-----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, IVyGRpg7SWQCqzasz2FV10+evSpzTvbPnBGdHb/LU9pvJd+SICSOFeKEl3tzWAcs CuwtbRgfLDg1Et7eAeoaiw== 0000081020-94-000017.txt : 19941213 0000081020-94-000017.hdr.sgml : 19941213 ACCESSION NUMBER: 0000081020-94-000017 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941209 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19941212 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSI ENERGY INC CENTRAL INDEX KEY: 0000081020 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 350594457 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03543 FILM NUMBER: 94564223 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 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 9, 1994 PSI ENERGY, INC. (Exact name of registrant as specified in its charter) Indiana 1-3543 35-0594457 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1000 East Main Street, Plainfield, Indiana 46168 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (317) 839-9611 FORM 8-K TABLE OF CONTENTS Item Page Number Number 1. Changes in Control of Registrant . . . . . . . . . 3 2. Acquisition or Disposition of Assets . . . . . . . 3 3. Bankruptcy or Receivership . . . . . . . . . . . . 3 4. Changes in Registrant's Certifying Accountant . . 3 5. Other Events . . . . . . . . . . . . . . . . . . . 3 6. Resignations of Registrant's Directors . . . . . . 5 7. Financial Statements and Exhibits . . . . . . . . 5 8. Change in Fiscal Year. . . . . . . . . . . . . . . 5 Signatures . . . . . . . . . . . . . . . . . . . . 6 None 2. Acquisition or Disposition of Assets None 3. Bankruptcy or Receivership None 4. Changes in Registrant's Certifying Accountant None 5. Other Events On December 9, 1994, PSI Energy, Inc. (PSI), a wholly-owned subsidiary of CINergy Corp. (CINergy), the Office of the Utility Consumer Counselor, Citizens Action Coalition of Indiana, Inc., and the PSI- Industrial Group entered into a settlement agreement concerning PSI's petition for a $93 million retail rate increase ($103 million including ratebase treatment of certain projects while under construction) and PSI's previously filed plan for the allocation of its portion of merger savings between PSI's customers and CINergy's shareholders. The settlement agreement is subject to the approval of the Indiana Utility Regulatory Commission (IURC) in its entirety without any change or condition that is unacceptable to any party to the settlement agreement. No assurance can be given that the IURC will approve the settlement agreement. Significant provisions of the settlement agreement include: . A retail rate increase of $33.1 million, excluding reductions for customer credits for non-fuel, operation and maintenance expense merger savings (Non-Fuel Merger Savings) and exclusive of increases for ratemaking related to construction work in progress, both of which are discussed below. The increase includes the recovery of the costs of postretirement benefits other than pensions on an accrual basis and, as further discussed herein, the recovery of demand-side management (DSM) expenditures and the adoption of lower depreciation rates. This rate increase reflects an 11.9% return on common equity with an 8.23% overall rate of return on net original cost plant. The settling parties have agreed to support an effective date of February 1, 1995, for the rate increase. . A mechanism to allocate PSI's share of net merger savings through December 31, 1997, between PSI's customers and CINergy's shareholders. In essence, the mechanism guarantees PSI's customers 50% of PSI's portion of the projected net, Non-Fuel Merger Savings. PSI's customers will receive these merger savings via credits to base rates of $4.4 million in 1995, an additional $2.2 million in 1996, and an additional $2.4 million in 1997. After 1997, the accumulated credits shall continue until the effective date of an order in a PSI merger savings allows PSI to recover its portion of transaction costs (currently estimated at $27 million) and costs to achieve merger savings (currently estimated at $21 million) over a 10-year period commencing October 1, 1994. PSI will have to achieve these levels of merger savings in order to realize the 11.9% return on equity. The settlement agreement provides PSI with a financial incentive for PSI to achieve, or exceed, merger savings projections and enhance operating efficiencies by allowing PSI to earn up to a 13.25% return on common equity until the effective date of an order in PSI's next retail rate proceeding. PSI's next retail rate proceeding is currently pending before the IURC, and PSI expects an order in this proceeding by early 1996. Upon the effective date of an order in the next retail rate proceeding, the settlement agreement provides PSI an opportunity to earn an additional 100 basis points above the common equity return to be granted by the IURC in such rate proceeding until December 31, 1997. In return for the agreed upon sharing mechanism, PSI will withdraw its previously filed "performance efficiency plan" which would have provided for the sharing of merger savings with shareholders. Any mechanism for sharing of merger savings after December 31, 1997, will be determined in subsequent regulatory proceedings. . Recovery of DSM expenditures deferred through July 1993 ($35 million), together with carrying costs, over a five-year period commencing with the effective date of new rates in the order approving the settlement. Deferred DSM expenditures as of the effective date of an IURC order approving the settlement agreement, which are not included for recovery in the settlement agreement, will continue to be deferred, with carrying costs, for recovery in subsequent rate proceedings. In addition, base rates would include $23 million on an annual basis for DSM expenditures. Future deferral of DSM expenditures will be the amount by which actual expenditures exceed the base level of $23 million. If DSM expenditures in any calendar year are less than the $23 million in base rates, the unamortized balance of deferred DSM expenditures would be reduced by such difference. . Ratemaking and accounting mechanisms to address regulatory lag. The settlement agreement provides for the inclusion of capital costs associated with environmental compliance projects and the applicable portion of PSI's Wabash River Clean Coal project in rate base while the projects are under construction, thus allowing PSI to earn a cash return on these costs prior to the projects' in-service dates. In addition, the agreement includes provisions for the deferral of certain operating costs associated with the Wabash River Clean Coal project, together with the debt component of carrying costs, and continued accrual of the debt component of carrying costs and deferral of depreciation expense on two major projects for subsequent recovery in PSI's next retail rate proceeding. . The adoption of lower depreciation rates, to be effective with the IURC's orders in this settlement and PSI's next retail rate expense by approximately $24 million from the level included in PSI's initial request. . The agreement to a procedural schedule in connection with PSI's request filed in July 1994 for a retail rate increase, primarily to recover the costs of the Gibson Unit No. 4 scrubber and the Wabash River Clean Coal project, both of which were previously approved by the IURC. Final action on this rate request is not expected until early 1996. By entering into the settlement, the company was able to: . resolve a major uncertainty as to the ultimate level and timing of the rate increase; . substantially mitigate the risks of not being able to achieve its allowed return on common equity due to the earnings attrition resulting from the completion of two major construction projects within a nine-month period; and . timely provide a realistic opportunity to retain a portion of the merger savings for shareholders. The above description of the settlement agreement does not purport to be complete and is qualified in its entirety by reference to the copy of such settlement agreement attached hereto as Exhibit 10-a. 6. Resignations of Registrant's Directors None 7. Financial Statements and Exhibits Exhibits 10-a Settlement Agreement (Excluding Attachments A and C) 8. Change in Fiscal Year None 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 hereunto duly authorized. PSI Energy, Inc. Date: December 9, 1994 By: Charles J. Winger Comptroller and Principal Accounting Officer EX-10.A 2 SETTLEMENT AGREEMENT IURC CAUSE NOS. 39584 AND 39584-S2 THIS SETTLEMENT AGREEMENT, dated as of the 9th day of December, 1994, is made and entered into by and between the duly authorized representatives of PSI Energy, Inc. ("PSI"), the Office of the Utility Consumer Counselor ("UCC"), Citizens Action Coalition of Indiana, Inc. ("CAC") and the PSI-Industrial Group ("PSI-IG"). As a result of settlement discussions concerning IURC Cause Nos. 39584 and 39584-S2, but subject in every particular to the conditions set forth in this Settlement Agreement, including the approval and acceptance by the Indiana Utility Regulatory Commission ("IURC") of this Settlement Agreement, in its entirety and without any change or condition that is unacceptable to any party to this Settlement Agreement, and with the understanding that each and every term of this Settlement Agreement is in consideration and support of each and every other term, the parties hereto have agreed as follows: I. GENERAL CONDITIONS This Settlement Agreement is expressly conditioned upon and subject to the following general conditions: (1) The communications and discussions had, and materials produced and exchanged, concerning this settlement all relate to offers of settlement, are privileged, without prejudice to any party, and shall not be used for any purpose other than as part of the negotiations which led to this Settlement Agreement. (2) The making of this Settlement Agreement shall not constitute an admission by any party to this Settlement Agreement. (3) It is understood that this Settlement Agreement is reflective of a negotiated settlement. (4) This Settlement Agreement shall not be used by any party hereto as precedent in any other proceeding or for any other purpose, except to the extent necessary to implement or enforce this Settlement Agreement. (5) This Settlement Agreement is subject to IURC acceptance and approval in its entirety without any change or condition that is unacceptable to any party to this Settlement Agreement. (6) If this Settlement Agreement is not accepted and approved by the IURC in accordance with its terms, then it will not be part of any record or used for any purpose. II. SUBSTANTIVE TERMS A. Withdrawal Of Performance Efficiency Plan Proposal (1) PSI will withdraw its proposed Standard Contract Rider No. 63 (Performance Efficiency Plan Revenue Credit Adjustment) in IURC Cause Nos. 39584 and 39584-S2. (2) PSI will withdraw its Performance Efficiency Plan proposal in IURC Cause Nos. 39584 and 39584-S2. B. Authorized Increase in Rates (1) PSI will be allowed an increase in its general retail electric rates and charges (after reflecting the evidence introduced in IURC Cause Nos. 39584 and 39584-S2) of $33,100,000 (before any applicable increase attributable to Construction Work In Progress ("CWIP") pursuant to Paragraph I below), and before any applicable reduction because of the customer credit for Reorganization expense reductions pursuant to Paragraph X below. The rate increase of $33,100,000 is subject to any applicable adjustment because of the capitalization "true-up" pursuant to Paragraph C(2) below. C. Capital Structure (1) PSI's estimated capitalization for retail electric ratemaking purposes is as follows: Amount Weighted (In Thousands) Ratio Cost Cost Common Equity $ 902,500 37.46% 11.90% 4.46% Preferred Stock 188,000 7.80 7.01 0.55 Long Term Debt 925,300 38.41 7.74 2.97 Deferred Taxes/ Customer Advances 329,200 13.67 0.00 0.00 ITC 1970 & earlier 1,000 0.04 0.00 0.00 ITC 1971 & later 59,500 2.47 9.54 0.24 Customer Deposits 3,500 0.15 6.00 0.01 $2,409,000 100.00% 8.23% (2) As of August 26, 1994, PSI, CAC, UCC and PSI-IG entered into a Settlement Procedure For Determining Capital Structure And Cost of Capital in IURC Cause No. 39584 ("Partial Settlement"). On October 12, 1994, the IURC accepted and approved the Partial Settlement in its entirety without any change or condition. The Partial Settlement provides a specific procedure for determining the capitalization and cost of capital for PSI in IURC Cause No. 39584. PSI, UCC, CAC and PSI-IG agree that the cost of common equity capital specified in Paragraph C(1) above shall be used under the Partial Settlement as the resulting cost of common equity capital determined by the IURC based upon the evidence introduced in IURC Cause Nos. 39584 and 39584-S2. PSI UCC, CAC and PSI-IG further agree that the remaining provisions of the Partial Settlement shall be followed to "true-up" (to the extent provided in the Partial Settlement) the amount and cost rates of the components of PSI's capitalization from the above estimated basis to an actual December 31, 1994 basis for purposes of retail electric ratemaking for PSI under this Settlement Agreement as a result of IURC Cause Nos. 39584 and 39584-S2, except that: (a) PSI shall file the late-filed exhibit specified in the Partial Settlement on or before January 13, 1995, rather than January 26, 1995; (b) PSI will bring its witness(es) sponsoring such late-filed exhibit, and all supporting documentation, to the offices of the UCC on January 17, 1995, to be interviewed by UCC staff as a substitute for written discovery. (c) The hearing on such late-filed exhibit shall occur on January 18, 1995, rather than February 15, 1995, and the UCC may present live testimony at such hearing concerning such late-filed exhibit. D. Overall Rate Of Return (1) PSI's overall rate of return on net original cost jurisdictional utility plant for retail electric ratemaking purposes (after reflecting the evidence introduced in IURC Cause Nos. 39584 and 39584-S2) will be set at 8.23%, subject to any applicable adjustment because of the capitalization "true-up" pursuant to Paragraph C(2) above. (2) PSI's overall rate of return on fair value jurisdictional utility plant for retail electric ratemaking purposes (after reflecting the evidence introduced in IURC Cause Nos. 39584 and 39584-S2) will be set at 7.00%. E. Net Operating Income (1) PSI's authorized jurisdictional net operating income for retail electric ratemaking purposes (before any applicable increase attributable to CWIP pursuant to Paragraph I below, before any applicable adjustment because of Reorganization expense reductions pursuant to Paragraph X below, and subject to any applicable adjustment because of the capitalization "true-up" pursuant to Paragraph C(2) above) will be set as follows: (In Thousands) Operating Revenues $921,989 Operating Expenses and Taxes Operation & Maintenance Expenses 557,568 Depreciation & Amortization Expenses 93,027 Taxes other than Income Taxes 43,128 Income Taxes 67,130 Total Operating Expenses & Taxes 760,853 Net Operating Income $161,136 (2) The authorized expenses, revenues and net operating income under the IURC's Order approving this Settlement Agreement will be used without a phase-in for purposes of I.C. 8-1-2-42(d)(2) and (3). F. August 4, 1993 Settlement In IURC Cause Nos. 39498 and 39786 (1) In full satisfaction of any "phase-in" requirements of Section 3.2 of the August 4, 1993 settlement in IURC Cause Nos. 39498 and 39786 ("August 1993 Settlement"), PSI shall refund to customers (through PSI's first fuel adjustment charge filing subsequent to the effective date of the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms) a total of $2,564,000, which amount equals the total earnings shared with PSI's shareholders through the phase-in of PSI's net operating income from 15.76% to 14.25% under the August 1993 Settlement. G. Purchase Power Tracker (1) PSI will withdraw its proposed Standard Contract Rider No. 66 (Alternative Purchased Power Resource Adjustment) in IURC Cause No. 39584. (2) PSI will withdraw its proposed Standard Contract Rider No. 70 (Interim Capacity Transfer Charge (Credit) Adjustment) in IURC Cause No. 39584-S2. H. DSM (1) PSI will commence amortization of deferred demand-side management ("DSM") costs in the annual amount of $8,706,000 at the effective date of the Retail Electric Tariff approved pursuant to the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms. PSI will continue to defer, for recovery in its subsequent general retail electric rate proceeding(s), the unamortized balance of such DSM costs, together with carrying costs thereon. Future deferral of DSM costs will be in the amount by which actual expenditures (exclusive of carrying costs) exceed the $22,834,000 level, which is the ongoing annual amount included within basic retail electric rates and charges by this Settlement Agreement. If DSM expenditures in any calendar year are less than the annual amount included within PSI's basic retail electric rates and charges, the principal unamortized balance of deferred DSM costs shall be reduced by such difference. (2) PSI's modified Smart Saver rate (i.e., proposed Standard Contract Rider No. 6.3) will be approved as proposed by PSI. (3) Pursuant to the terms of the Settlement Agreement in IURC Cause No. 38986 dated May 21, 1991, PSI will institute a proceeding no later than July 1, 1995, for IURC review and approval of PSI's ongoing DSM programs and any related issues. (4) PSI will allocate all of its retail DSM costs to its retail electric customers, which allocation shall be made directly to the customer classes that participate in the particular programs. (5) This Settlement Agreement does not address whether curtailable/interruptible and time-of-use rate programs are cost based rate options or DSM programs. I. Construction Work In Progress Ratemaking Treatment (1) PSI's proposed Standard Contract Rider No. 67 (Qualified Pollution Control Property Revenue Adjustment), and accounting therefore, will be approved by the IURC and implemented as proposed by PSI in IURC Cause No. 39584. Such Rider will be updated to reflect the capitalization structure under Paragraph C above. PSI's first increase in its retail electric rates and charges under Standard Contract Rider No. 67 shall be effective as of March 1, 1995, based upon actual December 31, 1994 investment. PSI shall file supporting information concerning such March 1, 1995 increase no later than January 26, 1995, subject to informal discovery by all parties. J. AFUDC Continuation (1) PSI will be authorized by the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms to continue the accrual of the debt component of Allowance For Funds Used During Construction ("AFUDC") on its Gibson Unit No. 4 Scrubber and Wabash River Coal Gasification Repowering Project after the commercial operation of said projects to the extent that the costs of such projects are not reflected in either PSI's basic retail electric rates and charges or in the charges authorized pursuant to Paragraph I above. PSI will continue to defer, for subsequent recovery in its general retail electric rate proceeding in IURC Cause No. 40003, the unamortized balance of AFUDC continuation accumulated in accordance with the Order in IURC Cause No. 39482 as such balance exists on the effective date of the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms. Amortization of the amounts accrued as of May 31, 1994, pursuant to IURC Cause No. 39482 will commence as of the effective date of the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms. K. Depreciation Expense Deferral (1) PSI will be authorized by the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms to defer depreciation expense on its Gibson Unit No. 4 Scrubber and Wabash River Coal Gasification Repowering Project after the commercial operation of said projects until the depreciation expenses of such projects are reflected in PSI's basic retail electric rates and charges. PSI will continue to defer, for subsequent recovery in its general retail electric rate proceeding in IURC Cause No. 40003, the unamortized balance of depreciation expense deferrals accumulated in accordance with the Order in IURC Cause No. 39482 as such balance exists on the effective date of the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms. Amortization of the amounts accrued as of July 31, 1993, pursuant to IURC Cause No. 39482 will commence as of the effective date of the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms. L. Non-Firm Wholesale Power Adjustment (1) PSI's Standard Contract Rider No. 64 (Non-Firm Wholesale Power Adjustment) shall be eliminated from PSI's Retail Electric Tariff. (2) PSI's basic retail electric rates and charges authorized by this Settlement Agreement reflect a level of annual net non-firm wholesale power demand charge revenues of the applicable Indiana retail jurisdictional portion of the $2,400,000 (total company) amount. M. Destec Energy, Inc. Fixed Monthly Expenses (1) PSI will withdraw its proposed Standard Contract Rider No. 68 (Destec Energy, Inc. Fixed Monthly Expenses Adjustment). (2) PSI shall be authorized to defer, for subsequent recovery in PSI's general retail electric rate proceeding in IURC Cause No. 40003, its fixed monthly expenses associated with the Gasification Services Agreement with Destec Energy, Inc., together with carrying costs thereon calculated at PSI's short-term debt interest rate. N. Post-Retirement Benefits Other Than Pensions And Other Post-Employment Benefits (1) PSI's proposals in IURC Cause No. 39584 concerning Post-Retirement Benefits Other Than Pensions ("PBOP") and Other Post-Employment Benefits will be approved by the IURC and implemented as proposed by PSI, except that PSI's PBOP accruals will be externally funded on a cost-effective basis; provided that PSI will seek UCC agreement on such external funding before PSI so acts. In the event that an agreement with the UCC cannot be reached, PSI shall submit its proposal for external funding to the IURC for hearing and determination. (2) In any future retail electric rate proceeding, the settling parties will not object to the level of earnings actually achieved on PSI's PBOP accruals externally funded on the basis that the return would have been greater if internal funding had been used. O. Environmental Compliance Incentives (1) PSI will withdraw its proposals in IURC Cause No. 39584 with respect to environmental compliance incentives. P. Emission Allowances (1) PSI's proposed Standard Contract Rider No. 69 (Emission Allowance Charge), and accounting therefore, will be approved by the IURC and implemented as proposed by PSI in IURC Cause Nos. 39584 and 39584-S2. (2) The ratemaking and accounting treatment of emission allowance(s) and the emission allowance bank will be approved by the IURC and implemented as proposed by PSI in IURC Cause Nos. 39584 and 39584-S2. (3) Before PSI files its first 30-day filing with the IURC with respect to emission allowances, PSI will meet with the UCC and attempt to mutually agree upon the format of, and information to be included in, such filing. (4) The UCC reserves the right to request a hearing on any of PSI's emission allowance 30-day filings. PSI and the UCC agree to discuss and attempt to resolve any disagreements concerning PSI's emission allowance filings. Q. Depreciation Rates (1) The depreciation rates proposed by the UCC in IURC Cause No. 39584 will be approved by the IURC and implemented as proposed by the UCC. (2) Any settling party may propose the same or different depreciation rates in PSI's future general retail electric rate proceedings after PSI's next general retail electric rate proceeding, currently denominated as IURC Cause No. 40003; provided, however, that the depreciation rates proposed by the UCC in IURC Cause No. 39584 shall be reflected in the retail electric rates and charges authorized by the Order issued as a result of PSI's next general retail electric rate proceeding, currently denominated as (and herein referred to as) IURC Cause No. 40003. R. Rate Base (1) The components of PSI's used and useful rate base for ratemaking purposes will be approved by the IURC as proposed by PSI in IURC Cause No. 39584, adjusted for the change in ratemaking attributable to the handling of the ratepayer protection fund under Paragraph U below. (2) PSI's net original cost jurisdictional rate base for retail electric ratemaking purposes will be set at $1,957,911,000. (3) PSI's fair value jurisdictional rate base for retail electric ratemaking purposes will be set at approximately $2,301,944,000; provided, however, that such amount shall be subject to any applicable adjustment resulting from the "true-up" of PSI's capitalization under Paragraph C(2) above. S. Base Cost Of Fuel (1) PSI's base cost of fuel will be set at 14.960 mills per kilowatt-hour. T. Fuel Litigation (1) PSI's request in IURC Cause No. 39584 for deferred cost accounting and rate recovery of deferred fuel litigation expenses has been withdrawn. (2) The revenue requirements authorized by this Settlement Agreement reflect an annual going level of fuel litigation expenses. U. Ratepayer Protection Fund (1) The balance of the ratepayer protection fund under I.C. 8-1-8.6 will be applied for and will be distributed for the benefit of PSI's retail electric customers through amortization as retail miscellaneous revenues over a three-year period commencing with the effective date of the Retail Electric Tariff approved pursuant to the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms. V. Taxes (1) PSI's tax expense will be as set forth in Paragraph E above, based upon a combined statutory Federal and State income tax rate of 37.93%. Interest synchronization will be set at 3.05%; provided, however, that such percentage shall be subject to any applicable adjustment resulting from the "true-up" of PSI's capitalization under Paragraph C(2) above. W. Rate Design And Cost Of Service (1) Only that portion of PSI's proposed rate design changes described by it as the "first step" (as conformed to the rate increase to be approved herein) will be approved in IURC Cause No. 39584. Any settling party may present any proposals with respect to rate design in IURC Cause No. 40003. (2) PSI's jurisdictional separation study and retail electric cost of service study, including the subsidy/excess adjustment, will be approved as proposed by PSI in IURC Cause No. 39584, except as otherwise provided in Paragraph H(4) of this Settlement Agreement. (3) At least three (3) days prior to the date on which PSI provides conforming tariffs to the IURC for review and approval, PSI will provide conforming tariffs to the settling parties for their review and comment. X. Reorganization Benefits (1) The parties to this Settlement Agreement have agreed that the significant changes to PSI associated with the Reorganization of PSI and The Cincinnati Gas & Electric Company ("CG&E") justify the following ratemaking provisions. PSI's retail electric customers will have applied against the increase in PSI's general retail electric rates and charges otherwise effective under Paragraph B above (or under the IURC's Order issued as a result of PSI's general retail electric rate proceeding in IURC Cause No. 40003, whichever is applicable) the following applicable amount reflecting a portion of the projected Reorganization non-fuel operation and maintenance expense reductions for the particular period: (a) An annual credit of $4,429,000 to be included in basic retail electric rates and charges under IURC Cause Nos. 39584 and 39584-S2 applicable for the period beginning on the effective date of the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms and ending on December 31, 1995 ("Period I"); (b) An annual credit (incremental to the credit in Item (a) above) of $2,193,000 ($6,622,000 - $4,429,000) to be included in basic retail electric rates and charges applicable for the period beginning on January 1, 1996 and ending on the day before the effective date of the Order issued as a result of PSI's general retail electric rate proceeding in IURC Cause No. 40003 ("Period IIA"); (c) An annual credit (in lieu of the credits in Items (a) and (b) above but incremental to the rates and charges otherwise approved in IURC Cause No. 40003) of $2,193,000 ($6,622,000 - $4,429,000) to be included in basic retail electric rates and charges under IURC Cause No. 40003 applicable for the period beginning on the effective date of the IURC's Order issued as a result of PSI's general retail electric rate proceeding in IURC Cause No. 40003 and ending on December 31, 1996 ("Period IIB"); and (d) An annual credit (incremental to the credit in Item (c) above) of $2,444,000 ($9,066,000 - 6,622,000) to be included in basic retail electric rates and charges applicable for the period beginning on January 1, 1997 and ending on December 31, 1997 ("Period III"); provided, however, that such annual credit included in PSI's basic retail electric rates and charges shall continue after the end of Period III until modified or discontinued by an Order issued by the IURC as a result of a PSI general retail electric rate proceeding. (2) Subject to the conditions hereinafter set forth in Paragraph X(3) below, PSI's net operating income amount otherwise effective under Paragraph E above (or under the IURC's Order issued as a result of PSI's general retail electric rate proceeding in IURC Cause No. 40003, whichever is applicable) shall, for purposes of I.C. 8-1-2-42(d)(3) only, be increased by the following applicable amount in order to assure realization of the maximum Reorganization cost reductions for the particular period, as described in Paragraph X(1) above: (a) An annual increase applicable for Periods I and IIA of $9,985,000, subject to any applicable adjustment because of the capitalization "true-up" pursuant to Paragraph C(2) above; (b) An annual increase applicable for Periods IIB and III reflecting a return of an additional 100 basis points above the return on common equity capital then otherwise authorized by the Order issued as a result of PSI's general retail electric rate proceeding in IURC Cause No. 40003. (c) The annual increase in PSI's net operating income for purposes of I.C. 8-1-2-42(d)(3) applicable for Period III under Item (b) of this Paragraph X(2) shall be phased-out ratably over twelve (12) months after the end of Period III unless and until modified by an Order issued by the IURC as a result of a PSI general retail electric rate proceeding. (See the example set forth in Attachment A attached hereto and incorporated herein by this reference.) (3) The quarterly portion of the applicable increase in the net operating income amount otherwise effective under Paragraph X(2) above for a particular period shall occur only to the extent that for such quarter: (a) PSI utilizes a reserve margin of 17 percent or less as its reserve margin planning criterion for the PSI electric system for integrated resource planning purposes; (b) PSI utilizes the "Reserve Margin Equalization" concept within the meaning of the then effective Operating Agreement between PSI and CG&E; (c) PSI utilizes the "50/50 split-the-savings" concept for the allocation of Reorganization production cost savings within the meaning of the then effective Operating Agreement between PSI and CG&E; (d) PSI has surrendered the Certificate of Public Convenience and Necessity for the Cayuga Combustion Turbine Peaking Unit No. 5 as issued by the IURC in IURC Cause No. 39175; and (e) PSI satisfies the quality of service provisions of Attachment B attached hereto and incorporated herein by this reference. (4) To the extent that an increase is made in the net operating income amount otherwise effective for a particular period in accordance with the provisions of this Paragraph X, an appropriate decrease shall, solely for purposes of I.C. 8-1-2-42(d)(2), be made in PSI's total authorized non-fuel operating expenses amount then otherwise effective under Paragraph E above (or under the IURC's Order issued as a result of PSI's general retail electric rate proceeding in IURC Cause No. 40003, whichever is applicable) for the particular period, which decrease shall be equal to the amount of the total "annual credit" for the applicable period in Paragraphs X(1)(a), (b), (c) and (d), plus 1.611 times the amount of the applicable net operating income amount increases in Paragraphs X(2)(a) and (b) (see the example set forth in Attachment C attached hereto and incorporated herein by this reference); provided, however, that such appropriate decrease in PSI's total authorized non-fuel operating expenses amount for purposes of I.C. 8-1-2-42(d)(2) applicable for Period III shall be phased-out ratably over twelve (12) months after the end of Period III unless and until modified by an Order issued by the IURC as a reslt of a PSI general retail electric rate proceeding. (See the example set forth in Attachment A attached hereto and incorporated herein by this reference.) (5) Any settling party may advance in subsequent PSI general retail electric rate proceeding(s) its proposals concerning the appropriate retail electric ratemaking treatment of Reorganization non-fuel operation and maintenance expense savings after Period III. (6) PSI shall be authorized to defer the Indiana jurisdictional portion of reasonable Reorganization transaction costs incurred prior to January 1, 1995, by PSI and appropriately allocated to PSI's retail electric customers, and to amortize such costs to operating expenses over a 10-year period beginning on October 1, 1994; PSI will reflect such amortization of Reorganization transaction costs in the rates and charges PSI proposes in its general retail electric rate proceeding in IURC Cause No. 40003; provided, however, that PSI shall not recover through retail electric rates, or as an offset to Reorganization-related benefits, any of the costs incurred by PSI or PSI Resources, Inc. to defend against the hostile takeover attempt initiated by IPALCO Enterprises, Inc. In PSI's subsequent general retail electric rate proceeding(s), the settling parties may present evidence supporting or opposing the reasonableness, prudency, amount or allocation of PSI's proposed recovery of such transaction costs. (7) PSI shall be authorized to defer the Indiana jurisdictional portion of reasonable costs to achieve the benefits of the Reorganization, incurred by PSI prior to October 31, 1996, and appropriately allocated to PSI's retail electric customers, and to amortize such costs as a charge to operating expenses over a 10-year period beginning on October 1, 1994; PSI will reflect such amortization of costs to achieve the benefits of the Reorganization in the rates and charges PSI proposes in its general retail electric rate proceeding in IURC Cause No. 40003; provided, however, that PSI shall not recover through retail electric rates, or as an offset to Reorganization- related benefits, any of the costs incurred by PSI or PSI Resources, Inc. to defend against the hostile takeover attempt initiated by IPALCO Enterprises, Inc. In PSI's subsequent general retail electric rate proceeding(s), the settling parties may present evidence supporting or opposing the reasonableness, prudency, amount or allocation of PSI's proposed recovery of such costs to achieve. (8) PSI will withdraw its proposed Standard Contract No. 71 (Cayuga Unit No. 5 Cancelled Plant Addition Shared Savings Adjustment) in IURC Cause No. 39584-S2. (9) PSI will withdraw its proposed Standard Contract Rider No. 72 (Non-Fuel Operation And Maintenance Expense Reorganization Shared Savings Credit Adjustment) in IURC Cause No. 39584-S2. (10) In the event that PSI incurs an expense for which it believes deferral is appropriate and for which it does not already have deferral authorization from the IURC, PSI agrees that it will seek UCC agreement for such deferral within 14 days of the end of the month in which any such new deferral of expense occurs. If PSI and the UCC do not reach an agreement on the deferral of such expenses within a 14-day period, then PSI shall petition the IURC for authorization to defer such expenses, subject to any opposition from other parties. This provision shall not apply to expenses which are deferred in accordance with the Federal Energy Regulatory Commission's Uniform System of Accounts and Generally Accepted Accounting Principles. This provision shall terminate when the phase-out described in Paragraph X(2) above is completed. Y. PROCEDURAL MATTERS IN IURC CAUSE NO. 40003 PSI, UCC, CAC, and PSI-IG agree that the following shall be incorporated into the Prehearing Conference Order in IURC Cause No. 40003: (1) PSI shall utilize a calendar 1994 test period, adjusted for changes which are fixed, known and measurable and which will occur on or before December 31, 1995; the test period, when coupled with the adjustments authorized in the Prehearing Conference Order, should fairly represent the annual operations of PSI at present and proposed rates; (2) PSI shall, consistent with Paragraph Y (1) above, utilize a uniform cut-off date of August 31, 1995 for actual net plant, actual number of customers, average customer usage, actual number of employees, operations of CINergy Services, Inc., salary and wage rates, all cost deferrals pursuant to IURC Orders or agreements under this Settlement Agreement, and property taxes (most recent actual assessed valuation and effective tax rate at the cut-off date); provided, however, that the annualized effects of the Wabash River Coal Gasification Repowering Project, including the costs of the Destec Energy, Inc. fixed monthly expenses for gasification services, shall be included for ratemaking purposes so long as the Wabash River Coal Gasification Repowering Project is in-service and used and useful by November 30, 1995. The cost of capital and capitalization structure evidence shall be as current as possible and updated as of the prefiling dates set forth in the Prehearing Conference Order; provided, however, that to the extent that such an update is made by PSI after the date for the prefiling of the UCC's and intervenors' respective testimony and exhibits in IURC Cause No. 40003, the UCC and intervenors shall be afforded a reasonable opportunity to respond to such update in testimony before the IURC. (3) PSI shall prefile its case-in-chief (except rate design) on or before May 15, 1995; PSI shall prefile its case-in-chief rate design testimony and exhibits on or before June 15, 1995. PSI shall include in its case-in-chief testimony its best estimates of the items specified in Paragraph Y(2) above, and, unless good cause is shown to do otherwise, adjustment methodologies to be employed in subsequent updates of the same, and shall file its update of such estimates to actual on or before October 6, 1995. PSI shall informally provide the parties with such actual update information as it becomes available prior to October 6, 1995. The parties agree that PSI shall treat the updated items per the general allocators proposed by PSI in its case-in-chief in its October 6, 1995 filing. (4) A public hearing on PSI's case-in-chief shall be held in mid-August, 1995. (5) UCC, CAC, PSI-IG and any other intervenors shall prefile their respective cases-in-chief (except rate design) on or before November 1, 1995. UCC, CAC, PSI-IG and any intervenors shall prefile their respective case-in-chief rate design testimony and exhibits on or before November 13, 1995. UCC, CAC, PSI-IG and any other intervenors shall prefile their respective cross-rebuttal cases on or before November 27, 1995. (6) PSI shall prefile its rebuttal case on or before December 11, 1995. (7) A public hearing on the UCC's, CAC's, PSI-IG's and any other intervenors' respective cases-in-chief and cross-rebuttal cases, and on PSI's rebuttal case shall be held beginning no sooner than January 22, 1996. (8) UCC, CAC, PSI-IG and any other intervenor may present proper live surrebuttal testimony at the hearing scheduled to begin in mid-January, 1996. PSI may present proper live sur-surrebuttal testimony at such hearing to any such surrebuttal testimony of UCC, CAC, PSI-IG or any other intervenors. Z. PROCEDURE (1) PSI will file this Settlement Agreement in IURC Cause Nos. 39584 and 39584-S2 and request that a consolidated hearing be held thereon on January 18, 1995. (2) PSI will request IURC acceptance and approval of this Settlement Agreement in its entirety, without any change or condition that is unacceptable to any party to this Settlement Agreement. (3) PSI will as soon as possible circulate to the other settling parties, for their review and agreement, draft supplemental testimony to be filed by PSI in IURC Cause Nos. 39584 and 39584-S2 in support of this Settlement Agreement. (4) PSI will offer for introduction into evidence at the consolidated hearing on this Settlement Agreement in IURC Cause Nos. 39584 and 39584-S2 PSI's prefiled rebuttal testimony in IURC Cause No. 39584, PSI's prefiled case-in-chief testimony in IURC Cause No. 39584-S2, and the agreed upon supplemental testimony supporting this Settlement Agreement. (5) None of the other settling parties will file or offer any additional evidence or testimony in IURC Cause Nos. 39584 or 39584-S2, except their respective prefiled case-in-chief testimony in IURC Cause No. 39584-S2 and any testimony with respect to the subject matter referenced in Section II, Paragraph C(2) above. (6) The settling parties will waive cross-examination of witnesses and their right to further hearings in IURC Cause Nos. 39584 and 39584-S2, except with respect to the portion of the hearing referenced in Section II, Paragraph C(2) above. (7) PSI will draft a Proposed Order and circulate it as soon as possible to the other settling parties for their review and agreement. (8) PSI will file the agreed upon Proposed Order with the IURC as soon as possible. The settling parties will support the Proposed Order in the proceeding and will request that the IURC issue an Order accepting and approving the same in accordance with its terms on or before February 1, 1995. (9) All of the settling parties will support on rehearing, reconsideration and/or appeal the IURC's Order accepting and approving this Settlement Agreement in accordance with its terms, including the submission of any applicable briefs and pleadings. AA. TERM Except for the provisions of Section II, Paragraphs X(1), X(2), X(3), X(4), X(5), X(6), X(7) and X(10) of this Settlement Agreement, this Settlement Agreement shall terminate on December 31, 1997. Because the current operation of the fuel adjustment clause process and particularly the tests contained in I.C. 8-1-2-42(d)(2) and (3) are integral to this settlement, the settling parties agree that those provisions of this Settlement Agreement relating to the operation of the fuel adjustment clause process and particularly the (d)(2) and (d)(3) tests will be exercised in a manner consistent with I.C. 8-1-2-42(d) as it currently exists and as that statute is currently implemented by the Commission regardless of whether that statute may during the term of this Settlement Agreement be modified or abolished. Agreed To And Accepted: OFFICE OF THE UTILITY CONSUMER COUNSELOR By:Robert M. Glennon (Robert M. Glennon) CITIZENS ACTION COALITION OF INDIANA, INC. By:Michael A. Mullett (Michael A. Mullett) PSI-INDUSTRIAL GROUP By:John F. Wickes, Jr. (John F. Wickes, Jr.) PSI ENERGY, INC. By:Ronald J. Brothers (Ronald J. Brothers) Date: December 9, 1994 Attachment B The settling parties have previously agreed that Reorganization benefits should be achieved without causing a material degradation in the adequacy and reliability of PSI's retail electric service and PSI hereby reaffirms its commitment. [Section 13.3 of the March 2, 1994 Settlement Agreement in IURC Cause No. 39897.] The settling parties have also agreed that PSI's performance as measured by the Transmission Line Performance Index ("TLPI"), the System Average Interruption Frequency Index ("SAIFI") and the System Average Interruption Duration Index ("SAIDI") constitute a reasonable way to demonstrate that no such material degradation of service has occurred because of reduced non-fuel operation and maintenance expenses as a result of the Reorganization. The settling parties also recognize that these Indices may be affected by events which are not related to the level of operation and maintenance expense, and which are beyond the reasonable control of PSI, such as, but not limited to, weather and vandalism. Therefore, the quarterly portion of the applicable increase in the net operating income amount otherwise effective under Paragraph X(2) of the Settlement Agreement for a particular period shall occur only to the extent that PSI demonstrates in the applicable Fuel Adjustment Clause proceeding pursuant to I.C. 8-1-2-42 ("FAC") that there has been no material degradation in its TLPI, SAIFI, or SAIDI. Such demonstration shall be made in accordance with the following provisions of this Attachment A. The three indicators of customer service reliability shall be calculated as follows: (i) TLPI shall be calculated as follows: Transmission Line Performance = TLIF x 100 Index ("TLPI") MTL (ii) SAIFI shall be calculated as follows: System Average Interruption = CO Frequency Index ("SAIFI") CS (iii) SAIDI shall be calculated as follows: System Average Interruption = TO E 60 Duration Index ("SAIDI") CS where: CO = Total number of customers out of service for all sustained (excluding momentary) interruptions during the period according to PSI's records. TO = The total number of minutes customers were out of service for all interruptions during the period according to PSI's records. CS = The number of customers at the end of the period according to PSI's records. TLIF = Transmission line insulation failures for the period according to PSI's records. MTL = PSI's miles of transmission lines at the end of the previous calendar year according to PSI's records. In each FAC proceeding during Period I, Period IIA, Period IIB, Period III, and the phase-out period, PSI shall show the IURC how its actual TLPI, SAIDI and SAIFI for the preceding twelve months compares to target levels for TLPI, SAIDI and SAIFI according to the following formula: SAIDI SAIFI TLPI Target 3.0 2.0 8.5 PSI shall divide the actual SAIDI, SAIFI and TLPI by the target for each Index. The results shall be averaged. In the event that such average is less than or equal to 1.0, the applicable increase in the net operating income shall remain in effect. In the event that such average is greater than 1.0, the applicable increase in the net operating income amount otherwise effective for the particular period may still occur to the extent that PSI proves to the IURC that the deterioration in the Indices for the prior twelve-month period did not occur because of reductions in operation and maintenance expense. For purposes of this ongoing quality of service review, PSI will calculate the Indices using the same methodologies as it used as of the date of this Settlement Agreement. -----END PRIVACY-ENHANCED MESSAGE-----