-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OpL3ee6QkTd5mYjbc+Xhk3k3hvmQU6Z+OdQixZgT8DPwudwtrMtQiLZnPlpdGS9s 8njJk2fuZFyp3GkVgSEYjg== 0000081020-94-000008.txt : 19940615 0000081020-94-000008.hdr.sgml : 19940615 ACCESSION NUMBER: 0000081020-94-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSI ENERGY INC CENTRAL INDEX KEY: 0000081020 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 350594457 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03543 FILM NUMBER: 94527747 BUSINESS ADDRESS: STREET 1: 1000 E MAIN ST CITY: PLAINFIELD STATE: IN ZIP: 46168 BUSINESS PHONE: 3178399611 FORMER COMPANY: FORMER CONFORMED NAME: PUBLIC SERVICE CO OF INDIANA INC DATE OF NAME CHANGE: 19900509 10-Q 1 ENERGY 1ST QUARTER 10-Q UNITED STATES 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 March 31, 1994 OR ( ) 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 1-3543 PSI ENERGY, INC. (Exact name of registrant as specified in its charter) INDIANA 35-0594457 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1000 East Main Street Plainfield, Indiana 46168 (Address of principal executive offices) Telephone number: (317) 839-9611 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 (APPLICABLE ONLY TO CORPORATE ISSUERS:) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock - without par value; $.01 stated value - 53,913,701 shares outstanding at April 30, 1994, all of which were held by PSI Resources, Inc. PSI ENERGY, INC. TABLE OF CONTENTS Item Page Number Number PART I. FINANCIAL INFORMATION 1 Consolidated Financial Statements Consolidated Balance Sheets . . . . . . . . . . . . . . 3 Consolidated Statements of Income . . . . . . . . . . . 5 Consolidated Statements of Changes in Common Stock Equity . . . . . . . . . . . . . . . . . 6 Consolidated Statements of Cash Flows . . . . . . . . . 7 Notes to Consolidated Financial Statements. . . . . . . 8 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 12 PART II. OTHER INFORMATION 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . 18 Signatures . . . . . . . . . . . . . . . . . . . . . . . 19 PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS ASSETS
March 31 December 31 1994 1993 (unaudited) (thousands) Electric Utility Plant - original cost In service . . . . . . . . . . . . . . . . $3 480 081 $3 449 127 Accumulated depreciation. . . . . . . . . . 1 482 751 1 455 871 1 997 330 1 993 256 Construction work in progress . . . . . . . 265 769 243 802 Total electric utility plant. . . . . . . 2 263 099 2 237 058 Current Assets Cash and temporary cash investments . . . . 2 497 4 582 Restricted deposits . . . . . . . . . . . . 40 003 49 111 Accounts receivable . . . . . . . . . . . . 42 783 28 657 Income tax refunds. . . . . . . . . . . . . 9 300 28 900 Fossil fuel - at average cost . . . . . . . 69 390 45 315 Materials and supplies - at average cost. . 30 282 31 212 Other . . . . . . . . . . . . . . . . . . . 2 514 2 669 196 769 190 446 Other Assets Regulatory assets . . . . . . . . . . . . . 147 676 118 809 Unamortized costs of reacquiring debt . . . 38 890 39 504 Unamortized debt expense. . . . . . . . . . 9 435 9 332 Other . . . . . . . . . . . . . . . . . . . 64 912 53 280 260 913 220 925 $2 720 781 $2 648 429 The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CAPITALIZATION AND LIABILITIES
March 31 December 31 1994 1993 (unaudited) (thousands) Common Stock Equity Common stock - without par value; $.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at March 31, 1994 and December 31, 1993. . . . . $ 539 $ 539 Paid-in capital . . . . . . . . . . . . . . . . 229 282 229 288 Accumulated earnings subsequent to November 30, 1986 quasi-reorganization . . . . . . . . . . 498 809 483 242 Total common stock equity . . . . . . . . . 728 630 713 069 Cumulative Preferred Stock - Not Subject to Mandatory Redemption. . . . . . . . . . . . . . 187 979 187 989 Long-term Debt . . . . . . . . . . . . . . . . . 865 187 816 152 Total capitalization. . . . . . . . . . . . 1 781 796 1 717 210 Current Liabilities Long-term debt due within one year. . . . . . . 160 160 Notes payable . . . . . . . . . . . . . . . . . 213 256 126 701 Accounts payable. . . . . . . . . . . . . . . . 111 874 144 093 Refund due to customers . . . . . . . . . . . . 47 348 81 832 Litigation settlement . . . . . . . . . . . . . 80 000 80 000 Advance under accounts receivable purchase agreement. . . . . . . . . . . . . . - 49 940 Accrued taxes . . . . . . . . . . . . . . . . . 59 617 37 269 Accrued interest and customers' deposits. . . . 15 391 25 792 527 646 545 787 Other Liabilities Deferred income taxes . . . . . . . . . . . . . 295 262 281 417 Unamortized investment tax credits. . . . . . . 63 656 64 721 Other . . . . . . . . . . . . . . . . . . . . . 52 421 39 294 411 339 385 432 $2 720 781 $2 648 429
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Quarter Ended Twelve Months Ended March 31 March 31 1994 1993 1994 1993 (thousands) (thousands) Operating Revenues . . . . . . . . . . $301 267 $285 748 $1 093 788 $1 086 401 Operating Expenses Operation Fuel . . . . . . . . . . . . . . . 107 537 104 619 388 845 399 099 Purchased and exchanged power. . . 14 660 2 719 36 214 10 549 Other operation. . . . . . . . . . 46 496 45 830 187 361 183 826 Maintenance. . . . . . . . . . . . . 20 060 20 053 84 027 86 019 Depreciation . . . . . . . . . . . . 33 432 30 280 129 973 118 750 Post-in-service deferred depreciation . . . . . . . . . . . (2 280) (387) (6 962) (387) Taxes Federal and state income . . . . . 20 354 20 425 64 840 70 246 State, local, and other. . . . . . 12 782 11 462 46 797 42 438 253 041 235 001 931 095 910 540 Operating Income . . . . . . . . . . . 48 226 50 747 162 693 175 861 Other Income and Expense - Net Allowance for equity funds used during construction. . . . . . . . 3 072 2 092 12 153 5 026 Post-in-service carrying costs . . . 2 201 762 7 444 762 Other - net. . . . . . . . . . . . . (2 580) (2 128) 6 037 (1 734) 2 693 726 25 634 4 054 Income Before Interest . . . . . . . . 50 919 51 473 188 327 179 915 Interest Interest on long-term debt . . . . . 16 524 16 775 68 695 64 201 Other interest . . . . . . . . . . . 2 096 1 430 4 857 7 949 Allowance for borrowed funds used during construction. . . . . . . . (2 534) (2 110) (9 578) (6 560) 16 086 16 095 63 974 65 590 Net Income . . . . . . . . . . . . . . 34 833 35 378 124 353 114 325 Preferred Dividend Requirement . . . . 3 296 2 301 13 820 7 343 Income Applicable to Common Stock. . . $ 31 537 $ 33 077 $ 110 533 $ 106 982 The accompanying notes are an integral part of these consolidated financial statements. /TABLE PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (unaudited)
Common Paid-in Accumulated Stock Capital Earnings (thousands) Quarter Ended March 31, 1994 Balance January 1, 1994 . . . . . . . . $539 $229 288 $483 242 Net income. . . . . . . . . . . . . . . 34 833 Costs of retiring preferred stock . . . (6) Dividends on preferred stock. . . . . . (3 296) Dividends on common stock . . . . . . . (15 970) Balance March 31, 1994. . . . . . . . . $539 $229 282 $498 809 Quarter Ended March 31, 1993 Balance January 1, 1993 . . . . . . . . $539 $221 812 $432 747 Net income. . . . . . . . . . . . . . . 35 378 Dividends on preferred stock. . . . . . (1 682) Dividends on common stock . . . . . . . (15 050) Other . . . . . . . . . . . . . . . . . (749) Balance March 31, 1993. . . . . . . . . $539 $221 063 $451 393 Twelve Months Ended March 31, 1994 Balance April 1, 1993 . . . . . . . . . $539 $221 063 $451 393 Net income. . . . . . . . . . . . . . . 124 353 Costs of issuing and retiring preferred stock . . . . . . . . . . . (1 887) Dividends on preferred stock. . . . . . (13 902) Dividends on common stock . . . . . . . (63 111) Other . . . . . . . . . . . . . . . . . 10 106 76 Balance March 31, 1994. . . . . . . . . $539 $229 282 $498 809 Twelve Months Ended March 31, 1993 Balance April 1, 1992 . . . . . . . . . $539 $221 830 $399 597 Net income. . . . . . . . . . . . . . . 114 325 Costs of retiring preferred stock . . . (18) Dividends on preferred stock. . . . . . (6 724) Dividends on common stock . . . . . . . (55 766) Other . . . . . . . . . . . . . . . . . (749) (39) Balance March 31, 1993. . . . . . . . . $539 $221 063 $451 393 The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Quarter Ended Twelve Months Ended March 31 March 31 1994 1993 1994 1993 (thousands) (thousands) OPERATING ACTIVITIES Net income. . . . . . . . . . . . . . . . . . . . . . $ 34 833 $ 35 378 $ 124 353 $ 114 325 Items providing (using) cash currently: Depreciation. . . . . . . . . . . . . . . . . . . . 33 432 30 280 129 973 118 750 Deferred income taxes and investment tax credits - net . . . . . . . . . . . . . . . . . . 7 943 (337) 76 383 10 084 Allowance for equity funds used during construction. . . . . . . . . . . . . . . . . . . (3 072) (2 092) (12 153) (5 026) Regulatory assets - excluding demand-side management costs. . . . . . . . . . . . . . . . . (10 508) (6 843) (33 574) (13 559) Changes in current assets and current liabilities Restricted deposits . . . . . . . . . . . . . . (69) (68) (70) (244) Accounts receivable . . . . . . . . . . . . . . (14 126) (2 884) (4 074) (8 718) Income tax refunds. . . . . . . . . . . . . . . 19 600 - (9 300) - Fossil fuel and materials and supplies. . . . . (23 145) 23 321 12 955 19 797 Accounts payable. . . . . . . . . . . . . . . . (32 219) 2 957 21 239 (9 832) Refund due to customers . . . . . . . . . . . . (34 484) - (91 786) 2 063 Advance under accounts receivable purchase agreement. . . . . . . . . . . . . . (49 940) - - - Accrued taxes and interest. . . . . . . . . . . 12 039 9 659 (6 124) 8 146 Other items - net . . . . . . . . . . . . . . . . . (7 440) (8 251) (21 972) (15 255) Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . . . . (67 156) 81 120 185 850 220 531 FINANCING ACTIVITIES Issuance of preferred stock . . . . . . . . . . . . . - 96 850 59 475 96 850 Issuance of long-term debt. . . . . . . . . . . . . . 49 068 78 688 212 084 284 136 Funds on deposit from issuance of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 9 177 (60 372) 38 207 (48 806) Retirement of preferred stock . . . . . . . . . . . . (4) - (60 111) - Redemption of long-term debt. . . . . . . . . . . . . - - (207 880) (90 000) Change in short-term debt . . . . . . . . . . . . . . 86 555 (105 801) 198 256 (69 300) Dividends on preferred stock. . . . . . . . . . . . . (3 296) (1 682) (13 902) (6 724) Dividends on common stock . . . . . . . . . . . . . . (15 970) (15 050) (63 111) (55 766) Other items - net . . . . . . . . . . . . . . . . . . - 2 433 10 105 2 433 Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . 125 530 (4 934) 173 123 112 823 INVESTING ACTIVITIES Utility plant additions . . . . . . . . . . . . . . . (57 112) (76 548) (342 171) (316 950) Allowance for equity funds used during construction. . . . . . . . . . . . . . . . . . . . 3 072 2 092 12 153 5 026 Demand-side management costs. . . . . . . . . . . . . (6 419) (4 324) (32 831) (19 455) Equity investment in Argentine utility. . . . . . . . - (94) - (599) Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . (60 459) (78 874) (362 849) (331 978) Net increase (decrease) in cash and temporary cash investments. . . . . . . . . . . . . (2 085) (2 688) (3 876) 1 376 Cash and temporary cash investments at beginning of period . . . . . . . . . . . . . . . . 4 582 9 061 6 373 4 997 Cash and temporary cash investments at end of period . . . . . . . . . . . . . . . . . . . $ 2 497 $ 6 373 $ 2 497 $ 6 373 The accompanying notes are an integral part of these consolidated financial statements.
PSI ENERGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. These Consolidated Financial Statements reflect all adjustments (which include only normal, recurring adjustments) necessary in the opinion of PSI Energy, Inc. (Energy) for a fair presentation of the interim results. These statements should be read in conjunction with Energy's 1993 Annual Report on Form 10-K, as amended (1993 Form 10-K) (Commission File Number 1-3543). Certain amounts in the 1993 Consolidated Financial Statements have been reclassified to conform to the 1994 presentation. 2. In February 1994, Energy issued $50 million, 7 1/8% first mortgage bonds, Series AAA, due February 1, 2024. These bonds are not redeemable prior to February 1, 2004, and are redeemable thereafter at the option of Energy. The proceeds from this debt issuance were used to reduce short-term debt incurred to finance construction. 3. As disclosed in the 1993 Form 10-K, PSI Resources, Inc. (Resources), Energy, and The Cincinnati Gas & Electric Company (CG&E) entered into an Agreement and Plan of Reorganization dated as of December 11, 1992, which was subsequently amended and restated on July 2, 1993, and as of September 10, 1993 (as amended and restated, the "Merger Agreement"). Under the Merger Agreement, Resources will be merged with and into a newly formed corporation named CINergy Corp. (CINergy) and a subsidiary of CINergy will be merged with and into CG&E (collectively referred to as the "Mergers"). In August 1993, the Federal Energy Regulatory Commission (FERC) conditionally approved the Mergers. Certain parties petitioned for rehearing of the FERC's conditional approval. Given the issues raised on the requests for rehearing and the lack of certainty in the record regarding state regulatory powers, on January 12, 1994, the FERC issued an order withdrawing its prior conditional approval of the Mergers and initiating a 60-day, FERC-sponsored settlement procedure. In connection with the 60-day, FERC-sponsored settlement procedure and other collaborative discussions, Resources, Energy, CINergy, the Indiana Utility Consumer Counselor, the Citizens Action Coalition of Indiana, Inc., and industrial customer representatives reached a global settlement agreement on merger-related issues. This agreement was filed with the Indiana Utility Regulatory Commission (IURC) on March 2, 1994, and was approved by the IURC in its entirety on March 29, 1994. On March 4, 1994, CG&E, the Public Utilities Commission of Ohio, and the Ohio Office of Consumers Counsel reached an agreement substantially similar to the Indiana agreement. Both settlement agreements were filed with the FERC on March 4, 1994. Additional settlements were also filed with the FERC involving other parties that had intervened in the FERC Mergers approval proceeding. Initial comments regarding the settlements were filed with the FERC on April 12, 1994, and reply comments were filed on April 21, 1994. American Electric Power, Dayton Power and Light Company, Indiana Municipal Power Agency, and the American Forest and Paper Association opposed acceptance of the settlements without a hearing on grounds previously raised in their various pleadings filed with the FERC. In both their initial and reply comments, the FERC staff recommended acceptance of the settlements and approval of the Mergers without further hearing. CG&E also filed with the FERC a unilateral offer of settlement addressing all issues raised in the Kentucky Public Service Commission's (KPSC) application for rehearing with the FERC. On March 15, 1994, CG&E filed an application with the KPSC seeking approval of the indirect acquisition of control of CG&E's Kentucky subsidiary, The Union Light, Heat and Power Company. A public hearing was held on May 10, 1994, and the KPSC is expected to complete action on the application by mid-May. 4. The following pro forma condensed consolidated financial information combines the historical Consolidated Statements of Income and Consolidated Balance Sheets of Resources and CG&E after giving effect to the Mergers. The unaudited Pro Forma Condensed Consolidated Statements of Income for the three months and twelve months ended March 31, 1994, give effect to the Mergers as if the Mergers had occurred at April 1, 1993. The unaudited Pro Forma Condensed Consolidated Balance Sheet at March 31, 1994, gives effect to the Mergers as if the Mergers had occurred at March 31, 1994. These statements are prepared on the basis of accounting for the Mergers as a pooling of interests and are based on the assumptions set forth in the notes thereto. In addition, the following pro forma condensed consolidated financial information should be read in conjunction with the historical consolidated financial statements and related notes thereto of Resources, Energy, and CG&E. The following information is not necessarily indicative of the operating results or financial position that would have occurred had the Mergers been consummated at the beginning of the periods, or on the date, for which the Mergers are being given effect, nor is it necessarily indicative of future operating results or financial position. (Left Blank Intentionally) PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in millions, except per share amounts)
Three Months Ended March 31, 1994 Twelve Months Ended March 31, 1994 Historical Pro Forma Historical Pro Forma Resources CG&E CINergy Resources CG&E CINergy Operating revenues. . . . . . . . $303 $562 $865 $1 102 $1 821 $2 923 Operating expenses. . . . . . . . 256 456 712 956 1 485 2 441 Operating income. . . . . . . . . 47 106 153 146 336 482 Other income and expense - net . . . . . . . . . 2 10 12 26 (180)* (154) Interest charges - net. . . . . . 17 40 57 65 157 222 Preferred dividend requirement of subsidiaries. . . . . . . . . . 3 6 9 14 25 39 Net income (loss) . . . . . . . . $ 29 $ 70 $ 99 $ 93 $ (26) $ 67 Average common shares outstanding 1/. . . . . . . . . 56 88 139/146 56 88 138/145 Earnings (Loss) per common share 1/ . . . . . . . . $.52 $.79 $.71/.68 $1.66 $(.29) $.49/.46 Dividends declared per common share 1/ . . . . . . . . $.31 $.43 $.40/.38 $1.18 $1.69 $1.55/1.48 * Reflects write-off of a portion of Wm. H. Zimmer Generating Station ($223 million net of tax). See Notes to Pro Forma Condensed Consolidated Financial Information.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET at March 31, 1994 (unaudited)
(in millions) Historical Pro Forma Resources CG&E CINergy ASSETS Utility plant - original cost In service . . . . . . . . . . . . . . . . . . . . . . . . . $3 480 $5 219 $8 699 Accumulated depreciation . . . . . . . . . . . . . . . . . . 1 483 1 506 2 989 . 1 997 3 713 5 710 Construction work in progress. . . . . . . . . . . . . . . . 266 69 335 Total utility plant. . . . . . . . . . . . . . . . . . . . 2 263 3 782 6 045 Current assets . . . . . . . . . . . . . . . . . . . . . . . . 204 632 836 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 270 782 1 052 Total assets . . . . . . . . . . . . . . . . . . . . . . . $2 737 $5 196 $7 933 CAPITALIZATION AND LIABILITIES Common stock 2/. . . . . . . . . . . . . . . . . . . . . . . . $ 1 $ 752 $ 1 Paid-in capital 2/ . . . . . . . . . . . . . . . . . . . . . . 256 322 1 330 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 463 488 951 Total common stock equity. . . . . . . . . . . . . . . . . 720 1 562 2 282 Cumulative preferred stock of subsidiaries . . . . . . . . . . 188 290 478 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 865 1 837 2 702 Total capitalization . . . . . . . . . . . . . . . . . . . 1 773 3 689 5 462 Current liabilities. . . . . . . . . . . . . . . . . . . . . . 548 466 1 014 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . 300 742 1 042 Other liabilities. . . . . . . . . . . . . . . . . . . . . . . 116 299 415 Total capitalization and liabilities . . . . . . . . . . . $2 737 $5 196 $7 933 Notes to Pro Forma Condensed Consolidated Financial Information 1/ The Pro Forma Condensed Consolidated Statements of Income reflect the conversion of each share of Resources' common stock outstanding into (a) .909 share and (b) 1.023 shares of CINergy common stock and each share of CG&E's common stock outstanding into one share of CINergy common stock. The actual Resources conversion ratio may be lower than 1.023 or higher than .909 depending upon closing sales prices of CG&E's common stock during a period prior to the consummation of the Mergers. Pro forma dividends declared per common share reflect the historical dividends declared by Resources and CG&E, divided by the pro forma average number of CINergy common stock shares outstanding. 2/ The pro forma "Common stock" and "Paid-in capital" amounts reflected in the Pro Forma Condensed Consolidated Balance Sheet are based on the conversion of each share of Resources' common stock outstanding into 1.023 shares of CINergy common stock ($.01 par value) and each share of CG&E's common stock outstanding into one share of CINergy common stock ($.01 par value). Any Resources conversion ratio lower than 1.023 would result in a reallocation of amounts between "Common stock" and "Paid-in capital". However, any such reallocation would have no effect on "Total common stock equity". 3/ Intercompany transactions (including purchased and exchanged power transactions) between Resources and CG&E during the periods presented were not material and accordingly no pro forma adjustments were made to eliminate such transactions. 4/ Transaction costs, estimated to be approximately $47 million, are being deferred by Resources and CG&E. Resources' portion of the costs are being deferred for post-Mergers recovery through customers' rates. In a settlement agreement filed with the Public Utilities Commission of Ohio, CG&E has agreed to, among other things, amortize its portion of merger-related transaction costs over a period ending by January 1, 1999. CG&E will be permitted to retain all of its non-fuel savings from the Mergers until 1999.
PSI ENERGY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Merger Agreement with The Cincinnati Gas & Electric Company As disclosed in PSI Energy, Inc.'s (Energy) 1993 Annual Report on Form 10-K, as amended (1993 Form 10-K), PSI Resources, Inc. (Resources), Energy, and The Cincinnati Gas & Electric Company (CG&E) entered into an Agreement and Plan of Reorganization dated as of December 11, 1992, which was subsequently amended and restated on July 2, 1993, and as of September 10, 1993 (as amended and restated, the "Merger Agreement"). Under the Merger Agreement, Resources will be merged with and into a newly formed corporation named CINergy Corp. (CINergy) and a subsidiary of CINergy will be merged with and into CG&E (collectively referred to as the "Mergers"). In August 1993, the Federal Energy Regulatory Commission (FERC) conditionally approved the Mergers. Certain parties petitioned for rehearing of the FERC's conditional approval. Given the issues raised on the requests for rehearing and the lack of certainty in the record regarding state regulatory powers, on January 12, 1994, the FERC issued an order withdrawing its prior conditional approval of the Mergers and initiating a 60-day, FERC-sponsored settlement procedure. In connection with the 60-day, FERC-sponsored settlement procedure and other collaborative discussions, Resources, Energy, CINergy, the Indiana Utility Consumer Counselor, the Citizens Action Coalition of Indiana, Inc., and industrial customer representatives reached a global settlement agreement on merger-related issues. This agreement was filed with the Indiana Utility Regulatory Commission (IURC) on March 2, 1994, and was approved by the IURC in its entirety on March 29, 1994. On March 4, 1994, CG&E, the Public Utilities Commission of Ohio, and the Ohio Office of Consumers Counsel reached an agreement substantially similar to the Indiana agreement. Both settlement agreements were filed with the FERC on March 4, 1994. Additional settlements were also filed with the FERC involving other parties that had intervened in the FERC Mergers approval proceeding. Initial comments regarding the settlements were filed with the FERC on April 12, 1994, and reply comments were filed on April 21, 1994. American Electric Power, Dayton Power and Light Company, Indiana Municipal Power Agency, and the American Forest and Paper Association opposed acceptance of the settlements without a hearing on grounds previously raised in their various pleadings filed with the FERC. In both their initial and reply comments, the FERC staff recommended acceptance of the settlements and approval of the Mergers without further hearing. CG&E also filed with the FERC a unilateral offer of settlement addressing all issues raised in the Kentucky Public Service Commission's (KPSC) application for rehearing with the FERC. On March 15, 1994, CG&E filed an application with the KPSC seeking approval of the indirect acquisition of control of CG&E's Kentucky subsidiary, The Union Light, Heat and Power Company. A public hearing was held on May 10, 1994, and the KPSC is expected to complete action on the application by mid-May. CAPITAL RESOURCES In February 1994, Energy issued $50 million of long-term debt (see Note 2 on page 8). RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1994 Kilowatt-hour Sales Kilowatt-hour (kwh) sales for the quarter ended March 31, 1994, increased 12% when compared to the same period last year. This increase was primarily attributable to increased sales for resale. Non-firm power sales increased as a result of increased power sales to other utilities. In addition, increased firm power sales were primarily driven by the colder weather conditions experienced in the first quarter of 1994. Also contributing to increased kwh sales were increased retail sales. Sales to domestic and commercial customers increased as a result of the colder weather conditions and the increased number of both domestic and commercial customers in Energy's service territory. Increased industrial sales occurred due to growth primarily in the primary metals and transportation equipment sectors. Revenues Total operating revenues increased $16 million (5%) in the first quarter as compared to the same period last year. This increase primarily reflects the changes in kwh sales, as previously discussed. Partially offsetting the increase in revenues due to kwh sales were Energy's lower average realization arising from the increased levels of kwh usage and the 1.5% retail rate reduction as a result of the IURC's December 1993 order, which resolved the outstanding issues related to the appeals of the IURC's April 1990 order and June 1987 order. An analysis of operating revenues is shown below:
Quarter Ended March 31 (millions) Operating revenues - March 31, 1993 $286 Increase (Decrease) due to change in: Price per kwh Retail (9) Sales for resale Firm power obligations (1) Non-firm power transactions 2 Total change in price per kwh (8) Kwh sales Retail 12 Sales for resale Firm power obligations 4 Non-firm power transactions 8 Total change in kwh sales 24 Other (1) Operating revenues - March 31, 1994 $301
Operating Expenses Fuel Fuel costs, Energy's largest operating expense, increased $3 million (3%) for the quarter as compared to the same period last year. An analysis of fuel costs is shown below:
Quarter Ended March 31 (millions) Fuel expense - March 31, 1993 $105 Increase (Decrease) due to change in: Price of fuel (1) Kwh generation 4 Fuel expense - March 31, 1994 $108
Purchased and Exchanged Power Purchased and exchanged power for the quarter increased $12 million as compared to the same period last year. Increased third party power sales to other utilities through Energy's system contributed to this increase. Depreciation Primarily as a result of additions to electric utility plant, depreciation expense for the quarter ended March 31, 1994, increased $3 million (10%) as compared to the same period last year. RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 1994 Kilowatt-hour Sales Kwh sales for the twelve months ended March 31, 1994, increased 7% as compared to the same period last year. This increase was primarily the result of increased retail sales. Sales to domestic and commercial customers increased as a result of the more normal weather experienced during the second and third quarters of 1993 and the colder weather experienced in the first quarter of 1994, in addition to the increased number of both domestic and commercial customers in Energy's service territory. Industrial kwh sales also increased, reflecting growth primarily in the primary metals and transportation equipment sectors. In addition, firm power sales for resale increased primarily as a result of the weather conditions previously discussed. Revenues Total operating revenues for the twelve months ended March 31, 1994, remained relatively unchanged when compared to the same period last year, showing an increase of $7 million (1%). The increase in revenues driven by the increase in kwh sales previously discussed was substantially offset by the $31 million refund resulting from the settlement of the IURC's April 1990 order, Energy's lower average realization arising from the increased levels of kwh usage, and the effects of lower fuel costs. An analysis of operating revenues is shown below:
Twelve Months Ended March 31 (millions) Operating revenues - March 31, 1993 $1 086 Increase (Decrease) due to change in: Price per kwh Retail (68) Sales for resale Firm power obligations (4) Non-firm power transactions 9 Total change in price per kwh (63) Kwh sales Retail 67 Sales for resale Firm power obligations 8 Non-firm power transactions - Total change in kwh sales 75 Other (4) Operating revenues - March 31, 1994 $1 094
Operating Expenses Fuel Fuel costs decreased $10 million (3%) for the twelve months ended March 31, 1994, as compared to the same period last year. An analysis of fuel costs is shown below:
Twelve Months Ended March 31 (millions) Fuel expense - March 31, 1993 $399 Increase (Decrease) due to change in: Price of fuel (17) Kwh generation 7 Fuel expense - March 31, 1994 $389
Purchased and Exchanged Power Purchased and exchanged power for the twelve months ended March 31, 1994, as compared to the same period last year, increased $26 million. This increase reflects increased purchases of power to meet Energy's own load and to sell to other utilities. Depreciation Expense Depreciation expense for the twelve months ended March 31, 1994, increased $11 million (9%) as compared to the same period last year. This increase was primarily the result of additions to electric utility plant. Other Income and Expense - Net Other income and expense increased $22 million in the twelve months ended March 31, 1994, as compared to the same period last year. Contributing to this increase was the IURC's December 1993 order, which resulted in a reduction of the loss previously recognized for the IURC's June 1987 order. The increase was also due, in part, to the implementation of the January 1993 IURC order authorizing the accrual of post-in-service carrying costs. In addition, the equity component of the allowance for funds used during construction increased partially as a result of increased construction. (Left Blank Intentionally) PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. None. b. The following reports on Form 8-K were filed during the first quarter of 1994: Date of Report Items Filed January 12, 1994 Item 5 - Other Events. (On January 12, 1994, the Federal Energy Regulatory Commission issued an order withdrawing its prior conditional approval of PSI Resources, Inc.'s merger with The Cincinnati Gas & Electric Company and initiating a 60-day, FERC-sponsored settlement procedure.) March 28, 1994 Item 7 - Financial Statements and Exhibits. (The Cincinnati Gas & Electric Company's Annual Report on Form 10-K for the year ended December 31, 1993, and Consent of Independent Public Accountants.) SIGNATURES Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although PSI Energy, Inc. (Energy) believes that the disclosures are adequate to make the information presented not misleading. In the opinion of Energy, these statements reflect all adjustments (which include only normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by an officer and the principal accounting officer on its behalf by the undersigned thereunto duly authorized. PSI ENERGY, INC. Registrant Date: May 12, 1994 /s/ J. Wayne Leonard (J. Wayne Leonard) Senior Vice President and Chief Financial Officer Date: May 12, 1994 /s/ Charles J. Winger (Charles J. Winger) Comptroller and Principal Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----