-----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, DMmhsZUgf0cwySScvmtJ70i6UeYF0/AXS5SNjbZv8OqEgUP3SjuqaSUD7z+fh/oy INquD6rpMZrwIRmz4jSP9Q== /in/edgar/work/20000814/0000899652-00-000090/0000899652-00-000090.txt : 20000921 0000899652-00-000090.hdr.sgml : 20000921 ACCESSION NUMBER: 0000899652-00-000090 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGY CORP CENTRAL INDEX KEY: 0000899652 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 311385023 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11377 FILM NUMBER: 695711 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5132872644 MAIL ADDRESS: STREET 1: 139 E FOURTH STREET STREET 2: P.O BOX 960 CITY: CINCINATI STATE: OH ZIP: 45202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINCINNATI GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000020290 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 310240030 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01232 FILM NUMBER: 695712 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST ROOM 362-ANNEX STREET 2: PO BOX 960 CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5132872291 MAIL ADDRESS: STREET 1: 139 E. FOURTH ST. STREET 2: PO BOX 960 CITY: CINCINNATTI STATE: OH ZIP: 45202 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: SEC FILE NUMBER: 001-03543 FILM NUMBER: 695713 BUSINESS ADDRESS: STREET 1: 1000 EAST MAIN STREET STREET 2: PO BOX 960 CITY: PLAINFIELD STATE: IN ZIP: 46168 BUSINESS PHONE: 3178399611 MAIL ADDRESS: STREET 1: 1000 EAST MAIN STREET STREET 2: 139 E FOURTH ST, PO BOX 960 CITY: PLAINFIELD STATE: IN ZIP: 46168 FORMER COMPANY: FORMER CONFORMED NAME: PUBLIC SERVICE CO OF INDIANA INC DATE OF NAME CHANGE: 19900509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION LIGHT HEAT & POWER CO CENTRAL INDEX KEY: 0000100858 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 310473080 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-07793 FILM NUMBER: 695714 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST STREET 2: C/O TREASURER DEPT, PO BOX 960 CITY: CINCINNATI STATE: OH ZIP: 45201 BUSINESS PHONE: 5133812000 10-Q 1 0001.txt 2000 SECOND QUARTER FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ______ ------------ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. ----------- -------------------------------------------- ------------------ 1-11377 CINERGY CORP. 31-1385023 (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 287-2644 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030 (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 287-2644 1-3543 PSI ENERGY, INC. 35-0594457 (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (513) 287-2644 2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080 (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 287-2644 -------------------------------------------- Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No --- --- -------------------------------------------- This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q. --------------------------------------------- As of July 31, 2000, shares of Common Stock outstanding for each registrant were as listed: Registrant Description Shares - --------------------------------------- --------------------------- ---------- Cinergy Corp. Par value $.01 per share 58,923,399 The Cincinnati Gas & Electric Company Par value $8.50 per share 89,663,086 PSI Energy, Inc. Without par value, stated value $.01 per share 53,913,701 The Union Light, Heat and Power Company Par value $15.00 per share 585,333 --------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- Item Page Number Number - ------ ------- PART I FINANCIAL INFORMATION 1 Financial Statements ................................................ 4 Cinergy Corp........................................................ 4 Consolidated Statements of Income................................. 5 Consolidated Balance Sheets....................................... 6 Consolidated Statements of Changes in Common Stock Equity......... 8 Consolidated Statements of Cash Flows............................. 10 The Cincinnati Gas & Electric Company .............................. 11 Consolidated Statements of Income and Comprehensive Income........ 12 Consolidated Balance Sheets ...................................... 13 Consolidated Statements of Cash Flows............................. 15 PSI Energy, Inc..................................................... 16 Consolidated Statements of Income and Comprehensive Income........ 17 Consolidated Balance Sheets ...................................... 18 Consolidated Statements of Cash Flows ............................ 20 The Union Light, Heat and Power Company ............................ 21 Statements of Income and Comprehensive Income..................... 22 Balance Sheets.................................................... 23 Statements of Cash Flows.......................................... 25 Notes to Financial Statements........................................ 26 Cautionary Statements Regarding Forward-Looking Information.......... 40 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................ 42 Introduction........................................................ 42 Liquidity........................................................... 42 Capital Resources................................................... 43 2000 Quarterly Results of Operations - Historical................... 46 2000 Year to Date Results of Operations - Historical................ 50 2000 Results of Operations - Future................................. 55 3 Quantitative and Qualitative Disclosures About Market Risk .......... 60 PART II OTHER INFORMATION 1 Legal Proceedings.................................................... 61 6 Exhibits and Reports on Form 8-K..................................... 62 Signatures .......................................................... 63 CINERGY CORP. AND SUBSIDIARY COMPANIES
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME Quarter Ended Year To Date June 30 June 30 2000 1999 2000 1999 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------ (dollars in thousands, except per share amounts) (unaudited) Operating Revenues Electric $1,250,353 $ 942,093 $ 2,317,050 $1,910,625 Gas 491,627 328,667 990,355 749,975 Other 27,534 4,639 45,186 17,078 --------------- -- --------------- --------------- -- ------------- Total Operating Revenues 1,769,514 1,275,399 3,352,591 2,677,678 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- Operating Expenses Fuel and purchased and exchanged power 700,552 451,066 1,201,330 884,235 Gas purchased 449,806 293,513 855,951 627,915 Operation and maintenance 290,080 236,432 535,503 480,980 Depreciation and amortization 93,311 88,201 183,446 174,678 Taxes other than income taxes 68,458 69,077 134,589 138,611 --------------- -- --------------- --------------- -- ------------- Total Operating Expenses 1,602,207 1,138,289 2,910,819 2,306,419 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- Operating Income 167,307 137,110 441,772 371,259 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- Equity in Earnings of Unconsolidated Subsidiaries 4,333 13,022 6,175 57,704 Miscellaneous - Net 2,617 192 114 (11,694) Interest 53,113 60,781 104,543 121,553 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- Income Before Taxes 121,144 89,543 343,518 295,716 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- Income Taxes 44,754 29,120 127,326 106,684 Preferred Dividend Requirements of Subsidiaries 1,275 1,365 2,638 2,729 =============== == =============== =============== == ============= Net Income $ 75,115 $ 59,058 $ 213,554 $ 186,303 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- Average Common Shares Outstanding 158,923 158,877 158,923 158,812 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- Earnings Per Common Share Net Income $ 0.47 $ 0.37 $ 1.34 $ 1.17 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- Earnings Per Common Share-Assuming Dilution Net income $ 0.47 $ 0.37 $ 1.34 $ 1.17 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- Dividends Declared Per Common Share $ 0.45 $ 0.45 $ 0.90 $ 0.90 - --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------- The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED BALANCE SHEETS ASSETS June 30 December 31 2000 1999 (unaudited) - ------------------------------------------------------------------------ ------------------------- ------------------------- (dollars in thousands) Current Assets Cash and cash equivalents $ 102,274 $ 81,919 Restricted deposits 15,961 628 Notes receivable 5,062 481 Accounts receivable less accumulated provision for doubtful accounts of $25,906 at June 30, 2000, and $26,811 at December 31, 1999 897,562 706,068 Materials, supplies, and fuel - at average cost 178,520 205,749 Prepayments and other 184,450 77,701 Energy risk management current assets 589,163 131,145 ------------------------- ------------------------- Total Current Assets 1,972,992 1,203,691 - ------------------------------------------------------------------------ ------------------------- ------------------------- Utility Plant - Original Cost In service Electric 9,543,587 9,414,744 Gas 842,541 824,427 Common 190,388 189,124 ------------------------- ------------------------- Total 10,576,516 10,428,295 Accumulated depreciation 4,413,587 4,259,877 ------------------------- ------------------------- Total 6,162,929 6,168,418 Construction work in progress 317,293 249,054 ------------------------- ------------------------- Total Utility Plant 6,480,222 6,417,472 - ------------------------------------------------------------------------ ------------------------- ------------------------- Other Assets Regulatory assets 1,005,820 1,055,012 Investments in unconsolidated subsidiaries 473,292 358,853 Energy risk management non-current assets 85,782 26,624 Other 653,055 555,296 ------------------------- ------------------------- Total Other Assets 2,217,949 1,995,785 - ------------------------------------------------------------------------ ------------------------- ------------------------- Total Assets $ 10,671,163 $ 9,616,948 ========================= ========================= - ------------------------------------------------------------------------ ------------------------- ------------------------- The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY June 30 December 31 2000 1999 (unaudited) - ------------------------------------------------------------------------- -------------------------- ------------------------- (dollars in thousands) Current Liabilities Accounts payable $ 872,912 $ 734,937 Accrued taxes 224,462 219,266 Accrued interest 51,688 49,354 Long-term debt due within one year 32,475 31,000 Notes payable and other short-term obligations 746,778 550,194 Energy risk management current liabilities 572,937 126,682 Other 142,689 76,774 -------------------------- ------------------------- Total Current Liabilities 2,643,941 1,788,207 - ------------------------------------------------------------------------- -------------------------- ------------------------- Non-Current Liabilities Long-term debt 3,058,406 2,989,242 Deferred income taxes 1,171,137 1,174,818 Unamortized investment tax credits 142,821 147,550 Accrued pension and other postretirement benefit costs 385,898 355,917 Energy risk management non-current liabilities 153,930 132,041 Other 289,128 282,855 -------------------------- ------------------------- Total Non-Current Liabilities 5,201,320 5,082,423 - ------------------------------------------------------------------------- -------------------------- ------------------------- Total Liabilities 7,845,261 6,870,630 - ------------------------------------------------------------------------- -------------------------- ------------------------- Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 81,354 92,597 - ------------------------------------------------------------------------- -------------------------- ------------------------- Common Stock Equity Common Stock - $0.01 par value; authorized shares - 600,000,000; outstanding shares - 158,923,399 at June 30, 2000 and December 31, 1999 1,589 1,589 Paid-in capital 1,612,572 1,597,554 Retained earnings 1,135,703 1,064,319 Accumulated other comprehensive income (loss) (5,316) (9,741) -------------------------- ------------------------- Total Common Stock Equity 2,744,548 2,653,721 - ------------------------------------------------------------------------- -------------------------- ------------------------- Commitments and Contingencies (Note 4) Total Liabilities and Shareholders' Equity $10,671,163 $9,616,948 ========================== ========================= - ------------------------------------------------------------------------- -------------------------- ------------------------- The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY Accumulated Other Total Common Paid-in Retained Comprehensive Common Stock Stock Capital Earnings Income/(Loss) Equity - ------------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands) (unaudited) Quarter Ended June 30, 2000 Balance at April 1, 2000 $1,589 $1,604,096 $1,131,695 $ (10,512) $2,726,868 Comprehensive income: Net income 75,115 75,115 Other comprehensive income, net of tax effect of $(507) Foreign currency translation adjustment 6,014 6,014 Unrealized gains (losses) on grantor and rabbi trusts (818) (818) Total comprehensive income 80,311 Treasury shares reissued 5,546 5,546 Dividends on common stock (see page 5 for per share amounts) (71,114) (71,114) Other 2,930 7 2,937 Ending balance at June 30, 2000 $1,589 $1,612,572 $1,135,703 $ (5,316) $2,744,548 ====================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Quarter Ended June 30, 1999 Balance at April 1, 1999 $1,588 $1,598,884 $1,001,034 $ (9,273) $2,592,233 Comprehensive income: Net income 59,058 59,058 Other comprehensive income (loss), net of tax effect of $1,330 Foreign currency translation adjustment (1,581) (1,581) Unrealized gain on grantor trust 495 495 ------------ Total comprehensive income 57,972 Issuance of 106,267 shares of common stock-net 1 2,299 2,300 Treasury shares reissued 1,425 1,425 Dividends on common stock (see page 5 for per share amounts) (71,492) (71,492) Other (2) (2) ---------------------------------------------------------------------- Ending balance at June 30, 1999 $1,589 $1,602,608 $ 988,598 $ (10,359) $ 2,582,436 ====================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (Continued) Accumulated Other Total Common Paid-in Retained Comprehensive Common Stock Stock Capital Earnings Income/(Loss) Equity - ------------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands) (unaudited) Six Months Ended June 30, 2000 Balance at January 1, 2000 $1,589 $1,597,554 $1,064,319 $ (9,741) $2,653,721 Comprehensive income: Net income 213,554 213,554 Other comprehensive income, net of tax effect of $27 Foreign currency translation adjustment 4,286 4,286 Unrealized gains on grantor and rabbi trusts 139 139 ------------ Total comprehensive income 217,979 Treasury shares reissued 12,088 12,088 Dividends on common stock (see page 5 for per share amounts) (142,191) (142,191) Other 2,930 21 2,951 ------------------------------------------------------------------- Ending balance at June 30, 2000 $1,589 $1,612,572 $1,135,703 $ (5,316) $2,744,548 - -----------------------------------------------------------------=================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended June 30, 1999 Balance at January 1, 1999 $1,587 $1,595,237 $ 945,214 $ (807) $2,541,231 Comprehensive income: Net income 186,303 186,303 Other comprehensive income (loss), net of tax effect of $3,092 Foreign currency translation adjustment (10,032) (10,032) Unrealized gain on grantor trust 480 480 ----------- Total comprehensive income 176,751 Issuance of 221,635 shares of common stock-net 2 4,277 4,279 Treasury shares purchased (233) (233) Treasury shares reissued 3,327 3,327 Dividends on common stock (see page 5 for per share amounts) (142,914) (142,914) Other (5) (5) ------------------------------------------------------------------- Ending balance at June 30, 1999 $1,589 $1,602,608 $ 988,598 $ (10,359) $2,582,436 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS Year to Date June 30 2000 1999 - ----------------------------------------------------------------------------- --------------------- -- ------------------- (dollars in thousands) (unaudited) Operating Activities Net income $213,554 $186,303 Items providing or (using) cash currently: Depreciation and amortization 183,446 174,678 Deferred income taxes and investment tax credits-net 9,625 20,900 Unrealized (gain) loss from energy risk management activities (49,032) (20,000) Equity in earnings of unconsolidated subsidiaries (6,175) (45,687) Allowance for equity funds used during construction (3,100) (1,279) Regulatory assets-net 18,511 14,925 Changes in current assets and current liabilities: Restricted deposits (15,333) 2,247 Accounts and notes receivable, net of reserves on receivables sold (197,566) 179,251 Materials, supplies, and fuel 27,229 5,324 Accounts payable 137,975 (152,402) Accrued taxes and interest 7,530 (25,136) Other items-net (99,238) (25,319) --------------------- -- ------------------- Net cash provided by operating activities 227,426 313,805 - ----------------------------------------------------------------------------- --------------------- -- ------------------- Financing Activities Change in short-term debt 196,584 (66,516) Issuance of long-term debt 123,189 522,097 Redemption of long-term debt (55,720) (455,657) Retirement of preferred stock of subsidiaries (10,951) (29) Issuance of common stock - 4,279 Dividends on common stock (142,191) (142,914) --------------------- -- ------------------- Net cash provided by (used in) financing activities 110,911 (138,740) - ----------------------------------------------------------------------------- --------------------- -- ------------------- Investing Activities Construction expenditures (less allowance for equity funds used during construction) (215,519) (174,705) Investments in unconsolidated subsidiaries (102,463) (23,455) --------------------- -- ------------------- Net cash used in investing activities (317,982) (198,160) - ----------------------------------------------------------------------------- --------------------- -- ------------------- Net increase (decrease) in cash and cash equivalents 20,355 (23,095) Cash and cash equivalents at beginning of period 81,919 100,154 --------------------- -- ------------------- Cash and cash equivalents at end of period $ 102,274 $ 77,059 ===================== == =================== - ----------------------------------------------------------------------------- --------------------- -- ------------------- The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Quarter Ended Year to Date June 30 June 30 2000 1999 2000 1999 - ---------------------------------------------------------- --------------- -- --------------- --------------- --- -------------- (dollars in thousands) (unaudited) Operating Revenues Electric $646,973 $ 477,037 $1,184,991 $ 958,623 Gas 59,598 53,548 238,060 217,345 ---------------- --- ------------- ---------------- --- ------------- Total Operating Revenues 706,571 530,585 1,423,051 1,175,968 - ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- ------------- Operating Expenses Fuel and purchased and exchanged power 339,176 216,255 579,528 415,126 Gas purchased 24,246 20,428 113,862 99,306 Operation and maintenance 123,038 100,221 228,085 208,377 Depreciation and amortization 52,805 50,726 103,798 101,296 Taxes other than income taxes 53,891 54,869 103,822 108,983 ---------------- --- ------------- ---------------- --- ------------- Total Operating Expenses 593,156 442,499 1,129,095 933,088 - ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- ------------- Operating Income 113,415 88,086 293,956 242,880 - ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- ------------- Miscellaneous - Net 962 637 (1,011) (624) Interest 23,724 24,571 49,473 48,978 - ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- ------------- Income Before Taxes 90,653 64,152 243,472 193,278 - ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- ------------- Income Taxes 34,772 25,230 91,627 74,119 ---------------- --- ------------- ---------------- --- ------------- Net Income $ 55,881 $ 38,922 $ 151,845 $ 119,159 Preferred Dividend Requirement 212 214 425 428 ---------------- --- ------------- ---------------- --- ------------- Net Income Applicable to Common Stock $ 55,669 $ 38,708 $ 151,420 $ 118,731 Other Comprehensive Income (Loss), Net of Tax - - - - ---------------- --- ------------- ---------------- --- ------------- Comprehensive Income $ 55,669 $ 38,708 $ 151,420 $ 118,731 ================ === ============= ================ === ============= - ---------------------------------------------------------- ---------------- --- -------------- ---------------- --- ------------ The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS ASSETS June 30 December 31 2000 1999 (unaudited) - --------------------------------------------------------------------------- -------------------- -------------------- (dollars in thousands) Current Assets Cash and cash equivalents $ $ 9,554 14,937 Restricted deposits 110 132 Notes receivable from affiliated companies 41,772 - Accounts receivable less accumulated provision for doubtful accounts of $16,836 at June 30, 2000, and $16,740 at December 31, 1999 254,595 279,591 Accounts receivable from affiliated companies 6,534 12,718 Materials, supplies, and fuel - at average cost 98,268 98,999 Prepayments and other 86,145 35,527 Energy risk management current assets 291,424 63,926 -------------------- -------------------- Total Current Assets 793,785 500,447 - --------------------------------------------------------------------------- -------------------- -------------------- Utility Plant - Original Cost In service Electric 4,932,286 4,875,633 Gas 842,541 824,427 Common 190,388 189,124 -------------------- -------------------- Total 5,965,215 5,889,184 Accumulated depreciation 2,365,909 2,279,587 -------------------- -------------------- Total 3,599,306 3,609,597 Construction work in progress 184,959 153,229 -------------------- -------------------- Total Utility Plant 3,784,265 3,762,826 - --------------------------------------------------------------------------- -------------------- -------------------- Other Assets Regulatory assets 516,720 536,224 Energy risk management non-current assets 32,657 7,368 Other 133,019 109,753 -------------------- -------------------- Total Other Assets 682,396 653,345 - --------------------------------------------------------------------------- -------------------- -------------------- Total Assets $5,260,446 $4,916,618 ==================== ==================== - --------------------------------------------------------------------------- -------------------- -------------------- The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDER'S EQUITY June 30 December 31 2000 1999 (unaudited) - --------------------------------------------------------------------------- -------------------- -------------------- (dollars in thousands) Current Liabilities Accounts payable $ 343,530 $ 253,115 Accounts payable to affiliated companies 30,001 65,256 Accrued taxes 145,632 136,118 Accrued interest 17,900 17,375 Notes payable and other short-term obligations 263,730 234,702 Notes payable to affiliated companies 8,929 60,360 Energy risk management current liabilities 281,973 60,478 Other 30,411 25,468 -------------------- -------------------- Total Current Liabilities 1,122,106 852,872 - --------------------------------------------------------------------------- -------------------- -------------------- Non-Current Liabilities Long-term debt 1,206,089 1,205,916 Deferred income taxes 730,984 720,168 Unamortized investment tax credits 101,585 104,655 Accrued pension and other postretirement benefit costs 159,699 154,718 Energy risk management non-current liabilities 60,657 57,644 Other 155,409 140,794 -------------------- -------------------- Total Non-Current Liabilities 2,414,423 2,383,895 - --------------------------------------------------------------------------- -------------------- -------------------- Total Liabilities 3,536,529 3,236,767 - --------------------------------------------------------------------------- -------------------- -------------------- Cumulative Preferred Stock Not subject to mandatory redemption 20,496 20,686 - --------------------------------------------------------------------------- -------------------- -------------------- Common Stock Equity Common Stock-$8.50 par value; Authorized shares-120,000,000; outstanding shares-89,663,086 at June 30, 2000 and December 31, 1999 762,136 762,136 Paid-in capital 562,881 562,851 Retained earnings 379,370 335,144 Accumulated other comprehensive income (loss) (966) (966) -------------------- -------------------- Total Common Stock Equity 1,703,421 1,659,165 - --------------------------------------------------------------------------- -------------------- -------------------- Commitments and Contingencies (Note 4) Total Liabilities and Shareholder's Equity $5,260,446 $4,916,618 ==================== ==================== - --------------------------------------------------------------------------- -------------------- -------------------- The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year to Date June 30 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands) (unaudited) Operating Activities Net income $ 151,845 $ 119,159 Items providing or (using) cash currently: Depreciation and amortization 103,798 101,296 Deferred income taxes and investment tax credits-net 8,378 2,660 Unrealized (gain) loss from energy risk management activities (28,280) (10,000) Allowance for equity funds used during construction (2,646) (1,284) Regulatory assets-net 8,085 6,276 Changes in current assets and current liabilities: Accounts and notes receivable, net of reserves on receivables sold (11,302) 142,297 Materials, supplies, and fuel 731 10,290 Accounts payable 55,160 (64,597) Accrued taxes and interest 10,039 (28,310) Other items-net (53,128) (12,447) --------------------------------------------------- Net cash provided by operating activities 242,680 265,340 - ------------------------------------------------------------------------------------------------------------------------------ Financing Activities Change in short-term debt (22,403) 69,436 Redemption of long-term debt - (110,000) Retirement of preferred stock (160) (26) Dividends on preferred stock (425) (428) Dividends on common stock (107,200) (142,900) --------------------------------------------------- Net cash used in financing activities (130,188) (183,918) - ------------------------------------------------------------------------------------------------------------------------------ Investing Activities Construction expenditures (less allowance for equity funds used during construction) (107,109) (87,741) --------------------------------------------------- Net cash used in investing activities (107,109) (87,741) - ------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 5,383 (6,319) Cash and cash equivalents at beginning of period 9,554 26,989 --------------------------------------------------- Cash and cash equivalents at end of period $ 14,937 $ 20,670 =================================================== - ------------------------------------------------------------------------------------------------------------------------------ The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial statements.
PSI ENERGY, INC. AND SUBSIDIARY COMPANY
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Quarter Ended Year to Date June 30 June 30 2000 1999 2000 1999 - ------------------------------------------------------- ------------------ -- --------------- ---------------- --- -------------- (dollars in thousands) (unaudited) Operating Revenues Electric $619,760 $463,486 $1,153,512 $945,951 - ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- ------------- Operating Expenses Fuel and purchased and exchanged power 397,807 237,157 669,236 472,084 Operation and maintenance 124,138 117,240 235,213 230,480 Depreciation and amortization 35,001 34,121 69,961 67,864 Taxes other than income taxes 13,800 14,269 28,409 28,757 ------------------ -- --------------- ---------------- ---- ------------- Total Operating Expenses 570,746 402,787 1,002,819 799,185 - ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- ------------- Operating Income 49,014 60,699 150,693 146,766 - ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- ------------- Miscellaneous - Net 1,342 375 483 698 Interest 19,769 20,496 39,853 41,860 - ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- ------------- Income Before Taxes 30,587 40,578 111,323 105,604 - ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- ------------- Income Taxes 11,671 14,998 42,194 40,183 ------------------ -- --------------- ---------------- ---- ------------- Net Income $ 18,916 $ 25,580 $ 69,129 $ 65,421 Preferred Dividend Requirement 1,063 1,151 2,213 2,301 ------------------ -- --------------- ---------------- ---- ------------- Net Income Applicable to Common Stock $ 17,853 $ 24,429 $ 66,916 $ 63,120 Other Comprehensive Income (Loss), Net of Tax (597) 495 35 480 ------------------ -- --------------- ---------------- ---- ------------- Comprehensive Income $ 17,256 $ 24,924 $ 66,951 $ 63,600 ================== == =============== ================ ==== ============= - ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- ------------ The accompanying notes as they relate to PSI Energy, Inc.are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS ASSETS June 30 December 31 2000 1999 (unaudited) - --------------------------------------------------------------------------- -------------------- -------------------- (dollars in thousands) Current Assets Cash and cash equivalents $ 4,076 $ 8,842 Restricted deposits 155 - Notes receivable 581 481 Notes receivable from affiliated companies 8,929 60,360 Accounts receivable less accumulated provision for doubtful accounts of $9,069 at June 30, 2000, and $9,934 at December 31, 1999 264,276 253,022 Accounts receivable from affiliated companies 6,745 42,715 Materials, supplies, and fuel - at average cost 76,707 103,490 Prepayments and other 76,691 36,173 Energy risk management current assets 291,423 63,927 -------------------- -------------------- Total Current Assets 729,583 569,010 - --------------------------------------------------------------------------- -------------------- -------------------- Electric Utility Plant-Original Cost In service 4,611,301 4,539,111 Accumulated depreciation 2,047,678 1,980,290 -------------------- -------------------- Total 2,563,623 2,558,821 Construction work in progress 132,334 95,825 -------------------- -------------------- Total Electric Utility Plant 2,695,957 2,654,646 - --------------------------------------------------------------------------- -------------------- -------------------- Other Assets Regulatory assets 489,100 518,788 Energy risk management non-current assets 32,657 7,368 Other 96,556 85,024 -------------------- -------------------- Total Other Assets 618,313 611,180 - --------------------------------------------------------------------------- -------------------- -------------------- Total Assets $4,043,853 $3,834,836 ==================== ==================== - --------------------------------------------------------------------------- -------------------- -------------------- The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDER'S EQUITY June 30 December 31 2000 1999 (unaudited) - --------------------------------------------------------------------------- -------------------- -------------------- (dollars in thousands) Current Liabilities Accounts payable $ 274,580 $ 241,072 Accounts payable to affiliated companies 22,749 6,762 Accrued taxes 67,267 93,056 Accrued interest 28,835 26,989 Notes payable and other short-term obligations 132,858 232,597 Notes payable to affiliated companies 48,038 6,707 Long-term debt due within one year 31,871 31,000 Energy risk management current liabilities 281,973 60,478 Other 2,623 1,986 -------------------- -------------------- Total Current Liabilities 890,794 700,647 - --------------------------------------------------------------------------- -------------------- -------------------- Non-Current Liabilities Long-term debt 1,211,427 1,211,552 Deferred income taxes 466,096 460,748 Unamortized investment tax credits 41,236 42,895 Accrued pension and other postretirement benefit costs 137,537 129,103 Energy risk management non-current liabilities 65,854 57,645 Other 83,223 104,638 -------------------- -------------------- Total Non-Current Liabilities 2,005,373 2,006,581 - --------------------------------------------------------------------------- -------------------- -------------------- Total Liabilities 2,896,167 2,707,228 - --------------------------------------------------------------------------- -------------------- -------------------- Cumulative Preferred Stock Not subject to mandatory redemption 60,858 71,911 - --------------------------------------------------------------------------- -------------------- -------------------- Common Stock Equity Common Stock-without par value; $.01 stated value; authorized shares-60,000,000; outstanding shares-53,913,701 at June 30, 2000 and December 31, 1999 539 539 Paid-in capital 411,459 411,198 Retained earnings 673,404 642,569 Accumulated other comprehensive income (loss) 1,426 1,391 -------------------- -------------------- Total Common Stock Equity 1,086,828 1,055,697 - --------------------------------------------------------------------------- -------------------- -------------------- Commitments and Contingencies (Note 4) Total Liabilities and Shareholder's Equity $4,043,853 $3,834,836 ==================== ==================== - --------------------------------------------------------------------------- -------------------- -------------------- The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year to Date June 30 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- (dollars in thousands) (unaudited) Operating Activities Net income $ 69,129 $ 65,421 Items providing or (using) cash currently: Depreciation and amortization 69,961 67,864 Deferred income taxes and investment tax credits-net 5,517 6,578 Unrealized (gain) loss from energy risk management activities (23,081) (10,000) Allowance for equity funds used during construction (454) 5 Regulatory assets-net 10,426 8,649 Changes in current assets and current liabilities: Restricted deposits (155) 2,247 Accounts and notes receivable, net of reserves on receivables sold 75,266 98,478 Materials, supplies, and fuel 26,783 (9,838) Accounts payable 49,495 (74,698) Accrued taxes and interest (23,943) 15,510 Other items-net (45,554) 3,600 ---------------------------------------------- Net cash provided by operating activities 213,390 173,816 - ------------------------------------------------------------------------------------------------------------------------- Financing Activities Issuance of long-term debt 53,075 323,593 Change in short-term debt (58,408) (74,641) Redemption of long-term debt (55,276) (336,213) Retirement of preferred stock (10,791) (3) Dividends on preferred stock (2,295) (2,301) Dividends on common stock (36,000) - ---------------------------------------------- Net cash used in financing activities (109,695) (89,565) - ------------------------------------------------------------------------------------------------------------------------- Investing Activities Construction expenditures (less allowance for equity funds used during construction) (108,461) (83,797) ---------------------------------------------- Net cash used in investing activities (108,461) (83,797) - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (4,766) 454 Cash and cash equivalents at beginning of period 8,842 18,788 ---------------------------------------------- Cash and cash equivalents at end of period $ 4,076 $ 19,242 ============================================== - ------------------------------------------------------------------------------------------------------------------------- The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Quarter Ended Year to Date June 30 June 30 2000 1999 2000 1999 - ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------ (dollars in thousands) (unaudited) Operating Revenues Electric $55,080 $48,581 $104,368 $ 97,740 Gas 11,060 9,084 44,547 42,084 --------------- -- --------------- --------------- --- ------------ Total Operating Revenues 66,140 57,665 148,915 139,824 - ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------ Operating Expenses Purchased and exchanged power 39,929 36,842 75,140 73,590 Gas purchased 4,988 3,561 22,982 20,883 Operation and maintenance 9,466 8,685 18,694 18,875 Depreciation and amortization 3,922 3,506 7,658 7,077 Taxes other than income taxes 1,025 1,027 2,123 2,110 --------------- -- --------------- --------------- --- ------------ Total Operating Expenses 59,330 53,621 126,597 122,535 - ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------ Operating Income 6,810 4,044 22,318 17,289 - ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------ Miscellaneous - Net (439) (299) (630) (689) Interest 1,573 1,432 3,144 2,995 - ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------ Income Before Taxes 4,798 2,313 18,544 13,605 - ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------ Income Taxes 2,021 894 7,621 5,643 --------------- -- --------------- --------------- --- ------------ Net Income Applicable to Common Stock $ 2,777 $ 1,419 $ 10,923 $ 7,962 Other Comprehensive Income (Loss), Net of Tax - - - - --------------- -- --------------- --------------- --- ------------ Comprehensive Income $ 2,777 $ 1,419 $ 10,923 $ 7,962 =============== == =============== =============== === ============ - ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------ The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS ASSETS June 30 December 31 2000 1999 (unaudited) - --------------------------------------------------------------------------------- ---------------- ----------------- (dollars in thousands) Current Assets Cash and cash equivalents $ 4,668 $ 3,641 Accounts receivable less accumulated provision for doubtful accounts of $1,415 at June 30, 2000, and $1,513 at December 31, 1999 10,554 17,786 Accounts receivable from affiliated companies 276 775 Materials, supplies, and fuel - at average cost 5,157 7,654 Prepayments and other 548 219 ---------------- ----------------- Total Current Assets 21,203 30,075 - --------------------------------------------------------------------------------- ---------------- ----------------- Utility Plant - Original Cost In service Electric 226,330 222,035 Gas 179,157 173,011 Common 42,546 42,351 ---------------- ----------------- Total 448,033 437,397 Accumulated depreciation 162,224 154,607 ---------------- ----------------- Total 285,809 282,790 Construction work in progress 15,890 13,761 ---------------- ----------------- Total Utility Plant 301,699 296,551 - --------------------------------------------------------------------------------- ---------------- ----------------- Other Assets Regulatory assets 10,335 10,639 Other 5,345 5,000 ---------------- ----------------- Total Other Assets 15,680 15,639 - --------------------------------------------------------------------------------- ---------------- ----------------- Total Assets $338,582 $342,265 ================ ================= - --------------------------------------------------------------------------------- ---------------- ----------------- The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS LIABILITIES AND SHAREHOLDER'S EQUITY June 30 December 31 2000 1999 (unaudited) - ---------------------------------------------------------------------------------------- ---------------- ----------------- (dollars in thousands) Current Liabilities Accounts payable $ 4,846 $ 8,487 Accounts payable to affiliated companies 22,001 20,122 Accrued taxes 5,053 739 Accrued interest 1,278 1,298 Notes payable to affiliated companies 21,523 37,752 Other 6,179 4,062 ---------------- ----------------- Total Current Liabilities 60,880 72,460 - ---------------------------------------------------------------------------------------- ---------------- ----------------- Non-Current Liabilities Long-term debt 74,573 74,557 Deferred income taxes 21,987 23,000 Unamortized investment tax credits 3,822 3,961 Accrued pension and other postretirement benefit costs 12,770 12,333 Amounts due to customers - income taxes 11,896 11,308 Other 14,656 12,596 ---------------- ----------------- Total Non-Current Liabilities 139,704 137,755 - ---------------------------------------------------------------------------------------- ---------------- ----------------- Total Liabilities 200,584 210,215 - ---------------------------------------------------------------------------------------- ---------------- ----------------- Common Stock Equity Common Stock-$15.00 par value; authorized shares-1,000,000; outstanding shares-585,333 at June 30, 2000 and December 31, 1999 8,780 8,780 Paid-in capital 20,141 20,142 Retained earnings 109,077 103,128 ---------------- ----------------- Total Common Stock Equity 137,998 132,050 - ---------------------------------------------------------------------------------------- ---------------- ----------------- Commitments and Contingencies (Note 4) Total Liabilities and Shareholder's Equity $338,582 $342,265 ================ ================= - ---------------------------------------------------------------------------------------- ---------------- ----------------- The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS Year to Date June 30 2000 1999 - ------------------------------------------------------------------------------- ------------------- ---- ------------------- (dollars in thousands) (unaudited) Operating Activities Net income $10,923 $ 7,962 Items providing or (using) cash currently: Depreciation and amortization 7,658 7,077 Deferred income taxes and investment tax credits - net (565) (1,339) Allowance for equity funds used during construction (28) (48) Regulatory assets - net 203 69 Changes in current assets and current liabilities: Accounts and notes receivable, net of reserves on receivables sold 7,298 7,801 Materials, supplies, and fuel 2,497 2,114 Accounts payable (1,762) 2,978 Accrued taxes and interest 4,294 (36 Other items - net 4,474 3,244 ------------------- ---- ------------------- Net cash provided by operating activities 34,992 29,822 - ------------------------------------------------------------------------------- ------------------- ---- ------------------- Financing Activities Change in short-term debt (16,229) (11,347) Dividends on common stock (4,975) (4,975) Net cash used in financing activities (21,204) (16,322) - ------------------------------------------------------------------------------- ------------------- ---- ------------------- Investing Activities Construction expenditures (less allowance for equity funds used during construction) (12,761) (12,717) ------------------- ---- ------------------- Net cash used in investing activities (12,761) (12,717) - ------------------------------------------------------------------------------- ------------------- ---- ------------------- Net increase in cash and cash equivalents 1,027 783 Cash and cash equivalents at beginning of period 3,641 3,244 ------------------- ---- ------------------- Cash and cash equivalents at end of period $ 4,668 $ 4,027 =================== ==== =================== - ------------------------------------------------------------------------------- ------------------- ---- ------------------- The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies (a) Presentation These Financial Statements reflect all adjustments (which include normal, recurring adjustments) necessary in the opinion of the registrants for a fair presentation of the interim results. These statements should be read in conjunction with the Financial Statements and the notes thereto included in the combined 1999 Form 10-K of the registrants. Certain amounts in the 1999 Financial Statements have been reclassified to conform to the 2000 presentation. (b) Energy Marketing and Trading We market and trade electricity, natural gas, and other energy-related products. We designate transactions as physical or trading at the time they are originated. Physical refers to our intent and projected ability to fulfill obligations from company-owned assets. We sell generation to third parties when it is not required to meet native load requirements (end-use customers within our operating companies' franchise service territory). We account for physical transactions on a settlement basis and trading transactions using the mark-to-market method of accounting. Under the mark-to-market method of accounting, trading transactions are shown at fair value in our Consolidated Balance Sheets as Energy risk management assets - current and non-current, and Energy risk management liabilities - current and non-current. We reflect changes in fair value resulting in unrealized gains and losses in Fuel and purchased and exchanged power and Gas purchased. We record the revenues and costs for all transactions in our Consolidated Statements of Income when the contracts are settled. We recognize revenues in Operating revenues; costs are recorded in Fuel and purchased and exchanged power and Gas purchased. Although we intend to settle physical sales contracts with company-owned generation, there are times when we have to settle these contracts with power purchased on the open trading markets. The cost of these purchases could be in excess of the associated revenues. We recognize the gains or losses on these transactions as the power is delivered. Open market purchases may occur for some of the following reasons: o generating station outages; o least-cost alternative; o native load requirements; and o extreme weather. We value contracts in the trading portfolio using end-of-the-period market prices, utilizing the following factors (as applicable): o closing exchange prices (that is, closing prices for standardized electricity products traded on an organized exchange such as the New York Mercantile Exchange); o broker-dealer and over-the-counter price quotations; and o model pricing (which considers time value and historical volatility factors of electricity pricing underlying any options and contractual commitments). We anticipate that some of these obligations, even though considered trading contracts, will ultimately be settled using company-owned generation. The cost of this generation is usually below the market price at which the trading portfolio has been valued. Earnings volatility may occur from period to period due to the risks associated with marketing and trading electricity, natural gas, and other energy-related products. (c) Financial Derivatives We use derivative financial instruments to manage: (1) funding costs; (2) exposures to fluctuations in interest rates; and (3) exposures to foreign currency exchange rates. These financial instruments must be designated as a hedge (for example, an offset of foreign exchange or interest rate risks) at the inception of the contract and must be effective at reducing the risk associated with the underlying instrument. An underlying instrument is one that gives rise to the derivative financial instrument, for example, a foreign currency denominated contract. Accordingly, changes in the market values of instruments designated as hedges must be highly correlated with changes in the market values of the underlying instrument. From time to time, we may utilize foreign exchange forward contracts (for example, a contract obligating one party to buy, and the other to sell, a specified quantity of a foreign currency for a fixed price at a future date) and currency swaps (for example, a contract whereby two parties exchange principal and interest cash flows denominated in different currencies) to hedge certain of our net investments in foreign operations. Accordingly, any translation gains and losses are recorded in Accumulated other comprehensive income (loss), which is a component of Common stock equity. Aggregate translation losses related to these instruments are reflected net in Current liabilities in our Consolidated Balance Sheets. At June 30, 2000, no such instruments were held. We also use interest rate swaps (an agreement by two parties to exchange fixed-interest rate cash flows for floating-interest rate cash flows). We use the accrual method to account for these interest rate swaps. Accordingly, gains and losses are calculated based on the difference between the fixed-rate and the floating-rate interest amounts, using agreed upon principal amounts. These gains and losses are recognized in our Consolidated Statements of Income as a component of Interest over the life of the agreement. (d) Accounting Changes During the second quarter of 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133). This standard requires companies to record derivative instruments as assets or liabilities, measured at fair value. Changes in the derivative's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Hedges are transactions entered into for the purpose of reducing exposure to one or more types of business risk. Gains and losses on derivatives that qualify as hedges can offset related results on the hedged item in the income statement. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No.133 (Statement 137). Statement 137 deferred the effective date of Statement 133 by one year. As a result, Statement 133 will be effective for fiscal years beginning after June 15, 2000. Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133 (Statement 138) was issued in June 2000. Statement 138 addresses implementation issues and reflects decisions of the FASB regarding recommendations of the FASB-sponsored Derivatives Implementation Group. We expect to reflect the adoption of Statement 133 in financial statements issued beginning in the first quarter of 2001. In preparation for our implementation of this new standard, we have formed a cross-functional project team. The project team is identifying and analyzing all contracts which could be subject to the new standard, developing required documentation, defining relevant processes and information systems needs, and promoting internal awareness of the requirements and potential effects of the new standard. While we continue to analyze and follow the development of implementation guidelines, at this time we are unable to predict whether the implementation of this accounting standard will be material to our results of operations and financial position. However, the adoption of Statement 133 could increase the likelihood of volatility in earnings and other comprehensive income. 2. Change in Preferred Stock of Subsidiaries The following represents the changes during the year in preferred stock of The Cincinnati Gas & Electric Company (CG&E) and PSI Energy, Inc. (PSI): - -------------------------------------------------------------------------------- Shares Registrant Quarter Series Redeemed Par Value - ---------- ------- ------- ----------------- ------------------ CG&E First 43/4% 800 $ 80,000 Second 43/4% 1,100 110,000 PSI First 31/2% 600 $ 60,000 Second 31/2% 1,184 118,400 6.875% 105,150 10,515,000 4.32% 14,380 359,500 - -------------------------------------------------------------------------------- 3. Long-Term Debt On February 15, 2000, PSI retired $150,000 principal amount of its Series YY First Mortgage Bonds. On May 16, 2000, PSI issued $44,025,000 of Indiana Development Finance Authority Environmental Refunding Revenue Bonds Series 2000A, due May 1, 2035 and $10,000,000 of Indiana Development Finance Authority Environmental Refunding Revenue Bonds Series 2000B, due April 1, 2022. The initial interest rates on the Series 2000A and Series 2000B bonds were 4.65% and 4.70%, respectively. The rates reset every 35 days. The proceeds from these issuances were used to pay a portion of the cost of refunding the $29,795,000 principal amount outstanding of PSI's First Mortgage Bonds, Series YY, the $14,250,000 principal amount outstanding of its First Mortgage Bonds, Series UU, and the $10,000,000 principal amount outstanding of its First Mortgage Bonds, Series TT, each at a redemption price of 102% of the principal amount thereof, plus accrued interest. 4. Commitments and Contingencies (a) Ozone Transport Rulemaking (i) NOX SIP Call Ozone transport refers to the alleged wind-blown movement of ozone or ozone-causing materials across city and state boundaries. As discussed in the 1999 Form 10-K, in October 1998, the United States Environmental Protection Agency (EPA) finalized its ozone transport rule, also known as the NOX SIP Call. (A SIP is a state's implementation plan for achieving emissions reductions to address air quality concerns.) It applied to 22 states in the eastern half of the United States (U.S.), including the three states in which our electric utilities operate, and also proposes a model nitrogen oxide (NOX) emission allowance trading program. If implemented by the states, the trading program would allow us to buy NOX emission allowances from, or sell NOX emission allowances to, other companies as necessary. This rule recommended that states reduce NOX emissions primarily from industrial and utility sources to a certain level by May 2003. The EPA gave the affected states until September 30, 1999, to incorporate NOX reductions and, in the discretion of the state, a trading program into their SIPs. The EPA proposed to implement a federal plan to accomplish the equivalent NOX reductions by May 2003, if states failed to revise their SIPs. The EPA must approve all SIPs. Ohio, Indiana, a number of other states, and various industry groups (some of which we are a member) filed legal challenges to the NOX SIP Call in late 1998. On May 25, 1999, the U.S. Circuit Court of Appeals for the District of Columbia (Court of Appeals) granted a request for a deferral of the rule and indefinitely suspended the September 30 filing deadline, pending further review by the Court of Appeals. In March 2000, the Court of Appeals substantially upheld the EPA's rule. On April 11, 2000, the EPA asked the Court of Appeals to remove its May 25, 1999, suspension of the rule and also directed the states to submit SIP revisions by September 1, 2000. On April 17, 2000, various states and industry groups (some of which we are a member) filed a request with the Court of Appeals for a rehearing of the NOX SIP Call decisions. On April 24, 2000, the same group filed a request with the Court of Appeals to require rulemaking and a comment period to determine a new compliance date. The states also filed a request to obtain more time to file their SIPs. On June 23, 2000, the Court of Appeals denied both requests and directed the states to submit their SIP revisions by October 30, 2000. The states and other groups have appealed the Court of Appeals ruling to the U.S. Supreme Court (Supreme Court). Pending determination of whether the Supreme Court will hear the appeal, the states will have to begin adopting new regulations requiring implementation of the requirements of the October 1998 ozone transport rulemaking this year. We estimate the capital expenditures for compliance with the NOX SIP Call at $500 million to $700 million (in 1999 dollars) to meet the May 2003 deadline. This estimate depends on several factors, including: o final determination regarding both the timing and strictness of the final NOX reductions required by the SIPs adopted by the states in which we operate; o utilization of our generating units; o availability of adequate supplies of materials and labor to construct the necessary control equipment; and o whether a viable market will exist to buy and sell NOX allowances. (ii) Section 126 Petitions As discussed in the 1999 Form 10-K, in February 1998, the northeast states filed petitions seeking the EPA's assistance in reducing ozone in the eastern U.S. under Section 126 of the Clean Air Act (CAA). The EPA believes that Section 126 petitions allow a state to claim that another state is contributing to its air quality problem and request that the EPA require the upwind state to reduce its emissions. In December 1999, the EPA granted four Section 126 petitions relating to NOX emissions. This ruling affects all of our Ohio and Kentucky facilities, as well as some of our Indiana facilities, and requires us to reduce our NOX emissions to a certain level by May 2003. The EPA's action granting the Section 126 petitions has been appealed to the Court of Appeals. In April 2000, the parties to the appeal filed a proposed scheduling order, which if approved, would set oral arguments in late 2000, with a court decision expected in the spring of 2001. We currently cannot predict the outcome of this proceeding. We do not anticipate that any Section 126 rulings will have any significant financial impact in addition to that of the NOX SIP Call. (iii) State Ozone Plans As discussed in the 1999 Form 10-K, on November 15, 1999, the State of Indiana and the Commonwealth of Kentucky (along with Jefferson County, Kentucky) jointly filed an amendment to their SIPs on how they intend to bring the greater Louisville area, including Floyd and Clark Counties in Indiana, into attainment with the one-hour ozone standard. The SIP amendments call for, among other things, statewide NOX reductions from utilities in Indiana, Kentucky, and surrounding states. These rules are less stringent than the EPA's NOX SIP Call. The states of Indiana and Kentucky have committed to adopt utility NOX reduction rules by December 2000, which would require controls be installed by May 2003. We do not anticipate that the state NOX rules will have any significant financial impact in addition to that of the NOX SIP Call. (b) New Source Review (NSR) As discussed in the 1999 Form 10-K, the CAA's NSR provisions require that a company obtain a pre-construction permit if it plans to build a new stationary source of pollution or make a major change to an existing facility unless the changes are exempt. In July 1998, the EPA requested comments on proposed revisions to the NSR rules that would change NSR applicability by eliminating exemptions contained in the current regulation. We believe that if these changes are finalized, it will be significantly harder to maintain our facilities without triggering the NSR permit requirements. Since July 1999, CG&E and PSI have received requests from the EPA (Region 5), under Section 114 of the CAA, seeking documents and information regarding capital and maintenance expenditures at several of their respective generating stations. These activities are part of an industry-wide investigation assessing compliance with the NSR and the New Source Performance Standards (NSPS, emissions standards that apply to new and changed units) of the CAA at electric generating stations. On September 15, 1999, and on November 3, 1999, the attorneys general of the states of New York and Connecticut, respectively, issued letters notifying Cinergy (Cinergy Corp. and all of its regulated and non-regulated subsidiaries) and CG&E of their intent to sue under the citizens suit provisions of the CAA. New York and Connecticut allege violations of the CAA by constructing and continuing to operate a major change to CG&E's W.C. Beckjord Station (Beckjord) without obtaining the required NSR pre-construction permits. On November 3, 1999, the EPA sued a number of holding companies and electric utilities, including Cinergy, CG&E, and PSI, in various U.S. District Courts. The Cinergy, CG&E, and PSI suit alleges violations of the CAA at some of our generating stations relating to NSR and NSPS requirements. The suit seeks (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord and PSI's Cayuga Generating Station (Cayuga), and (2) civil penalties in amounts of up to $27,500 per day for each violation. On March 1, 2000, the EPA filed an amended complaint against Cinergy, CG&E, and PSI. The amended complaint added the alleged violations of the NSR requirements of the CAA contained in the notice of violation (NOV) filed by the EPA on November 3, 1999. It also added claims for relief alleging violations of (1) nonattainment NSR, (2) Indiana and Ohio SIPs, and (3) particulate matter emission limits (as discussed in Note 4(d) on page 33). The amended complaint seeks (1) injunctive relief to require installation of pollution control technology on each of the generating units at Beckjord, Cayuga, and PSI's Wabash River and Gallagher Generating Stations, and such other measures as necessary, and (2) civil penalties in amounts of up to $27,500 per day for each violation. We believe the allegations contained in the amended complaint are without merit and plan to defend the suit vigorously in court. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on our financial condition. In addition, we cannot predict whether any additional allegations will be added to this proceeding. On March 1, 2000, the EPA also filed an amended complaint alleging violations of the CAA relating to NSR, Prevention of Significant Deterioration (PSD), and Ohio SIP requirements regarding Conesville Station, which is operated by the Columbus Southern Power Company (CSP) and jointly-owned by CSP, The Dayton Power and Light Company (DP&L), and CG&E. The EPA is seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. We believe the allegations in the amended complaint are without merit. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on our financial condition. On June 28, 2000, the EPA issued an NOV to Cinergy, CG&E, and PSI for alleged violations of NSR, PSD, and SIP requirements at CG&E's Miami Fort Station and PSI's Gibson Station. In addition, Cinergy and CG&E have been informed by DP&L, the operator of J.M. Stuart Station (Stuart), that on June 30, 2000, the EPA issued an NOV for alleged violations of NSR, PSD, and SIP requirements at this station. CG&E owns 39% of Stuart. The NOVs indicated that the EPA may (1) issue an order requiring compliance with the requirements of the SIP, or (2) bring a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. At this time, it is not possible to determine the likelihood that the EPA will prevail on its claims or whether resolution of this matter will have a material effect on our financial condition. (c) Manufactured Gas Plant (MGP) Sites (i) General As discussed in the 1999 Form 10-K, prior to the 1950s, gas was produced at MGP sites through a process that involved the heating of coal and/or oil. The gas produced from this process was sold for residential, commercial, and industrial uses. (ii) PSI Coal tar residues, related hydrocarbons, and various metals associated with MGP sites have been found at former MGP sites in Indiana, including at least 21 sites which PSI or its predecessors previously owned. PSI acquired four of the sites from Northern Indiana Public Service Company (NIPSCO) in 1931. At the same time, PSI sold NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSI sold 19 of these sites (including the four sites it acquired from NIPSCO) to the predecessor of the Indiana Gas Company, Inc. (IGC). IGC later sold the site located in Rochester, Indiana, to NIPSCO. IGC (in 1994) and NIPSCO (in 1995) both made claims against PSI. The basis of these claims was that PSI is a Potentially Responsible Party with respect to the 21 MGP sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The claims further asserted that PSI is therefore legally responsible for the costs of investigating and remediating the sites. In August 1997, NIPSCO filed suit against PSI in federal court claiming recovery (pursuant to CERCLA) of NIPSCO's past and future costs of investigating and remediating MGP-related contamination at the Goshen MGP site. In November 1998, NIPSCO, IGC, and PSI entered into a Site Participation and Cost Sharing Agreement. The agreement allocated CERCLA liability for past and future costs at seven MGP sites in Indiana among the three companies. As a result of the agreement, NIPSCO's lawsuit against PSI was dismissed. The parties have assigned lead responsibility for managing further investigation and remediation activities at each of the sites to one of the parties. Similar agreements were reached between IGC and PSI that allocate CERCLA liability at 14 MGP sites with which NIPSCO was not involved. These agreements conclude all CERCLA and similar claims between the three companies related to MGP sites. The parties continue to investigate and remediate the sites, as appropriate under the agreements and applicable laws. The Indiana Department of Environmental Management (IDEM) oversees investigation and cleanup of some of the sites. PSI notified its insurance carriers of the claims related to MGP sites raised by IGC, NIPSCO, and the IDEM. In April 1998, PSI filed suit in Hendricks County Circuit Court in the State of Indiana against its general liability insurance carriers. Among other matters, PSI requested a declaratory judgment that would obligate its insurance carriers to (1) defend MGP claims against PSI, or (2) pay PSI's costs of defense and compensate PSI for its costs of investigating, preventing, mitigating, and remediating damage to property and paying claims related to MGP sites. The case was moved to the Hendricks County Superior Court 1 on a request for a change of judge. The Hendricks County Superior Court 1 has set the case for trial beginning in May 2001. It ordered the parties to meet certain deadlines for discovery proceedings based upon this trial date. PSI cannot predict the outcome of this litigation. Recently, PSI has been involved in settlement discussions with some of the insurance carriers. At the present time, PSI cannot predict either the progress or outcome of these discussions. PSI has accrued costs for the sites related to investigation, remediation, and groundwater monitoring for the work performed to date. The estimated costs for such remedial activities are accrued when the costs are probable and can be reasonably estimated. PSI does not believe it can provide an estimate of the reasonably possible total remediation costs for any site before a remedial investigation/feasibility study has been completed. To the extent remediation is necessary, the timing of the remediation activities impacts the cost of remediation. Therefore, PSI currently cannot determine the total costs that may be incurred in connection with the remediation of all sites, to the extent that remediation is required. According to current information, these future costs at the 21 Indiana MGP sites are not material to our financial condition or results of operations. As further investigation and remediation activities are performed at these sites, the potential liability for the 21 MGP sites could be material to our financial position or results of operations. (iii) CG&E CG&E and its utility subsidiaries are aware of potential sites where MGP activities have occurred at some time in the past. None of these sites is known to present a risk to the environment. CG&E and its utility subsidiaries have begun preliminary site assessments to obtain information about some of these MGP sites. (d) Other As discussed in the 1999 Form 10-K, on November 30, 1999, the EPA filed an NOV and a Finding of Violation (FOV) against Cinergy and CG&E alleging that emissions of particulate matter at Beckjord exceeded the allowable limit. The NOV indicated that the EPA may (1) issue an administrative penalty order, or (2) file a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. The allegations contained in this NOV were incorporated within the March 1, 2000, amended complaint, as discussed in Note 4(b) on page 30. On June 22, 2000, the EPA issued an NOV and an FOV alleging additional particulate emission violations at Beckjord and offered us an opportunity to meet and discuss the allegations and corrective measures. The NOV/FOV indicated that the EPA may (1) issue an administrative compliance order, (2) issue an administrative penalty order, or (3) bring a civil or criminal action. We are currently unable to determine whether resolution of these matters will have a material effect on our financial condition. 5. Financial Information by Business Segment As discussed in the 1999 Form 10-K, during 1998, we adopted the requirements of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (Statement 131). Statement 131 requires disclosures about reportable operating segments in annual and interim condensed financial statements. The Energy Commodities Business Unit (Commodities) operates and maintains our domestic electric generating plants and some of our jointly-owned plants. It also conducts the following activities: (1) wholesale energy marketing and trading, (2) energy risk management, (3) financial restructuring services, and (4) proprietary arbitrage activities. Commodities earns revenues from external customers from its marketing, trading, and risk management activities. Commodities earns intersegment revenues from the sale of electric power to the Energy Delivery Business Unit (Delivery). Delivery plans, constructs, operates, and maintains our operating companies' transmission and distribution systems and provides gas and electric energy to consumers. Delivery earns revenues from customers other than consumers primarily by transmitting electric power through our transmission system. Delivery currently receives all of its electricity from Commodities at a transfer price based upon current regulatory ratemaking methodology. The Cinergy Investments Business Unit (Cinergy Investments) primarily manages the development, marketing, and sales of our non-regulated retail energy and energy-related products and services. This is accomplished through various subsidiaries and joint ventures. Cinergy Investments earns all of its revenues from the sale of such products and services to ultimate consumers. These products and services include the following: o energy management and consulting services to commercial customers that operate retail facilities (for example, finding more efficient ways for a customer to use energy); o utility operations/services to other utilities (for example, providing underground locating and construction services for other utilities); o building, operating, and maintaining combined heat and power facilities; and o building and maintaining fiber optic telecommunication networks for businesses, municipalities, telecommunications carriers, and schools. The International Business Unit (International) directs and manages our international business holdings, which include wholly- and jointly-owned companies in eleven countries. In addition, International also directs our renewable energy investing activities (for example, wind farms) both inside and outside the U.S. International earns (1) revenues, and (2) equity earnings from unconsolidated companies primarily from energy-related businesses.
Financial results by business unit for the quarters ended June 30, 2000, and 1999, are as follows: - ----------------------------------------------------------------------------------------------------------------------------------- Business Units - ----------------------------------------------------------------------------------------------------------------------------------- 2000 ----------------------------------------------------------------------------------------------------------- Cinergy Business Units ------------------------------------------------------------ Reconciling Cinergy All Other Eliminations Commodities Delivery Investments International Total (1) (2) Consolidated ----------- -------- ----------- ------------- --------- ---------- -------------- ------------- (in thousands) Operating revenues - External customers $983,745 $745,268 $ 20,453 $ 20,048 $1,769,514 $ - $ - $1,769,514 Intersegment revenues 445,875 - - 445,875 - (445,875) - Segment profit (loss) 57,154(3) 23,451 (3,536) (1,954 75,115 - - 75,115 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 ----------------------------------------------------------------------------------------------------------- Cinergy Business Units ------------------------------------------------------------ Reconciling Cinergy All Other Eliminations Commodities Delivery Investments International Total (1) (2) Consolidated ----------- -------- ----------- ------------- --------- ---------- ------------- ------------- (in thousands) Operating revenues - External customers $542,002 $707,193 $10,884 $15,320 $1,275,399 $ - $ - $1,275,399 Intersegment revenues 423,777 - - - 423,777 - (423,777) - Segment profit (loss) 28,676 27,010 (2,965) 5,171(4) 57,892 1,166 - 59,058 (1) The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment profit measurement. (2) The Reconciling Eliminations category eliminates the intersegment revenues of Commodities. (3) The increase in 2000, as compared to 1999, is primarily due to improvements in gross margins. (4) Includes the earnings from our 50% ownership interest in Midlands Electricity plc, which was sold in the third quarter of 1999.
Financial results by business unit for the six months ended June 30, 2000, and 1999, are as follows: - ------------------------------------------------------------------------------------------------------------------------------------ Business Units - ------------------------------------------------------------------------------------------------------------------------------------ 2000 ----------------------------------------------------------------------------------------------------------- Cinergy Business Units -------------------------------------------------------------- Reconciling Cinergy All Other Eliminations Commodities Delivery Investments International Total (1) (2) Consolidated ----------- ---------- ----------- ------------- --------- ---------- ------------- ------------- (in thousands) Operating revenues - External customers $1,674,537 $1,605,154 $39,002 $ 33,898 $3,352,591 $ - $ - $3,352,591 Intersegment revenues 899,595 - - - 899,595 - (899,595) - Segment profit (loss) 137,953(3) 81,210 (3,591) (2,018) 213,554 - - 213,554 - -------------------------------------------- --------------------------------------------------------------------------------------- 1999 ---------------------------------------------------------------------------------------------------------- Cinergy Business Units ------------------------------------------------------------- Reconciling Cinergy All Other Eliminations Commodities Delivery Investments International Total (1) (2) Consolidated ----------- ---------- ----------- ------------- --------- ---------- ------------- ------------- (in thousands) Operating revenues - External customers $1,045,640 $1,575,560 $28,284 $ 28,194 $2,677,678 $ - $ - $2,677,678 Intersegment revenues 880,314 - - - 880,314 - (880,314) - Segment profit (loss) 79,078 89,627 (4,914) 20,866 (4) 184,657 1,646 - 186,303 (1) The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment profit measurement. (2) The Reconciling Eliminations category eliminates the intersegment revenues of Commodities. (3) The increase in 2000, as compared to 1999, is primarily due to improvements in gross margins. (4) Includes the earnings from our 50% ownership interest in Midlands Electricity plc, which was sold in the third quarter of 1999.
Total segment assets at June 30, 2000, and December 31, 1999, are as follows: ------------------------------------------------------------------------------------------ Cinergy Business Units ------------------------------------------------------------- Cinergy All Other Commodities Delivery Investments International Total (1) Consolidated ----------- ----------- ----------- ------------- ----- ---------- ------------ (in thousands) Total segment assets at June 30, 2000 $ 5,887,973 $4,105,469 $152,619 $ 476,497 $10,622,558 $48,605 $10,671,163 Total segment assets at December 31, 1999 5,041,578 4,058,164 129,935 339,905 9,569,582 47,366 9,616,948 (1) The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of segment profit measurement.
6. Earnings Per Common Share A reconciliation of earnings per common share (EPS) to earnings per common share assuming dilution (diluted EPS) is presented below: - -------------------------------------------------------------------------------- Income Shares EPS ------- ------- ----- (in thousands, except per share amounts) Quarter ended June 30, 2000 Earnings per common share: Net income $75,115 158,923 $0.47 Effect of dilutive securities: Common stock options 318 Contingently issuable common stock 293 --------------------- EPS-assuming dilution: Net income plus assumed conversions $75,115 159,534 $0.47 Quarter ended June 30, 1999 Earnings per common share: Net income $59,058 158,877 $0.37 Effect of dilutive securities: Common stock options 418 Contingently issuable common stock 26 --------------------- EPS-assuming dilution: Net income plus assumed conversions $59,058 159,321 $0.37 - -------------------------------------------------------------------------------- Options to purchase shares of common stock are excluded from the calculation of diluted EPS when the exercise prices of these options are greater than the average market price of the common shares during the period. For the quarters ended June 30, 2000, and 1999, approximately 2 million and 1.7 million shares, respectively, were excluded from the diluted EPS calculation. The Employee Stock Purchase and Savings Plan is also excluded from the diluted EPS calculation, because the purchase price is greater than the average market price during this period. This plan allows all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature. A detailed description of this plan is available in the 1999 Form 10-K. 7. Ohio Deregulation As discussed in the 1999 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill), beginning the transition to electric deregulation and customer choice for the state of Ohio. The Electric Restructuring Bill creates a competitive electric retail service market beginning January 1, 2001. The legislation provides for a market development period that begins January 1, 2001, and ends no later than December 31, 2005. Ohio electric utilities have an opportunity to recover Public Utilities Commission of Ohio (PUCO)-approved transition costs during the market development period. The legislation also freezes retail electric rates during the market development period, at the rates in effect on October 4, 1999, except for a five-percent reduction in the generation component of residential rates and other potential adjustments. Furthermore, the legislation contemplates that twenty percent of the current electric retail customers will switch suppliers no later than December 31, 2003. The Electric Restructuring Bill required each utility supplying retail electric service in Ohio to file a comprehensive proposed transition plan with the PUCO addressing specific requirements of the legislation. CG&E filed its plan on December 28, 1999. The PUCO is required to issue a transition order no later than October 31, 2000. On March 27, 2000, the PUCO staff issued a Staff Report on CG&E's plan, identifying exceptions and offering recommendations for Commission action. On May 8, 2000, CG&E reached a stipulated agreement with the PUCO staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio beginning January 1, 2001. The major features of this agreement include: o Residential customer rates will be frozen through December 31, 2005; o Residential customers will receive a five-percent reduction in the generation portion of their electric rates, effective January 1, 2001; o CG&E has agreed to provide $4 million over the next five years in support of energy efficiency and weatherization services for low income customers; o The creation of a Regulatory Transition Charge (RTC), designed to recover CG&E's regulatory assets and other transition costs over a ten-year period; o Authority for CG&E to transfer its generation assets to a separate, non-regulated corporate subsidiary to provide flexibility to manage its generation asset portfolio in a manner that enhances opportunities in a competitive marketplace; o Authority for CG&E to apply the proceeds of transition cost recovery to costs incurred during the transition period including implementation costs and purchased power costs that may be incurred by CG&E to maintain an operating reserve margin sufficient to provide reliable service to its customers; o CG&E will provide standard offer default supplier service (i.e., CG&E will be the supplier of last resort, so that no customer will be without an electric supplier); and o CG&E has agreed to provide shopping credits to switching customers. CG&E expects to receive an order on the proposed settlement prior to the end of the third quarter of 2000. CG&E expects to discontinue the application of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation, with respect to its generating assets coincident with the regulatory approval of the settlement. To the extent the generating assets are financially impaired, CG&E will be required to recognize a loss under generally accepted accounting principles. Cautionary Statements Regarding Forward-Looking Information "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A) discusses various matters that may make management's corporate vision of the future more clear for you. Certain of management's goals and aspirations are outlined and specific projections may be made. These goals and projections are considered forward-looking statements and are based on management's beliefs and assumptions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ are often presented with forward-looking statements. In addition, other factors could cause actual results to differ materially from those indicated in any forward-looking statement. These include: o Factors affecting operations, such as: (1) unusual weather conditions; (2) catastrophic weather-related damage; (3) unscheduled generation outages; (4) unusual maintenance or repairs; (5) unanticipated changes in fossil fuel costs, gas supply costs, or availability constraints; (6) environmental incidents; and (7) electric transmission or gas pipeline system constraints. o Legislative and regulatory initiatives regarding deregulation of the industry, including Ohio's comprehensive deregulation legislation and the outcome of The Cincinnati Gas & Electric Company's (CG&E) Proposed Stipulation and Settlement in its Transition Plan proceeding, as well as potential deregulation legislation to be passed in Indiana in 2001, and potential national deregulation legislation being contemplated by the United States (U.S.) Congress. o The timing and extent of the entry of additional competition in electric or gas markets and the effects of continued industry consolidation through the pursuit of mergers, acquisitions, and strategic alliances. o Regulatory factors such as changes in the policies or procedures that set rates, changes in our ability to recover investments made under traditional regulation through rates, and changes to the frequency and timing of rate increases. o Financial or regulatory accounting principles or policies imposed by governing bodies. o Political, legal, and economic conditions and developments in the U.S. and the foreign countries in which we have a presence. This would include inflation rates and monetary fluctuations. o Changing market conditions and other factors related to physical energy and financial trading activities. These would include price, basis, credit, liquidity, volatility, capacity, transmission, currency exchange rates, interest rates, and warranty risks. o The performance of projects undertaken by our non-regulated businesses and the success of efforts to invest in and develop new opportunities. o Availability of, or cost of, capital. o Employee workforce factors, including changes in key executives, collective bargaining agreements with union employees, and work stoppages. o Legal and regulatory delays and other obstacles associated with mergers, acquisitions, and investments in joint ventures. o Costs and effects of legal and administrative proceedings, settlements, investigations, and claims. Examples can be found in Note 4 of the "Notes to Financial Statements" in "Part 1. Financial Information" beginning on page 29. o Changes in international, federal, state, or local legislative requirements, such as changes in tax laws, tax rates, and environmental laws and regulations. Unless we otherwise have a duty to do so, the Securities and Exchange Commission's (SEC) rules do not require forward-looking statements to be revised or updated (whether as a result of changes in actual results, changes in assumptions, or other factors affecting the statements). Our forward-looking statements reflect our best beliefs as of the time they are made and may not be updated for subsequent developments. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION In MD&A, we explain liquidity, capital resources, and results of operations. Specifically, we discuss the following: o factors affecting current and future operations; o why revenues and expenses changed from period to period; and o how the above items affect our overall financial condition. LIQUIDITY In the "Liquidity" section, we discuss environmental issues and other investing activities as they relate to our current and future cash needs. In the "Capital Resources" section beginning on page 43, we discuss how we intend to meet these capital requirements. Environmental Issues In the "Environmental Issues" section, we discuss ozone transport rulemakings, new source review, and manufactured gas plant sites as they relate to us and our operating companies. Ozone Transport Rulemakings, New Source Review, Manufactured Gas Plant Sites, and Other See Notes 4(a), (b), (c), and (d), respectively, of the "Notes to Financial Statements" in "Part I. Financial Information" on pages 29 through 33. Other Investing Activities As discussed in the 1999 Form 10-K, our ability to invest in growth initiatives, such as Exempt Wholesale Generators (EWG) and Foreign Utility Companies (FUCO), is limited by certain legal and regulatory requirements, including the Public Utility Holding Company Act of 1935, as amended (PUHCA). In late 1999, Cinergy (Cinergy Corp. and all of its regulated and non-regulated subsidiaries) filed a request with the SEC under the PUHCA for additional authority to, among other things, increase the amount we can invest in EWGs and FUCOs. On June 23, 2000, the SEC issued an order granting Cinergy approximately $676 million in additional authority under the PUHCA to invest in EWGs and FUCOs. This order supplements our existing authority under PUHCA, based on a prior SEC order, to make such investments, which had been capped at an amount equal to 100% of Cinergy's average consolidated retained earnings for the preceding four calendar quarters (approximately $1.055 billion). As of June 30, 2000, we had invested or committed to invest approximately $722 million of the approximately $1.731 billion available. CAPITAL RESOURCES Debt As discussed in the 1999 Form 10-K, Cinergy Corp. filed a request with the SEC under the PUHCA for authority to increase its financing capacity. On June 23, 2000, the SEC issued an order under the PUHCA authorizing Cinergy Corp. to increase its total capitalization at December 31, 1999 (excluding retained earnings and accumulated other comprehensive income) by an additional $5 billion, through issuance of any combination of equity and debt securities. This increased authorization is subject to certain conditions, including, among others, that common equity comprises at least 30% of Cinergy's consolidated capital structure and that Cinergy maintains an investment grade rating on its senior debt obligations. This increased authority is intended to provide Cinergy flexibility to respond quickly and efficiently to the Company's financing needs and available conditions in capital markets. Short-term Debt In connection with the current SEC authorization, Cinergy Corp. has established lines of credit. As of June 30, 2000, Cinergy Corp. had $372 million remaining unused and available on its established lines. Our operating companies have regulatory authority to borrow up to a total of $853 million in short-term debt ($453 million for CG&E and its subsidiaries including $50 million for The Union Light, Heat and Power Company (ULH&P), and $400 million for PSI Energy, Inc. (PSI)). In connection with this authority, CG&E and PSI have established lines of credit, of which, $41 million and $164 million, respectively, remained unused and available at June 30, 2000. Also, our non-regulated subsidiaries have established lines of credit. As on June 30, 2000, $2.4 million was unused and available on these established lines. Our non-regulated subsidiaries have the availability of funds from Cinergy Corp. if the need arises. A portion of each company's committed lines is used to provide credit support for commercial paper (discussed below) and other uncommitted lines. When committed lines are reserved for commercial paper or other uncommitted lines, they are not available for additional borrowings. Commercial Paper The commercial paper (debt instruments exchanged between companies) program is limited to a maximum outstanding principal amount of $400 million for Cinergy Corp. As of June 30, 2000, Cinergy Corp. had issued $216 million in commercial paper. CG&E and PSI also have the capacity to issue commercial paper, which must be supported by available committed lines of the respective company. The maximum outstanding principal amount for CG&E is $200 million and for PSI is $100 million. At June 30, 2000, neither CG&E nor PSI had issued any commercial paper. Variable Rate Pollution Control Notes CG&E and PSI have issued variable rate pollution control notes (tax-exempt notes obtained to finance equipment or land development for pollution control purposes). Because the holders of these notes have the right to redeem their notes on any business day, they are reflected in Notes payable and other short-term obligations in the Consolidated Balance Sheets for Cinergy on page 7, for CG&E on page 14, and for PSI on page 19. At June 30, 2000, CG&E and PSI had $184 million and $82.6 million, respectively, outstanding in pollution control notes. Money Pool Our operating companies and their subsidiaries participate in a money pool arrangement to better manage cash and working capital requirements. Under this arrangement, our operating companies and their subsidiaries with surplus short-term funds provide short-term loans to each other. This surplus cash may be from internal or external sources. The amounts outstanding under this money pool arrangement are shown as Notes receivable from affiliated companies or Notes payable to affiliated companies on the Consolidated Balance Sheets for CG&E on pages 13 through 14, PSI on pages 18 through 19, and the Balance Sheets for ULH&P on pages 23 through 24. Long-term Debt Under the PUHCA authorization mentioned above, we are able to issue and sell long-term debt at the parent holding company level. As of June 30, 2000, Cinergy Corp. has $400 million of long-term debt outstanding. Currently, our operating companies have the following types of outstanding long-term debt: First Mortgage Bonds and other Secured Notes, and Senior and Junior Unsecured Debt. Under our existing authority, the remaining unissued debt, as of June 30, 2000, is reflected in the following table: - -------------------------------------------------------------------------------- Authorizing Agency CG&E PSI ULH&P - -------------------------------------------------------------------------------- (in millions) Applicable State Utility Commission (Secured or Unsecured Debt) $200 $346 $30 - -------------------------------------------------------------------------------- We may, at any time, request additional long-term debt authorization. This request is subject to regulatory approval, which may or may not be granted. As of June 30, 2000, through shelf registrations filed with the SEC under the Securities Act of 1933, we could issue the following amounts of debt securities: - -------------------------------------------------------------------------------- CG&E PSI ULH&P - -------------------------------------------------------------------------------- (in millions) First Mortgage Bonds and Other Secured Notes $300 $265 $20 Senior or Junior Unsecured Debt 50 400 30 - -------------------------------------------------------------------------------- For information regarding recent issuances and redemptions of long-term debt securities, see Note 3 of the "Notes to Financial Statements" in "Part I. Financial Information" on page 28. Securities Ratings On June 1, 2000, Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co. merged, and are now known as Fitch, thus they combined their ratings of Cinergy Corp. and its affiliates. As of July 31, 2000, the major credit rating agencies rated our securities as follows: - -------------------------------------------------------------------------------- Fitch(1) Moody's (2) S&P (3) --------------- --------------- ---------------- Cinergy Corp. Corporate Credit BBB+ Baa2 BBB+ Commercial Paper F-2 P-2 A-2 CG&E Secured Debt A- A3 A- Senior Unsecured Debt BBB+ Baa1 BBB+ Junior Unsecured Debt BBB Baa2 BBB Preferred Stock BBB baa1 BBB Commercial Paper F-2 P-2 Not Rated PSI Secured Debt A- A3 A- Senior Unsecured Debt BBB+ Baa1 BBB+ Junior Unsecured Debt BBB Baa1 BBB Preferred Stock BBB baa1 BBB Commercial Paper F-2 P-2 Not Rated ULH&P Secured Debt A- A3 A- Unsecured Debt Not Rated Baa1 BBB+ - -------------------------------------------------------------------------------- (1) Fitch (Fitch) (2) Moody's Investors Service (Moody's) (3) Standard & Poor's Ratings Services (S&P) - -------------------------------------------------------------------------------- These securities ratings may be revised or withdrawn at any time, and each rating should be evaluated independently of any other rating. Guarantees We are subject to a SEC order under the PUHCA, which limits the amounts Cinergy Corp. can have outstanding under guarantees (promises to pay by one party in the event of default by another party) at any one time to $2 billion. This is an increase from the previous $1 billion guarantee level as a result of the June 23, 2000 order received from the SEC. As of June 30, 2000, we had $685 million outstanding under the guarantees issued. 2000 RESULTS OF OPERATIONS SUMMARY OF RESULTS Electric and gas margins and net income for Cinergy, CG&E, and PSI for the quarters ended June 30, 2000, and 1999, were as follows: - -------------------------------------------------------------------------------- Cinergy (1) CG&E PSI -------------------- ------------------- ----------------- 2000 1999 2000 1999 2000 1999 -------------------- ------------------- ----------------- (in thousands) Electric gross margin $549,801 $491,027 $307,797 $260,782 $221,953 $226,329 Gas gross margin 41,821 35,154 35,352 33,120 - - Net income 75,115 59,058 55,881 38,922 18,916 25,580 (1) The results of Cinergy also include amounts related to non-registrants. - -------------------------------------------------------------------------------- Our diluted earnings per share for the second quarter of 2000 increased to $.47 per share from $.37 per share for the same period of 1999. Earnings of our regulated operations, including the supply business, increased $.13 per share in the second quarter of 2000, when compared to the same period of 1999. The improved results are attributable to growth in margins of the company's regulated businesses and an increase in electricity trading volumes of about 55 percent for the second quarter and the first six months over the prior year. Partially offsetting this increase was a decrease of $.03 per share in the contribution to earnings of our non-regulated investment activities. This decrease primarily reflects the loss of earnings from the company's share in Midlands Electricity plc, which was sold in the third quarter of 1999. The explanations below follow the line items on the Statements of Income for Cinergy, CG&E, and PSI, which begin on page 5. However, only the line items that varied significantly from prior periods are discussed. ELECTRIC OPERATING REVENUES - -------------------------------------------------------------------------------- Cinergy (1) CG&E PSI - -------------------------------- ---------------------- ---------------------- 2000 1999 % Change 2000 1999 % Change 2000 1999 % Change - -------------------------------- ---------------------- ---------------------- (in millions) Retail $ 651 $623 4 $360 $345 4 $291 $278 5 Wholesale 555 285 95 282 126 124 321 174 84 Other 44 34 29 5 6 (17) 8 11 (27) --------------------- ---------------------- --------------------- Total $1,250 $942 33 $647 $477 36 $620 $463 34 (1) The results of Cinergy also include amounts related to non-registrants. - -------------------------------------------------------------------------------- Electric operating revenues for Cinergy, CG&E, and PSI increased for the quarter ended June 30, 2000, as compared to 1999, mainly due to an increase in volumes and the average price per kilowatt-hour (kWh) realized on non-firm wholesale transactions related to energy marketing and trading activity. Non-firm power is power without a guaranteed commitment for physical delivery. In addition, the growth in retail revenues reflects increased volumes due to growth in the average number of residential and commercial customers. Other electric operating revenues increased for Cinergy due to growth in the non-regulated activities. GAS OPERATING REVENUES - -------------------------------------------------------------------------------- Cinergy (1) CG&E -------------------------------- --------------------------------- 2000 1999 % Change 2000 1999 % Change -------------------------------- --------------------------------- (in millions) Non-regulated $432 $275 57 $ - $ - - Retail 48 42 14 48 42 14 Transportation 11 11 - 11 11 - Other 1 1 - 1 1 - ---------------------- ---------------------- Total $492 $329 50 $60 $ 54 11 (1) The results of Cinergy also include amounts related to non-registrants. - -------------------------------------------------------------------------------- Gas operating revenues for Cinergy increased in the second quarter of 2000, when compared to the same period last year. This increase is primarily the result of a higher price realized per thousand cubic feet (mcf) sold by Cinergy Marketing & Trading, LLC (Marketing & Trading). CG&E's retail revenues increased primarily due to a higher price realized per mcf sold. Also, contributing to the increase in retail revenues were higher mcf sales, reflecting a return to more normal weather when compared to the same period in 1999. OTHER REVENUES Other operating revenues for Cinergy increased $23 million in the second quarter of 2000, when compared to the same period in 1999, primarily due to revenues from the marketing of energy-related services. OPERATING EXPENSES
- --------------------------------------------------------------------------------------------------------------------------- Cinergy (1) CG&E PSI -------------------------------- --------------------------------- -------------------------------- 2000 1999 % Change 2000 1999 % Change 2000 1999 % Change -------------------------------- --------------------------------- -------------------------------- (in millions) Fuel $ 206 $ 186 11 $ 87 $ 76 14 $113 $104 9 Purchased and exchanged power 495 265 87 252 140 80 285 133 114 Gas purchased 450 294 53 24 20 20 - - - Operation 230 172 34 94 70 34 94 82 15 Maintenance 60 64 (6) 29 30 (3) 30 35 (14) Depreciation and amortization 93 88 6 53 51 4 35 34 3 Taxes other than income taxes 68 69 (1) 54 55 (2) 14 14 - --------------------- ------------------------ ------------------------ Total $1,602 $1,138 41 $593 $442 34 $571 $402 42 (1) The results of Cinergy also include amounts related to non-registrants. - --------------------------------------------------------------------------------------------------------------------------
Fuel Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity. The following table details the changes to fuel expense from the quarter ended June 30, 1999, to the quarter ended June 30, 2000: - -------------------------------------------------------------------------------- Cinergy (1) CG&E PSI -------------------------------------- (in millions) Fuel expense - June 30, 1999 $186 $76 $104 Increase (Decrease) due to changes in: Price of fuel (8) (5) (3) Deferred fuel cost 21 11 10 kWh generation 7 5 2 -------------------------------------- Fuel expense - June 30, 2000 $206 $87 $113 (1) The results of Cinergy also include amounts related to non-registrants. - -------------------------------------------------------------------------------- Purchased and Exchanged Power Purchased and exchanged power expense increased for Cinergy, CG&E, and PSI for the second quarter of 2000 compared to last year, primarily due to an increase in purchases of non-firm wholesale power as a result of an increase in sales volume in the energy marketing and trading operations. Gas Purchased Gas purchased expense increased for Cinergy and CG&E for the second quarter of 2000, when compared to the same period last year, primarily due to an increase in the average cost per mcf of gas purchased. CG&E's Gas purchased expense also increased due to higher mcf volumes purchased during the second quarter of 2000, as compared to the same period of 1999. Operation Cinergy's, CG&E's, and PSI's Operation expenses increased for the quarter ended June 30, 2000, as compared to the same period last year, primarily due to an increase in expenses associated with the marketing of energy-related services and expenses related to the limited early retirement plan (LERP). For a further discussion of the LERP, see the "Corporate Center Restructuring" section on page 58. Maintenance Cinergy's and PSI's Maintenance expenses decreased for the quarter ended June 30, 2000, as compared to the same period last year, primarily due to activities associated with planned production outages and other repairs performed at certain facilities during 1999. Depreciation and Amortization Cinergy's Depreciation and amortization costs increased for the quarter ended June 30, 2000, as compared to the same period last year, primarily due to additions to depreciable plant. EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES Cinergy's Equity in earnings of unconsolidated subsidiaries decreased $9 million (67%) for the second quarter of 2000, when compared to the same period last year. This decrease is primarily due to the loss in earnings resulting from our 50% ownership interest in Midlands Electricity plc, which was sold in the third quarter of 1999. INTEREST Cinergy's Interest expense decreased $8 million (13%) for the second quarter of 2000, when compared to the same period last year. This decrease is primarily due to a reduction in short-term borrowings as a result of the sale of Midlands Electricity plc. This decrease was slightly offset by an increase in average short-term interest rates. 2000 RESULTS OF OPERATIONS SUMMARY OF RESULTS Electric and gas margins and net income for Cinergy, CG&E, and PSI for the six months ended June 30, 2000, and 1999, were as follows:
- ------------------------------------------------------------------------------------------------------------------------- Cinergy (1) CG&E PSI ----------------------------- ----------------------------- ----------------------------- 2000 1999 2000 1999 2000 1999 ----------------------------- ----------------------------- ----------------------------- (in thousands) Electric gross margin $1,115,720 $1,026,390 $605,463 $543,497 $484,276 $473,867 Gas gross margin 134,404 122,060 124,198 118,039 - - Net income 213,554 186,303 151,845 119,159 69,129 65,421 (1) The results of Cinergy also include amounts related to non-registrants. - ---------------------------------------------------------------------------------------------------------------------------
Our diluted earnings per share for the six months ending June 30, 2000, increased to $1.34 per share from $1.17 per share for the same period of 1999. Earnings of our regulated operations, including the supply business, increased $.34 per share for the six months ending June 30, 2000, when compared to the same period in 1999. The improved results are attributable to growth in margins of the company's regulated businesses and an increase in electricity trading volumes of about 55 percent for the second quarter and the first six months over the prior year. Partially offsetting this increase was a decrease of $.17 per share in the contribution to earnings of our non-regulated investment activities. This decrease primarily reflects the loss of earnings from the company's share in Midlands Electricity plc, which was sold in the third quarter of 1999. The explanations below follow the line items on the Statements of Income for Cinergy, CG&E, and PSI, which begin on page 5. However, only the line items that varied significantly from prior periods are discussed. ELECTRIC OPERATING REVENUES
- ------------------------------------------------------------------------------------------------------------------- Cinergy (1) CG&E PSI --------------------------------- -------------------------------- -------------------------------- 2000 1999 % Change 2000 1999 % Change 2000 1999 % Change --------------------------------- -------------------------------- -------------------------------- (in millions) Retail $1,301 $1,300 - $ 712 $703 1 $ 589 $596 (1) Wholesale 939 551 70 463 247 87 548 331 66 Other 77 60 28 10 9 11 17 19 (11) ----------------------- ---------------------- ---------------------- Total $2,317 $1,911 21 $1,185 $959 24 $1,154 $946 22 (1) The results of Cinergy also include amounts related to non-registrants. - -------------------------------------------------------------------------------------------------------------------
Electric operating revenues for Cinergy, CG&E, and PSI increased for the six months ended June 30, 2000, as compared to 1999, mainly due to an increase in volumes and the average price per kWh realized on non-firm wholesale transactions related to energy marketing and trading activity. Other electric revenues increased for Cinergy due to growth in sales of energy related services. GAS OPERATING REVENUES - -------------------------------------------------------------------------------- Cinergy (1) CG&E -------------------------------- -------------------------------- 2000 1999 % Change 2000 1999 % Change -------------------------------- -------------------------------- (in millions) Non-regulated $753 $533 41 $ - $ - - Retail 201 184 9 201 184 9 Transportation 33 30 10 33 30 10 Other 3 3 - 4 3 33 ---------------------- ---------------------- Total $990 $750 32 $238 $217 10 (1) The results of Cinergy also include amounts related to non-registrants. - -------------------------------------------------------------------------------- Gas operating revenues for Cinergy increased in the six months ending June 30, 2000, when compared to the same period last year. This increase is primarily the result of a higher price realized per mcf sold by Marketing & Trading. CG&E's retail revenues increased primarily due to a higher price realized per mcf sold. Transportation revenues increased due to the continued trend of full-service customers (customers who purchase gas and utilize the transportation services of CG&E) purchasing gas directly from suppliers and using transportation services provided by CG&E. OTHER REVENUES Other operating revenues for Cinergy increased $28 million for the six months ending June 30, 2000, when compared to the same period in 1999, primarily due to revenues from the marketing of energy-related services. OPERATING EXPENSES
- -------------------------------------------------------------------------------------------------------------------- Cinergy (1) CG&E PSI -------------------------------- --------------------------------- -------------------------------- 2000 1999 % Change 2000 1999 % Change 2000 1999 % Change -------------------------------- --------------------------------- -------------------------------- (in millions) Fuel $ 392 $ 384 2 $ 169 $162 4 $ 212 $211 - Purchased and exchanged power 809 500 62 411 253 62 458 261 75 Gas purchased 856 628 36 114 99 15 - - - Operation 424 366 16 174 154 13 178 170 5 Maintenance 112 115 (3) 54 55 (2) 57 60 (5) Depreciation and amortization 183 175 5 104 101 3 70 68 3 Taxes other than income taxes 135 139 (3) 104 109 (5) 28 29 (3) --------------------- ------------------------ ------------------------ Total $2,911 $2,307 26 $1,130 $933 21 $1,003 $799 26 (1) The results of Cinergy also include amounts related to non-registrants.
- -------------------------------------------------------------------------------- Fuel Fuel represents the cost of coal, natural gas, and oil that is used to generate electricity. The following table details the changes to fuel expense from the six months ending June 30, 1999, to the six months ending June 30, 2000: - -------------------------------------------------------------------------------- Cinergy (1) CG&E PSI -------------------------------------- (in millions) Fuel expense - June 30, 1999 $384 $162 $211 Increase (Decrease) due to changes in: Price of fuel (10) (7) (3) Deferred fuel cost (1) 7 (8) kWh generation 19 7 12 -------------------------------------- Fuel expense - June 30, 2000 $392 $169 $212 (1) The results of Cinergy also include amounts related to non-registrants. - -------------------------------------------------------------------------------- Purchased and Exchanged Power Purchased and exchanged power expense increased for Cinergy, CG&E, and PSI for the six months ending June 30, 2000, compared to last year. This increase was primarily due to an increase in purchases of non-firm wholesale power as a result of an increase in sales volume in the energy marketing and trading operations. Gas Purchased Gas purchased expense increased for Cinergy and CG&E for the six months ending June 30, 2000, when compared to the same period last year, primarily due to an increase in the average cost per mcf of gas purchased. Operation Cinergy's, CG&E's, and PSI's Operation expenses increased for the six months ended June 30, 2000, as compared to the same period last year, primarily due to an increase in expenses associated with the marketing of energy-related services and expenses related to the LERP. For a further discussion of the LERP, see the "Corporate Center Restructuring" section on page 58. Maintenance Cinergy's and PSI's Maintenance expenses decreased for the six months ended June 30, 2000, as compared to the same period last year, primarily due to activities associated with planned production outages and other repairs performed at certain facilities during 1999. Depreciation and Amortization Cinergy's Depreciation and amortization costs increased for the six months ending June 30, 2000, as compared to the same period last year, primarily due to additions to depreciable plant. EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES Cinergy's Equity in earnings of unconsolidated subsidiaries decreased $52 million (89%) for the six months ending June 30, 2000, when compared to the same period last year. This decrease is primarily due to the loss in earnings resulting from our 50% ownership interest in Midlands Electricity plc, which was sold in the third quarter of 1999. INTEREST Cinergy's Interest expense decreased $17 million (14%) for the six months ending June 30, 2000, when compared to the same period last year. This decrease is primarily due to a reduction in short-term borrowings as a result of the sale of Midlands Electricity plc. This decrease was slightly offset by an increase in average short-term interest rates. ULH&P The Results of Operations discussion for ULH&P is presented only for the six months ended June 30, 2000, in accordance with General Instruction H(2)(a). Electric and gas margins and net income for ULH&P for the six months ended June 30, 2000, and 1999, were as follows: - -------------------------------------------------------------------------------- ULH&P ------------------------------ 2000 1999 ------------------------------ (in thousands) Electric gross margin $29,228 $24,150 Gas gross margin 21,565 21,201 Net income 10,923 7,962 - -------------------------------------------------------------------------------- Electric operating revenues for the six months ended June 30, 2000, compared to last year, increased mainly due to higher retail kWh sales resulting from an increase in kWh usage and growth in the number of commercial and industrial customers. This increase in kWh volume caused a corresponding increase in Purchased and exchanged power expense. The increase in Gas operating revenues for the six months ended June 30, 2000, compared to last year, was mainly due to a higher price received per mcf sold and an increase in the number of residential and commercial customers. Gas purchased expense increased due to an increase in the average cost per mcf of gas purchased. The increase in Depreciation and amortization costs for the six months ended June 30, 2000, as compared to the same period last year, was primarily due to additions to depreciable plant. Interest expense increased for the six months ended June 30, 2000, as compared to the same period last year, primarily due to increased borrowings from CG&E and PSI. FUTURE EXPECTATIONS/TRENDS In the "Future Expectations/Trends" section, we discuss electric industry developments, market risk sensitive instruments and positions, accounting changes, the corporate center restructuring, and the shareholder rights plan. Each of these discussions will address the current status and potential future impact on our results of operations and financial condition. ELECTRIC INDUSTRY Wholesale Market Developments Supply-side Actions As discussed in the 1999 Form 10-K, on September 30, 1999, one of our non-regulated subsidiaries formed a partnership (each party having a 50% ownership) with Duke Energy North America LLC, in an effort to increase the available generating capacity for use during peak demand periods. This partnership is to jointly construct and own three wholesale generating facilities. On March 9, 2000, the Indiana Utility Regulatory Commission (IURC) issued an order (Cause No. 41569), requiring us to immediately cease all construction activities at the site located near Cadiz, (Henry County) Indiana (a planned peaking plant with a total capacity of 132 megawatts (MW)). In making this decision the IURC found that it needs additional information related to the project before issuing a final decision. The IURC requested the Henry County Planning Commission and/or the Henry County Commissioners to supply additional information, which was provided in June 2000. The issues raised by Henry County were air quality, water supply, noise control, landscaping, plant abandonment, and emergency services training. On July 14, 2000, Cinergy filed its response to the information provided by Henry County, indicating how it would address the concerns of Henry County. Cinergy anticipates that further hearings on the matter will be held in the fall of 2000. At this time, Cinergy cannot currently predict the outcome of this matter. The remaining facilities (with total capacity of approximately 1,268 MW) became fully operational in June 2000. We are supplementing this additional capability with block power purchases for the summer of 2000 peak period. Retail Market Developments Federal The Clinton Administration has introduced a bill--the Comprehensive Electricity Competition Act--that would grant all retail electric customers the right to choose their electricity supplier beginning January 1, 2003. The legislation would allow a state regulatory authority to opt out of the retail competition system if the authority conducted a public proceeding and determined that the electric customers of that state would be better served by a monopoly system or an alternative retail competition plan. A "compromise bipartisan" deregulation bill introduced on May 26, 1999, by Representatives Largent (R-OK) and Markey (D-MA) includes similar mandates and opt out provisions with an effective date of January 1, 2002. After attempting for several months to reach consensus on comprehensive electric restructuring legislation, the U.S. Senate on June 30, 2000, approved S.2071, the Electric Reliability 2000 Act. S.2071 would authorize the establishment of a North American Electric Reliability Organization and not legislate on additional issues surrounding the restructuring of the electricity industry. It remains uncertain whether federal retail customer choice legislation will be passed by this Congress. Ohio As discussed in the 1999 Form 10-K, during 1999, Ohio Governor Robert Taft signed into law a bill creating a competitive electric retail service market beginning January 1, 2001. As required by the bill, CG&E filed its transition plan on December 28, 1999. On May 8, 2000, CG&E reached a stipulated agreement with the Public Utilities Commission of Ohio staff and various other interested parties with respect to its proposal to implement electric customer choice in Ohio beginning January 1, 2001. The major features of this agreement include: o Residential customer rates will be frozen through December 31, 2005; o Residential customers will receive a five-percent reduction in the generation portion of their electric rates, effective January 1, 2001; o CG&E has agreed to provide $4 million over the next five years in support of energy efficiency and weatherization services for low income customers; o The creation of a Regulatory Transition Charge (RTC), designed to recover CG&E's regulatory assets and other transition costs over a ten-year period; o Authority for CG&E to transfer its generation assets to a separate, non-regulated corporate subsidiary to provide flexibility to manage its generation asset portfolio in a manner that enhances opportunities in a competitive marketplace; o Authority for CG&E to apply the proceeds of transition cost recovery to costs incurred during the transition period including implementation costs and purchased power costs that may be incurred by CG&E to maintain an operating reserve margin sufficient to provide reliable service to its customers; o CG&E will provide standard offer default supplier service (i.e., CG&E will be the supplier of last resort, so that no customer will be without an electric supplier); and o CG&E has agreed to provide shopping credits to switching customers. CG&E expects the settlement to be approved prior to the end of the third quarter of 2000. For additional information, see Note 7 of the "Notes to Financial Statements" in "Part I. Financial Information" on page 38. Midwest ISO As part of the effort to create a competitive wholesale power marketplace, the Federal Energy Regulatory Commission (FERC) approved the formation of the Midwest Independent Transmission System Operator, Inc. (Midwest ISO) during 1998. The Midwest ISO will oversee the combined transmission systems of its members. The organization is expected to begin operations in late 2001. This effort will help to facilitate a reliable and efficient market for electric power and create open transmission access consistent with FERC policies. The Midwest ISO currently includes 16 members with over 52,000 miles of transmission lines in 12 states and an aggregate investment of approximately $8 billion. Formal agreements have been signed to merge the Midwest ISO and the Mid-Continent Area Power Pool. Several conditions of these agreements must be met before the merger can be consummated. Significant Rate Developments Purchased Power Tracker On May 28, 1999, PSI filed a petition with the IURC seeking approval of a purchased power tracking mechanism (tracker). This request is designed to provide for the recovery of costs related to purchases of power necessary to meet native load requirements to the extent such costs are not sought through the existing fuel adjustment clause. The tracker is intended to apply to a limited number of purchases made for the purpose of ensuring adequate power reserves to meet peak retail native load requirements, which in recent years have coincided with periods of extreme price volatility. As proposed by PSI, the tracker would only apply to capacity purchases which are presented to the IURC for review and approved by the IURC as reasonable under the circumstances. On May 31, 2000, the IURC approved the tracker for the summer of 2000. As requested in the order, PSI filed its actual purchase agreements for the summer of 2000 with the IURC. When the summer of 2000 is concluded, the IURC will (1) review PSI's purchases and rule on the associated requests for recovery of costs, and (2) will determine whether it is appropriate to continue the tracking mechanism for future periods. MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS Energy Commodities Sensitivity We market and trade electricity, natural gas, and other energy-related products. We use over-the-counter forward and option contracts for the purchase and sale of electricity and also trade exchange-traded futures contracts. See Notes 1(b) and 1(c) of the "Notes to Financial Statements" in "Part I. Financial Information" on pages 26 through 27, for our accounting policies for certain derivative instruments. For additional information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" pages 61 through 64, of our 1999 Form 10-K. Our market risks have not changed materially from the market risks reported in the 1999 Form 10-K. Exchange Rate Sensitivity From time to time, we may utilize foreign exchange forward contracts and currency swaps to hedge certain of our net investments in foreign operations. See Notes 1(b) and 1(c) of the "Notes to Financial Statements" in "Part I. Financial Information" on pages 26 through 27, for our accounting policies for certain derivative instruments. Interest Rate Sensitivity Our net exposure to changes in interest rates primarily consist of debt instruments with floating interest rates that are benchmarked to various market indices. To manage the exposure to fluctuations in interest rates and to lower funding costs, we evaluate the use of, and have entered into, interest rate swaps. See Notes 1(b) and 1(c) of the "Notes to Financial Statements" in "Part I. Financial Information" on pages 26 through 27, for our accounting policies for certain derivative instruments. Our market risks have not changed materially from the market risks reported in the 1999 Form 10-K. ACCOUNTING CHANGES During the second quarter of 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133). This standard requires companies to record derivative instruments as assets or liabilities, measured at fair value. Changes in the derivative's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Hedges are transactions entered into for the purpose of reducing exposure to one or more types of business risk. Gains and losses on derivatives that qualify as hedges can offset related results on the hedged item in the income statement. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No.133 (Statement 137). Statement 137 deferred the effective date of Statement 133 by one year. As a result, Statement 133 will be effective for fiscal years beginning after June 15, 2000. Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133 (Statement 138) was issued in June 2000. Statement 138 addresses implementation issues and reflects decisions of the FASB regarding recommendations of the FASB sponsored Derivatives Implementation Group. We expect to reflect the adoption of Statement 133 in financial statements issued beginning in the first quarter of 2001. In preparation for our implementation of this new standard, we have formed a cross-functional project team. The project team is identifying and analyzing all contracts which could be subject to the new standard, developing required documentation, defining relevant processes and information systems needs, and promoting internal awareness of the requirements and potential effects of the new standard. While we continue to analyze and follow the development of implementation guidelines, at this time we are unable to predict whether the implementation of this accounting standard will be material to our results of operations and financial position. However, the adoption of Statement 133 could increase volatility in earnings and other comprehensive income. CORPORATE CENTER RESTRUCTURING On March 10, 2000, we announced a plan to reorganize our corporate center that will eliminate approximately 240 jobs. Cinergy offered a limited early retirement plan (LERP) in connection with this reorganization. In June 2000, we recorded a one-time expense of approximately $11 million relating to benefits provided to LERP participants. SHAREHOLDER RIGHTS PLAN On July 19, 2000, Cinergy Corp.'s board of directors approved a Shareholder Rights Plan (the Plan) that will take effect after approval by the SEC under the PUHCA. We filed an application with the SEC on July 28, 2000, requesting approval of the Plan. Under the Plan, each shareholder would receive a right to purchase from Cinergy Corp. one share of common stock at a price of $100. Initially, the Rights will not be represented by separate certificates and will not trade separately from Cinergy shares of common stock. The rights would separate from the common stock ten days after either of the following occurred: o the public announcement of an acquisition of ten percent or more of the company's common stock, or o the commencement of a tender offer or exchange offer by which a person or group would acquire ten percent or more of the common stock of Cinergy Corp. The Rights become exercisable if one of these events occurs and the rights are no longer redeemable by the board of directors. If the rights become exercisable after someone has acquired ten percent or more of the company's common stock, holders of the rights will have the right to purchase the common stock of Cinergy Corp. at a 50% discount. However, any rights held by the acquirer would not be exercisable. In addition, if the rights become exercisable and Cinergy Corp. engages in a merger or consolidation in which it is not the surviving corporation or in which all or part of its common stock is changed or exchanged, or if 50% or more of the company's assets are sold, each holder of a right would have the right to acquire common stock of the acquirer at a 50% discount. The rights will be distributed to holders of record at the close of business on the tenth business day following announcement by Cinergy Corp. of approval from the SEC under the PUHCA. The board of directors may direct Cinergy Corp. to redeem the rights at $.01 per right at any time before the tenth day following the acquisition of ten percent or more of Cinergy Corp.'s common stock. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to the "Market Risk Sensitive Instruments and Positions" section in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in "Part I. Financial Information" on page 57, and Notes 1(b) and 1(c) of the "Notes to Financial Statements" in "Part I. Financial Information" on pages 26 through 27. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS New Source Review, Manufactured Gas Plant Sites, and Other See Notes 4(b), (c), and (d), respectively, of the "Notes to Financial Statements" in "Part I. Financial Information" on pages 30 through 33. M Metals Superfund Site On July 6, 2000, the EPA identified PSI and the Indianapolis Power and Light Company (IPL) as potentially responsible parties for the release of hazardous substances at the M Metals Superfund Site (Site) located in Indianapolis, Indiana. The EPA advised that it had taken response actions relating to the Site and had incurred costs of approximately $500 thousand. The EPA has demanded reimbursement of the costs incurred related to the Site and has encouraged PSI and IPL to work out an allocation between themselves for the payment of the costs. However, PSI and IPL will be held jointly and severally liable for the costs. PSI is considering how to respond to the demand. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits identified with a pound sign (#) are being filed herewith by the registrant identified in the exhibit discussion below and are incorporated herein by reference with respect to any other designated registrant. Exhibits identified with a tilde (~) are not filed herewith, however, a copy will be provided to the Securities and Exchange Commission pursuant to ss.229.601(b).
Exhibit Designation Registrant Nature of Exhibit Filed as Exhibit to: ----------- ---------- ----------------- -------------------- #Loan agreement between PSI and the Indiana Cinergy Development Finance Authority dated as of 4a PSI May 1, 2000. PSI June 30, 2000 Form 10-Q. ~Trust Indenture between the Indiana Cinergy Development Finance Authority and Fifth 4b PSI Third Bank, as Trustee, dated May 1, 2000. Financial Data Schedule Cinergy CG&E PSI Financial Data Schedules (included in 27 ULH&P electronic submission only) (b) No reports on Form 8-K were filed during the quarter.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized. CINERGY CORP. The Cincinnati Gas & Electric Company PSI Energy, Inc. The Union Light, Heat and Power Company --------------------------------------- Registrants Date: August 11, 2000 /s/ Bernard F.Roberts --------------------------------------- Bernard F. Roberts Duly Authorized Officer and Chief Accounting Officer EX-4 2 0002.txt PSI LOAN AGREEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LOAN AGREEMENT between INDIANA DEVELOPMENT FINANCE AUTHORITY and PSI ENERGY, INC. ------------------------------- $54,025,000 Indiana Development Finance Authority Environmental Refunding Revenue Bonds, Series 2000A and Series 2000B (PSI Energy, Inc. Project) ------------------------------- Dated as of May 1, 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I DEFINITIONS...................................................2 Section 1.1. Use of Defined Terms..........................................2 Section 1.2. Definitions...................................................2 Section 1.3. Interpretation................................................7 Section 1.4. Captions and Headings.........................................7 ARTICLE II REPRESENTATIONS...............................................8 Section 2.1. Representations of the Issuer.................................8 Section 2.2. No Warranty by Issuer of Condition or Suitability of the Project....................................8 Section 2.3. Representations and Covenants of the Company..................8 ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS.............13 Section 3.1. Acquisition, Construction and Installation...................13 Section 3.2. Project Description..........................................13 Section 3.3. Issuance of the Bonds; Application of Proceeds...............13 Section 3.4. Investment of Fund Moneys....................................14 Section 3.5. Rebate Fund..................................................14 ARTICLE IV LOAN BY ISSUER; LOAN PAYMENTS; ADDITIONAL PAYMENTS; MUNICIPAL BOND INSURANCE POLICY; AND LIQUIDITY FACILITY.....................................................16 Section 4.1. Loan Repayment...............................................16 Section 4.2. Additional Payments..........................................16 Section 4.3. Place of Payments............................................17 Section 4.4. Obligations Unconditional....................................17 Section 4.5. Assignment of Revenues and Agreement.........................17 Section 4.6. Municipal Bond Insurance Policy; Liquidity Facility; Cancellation.................................................17 Section 4.7. Company's Option to Elect Rate Period; Changes in Auction Date and Length of Auction Periods...................18 Section 4.8. Company's Obligation to Purchase Bonds.......................18 i ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS..........................19 Section 5.1. Right of Inspection..........................................19 Section 5.2. Maintenance..................................................19 Section 5.3. Removal of Portions of the Project Facilities................19 Section 5.4. Operation of Project Facilities..............................19 Section 5.5. Insurance....................................................20 Section 5.6. Workers' Compensation Coverage...............................20 Section 5.7. Damage; Destruction and Eminent Domain.......................20 Section 5.8. Company to Maintain its Corporate Existence; Conditions Under Which Exceptions Permitted..................20 Section 5.9. Indemnification..............................................21 Section 5.10. Company Not to Adversely Affect Exclusion of Interest on Bonds From Gross Income For Federal Income Tax Purposes......22 Section 5.11. Use of Project Facilities....................................22 Section 5.12. Assignment by Company........................................22 Section 5.13. The Depository Trust Company Letter of Representation........23 ARTICLE VI REDEMPTION...................................................24 Section 6.1. Optional Redemption..........................................24 Section 6.2. Extraordinary Optional Redemption............................24 Section 6.3. Mandatory Redemption.........................................26 Section 6.4. Notice of Redemption.........................................26 Section 6.5. Actions by Issuer............................................26 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES...............................27 Section 7.1. Events of Default............................................27 Section 7.2. Remedies on Default..........................................28 Section 7.3. No Remedy Exclusive..........................................29 Section 7.4. Agreement to Pay Attorneys' Fees and Expenses................29 Section 7.5. No Waiver....................................................29 Section 7.6. Notice of Default............................................29 ii ARTICLE VIII MISCELLANEOUS................................................30 Section 8.1. Term of Agreement............................................30 Section 8.2. Amounts Remaining in Funds...................................30 Section 8.3. Notices......................................................30 Section 8.4. Extent of Covenants of the Issuer; No Personal Liability.....30 Section 8.5. Binding Effect...............................................31 Section 8.6. Amendments and Supplements...................................31 Section 8.7. Execution Counterparts.......................................31 Section 8.8. Severability.................................................31 Section 8.9. Governing Law................................................31 EXHIBIT A Project......................................................34 iii LOAN AGREEMENT THIS LOAN AGREEMENT is made and entered into as of May 1, 2000 between the INDIANA DEVELOPMENT FINANCE AUTHORITY (the "Issuer"), a separate body corporate and politic organized and existing under the laws of the State of Indiana, and PSI ENERGY, INC. (the "Company"), a public utility and corporation duly organized and validly existing under the laws of the State of Indiana. Capitalized terms used in the following recitals are used as defined in Article I of this Agreement. Pursuant to Indiana Code, Title 4, Article 4, Chapters 10.9 and 11 (collectively, the "Act"), the Issuer has determined to issue, sell and deliver the Bonds, and to lend the proceeds derived from the sale thereof to the Company to assist in the refunding of the Refunded Bonds as defined below. The Refunded Bonds were issued to provide funds to make a loan to the Company to assist in the financing or refinancing of its portion of the costs of the Project as defined below. The Company and the Issuer each have full right and lawful authority to enter into this Agreement and to perform and observe the provisions hereof on their respective parts to be performed and observed. NOW THEREFORE, in consideration of the premises and the mutual representations and agreements hereinafter contained, the Issuer and the Company agree as follows (provided that any obligation of the Issuer or the State created by or arising out of this Agreement shall never constitute a general debt of the Issuer or the State or give rise to any pecuniary liability of the Issuer or the State but shall be payable solely out of Revenues): - 1 - ARTICLE I DEFINITIONS SECTION 1.1. USE OF DEFINED TERMS. In addition to the words and terms defined elsewhere in this Agreement, the Indenture or by reference to another document, the words and terms set forth in Section 1.2 hereof shall have the meanings set forth therein unless the context or use clearly indicates another meaning or intent. Such definitions shall be equally applicable to both the singular and plural forms of any of the words and terms defined therein. SECTION 1.2. DEFINITIONS. As used herein: ----------- "Additional Payments" means the amounts required to be paid by the Company pursuant to the provisions of Section 4.2 hereof. "Administration Expenses" means the compensation (which compensation shall not be greater than that typically charged in similar circumstances) and reimbursement of reasonable expenses and advances payable to the Trustee, the Registrar, the Remarketing Agent, the Broker-Dealer, the Auction Agent, any Paying Agent and any Authenticating Agent. "Agreement" means this Loan Agreement, as amended or supplemented from time to time. "Engineer" means an engineer (who may be an employee of the Company) or engineering firm qualified to practice the profession of engineering under the laws of the State and who or which is acceptable to the Trustee. "EPA" means the Department of Environmental Management of the State and any successor body, agency, commission or department. "Event of Default" means any of the events described as an Event of Default in Section 7.1 hereof. "Force Majeure" means any of the following: (i) acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the government of the United States of America or of the State or any of their departments, agencies, political subdivisions or officials, or any civil or military authority; insurrections; civil disturbances; riots; epidemics; landslides; lightning; earthquakes; fires; hurricanes; tornados; storms; droughts; floods; arrests; restraint of government and people; explosions; breakage, nuclear accidents or other malfunction or accident to facilities, machinery, transmission pipes or canals; partial or entire failure of a utility serving the Project; shortages of labor, materials, supplies or transportation; or (ii) any cause, circumstance or event not reasonably within the control of the Company. "Generating Stations" means collectively the Gibson Generating Station, the Noblesville Generating Station, the Cayuga Generating Station, the Edwardsport Generating Station, the Gallagher Generating Station and the Wabash River Generating Station and "Generating Station" means any one of such separately. "Indenture" means the Trust Indenture, dated as of the same date as this Agreement, between the Issuer and the Trustee, as amended or supplemented from time to time. "Insurance Agreement" means the Insurance Agreement, dated as of the same date as this Agreement, between the Company and Ambac Assurance Corporation, as amended or supplemented from time to time. "Interest Rate for Advances" means the interest rate per year payable on the Bonds. "Loan" means the loan by the Issuer to the Company of the proceeds received from the sale of the Bonds. "Loan Payment Date" means any date on which any Bond Service Charges are due and payable. "Loan Payments" means the amounts required to be paid by the Company in repayment of the Loan pursuant to Section 4.1 hereof. "1954 Code" means the Internal Revenue Code of 1954 as amended from time to time through the date of enactment of the Code. References to the 1954 Code and Sections of the 1954 Code include relevant applicable regulations (including temporary regulations) and proposed regulations thereunder and any successor provisions to those Sections, regulations or proposed regulations. "Notice Address" means: (a) As to the Issuer: Indiana Development Finance Authority One North Capitol, Suite 320 Indianapolis, Indiana 46204 Attention: Executive Director (b) As to the Company: PSI Energy, Inc. 139 East Fourth Street Cincinnati, Ohio 45202 Attention: Treasurer (c) As to the Trustee: Fifth Third Bank, Indiana Fifth Third Center 38 Fountain Square Cincinnati, Ohio 45263 Attention: Corporate Trust Administration or such additional or different address, notice of which is given under Section 8.3 hereof. "Original Bonds" means, collectively, the Series 1982 Bonds, the Series 1990 Refunded Bonds and the Series 1993 Bonds. "Person" or words importing persons mean firms, associations, partnerships (including without limitation, general and limited partnerships), limited liability entities, joint ventures, societies, estates, trusts, corporations, public or governmental bodies, other legal entities and natural persons. "Pollution Control Facility" or "Pollution Control Facilities" means those facilities which are pollution control facilities as defined in Section 24 of Chapter 10.9 of the Act and those facilities described in Section 103(b)(4)(F) of the Internal Revenue Code of 1954, as amended, and the final, proposed and temporary regulations promulgated thereunder and other administrative authority in effect. "Prior Bonds" means the Original Bonds and the Series 1990 Princeton Refunded Bonds. "Project" or "Project Facilities" means the real, personal or real and personal property, including undivided or other interests therein, identified in the Project Description, financed with the proceeds of the Original Bonds. "Project Description" means collectively the description of the Project Facilities originally financed with the proceeds of the Original Bonds, attached hereto as Exhibit A. "Project Purposes" means the purposes of Pollution Control Facilities as described in the Act and as particularly described in Exhibit A hereto. "Project Site" means with respect to the various components of the Project, certain pollution control, solid waste disposal and sewage facilities of the Company at its following facilities: (a) the Cayuga Generating Station, State Road 63, Cayuga, Vermillion County, Indiana; (b) the Edwardsport Generating Station, State Road 67, Edwardsport, Knox County, Indiana; (c) the Gallagher Generating Station, Jackson Street, New Albany, Floyd County, Indiana; (d) the Gibson Generating Station, Highway 64 West, Gibson County, Indiana; (e) the Noblesville Generating Station, 21225 Riverwood Avenue, Noblesville, Hamilton County, Indiana; and (f) the Wabash River Generating Station, Bolton Road, Terre Haute, Vigo County, Indiana. "Refunded Bonds" means, collectively, the Series 1990 Princeton Refunded Bonds, the Series 1990 Refunded Bonds and the Series 1993A Refunded Bonds. "Refunded Bonds Indenture" means, collectively, the Trust Indenture dated as of March 15, 1990 between the City of Princeton, Indiana, and INB National Bank (as predecessor to Bank One Trust Company, NA, the Trust Indenture dated as of March 15, 1990 between the Indiana Employment Development Commission, as predecessor to the Issuer, and INB National Bank, as predecessor to Bank One Trust Company, NA and the Trust Indenture dated as of February 15, 1993 between the Issuer and Bank One, Indianapolis, NA as predecessor to Bank One Trust Company, NA. "Refunded Bonds Loan Agreement" means, collectively, the Loan Agreement dated as of March 15, 1990 between the City of Princeton, Indiana and Public Service Company of Indiana, Inc., as predecessor to the Company, the Loan Agreement dated as of March 15, 1990 between the Indiana Employment Development Commission, as predecessor to the Issuer, and Public Service Company of Indiana, Inc., as predecessor to the Company and the Loan Agreement dated as of February 15, 1993, between the Issuer and the Company. "Refunded Bonds Trustee" means Bank One Trust Company, NA (as successor to Bank One, Indianapolis, National Association), as trustee under the Refunded Bonds Indenture. "Revenues" means (a) the Loan Payments, (b) all other moneys received or to be received by the Issuer (excluding any fees paid to the Issuer) or the Trustee in respect of repayment of the Loan, including without limitation, all moneys and investments in the Bond Fund, (c) any moneys and investments in the Refunding Fund, and (d) all income and profit from the investment of the foregoing moneys. The term "Revenues" does not include any moneys or investments in the Rebate Fund or the Bond Purchase Fund. "Series 1982 Bonds" means the City of Princeton, Indiana 12-3/8% Pollution Control Revenue Bonds, 1982 Series A (Public Service Company of Indiana, Inc. Project C), in the aggregate principal amount of $10,000,000. "Series 1982 Indenture" means the Trust Indenture dated April 1, 1982 between the City of Princeton, Indiana and the American Fletcher National Bank and Trust Company, as predecessor to Bank One, Indianapolis, NA and Bank One Trust Company, NA. "Series 1982 Loan Agreement" means the Loan Agreement dated as of April 1, 1982 between the City of Princeton, Indiana and Public Service Company of Indiana, Inc., as predecessor to PSI Energy, Inc. "Series 1990 Princeton Refunded Bonds" means the City of Princeton, Indiana 7-3/8% Pollution Control Refunding Revenue Bonds, 1990 Series (Public Service Company of Indiana, Inc. Project C), issued and outstanding in the aggregate principal amount of $10,000,000. "Series 1990 Refunded Bonds" means the Indiana Employment Development Commission 7-1/2% Environmental Revenue Bonds, Series 1990 (Public Service Company of Indiana, Inc.), issued and outstanding in the aggregate principal amount of $14,250,000. "Series 1993 Bonds" means, collectively, the Series 1993A Bonds and the Series 1993B Bonds. "Series 1993A Bonds" means the Indiana Development Finance Authority 5.60% Environmental Revenue Bonds, Series 1993A (PSI Energy, Inc.), issued in the aggregate principal amount of $30,000,000 and currently outstanding in the aggregate principal amount of $29,795,000. "Series 1993A Refunded Bonds" means the Series 1993A Bonds to be refunded by the Series 2000A Refunding Bonds in the aggregate amount of $29,775,000. "Series 1993B Bonds" means the Indiana Development Finance Authority 5 3/4% Environmental Revenue Bonds, Series 1993B (PSI Energy, Inc.), issued in the aggregate principal amount of $50,000,000. "Series 2000A Refunding Bonds" means the Indiana Development Finance Authority Environmental Refunding Revenue Bonds, Series 2000A (PSI Energy, Inc. Project), in the aggregate principal amount of $44,025,000. "Series 2000B Refunding Bonds" means the Indiana Development Finance Authority Environmental Refunding Revenue Bonds, Series 2000B (PSI Energy, Inc. Project), in the aggregate principal amount of $10,000,000. "Sewage Facility" or "Sewage Facilities" means those facilities defined as pollution control facilities in Section 24 of Chapter 10.9 of the Act and those facilities described in Section 142(a)(5) of the Code. "Solid Waste Disposal Facility" or "Solid Waste Disposal Facilities" means those facilities defined as pollution control facilities in Section 24 of Chapter 10.9 of the Act and those facilities described in Section 142(a)(6) of the Code. "State" means the State of Indiana. "Trustee" means Fifth Third Bank, Indiana located in Indianapolis, Indiana, a corporation duly organized and validly existing under the laws of the State, until a successor Trustee shall have become such pursuant to the applicable provisions of the Indenture, and thereafter "Trustee" shall mean the successor Trustee. "Principal Office" of the Trustee shall mean the principal corporate trust office of the Trustee, which office at the date of issuance of the Bonds is located at its Notice Address. "Unassigned Issuer Rights" means all of the rights of the Issuer to receive Additional Payments under Section 4.2 hereof, to inspection pursuant to Section 5.1 hereof, to be held harmless and indemnified under Section 5.9 hereof, to be reimbursed for attorney's fees and expenses under Section 7.4 hereof and to give or withhold consent to amendments, changes, modifications, alterations and termination of this Agreement under Section 8.6 hereof and its right to enforce such rights. SECTION 1.3. INTERPRETATION. Any reference herein to the State, to the Issuer or to any member or officer of either includes entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their functions. Any reference to a section or provision of the Constitution of the State or the Act, or to a section, provision or chapter of the Indiana Code, or to any statute of the United States of America, includes that section, provision or chapter as amended, modified, revised, supplemented or superseded from time to time; provided, that no amendment, modification, revision, supplement or superseding section, provision or chapter shall be applicable solely by reason of this provision, if it constitutes in any way an impairment of the rights or obligations of the Issuer, the State, the Holders, the Trustee, the Registrar, the Auction Agent, an Authenticating Agent, a Paying Agent, Ambac Assurance, the Remarketing Agent, or the Company under this Agreement, the Indenture or the Bonds. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa; the terms "hereof", "hereby", "herein", "hereto", "hereunder" and similar terms refer to this Agreement; and the term "hereafter" means after, and the term "heretofore" means before, the date of delivery of the Bonds. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise. SECTION 1.4. CAPTIONS AND HEADINGS. The captions and headings in this Agreement are used solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs or subparagraphs or clauses hereof. (End of Article I) ARTICLE II REPRESENTATIONS SECTION II.1. REPRESENTATIONS OF THE ISSUER. The Issuer represents that: (a) it is a body corporate and politic duly organized and validly existing under the laws of the State; (b) it has duly accomplished all conditions necessary to be accomplished by it prior to the issuance and delivery of the Bonds and the execution and delivery of this Agreement and the Indenture; (c) it is not in violation of or in conflict with any provisions of the laws of the State which would impair its ability to carry out its obligations contained in this Agreement or the Indenture; (d) it is empowered to enter into the transactions contemplated by this Agreement and the Indenture; (e) it has duly authorized the execution, delivery and performance of this Agreement and the Indenture; (f) it will do all things in its power in order to maintain its existence or assure the assumption of its obligations under this Agreement and the Indenture by any successor municipal corporation; and (g) following reasonable notice, a public hearing was held on April 18, 2000 with respect to the issuance of the Bonds as required by Section 147(f) of the Code. SECTION II.2. NO WARRANTY BY ISSUER OF CONDITION OR SUITABILITY OF THE PROJECT. The Issuer makes no warranty, either express or implied, as to the suitability or utilization of the Project for the Project Purposes, or as to the condition of the Project Facilities or that the Project Facilities are or will be suitable for the Company's purposes or needs. SECTION II.3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. The Company represents that: (a) The Company has been duly incorporated and is validly existing as a corporation under the laws of the State, with power and authority (corporate and other) to own its properties and conduct its business, to execute and deliver this Agreement and to perform its obligations under this Agreement. (b) This Agreement has been duly authorized, executed and delivered by the Company and this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (c) The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby will not violate any provision of law or regulation applicable to the Company, or of any writ or decree of any court or governmental instrumentality, or of the Amended Articles of Consolidation, as amended, or the By-laws of the Company, or of any mortgage, indenture, contract, agreement or other undertaking to which the Company is a party or which purports to be binding upon the Company or upon any of its assets. (d) The Project constitutes and will constitute either land or property of a character subject to the allowance for depreciation for purposes of the Code, and all expenditures for the cost of constructing the Project have been charged to a capital account for federal income tax purposes (or would have been so charged either with or but for a proper election to deduct such amounts). (e) No other bonds are being sold for or on behalf of the Company or any related person thereto at substantially the same time (within less than 15 days) pursuant to a common plan of financing and which are payable from the same source of funds determined without regard to guarantees from unrelated parties. (f) No portion of the Project had been acquired and placed in operation at substantially the level for which it was designed for more than one year prior to the date of delivery of the Original Bonds series which financed such portion of the Project. (g) The weighted average maturity of the Series 2000A Refunding Bonds does not exceed 120% of the average economic life of the Project Facilities originally financed by the Series 1990 Refunded Bonds and the portion of the Series 1993 Bonds allocable to the Series 1993A Refunded Bonds. (h) The weighted average maturity of the Series 2000B Refunding Bonds does not exceed 120% of the average economic life of the Project Facilities originally financed by the Series 1982 Bonds. (i) The portions of the Project (i) which are Pollution Control Facilities were designed to meet or exceed applicable federal, state and local requirements then in effect for the control of air pollution and have been and will be used to abate or control air pollution or contamination by removing, altering, disposing of or storing pollutants, contaminants, wastes or heat, and the Pollution Control Facilities components of the Project as designed constitute "air pollution control facilities" or facilities functionally related or subordinate thereto within the meaning of Section 103(b)(4)(F) of the 1954 Code, and the final, temporary and proposed regulations promulgated thereunder and other administrative authority in effect; (ii) which are Solid Waste Disposal Facilities have been and will be used for the collection, storage, treatment, utilization, processing or final disposal of solid waste and constitute "solid waste disposal facilities" within the meaning of Section 142(a)(6) of the Code and the regulations applicable thereto; and (iii) which are Sewage Facilities have been and will be used for the collection and treatment of sewage and constitute "sewage facilities" within the meaning of Section 142(a)(5) of the Code and the regulations applicable thereto. (j) The Project has been and will be used wholly to control pollution and dispose of solid waste and sewage and was designed for no significant purpose other than pollution control and disposal of solid waste and sewage, and the Project was not designed to result in an increase in production or capacity, in a material extension of the useful life of the Generating Stations or, in the case of the portions of the Project which are Pollution Control Facilities, in the recovery of by-products of any substantial value. (k) Substantially all (at least 90%) of the proceeds of the Series 1982 Bonds was used to provide Pollution Control Facilities and Solid Waste Disposal Facilities. (l) Substantially all (at least 95%) of the proceeds of each of the Series 1990 Refunded Bonds and the Series 1993 Bonds was used to provide "Solid Waste Disposal Facilities" and "Sewage Facilities". (m) Acquisition, construction and installation or the incurrence of Cost of Construction (as defined in the Series 1982 Loan Agreement for the Series 1982 Bonds) for the Pollution Control Facilities portion of the Project or any separate facility thereof was not commenced prior to the adoption of the resolution of the City of Princeton, Indiana, on October 16, 1978; and acquisition, construction and installation or the incurrence of Cost of Construction for the Solid Waste Disposal Facilities and Sewage Facilities portion of the Project or any separate facility thereof was not commenced prior to the adoption of the applicable resolution of the Issuer on April 18, 1988 or February 15, 1993. (n) The entire proceeds of each of the Original Bonds series were spent for the Project Facilities financed pursuant to the respective Series 1982 Loan Agreement and Refunded Bonds Loan Agreement for each Original Bonds series or to pay costs of issuance of the Original Bonds. The proceeds of the Bonds (other than any accrued interest thereon) will be used exclusively to refund the Refunded Bonds; any investment earnings on such proceeds of the Bonds will be used to pay principal, premium or interest on the Refunded Bonds; and none of the proceeds of the Bonds will be used to pay for any costs of issuance of the Bonds. The principal amount of the Bonds does not exceed the outstanding principal amount of the Refunded Bonds. The proceeds of the Bonds will be used to retire the Refunded Bonds not later than 90 days after the date of issuance of the Bonds. (o) It has caused the Project to be substantially completed. The Project constitutes Pollution Control Facilities under the Act and is consistent with the purposes of the Act. The Project is being, and the Company will cause the Project to be, operated and maintained in such manner to conform with all applicable zoning, planning, building, environmental and other applicable governmental regulations and all permits, variances and orders issued or granted pursuant thereto, including the permit-to-install for the Project, which permits, variances and orders have not been withdrawn or otherwise suspended, and to be consistent with the Act. (p) It has used or operated or has caused to be used or operated, and presently intends to use or operate or cause to be used or operated the Project Facilities in a manner consistent with the Project Purposes until the date on which the Bonds have been fully paid and knows of no reason why the Project Facilities will not be so operated. The Company does not intend to sell or otherwise dispose of the Project or any portion thereof. (q) None of the proceeds of each of the Prior Bonds was used and none of the proceeds of the Bonds will be used to provide any airplane, skybox or other private luxury box, or health club facility, any facility primarily used for gambling or any store the principal business of which is the sale of alcoholic beverages for consumption off premises. (r) Less than 25% of the proceeds of each of the Prior Bonds was used to acquire land or any interest therein, and none of such proceeds was used to provide land which was used for farming purposes. (s) None of the proceeds of each of the Prior Bonds was used to acquire existing property or any interest therein unless the first use of such property was by the Company and was pursuant to and followed such acquisition. (t) At no time will any funds constituting gross proceeds of the Bonds be used in a manner as would constitute failure of compliance with Section 148 of the Code. (u) The Prior Bonds were not, and the Bonds will not be, "federally guaranteed" within the meaning of Section 149(b) of the Code. (v) It is not anticipated that as of the date hereof, there will be created any "replacement proceeds", within the meaning of Section 1.148-1(c) of the Treasury Regulations, with respect to the Bonds; however, in the event that any such replacement proceeds are deemed to have been created, such amounts will be invested in compliance with Section 148 of the Code. (w) On the date of issuance and delivery of each of the Prior Bonds, the Company reasonably expected that at least 85% of the respective spendable proceeds of each of the Prior Bonds would be expended to carry out the respective governmental purpose of each such issue within the 3-year period beginning on the issue date of such issue and the Company reasonably expected that the proceeds of each of the Prior Bonds would be spent in accordance with the spending requirements of Section 149(g)(2) of the Code. The spendable proceeds of each of the Prior Bonds have been fully expended prior to the date of issuance of the Bonds. The proceeds of each of the Prior Bonds series were not invested in nonpurpose investments having a substantially guaranteed yield for four years or more. (x) The information furnished by the Company and used by the issuer in preparing the certifications and statements pursuant to Sections 148 and 149(e) of the Code or their statutory predecessors with respect to each of the Prior Bonds was accurate and complete as of the respective date of issuance thereof, and the information furnished by the Company and used by the Issuer in preparing the certification pursuant to Section 148 of the Code and in preparing the information statement pursuant to Section 149(e) of the Code, both referred to in the Bond Resolution, will be accurate and complete as of the date of issuance of the Bonds. (y) The Project Facilities do not include any office except for offices (i) located on the Project Site and (ii) not more than a de minimis amount of the functions to be performed at which is not directly related to the day-to-day operations of the Project Facilities. (End of Article II) ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS SECTION III.1. ACQUISITION, CONSTRUCTION AND INSTALLATION. The Company represents that it has caused the Project Facilities to be acquired, constructed and installed on the respective Project Sites, substantially in accordance with the Project Description and in conformance with all applicable zoning, planning, building and other similar regulations of all governmental authorities having jurisdiction over the Project and all permits, variances and orders issued in respect of the Project by EPA, and that the proceeds derived from the Series 1982 Bonds and Refunded Bonds, including any investment thereof, were expended in accordance with the respective Series 1982 Indenture or respective Series 1982 Loan Agreement or Refunded Bonds Indenture and the Refunded Bonds Loan Agreement. SECTION III.2. PROJECT DESCRIPTION. The Project Description may be changed from time to time by, or with the consent of, the Company provided that any such change shall also be filed with the Issuer and provided further that no change in the Project Description shall materially change the function of the Project Facilities unless the Trustee shall have received (i) an Engineer's certificate that such changes will not impair the significance or character of the Project Facilities as Pollution Control Facilities, Solid Waste Disposal Facilities and Sewage Facilities and (ii) an Opinion of Bond Counsel or ruling of the Internal Revenue Service to the effect that such amendment will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes. SECTION III.3. ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS. To provide funds to make the Loan to the Company to assist the Company in the refunding of the Refunded Bonds, the Issuer will issue, sell and deliver the Bonds to the Original Purchaser. The Bonds will be issued pursuant to the Indenture in the aggregate principal amount, will bear interest, will mature and will be subject to redemption as set forth therein. The Company hereby approves the terms and conditions of the Indenture and the Bonds, and the terms and conditions under which the Bonds will be issued, sold and delivered. The Company hereby requests that the Issuer notify the Refunded Bonds Trustee (unless the Refunded Bonds Trustee has already received such notice), pursuant to the Refunded Bonds Indenture, that the entire outstanding principal amount of the Refunded Bonds is to be redeemed pursuant to the following chart, plus accrued interest to that redemption date. REFUNDED BONDS REDEMPTION DATE REDEMPTION PRICE Series 1990 Princeton June 19, 2000 102% Refunded Bonds Series 1990 Refunded Bonds June 19, 2000 102% Series 1993A Refunded Bonds June 19, 2000 102% The proceeds from the sale of the Bonds (other than any accrued interest) shall be loaned to the Company to assist the Company in refunding the Refunded Bonds in order to reduce the interest cost payable by the Company; those proceeds shall be deposited in the Refunding Fund. On the applicable redemption date, all moneys on deposit in the Refunding Fund shall be disbursed by the Trustee as provided in Section 5.02 of the Indenture to the Refunded Bonds Trustee for deposit in the Bond Fund created in the Refunded Bonds Indenture and applied by the Refunded Bonds Trustee to the payment of principal of and interest on the Refunded Bonds on their redemption date. The Company shall pay to the Refunded Bonds Trustee prior to the date of redemption of such series of Refunded Bonds such additional amounts as shall be required to pay in full on such date the entire amount of principal of, premium and interest due on the Refunded Bonds. Pending disbursement pursuant to this Section, the proceeds so deposited in the Refunding Fund, together with any investment earnings thereon, shall constitute a part of the Revenues assigned by the Issuer to the Trustee for the payment of Bond Service Charges. Any accrued interest shall be deposited in the Bond Fund. SECTION III.4. INVESTMENT OF FUND MONEYS. At the oral (confirmed promptly in writing) or written request of the Company, any moneys held as part of the Bond Fund, the Refunding Fund or the Rebate Fund shall be invested or reinvested by the Trustee in Eligible Investments; provided, that such moneys shall be invested or reinvested by the Trustee only in Eligible Investments which shall mature, or which shall be subject to redemption by the holder thereof at the option of such holder, not later than the date upon which the moneys so invested are needed to make payments from those Funds. The Issuer (to the extent it retained or retains direction or control) and the Company each hereby represents that the investment and reinvestment and the use of the proceeds of the Refunded Bonds were restricted in such manner and to such extent as was necessary so that the Refunded Bonds would not constitute arbitrage bonds under Section 148 of the Code or its statutory predecessor and each hereby covenants that it will restrict that investment and reinvestment and the use of the proceeds of the Bonds in such manner and to such extent, if any, as may be necessary so that the Bonds will not constitute arbitrage bonds under Section 148 of the Code. The Company shall provide the Issuer with, and the Issuer may base its certificate and statement, each as authorized by the Bond Resolution, on a certificate of an appropriate officer, employee or agent of or consultant to the Company for inclusion in the transcript of proceedings for the Bonds, setting forth the reasonable expectations of the Company on the date of delivery of and payment for the Bonds regarding the amount and use of the proceeds of the Bonds and the facts, estimates and circumstances on which those expectations are based. SECTION III.5. REBATE FUND. To the extent required by Section 5.08 of the Indenture, within five days after the end of the fifth Bond Year (as defined in the Indenture) and every fifth Bond Year thereafter, and within five days after payment in full of all outstanding Bonds, the Company shall calculate the amount of Excess Earnings (as defined in the Indenture) as of the end of that Bond Year or the date of such payment and shall notify the Trustee of that amount. If the amount then on deposit in the Rebate Fund created under the Indenture is less than the amount of Excess Earnings (computed by taking into account the amount or amounts, if any, previously paid to the United States pursuant to Section 5.08 of the Indenture and this Section), the Company shall, within five days after the date of the aforesaid calculation, pay to the Trustee for deposit in the Rebate Fund an amount sufficient to cause the Rebate Fund to contain an amount equal to the Excess Earnings. The obligation of the Company to make such payments shall remain in effect and be binding upon the Company notwithstanding the release and discharge of the Indenture. The Company shall obtain and keep such records of the computations made pursuant to this Section as are required under Section 148(f) of the Code. (End of Article III) ARTICLE IV LOAN BY ISSUER; LOAN PAYMENTS; ADDITIONAL PAYMENTS; MUNICIPAL BOND INSURANCE POLICY AND LIQUIDITY FACILITY SECTION IV.1. LOAN REPAYMENT. Upon the terms and conditions of this Agreement, the Issuer agrees to make the Loan to the Company. The proceeds of the Loan shall be deposited with the Trustee pursuant to Section 3.3 hereof. In consideration of and in repayment of the Loan, the Company shall make, as Loan Payments, to the Trustee for the account of the Issuer, payments which correspond, as to time, and are equal in amount as of the Loan Payment Date, to the corresponding Bond Service Charges payable on the Bonds. All Loan Payments received by the Trustee shall be held and disbursed in accordance with the provisions of the Indenture and this Agreement for application to the payment of Bond Service Charges. The Company shall be entitled to a credit against the Loan Payments required to be made on any Loan Payment Date to the extent that the balance of the Bond Fund is then in excess of amounts required (a) for the payment of Bonds theretofore matured or theretofore called for redemption, or to be called for redemption pursuant to Section 6.1 hereof (b) for the payment of interest for which checks or drafts have been drawn and mailed by the Trustee or Paying Agent, and (c) to be deposited in the Bond Fund by the Indenture for use other than for the payment of Bond Service Charges due on that Loan Payment Date. Except for such interest of the Company as may hereafter arise pursuant to Section 8.2 hereof or Sections 5.06 or 5.07 of the Indenture, the Company and the Issuer each acknowledge that neither the Company, the State nor the Issuer has any interest in the Bond Fund or the Bond Purchase Fund, and any moneys deposited therein shall be in the custody of and held by the Trustee in trust for the benefit of the Holders. SECTION IV.2. ADDITIONAL PAYMENTS. The Company shall pay to the Issuer, as Additional Payments hereunder, any and all costs and expenses incurred or to be paid by the Issuer in connection with the issuance and delivery of the Bonds or otherwise related to actions taken by the Issuer under this Agreement or the Indenture. The Company shall pay the Administration Expenses to the Trustee, the Registrar, the Remarketing Agent, the Auction Agent, and any Paying Agent or Authenticating Agent, as appropriate, as Additional Payments hereunder. The Company may, without creating a default hereunder, contest in good faith the reasonableness of any such cost or expense incurred or to be paid by the Issuer and any Administration Expenses claimed to be due to the Trustee, the Registrar, the Auction Agent, the Remarketing Agent, any Paying Agent or any Authenticating Agent. In the event the Company should fail to pay any Loan Payments, Additional Payments or Administration Expenses when due, the payment in default shall continue as an obligation of the Company until the amount in default shall have been fully paid together with interest thereon during the default period at the Interest Rate for Advances. SECTION IV.3. PLACE OF PAYMENTS. The Company shall make all Loan Payments directly to the Trustee at its Principal Office. Additional Payments shall be made directly to the person or entity to whom or to which they are due. SECTION IV.4. OBLIGATIONS UNCONDITIONAL. The obligations of the Company to make Loan Payments, Additional Payments and any payments required of the Company under Section 5.08 of the Indenture shall be absolute and unconditional, and the Company shall make such payments without abatement, diminution or deduction regardless of any cause or circumstances whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim which the Company may have or assert against the Issuer, the Trustee, the Registrar, the Remarketing Agent, the Auction Agent, the Paying Agent or any other Person. SECTION IV.5. ASSIGNMENT OF REVENUES AND AGREEMENT. To secure the payment of Bond Service Charges, the Issuer shall, by the Indenture, (a) absolutely and irrevocably assign to the Trustee, its successors in trust and its and their assigns forever, all of the Issuer's rights and remedies under this Agreement (except for the Unassigned Issuer Rights), and (b) grant a security interest to the Trustee, its successors in trust and its and their assigns forever, in all of its rights to and interest in the Revenues including, without limitation, all Loan Payments and other amounts receivable by or on behalf of the Issuer under the Agreement in respect of repayment of the Loan. The Company hereby agrees and consents to those assignments and that grant of a security interest. SECTION IV.6. MUNICIPAL BOND INSURANCE POLICY; LIQUIDITY FACILITY; CANCELLATION. (a) The Company agrees to provide for the payment of the principal of and interest on the Bonds by causing the Municipal Bond Insurance Policy to be delivered to the Trustee on the date of the delivery of the Bonds. (b) The Company may provide for the delivery of a Liquidity Facility. (c) The Company may cancel any Liquidity Facility then in effect at such time and direct the Trustee in writing to surrender such Liquidity Facility to the Liquidity Facility Issuer by which it was issued in accordance with the Indenture; provided, that no such cancellation shall become effective and no such surrender shall take place until all Bonds subject to purchase pursuant to Section 4.07(d) of the Indenture have been so purchased or redeemed with the proceeds of such Liquidity Facility. SECTION IV.7. COMPANY'S OPTION TO ELECT RATE PERIOD; CHANGES IN AUCTION DATE AND LENGTH OF AUCTION PERIODS. The Company shall have, and is hereby granted, the option to elect to convert on any Conversion Date the interest rate borne by the Bonds to another Variable Rate or return to the Auction Rate, to be effective for a Rate Period pursuant to the provisions of Article II of the Indenture and subject to the terms and conditions set forth therein. The Company also shall have the option to direct the change of Auction Dates and/or the length of Auction Rate Periods in accordance with the Indenture. To exercise such options, the Company shall give the written notice required by the Indenture. SECTION IV.8. COMPANY'S OBLIGATION TO PURCHASE BONDS. The Company hereby agrees to pay or cause to be paid to the Trustee or the Paying Agent, on or before each day on which Bonds may be or are required to be tendered for purchase, amounts equal to the amounts to be paid by the Trustee or the Paying Agent with respect to the Bonds tendered for purchase on such dates pursuant to Article IV of the Indenture; provided, however, that the obligation of the Company to make any such payment under this Section shall be reduced by the amount of (A) moneys paid by the Remarketing Agent as proceeds of the remarketing of such Bonds by the Remarketing Agent, (B) moneys drawn under any Liquidity Facility, for the purpose of paying such purchase price and (C) other moneys made available by the Company, as set forth in Section 4.08(b)(ii) of the Indenture. (End of Article IV) ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS SECTION V.1. RIGHT OF INSPECTION. The Company agrees that, subject to reasonable security and safety regulations and to reasonable requirements as to notice, the Issuer and the Trustee and their or any of their respective duly authorized agents shall have the right at all reasonable times to enter upon the Project Site to examine and inspect the Projects. SECTION V.2. MAINTENANCE. The Company shall use its best efforts to keep and maintain the Project Facilities, including all appurtenances thereto and any personal property therein or thereon, in good repair and good operating condition so that the Project Facilities will continue to constitute Pollution Control Facilities, Sewage Facilities or Solid Waste Disposal Facilities, for the purposes of the operation thereof as required by Section 5.4 hereof. So long as such shall not be in violation of the Act or impair the character of the Project Facilities as Pollution Control Facilities, Sewage Facilities or Solid Waste Disposal Facilities, and provided there is continued compliance with applicable laws and regulations of governmental entities having jurisdiction thereof, the Company shall have the right to remodel the Project Facilities or make additions, modifications and improvements thereto, from time to time as it, in its discretion, may deem to be desirable for its uses and purposes, the cost of which remodeling, additions, modifications and improvements shall be paid by the Company and the same shall, when made, become a part of the Project Facilities. SECTION V.3. REMOVAL OF PORTIONS OF THE PROJECT FACILITIES. The Company shall not be under any obligation to renew, repair or replace any inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary portions of the Project Facilities, except that, subject to Section 5.4 hereof, it will use its best efforts to ensure the continued character of the Project Facilities as Pollution Control Facilities, Sewage Facilities or Solid Waste Disposal Facilities. The Company shall have the right from time to time to substitute personal property or fixtures for any portions of the Project Facilities, provided that the personal property or fixtures so substituted shall not impair the character of the Project Facilities as Pollution Control Facilities, Sewage Facilities or Solid Waste Disposal Facilities. Any such substituted property or fixtures shall, when so substituted, become a part of the Project Facilities. The Company shall also have the right to remove any portion of the Project Facilities, without substitution therefor; provided, that the Company shall deliver to the Trustee a certificate signed by an Engineer describing said portion of the Project Facilities and stating that the removal of such property or fixtures will not impair the character of the Project Facilities as Pollution Control Facilities, Sewage Facilities or Solid Waste Disposal Facilities. SECTION V.4. OPERATION OF PROJECT FACILITIES. The Company will, subject to its obligations and rights to maintain, repair or remove portions of the Project Facilities, as provided in Sections 5.2 and 5.3 hereof, use its best efforts to continue operation of the Project Facilities so long as and to the extent that operation thereof is required to comply with laws or regulations of governmental entities having jurisdiction thereof or unless the Issuer shall have approved the discontinuance of such operation (which approval shall not be unreasonably withheld). The Company agrees that it will, within the design capacities thereof, use its best efforts to operate and maintain the Project Facilities in accordance with all applicable, valid and enforceable rules and regulations of governmental entities having jurisdiction thereof; provided, that the Company reserves the right to contest in good faith any such laws or regulations. Nothing in this Agreement shall prevent or restrict the Company, in its sole discretion, at any time, from discontinuing or suspending either permanently or temporarily its use of any facility of the Company served by the Project Facilities and in the event such discontinuance or suspension shall render unnecessary the continued operation of the Project Facilities, the Company shall have the right to discontinue the operation of the Project Facilities during the period of any such discontinuance or suspension. SECTION V.5. INSURANCE. The Company shall cause the Project Facilities to be kept insured against fire or other casualty to the extent that property of similar character is usually so insured by companies similarly situated and operating like properties, to a reasonable amount by reputable insurance companies or, in lieu of or supplementing such insurance in whole or in part, adopt some other method or plan of protection against loss by fire or other casualty at least equal in protection to the method or plan of protection against loss by fire or other casualty of companies similarly situated and operating properties subject to similar or greater fire or other hazards or on which properties an equal or higher primary fire or other casualty insurance rate has been set by reputable insurance companies. SECTION V.6. WORKERS' COMPENSATION COVERAGE. Throughout the term of this Agreement, the Company shall comply, or cause compliance, with applicable workers' compensation laws of the State. SECTION V.7. DAMAGE; DESTRUCTION AND EMINENT DOMAIN. If, during the term of this Agreement, the Project Facilities or any portion thereof is destroyed or damaged in whole or in part by fire or other casualty, or title to, or the temporary use of, the Project Facilities or any portion thereof shall have been taken by the exercise of the power of eminent domain, the Company (unless it shall have exercised its option to prepay the Loan Payments pursuant to Section 6.2 hereof) shall promptly repair, rebuild or restore the portion of the Project Facilities so damaged, destroyed or taken with such changes, alterations and modifications (including the substitution and addition of other property) as may be necessary or desirable for the administration and operation of the Project Facilities as Pollution Control Facilities, Sewage Facilities or Solid Waste Disposal Facilities and as shall not impair the character or significance of the Project Facilities as furthering the purposes of the Act. SECTION V.8. COMPANY TO MAINTAIN ITS CORPORATE EXISTENCE; CONDITIONS UNDER WHICH EXCEPTIONS PERMITTED. The Company agrees that, during the term of this Agreement, it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it; provided that the Company may, without violating its agreement contained in this Section, consolidate with or merge into another corporation, or permit one or more other corporations to consolidate with or merge into it, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entirety and thereafter dissolve, provided the surviving, resulting or transferee corporation, as the case may be (if other than the Company), is a corporation organized and existing under the laws of one of the states of the United States, and assumes in writing all of the obligations of the Company herein, and, if not an Indiana corporation, is qualified to do business in the State. If consolidation, merger or sale or other transfer is made as provided in this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section. SECTION V.9. INDEMNIFICATION. The Company releases the Issuer from, agrees that the Issuer shall not be liable for, and indemnifies the Issuer against, all liabilities, claims, costs and expenses imposed upon or asserted against the Issuer on account of: (a) any loss or damage to property or injury to or death of or loss by any person that may be occasioned by any cause whatsoever pertaining to the construction, maintenance, operation and use of the Project Facilities; (b) any breach or default on the part of the Company in the performance of any covenant or agreement of the Company under this Agreement or any related document, or arising from any act or failure to act by the Company, or any of its agents, contractors, servants, employees or licensees; (c) the authorization, issuance and sale of the Bonds, and the provision of any information furnished in connection therewith concerning the Project Facilities or the Company (including, without limitation, any information furnished by the Company for inclusion in any certifications made by the Issuer under Section 3.4 hereof or for inclusion in, or as a basis for preparation of, the Form 8038 information statement to be filed by the Issuer); and (d) any claim or action or proceeding with respect to the matters set forth in (a), (b) and (c) above brought thereon. The Company agrees to indemnify the Trustee, the Paying Agent, the Remarketing Agent, the Auction Agent, and the Registrar (each hereinafter referred to in this section as an "indemnified party") for and to hold each of them harmless against all liabilities, claims, costs and expenses incurred without negligence or willful misconduct on the part of the indemnified party, on account of any action taken or omitted to be taken by the indemnified party in accordance with the terms of this Agreement, the Bonds or the Indenture or any action taken at the request of or with the consent of the Company, including the costs and expenses of the indemnified party in defending itself against any such claim, action or proceeding brought in connection with the exercise or performance of any of its powers or duties under this Agreement, the Bonds or the Indenture. In case any action or proceeding is brought against the Issuer, or an indemnified party in respect of which indemnity may be sought hereunder, the party seeking indemnity promptly shall give notice of that action or proceeding to the Company, and the Company upon receipt of that notice shall have the obligation and the right to assume the defense of the action or proceeding; provided, that failure of a party to give that notice shall not relieve the Company from any of its obligations under this Section unless that failure prejudices the defense of the action or proceeding by the Company. At its own expense, an indemnified party may employ separate counsel and participate in the defense; provided, however, where it is ethically inappropriate for one firm to represent the interests of the Issuer, and any other indemnified party or parties, the Company shall pay the Issuer's legal expenses in connection with the Issuer's retention of separate counsel. The Company shall not be liable for any settlement made without its consent. The indemnification set forth above is intended to and shall include the indemnification of all affected officials, directors, officers and employees of the Issuer, the Trustee, the Paying Agent, the Remarketing Agent, the Auction Agent, and the Registrar, respectively. That indemnification is intended to and shall be enforceable by the Issuer, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar, respectively, to the full extent permitted by law. SECTION V.10. COMPANY NOT TO ADVERSELY AFFECT EXCLUSION OF INTEREST ON BONDS FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. The Company hereby covenants and represents that it has taken and caused to be taken and shall take and cause to be taken all actions that may be required of it for the interest on the Bonds to be and remain excluded from the gross income of the Holders for federal income tax purposes, and that it has not taken or permitted to be taken on its behalf, and covenants that it will not take, or permit to be taken on its behalf, any action which, if taken, would adversely affect that exclusion under the provisions of the Code. SECTION V.11. USE OF PROJECT FACILITIES. The Issuer agrees that it will not take any action, or cause any action to be taken on its behalf, to interfere with the Company's ownership interest in the Project or to prevent the Company from having possession, custody, use and enjoyment of the Project other than pursuant to Article VII of this Agreement or Article VII of the Indenture. SECTION V.12. ASSIGNMENT BY COMPANY. Notwithstanding any other provision of this Loan Agreement, this Agreement may be assigned in whole or in part by the Company and the Project may be sold or conveyed by the Company without the necessity of obtaining the consent of either the Issuer or the Trustee, subject, however, to each of the following conditions: (a) The Company must provide the Trustee and the Remarketing Agent with an Opinion of Bond Counsel that such action will not affect the exclusion of interest on the Bonds for federal income tax purposes. (b) Ambac Assurance must provide to the Trustee its written consent to such action. (c) The Company shall, within 30 days after execution thereof, furnish or cause to be furnished to the Issuer and the Trustee a true and complete copy of each such assignment together with any instrument of assumption. (d) Any assignment from the Company shall not materially impair fulfillment of the Project Purposes to be accomplished by operation of the Project as herein provided. SECTION V.13. THE DEPOSITORY TRUST COMPANY LETTER OF REPRESENTATION. The Company agrees that it shall cause the Trustee on behalf of the Issuer to fulfill the obligations set forth in the Depository Trust Company Letter of Representation for the Bonds. (End of Article V) ARTICLE VI REDEMPTION SECTION VI.1. OPTIONAL REDEMPTION. Provided no Event of Default shall have occurred and be subsisting, at any time and from time to time, the Company may deliver moneys to the Trustee in addition to Loan Payments or Additional Payments required to be made and direct the Trustee to use the moneys so delivered for the purpose of calling Bonds for optional redemption in accordance with the applicable provisions of the Indenture providing for optional redemption at the redemption price stated in the Indenture. Pending application for those purposes, any moneys so delivered shall be held by the Trustee in a special account in the Bond Fund and delivery of those moneys shall not, except as set forth in Section 4.1 hereof, operate to abate or postpone Loan Payments or Additional Payments otherwise becoming due or to alter or suspend any other obligations of the Company under this Agreement. SECTION V1.2. EXTRAORDINARY OPTIONAL REDEMPTION. The Company shall have, subject to the conditions hereinafter imposed, the option during a Term Rate Period to direct the redemption of the Bonds in whole upon the occurrence of the event described below in paragraph (c) and in part upon the occurrence of the other events described below in accordance with the applicable provisions of the Indenture. In the event that any of the events described below affect less than all of the Project Facilities and the Generating Stations which they serve, the Bonds may be redeemed in an amount equal to the outstanding principal amount of the Bonds multiplied by the allocable percentage figure for each Project Facility, to-wit: 50.5% for Unit 4 of the Gibson Generating Station, 19.0% for Unit 2 of the Gibson Generating Station, 18.5% for Unit 5 of the Gibson Generating Station, 8.5% for Wabash River Generating Station, 1.5% for the Noblesville Generating Station, 1.0% for the Edwardsport Generating Station, 1.0% for the Cayuga Generating Station, and 0.0% for the Gallagher Generating Station. (a) One or more of the Project Facilities or the Generating Stations which they serve shall have been damaged or destroyed to such an extent that (1) such Project Facilities or such Generating Stations cannot reasonably be expected to be restored, within a period of six consecutive months, to the condition thereof immediately preceding such damage or destruction or (2) the Company is reasonably expected to be prevented from carrying on its normal use and operation of such Project Facilities or such Generating Stations for a period of six consecutive months. (b) Title to, or the temporary use of, all or a significant part of one or more of the Project Facilities or the Generating Stations which they serve shall have been taken under the exercise of the power of eminent domain to such an extent (1) that such Project Facilities or such Generating Stations cannot reasonably be expected to be restored within a period of six consecutive months to a condition of usefulness comparable to that existing prior to the taking or (2) the Company is reasonably expected to be prevented from carrying on its normal use and operation of such Project Facilities or such Generating Stations for a period of six consecutive months. (c) As a result of any changes in the Constitution of the State, the Constitution of the United States of America or any state or federal laws or as a result of legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after any contest thereof by the Issuer or the Company in good faith, this Agreement shall have become void or unenforceable or impossible of performance in accordance with the intent and purpose of the parties as expressed in this Agreement. (d) Unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Company with respect to one or more of the Project Facilities or the Generating Stations which they serve or the operation thereof, including, without limitation, the imposition of federal, state or other ad valorem, property, income or other taxes other than ad valorem taxes at the rates presently levied upon privately owned property used for the same general purpose as such Project Facilities or such Generating Stations. (e) Changes in the economic availability of raw materials, operating supplies, energy sources or supplies or facilities (including, but not limited to, facilities in connection with the disposal of industrial wastes) necessary for the operation of one or more of the Project Facilities or the Generating Stations which they serve for the Project Purposes occur or technological or other changes occur which the Company cannot reasonably overcome or control and which in the Company's reasonable judgment render such Project Facilities or such Generating Stations uneconomic or obsolete for the Project Purposes. (f) Any court or administrative body shall enter a judgment, order or decree, or shall take administrative action, requiring the Company to cease all or any substantial part of its operations served by one or more of the Project Facilities or the Generating Stations which they serve to such extent that the Company is or will be prevented from carrying on its normal operations at such Project Facilities or such Generating Stations for a period of six consecutive months. (g) The termination by the Company of operations at any of the Generating Stations which are served by any of the Project Facilities. The amount payable by the Company in the event of its exercise of the option granted in this Section shall be the sum of the following: (i) An amount of money which, when added to the moneys and investments held to the credit of the Bond Fund, will be sufficient pursuant to the provisions of the Indenture to pay, at 100% of the principal amount thereof plus accrued interest to the redemption date, and discharge, all or such portion of Outstanding Bonds to be redeemed on the earliest applicable redemption date, that amount to be paid to the Trustee, plus (ii) An amount of money equal to the Additional Payments relating to those Bonds accrued and to accrue until actual final payment and redemption of those Bonds, that amount or applicable portions thereof to be paid to the Trustee or to the Persons to whom those Additional Payments are or will be due. The requirement of (ii) above with respect to Additional Payments to accrue may be met if provisions satisfactory to the Trustee and the Issuer are made for paying those amounts as they accrue. The rights and options granted to the Company in this Section may be exercised whether or not the Company is in default hereunder; provided, that such default will not relieve the Company from performing those actions which are necessary to exercise any such right or option granted hereunder. SECTION VI.3. MANDATORY REDEMPTION. The Company shall deliver to the Trustee the moneys needed to redeem the Bonds in accordance with any mandatory redemption provisions relating thereto as may be set forth in Sections 4.01(b) of the Indenture. SECTION VI.4. NOTICE OF REDEMPTION. In order to exercise an option granted in, or to consummate a redemption required by, this Article VI, the Company shall, within 180 days following the event authorizing the exercise of such option, or at any time during the continuation of the condition referred to in paragraphs (c), (d) or (e) of Section 6.2 hereof, or at any time that optional redemption of the Bonds is permitted under the Indenture as provided in Section 6.1 hereof, or promptly upon the occurrence of a Determination of Taxability (as defined in the Indenture), give written notice to the Issuer and the Trustee that it is exercising its option to direct the redemption of Bonds, or that the redemption thereof is required by Section 4.01(b) of the Indenture due to the occurrence of a Determination of Taxability, as the case may be, in accordance with the Agreement and the Indenture, and shall specify therein the date on which such redemption is to be made, which date shall not be more than 180 days from the date such notice is mailed. The Company shall make arrangements satisfactory to the Trustee for the giving of the required notice of redemption to the Holders of the Bonds, in which arrangements the Issuer shall cooperate. SECTION VI.5. ACTIONS BY ISSUER. At the request of the Company or the Trustee, the Issuer shall take all steps required of it under the applicable provisions of the Indenture or the Bonds to effect the redemption of all or a portion of the Bonds pursuant to this Article VI. (End of Article VI) ARTICLE VII EVENTS OF DEFAULT AND REMEDIES SECTION VII.1. EVENTS OF DEFAULT. Each of the following shall be an Event of Default: (a) The occurrence of an event of default as defined in Section 7.01 (a), (b), or (c) of the Indenture; (b) The Company shall fail to observe and perform any other agreement, term or condition contained in this Agreement, other than such failure as will have resulted in an event of default described in (a) above and the continuation of that failure for a period of 90 days after notice thereof shall have been given to the Company by the Issuer or the Trustee, or for such longer period as the Issuer and the Trustee may agree to in writing; provided, that failure shall not constitute an Event of Default so long as the Company institutes curative action within the applicable period and diligently pursues that action to completion within 150 days after the expiration of initial cure period as determined above, or within such longer period as the Issuer and the Trustee may agree to in writing; and (c) The receipt by the Trustee of written notice from Ambac Assurance that an event of default has occurred and is continuing under the Insurance Agreement; and (d) (i) By decree of a court of competent jurisdiction the Company shall be adjudicated a bankrupt, or an order shall be made approving a petition or answer filed seeking reorganization or readjustment of the Company under the federal bankruptcy laws or other law or statute of the United States of America or of the state of incorporation of the Company or of any other state, or, by order of such a court, a trustee in bankruptcy, a receiver or receivers shall be appointed of all or substantially all of the property of the Company, and any such decree or order shall have continued unstayed on appeal or otherwise and in effect for a period of sixty (60) days; or (ii) The Company shall file a petition in voluntary bankruptcy or shall make an assignment for the benefit of creditors or shall consent to the appointment of a receiver or receivers of all or any part of its property, or shall file a petition seeking reorganization or readjustment under the Federal bankruptcy laws or other law or statute of the United States of America or any state thereof, or shall file a petition to take advantage of any debtors' act. Notwithstanding the foregoing, if, by reason of Force Majeure, the Company is unable to perform or observe any agreement, term or condition hereof which would give rise to an Event of Default under subsection (b) hereof, the Company shall not be deemed in default during the continuance of such inability. However, the Company shall promptly give notice to the Trustee and the Issuer of the existence of an event of Force Majeure and shall use its best efforts to remove the effects thereof; provided that the settlement of strikes or other industrial disturbances shall be entirely within its discretion. The exercise of remedies hereunder shall be subject to any applicable limitations of federal bankruptcy law affecting or precluding that declaration or exercise during the pendency of or immediately following any bankruptcy, liquidation or reorganization proceedings. SECTION VII.2. REMEDIES ON DEFAULT. Whenever an Event of Default shall have happened and be subsisting, either or both of the following remedial steps may be taken: (a) The Issuer or the Trustee may have access to, inspect, examine and make copies of the books, records, accounts and financial data of the Company, only, however, insofar as they pertain to the Project; or (b) The Issuer or the Trustee may pursue all remedies now or hereafter existing at law or in equity to recover all amounts, including all Loan Payments and Additional Payments and under Section 4.8 hereof the purchase price of Bonds tendered for purchase, then due and thereafter to become due under this Agreement, or to enforce the performance and observance of any other obligation or agreement of the Company under this Agreement. Notwithstanding the foregoing, the Issuer shall not be obligated to take any step which in its opinion will or might cause it to expend time or money or otherwise incur liability unless and until a satisfactory indemnity bond has been furnished to the Issuer at no cost or expense to the Issuer. Any amounts collected as Loan Payments or applicable to Loan Payments and any other amounts which would be applicable to payment of Bond Service Charges collected pursuant to action taken under this Section shall be paid into the Bond Fund and applied in accordance with the provisions of the Indenture or, if the outstanding Bonds have been paid and discharged in accordance with the provisions of the Indenture, shall be paid as provided in Section 5.07 of the Indenture for transfers of remaining amounts in the Bond Fund. The provisions of this Section are subject to the further limitation that the rescission and annulment by the Trustee of its declaration that all of the Bonds are immediately due and payable also shall constitute a rescission and annulment of any corresponding declaration made pursuant to this Section and a rescission and annulment of the consequences of that declaration and of the Event of Default with respect to which that declaration has been made, provided that no such rescission and annulment shall extend to or affect any subsequent or other default or impair any right consequent thereon. SECTION VII.3. NO REMEDY EXCLUSIVE. No remedy conferred upon or reserved to the Issuer or the Trustee by this Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, or now or hereafter existing at law, in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair that right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than any notice required by law or for which express provision is made herein. SECTION VII.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. If an Event of Default should occur and the Issuer or the Trustee should incur expenses, including attorneys' fees, in connection with the enforcement of this Agreement or the collection of sums due hereunder, the Company shall be required, to the extent permitted by law, to reimburse the Issuer and the Trustee, as applicable, for the expenses so incurred upon demand. SECTION VII.5. NO WAIVER. No failure by the Issuer or the Trustee to insist upon the strict performance by the Company of any provision hereof shall constitute a waiver of their right to strict performance and no express waiver shall be deemed to apply to any other existing or subsequent right to remedy the failure by the Company to observe or comply with any provision hereof. SECTION VII.6. NOTICE OF DEFAULT. The Company shall notify the Trustee and Ambac Assurance immediately if it becomes aware of the occurrence of any Event of Default hereunder or of any fact, condition or event which, with the giving of notice or passage of time or both, would become an Event of Default. (End of Article VII) ARTICLE VIII MISCELLANEOUS SECTION VIII.1. TERM OF AGREEMENT. This Agreement shall be and remain in full force and effect from the date of delivery of the Bonds to the Original Purchaser until such time as (i) all of the Bonds shall have been fully paid (or provision made for such payment) and the Indenture has been released pursuant to Section 9.01 thereof and (ii) all other sums payable by the Company under this Agreement shall have been paid; provided, however, the obligations of the Company under Sections 4.2 and 5.9 hereof shall survive any termination of this Agreement. SECTION VIII.2. AMOUNTS REMAINING IN FUNDS. Any amounts in the Bond Fund remaining unclaimed by the Holders of Bonds for four years after the due date thereof (whether at stated maturity, by redemption, upon acceleration or otherwise), at the option of the Company, shall be deemed to belong to and shall be paid, subject to Section 5.06 of the Indenture, at the written request of the Company, to the Company by the Trustee. With respect to that principal of and any premium and interest on the Bonds to be paid from moneys paid to the Company pursuant to the preceding sentence, the Holders of the Bonds entitled to those moneys shall look solely to the Company for the payment of those moneys. Further, any amounts remaining in the Bond Fund and any other special funds or accounts created under this Agreement or the Indenture, except the Rebate Fund, after all of the Bonds shall be deemed to have been paid and discharged under the provisions of the Indenture and all other amounts required to be paid under this Agreement and the Indenture have been paid, shall be paid to the Company to the extent that those moneys are in excess of the amounts necessary to effect the payment and discharge of the Outstanding Bonds. SECTION VIII.3. NOTICES. All notices, certificates, requests or other communications hereunder shall be in writing, except as provided in Section 3.4 hereof, and shall be deemed to be sufficiently given when mailed by registered or certified mail, postage prepaid, and addressed to the appropriate Notice Address. A duplicate copy of each notice, certificate, request or other communication given hereunder to the Issuer, the Company, Ambac Assurance or the Trustee shall also be given to the others. The Company, the Issuer, Ambac Assurance and the Trustee, by notice given hereunder, may designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. SECTION VIII.4. EXTENT OF COVENANTS OF THE ISSUER; NO PERSONAL LIABILITY. All covenants, obligations and agreements of the Issuer contained in this Agreement or the Indenture shall be effective to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement shall be deemed to be a covenant, obligation or agreement of any present or future member, officer, agent or employee of the Issuer in other than his official capacity, and neither the members of the Issuer nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or in the Indenture. SECTION VIII.5. BINDING EFFECT. This Agreement shall inure to the benefit of and shall be binding in accordance with its terms upon the Issuer, the Company and their respective permitted successors and assigns provided that this Agreement may not be assigned by the Company (except as permitted under Sections 5.8 or 5.12 hereof) and may not be assigned by the Issuer except to (i) the Trustee pursuant to the Indenture or as otherwise may be necessary to enforce or secure payment of Bond Service Charges or (ii) any successor public body to the Issuer. SECTION VIII.6. AMENDMENTS AND SUPPLEMENTS. Except as otherwise expressly provided in this Agreement or the Indenture, subsequent to the issuance of the Bonds and prior to all conditions provided for in the Indenture for release of the Indenture having been met, this Agreement may not be effectively amended, changed, modified, altered or terminated by the parties hereto except with the consents required by, and in accordance with, the provisions of Article XI of the Indenture, as applicable. SECTION VIII.7. EXECUTION COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same instrument. SECTION VIII.8. SEVERABILITY. If any provision of this Agreement, or any covenant, obligation or agreement contained herein is determined by a judicial or administrative authority to be invalid or unenforceable, that determination shall not affect any other provision, covenant, obligation or agreement, each of which shall be construed and enforced as if the invalid or unenforceable portion were not contained herein. That invalidity or unenforceability shall not affect any valid and enforceable application thereof, and each such provision, covenant, obligation or agreement shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law. SECTION VIII.9. GOVERNING LAW. This Agreement shall be deemed to be a contract made under the laws of the State and for all purposes shall be governed by and construed in accordance with the laws of the State. (End of Article VIII) IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement to be duly executed in their respective names, all as of the date hereinbefore written. INDIANA DEVELOPMENT FINANCE AUTHORITY By: ---------------------------- William H. King, Chairman Attest: - --------------------------------------------------------- Courtney R. Tobin, Executive Director PSI ENERGY, INC. By: ----------------------------- Assistant Treasurer EXHIBIT A PROJECT ------- SERIES 1990 PRINCETON REFUNDED BONDS (Series 1982 Bonds) Facility 1 - Flue gas desulfurization and sludge fixation system for Gibson Generating Station, Unit #5. Facility 2 - Electrostatic precipitator for Gibson Generating Station, Unit #5. Facility 3 - Off-road solid waste transport /disposal site improvements for Gibson Generating Station, Unit #5. SERIES 1990 REFUNDED BONDS Facility 1 - Improvements and modifications for Edwardsport Generating Station ash disposal facilities. Facility 2 - Sewage lift station for Edwardsport Generating Station. Facility 3 - Improvements and modifications for Noblesville Generating Station ash disposal facilities. Facility 4 - Replacement of sewage treatment plant at Wabash River Generating Station. Facility 5 - Discrete portions of demineralizer for Wabash River Generating Station dedicated exclusively to regeneration of resin beds. Facility 6 - Improvements and modifications for Wabash River Generating Station ash disposal facilities. Facility 7 - Sewage treatment plant for Gallagher Generating Station. Facility 8 - Improvements and modifications for Gallagher Generating Station ash disposal facilities. Facility 9 - Improvements and modifications for Cayuga Generating Station ash disposal facilities. Facility 10 - Improvements and modifications for Gibson Generating Station ash disposal facilities. Facility 11 - Improvements and modifications for Gibson Generating Station ash disposal facilities. SERIES 1993A REFUNDED BONDS Facility 3 - Improvements and modifications for Wabash River Generating Station and disposal system. Facility 5 - Discrete portions of demineralizer for Gallagher Generating Station. Facility 6 - Improvements and modifications for Gibson Generating Station ash collection and disposal system. Facility 7 - Sludge stabilization and disposal system for Gibson Generating Station, Unit #4. Facility 8 - Integrated control system for Gibson Generating Station. EX-27 3 0003.txt CINERGY FDS WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 PER-BOOK 6,480,222 473,292 1,972,992 1,005,820 738,837 10,671,163 1,589 1,612,572 1,130,387 2,744,548 0 81,354 3,058,406 746,778 0 0 32,475 0 0 0 4,007,602 10,671,163 1,769,514 44,754 1,602,207 1,646,961 122,553 6,950 129,503 53,113 76,390 1,275 75,115 71,114 17,587 227,426 0.47 0.47
EX-27 4 0004.txt CG&E FDS WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 PER-BOOK 3,784,265 0 793,785 516,720 165,676 5,260,446 762,136 562,881 378,404 1,703,421 0 20,496 1,206,089 272,659 0 0 0 0 0 0 2,057,781 5,260,446 706,571 34,772 593,156 627,928 78,643 962 79,605 23,724 55,881 212 55,669 107,200 8,083 242,680 0.00 0.00
EX-27 5 0005.txt PSI FDS WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 PER-BOOK 2,695,957 0 729,583 489,100 129,213 4,043,853 539 411,459 674,830 1,086,828 0 60,858 1,211,427 180,896 0 0 31,871 0 0 0 1,471,973 4,043,853 619,760 11,671 570,746 582,417 37,343 745 38,088 19,769 18,319 1,063 17,256 36,000 6,437 213,390 0.00 0.00
EX-27 6 0006.txt ULH&P FDS WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 PER-BOOK 301,699 0 21,203 10,335 5,345 338,582 8,780 20,141 109,077 137,998 0 0 74,573 21,523 0 0 0 0 0 0 104,488 338,582 66,140 2,021 59,330 61,351 4,789 (439) 4,350 1,573 2,777 0 2,777 4,975 461 34,992 0.00 0.00
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