each unit was allowed in rates. Such carrying charges and deferred depreciation are being amortized over the remaining life of each unit. Northern Indiana has capitalized carrying charges and deferred depreciation and certain operating expenses relating to its scrubber service agreement for its Bailly Generating Station in accordance with an order of the Commission. Pursuant to such order, capitalization of carrying charges and deferral of depreciation and certain operating expenses ceased on December 31, 1995. The accumulated balance of the deferred costs and related carrying charges is being amortized over the remaining life of the scrubber service agreement. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. Allowance for funds used during construction (AFUDC) is charged to construction work in progress during the period of construction and represents the net cost of borrowed funds used for construction purposes and a reasonable rate upon other (equity) funds. Under established regulatory rate practices, after the construction project is placed in service, Northern Indiana is permitted to include in the rates charged for utility services (a) a fair return on and (b) depreciation of such AFUDC included in plant in service. At January 1, 1994, a pre-tax rate of 5.0% for all construction was being used; effective January 1, 1995 the rate increased to 6.0%; and for 1996 the rate remained at 6.0%. INCOME TAXES. Deferred income taxes are recognized as costs in the rate-making process by the commissions having jurisdiction over the rates charged by Northern Indiana. Deferred income taxes are provided as a result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements. These taxes are reversed by a debit or credit to deferred income tax expense as the temporary differences reverse. Investment tax credits have been deferred and are being amortized to income over the life of the related property. (3) PENDING TAX MATTER: On August 1, 1991, the Internal Revenue Service (IRS) issued a notice of deficiency for Northern Indiana's taxes for the years 1982 through 1985 ($3,785,250 per year plus interest) relating to interest payments on $70 million of 17-1/4% Notes issued in 1981 by Northern Indiana's former foreign subsidiary, Northern Indiana Public Service Finance N.V. (Finance). The IRS believes that interest paid on the Notes should have been subject to United States tax withholding. The Notes were redeemed in 1985 and Finance was subsequently liquidated. On October 25, 1991, Northern Indiana challenged the assessment in the United States Tax Court (Tax Court) and the matter was tried in 1994. On November 6, 1995, the Tax Court ruled in favor of Northern Indiana, finding that the interest paid on the Notes was not subject to United States tax withholding. On March 13, 1996, the IRS appealed the Tax Court's decision to the U.S. Court of Appeals for the Seventh Circuit, and on March 25, 1996 Northern Indiana filed its cross appeal. Northern Indiana's management and general counsel believe the ruling of the Tax Court will prevail. (4) FERC ORDER NO. 636. Pursuant to FERC Order No. 636, interstate pipeline sales services have been "unbundled" such that gas supplies are being sold separately from interstate transportation services. Northern Indiana has contracted for a mix of transportation and storage services from their pipeline suppliers which allows Northern Indiana to meet the needs of its customers. Pipelines are recovering, from their customers, certain transition costs associated with restructuring under the Order No. 636 regulation. Any such recovery is subject to established review procedures at the FERC. Northern Indiana expects that the total transition costs from all suppliers will approximate $137 million; however, the ultimate level of costs will depend on future events, including the market price of natural gas. Approximately $103 million of such costs have been recorded, a portion of which has been paid to the pipeline suppliers, subject to refund. The Commission has approved the recovery of these FERC-allowed transition costs on a volumetric basis from sales and transportation customers. Regulatory assets, in amounts corresponding to the costs recorded but not yet collected, have been recorded to reflect the ultimate recovery of these costs. (5) ENVIRONMENTAL MATTERS: Northern Indiana has an ongoing program to remain aware of laws and regulations involved with hazardous waste and other environmental matters. It is Northern Indiana's intent to continue to evaluate its facilities and properties with respect to these rules and identify any sites that would require corrective action. Northern Indiana has recorded a reserve of $7.7 million to cover probable corrective actions as of September 30, 1996; however, environmental regulations and remediation techniques are subject to future change. The ultimate cost could be significant, depending on the extent of corrective actions required. Based upon investigations and management's understanding of current laws and regulations, Northern Indiana believes that any corrective actions required, after consideration of insurance coverages and contributions from other potentially responsible parties, will not have a significant impact on the financial position or results of operations of Northern Indiana. Because of major investments made in modern environmental control facilities and the use of low-sulfur coal, all of Northern Indiana's electric production facilities now comply with the sulfur dioxide limitations contained in the acid deposition provisions of the Clean Air Act Amendments of 1990 (CAAA). Northern Indiana estimates that total costs of compliance with the CAAA sulfur dioxide regulations will impact electric rates by less than 5% in the future. The CAAA contain provisions that could lead to limitations on emissions of nitrogen oxides and hazardous air pollutants which may require significant capital expenditures for control of these emissions. Northern Indiana is pursuing a nitrogen oxide control program to meet future requirements. Northern Indiana cannot predict the costs of complying with CAAA requirements, but Northern Indiana believes that any such mandated costs would be recoverable through the rate-making process. The Environmental Protection Agency (EPA) has notified Northern Indiana that it is a "potentially responsible party" (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and may be required to share in the cost of cleanup of several waste disposal sites identified by the EPA. The sites are in various stages of investigation, analysis and remediation. At each of the sites, Northern Indiana is one of several PRPs, and it is expected that remedial costs, as provided under CERCLA, will be shared among them. At some sites Northern Indiana and/or the other named PRPs are presently working with the EPA to clean up the sites and avoid the imposition of fines or added costs. Northern Indiana has instituted a program to investigate former manufactured-gas plants where it is the current or former owner. Northern Indiana has identified twenty-three of these sites and made visual inspections of these sites. Initial samplings have been conducted at fourteen sites. Follow-up investigations have been conducted at five sites and potential remedial measures are being evaluated. Northern Indiana will continue its program to assess sites. During the follow-up investigation of the former manufactured-gas plant in Elkhart, Indiana, Northern Indiana noted the presence of hydrocarbons in the Elkhart River. Northern Indiana reported this finding to the Indiana Department of Environmental Management (IDEM) and the EPA. Northern Indiana has placed the Elkhart site in the IDEM Voluntary Remediation Program (VRP). The goal of placing the site in the VRP is to obtain IDEM approval of the determination and subsequent implementation of what remedial measures, if any, may be needed. Northern Indiana was notified by the IDEM of the release of a petroleum substance into the St. Mary's River in Fort Wayne, Indiana, from the site of a former manufactured-gas plant formerly owned by Northern Indiana. In cooperation with IDEM, Northern Indiana has taken steps to investigate and contain the substance. Northern Indiana has remediated parts of the Fort Wayne site. The remainder of the site is being evaluated to determine what further remedial measures, if any, may be needed. During the course of investigation activities, Northern Indiana noted the presence of manufactured-gas plant residuals in the St. Mary's River in Fort Wayne, Indiana and the Wabash River in Peru, Indiana. Northern Indiana notified the IDEM and the EPA and immediately took steps to contain the material at both sites. Northern Indiana and Indiana Gas Company, Inc. (Indiana Gas) have entered into an agreement covering cost sharing and management of investigation and remediation programs at five former manufactured-gas plant sites at which both companies or their predecessors were former operators or owners. One of these sites is the Lafayette site which Indiana Gas had previously notified Northern Indiana is being investigated and remediated pursuant to an administrative order with IDEM. Northern Indiana also notified PSI Energy, Inc. that it was a former owner or operator of seven former manufactured-gas plants at which Northern Indiana had conducted or was planning investigation or remediation activities. Northern Indiana has met with various companies that provided insurance coverage which Northern Indiana believes covers costs related to actions taken at former manufactured-gas plants. In September 1995, certain insurance companies initiated a suit in Indiana state court against Northern Indiana to deny coverage. Later in September 1995, Northern Indiana filed a more comprehensive suit in Federal Court in Indiana against those insurers and several other insurance companies, seeking coverage for costs associated with several former manufactured-gas plant sites. The state court action is stayed pending resolution of the Northern Indiana suit in Federal Court. The possibility that exposure to electric and magnetic fields emanating from power lines, household appliances, and other electric sources may result in adverse health effects has been the subject of public, governmental, and media attention. A considerable amount of scientific research has been conducted on this topic without definitive results. Research is continuing to resolve scientific uncertainties. (6) INCOME TAXES: Northern Indiana uses the liability method of accounting for income taxes under which deferred income taxes are recognized, at currently enacted income tax rates, to reflect the tax effect of temporary differences between the financial statement and tax bases of assets and liabilities. To the extent certain deferred income taxes are recoverable or payable through future rates, regulatory assets and liabilities have been established. Regulatory assets are primarily attributable to undepreciated AFUDC-equity and the cumulative net amount of other income tax timing differences for which deferred taxes had not been provided in the past, when regulators did not recognize such taxes as costs in the rate-making process. Regulatory liabilities are primarily attributable to Northern Indiana's obligation to credit to ratepayers deferred income taxes provided at rates higher than the current federal tax rate currently being credited to ratepayers using the average rate assumption method and unamortized deferred investment tax credits. Northern Indiana joins in the filing of consolidated tax returns with Industries and currently pays to Industries its separate return tax liability as defined in the Tax Sharing Agreement between Industries and its subsidiaries. The components of the net deferred income tax liability at September 30, 1996 and December 31, 1995 are as follows:
September 30, December 31, 1996 1995 ============= ============= (Dollars in thousands) Deferred tax liabilities - Accelerated depreciation and other property differences $ 710,589 $ 700,137 AFUDC-equity 38,389 40,083 Adjustment clauses 25,935 5,467 Take-or-pay gas costs 750 1,192 Other regulatory assets 31,875 28,912 Reacquisition premium on debt 19,252 20,237 Deferred tax assets - Deferred investment tax credits (41,372) (43,381) Removal costs (123,858) (118,064) FERC Order No. 636 transition costs (2,501) (4,400) Other postretirement/postemployment benefits (39,876) (31,633) Other, net (11,936) (17,372) ------------- ------------- 607,247 581,178 Less: Deferred income taxes related to current assets and liabilities 13,472 (6,631) ------------- ------------- Deferred income taxes - noncurrent $ 593,775 $ 587,809 ============= =============
Federal and state income taxes as set forth in the Consolidated Statement of Income are comprised of the following:
Three Months Nine Months Ended September 30, Ended September 30, -------------------- -------------------- 1996 1995 1996 1995 ========= ========= ========= ========= (Dollars in thousands) Current income taxes - Federal $ 16,109 $ 19,616 $ 56,409 $ 90,453 State 2,676 2,991 9,027 13,312 --------- --------- --------- --------- 18,785 22,607 65,436 103,765 --------- --------- --------- --------- Deferred income taxes, net - Federal 1,412 3,828 13,015 (16,675) State 199 371 1,330 (1,241) --------- --------- --------- --------- 1,611 4,199 14,345 (17,916) --------- --------- --------- --------- Deferred investment tax credits, net (1,974) (1,860) (5,295) (5,578) --------- --------- --------- --------- Total utility operating income taxes 18,422 24,946 74,486 80,271 Income tax applicable to non- operating activities and income of subsidiaries 1,352 (656) 95 (2,565) --------- --------- --------- --------- Total income taxes $ 19,774 $ 24,290 $ 74,581 $ 77,706 ========= ========= ========= ========= Twelve Months Ended September 30, -------------------- 1996 1995 ========= ========= (Dollars in thousands) Current income taxes - Federal $ 68,003 $ 116,109 State 10,925 17,233 --------- --------- 78,928 133,342 --------- --------- Deferred income taxes, net - Federal 26,500 (19,932) State 2,514 (1,487) --------- --------- 29,014 (21,419) --------- --------- Deferred investment tax credits, net (7,153) (7,350) --------- --------- Total utility operating income taxes 100,789 104,573 Income tax applicable to non- operating activities and income of subsidiaries (556) (12,654) --------- --------- Total income taxes $ 100,233 $ 91,919 ========= =========
A reconciliation of total tax expense to an amount computed by applying the statutory federal income tax rate to pre-tax income is as follows:
Three Months Nine Months Ended September 30, Ended September 30, -------------------- -------------------- 1996 1995 1996 1995 ========= ========= ========= ========= (Dollars in thousands) Net income $ 38,197 $ 42,641 $ 136,549 $ 138,291 Add-Income taxes 19,774 24,290 74,581 77,706 --------- --------- --------- --------- Net income before income taxes $ 57,971 $ 66,931 $ 211,130 $ 215,997 ========= ========= ========= ========= Amount derived by multiplying pre-tax income by the statutory rate $ 20,290 $ 23,426 $ 73,896 $ 75,599 Reconciling items multiplied by the statutory rate: Book depreciation over related tax depreciation 1,007 1,005 3,020 3,014 Amortization of deferred investment tax credits (1,974) (1,860) (5,295) (5,578) State income taxes, net of federal income tax benefit 2,025 2,269 7,190 7,218 Fair market value of property donated in excess of book value 0 0 0 0 Reversal of deferred taxes provided at rates in excess of the current federal income tax rate (1,409) (1,360) (4,228) (4,079) Other, net (165) 810 (2) 1,532 --------- --------- --------- --------- Total income taxes $ 19,774 $ 24,290 $ 74,581 $ 77,706 ========= ========= ========= ========= Twelve Months Ended September 30, -------------------- 1996 1995 ========= ========= (Dollars in thousands) Net income $ 192,579 $ 189,696 Add-Income taxes 100,233 91,919 --------- --------- Net income before income taxes $ 292,812 $ 281,615 ========= ========= Amount derived by multiplying pre-tax income by the statutory rate $ 102,485 $ 98,565 Reconciling items multiplied by the statutory rate: Book depreciation over related tax depreciation 4,024 4,156 Amortization of deferred investment tax credits (7,153) (7,350) State income taxes, net of federal income tax benefit 9,549 9,478 Fair market value of property donated in excess of book value 0 (7,753) Reversal of deferred taxes provided at rates in excess of the current federal income tax rate (5,814) (5,991) Other, net (2,858) 814 --------- --------- Total income taxes $ 100,233 $ 91,919 ========= =========
(7) PENSION PLANS: Industries has a noncontributory, defined benefit retirement plan covering substantially all employees of Northern Indiana. Benefits under the plan reflect the employees' compensation, years of service, and age at retirement. The plan's funded status as of January 1, 1996 and 1995 are as follows:
1996 1995 ========= ========= (Dollars in thousands) Vested benefit obligation $ 542,516 $ 444,096 Nonvested benefit 104,054 96,425 --------- --------- Accumulated benefit obligation $ 646,570 $ 540,521 ========= ========= Projected benefit obligation for service rendered to date $ 749,204 $ 605,495 Plan assets at fair market value 698,698 565,507 --------- --------- Projected benefit obligation in excess of plan assets 50,506 39,988 Unrecognized transition obligation at January 1, being recognized over seventeen years (43,907) (49,395) Unrecognized prior service cost (25,656) (28,111) Unrecognized gains 4,808 47,147 --------- --------- Accrued (prepaid) pension costs $ (14,249) $ 9,629 ========= ========= The accumulated benefit obligation is the present value of future pension benefit payments and is based on a plan benefit formula without considering expected future salary increases. The projected benefit obligation considers estimated future salary increases. Discount rates of 7.25% and 8.75% and rates of increase in compensation levels of 5.5% were used to determine the accumulated benefit obligation and projected benefit obligation at January 1, 1996 and 1995, respectively. The increase in the accumulated benefit obligation as of January 1, 1996 is mainly caused by the decrease in the discount rate from 8.75% to 7.25%. The following items are the components of provisions for pensions for the three-month, nine-month, and twelve-month periods ended September 30, 1996 and September 30, 1995:
Three Months Nine Months Twelve Months Ended Ended Ended September 30, September 30, September 30, ------------------ ------------------ ------------------ 1996 1995 1996 1995 1996 1995 ======== ======== ======== ======== ======== ======== (Dollars in thousands) Service costs $ 4,423 $ 3,196 $ 14,766 $ 9,587 $ 17,044 $ 11,656 Interest costs 17,345 13,180 49,094 39,540 61,388 51,403 Estimated return on plan assets (20,689) (12,737) (58,447) (38,210) (154,030) 13,724 Amortization of transition obligation 1,808 1,372 5,104 4,116 6,476 5,488 Other net amortization and deferral 809 614 2,284 1,842 85,566 (61,600) -------- -------- -------- -------- -------- -------- $ 3,696 $ 5,625 $ 12,801 $ 16,875 $ 16,444 $ 20,671 ======== ======== ======== ======== ======== ========
Assumptions used in the valuation and determination of 1996 and 1995 pension expenses were as follows:
1996 1995 ===== ===== Discount rate 7.25% 8.75% Rate of increase in compensation levels 5.50% 5.50% Expected long-term rate of return on assets 9.00% 9.00%
Plan assets are invested primarily in common stocks, bonds, and notes. (8) POSTRETIREMENT BENEFITS: Northern Indiana provides certain health care and life insurance benefits for retired employees. Substantially all of Northern Indiana's employees may become eligible for those benefits if they reach retirement age while working for Northern Indiana. The expected cost of such benefits is accrued during the employees' years of service. Northern Indiana's current rate-making includes the cost of providing these benefits based on the related insurance premiums. On December 30, 1992, the Commission authorized the accrual method of accounting for postretirement benefits for rate-making purposes consistent with SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," and authorized the deferral of the differences between the net periodic postretirement benefit costs and the insurance premiums paid for such benefits as a regulatory asset until such time as the accrual cost method may be reflected in the rate-making process. The Commission stated that a deferral period of four years or less would be rebuttably presumed to be reasonable and also indicated each utility would have to demonstrate its postretirement benefit costs were prudent and reasonably incurred at the time such costs were proposed to be recovered in the rate-making process. Northern Indiana has been deferring as a regulatory asset the difference between the amount that would have been charged to expense under pay-as-you-go accounting and the amount accrued in accordance with the standard in anticipation of approval for these costs in the rate-making process. Northern Indiana has taken the initial steps to seek regulatory approval for inclusion of postretirement benefit costs in the rate-making process. These costs would include an amortization of the existing regulatory asset consistent with the remaining amortization period for the transition obligation. Management believes that Northern Indiana will ultimately be successful in obtaining such approval. The following table sets forth the plans' accumulated postretirement benefit obligation as of January 1, 1996 and 1995:
January 1, January 1, 1996 1995 ========== ========== (Dollars in thousands) Retirees $ 97,693 $ 94,913 Fully eligible active plan participants 21,760 18,796 Other active plan participants 133,205 103,559 ---------- ---------- Accumulated postretirement benefit obligation 252,658 217,268 Unrecognized transition obligation at January 1, being recognized over twenty years (192,917) (204,265) Unrecognized actuarial gain 23,168 44,905 ---------- ---------- Accrued liability for postretirement benefits $ 82,909 $ 57,908 ========== ==========
A discount rate of 7.25% and a pre-Medicare medical trend rate of 10% declining to a long-term rate of 6%, and a discount rate of 8.75% and a pre-Medicare medical trend rate of 11% declining to a long-term rate of 7% were used to determine the accumulated postretirement benefit obligation at January 1, 1996 and 1995, respectively. Net periodic postretirement benefits costs for the three-month, nine-month, and twelve-month periods ended September 30, 1996 and September 30, 1995 include the following components:
Three Months Nine Months Twelve Months Ended Ended Ended September 30, September 30, September 30, ---------------- ---------------- ---------------- 1996 1995 1996 1995 1996 1995 ======= ======= ======= ======= ======= ======= (Dollars in thousands) Service costs $ 1,209 $ 1,376 $ 3,913 $ 4,098 $ 5,198 $ 5,953 Interest costs 4,973 4,651 14,920 13,953 19,573 18,844 Amortization of transition obligation over twenty years 3,033 2,837 9,099 8,511 11,936 11,348 Amortization of unrecognized actuarial gain (579) (541) (1,736) (1,623) (2,277) (1,623) ------- ------- ------- ------- ------- ------- $ 8,636 $ 8,323 $26,196 $24,939 $34,430 $34,522 ======= ======= ======= ======= ======= =======
The net periodic postretirement benefit costs for 1996 were determined assuming a 7.25% discount rate, a 5% rate of compensation increase, and a pre-Medicare medical trend rate of 10% declining to a long-term rate of 6%. The effect of a 1% increase in the assumed health care cost trend rates for each future year would increase the accumulated postretirement benefit obligation at January 1, 1996 by approximately $40.6 million, and increase the aggregate of the service and interest cost components of plan costs by approximately $1.1 million and $3.3 million for the three-month and nine-month periods ended September 30, 1996. Amounts disclosed above could be changed significantly in the future by changes in health care costs, work force demographics, interest rates, or plan changes. (9) AUTHORIZED CLASSES OF CUMULATIVE PREFERRED AND PREFERENCE STOCKS OF NORTHERN INDIANA: 2,400,000 shares - Cumulative Preferred - $100 par value 3,000,000 shares - Cumulative Preferred - no par value 2,000,000 shares - Cumulative Preference - $50 par value (none outstanding) 3,000,000 shares - Cumulative Preference - no par value (none issued) Note 10 sets forth the preferred stocks which are redeemable solely at the option of Northern Indiana, and Note 11 sets forth the preferred stocks which are subject to mandatory redemption requirements or whose redemption is outside the control of Northern Indiana. The Preferred shareholders of Northern Indiana have no voting rights, except in the event of default on the payment of four consecutive quarterly dividends, or as required by Indiana law to authorize additional preferred shares, or by the Articles of Incorporation in the event of certain merger transactions. (10) PREFERRED STOCKS, REDEEMABLE SOLELY AT THE OPTION OF NORTHERN INDIANA, OUTSTANDING AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (SEE NOTE 9):
Redemption Price at September 30, December 31, September 30, 1996 1995 1996 ============ ============ ============ (Dollars in thousands) Cumulative preferred stock - $100 par value - 4-1/4% series -209,176 and 209,190 shares outstanding, respectively $ 20,918 $ 20,919 $101.20 4-1/2% series - 79,996 shares outstanding 8,000 8,000 $100.00 4.22% series - 106,198 shares outstanding 10,620 10,620 $101.60 4.88% series - 100,000 shares outstanding 10,000 10,000 $102.00 7.44% series - 41,890 shares outstanding 4,189 4,189 $101.00 7.50% series - 34,842 shares outstanding 3,484 3,484 $101.00 Premium on preferred stock 254 254 Cumulative preferred stock - no par value - Adjustable rate (6.00% at September 30, 1996), Series A (stated value $50 per share) 473,285 and 477,185, shares outstanding, respectively 23,664 23,859 $50.00 ------------ ------------ $ 81,129 $ 81,325 ============ ============
During the period October 1, 1994 to September 30, 1996 there were no additional issuances of the above preferred stocks. The foregoing preferred stocks are redeemable in whole or in part at any time upon thirty days' notice at the option of Northern Indiana at the redemption prices shown. (11) REDEEMABLE PREFERRED STOCKS OUTSTANDING AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (SEE NOTE 9):
September 30, December 31, 1996 1995 ============ ============ (Dollars in thousands) Preferred stocks subject to mandatory redemption requirements or whose redemption is outside the control of Northern Indiana: Cumulative preferred stock - $100 par value - 8.85% series - 75,000 and 87,500 shares outstanding, respectively, excluding sinking fund payments due within one year $ 7,500 $ 8,750 7-3/4% series - 50,014 shares outstanding, excluding sinking fund payments due within one year 5,001 5,001 8.35% series - 63,000 and 69,000 shares outstanding, respectively, excluding sinking fund payments due within one year 6,300 6,900 Cumulative preferred stock - no par value - 6.50% series - 430,000 shares outstanding 43,000 43,000 ------------ ------------ $ 61,801 $ 63,651 ============ ============
The redemption prices at September 30, 1996, as well as sinking fund provisions for the cumulative preferred stock subject to mandatory redemption requirements, or whose redemption is outside the control of Northern Indiana, are as follows:
Sinking Fund Or Mandatory Redemption Series Redemption Price Per Share Provisions ====== ========================== ============================= Cumulative preferred stock - $100 par value - 8.85% $101.85, reduced periodically 12,500 shares on or before April 1. 8.35% $103.93, reduced periodically 3,000 shares on or before July 1; increasing to 6,000 shares beginning in 2004; noncumulative option to double amount each year. 7-3/4% $104.58, reduced periodically 2,777 shares on or before December 1; noncumulative option to double amount each year. Cumulative preferred stock - no par value - 6.50% $100.00 on October 14, 2002 430,000 shares on October 14, 2002. Sinking fund requirements with respect to redeemable preferred stocks outstanding at September 30, 1996 for each of the twelve-month periods subsequent to September 30, 1997 are as follows:
Twelve Months Ended September 30,* ================================== 1998 $1,827,700 1999 $1,827,700 2000 $1,827,700 2001 $1,827,700 * Table does not reflect redemptions made after September 30, 1996.
(12) COMMON SHARE DIVIDEND: Northern Indiana's Indenture provides that it will not declare or pay any dividends on any class of capital stock (other than preferred or preference stock) except out of earned surplus or net profits of Northern Indiana. At September 30, 1996, Northern Indiana had approximately $140.4 million of retained earnings (earned surplus) available for the payment of dividends. Future dividends will depend upon adequate retained earnings, adequate future earnings, and the absence of adverse developments. (13) COMMON SHARES: Effective with the exchange of common shares on March 3, 1988, Northern Indiana's common shares are wholly-owned by Industries. (14) LONG-TERM INCENTIVE PLAN: Industries has two Long-Term Incentive Plans for key management employees, including management of Northern Indiana, that were approved by shareholders on April 13, 1988 (1988 Plan) and April 13, 1994 (1994 Plan), each of which provides for the issuance of up to 2.5 million of Industries' common shares to key employees through 1998 and 2004, respectively. At September 30, 1996, there were 12,011 shares and 2,189,700 shares reserved for future awards under the 1988 Plan and 1994 Plan, respectively. The 1988 Plan and 1994 Plan permit the following types of grants, separately or in combination: nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation rights, and performance units. No incentive stock options or performance units were outstanding at September 30, 1996. Under both Plans, the exercise price of each option equals the market price of Industries' stock on the date of grant. Each option's maximum term is ten years and vests one year from the date of grant. The stock appreciation rights (SARs) may be exercised only in tandem with stock options on a one-for-one basis and are payable in cash, Industries stock, or a combination thereof. Restricted stock awards are restricted as to transfer and are subject to forfeiture for specific periods from the date of grant. Restrictions on shares awarded in 1995 lapse five years from date of grant and vesting is variable from 0% to 200% of the number awarded, subject to specific earnings per share and stock appreciation goals. Restrictions on shares awarded in 1996 lapse two years from date of grant and vesting is variable from 0% to 100% of the number awarded, subject to specific performance goals. If a participant's employment is terminated prior to vesting other than by reason of death, disability or retirement, restricted shares are forfeited. There were 262,000 and 330,500 restricted shares outstanding at September 30, 1996 and December 31, 1995, respectively. Northern Indiana accounts for its allocable portion of these plans under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized for non-qualified stock options. The compensation cost that has been recognized in the Consolidated Statement of Income for restricted stock awards was $0.3, $0.8 and $1.0 million for the three-month, nine-month, and twelve-month periods ending September 30, 1996. Had compensation cost for stock options been determined consistent with SFAS No. 123 "Accounting for Stock-Based Compensation," Northern Indiana's net income would have been reduced to the following pro forma amounts:
Three Months Nine Months Twelve Months Ended Ended Ended September 30, September 30, September 30, 1996 1996 1996 ============ ============ ============ (Dollars in thousands) Net Income: As reported $38,197 $136,549 $192,579 Pro forma $38,025 $136,062 $191,929
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation costs may not be representative of that to be expected in future years. The fair value of each option granted used to determine pro forma net income is estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the three-month, nine-month, and twelve-month periods ended September 30, 1996: risk-free interest rate of 6.39%, expected dividend yield of $1.68 per share, expected option term of five years, and expected volatility of 13.2%. The weighted average fair value of options granted to all plan participants was $5.00 for the twelve-month period ended September 30, 1996. There were 278,300 non-qualified stock options granted to all plan participants for the three-month, nine-month, and twelve-month periods ended September 30, 1996. (15) LONG-TERM DEBT: At September 30, 1996 and December 31, 1995, the long-term debt of Northern Indiana, excluding amounts due within one year, issued and not retired or canceled was as follows:
AMOUNT OUTSTANDING --------------------------- September 30, December 31, 1996 1995 ============ ============ (Dollars in thousands) First mortgage bonds - Series O, 6-3/8%, due September 1, 1997 $ 0 $ 25,747 Series P, 6-7/8%, due October 1, 1998 14,509 14,509 Series T, 7-1/2%, due April 1, 2002 40,000 40,500 Series NN, 7.10%, due July 1, 2017 55,000 55,000 ------------ ------------ Total 109,509 135,756 ------------ ------------ Pollution control notes and bonds - Series A Note - City of Michigan City, 5.70% due October 1, 2003 20,000 20,000 Series 1988 Bonds - Jasper County - Series A, B, and C - 3.67% weighted average at September 30, 1996, due November 1, 2016 130,000 130,000 Series 1988 Bonds - Jasper County - Series D - 3.60% weighted average at September 30, 1996, due November 1, 2007 24,000 24,000 Series 1994 Bonds - Jasper County - Series A - 3.80% at September 30, 1996, due August 1, 2010 10,000 10,000 Series 1994 Bonds - Jasper County - Series B - 3.80% at September 30, 1996, due June 1, 2013 18,000 18,000 Series 1994 Bonds - Jasper County - Series C - 3.80% at September 30, 1996, due April 1, 2019 41,000 41,000 ------------ ------------ Total 243,000 243,000 ------------ ------------ Medium-term notes - Interest rates between 5.83% and 7.64% with a weighted average interest rate of 6.85% and various maturities between April 6, 1998 and January 19, 2024 644,025 684,025 ------------ ------------ Unamortized premium and discount on long-term debt, net (3,640) (4,040) ------------ ------------ Total long-term debt excluding amounts due in one year $ 992,894 $ 1,058,741 ============ ============
The sinking fund requirements of long-term debt outstanding at September 30, 1996 (including the maturity of first mortgage bonds: Series P, 6-7/8%, due October 1, 1998; and medium-term notes due from April 6, 1998 to August 15, 2001, for each of the twelve-month periods subsequent to September 30, 1997 are as follows:
Twelve Months Ended September 30, ================================= 1998 $ 36,500,000 1999 $ 16,009,000 2000 $157,000,000 2001 $ 18,000,000
Unamortized debt expense, premium and discount on long-term debt applicable to outstanding bonds are being amortized over the lives of such bonds. Reacquisition premiums are being deferred and amortized. Northern Indiana's Indenture dated August 1, 1939, as amended and supplemented, securing the first mortgage bonds issued by Northern Indiana, constitutes a direct first mortgage lien upon substantially all property and franchises, other than expressly excepted property, owned by Northern Indiana. In 1994, the Commission authorized Northern Indiana to issue up to $289,275,000 of its Medium-Term Notes, Series D, due from one year to thirty years, for purposes of refinancing certain first mortgage bonds and medium-term notes. During 1994, $120.0 million of the Medium-Term Notes, Series D, were issued to refinance certain first mortgage bonds. On June 12, 1995, the remaining $169,275,000 of Medium-Term Notes, Series D, were issued and part of the proceeds were used to redeem all of the outstanding First Mortgage Bonds, Series U and Z aggregating $94.8 million, on July 3, 1995. (16) CURRENT PORTION OF LONG-TERM DEBT: At September 30, 1996 and December 31, 1995, Northern Indiana's current portion of long-term debt due within one year was as follows:
September 30, December 31, 1996 1995 ============ ============ (Dollars in thousands) NORTHERN INDIANA PUBLIC SERVICE COMPANY: First mortgage bonds - Series O, 6-3/8% - due September 1, 1997 $ 25,747 $ 0 Medium-term notes - Interest rates of 5.78% and 5.82% with a weighted average interest rate of 5.80% and maturities of July 25, 1997 and July 28, 1997 40,000 80,000 ------------ ------------ Total current portion of long-term debt $ 65,747 $ 80,000 ============ ============
(17) SHORT-TERM BORROWINGS: Northern Indiana has a $250 million revolving Credit Agreement with several banks which terminates August 19, 1998 unless extended by its terms. As of September 30, 1996, there were no borrowings outstanding under this agreement. In addition, Northern Indiana has $14.2 million in lines of credit which run to May 31, 1997. The credit pricing of each of the lines varies from either the lending banks' commercial prime or market rates. Northern Indiana has agreed to compensate the participating banks with arrangements that vary from no commitment fees to a combination of fees which are mutually satisfactory to both parties. As of September 30, 1996, there were no borrowings under these lines of credit. The Credit Agreement and lines of credit are also available to support the issuance of commercial paper. Northern Indiana also has $273.5 million of money market lines of credit. As of September 30, 1996 and December 31, 1995, there were $186.7 million and $118.8 million of borrowings, respectively, outstanding under these lines of credit. Northern Indiana has a $50 million uncommitted finance facility. At September 30, 1996, there were no borrowings outstanding under this facility. Northern Indiana makes use of commercial paper to fund short-term working capital requirements. At September 30, 1996 and December 31, 1995, Northern Indiana's short- term borrowings were as follows:
September 30, December 31, 1996 1995 ============ ============ (Dollars in thousands) NORTHERN INDIANA PUBLIC SERVICE COMPANY: Commercial paper - Weighted average interest rate of 5.45% at September 30, 1996 $ 88,000 $ 44,800 Notes payable - Issued at interest rates between 5.38% and 5.55% with a weighted average interest rate of 5.45% and various maturities between October 1, 1996 and November 13, 1996 186,700 118,800 ------------ ------------ Total short-term borrowings $ 274,700 $ 163,600 ============ ============
(18) OPERATING LEASES: On April 1, 1990, Northern Indiana entered into a twenty-year agreement for the rental of office facilities from NIPSCO Development Company, Inc., a subsidiary of Industries, at a current annual rental payment of approximately $3.3 million. The following is a schedule, by years, of future minimum rental payments, excluding those to associated companies, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of September 30, 1996:
Twelve Months Ended September 30, ================================= (Dollars in thousands) 1997 $ 5,514 1998 4,860 1999 3,957 2000 3,055 2001 3,055 Later years 36,962 -------- Total minimum payments required $ 57,403 ========
The consolidated financial statements include rental expense for all operating leases as follows:
September 30, September 30, 1996 1995 ============ ============ (Dollars in thousands) Three months ended $ 2,196 $ 2,844 Nine months ended $ 7,088 $ 7,981 Twelve months ended $ 9,931 $10,124
(19) COMMITMENTS: Northern Indiana estimates that approximately $764 million will be expended for construction purposes for the period from January 1, 1996 to December 31, 2000. Substantial commitments have been made by Northern Indiana in connection with this program. Northern Indiana has entered into a service agreement with Pure Air, a general partnership between Air Products and Chemicals, Inc. and Mitsubishi Heavy Industries America, Inc., under which Pure Air provides scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at Bailly Generating Station. Services under this contract commenced on June 15, 1992 with annual charges approximating $20 million. The agreement provides that, assuming various performance standards are met by Pure Air, a termination payment would be due if Northern Indiana terminates the agreement prior to the end of the twenty-year contract period. Northern Indiana has entered into an agreement with Integrated Systems Solutions Corporation (ISSC), a wholly-owned subsidiary of IBM, for ISSC to perform all data center, application development and maintenance, and desktop management of Northern Indiana. (20) FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents: The carrying amount approximates fair value because of the short maturity of those instruments. Investments: The fair value of some investments is estimated based on market prices for those of similar investments. Long-term debt/Preferred stock: The fair value of long-term debt and preferred stock is estimated based on the quoted market prices for the same or similar issues or on the rates offered to Northern Indiana for securities of the same remaining maturities. Certain premium costs associated with the early settlement of long-term debt are not taken into consideration in determining fair value. The carrying values and estimated fair values of Northern Indiana's financial instruments are as follows:
September 30, 1996 December 31, 1995 ---------------------- ---------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ========== ========== ========== ========== (Dollars in thousands) Cash and cash equivalents $ 11,291 $ 11,291 $ 11,478 $ 11,478 Investments $ 256 $ 256 $ 256 $ 256 Long-term debt (including current portion) $1,059,891 $1,011,841 $1,139,534 $1,151,471 Preferred stock $ 144,758 $ 123,360 $ 146,804 $ 128,518
Northern Indiana is subject to regulation and gains or losses may be included in rates over a prescribed amortization period, if in fact settled at amounts approximating those above. (21) CUSTOMER CONCENTRATIONS: Northern Indiana is a public utility operating company supplying natural gas and electrical energy in the northern third of Indiana. Although Northern Indiana has a diversified base of residential and commercial customers, a substantial portion of its electric and gas industrial deliveries are dependent upon the basic steel industry. The basic steel industry accounted for 2% of gas revenues (including transportation services) and 22% of electric revenue for the twelve months ended September 30, 1996 as compared to 5% and 23%, respectively, for the twelve months ended September 30, 1995. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES - Total operating revenues for the twelve months ended September 30, 1996 increased $76.4 million as compared to the twelve months ended September 30, 1995. Gas revenues increased $75.8 million and electric revenues increased $0.6 million as compared to the same period in 1995. The increase in gas revenues was largely attributable to increased sales to residential and commercial customers due to colder winter weather, increased sales to industrial and wholesale customers, increased deliveries of gas transported for others, and increased gas transition costs, which were partially offset by decreased gas costs per dekatherm (dth). The increase in electric revenues was mainly due to increased sales to commercial and wholesale customers, which were partially offset by decreased sales to residential customers due to the cooler summer this year and decreased sales to industrial customers. Total operating revenues for the nine months ended September 30, 1996 increased $38.3 million as compared to the nine months ended September 30, 1995. Gas revenues increased $49.1 million and electric revenues decreased $10.8 million as compared to the same period in 1995. The increase in gas revenues was mainly due to increased sales to residential and commercial customers as a result of colder weather, increased sales to industrial and wholesale customers, and increased gas costs per dth, which were partially offset by decreased gas transition costs. The decrease in electric revenues was mainly due to decreased sales to residential customers due to cooler summer weather in the third quarter of 1996, and decreased sales to industrial customers due to plant operational difficulties at several major industrial customers, which were partially offset by increased sales to commercial and wholesale customers. Total operating revenues for the three months ended September 30, 1996 decreased $14.5 million as compared to the three months ended September 30, 1995. Gas revenues increased $5.5 million and electric revenues decreased $20.0 million as compared to the same period in 1995. The increase in gas revenues was mainly due to increased sales to wholesale customers partially offset by decreased gas transition costs. The decrease in electric revenues was mainly due to decreased sales to residential and commercial customers reflecting cooler summer weather and decreased sales to industrial customers, which were partially offset by increased sales to wholesale customers. The basic steel industry accounted for 36% of natural gas delivered (including volumes transported) and 36% of electric sales during the twelve months ended September 30, 1996. The components of the variations in gas and electric revenues are shown in the following table:
Variations from Prior Periods --------------------------------- September 30, 1996 Compared to September 30, 1995 Three Nine Twelve Months Months Months ========= ========= ========= (Dollars in thousands) Gas Revenue - Pass through of net changes in purchased gas costs, gas storage, and storage transportation costs $ 863 $ 12,843 $ (65,779) Gas transition costs (4,673) (28,064) 35,961 Changes in sales levels 9,225 65,292 107,479 Gas transport levels 20 (995) (1,840) --------- --------- --------- Gas Revenue Change $ 5,435 $ 49,076 $ 75,821 --------- --------- --------- Electric Revenue - Pass through of net changes in fuel $ (2,706) $ 1,516 $ 841 Changes in sales levels (17,249) (12,306) (280) --------- --------- --------- Electric Revenue Change $ (19,955) $ (10,790) $ 561 --------- --------- --------- Total Revenue Change $ (14,520) $ 38,286 $ 76,382 ========= ========= =========
See Note 4 to Notes to Consolidated Financial Statements regarding FERC Order No. 636 transition costs. GAS COSTS - Gas costs increased $4.4, $30.6, and $41.1 million for the three- month, nine-month, and twelve-month periods ended September 30, 1996, respectively. Gas costs increased for the three-month and nine-month periods, due to increased purchases and increased gas costs per dth, which were partially offset by decreased gas transition costs. Gas costs increased for the twelve-month period due to increased purchases partially offset by decreased gas costs per dth. The average cost of purchased gas for the three- month, nine-month, and twelve-month periods ended September 30, 1996, after adjustment for gas transition costs billed to transport customers, was $2.72, $2.85, and $2.69 per dth, respectively, as compared to $2.60, $2.79, and $2.77 per dth for the same periods in 1995. FUEL AND PURCHASED POWER - The cost of fuel for electric generation decreased for the three-month, nine-month, and twelve-month periods ended September 30, 1996, compared to 1995 periods, mainly as a result of decreased production of electricity. Power purchased increased $2.2, $6.4, and $10.3 million for the three- month, nine-month, and twelve-month periods ended September 30, 1996 as a result of increased bulk power purchases. OPERATING MARGINS - Operating margins increased $30.7 million for the twelve months ended September 30, 1996 from the same period a year ago. The operating margin from gas deliveries increased $34.7 million due to increased sales to residential and commercial customers reflecting colder winter weather, increased sales to industrial and wholesale customers, and increased deliveries of gas transported for others. The operating margin from electric sales decreased $4.0 million reflecting decreased sales to residential customers due to cooler summer weather in the third quarter of 1996 partially offset by increased sales to commercial and wholesale customers. Operating margins increased $7.9 million for the nine months ended September 30, 1996 from the same period a year ago. Gas operating margin increased $18.5 million due to increased sales to residential and commercial customers reflecting colder weather during the period, increased sales to industrial and wholesale customers, and increased deliveries of gas transported for others. Operating margin from electric sales decreased $10.6 million due to decreased sales to residential customers reflecting cooler summer weather in the third quarter of 1996, and decreased sales to industrial customers due to plant operational difficulties at several major customers, which were partially offset by increased sales to commercial and wholesale customers. Operating margins decreased $13.9 million for the three months ended September 30, 1996 over the same period a year ago. The operating margin from gas deliveries increased $1.0 million due to increased sales for resale and increased deliveries of gas transported for others. Operating margin from electric sales decreased $14.9 million due to decreased sales to residential and commercial customers reflecting cooler summer weather and decreased sales to industrial customers, which were partially offset by increased sales to wholesale customers. OPERATING EXPENSES AND TAXES - Operation expenses increased $7.3 and $12.9 million for the nine-month and twelve-month periods ended September 30, 1996, respectively. Operation expenses increased for the nine-month period reflecting increased electric production costs of $2.7 million resulting from increased pollution control facility costs, environmental costs of $3.7 million, and other various increased operating costs. Operation expenses increased for the twelve-month period reflecting a December 1995 Indiana Utility Regulatory Commission (Commission) order to refund $3.4 million to electric customers related to a 1992 insurance settlement previously credited to operation and maintenance expenses, increased electric production costs of $4.8 million mainly resulting from pollution control facilities costs, employee-related costs of $3.3 million, environmental costs of $2.7 million, and various other increased operation expenses. Operation expenses decreased $2.2 million for the three-month period ended September 30, 1996 mainly due to lower employee related costs. Maintenance expenses decreased $1.9, $4.4, and $5.0 million for the three-month, nine-month, and twelve-month periods ended September 30, 1996, respectively, mainly reflecting decreased maintenance activity at the electric production facilities and the gas underground storage facilities. Depreciation and amortization expense increased $4.2, $12.8, and $14.9 million for the three-month, nine-month, and twelve-month periods ended September 30, 1996, respectively, resulting from plant additions, increased amortization of computer software, and the amortization of deferred costs related to scrubber services provided by Pure Air at the Bailly Generating Station. Utility income taxes decreased for the three-month and nine-month periods ended September 30, 1996 mainly as a result of decreased pre-tax income. Utility income taxes decreased for the twelve-month period ended September 30, 1996 as a result of lower effective tax rate. OTHER INCOME (DEDUCTIONS) - Other Income (Deductions) increased $3.2 and $2.8 million for the three-month and nine-month periods ended September 30, 1996, respectively, mainly reflecting the gain on sales of utility property. Other Income (Deductions) decreased $3.1 million for the twelve-month period ended September 30, 1996 as the result of the inclusion in the prior period of a $5.6 million after-tax benefit for the Northern Indiana land donation to the Shafer and Freeman Lakes Environmental Conservation Corporation partially offset by gains from the sale of utility property during the current period. INTEREST CHARGES - Interest charges increased for the three-month, nine-month, and twelve-month periods ended September 30, 1996 reflecting the issuance of $169,275,000 of Medium-Term Notes, Series D, and the discontinuance of carrying charges on deferred charges related to the Bailly Generating Station scrubber service agreement. See Note 2 to Notes to Consolidated Financial Statements (Summary of Significant Accounting Policies) for a discussion of Regulatory Assets, Carrying Charges and Deferred Depreciation and Allowance for Funds Used During Construction. Also, see Notes 4, 6, and 8 for a discussion of FERC Order No. 636, Income Taxes and Postretirement Benefits. NET INCOME - Net income for the twelve-month period ended September 30, 1996 was $192.6 million compared to $189.7 million for the twelve-month period ended September 30, 1995. Net income for the nine months ended September 30, 1996 was $136.5 million compared to $138.3 million for the nine months ended September 30, 1995. Net income for the three months ended September 30, 1996 was $38.2 million compared to $42.6 million for the three months ended September 30, 1995. ENVIRONMENTAL MATTERS - Northern Indiana has an ongoing program to remain aware of laws and regulations involved with hazardous waste and other environmental matters. It is Northern Indiana's intent to continue to evaluate its facilities and properties with respect to these rules and identify any sites that would require corrective action. Northern Indiana has recorded a reserve of $7.7 million to cover probable corrective actions as of September 30, 1996; however, environmental regulations and remediation techniques are subject to future change. The ultimate cost could be significant, depending on the extent of corrective actions required. Based upon investigations and management's understanding of current laws and regulations, Northern Indiana believes that any corrective actions required, after consideration of insurance coverages and contributions from other potentially responsible parties, will not have a significant impact on the financial position or results of operations of Northern Indiana. Because of major investments made in modern environmental control facilities and the use of low-sulfur coal, all of Northern Indiana's electric production facilities now comply with the sulfur dioxide limitations contained in the acid deposition provisions of the Clean Air Act Amendments of 1990 (CAAA). Northern Indiana estimates that total costs of compliance with the CAAA sulfur dioxide regulations will impact electric rates by less than 5% in the future. The CAAA contain provisions that could lead to limitations on emissions of nitrogen oxides and hazardous air pollutants which may require significant capital expenditures for control of these emissions. Northern Indiana is pursuing a nitrogen oxide control program to meet future requirements. Northern Indiana cannot predict the costs of complying with CAAA requirements, but Northern Indiana believes that any such mandated costs would be recoverable through the rate-making process. The Environmental Protection Agency (EPA) has notified Northern Indiana that it is a "potentially responsible party" (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and may be required to share in the cost of cleanup of several waste disposal sites identified by the EPA. The sites are in various stages of investigation, analysis, and remediation. At each of the sites, Northern Indiana is one of several PRPs, and it is expected that remedial costs, as provided under CERCLA, will be shared among them. At some sites, Northern Indiana and/or the other named PRPs are presently working with the EPA to clean up the sites and avoid the imposition of fines or added costs. Northern Indiana has instituted a program to investigate former manufactured-gas plants where it is the current or former owner. Northern Indiana has identified twenty-three of these sites and made visual inspections of these sites. Initial samplings have been conducted at fourteen sites. Follow-up investigations have been conducted at five sites and potential remedial measures are being evaluated. Northern Indiana will continue its program to assess sites. During the follow-up investigation of the former manufactured-gas plant in Elkhart, Indiana, Northern Indiana noted the presence of hydrocarbons in the Elkhart River. Northern Indiana reported this finding to the Indiana Department of Environmental Management (IDEM) and the EPA. Northern Indiana has placed the Elkhart site in the IDEM Voluntary Remediation Program (VRP). The goal of placing the site in the VRP is to obtain IDEM approval of the determination and subsequent implementation of what remedial measures, if any, may be needed. Northern Indiana was notified by IDEM of the release of a petroleum substance into the St. Mary's River in Fort Wayne, Indiana, from the site of a former manufactured-gas plant formerly owned by Northern Indiana. In cooperation with IDEM, Northern Indiana has taken steps to investigate and contain the substance. Northern Indiana has remediated parts of the Fort Wayne site. The remainder of the site is being evaluated to determine what further remedial measures, if any, may be needed. During the course of investigation activities, Northern Indiana noted the presence of manufactured-gas plant residuals in the St. Mary's River in Fort Wayne, Indiana and the Wabash River in Peru, Indiana. Northern Indiana notified the IDEM and the EPA and immediately took steps to contain the material at both sites. Northern Indiana and Indiana Gas Company, Inc. (Indiana Gas) have entered into an agreement covering cost sharing and management of investigation and remediation programs at five former manufactured-gas plant sites at which both companies or their predecessors were former operators or owners. One of these sites is the Lafayette site which Indiana Gas had previously notified Northern Indiana is being investigated and remediated pursuant to an administrative order with IDEM. Northern Indiana also notified PSI Energy, Inc. that it was a former owner or operator of seven former manufactured-gas plants at which Northern Indiana had conducted or was planning investigation or remediation activities. Northern Indiana has met with various companies that provided insurance coverage which Northern Indiana believes covers costs related to actions taken at former manufactured-gas plants. In September 1995, certain insurance companies initiated a suit in Indiana state court against Northern Indiana to deny coverage. Later, in September 1995, Northern Indiana filed a more comprehensive suit in Federal Court in Indiana against those insurers and several other insurance companies, seeking coverage for costs associated with several former manufactured-gas plant sites. The state court action is stayed pending resolution of Northern Indiana suit in Federal Court. The possibility that exposure to electric and magnetic fields emanating from power lines, household appliances, and other electric sources may result in adverse health effects has been the subject of public, governmental, and media attention. A considerable amount of scientific research has been conducted on this topic without definitive results. Research is continuing to resolve scientific uncertainties. LIQUIDITY AND CAPITAL RESOURCES - In 1994, the Commission authorized Northern Indiana to issue up to $289,275,000 of its Medium-Term Notes, Series D, due from one year to thirty years, for purposes of refinancing certain first mortgage bonds and medium-term notes. During 1994, $120.0 million of the Medium-Term Notes, Series D, were issued to refinance certain first mortgage bonds. On June 12, 1995, the remaining $169,275,000 of Medium-Term Notes, Series D, were issued and part of the proceeds were used to redeem all of the outstanding First Mortgage Bonds, Series U and Z, aggregating $94.8 million, on July 3, 1995. Cash flow from operations has provided sufficient liquidity to meet current operating requirements. Because of the seasonal nature of the utility business and the construction program, Northern Indiana makes use of commercial paper to fund short-term working capital requirements. As of September 30, 1996, Northern Indiana had $88.0 million in commercial paper outstanding, having a weighted average interest of 5.45%. Northern Indiana has a $250 million revolving Credit Agreement with several banks which terminates August 19, 1998 unless extended by its terms. As of September 30, 1996, there were no borrowings outstanding under this agreement. In addition, Northern Indiana has $14.2 million in lines of credit which run to May 31, 1997. The credit pricing of each of the lines varies from either the lending banks' commercial prime or market rates. Northern Indiana has agreed to compensate the participating banks with arrangements that vary from no commitment fees to a combination of fees which are mutually satisfactory to both parties. As of September 30, 1996, there were no borrowings under these lines of credit. The Credit Agreement and lines of credit are also available to support the issuance of commercial paper. Northern Indiana also has $273.5 million of money market lines of credit. As of September 30, 1996, there were $186.7 million of borrowings outstanding under these lines of credit. Northern Indiana has a $50 million uncommitted finance facility. At September 30, 1996, there were no borrowings outstanding under this facility. During recent years, Northern Indiana has been able to finance its construction program with internally generated funds and expects to be able to meet future commitments through such funds. Northern Indiana does not expect the effects of inflation at current levels to have a significant impact on their results of operations, ability to contain cost increases or need to seek timely and adequate rate relief. Northern Indiana does not anticipate the need to file for gas and electric base rate increases in the near future. COMPETITION The Energy Policy Act of 1992 (Energy Act) allowed FERC to order electric utilities to grant access to transmission systems by third-party power producers. The Energy Act specifically prohibits federally mandated wheeling of power for retail customers. On April 24, 1996, the FERC issued its Order No. 888 which opens wholesale power sales to competition and requires public utilities owning, controlling, or operating transmission lines to file non-discriminatory open access tariffs that offer others the same transmission service they provide themselves. Order No. 888 also provides for the full recovery of stranded costs - that is, costs that were prudently incurred to serve power customers and that could go unrecovered if these customers use open access to move to another supplier. FERC expects this rule will accelerate competition and bring lower prices and more choices to wholesale energy customers. This competition will create opportunities to compete for new customers and revenues, as well as increase the risk of the loss of customers. Although wholesale customers represent a relatively small portion of Northern Indiana's sales, Northern Indiana will continue its efforts to retain and add customers by offering competitive rates. Operating in a competitive environment will place added pressures on utility profit margins and credit quality. Increasing competition in the electric utility industry has already led the credit rating agencies to apply more stringent guidelines in making credit rating determinations. Northern Indiana's management has taken steps to make the company more competitive and profitable in the changing utility environment, including utilizing new rate and contract flexibility to retain and attract customers as well as conversions of some of its generating units to allow use of lower cost, low-sulfur coal. FERC Order No. 636 shifted primary responsibility for gas acquisition, transportation, and peak days' supply from pipelines to local gas distribution companies, such as Northern Indiana. Although pipelines continue to transport gas, they no longer provide sale service. Northern Indiana believes it has taken appropriate steps to ensure the continued acquisition of adequate gas supplies at reasonable prices. The mix of gas revenues from retail sales, interruptible retail sales, firm transportation service, and interruptible transportation services has changed significantly over the past several years. The deregulation of the gas industry, since the mid-1980's, allows large industrial and commercial customers to purchase their gas supplies directly from producers and use Northern Indiana's facilities to transport the gas. Transportation customers pay Northern Indiana only for transporting their gas from the pipeline to the customers' premises. Northern Indiana filed an Alternative Regulatory Plan (ARP) with the Commission on November 29, 1995. The purpose of the ARP is to create a business and regulatory environment and structure which will permit increased choice for gas customers, competition among suppliers, and improved natural gas service. In its petition, Northern Indiana stated it would propose to implement new rates and services that would include, but not be limited to further unbundling of services for additional customer classes which would include increased customer choice for sources of natural gas supply, negotiated services and prices, and incentive gas and storage cost mechanisms. The Commission will hold hearings during first quarter of 1997. To date, Northern Indiana's system has not been materially affected by competition, and management does not foresee substantial adverse effects in the near future, unless the current regulatory structure is substantially altered. Northern Indiana believes the steps it is taking to deal with increased competition will have significant, positive effects in the next few years. Part II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. Northern Indiana is party to various pending proceedings, including suits and claims against it for personal injury, death and property damage, but in the opinion of counsel for Northern Indiana, the nature of such proceedings and suits, and the amounts involved, do not depart from the ordinary routine litigation and proceedings incidental to the kind of business conducted by Northern Indiana, except as described under Note 3 (Pending Tax Matter) and Note 5 (Environmental Matters), in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Report on Form 10-Q. To the knowledge of Northern Indiana no other material legal proceedings against Northern Indiana or its subsidiaries are contemplated by governmental authorities and other parties. Item 2. CHANGES IN SECURITIES. None Item 3. DEFAULTS UPON SENIOR SECURITIES. None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None Item 5. OTHER INFORMATION. None Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit 3 - By-laws effective August 27, 1996. (b) Reports on Form 8-K. None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Northern Indiana Public Service Company (Registrant) /s/ Jerry M. Springer, Vice President, Finance and Accounting /s/ David J. Vajda, Controller and Chief Accounting Officer Date November 13, 1996 EX-3 2 EXHIBIT 3 NORTHERN INDIANA PUBLIC SERVICE COMPANY BY-LAWS Effective August 27, 1996 ARTICLE I. OFFICES. SECTION 1.1. REGISTERED OFFICE. The registered office of the Corporation in the State of Indiana shall be at 5265 Hohman Avenue, in the City of Hammond, County of Lake. SECTION 1.2. PRINCIPAL BUSINESS OFFICE. The principal business office of the Corporation shall be at 801 East 86th Avenue, in the Town of Merrillville, County of Lake, in the State of Indiana. ARTICLE II. SHAREHOLDERS' MEETINGS. SECTION 2.1. PLACE OF MEETINGS. Meetings of the shareholders of the Corporation shall be held at such place, within or without the State of Indiana, as may be specified by the Board of Directors in the notice of such meeting, but if no such designation is made, then at the principal business office of the Corporation. SECTION 2.2. ANNUAL MEETINGS. The annual meeting of the shareholders shall be held in each year on the second Wednesday in the month of April, if not a legal holiday, and if a legal holiday, then on the next succeeding business day that is not a legal holiday or on such other day as the Board of Directors may determine; at the hour of nine o'clock a.m. or at such other time as the Board of Directors may determine, for the purpose of electing Directors and for the transaction of such other business as may legally come before the meeting. If for any reason any annual meeting shall not be held at the time herein provided, the same may be held at any time thereafter, upon notice as hereinafter provided, or the business thereof may be transacted at any special meeting of shareholders called for that purpose. SECTION 2.3. SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman, the President, or the Board of Directors, and shall be called by the Chairman at the request in writing of a majority of the Board of Directors, or at the request in writing of the shareholders holding at least one-fourth of all the shares outstanding and entitled to vote on the business proposed to be transacted thereat. All requests for special meetings of shareholders shall state the time, place and the purpose or purposes thereof. SECTION 2.4. NOTICE OF SHAREHOLDERS' MEETINGS. Notice of each meeting of shareholders, stating the date, time and place, and, in the case of special meetings, the purpose or purposes for which such meeting is called, shall be given to each shareholder entitled to vote thereat not less than 10 nor more than 60 days before the date of the meeting unless otherwise prescribed by statute. SECTION 2.5. RECORD DATES. (a) In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of shares or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a future date as the record date, which shall not be more than 60 nor less than 10 days before the date of such meeting or any other action requiring a determination by shareholders. (b) If a record date has not been fixed as provided in preceding subsection (a), then: (i) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (c) Only those who shall be shareholders of record on the record date so fixed as aforesaid shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend or other distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding the transfer of any shares on the books of the Corporation after the applicable record date; provided, however, the Corporation shall fix a new record date if a meeting is adjourned to a date more than 120 days after the date originally fixed for the meeting. SECTION 2.6. QUORUM AND ADJOURNMENT. The holders of a majority of all the capital shares issued and outstanding and entitled to vote at any meeting of the shareholders, represented by the holders thereof in person or by proxy, shall be requisite at all meetings of the shareholders to constitute a quorum for the election of Directors or for the transaction of other business, unless otherwise provided by law or by the Corporation's Articles of Incorporation, as amended (the "Articles of Incorporation"). Whether or not there is such a quorum, the chairman of the meeting or the shareholders present or represented by proxy representing a majority of the shares present or represented may adjourn the meeting from time to time without notice other than an announcement at the meeting. At such adjourned meeting at which the requisite number of voting shares shall be present or represented, any business may be transacted which might have been transacted at the meeting originally called. SECTION 2.7. VOTING BY SHAREHOLDERS; PROXIES. Every shareholder shall have the right at every shareholders' meeting to one vote for each share standing in his name on the books of the Corporation, except as otherwise provided by law or by the Articles of Incorporation, and except that no share shall be voted at any meeting upon which any installment is due and unpaid, or which belongs to the Corporation. Election of directors at all meetings of the shareholders at which directors are to be elected shall be by ballot, and a plurality of the votes cast thereat shall be necessary to elect any Director. If a quorum exists, action on a matter (other than the election of directors) submitted to shareholders entitled to vote thereon at any meeting shall be approved if the votes cast favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law or by the Articles of Incorporation. A shareholder may vote either in person or by proxy executed in writing by the shareholder or a duly authorized attorney in fact. No proxy shall be valid after eleven months from the date of its execution unless a longer time is expressly provided therein. All voting at meetings of shareholders shall be by ballot, except that the presiding officer of the meeting may call for a viva voce vote on any matter other than the election of directors, unless the holder or holders of ten percent (10%) or more of the shares entitled to vote demands or demand a vote by ballot. SECTION 2.8. LIST OF SHAREHOLDERS. The Secretary shall make, or cause the agent having charge of the stock transfer books of the Corporation to make, at least five (5) days before each meeting of shareholders, a complete list of the shareholders entitled by the Articles of Incorporation to vote at said meeting, arranged in alphabetical order, with the address and number of shares so entitled to vote held by each, which list shall be on file at the principal business office of the Corporation and subject to inspection by any shareholder within the usual business hours during said five (5) days either at the principal business office of the Corporation or a place in the city where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not so specified, at the place where said meeting is to be held. Such list shall be produced and kept open at the time and place of the meeting and subject to the inspection of any shareholder during the holding of such meeting. SECTION 2.9. CONDUCT OF BUSINESS. Presiding Officer. The Chairman, when present, and in the absence of the Chairman the President, shall be the presiding officer at all meetings of shareholders, and in the absence of the Chairman and the President, the Board of Directors shall choose a presiding officer. The presiding officer of the meeting shall have plenary power to determine procedure and rules of order and make definitive rulings at meetings of the shareholders. SECTION 2.10. ORGANIZATION OF MEETINGS. The Secretary, who may call on any officer or officers of the Corporation for assistance, shall make all necessary and appropriate arrangements for all meetings of shareholders, receive all proxies and ascertain and report to each meeting of shareholders the number of shares present, in person and by proxy. In the absence of the Secretary, the Assistant Secretary shall perform the foregoing duties. The certificate and report of the Secretary or Assistant Secretary, as to the regularity of such proxies and as to the number of shares present, in person and by proxy, shall be received as prima facie evidence of the number of shares present in person and by proxy for the purpose of establishing the presence of a quorum at such meeting and for organizing the same, and for all other purposes. SECTION 2.11. INSPECTORS. At every meeting of shareholders it shall be the duty of the presiding officer to appoint three (3) shareholders of the Corporation inspectors of election to receive and count the votes of shareholders. Each inspector shall take an oath to fairly and impartially perform the duties of a inspector of the election and to honestly and truly report the results thereof. Such inspectors shall be responsible for tallying and certifying the vote taken on any matter at each meeting which is required to be tallied and certified by them in the resolution of the Board of Directors appointing them or the appointment of the presiding officer at such meeting as the case may be. Except as otherwise provided by these By-Laws or by law, such inspectors shall also decide all questions touching upon the qualification of voters, the validity of proxies and ballots, and the acceptance and rejection of votes. The Board of Directors shall have the authority to make rules establishing presumptions as to the validity and sufficiency of proxies. SECTION 2.12. MINUTES OF SHAREHOLDER MEETINGS. The presiding officer, secretary, and inspectors of election serving at a shareholders' meeting shall constitute a committee to correct and approve the minutes of such meeting. The approval thereof shall be evidenced by an endorsement thereon signed by a majority of the committee. SECTION 2.13. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by statute, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the common shareholders of the Corporation may be taken without a meeting if a written consent thereto is signed by all common shareholders and such written consent is filed with the minutes of proceedings of the common shareholders. ARTICLE III. BOARD OF DIRECTORS. SECTION 3.1. POWERS. The Board of Directors shall have the general direction, management and control of all the property, business and affairs of the Corporation and shall exercise all the powers that may be exercised or performed by the Corporation, under the statutes, the Articles of Incorporation, and these By-Laws. SECTION 3.2. NUMBER, ELECTION AND TERM OF OFFICE. The Board of Directors shall consist of nine (9) members, classified with respect to the time for which they shall severally hold office by dividing them into three classes, and after being so classified three (3) Directors shall be elected annually for a term of three (3) years. SECTION 3.3. VACANCIES. Any vacancy in the Board of Directors caused by death, resignation or other reason shall be filled for the remainder of the Director's term by a majority vote of the remaining Directors although less than a quorum, or by the sole remaining director, and any director so chosen shall hold office for a term expiring at the annual meeting of shareholders at which the term of office of the class of directors to which such director has been elected expires. All Directors of the Corporation shall hold office until their successors are duly elected and qualified. SECTION 3.4. ANNUAL MEETINGS. A meeting of the Directors whose terms have not expired and the newly elected Directors, to be known as the annual meeting of the Board of Directors, for the election of officers and for the transaction of such other business as may properly come before the meeting, shall be held on the same day as the annual meeting of the shareholders, at that time and place determined by the Board of Directors or at such date, time and place otherwise set by the Chairman. SECTION 3.5. REGULAR MEETINGS. Regular monthly meetings of the Board of Directors shall be held from time to time (either within or without the state) as the Board may by resolution determine, without call and without notice, and unless otherwise determined all such regular monthly meetings shall be held at the principal business office of the Corporation on the fourth Tuesday of each and every month at 10:30 a.m. SECTION 3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the Chairman, by the President, or by the Chairman upon the written request of any four (4) Directors by giving, or causing the Secretary to give, to each Director, notice in accordance with Article IV of these By-Laws. SECTION 3.7. QUORUM. At all meetings of the Board of Directors, a majority of the Directors shall constitute a quorum for the transaction of business and the act of a majority of those present shall be necessary and sufficient for the taking of any action thereat, but a less number may adjourn the meeting from time to time until a quorum is present. SECTION 3.8. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by statute, the Articles of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all directors or by all members of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or of such committee. SECTION 3.9. ATTENDANCE BY CONFERENCE TELEPHONE. Members of the Board of Directors or any committee thereof may participate in a meeting of such Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 3.10. COMMITTEES. (a) The Board of Directors may from time to time, in its discretion, by resolution passed by a majority of the Board, designate, and appoint, from the directors, committees of one or more persons which shall have and may exercise such lawfully delegable powers and duties conferred or authorized by the resolutions of designation and appointment. The Board of Directors shall have power at any time to change the members of any such committee, to fill vacancies, and to discharge any such committee. (b) Unless the Board of Directors shall provide otherwise, the presence of one-half of the total membership of any committee of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of such committee and the act of a majority of those present shall be necessary and sufficient for the taking of any action thereat. ARTICLE IV. NOTICES. SECTION 4.1. NOTICES. Notices to directors and shareholders shall be in writing and delivered personally or mailed to their addresses appearing on the records of the Corporation or, if to directors, by telegram, cable, telephone, telecopy, facsimile or a nationally recognized overnight delivery service. Notice to directors of special meeting by mail shall be given at least two days before the meeting. Notice to directors of special meeting by telegram, cable, personal delivery, telephone, telecopy or facsimile shall be given a reasonable time before the meeting, but in no event less than one hour before the meeting. Notice by mail or recognized overnight delivery service shall be deemed to be given when sent to the director at his or her address appearing on the records of the Corporation. Notice by telegram or cable shall be deemed to be given when the telegram or cable addressed to the director at his or her address appearing on the records of the Corporation is delivered to the telegraph company. Notice by telephone, telecopy or facsimile shall be deemed to be given when transmitted by telephone, telecopy or facsimile to the telephone, telegraph or facsimile number appearing on the records of the Corporation for the director (regardless of whether the director shall have personally received such telephone call or wireless message). SECTION 4.2. WAIVER OF NOTICE. Whenever any notice is required, a waiver thereof signed by the person entitled to such notice, whether before or after the time stated therein, and filed with the minutes or corporate records, shall be deemed equivalent thereto. Attendance of any person at any meeting of shareholders or directors shall constitute a waiver of notice of such meeting, except when such person attends only for the express purpose of objecting, at the beginning of the meeting (or in the case of a director's meeting, promptly upon such director's arrival), to the transaction of any business at the meeting and does not thereafter vote for or assent to action taken at the meeting. ARTICLE V. OFFICERS. SECTION 5.1. DESIGNATION; NUMBER; ELECTION. The officers of the Corporation shall be chosen by the Board of Directors and may consist of a Chairman, a President, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers, a Controller and one or more Assistant Controllers. One person may hold any two offices except those of Chairman or President, and Secretary. SECTION 5.2. TERM OF OFFICE; VACANCIES; REMOVAL. Such officers shall be elected by the Board of Directors at its annual meeting, and shall hold office for one year and/or until their respective successors shall have been duly elected. The Board of Directors may from time to time, elect or appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as may be prescribed by the Board of Directors. Vacancies among the officers of the Corporation shall be filled by the Board of Directors. Any officer or agent elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board of Directors. SECTION 5.3. COMPENSATION OF OFFICERS. The Board of Directors or a committee of the Board shall have the authority to fix the compensation of the officers of the Corporation. SECTION 5.4. CHAIRMAN. The Chairman shall be the chief executive officer of the Company and shall have general authority and supervision over the management and direction of the affairs of the Company, and supervision of all departments and of all officers of the Company. The Chairman shall, subject to the other provisions of these by-laws, have such other powers and perform such other duties as usually devolve upon the chief executive officer of a company or as may be prescribed by the Board of Directors, and shall, when present, preside at all meetings of the shareholders and of the Board of Directors. When the Board of Directors is not in session, the Chairman shall have authority to suspend the authority of any other officer or officers, subject, however, to the pleasure of the Board of Directors at its next meeting. In case of the absence, disability, death, resignation or removal from office of the Chairman, the powers and duties of the Chairman shall for the time being devolve upon and be exercised by the President, unless otherwise ordered by the Board of Directors. SECTION 5.5. PRESIDENT. The President shall be the chief operating officer of the Corporation and shall have such general authority and supervision over the management and direction of the affairs of the Corporation, subject to the authority of the Chairman, as shall usually devolve upon a chief operating officer of a corporation. The President shall, subject to the other provisions of these By-Laws, have such other powers and perform such other duties as usually devolve upon the President of a corporation, and such further duties as may be prescribed for the President by the Chairman or the Board of Directors. In case of the absence, disability, death, resignation or removal from office of the President, the powers and duties of the President shall, for the time being, devolve upon and be exercised by the Chairman, and in case of the absence, disability, death, resignation, or removal from office of both the Chairman and the President, the powers and duties of the President shall for the time being devolve upon and be exercised by the Vice President so appointed by the Board of Directors. SECTION 5.6. VICE PRESIDENTS. Each of the Vice Presidents shall have such powers and duties as may be prescribed by the Board of Directors, the Chairman or the President. SECTION 5.7. SECRETARY. The Secretary shall attend and keep the minutes of all meetings of the Board of Directors and of the shareholders. The Secretary shall have charge and custody of the corporate records and corporate seal of the Corporation, and shall in general perform all the duties incident to the office of secretary of a corporation, subject at all times to the direction and control of the Board of Directors, the Chairman and the President. SECTION 5.8. ASSISTANT SECRETARIES. Each of the Assistant Secretaries shall have such duties and powers as may be prescribed by the Board of Directors or be delegated by the Chairman or the President. In the absence or disability of the Secretary, the powers and duties of the Secretary shall devolve upon such one of the Assistant Secretaries as the Board of Directors, the Chairman or the President may designate, or, if there be but one Assistant Secretary, then upon such Assistant Secretary; and such Assistant Secretary shall thereupon have and exercise such powers and duties during such absence or disability of the Secretary. SECTION 5.9. TREASURER. The Treasurer shall have charge of, and shall be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall also have the custody of all securities belonging to the Corporation. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper receipts or making proper vouchers for such disbursements, and shall at all times preserve the same during the term of office. When necessary or proper, the Treasurer shall endorse, on behalf of the Corporation, all checks, notes, or other obligations payable to the Corporation or coming into possession of the Treasurer for and on behalf of the Corporation, and shall deposit the funds arising therefrom, together with all other funds of the Corporation coming into possession of the Treasurer, in the name and to the credit of the Corporation in such bank or banks as the Board of Directors shall from time to time by resolution direct. The Treasurer shall perform all duties which are incident to the office of treasurer of a corporation, subject at all time to the direction and control of the Board of Directors, the Chairman and the President. The Treasurer shall give the Corporation a bond if required by the Board of Directors in a sum, and with one or more sureties, satisfactory to the Board, for the faithful performance of the duties of the office of Treasurer, and for the restoration to the Corporation, in case of the death, resignation, retirement or removal from office of the Treasurer, of all books, papers, vouchers, money or other property of whatever kind in the possession or under the control of the Treasurer belonging to the Corporation. SECTION 5.10. ASSISTANT TREASURERS. Each of the Assistant Treasurers shall have such powers and duties as may be prescribed by the Board of Directors or be delegated by the Chairman or the President. In the absence or disability of the Treasurer, the powers and duties shall devolve upon such one of the Assistant Treasurers as the Board of Directors, the Chairman or the President may designate, or, if there be but one Assistant Treasurer, then upon such Assistant Treasurer who shall thereupon have and exercise such powers and duties during such absence or disability of the Treasurer. Each Assistant Treasurer shall likewise give the Corporation a bond if required by the Board of Directors upon like terms and conditions as the bond required of the Treasurer. SECTION 5.11. CONTROLLER. The Controller shall have control over all accounts and records pertaining to moneys, properties, materials and supplies. The Controller shall have executive direction of the bookkeeping and accounting departments, and shall have general supervision over the records in all other departments pertaining to moneys, properties, materials and supplies. The Controller shall have charge of the preparation of the financial budget, and such other powers and duties as are commonly incident to the office of controller of a corporation, subject at all times to the direction and control of the Board of Directors, the Chairman and the President. SECTION 5.12. ASSISTANT CONTROLLERS. Each of the Assistant Controllers shall have such powers and duties as may be prescribed by the Board of Directors or be delegated by the Chairman or the President. In the absence or disability of the Controller, the powers and duties of the Controller shall devolve upon such one of the Assistant Controllers as the Board of Directors, the Chairman or the President may designate, or, if there be but one Assistant Controller, then upon such Assistant Controller who shall thereupon have and exercise such powers and duties during such absence or disability of the Controller. ARTICLE VI. CONDUCT OF BUSINESS. SECTION 6.1. CONTRACTS, DEEDS AND OTHER INSTRUMENTS. All agreements evidencing obligations of the Corporation, including but not limited to contracts, trust deeds, promissory notes, sight drafts, time drafts and letters of credit (including applications therefor), may be signed by any one of the Chairman, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary, any Assistant Secretary, any other person authorized by a resolution of the Board of Directors, and any other person authorized by the Chairman, as evidenced by a written instrument of delegation. Any such authorization by the Board of Directors or the Chairman shall remain in effect until rescinded by action of the Board of Directors or (in the case of a delegation by the Chairman) by the Chairman and, where it identifies the authorized signatory by office rather than by name, shall not be rescinded solely by virtue of a change in the person holding that office or a temporary vacancy in that office. A certified copy of these By-Laws and/or any authorization given hereunder may be furnished as evidence of the authorities herein granted, and all persons shall be entitled to rely on such authorities in the case of a specific contract, conveyance or other transaction without the need of a resolution of the Board of Directors specifically authorizing the transaction involved. SECTION 6.2. CHECKS. Checks and other negotiable instruments for the disbursement of Corporation funds may be signed by any one of the Chairman, the President, any Vice President, the Treasurer, the Controller and the Secretary in such manner as shall from time to time be determined by resolution of the Board of Directors. Electronic or wire transfers to funds may be authorized by any officer of the Corporation who is authorized pursuant to this Section 6.2 to disburse Corporation funds by check or other negotiable instrument. SECTION 6.3. DEPOSITS. Securities, notes and other evidences of indebtedness shall be kept in such places, and deposits of checks, drafts and funds shall be made in such banks, trust companies or depositories, as shall be recommended and approved by any two of the Chairman, the President, any Vice President and the Treasurer. SECTION 6.4. VOTING OF STOCK. Unless otherwise ordered by the Board of Directors, the Chairman, the President or any Vice President shall have the power to execute and deliver on behalf of the Corporation proxies on stock owned by the Corporation appointing a person or persons to represent and vote such stock at any meeting of stockholders, with full power of substitution, and shall have power to alter or rescind such appointment. Unless otherwise ordered by the Board of Directors, the Chairman, the President or any Vice President shall have the power on behalf of the Corporation to attend and to act and vote at any meeting of stockholders of any corporation in which the Corporation holds stock and shall possess and may exercise any and all rights and powers incident to the ownership of such stock, which, as the owner thereof, the Corporation might have possessed and exercised if present. The Board may confer like powers upon any other person or persons. SECTION 6.5. TRANSFER OF STOCK. Such form of transfer or assignment customary or necessary to effect a transfer of stocks or other securities standing in the name of the Corporation shall be signed by the Chairman, the President, any Vice President or the Treasurer, and the Secretary or an Assistant Secretary shall sign as witness if required on the form. A corporation or person transferring any such stocks or other securities pursuant to a form of transfer or assignment so executed shall be fully protected and shall be under no duty to inquire whether the Board of Directors has taken action in respect thereof. ARTICLE VII. SHARE CERTIFICATES AND THEIR TRANSFER. SECTION 7.1. SHARE CERTIFICATES. Certificates for shares of the Corporation shall be signed by the Chairman, the President or any Vice President, and by the Secretary or any Assistant Secretary, and shall not be valid unless so signed. Such certificates shall be appropriately numbered and contain the name of the registered holder, the number of shares and the date of issue. If such certificate is countersigned (a) by a transfer agent other than the Corporation or its employee, or (b) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he, she or it were such officer, transfer agent, or registrar at the date of issue. SECTION 7.2. TRANSFER OF SHARES. Upon surrender to the Corporation or a transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation and such transfer agent to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction. No certificate shall be issued in exchange for any certificate until the former certificate for the same number of shares of the same class and series shall have been surrendered and cancelled, except as provided in Section 7.4. SECTION 7.3. REGULATIONS. The Board of Directors shall have authority to make rules and regulations concerning the issue, transfer and registration of certificates for shares of the Corporation. SECTION 7.4. LOST, STOLEN AND DESTROYED CERTIFICATES. The Corporation may issue a new certificate or certificates for shares in place of any issued certificate alleged to have been lost, stolen or destroyed upon such terms and conditions as the Board of Directors may prescribe. SECTION 7.5. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to treat the holder of record (according to the books of the Corporation) of any share or shares as the holder in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other party whether or not the Corporation shall have express or other notice thereof, except as expressly provided by law. SECTION 7.6. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may from time to time appoint a transfer agent and a registrar in one or more cities, may require all certificates evidencing shares of the Corporation to bear the signatures of a transfer agent and a registrar, may provide that such certificates shall be transferable in more than one city, and may provide for the functions of transfer agent and registrar to be combined in one agency. ARTICLE VIII. INDEMNIFICATION. SECTION 8.1. LITIGATION BROUGHT BY THIRD PARTIES. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, formal or informal (other than an action by or in the right of the Corporation) (an "Action") by reasons of the fact that he or she is or was a director, officer, employee or agent of the Corporation (a "Corporate Person"), or is or was serving at the request of the Corporation as a director, officer, employee, agent, partner, trustee or member or in another authorized capacity (collectively, an "Authorized Capacity") of or for another corporation, unincorporated association, business trust, partnership, joint venture, trust, individual or other legal entity, whether or not organized or formed for profit (collectively, "Another Entity"), against expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such Action ("Expenses") if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any Action by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe his or her conduct was unlawful. SECTION 8.2. LITIGATION BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any action by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a Corporate Person, or is or was serving at the request of the Corporation in an Authorized Capacity of or for Another Entity against Expenses actually and reasonably incurred by him or her in connection with that defense or settlement of such action if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for willful negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that a court of equity or the court in which such action was pending shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court of equity or other court shall deem proper. SECTION 8.3. SUCCESSFUL DEFENSE. To the extent that a person who is or was a Corporate Person or is or was serving in an Authorized Capacity of Another Entity at the request of the Corporation and has been successful on the merits or otherwise in defense of any action, referred to in Section 8.1 or 8.2 of this Article, or in defense of any claim, issue or matter therein, he or she shall be indemnified against Expenses actually and reasonably incurred by him or her in connection therewith. SECTION 8.4 DETERMINATION OF CONDUCT. Any indemnification under Section 8.1 or 8.2 of this Article (unless ordered by a court) shall be made by the Corporation only upon a determination that indemnification of the person is proper in the circumstances because he or she has met the applicable standard of conduct set forth in said Section 8.1 or 8.2. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors not at the time parties to such action, suit or proceeding, or (b) if a quorum cannot be obtained, by a majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate) consisting of two or more directors not at the time parties to such action, suit or proceeding, or (c) by special legal counsel, or (d) by the shareholders; provided, however, that shares owned by or voted under the control of persons who are at the time parties to such action, suit or proceeding may not be voted on the determination. SECTION 8.5. ADVANCE PAYMENT. The Corporation shall advance Expenses reasonably incurred by any Corporate Person in any action in advance of the final disposition thereof upon the undertaking of such party to repay the advance unless it is ultimately determined that such party is entitled to indemnification hereunder, if (a) the indemnitee furnishes the Corporation a written affirmation of his or her good faith belief that he or she has satisfied the standard of conduct in Section 8.1 or 8.2 and (b) a determination is made by those making the decision pursuant to Section 8.4 that the facts then known would not preclude indemnification under these By-Laws. SECTION 8.6. BY-LAW NOT EXCLUSIVE. The indemnification provided by this Article 8 shall not be deemed exclusive of any other rights to which any person may be entitled under any by-law, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 8.7. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Corporate Person or is or was serving at the request of the Corporation in an Authorized Capacity of or for Another Entity against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article 8 or the Indiana Business Corporation Law. SECTION 8.8. EFFECT OF INVALIDITY. The invalidity or unenforceability of any provision of this Article 8 shall not affect the validity or enforceability of the remaining provisions of this Article 8. SECTION 8.9. DEFINITION OF CORPORATION. For purposes of this Article 8, references to "the Corporation" shall include, in addition to the surviving or resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger. SECTION 8.10. CHANGE IN LAW. Notwithstanding the foregoing provisions of Article 8, the Corporation shall indemnify any person who is or was a Corporate Person or is or was serving at the request of the Corporation in an Authorized Capacity of or for Another Entity to the full extent permitted by the Indiana Business Corporation Law or by any other applicable law, as may from time to time be in effect. ARTICLE IX. GENERAL. SECTION 9.1. FISCAL YEAR. The fiscal year of the Corporation shall begin on the 1st day of January and end on the 31st day of December in each year. SECTION 9.2. CORPORATE SEAL. The corporate seal shall be circular in form and shall have inscribed thereon the words "Northern Indiana Public Service Company - Corporate Seal - Indiana." SECTION 9.3. AMENDMENTS. These By-Laws may be altered, amended or repealed in whole or in part, and new By-Laws may be adopted, at any annual, regular or special meeting of the Board of Directors by the affirmative vote of a majority of a quorum of the Board of Directors. SECTION 9.4. DIVIDENDS. Subject to any provisions of any applicable statute or of the Articles of Incorporation, dividends may be declared upon the capital stock of the Corporation by the Board of Directors at any regular or special meeting thereof; and such dividends may be paid in cash, property or shares of the Corporation. EX-27 3
UT This schedule contains summary financial information extracted from the financial statements of Northern Indiana Public Service Company for three months ended September 30, 1996, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 PER-BOOK 3,050,905 8,585 301,179 56,151 212,740 3,629,560 859,488 12,520 140,387 1,012,395 61,801 81,129 328,869 186,700 664,025 88,000 66,997 1,828 0 0 1,137,816 3,629,560 348,622 18,422 273,186 291,608 57,014 2,196 59,210 21,013 38,197 2,174 36,023 45,200 0 49,458 0 0
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