-----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, IaqNy3UG5OfEbtQr/9+NEd2NpgM3ye/S8O0WOCqgHKwnspEi9tGdqYU12fz1nww6 zqKSalI9A7S4ZzwfV6o5dQ== 0000899652-95-000108.txt : 19951119 0000899652-95-000108.hdr.sgml : 19951119 ACCESSION NUMBER: 0000899652-95-000108 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGY CORP CENTRAL INDEX KEY: 0000899652 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 311385023 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11377 FILM NUMBER: 95589882 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5133812000 MAIL ADDRESS: STREET 1: 139 E FOURTH STREET CITY: CINCINATI STATE: OH ZIP: 45202 10-Q 1 CINERGY 10-Q FOR 09/30/95 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address, and Telephone Number Identification No. 1-11377 CINERGY CORP. 31-1385023 (A Delaware Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030 (An Ohio Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 1-3543 PSI ENERGY, INC. 35-0594457 (An Indiana Corporation) 1000 East Main Street Plainfield, Indiana 46168 (317) 839-9611 2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080 (A Kentucky Corporation) 139 East Fourth Street Cincinnati, Ohio 45202 (513) 381-2000 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. The Union Light, Heat and Power Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its company specific information with the reduced disclosure format. As of October 31, 1995, shares of Common Stock outstanding for each company were as listed:
Company Shares Cinergy Corp., par value $.01 per share 157,209,942 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
GLOSSARY OF TERMS The following abbreviations or acronyms used in the text of this combined Form 10-Q have the meanings set forth below: TERM DEFINITION AEP American Electric Power Company, Inc., collectively with its utility subsidiaries AFUDC Allowance for funds used during construction Articles Amended Articles of Incorporation August 1993 A Public Utilities Commission of Ohio order issued in Order August 1993 Cayuga Cayuga Generating Station CERCLA Comprehensive Environmental Response, Compensation and Liability Act CG&E The Cincinnati Gas & Electric Company (a subsidiary of Cinergy Corp.) CG&E's 1994 CG&E's 1994 Annual Report on Form 10-K (Commission File Form 10-K Number 1-1232) Cinergy Cinergy Corp. Cinergy's 1994 Cinergy's 1994 Annual Report on Form 10-K, as amended Form 10-K (Commission File Number 1-11377) Cinergy Cinergy Investments, Inc. (a subsidiary of Cinergy), the Investments holding company for Cinergy's non-utility businesses Clean Coal A joint arrangement by PSI and Destec for a 262-mw clean Project coal power generating facility, which is expected to be placed in service in November 1995, located at Wabash River. CWIP Construction work in progress D&P Duff & Phelps Credit Rating Co. Destec Destec Energy, Inc. District Court United States District Court for the Southern District of Indiana, Indianapolis Division DSM Demand-side management February 1995 An Indiana Utility Regulatory Commission order issued in Order February 1995 FERC Federal Energy Regulatory Commission Gibson Gibson Generating Station IDEM Indiana Department of Environmental Management IGC Indiana Gas Company (formerly Indiana Gas and Water Company, Inc.) IPALCO IPALCO Enterprises, Inc. IURC Indiana Utility Regulatory Commission KPSC Kentucky Public Service Commission kwh Kilowatt-hour Lawrenceburg Lawrenceburg Gas Company (a wholly-owned subsidiary of CG&E) May 1992 Order A Public Utility Commission of Ohio order issued in May 1992 Mcf Thousand cubic feet Mega-Nopr This FERC Notice of Proposed Rulemaking on Open Access, issued on March 29, 1995, is another step in the transition towards potentially full-scale competition in the electric utility industry. Essentially, the proposed rule is the electric industry's equivalent of the FERC's Order 636 which is applicable to the natural gas industry. Merger Order The FERC's order approving the merger of CG&E and PSI to form Cinergy. MGP From the 1830's to the 1940's, it was common for gas to be produced at Manufactured Gas Plants through a process that involved the heating of coal or oil. The gas that was released from such a process was then cleaned and stored at the manufacturing plant for future sale or use. mw Megawatt NIPSCO Northern Indiana Public Service Company Order 636 Issued in April 1992, this FERC order mandated changes to the way local gas distribution companies purchase gas supplies and contract for transportation and storage services. Power Inter- Power International, Inc. (a subsidiary of Cinergy national Investments) PRP Potentially Responsible Party PSI PSI Energy, Inc. (a subsidiary of Cinergy) PSI's 1994 PSI's 1994 Annual Report on Form 10-K (Commission File Form 10-K Number 1-3543) PUCO Public Utilities Commission of Ohio PUHCA Public Utility Holding Company Act of 1935 Resources PSI Resources, Inc. (former parent company of PSI) S&P Standard & Poor's scrubber A chemical plant that removes sulfur dioxide from the gas produced by burning coal SEC Securities and Exchange Commission SFAS 121 Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", issued in March 1995 by the Financial Accounting Standards Board, is a new accounting standard requiring impairment losses on long- lived assets be recognized when an asset's book value exceeds its expected future cash flows. UCC Indiana Office of the Utility Consumer Counselor ULH&P The Union Light, Heat and Power Company (a wholly-owned subsidiary of CG&E) ULH&P's Form ULH&P's 1994 Annual Report on Form 10-K (Commission File 10-K Number 2-7793) Wabash River Wabash River Generating Station Woodsdale Woodsdale Generating Station Zimmer William H. Zimmer Generating Station
CINERGY CORP. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1995 1994 (dollars in thousands) Utility Plant - original cost In service Electric $8 469 669 $8 292 625 Gas 672 755 645 602 Common 185 886 185 718 9 328 310 9 123 945 Accumulated depreciation 3 317 021 3 163 802 6 011 289 5 960 143 Construction work in progress 213 922 238 750 Total utility plant 6 225 211 6 198 893 Current Assets Cash and temporary cash investments 87 443 71 880 Restricted deposits 86 596 11 288 Accounts receivable less accumulated provision of $10,636,000 at September 30, 1995, and $9,716,000 at December 31, 1994 for doubtful accounts 267 475 299 509 Materials, supplies, and fuel - at average cost Fuel for use in electric production 133 787 156 028 Gas stored for current use 29 484 31 284 Other materials and supplies 90 704 92 880 Property taxes applicable to subsequent year 136 773 112 420 Prepayments and other 30 178 36 416 862 440 811 705 Other Assets Regulatory assets Post-in-service carrying costs and deferred operating expenses 187 780 185 280 Phase-in deferred return and depreciation 101 663 100 943 Deferred demand-side management costs 121 483 104 127 Amounts due from customers - income taxes 390 602 408 514 Deferred merger costs 54 900 49 658 Unamortized costs of reacquiring debt 73 766 70 424 Other 77 001 86 017 Other 149 085 134 281 1 156 280 1 139 244 $8 243 931 $8 149 842 The accompanying notes as they relate to Cinergy are an integral part of these consolidated financial statements.
CINERGY CORP. CAPITALIZATION AND LIABILITIES September 30 December 31 1995 1994 (dollars in thousands) Common Stock Equity Common stock - $.01 par value; authorized shares - 600,000,000; outstanding shares - 157,139,786 at September 30, 1995, and 155,198,038 at December 31, 1994 $ 1 572 $ 1 552 Paid-in capital 1 585 470 1 535 658 Retained earnings 941 652 877 061 Total common stock equity 2 528 694 2 414 271 Cumulative Preferred Stock of Subsidiaries Not subject to mandatory redemption 227 913 267 929 Subject to mandatory redemption 160 000 210 000 Long-term Debt 2 694 676 2 715 269 Total capitalization 5 611 283 5 607 469 Current Liabilities Long-term debt due within one year 134 400 60 400 Notes payable 284 000 228 900 Accounts payable 173 054 266 467 Refund due to customers 12 878 15 482 Litigation settlement 80 000 80 000 Accrued taxes 292 677 258 041 Accrued interest 52 091 58 504 Other 43 156 36 610 1 072 256 1 004 404 Other Liabilities Deferred income taxes 1 085 703 1 071 104 Unamortized investment tax credits 188 222 195 878 Accrued pension and other postretirement benefit costs 161 675 133 578 Other 124 792 137 409 1 560 392 1 537 969 $8 243 931 $8 149 842
CINERGY CORP. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 1995 1994 1995 1994 1995 1994 (in thousands, except per share amounts) Operating Revenues Electric $734 042 $651 354 $1 979 685 $1 874 040 $2 561 182 $2 470 522 Gas 33 591 40 481 265 777 331 197 376 978 495 690 767 633 691 835 2 245 462 2 205 237 2 938 160 2 966 212 Operating Expenses Fuel used in electric production 190 445 195 287 545 548 539 634 718 907 712 612 Gas purchased 13 155 16 013 130 235 189 059 189 469 288 279 Purchased and exchanged power 15 685 7 494 32 992 42 728 39 346 53 809 Other operation 134 517 136 489 381 221 379 839 565 032 507 831 Maintenance 39 851 48 684 127 834 143 862 184 931 195 405 Depreciation 68 680 73 419 210 351 218 442 286 304 289 880 Amortization of phase-in deferrals 3 409 - 5 682 - 5 682 - Post-in-service deferred operating expenses - net (71) (1 661) (2 140) (4 638) (3 500) (6 009) Phase-in deferred depreciation - - - (2 161) - (3 770) Income taxes 69 574 38 318 172 415 134 389 190 207 177 986 Taxes other than income taxes 64 449 60 033 192 354 184 773 251 632 242 069 599 694 574 076 1 796 492 1 825 927 2 428 010 2 458 092 Operating Income 167 939 117 759 448 970 379 310 510 150 508 120 Other Income and Expenses - Net Allowance for equity funds used during construction (1 159) 2 443 726 6 774 153 12 156 Post-in-service carrying costs 602 2 452 3 183 6 758 6 205 8 874 Phase-in deferred return 2 135 1 947 6 403 13 405 8 349 20 823 Write-off of a portion of Zimmer Station - - - - - (234 844) Income taxes Related to write-off of a portion of Zimmer Station - - - - - 12 085 Other 1 988 2 234 5 195 6 396 9 408 12 159 Other - net 1 701 (3 717) 1 010 (11 243) (16 191) (24 998) 5 267 5 359 16 517 22 090 7 924 (193 745) Income Before Interest and Other Charges 173 206 123 118 465 487 401 400 518 074 314 375 Interest and Other Charges Interest on long-term debt 54 154 54 257 160 654 164 257 215 645 220 573 Other interest 5 392 6 042 16 520 13 901 22 989 15 879 Allowance for borrowed funds used during construction (2 027) (3 378) (6 324) (9 465) (9 191) (12 196) Preferred dividend requirements of subsidiaries 6 770 8 658 24 084 26 901 32 742 37 058 64 289 65 579 194 934 195 594 262 185 261 314 Net Income $108 917 $ 57 539 $ 270 553 $ 205 806 $ 255 889 $ 53 061 Average Common Shares Outstanding 156 945 147 162 156 324 146 470 154 797 146 104 Earnings Per Common Share $.69 $.40 $1.73 $1.41 $1.62 $.36 Dividends Declared Per Common Share $.43 $.38 $1.29 $1.14 $1.65 $1.51 The accompanying notes as they relate to Cinergy are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (unaudited) Common Paid-in Retained Total Common Stock Capital Earnings Stock Equity (dollars in thousands) Quarter Ended September 30, 1995 Balance July 1, 1995 $1 566 $1 570 873 $ 900 094 $2 472 533 Net income 108 917 108 917 Issuance of 572,455 shares of common stock 6 14 597 14 603 Common stock issuance expenses (2) (2) Dividends on common stock (67 359) (67 359) Other 2 2 Balance September 30, 1995 $1 572 $1 585 470 $ 941 652 $2 528 694 Quarter Ended September 30, 1994 Balance July 1, 1994 $1 466 $1 345 023 $ 943 659 $2 290 148 Net income 57 539 57 539 Issuance of 657,339 shares of common stock 7 14 546 14 553 Common stock issuance expenses (92) (92) Dividends on common stock (55 519) (55 519) Balance September 30, 1994 $1 473 $1 359 477 $ 945 679 $2 306 629 Nine Months Ended September 30, 1995 Balance January 1, 1995 $1 552 $1 535 658 $ 877 061 $2 414 271 Net income 270 553 270 553 Issuance of 1,941,748 shares of common stock 20 48 734 48 754 Common stock issuance expenses (191) (191) Dividends on common stock (201 251) (201 251) Other 1 269 (4 711) (3 442) Balance September 30, 1995 $1 572 $1 585 470 $ 941 652 $2 528 694 Nine Months Ended September 30, 1994 Balance January 1, 1994 $1 453 $1 312 426 $ 907 802 $2 221 681 Net income 205 806 205 806 Issuance of 2,066,436 shares of common stock 20 46 616 46 636 Common stock issuance expenses (118) (118) Dividends on common stock (166 976) (166 976) Other 553 (953) (400) Balance September 30, 1994 $1 473 $1 359 477 $ 945 679 $2 306 629 Twelve Months Ended September 30, 1995 Balance October 1, 1994 $1 473 $1 359 477 $ 945 679 $2 306 629 Net income 255 889 255 889 Issuance of 9,705,354 shares of common stock 99 230 000 230 099 Common stock issuance expenses (5 298) (5 298) Dividends on common stock (255 637) (255 637) Other 1 291 (4 279) (2 988) Balance September 30, 1995 $1 572 $1 585 470 $ 941 652 $2 528 694 Twelve Months Ended September 30, 1994 Balance October 1, 1993 $1 446 $1 298 567 $1 114 759 $2 414 772 Net income 53 061 53 061 Issuance of 2,726,790 shares of common stock 27 62 224 62 251 Common stock issuance expenses (209) (209) Dividends on common stock (221 264) (221 264) Other (1 105) (877) (1 982) Balance September 30, 1994 $1 473 $1 359 477 $ 945 679 $2 306 629 The accompanying notes as they relate to Cinergy are an integral part of these consolidated financial statements.
CINERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Quarter Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 1995 1994 1995 1994 1995 1994 (in thousands) Operating Activities Net income $108 917 $ 57 539 $ 270 553 $ 205 806 $ 255 889 $ 53 061 Items providing (using) cash currently: Depreciation 68 680 73 419 210 351 218 442 286 304 289 880 Amortization of phase-in deferrals 3 409 - 5 682 - 5 682 - Deferred income taxes and investment tax credits - net 39 420 1 606 27 836 30 172 28 590 27 804 Allowance for equity funds used during construction 1 159 (2 443) (726) (6 774) (153) (12 156) Regulatory assets Post-in-service and phase-in cost deferrals (3 630) (6 882) (14 193) (29 429) (21 344) (20 683) Deferred merger costs (6 359) (11 815) (8 928) (22 444) (8 825) (28 941) Other 4 163 (3 537) 10 162 4 805 1 837 3 785 Write-off of a portion of Zimmer Station - - - - - 234 844 Changes in current assets and current liabilities Restricted deposits (6) 1 547 8 1 421 8 633 1 344 Accounts receivable (15 587) 40 439 32 034 74 464 (1 880) 11 123 Materials, supplies, and fuel 21 297 (16 799) 26 217 (42 409) 22 677 (48 446) Accounts payable (11 346) (27 540) (93 413) (73 234) (28 370) (19 744) Refund due to customers (2 918) (2 999) (2 604) (47 223) (21 731) (115 391) Advance under accounts receivable purchase agreement - - - (49 940) - - Accrued taxes and interest 26 241 (6 103) 28 223 (22 064) 56 040 10 594 Other items - net (18 610) 38 880 (6 696) 70 852 29 120 73 524 Net cash provided by (used in) operating activities 214 830 135 312 484 506 312 445 612 469 460 598 Financing Activities Issuance of common stock 14 601 14 461 48 563 46 518 224 801 62 042 Issuance of preferred stock of subsidiaries - - - - - 59 475 Issuance of long-term debt 195 255 59 910 344 280 420 935 344 280 717 935 Funds on deposit from issuance of long-term debt (81 944) 8 810 (75 316) 21 211 (68 630) 33 039 Retirement of preferred stock of subsidiaries (93 451) - (93 458) (40 410) (93 474) (100 516) Redemption of long-term debt (81 302) - (298 553) (313 247) (298 988) (696 484) Change in short-term debt 40 000 5 801 55 100 147 800 (41 514) 260 839 Dividends on common stock (67 359) (55 519) (201 251) (166 976) (255 637) (221 264) Net cash provided by (used in) financing activities (74 200) 33 463 (220 635) 115 831 (189 162) 115 066 Investing Activities Construction expenditures (less allowance for equity funds used during construction) (71 379) (115 345) (231 943) (325 395) (386 233) (470 566) Deferred demand-side management costs (7 014) (11 711) (16 365) (29 927) (33 706) (43 907) Equity investment in Argentine utility - 32 - 32 (32) - Net cash provided by (used in) investing activities (78 393) (127 024) (248 308) (355 290) (419 971) (514 473) Net increase (decrease) in cash and temporary cash investments 62 237 41 751 15 563 72 986 3 336 61 191 Cash and temporary cash investments at beginning of period 25 206 42 356 71 880 11 121 84 107 22 916 Cash and temporary cash investments at end of period $ 87 443 $ 84 107 $ 87 443 $ 84 107 $ 87 443 $ 84 107 The accompanying notes as they relate to Cinergy are an integral part of these consolidated financial statements.
CINERGY CORP. Below is information concerning the consolidated results of operations for Cinergy for the quarter, nine months, and twelve months ended September 30, 1995. For information concerning the results of operations for each of the other registrants, see the discussion under the heading RESULTS OF OPERATIONS following the financial statements of each company. RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales for the quarter ended September 30, 1995, increased 11.7% as compared to the same period last year. This increase was primarily attributable to higher kwh sales to retail customers. Increased domestic and commercial sales were due in large part to the warmer weather during the period. Sales to industrial customers increased due to growth primarily in the chemicals and food products sectors. Increased non-firm power sales for resale also contributed to the higher kwh sales levels. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the third quarter of 1995 increased 2.7% as compared to the third quarter of 1994, reflecting higher gas transportation volumes as industrial customers continued to purchase directly from gas suppliers, creating a significant increase in demand for transportation services. The increased transportation volume, primarily in the primary metals, paper products, and food products sectors, more than offset a decline in industrial sales volumes. Also, partially offsetting the increase in transportation volumes were decreased sales to domestic and commercial customers. Operating Revenues Electric Operating Revenues Electric operating revenues for the quarter ended September 30, 1995, increased $83 million (12.7%) as compared to the same period last year. This increase primarily resulted from increased kwh sales, as previously discussed. In addition, PSI's 4.3% retail rate increase approved in the February 1995 Order and a 1.9% rate increase for carrying costs on CWIP property which was approved by the IURC on March 9, 1995, also contributed to the increase. An analysis of electric operating revenues is shown below: Quarter Ended September 30 (in millions) Electric operating revenues - September 30, 1994 $651 Increase due to change in: Price per kwh Retail 6 Sales for resale Non-firm power transactions 4 Total change in price per kwh 10 Kwh sales Retail 62 Sales for resale Firm power obligations 6 Non-firm power transactions 4 Total change in kwh sales 72 Other 1 Electric operating revenues - September 30, 1995 $734 Gas Operating Revenues Gas operating revenues declined $7 million (17.0%) in the third quarter of 1995 when compared to the same period last year, primarily as a result of the previously discussed decrease in total retail sales volumes. An increase in the relative volume of gas transported to gas sold, as previously discussed, also contributed to the decrease. Providing transportation services does not necessitate the recovery of gas purchased costs by CG&E. Consequently, the revenue per Mcf transported is below the revenue per Mcf sold. Operating Expenses Fuel Used in Electric Production Electric fuel costs, Cinergy's largest operating expense, decreased $5 million (2.5%) for the quarter as compared to the same period of 1994. An analysis of fuel costs is shown below: Quarter Ended September 30 (in millions) Fuel expense - September 30, 1994 $195 Increase (Decrease) due to change in: Price of fuel (24) Kwh generation 19 Fuel expense - September 30, 1995 $190 Gas Purchased Gas purchased for the quarter declined $3 million (17.8%) when compared to the same period last year. This decrease was attributable to a decrease in volumes purchased associated with the aforementioned changes in volumes sold and transported. Purchased and Exchanged Power Purchased and exchanged power increased $8 million for the third quarter when compared to the same period last year, reflecting increased purchases due to the warmer weather conditions during the period. Maintenance The decrease in maintenance expense of $9 million (18.1%) for the third quarter of 1995 as compared to the same period last year was primarily due to improved scheduling of routine maintenance on electric generating units. Lower maintenance costs on gas and electric distribution facilities also contributed to the decline. Depreciation Depreciation expense decreased $5 million (6.5%) for the quarter ended September 30, 1995, as compared to the same period last year. This decrease primarily reflects the adoption of lower depreciation rates for PSI effective in March 1995, pursuant to the February 1995 Order. The decrease was partially offset by the effect of additions to utility plant in service. Amortization of Phase-in Deferrals Amortization of phase-in deferrals, which began in May 1995, reflects the amortization of previously deferred depreciation and deferred return resulting from CG&E's three-year rate phase-in plan for Zimmer included in the May 1992 Order. These deferrals will be recovered over a seven-year period as contemplated in the May 1992 Order. Taxes Other than Income Taxes Taxes other than income taxes increased $4 million (7.4%) over the same period of 1994 primarily due to increased property taxes resulting from higher property tax rates applicable to CG&E. Other Income and Expenses - Net Allowance for Equity Funds Used During Construction The equity component of AFUDC decreased $4 million for the three months ended September 30, 1995, as compared to the same period last year. This decrease was due primarily to an increase in PSI's average short-term debt outstanding. The quarter ended September 30, 1995, reflects application of the lower rate retroactively for the year-to-date period. In addition, PSI's scrubber at Gibson was placed in service in September 1994 which resulted in a large decrease in the average balance of CWIP. Other - net Other - net increased $5 million for the quarter ended September 30, 1995, when compared to the same period last year. This increase was due to a number of factors, including interest associated with a refund of an overpayment of Federal income taxes for 1987 and 1990, and an increase in carrying costs on DSM expenses which resulted from a higher AFUDC rate used to compute carrying costs. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales increased 1.8% for the nine months ended September 30, 1995, when compared to the same period last year, attributable primarily to higher industrial sales resulting from growth in the primary metals and chemicals sectors. Also contributing to the increase were higher domestic and commercial sales which were the result of warmer weather during the summer cooling season. These increases were partially offset by a decline in non- firm power sales for resale. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the nine months ended September 30, 1995, decreased slightly when compared to the same period of 1994. Decreases in domestic and commercial sales volumes were attributable to milder weather during the 1995 heating season. The decrease in industrial sales was attributable to the trend of industrial customers electing to purchase directly from suppliers, creating additional demand for transportation services. The additional transportation volumes more than offset the decrease in industrial sales and resulted from growth in the primary metals sector. Operating Revenues Electric Operating Revenues As compared to the same period last year, electric operating revenues increased $106 million (5.6%) for the nine months ended September 30, 1995. This increase was due to higher retail sales volumes in addition to three rate increases - CG&E's retail electric rate increase which became effective May 1994 and two PSI electric rate increases which became effective in February 1995 and March 1995, as previously discussed. An analysis of electric operating revenues is shown below: Nine Months Ended September 30 (in millions) Electric operating revenues - September 30, 1994 $1 874 Increase (Decrease) due to change in: Price per kwh Retail 49 Sales for resale Non-firm power transactions 4 Total change in price per kwh 53 Kwh sales Retail 61 Sales for resale Non-firm power transactions (9) Total change in kwh sales 52 Other 1 Electric operating revenues - September 30, 1995 $1 980 Gas Operating Revenues Gas operating revenues declined $65 million (19.8%) in the first nine months of 1995 when compared to the same period last year. This decrease reflects the previously discussed decline in total retail volumes sold and the operation of adjustment clauses reflecting a lower average cost of gas purchased. An increase in the relative volume of gas transported to gas sold also contributed to the decrease. Providing transportation services does not necessitate the recovery of gas purchased costs. Consequently, the revenue per Mcf transported is below the revenue per Mcf sold. Operating Expenses Fuel Used in Electric Production Electric fuel costs increased $6 million (1.1%) for the nine months ended September 30, 1995, when compared to the same period last year. An analysis of fuel costs is shown below: Nine Months Ended September 30 (in millions) Fuel expense - September 30, 1994 $540 Increase (Decrease) due to change in: Price of fuel (11) Kwh generation 17 Fuel expense - September 30, 1995 $546 Gas Purchased Gas purchased for the nine months ended September 30, 1995, decreased $59 million (31.1%) when compared to the same period last year. This decrease was attributable to a 13.5% decline in volumes purchased and a 20.3% lower average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power decreased $10 million (22.8%) for the nine months ended September 30, 1995, when compared to the same period last year, as the coordination of CG&E's and PSI's electric dispatch systems enabled Cinergy to service more of its native load with its own generating units. Maintenance The decrease in maintenance of $16 million (11.1%) for the nine months ended September 30, 1995, as compared to the same period last year was primarily due to improved scheduling of routine maintenance on electric generating units. Lower maintenance costs on gas and electric distribution facilities also contributed to the decline. Depreciation Depreciation expense for the nine months ended September 30, 1995, decreased $8 million (3.7%) when compared to the same period last year. This decrease was primarily driven by the adoption of lower depreciation rates for PSI effective in March 1995 pursuant to the February 1995 Order. The decrease was partially offset by the effect of additions to utility plant in service. Amortization of Phase-in Deferrals Amortization of phase-in deferrals, which began in May 1995, reflects the amortization of previously deferred depreciation and deferred return resulting from CG&E's three-year rate phase-in plan for Zimmer included in the May 1992 Order. These deferrals will be recovered over a seven-year period as contemplated in the May 1992 Order. Taxes Other than Income Taxes Taxes other than income taxes increased $8 million (4.1%) over the same period of 1994 primarily due to increased property taxes resulting from higher property tax rates applicable to CG&E. Other Income and Expenses - Net Allowance for Equity Funds Used During Construction The equity component of AFUDC decreased $6 million for the nine months ended September 30, 1995, as compared to the same period last year. As previously discussed, this decrease was due primarily to an increase in PSI's average short-term debt outstanding. In addition, PSI's scrubber at Gibson was placed in service in September 1994 which resulted in a large decrease in the average balance of CWIP. Post-in-service Carrying Costs Post-in-service carrying costs decreased $4 million (52.9%) for the nine months ended September 30, 1995, from the comparable period of 1994. The decrease was a result of discontinuing accrual of post-in-service carrying costs on qualified environmental projects upon the inclusion in rates of the costs of the projects per the February 1995 Order. Phase-in Deferred Return Phase-in deferred return decreased $7 million (52.2%) for the first nine months of 1995 from the comparable period of 1994, as a result of implementing the final increase of the three-year rate phase-in plan in May 1994. Other - net Other - net increased $12 million for the nine months ended September 30, 1995, when compared to the same period last year. This increase was due to a number of factors, including interest associated with a refund of an overpayment of Federal income taxes for 1987 and 1990, an increase in carrying costs on DSM expenses which resulted from a higher AFUDC rate used to compute carrying costs, and increased DSM expenses to which the rate is applied. Also contributing to the increase was the write-off during 1994 of approximately $4 million related to the defense of the IPALCO takeover attempt. RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales increased .3% for the twelve months ended September 30, 1995, as the increase in total retail sales was partially offset by a decline in sales for resale. The increase in retail sales reflected higher commercial and industrial sales. The commercial sales increase reflects a higher average number of customers, while the industrial sales increase reflects growth in the primary metals and chemicals sectors. Sales for resale reflected a decrease in both firm and non-firm power sales. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the twelve months ended September 30, 1995, decreased 4.2% when compared to the same period of 1994. Decreases in domestic and commercial sales volumes were attributable to milder weather during the winter heating season. A decrease in industrial sales was attributable to the continuing trend of industrial customers electing to purchase directly from suppliers, creating additional demand for transportation services. The increased transportation volumes were due, in large part, to growth in the primary metals, food products, and paper products sectors. Operating Revenues Electric Operating Revenues Compared to the same period last year, electric operating revenues for the twelve months ended September 30, 1995, increased $91 million (3.7%) due to a number of rate increases and the increased kwh sales, as previously discussed. An analysis of electric operating revenues is shown below: Twelve Months Ended September 30 (in millions) Electric operating revenues - September 30, 1994 $2 470 Increase (Decrease) due to change in: Price per kwh Retail 51 Sales for resale Firm power obligations 2 Non-firm power transactions 3 Total change in price per kwh 56 Kwh sales Retail 50 Sales for resale Firm power obligations (3) Non-firm power transactions (14) Total change in kwh sales 33 Other 2 Electric operating revenues - September 30, 1995 $2 561 Gas Operating Revenues Gas operating revenues declined $119 million (23.9%) for the twelve months ended September 30, 1995, when compared to the same period last year. This decrease was primarily the result of decreases in sales volumes and the operation of adjustment clauses reflecting a decline in the average cost of gas purchased. An increase in the relative volume of gas transported to gas sold also contributed significantly to the decrease. Providing transportation services does not necessitate the recovery of gas purchased costs. Consequently, the revenue per Mcf transported is below the revenue per Mcf sold. Operating Expenses Fuel Used in Electric Production Electric fuel costs increased $6 million (.9%) for the twelve months ended September 30, 1995, when compared to the same period last year. An analysis of fuel costs is shown below: Twelve Months Ended September 30 (in millions) Fuel expense - September 30, 1994 $713 Increase (Decrease) due to change in: Price of fuel (9) Kwh generation 15 Fuel expense - September 30, 1995 $719 Gas Purchased Gas purchased for the twelve months ended September 30, 1995, decreased $99 million (34.3%) when compared to the same period last year. This decrease was attributable to a 17.7% decline in volumes purchased associated with the previously discussed changes in gas sales volumes and a 20.1% lower average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power decreased $14 million (26.9%) for the twelve months ended September 30, 1995, when compared to the same period last year, as the coordination of CG&E's and PSI's electric dispatch systems enabled Cinergy to service more of its native load through its own generating units. Other Operation Other operation expenses for the twelve months ended September 30, 1995, increased $57 million (11.3%) as compared to the same period of 1994. The primary factor contributing to this increase was charges of approximately $51 million in December 1994 for merger-related costs and other expenditures which cannot be recovered from customers under the merger savings sharing mechanisms authorized by regulators. In addition, the accrual of postretirement benefit costs, the amortization of deferred postretirement benefit costs, deferred merger costs, deferred DSM costs, and an increase in the level of ongoing DSM expenses, all of which are being recovered in revenues pursuant to the February 1995 Order, contributed to the increase. The period to period comparison also reflects the write-off of expenses related to CG&E's workforce reduction in September 1994 and the write-off of previously deferred litigation expenses during 1994. Maintenance The decrease in maintenance expense of $10 million (5.4%) for the twelve months ended September 30, 1995, as compared to the same period last year, was primarily due to improved scheduling of routine maintenance on electric generating units and lower maintenance costs on gas and electric distribution facilities. Amortization of Phase-in Deferrals Amortization of phase-in deferrals, which began in May 1995, reflects the amortization of previously deferred depreciation and deferred return resulting from CG&E's three-year rate phase-in plan for Zimmer included in the May 1992 Order. These deferrals will be recovered over a seven-year period as contemplated in the May 1992 Order. Taxes Other than Income Taxes Taxes other than income taxes increased $10 million (4.0%) over the same period of 1994 primarily due to increased property taxes resulting from higher property tax rates applicable to CG&E. Other Income and Expenses - Net Allowance for Equity Funds Used During Construction The equity component of AFUDC decreased $12 million for the twelve month period ended September 30, 1995, as compared to the same period last year. As previously discussed, this decrease was due primarily to an increase in PSI's average short-term debt outstanding. In addition, a scrubber at Gibson was placed in service in September 1994 which resulted in a large decrease in the average balance of CWIP. Phase-in Deferred Return Phase-in deferred return decreased $12 million (59.9%) for the twelve months ended September 30, 1995, from the comparable period of 1994, as a result of implementing the final increase of the three-year rate phase-in plan in May 1994. Write-off of a Portion of Zimmer In November 1993, CG&E wrote off Zimmer costs disallowed from rates in the May 1992 Order. Other - net Other - net increased $9 million (35.2%) for the twelve months ended September 30, 1995, when compared to the same period last year. This increase was due to a number of factors, including interest associated with a refund of an overpayment of Federal income taxes for 1987 and 1990, an increase in carrying costs on DSM expenses which resulted from a higher AFUDC rate used to compute carrying costs, and increased DSM expenses to which the rate is applied. Also contributing to the increase was the write-off during the twelve month period ended September 30, 1994, of approximately $8 million related to the defense of the IPALCO takeover attempt.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1995 1994 (dollars in thousands) Utility Plant - original cost In service Electric $4 547 019 $4 502 840 Gas 672 755 645 602 Common 184 661 185 718 5 404 435 5 334 160 Accumulated depreciation 1 699 538 1 613 505 3 704 897 3 720 655 Construction work in progress 73 294 74 989 Total utility plant 3 778 191 3 795 644 Current Assets Cash and temporary cash investments 66 545 52 516 Restricted deposits 84 101 98 Accounts receivable less accumulated provision of $10,116,000 at September 30, 1995, and $8,999,000 at December 31, 1994 for doubtful accounts 214 887 269 020 Materials, supplies, and fuel - at average cost Fuel for use in electric production 37 770 42 167 Gas stored for current use 29 484 31 284 Other materials and supplies 54 562 57 864 Property taxes applicable to subsequent year 136 773 112 420 Prepayments and other 26 276 31 327 650 398 596 696 Other Assets Regulatory assets Post-in-service carrying costs and deferred operating expenses 150 021 155 138 Phase-in deferred return and depreciation 101 663 100 943 Deferred demand-side management costs 16 317 10 002 Amounts due from customers - income taxes 364 065 381 380 Deferred merger costs 13 588 12 013 Unamortized costs of reacquiring debt 38 660 33 426 Other 45 552 55 987 Other 57 023 40 436 786 889 789 325 $5 215 478 $5 181 665 The accompanying notes as they relate to CG&E are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CAPITALIZATION AND LIABILITIES September 30 December 31 1995 1994 (dollars in thousands) Common Stock Equity Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding shares - 89,663,086 at September 30, 1995, and December 31, 1994 $ 762 136 $ 762 136 Paid-in capital 339 135 337 874 Retained earnings 437 706 432 962 Total common stock equity 1 538 977 1 532 972 Cumulative Preferred Stock Not subject to mandatory redemption 40 000 80 000 Subject to mandatory redemption 160 000 210 000 Long-term Debt 1 866 431 1 837 757 Total capitalization 3 605 408 3 660 729 Current Liabilities Long-term debt due within one year 84 000 - Notes payable 26 500 14 500 Accounts payable 79 707 120 817 Accrued taxes 245 106 227 651 Accrued interest 39 561 31 902 Other 39 329 32 658 514 203 427 528 Other Liabilities Deferred income taxes 758 243 747 060 Unamortized investment tax credits 130 907 135 417 Accrued pension and other postretirement benefit costs 113 294 102 254 Other 93 423 108 677 1 095 867 1 093 408 $5 215 478 $5 181 665
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 1995 1994 1995 1994 1995 1994 (in thousands) Operating Revenues Electric $401 174 $368 470 $1 087 653 $1 031 535 $1 401 905 $1 349 198 Gas 33 591 40 481 265 777 331 197 376 978 495 690 434 765 408 951 1 353 430 1 362 732 1 778 883 1 844 888 Operating Expenses Fuel used in electric production 84 101 91 062 252 638 252 491 325 617 337 218 Gas purchased 13 155 16 013 130 235 189 059 189 469 288 279 Purchased and exchanged power 15 094 1 781 36 511 13 312 44 131 15 477 Other operation 69 834 81 304 204 557 218 757 321 830 296 509 Maintenance 18 994 23 271 63 973 76 073 94 710 106 976 Depreciation 39 836 39 210 119 060 117 030 158 706 155 420 Amortization of phase-in deferrals 3 409 - 5 682 - 5 682 - Post-in-service deferred operating expenses - net 823 823 2 468 2 468 3 290 3 302 Phase-in deferred depreciation - - - (2 161) - (3 770) Income taxes 40 730 27 190 108 293 91 859 120 562 115 159 Taxes other than income taxes 50 358 47 049 151 345 146 186 202 540 191 851 336 334 327 703 1 074 762 1 105 074 1 466 537 1 506 421 Operating Income 98 431 81 248 278 668 257 658 312 346 338 467 Other Income and Expenses - Net Allowance for equity funds used during construction 269 630 1 146 1 522 1 595 2 007 Post-in-service carrying costs - - - - - 18 Phase-in deferred return 2 135 1 947 6 403 13 405 8 349 20 823 Write-off of a portion of Zimmer Station - - - - - (234 844) Income taxes Related to write-off of a portion of Zimmer Station - - - - - 12 085 Other (31) 2 201 2 796 5 734 3 681 9 715 Other - net 4 446 (1 711) 4 851 (1 577) (298) (8 325) 6 819 3 067 15 196 19 084 13 327 (198 521) Income Before Interest 105 250 84 315 293 864 276 742 325 673 139 946 Interest Interest on long-term debt 36 507 36 974 107 108 113 352 144 142 153 282 Other interest 679 585 2 926 2 287 3 470 2 783 Allowance for borrowed funds used during construction (894) (839) (2 774) (2 149) (3 602) (2 799) 36 292 36 720 107 260 113 490 144 010 153 266 Net Income (Loss) 68 958 47 595 186 604 163 252 181 663 (13 320) Preferred Dividend Requirement 3 475 5 362 14 199 17 014 19 562 23 304 Net Income (Loss) on Common Shares $ 65 483 $ 42 233 $ 172 405 $ 146 238 $ 162 101 $ (36 624) The accompanying notes as they relate to CG&E are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (unaudited) Common Paid-in Retained Total Common Stock Capital Earnings Stock Equity (dollars in thousands) Quarter Ended September 30, 1995 Balance July 1, 1995 $762 136 $339 135 $ 427 623 $1 528 894 Net income 68 958 68 958 Dividends on preferred stock (3 475) (3 475) Dividends on common stock (55 400) (55 400) Balance September 30, 1995 $762 136 $339 135 $ 437 706 $1 538 977 Quarter Ended September 30, 1994 Balance July 1, 1994 $757 084 $329 712 $ 483 564 $1 570 360 Net income 47 595 47 595 Issuance of 543,089 shares of common stock 4 616 7 483 12 099 Common stock issuance expenses (30) (30) Dividends on preferred stock (5 362) (5 362) Dividends on common stock (38 358) (38 358) Balance September 30, 1994 $761 700 $337 165 $ 487 439 $1 586 304 Nine Months Ended September 30, 1995 Balance January 1, 1995 $762 136 $337 874 $ 432 962 $1 532 972 Net income 186 604 186 604 Dividends on preferred stock (14 199) (14 199) Dividends on common stock (162 950) (162 950) Other 1 261 (4 711) (3 450) Balance September 30, 1995 $762 136 $339 135 $ 437 706 $1 538 977 Nine Months Ended September 30, 1994 Balance January 1, 1994 $748 528 $314 218 $ 456 511 $1 519 257 Net income 163 252 163 252 Issuance of 1,549,671 shares of common stock 13 172 22 432 35 604 Common stock issuance expenses (38) (38) Dividends on preferred stock (17 014) (17 014) Dividends on common stock (114 357) (114 357) Other 553 (953) (400) Balance September 30, 1994 $761 700 $337 165 $ 487 439 $1 586 304 Twelve Months Ended September 30, 1995 Balance October 1, 1994 $761 700 $337 165 $ 487 439 $1 586 304 Net income 181 663 181 663 Issuance of 51,332 shares of common stock 436 710 1 146 Common stock issuance expenses (1) (1) Dividends on preferred stock (19 562) (19 562) Dividends on common stock (207 563) (207 563) Other 1 261 (4 271) (3 010) Balance September 30, 1995 $762 136 $339 135 $ 437 706 $1 538 977 Twelve Months Ended September 30, 1994 Balance October 1, 1993 $745 063 $306 644 $ 677 093 $1 728 800 Net income (loss) (13 320) (13 320) Issuance of 1,957,324 shares of common stock 16 637 30 006 46 643 Common stock issuance expenses (38) (38) Dividends on preferred stock (23 304) (23 304) Dividends on common stock (152 077) (152 077) Other 553 (953) (400) Balance September 30, 1994 $761 700 $337 165 $ 487 439 $1 586 304 The accompanying notes as they relate to CG&E are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Quarter Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 1995 1994 1995 1994 1995 1994 (in thousands) Operating Activities Net income (loss) $ 68 958 $ 47 595 $ 186 604 $ 163 252 $ 181 663 $ (13 320) Items providing (using) cash currently: Depreciation 39 836 39 210 119 060 117 030 158 706 155 420 Amortization of phase-in deferrals 3 409 - 5 682 - 5 682 - Deferred income taxes and investment tax credits - net 40 556 2 766 24 597 15 336 22 941 4 568 Allowance for equity funds used during construction (269) (630) (1 146) (1 522) (1 595) (2 007) Regulatory assets Post-in-service and phase-in cost deferrals (2 134) (1 946) (6 402) (15 565) (8 349) (2 515) Deferred merger costs (1 151) (10 575) (1 575) (14 026) 13 410 (18 307) Other 4 341 (3 415) 10 435 380 2 164 1 526 Write-off of a portion of Zimmer Station - - - - - 234 844 Changes in current assets and current liabilities Restricted deposits (1) - (3) 24 (5) 68 Accounts receivable 2 887 23 553 54 133 77 983 19 295 7 240 Materials, supplies, and fuel (1 924) (14 343) 9 499 15 865 14 836 9 511 Accounts payable (6 123) (17 977) (41 110) (42 830) (6 373) (10 066) Accrued taxes and interest 19 486 16 090 25 114 (4 441) 37 766 (14 013) Other items - net (23 448) 31 395 (28 066) 45 667 6 925 59 372 Net cash provided by (used in) operating activities 144 423 111 723 356 822 357 153 447 066 412 321 Financing Activities Issuance of common stock - 12 069 - 35 566 1 145 46 605 Issuance of long-term debt 195 255 - 344 280 311 957 344 280 608 957 Funds on deposit from issuance of long-term debt (84 000) - (84 000) - (84 000) - Retirement of preferred stock (93 450) - (93 450) (40 400) (93 450) (40 400) Redemption of long-term debt (21 302) - (238 498) (313 247) (238 773) (601 189) Change in short-term debt 13 000 7 000 12 000 (18 500) 14 000 (6 080) Dividends on preferred stock (3 475) (5 362) (14 199) (17 942) (18 634) (24 233) Dividends on common stock (55 400) (38 358) (162 950) (114 357) (207 563) (152 077) Net cash provided by (used in) financing activities (49 372) (24 651) (236 817) (156 923) (282 995) (168 417) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (29 935) (44 015) (99 661) (123 026) (166 589) (175 769) Deferred demand-side management costs (2 071) (1 882) (6 315) (4 584) (8 127) (5 419) Net cash provided by (used in) investing activities (32 006) (45 897) (105 976) (127 610) (174 716) (181 188) Net increase (decrease) in cash and temporary cash investments 63 045 41 175 14 029 72 620 (10 645) 62 716 Cash and temporary cash investments at beginning of period 3 500 36 015 52 516 4 570 77 190 14 474 Cash and temporary cash investments at end of period $ 66 545 $ 77 190 $ 66 545 $ 77 190 $ 66 545 $ 77 190 The accompanying notes as they relate to CG&E are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales for the quarter ended September 30, 1995, increased 22.1% over the same period of 1994 due in large part to increased sales to retail customers. Higher domestic and commercial sales resulted primarily from warmer weather. The increased industrial sales primarily reflect growth in the chemicals and food products sectors. Also significantly contributing to the higher total kwh sales levels were increased non-firm power sales for resale reflecting higher short-term power sales and sales to PSI. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the third quarter of 1995 increased 2.7% as compared to the third quarter of 1994, reflecting higher gas transportation volumes as industrial customers continued to purchase directly from gas suppliers, creating a significant increase in demand for transportation services. The increased transportation volume, primarily in the primary metals, paper products, and food products sectors, more than offset a decline in industrial sales volumes. Also, partially offsetting the increase in transportation volumes were decreased sales to domestic and commercial customers. Operating Revenues Electric Operating Revenues Electric operating revenues increased $33 million (8.9%) for the quarter ended September 30, 1995, over the comparable period of 1994. This increase reflects the higher kwh sales, as previously discussed. An analysis of electric operating revenues is shown below: Quarter Ended September 30 (in millions) Operating revenues - September 30, 1994 $368 Increase (Decrease) due to change in: Price per kwh Retail (9) Sales for Resale Non-firm power transactions (12) Total change in price per kwh (21) Kwh sales Retail 34 Sales for Resale Firm Power Obligations 1 Non-firm power transactions 19 Total change in kwh sales 54 Operating revenues - September 30, 1995 $401 Gas Operating Revenues Gas operating revenues declined $7 million (17.0%) in the third quarter of 1995 when compared to the same period last year, primarily as a result of the previously discussed decrease in total retail sales volumes. An increase in the relative volume of gas transported to gas sold, as previously discussed, also contributed to the decrease. Providing transportation services does not necessitate the recovery of gas purchased costs by CG&E. Consequently, the revenue per Mcf transported is below the revenue per Mcf sold. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $7 million (7.6%) for the quarter as compared to last year. An analysis of fuel costs is shown below: Quarter Ended September 30 (in millions) Fuel expense - September 30, 1994 $91 Increase (Decrease) due to change in: Price of fuel (11) Kwh generation 4 Fuel expense - September 30, 1995 $84 Gas Purchased Gas purchased for the quarter declined $3 million (17.8%) when compared to the same period last year. This decrease was attributable to a decrease in volumes purchased associated with the aforementioned changes in volumes sold and transported. Purchased and Exchanged Power Purchased and exchanged power for the quarter ended September 30, 1995, increased $13 million over the comparable period of 1994. This increase primarily reflects purchases from PSI. Other Operation Other operation expenses decreased $11 million (14.1%) for the quarter ended September 30, 1995, as compared to the same period last year. The decrease was primarily attributable to the recognition in September 1994 of costs related to a workforce reduction program which cannot be recovered from customers under the merger savings sharing mechanisms authorized by regulators. Also contributing to the decrease were lower gas and electric distribution expenses. Maintenance The decrease in maintenance expense of $4 million (18.4%) for the third quarter of 1995 as compared to the same period last year was primarily due to improved scheduling of routine maintenance on electric generating units. Lower maintenance costs on gas and electric distribution facilities also contributed to the decline. Amortization of Phase-In Deferrals Amortization of phase-in deferrals, which began in May 1995, reflects the amortization of previously deferred depreciation and deferred return resulting from the three-year rate phase-in plan for Zimmer included in the May 1992 Order. These deferrals will be recovered over a seven-year period as contemplated in the May 1992 Order. Taxes Other than Income Taxes Taxes other than income taxes increased $3 million (7.0%) over the same period of 1994. The increase was primarily attributable to increased property taxes resulting from higher property tax rates. Other Income and Expenses - Net Other - Net Other - net increased $6 million over the same period of 1994. The increase was primarily attributable to interest associated with a refund of an overpayment of Federal income taxes for 1987 and 1990. Preferred Dividend Requirement The decrease in CG&E's preferred dividend requirement of $2 million (35.2%) for the three months ended September 30, 1995, from the same period of 1994 was attributable to the early redemption of 400,000 and 500,000 shares of $100 par value, Cumulative Preferred Stock, 7.44% Series and 9.15% Series, respectively, on July 1, 1995. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales for the nine months ended September 30, 1995, increased 13.1% over the same period of 1994 due in part to an increase in non-firm power sales for resale reflecting higher short-term power sales and sales to PSI. Also contributing to the higher total kwh sales levels were increased sales to domestic, commercial, and industrial customers. The increase in domestic and commercial sales was mostly due to warmer weather during the summer cooling season. The increase in industrial sales was primarily due to growth in the chemicals and primary metals sectors. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the nine months ended September 30, 1995, decreased slightly when compared to the same period of 1994. Decreases in domestic and commercial sales volumes were attributable to milder weather during the 1995 heating season. The decrease in industrial sales was attributable to the trend of industrial customers electing to purchase directly from suppliers, creating additional demand for transportation services. The additional transportation volumes more than offset the decrease in industrial sales and resulted from growth in the primary metals sector. Operating Revenues Electric Operating Revenues Electric operating revenues increased $56 million (5.4%) for the nine months ended September 30, 1995, over the comparable period of 1994. This increase primarily reflects the higher kwh sales discussed above and the retail electric rate increase which became effective May 1994 pursuant to the May 1992 Order. This increase was partially offset by the operation of fuel adjustment clauses reflecting a lower average cost of fuel used in electric production. An analysis of electric operating revenues is shown below: Nine Months Ended September 30 (in millions) Operating revenues - September 30, 1994 $1 032 Increase (Decrease) due to change in: Price per kwh Retail (4) Sales for resale Firm power obligations 1 Non-firm power transactions (12) Total change in price per kwh (15) Kwh sales Retail 29 Sales for resale Non-firm power transactions 43 Total change in kwh sales 72 Other (1) Operating revenues - September 30, 1995 $1 088 Gas Operating Revenues Gas operating revenues declined $65 million (19.8%) in the first nine months of 1995 when compared to the same period last year. This decrease reflects the previously discussed decline in total retail volumes sold and the operation of adjustment clauses reflecting a lower average cost of gas purchased. An increase in the relative volume of gas transported to gas sold also contributed to the decrease. Providing transportation services does not necessitate the recovery of gas purchased costs. Consequently, the revenue per Mcf transported is below the revenue per Mcf sold. Operating Expenses Fuel Used in Electric Production Electric fuel costs remained relatively constant for the first nine months of 1995 as compared to the same period last year. An analysis of fuel costs is shown below: Nine Months Ended September 30 (in millions) Fuel expense - September 30, 1994 $252 Increase (Decrease) due to change in: Price of fuel (12) Kwh generation 13 Fuel expense - September 30, 1995 $253 Gas Purchased Gas purchased for the nine months ended September 30, 1995, decreased $59 million (31.1%) when compared to the same period last year. This decrease was attributable to a 13.5% decline in volumes purchased and a 20.3% lower average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power for the nine months ended September 30, 1995, increased $23 million over the comparable period of 1994. This increase primarily reflects purchases from PSI. Other Operation Other operation expenses decreased $14 million (6.5%) for the nine months ended September 30, 1995, as compared to the same period last year. The decrease was primarily attributable to the recognition of costs related to a workforce reduction program in September 1994 which cannot be recovered from customers under the merger savings sharing mechanisms authorized by regulators. Also contributing to the decrease were reduced gas production expenses and lower electric distribution expenses. Maintenance The decrease in maintenance expense of $12 million (15.9%) for the nine month period ended September 30, 1995, as compared to the same period last year was primarily due to improved scheduling of routine maintenance on generating units. Lower maintenance costs on gas and electric distribution facilities also contributed to the decline. Amortization of Phase-In Deferrals Amortization of phase-in deferrals, which began in May 1995, reflects the amortization of previously deferred depreciation and deferred return resulting from the three-year rate phase-in plan for Zimmer included in the May 1992 Order. These deferrals will be recovered over a seven-year period as contemplated in the May 1992 Order. Taxes Other than Income Taxes Taxes other than income taxes increased $5 million (3.5%) over the same period of 1994. The increase was primarily attributable to increased property taxes resulting from higher property tax rates. Other Income And Expenses - Net Phase-in Deferred Return Phase-in deferred return decreased $7 million (52.2%) for the first nine months of 1995 from the comparable period of 1994, as a result of implementing the final increase of the three-year rate phase-in plan in May 1994. Other - Net Other - net increased $6 million over the same period of 1994. The increase was primarily attributable to interest associated with a refund of an overpayment of Federal income taxes for 1987 and 1990. Interest Interest decreased $6 million (5.5%) for the nine months ended September 30, 1995, from the same period of 1994. This decrease was due to reductions in interest on long-term debt resulting from the refinancing of $235 million principal amount of first mortgage bonds during 1995. Preferred Dividend Requirement CG&E's preferred dividend requirement decreased $3 million (16.5%) for the nine months ended September 30, 1995, from the same period of 1994. The decrease was attributable to the early redemption of 400,000 shares of $100 par value, 9.28% Series Cumulative Preferred Stock in April 1994, along with the early redemption of 400,000 and 500,000 shares of $100 par value Cumulative Preferred Stock, 7.44% Series and 9.15% Series, respectively, on July 1, 1995. RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales for the twelve months ended September 30, 1995, increased 9.0% when compared to the same period of 1994 due in part to an increase in non-firm sales for resale reflecting higher short-term power sales and sales to PSI. In addition, industrial sales increased due, in large part, to growth in the primary metals and chemicals sectors. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the twelve months ended September 30, 1995, decreased 4.2% when compared to the same period of 1994. Decreases in domestic and commercial sales volumes were attributable to milder weather during the winter heating season. A decrease in industrial sales was attributable to the continuing trend of industrial customers electing to purchase directly from suppliers, creating additional demand for transportation services. The increased transportation volumes were due, in large part, to growth in the primary metals, food products, and paper products sectors. Operating Revenues Electric Operating Revenues Electric operating revenues increased $53 million (3.9%) for the twelve months ended September 30, 1995, over the comparable period of 1994. This increase primarily reflects the higher kwh sales, as previously discussed. Also contributing to the increase was the May 1994 electric retail rate increase related to the phase-in plan included in the May 1992 Order. The operation of fuel adjustment clauses reflecting a lower average cost of fuel used in electric production partially offset these increases. An analysis of electric operating revenues is shown below: Twelve Months Ended September 30 (in millions) Operating revenues - September 30, 1994 $1 349 Increase (Decrease) due to change in: Price per kwh Retail (1) Sales for Resale Firm power obligations 1 Non-firm power transactions (10) Total change in price per kwh (10) Kwh sales Retail 27 Sales for Resale Non-firm power transactions 37 Total change in kwh sales 64 Other (1) Operating revenues - September 30, 1995 $1 402 Gas Operating Revenues Gas operating revenues declined $119 million (23.9%) for the twelve months ended September 30, 1995, when compared to the same period last year. This decrease was primarily the result of decreases in sales volumes and the operation of adjustment clauses reflecting a decline in the average cost of gas purchased. An increase in the relative volume of gas transported to gas sold also contributed significantly to the decrease. Providing transportation services does not necessitate the recovery of gas purchased costs. Consequently, the revenue per Mcf transported is below the revenue per Mcf sold. Operating Expenses Fuel Used in Electric Production Electric fuel costs decreased $11 million (3.4%) for the twelve months ended September 30, 1995, as compared to the same period last year. An analysis of fuel costs is shown below: Twelve Months Ended September 30 (in millions) Fuel expense - September 30, 1994 $337 Increase (Decrease) due to change in: Price of fuel (16) Kwh generation 5 Fuel expense - September 30, 1995 $326 Gas Purchased Gas purchased for the twelve months ended September 30, 1995, decreased $99 million (34.3%) when compared to the same period last year. This decrease was attributable to a 17.7% decline in volumes purchased associated with the previously discussed changes in gas sales volumes and a 20.1% lower average cost per Mcf of gas purchased. Purchased and Exchanged Power Purchased and exchanged power for the twelve months ended September 30, 1995, increased $29 million over the comparable period of 1994. This increase primarily reflects purchases from PSI. Other Operation Other operation expenses increased $25 million (8.5%) for the twelve months ended September 30, 1995, as compared to the same period last year. The primary factor contributing to this increase was charges of approximately $41 million in December 1994 for merger-related costs and other expenditures which cannot be recovered from customers under the merger savings sharing mechanisms authorized by regulators. The period to period comparison also reflects the recognition in September 1994 of costs related to a workforce reduction program and a decrease in gas and electric distribution expenses. Maintenance The decrease in maintenance expense of $12 million (11.5%) for the twelve months ended September 30, 1995, as compared to the same period last year, was due to a number of factors. Improved scheduling of routine maintenance on electric generating units, lower maintenance costs on gas and electric distribution facilities, and reduced maintenance expenditures for facilities used in general and administrative functions all contributed to the decrease. Amortization of Phase-In Deferrals Amortization of phase-in deferrals, which began in May 1995, reflects the amortization of previously deferred depreciation and deferred return resulting from the three-year rate phase-in plan for Zimmer included in the May 1992 Order. These deferrals will be recovered over a seven-year period as contemplated in the May 1992 Order. Phase-in Deferred Depreciation Phase-in deferred depreciation resulted from the three-year rate phase-in plan for Zimmer included in the May 1992 Order. The change of $4 million (59.9%) for phase-in deferred depreciation for the twelve months ended September 30, 1995, versus the same period of 1994, reflects discontinuance of the deferral of depreciation when the final increase of the three-year rate phase-in plan became effective in May 1994. Taxes Other than Income Taxes Taxes other than income taxes increased $11 million (5.6%) for the twelve months ended September 30, 1995, over the comparable period of 1994, primarily due to increased property taxes resulting from higher property tax rates. Other Income And Expenses - Net Phase-in Deferred Return Phase-in deferred return decreased $12 million for the twelve months ended September 30, 1995, from the comparable period of 1994, as a result of implementing the final increase of the three-year rate phase-in plan in May 1994. Write-off of a Portion of Zimmer In November 1993, CG&E wrote off Zimmer costs disallowed from rates in the May 1992 Order. Other - Net Other - net increased $8 million over the same period of 1994. The increase was due to a number of factors, foremost of which was interest associated with a refund of an overpayment of Federal income taxes for 1987 and 1990. Interest Interest charges decreased $9 million (6.0%) for the twelve months ended September 30, 1995, from the same period of 1994. The decrease was due to reductions in interest on long-term debt resulting from the refinancing of $235 million principal amount of long-term debt during 1995 and $305 million principal amount of long-term debt during the first quarter of 1994. Preferred Dividend Requirement CG&E's preferred dividend requirement decreased $4 million (16.1%) for the twelve months ended September 30, 1995, compared to the same period of 1994. The decrease was attributable to the early redemption of 400,000 shares of $100 par value, 9.28% Series Cumulative Preferred Stock in April 1994, along with the early redemption of 400,000 and 500,000 shares of $100 par value Cumulative Preferred Stock, 7.44% Series and 9.15% Series, respectively, on July 1, 1995.
PSI ENERGY, INC. CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1995 1994 (dollars in thousands) Electric Utility Plant - original cost In service $3 922 650 $3 789 785 Accumulated depreciation 1 617 483 1 550 297 2 305 167 2 239 488 Construction work in progress 140 628 163 761 Total electric utility plant 2 445 795 2 403 249 Current Assets Cash 3 607 6 341 Restricted deposits 2 490 11 190 Accounts receivable less accumulated provision of $369,000 at September 30, 1995, and $440,000 at December 31, 1994 for doubtful accounts 71 503 36 061 Materials, supplies, and fuel - at average cost Fuel for use in electric production 96 017 113 861 Other materials and supplies 30 897 29 363 Prepayments and other 3 539 4 758 208 053 201 574 Other Assets Regulatory assets Post-in-service carrying costs and deferred operating expenses 37 759 30 142 Deferred demand-side management costs 105 166 94 125 Amounts due from customers - income taxes 26 537 27 134 Deferred merger costs 41 312 37 645 Unamortized costs of reacquiring debt 35 106 36 998 Other 31 449 30 030 Other 87 331 84 027 364 660 340 101 $3 018 508 $2 944 924 The accompanying notes as they relate to PSI are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CAPITALIZATION AND LIABILITIES September 30 December 31 1995 1994 (dollars in thousands) Common Stock Equity Common stock - without par value; $.01 stated value; authorized shares - 60,000,000; outstanding shares - 53,913,701 at September 30, 1995, and December 31, 1994 $ 539 $ 539 Paid-in capital 402 038 389 309 Accumulated earnings subsequent to November 30, 1986, quasi-reorganization 595 803 493 103 Total common stock equity 998 380 882 951 Cumulative Preferred Stock Not subject to mandatory redemption 187 913 187 929 Long-term Debt 828 245 877 512 Total capitalization 2 014 538 1 948 392 Current Liabilities Long-term debt due within one year 50 400 60 400 Notes payable 236 500 193 573 Accounts payable 92 133 142 775 Refund due to customers 12 878 15 482 Litigation settlement 80 000 80 000 Accrued taxes 48 583 30 784 Accrued interest 12 376 25 685 Other 3 003 3 202 535 873 551 901 Other Liabilities Deferred income taxes 331 815 324 738 Unamortized investment tax credits 57 315 60 461 Accrued pension and other postretirement benefit costs 48 381 31 324 Other 30 586 28 108 468 097 444 631 $3 018 508 $2 944 924
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 1995 1994 1995 1994 1995 1994 (in thousands) Operating Revenues $343 297 $283 569 $932 088 $843 856 $1 201 744 $1 120 332 Operating Expenses Fuel used in electric production 106 344 104 225 292 910 287 143 393 290 375 394 Purchased and exchanged power 13 159 8 052 42 829 36 278 47 951 45 361 Other operation 61 595 51 724 167 354 152 339 228 137 199 520 Maintenance 20 857 25 413 63 861 67 789 90 221 88 429 Depreciation 28 844 34 209 91 291 101 412 127 598 134 460 Post-in-service deferred operating expenses - net (894) (2 484) (4 608) (7 106) (6 790) (9 311) Income taxes 29 222 11 880 64 877 44 581 70 662 65 291 Taxes other than income taxes 14 022 12 884 40 721 38 355 48 701 49 960 273 149 245 903 759 235 720 791 999 770 949 104 Operating Income 70 148 37 666 172 853 123 065 201 974 171 228 Other Income and Expenses - Net Allowance for equity funds used during construction (1 428) 1 813 (420) 5 252 (1 442) 10 149 Post-in-service carrying costs 602 2 452 3 183 6 758 6 205 8 856 Income taxes 705 (221) 751 102 (663) 96 Other - net 545 (1 908) (1 751) (7 423) (2 221) (9 599) 424 2 136 1 763 4 689 1 879 9 502 Income Before Interest 70 572 39 802 174 616 127 754 203 853 180 730 Interest Interest on long-term debt 17 647 17 283 53 546 50 905 71 503 67 291 Other interest 4 162 4 820 12 035 10 202 17 125 11 304 Allowance for borrowed funds used during construction (1 133) (2 539) (3 550) (7 316) (5 589) (9 397) 20 676 19 564 62 031 53 791 83 039 69 198 Net Income 49 896 20 238 112 585 73 963 120 814 111 532 Preferred Dividend Requirement 3 295 3 296 9 885 9 887 13 180 13 754 Net Income on Common Shares $ 46 601 $ 16 942 $102 700 $ 64 076 $ 107 634 $ 97 778 The accompanying notes as they relate to PSI are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (unaudited) Common Paid-in Retained Total Common Stock Capital Earnings Stock Equity (dollars in thousands) Quarter Ended September 30, 1995 Balance July 1, 1995 $539 $389 316 $549 202 $939 057 Net income 49 896 49 896 Dividends on preferred stock (3 295) (3 295) Capital contribution from parent company 12 721 12 721 Other 1 1 Balance September 30, 1995 $539 $402 038 $595 803 $998 380 Quarter Ended September 30, 1994 Balance July 1, 1994 $539 $229 287 $497 784 $727 610 Net income 20 238 20 238 Dividends on preferred stock (3 295) (3 295) Dividends on common stock (16 174) (16 174) Balance September 30, 1994 $539 $229 287 $498 553 $728 379 Nine Months Ended September 30, 1995 Balance January 1, 1995 $539 $389 309 $493 103 $882 951 Net income 112 585 112 585 Dividends on preferred stock (9 885) (9 885) Capital contribution from parent company 12 721 12 721 Other 8 8 Balance September 30, 1995 $539 $402 038 $595 803 $998 380 Nine Months Ended September 30, 1994 Balance January 1, 1994 $539 $229 288 $483 242 $713 069 Net income 73 963 73 963 Dividends on preferred stock (9 886) (9 886) Dividends on common stock (48 766) (48 766) Other (1) (1) Balance September 30, 1994 $539 $229 287 $498 553 $728 379 Twelve Months Ended September 30, 1995 Balance October 1, 1994 $539 $229 287 $498 553 $728 379 Net income 120 814 120 814 Dividends on preferred stock (13 181) (13 181) Dividends on common stock (10 376) (10 376) Capital contribution from parent company 172 720 172 720 Other 31 (7) 24 Balance September 30, 1995 $539 $402 038 $595 803 $998 380 Twelve Months Ended September 30, 1994 Balance October 1, 1993 $539 $230 945 $467 444 $698 928 Net income 111 532 111 532 Dividends on preferred stock (13 835) (13 835) Dividends on common stock (66 664) (66 664) Other (1 658) 76 (1 582) Balance September 30, 1994 $539 $229 287 $498 553 $728 379 The accompanying notes as they relate to PSI are an integral part of these consolidated financial statements.
PSI ENERGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Quarter Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 1995 1994 1995 1994 1995 1994 (in thousands) Operating Activities Net income $ 49 896 $ 20 238 $ 112 585 $ 73 963 $ 120 814 $ 111 532 Items providing (using) cash currently: Depreciation 28 844 34 209 91 291 101 412 127 598 134 460 Deferred income taxes and investment tax credits - net (1 255) (1 145) 5 342 19 558 9 911 23 038 Allowance for equity funds used during construction 1 428 (1 813) 420 (5 252) 1 442 (10 149) Regulatory assets Post-in-service carrying costs and deferred operating expenses (1 496) (4 936) (7 791) (13 864) (12 995) (18 168) Deferred merger costs (5 208) (1 240) (7 353) (8 418) (22 235) (10 634) Other (178) (122) (273) 4 425 (327) 2 259 Changes in current assets and current liabilities Restricted deposits - 1 547 16 1 397 8 643 1 276 Accounts receivable (23 391) 17 202 (35 442) (2 276) (40 570) 16 166 Income tax refunds - 3 800 - 28 900 - 10 000 Materials, supplies, and fuel 23 089 (2 403) 16 310 (57 753) 7 366 (57 449) Accounts payable (14 667) (9 309) (50 642) (30 234) (21 726) (9 717) Refund due to customers (2 918) (2 999) (2 604) (47 223) (21 731) (115 391) Advance under accounts receivable purchase agreement - - - (49 940) - - Accrued taxes and interest 7 071 (21 169) 4 490 (19 598) 21 160 15 404 Other items - net 5 192 2 416 18 865 (2 408) 16 301 5 129 Net cash provided by (used in) operating activities 66 407 34 276 145 214 (7 311) 193 651 97 756 Financing Activities Issuance of preferred stock - - - - - 59 475 Issuance of long-term debt - 59 910 - 108 978 - 108 978 Funds on deposit from issuance of long-term debt 2 056 8 810 8 684 21 211 15 370 33 039 Retirement of preferred stock (1) - (8) (10) (24) (60 116) Redemption of long-term debt (60 000) - (60 055) - (60 215) (95 295) Change in short-term debt 27 000 (1 199) 42 927 165 100 (55 301) 268 301 Dividends on preferred stock (3 295) (3 295) (9 885) (9 886) (13 181) (13 835) Dividends on common stock - (16 174) - (48 766) (10 376) (66 664) Donation of capital by Cinergy Corp. 12 721 - 12 721 - 172 720 - Net cash provided by (used in) financing activities (21 519) 48 052 (5 616) 236 627 48 993 233 883 Investing Activities Construction expenditures (less allowance for equity funds used during construction) (41 444) (71 330) (132 282) (202 369) (219 644) (294 797) Deferred demand-side management costs (4 943) (9 829) (10 050) (25 343) (25 579) (38 488) Net cash provided by (used in) investing activities (46 387) (81 159) (142 332) (227 712) (245 223) (333 285) Net increase (decrease) in cash and temporary cash investments (1 499) 1 169 (2 734) 1 604 (2 579) (1 646) Cash and temporary cash investments at beginning of period 5 106 5 017 6 341 4 582 6 186 7 832 Cash and temporary cash investments at end of period $ 3 607 $ 6 186 $ 3 607 $ 6 186 $ 3 607 $ 6 186 The accompanying notes as they relate to PSI are an integral part of these consolidated financial statements.
PSI ENERGY, INC. RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales for the quarter ended September 30, 1995, increased 23.5% when compared to the same period last year due in part to non-firm power sales for resale reflecting an increase in sales to CG&E. Higher kwh sales to domestic and commercial customers as a result of warmer weather also significantly contributed to this increase. Operating Revenues Total operating revenues increased $60 million (21.1%) in the third quarter of 1995 as compared to the same period last year. This increase primarily reflects the higher kwh sales, as previously discussed. The increase also reflects a 4.3% retail rate increase approved in the February 1995 Order and a 1.9% rate increase for carrying costs on CWIP property which was approved by the IURC in March 1995. An analysis of operating revenues is shown below: Quarter Ended September 30 (in millions) Operating revenues - September 30, 1994 $283 Increase (Decrease) due to change in: Price per kwh Retail 17 Sales for resale Non-firm power transactions (7) Total change in price per kwh 10 Kwh sales Retail 27 Sales for resale Firm power obligations 5 Non-firm power transactions 18 Total change in kwh sales 50 Operating revenues - September 30, 1995 $343 Operating Expenses Fuel Used in Electric Production Fuel costs, PSI's largest operating expense, increased $2 million (2.0%) for the quarter as compared to the same period last year. An analysis of fuel costs is shown below: Quarter Ended September 30 (in millions) Fuel expense - September 30, 1994 $104 Increase (Decrease) due to change in: Price of fuel (13) Kwh generation 15 Fuel expense - September 30, 1995 $106 Purchased and Exchanged Power For the quarter ended September 30, 1995, purchased and exchanged power increased $5 million (63.4%) as compared to the same period last year, reflecting increased purchases of available low cost power. Other Operation Other operation expenses for the quarter ended September 30, 1995, increased $10 million (19.1%) as compared to the same period last year. This increase was due to a number of factors, including the accrual of postretirement benefit costs, the amortization of deferred postretirement benefit costs, an increase in the level of ongoing DSM expenses, and the amortization of deferred DSM costs, all of which are being recovered in revenues pursuant to the February 1995 Order. Maintenance Maintenance expenses for the quarter ended September 30, 1995, as compared to the same period last year decreased $5 million (17.9%) primarily as a result of reductions in maintenance costs on electric production and distribution facilities. Depreciation Depreciation expense decreased $5 million (15.7%) for the quarter ended September 30, 1995, as compared to the same period last year. This decrease primarily reflects the adoption of lower depreciation rates effective in March 1995 pursuant to the February 1995 Order. The decrease was partially offset by the effect of additions to utility plant in service. Post-in-service Deferred Operating Expenses - Net Post-in-service deferred operating expenses decreased $2 million (64.0%) for the quarter ended September 30, 1995, from the comparable period of 1994 as a result of ceasing deferral of depreciation on qualified environmental projects upon the inclusion in rates of the costs of the projects per the February 1995 Order. Other Income and Expenses - Net Allowance for Equity Funds Used During Construction The equity component of AFUDC decreased $3 million for the three months ended September 30, 1995, as compared to the same period last year. This decline was due primarily to an increase in the average short-term debt outstanding. The quarter ended September 30, 1995, reflects application of the lower rate retroactively for the year-to-date period. In addition, a scrubber at Gibson was placed in service in September 1994 which resulted in a large decrease in the average balance of CWIP. Post-in-service Carrying Costs Post-in-service carrying costs decreased $2 million (75.4%) for the quarter ended September 30, 1995, from the comparable period of 1994 as a result of discontinuing accrual of post-in-service carrying costs on qualified environmental projects upon the inclusion in rates of the costs of the projects per the February 1995 Order. Other - net Other - net increased $2 million for the quarter ended September 30, 1995, when compared to the same period last year. This increase is primarily due to an increase in carrying costs on DSM expenses which resulted from a higher debt component of the AFUDC rate used to compute carrying costs. Interest Allowance for Borrowed Funds Used During Construction The debt component of AFUDC decreased $1 million (55.4%) for the quarter ended September 30, 1995, as compared to the same period last year. This decrease was due primarily to a decrease in the average balance of CWIP and was partially offset by an increase in the debt component of the AFUDC rate. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 Kwh Sales For the nine months ended September 30, 1995, kwh sales increased 4.1% when compared to the same period last year primarily due to increased kwh sales to domestic, commercial, and industrial customers. The higher domestic and commercial sales resulted from warmer weather during the summer cooling period and an increase in the average number of customers, while higher industrial sales reflected growth in the primary metals and chemicals sectors. Also contributing to the increase were higher non-firm power sales for resale reflecting an increase in sales to CG&E . These increases were partially offset by a decline in third party short-term power sales to other utilities. Operating Revenues Total operating revenues increased $88 million (10.5%) for the nine months ended September 30, 1995, when compared to the same period last year. This increase primarily reflects the 4.3% retail rate increase and 1.9% rate increase for carrying costs on CWIP property as previously discussed. The previously discussed increase in kwh sales also contributed to the increase in revenues. An analysis of operating revenues is shown below: Nine Months Ended September 30 (in millions) Operating revenues - September 30, 1994 $844 Increase (Decrease) due to change in: Price per kwh Retail 55 Sales for resale Non-firm power transactions (1) Total change in price per kwh 54 Kwh sales Retail 29 Sales for resale Non-firm power transactions 4 Total change in kwh sales 33 Other 1 Operating revenues - September 30, 1995 $932 Operating Expenses Fuel Used in Electric Production Fuel costs for the nine months ended September 30, 1995, increased $6 million (2.0%) when compared to the same period last year. An analysis of fuel costs is shown below: Nine Months Ended September 30 (in millions) Fuel expense - September 30, 1994 $287 Increase due to change in: Price of fuel 1 Kwh generation 5 Fuel expense - September 30, 1995 $293 Purchased and Exchanged Power For the nine months ended September 30, 1995, purchased and exchanged power increased $7 million (18.1%) as compared to the same period last year, reflecting increased purchases from CG&E and purchases of available low cost power. This increase was partially offset by a decline in third party short-term power sales to other utilities. Other Operation Other operation expenses increased $15 million (9.9%) for the nine months ended September 30, 1995, as compared to the same period last year. This increase was due to a number of factors, including the accrual of postretirement benefit costs, the amortization of deferred postretirement benefit costs, an increase in the level of ongoing DSM expenses, the amortization of deferred DSM costs, and the amortization of merger costs, all of which are being recovered in revenues pursuant to the February 1995 Order. The period to period comparison reflects the write-off of previously deferred litigation expenses during 1994. Maintenance Maintenance expenses for the nine months ended September 30, 1995, as compared to the same period last year decreased $4 million (5.8%) primarily as a result of decreased electric distribution costs. Depreciation Depreciation expense for the nine months ended September 30, 1995, decreased $10 million (10.0%) when compared to the same period last year. This decrease was primarily driven by the adoption of lower depreciation rates effective in March 1995 pursuant to the February 1995 Order. The decrease was partially offset by the effect of additions to utility plant in service. Post-in-service Deferred Operating Expenses - Net Post-in-service deferred operating expenses decreased $2 million (35.2%) for the nine months ended September 30, 1995, from the comparable period of 1994 as a result of ceasing deferral of depreciation on qualified environmental projects upon the inclusion in rates of the costs of the projects per the February 1995 Order. Other Income and Expenses - Net Allowance for Equity Funds Used During Construction The equity component of AFUDC decreased $6 million for the nine months ended September 30, 1995, as compared to the same period last year. As previously discussed, this decrease was due primarily to an increase in the average short-term debt outstanding. In addition, a scrubber was placed in service at Gibson in September 1994 which resulted in a large decrease in the average balance of CWIP. Post-in-service Carrying Costs Post-in-service carrying costs decreased $4 million (52.9%) for the nine months ended September 30, 1995, from the comparable period of 1994 as a result of discontinuing accrual of post-in-service carrying costs on qualified environmental projects upon the inclusion in rates of the costs of the projects per the February 1995 Order. Other - net Other - net increased $6 million (76.4%) for the nine months ended September 30, 1995, when compared to the same period last year. This increase is primarily due to an increase in carrying costs on DSM expenses which resulted from a higher AFUDC rate used to compute carrying costs and increased DSM expenses to which the rate is applied. Interest Interest on Long-term Debt Interest on long-term debt increased $3 million (5.2%) for the nine months ended September 30, 1995, as compared to the same period in 1994. The increase was primarily a result of the issuance of $60 million principal amount of 5.75% Series B medium-term notes in August 1994, which matured in August 1995. Other Interest Other interest increased $2 million (18.0%) over the same period last year. The increase was driven by higher interest rates and an increase in the average short-term debt outstanding. Allowance for Borrowed Funds Used During Construction The debt component of AFUDC decreased $4 million (51.5%) for the nine months ended September 30, 1995, as compared to the same period last year. This decrease was due primarily to a decrease in the average balance of CWIP and was partially offset by an increase in the debt component of the AFUDC rate. RESULTS OF OPERATIONS FOR TWELVE MONTHS ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales for the twelve months ended September 30, 1995, increased 3.4% when compared to the same period last year mostly due to non-firm power sales for resale reflecting an increase in sales to CG&E. In addition, increased kwh sales to industrial customers, resulting from growth in the primary metals, transportation equipment, and chemicals sectors, also contributed to this increase. Higher domestic and commercial sales resulting from increases in the average number of customers were also a factor. These increases were partially offset by a decline in short-term power sales to other utilities. Operating Revenues Total operating revenues increased $82 million (7.3%) for the twelve months ended September 30, 1995, as compared to the same period last year. This increase was driven, in part, by the 4.3% retail rate increase and the 1.9% rate increase for carrying costs on CWIP property as previously discussed. Increased kwh sales, as discussed above, also contributed to the increase in revenues. An analysis of operating revenues is shown below: Twelve Months Ended September 30 (in millions) Operating revenues - September 30, 1994 $1 120 Increase (Decrease) due to change in: Price per kwh Retail 53 Sales for resale Firm power obligations 1 Non-firm power transactions (3) Total change in price per kwh 51 Kwh sales Retail 22 Sales for resale Firm power obligations (3) Non-firm power transactions 11 Total change in kwh sales 30 Other 1 Operating revenues - September 30, 1995 $1 202 Operating Expenses Fuel Used in Electric Production Fuel costs for the twelve months ended September 30, 1995, increased $18 million (4.8%) as compared to the same period last year. An analysis of fuel costs is shown below: Twelve Months Ended September 30 (in millions) Fuel expense - September 30, 1994 $375 Increase due to change in: Price of fuel 7 Kwh generation 11 Fuel expense - September 30, 1995 $393 Other Operation Other operation expenses for the twelve months ended September 30, 1995, increased $29 million (14.3%) as compared to the same period last year. This increase was due to a number of factors, including the accrual of postretirement benefit costs, the amortization of deferred postretirement benefit costs, an increase in the level of ongoing DSM expenses, the amortization of deferred DSM costs, and the amortization of merger costs, all of which are being recovered in revenues pursuant to the February 1995 Order. In addition, charges of approximately $10 million for severance benefits to former officers were expensed in December 1994. The period to period comparison also reflects the write-off of previously deferred litigation expenses during 1994. Depreciation Depreciation expense for the twelve months ended September 30, 1995, decreased $7 million (5.1%) when compared to the same period last year. This decrease was primarily driven by the adoption of lower depreciation rates effective in March 1995 pursuant to the February 1995 Order. The decrease was partially offset by the effect of additions to utility plant in service. Other Income and Expenses - Net Allowance for Equity Funds Used During Construction The equity component of AFUDC decreased $12 million for the twelve month period ended September 30, 1995, as compared to the same period last year. As previously discussed, this decrease was due primarily to an increase in the average short-term debt outstanding. In addition, a scrubber at Gibson was placed in service in September 1994 which resulted in a large decrease in the average balance of CWIP. Other - net Other - net increased $7 million (76.9%) for the nine months ended September 30, 1995, when compared to the same period last year. This increase is primarily due to an increase in carrying costs on DSM expenses which resulted from a higher AFUDC rate used to compute carrying costs and increased DSM expenses to which the rate is applied. Interest Interest on Long-term Debt Interest on long-term debt increased $4 million (6.3%) for the twelve months ended September 30, 1995, as compared to the same period in 1994. The increase was primarily a result of the issuance of $60 million principal amount 5.75% Series B medium-term notes in August 1994, which matured in August 1995. Other Interest Other interest increased $6 million (51.5%) over the same period last year. The increase was driven, in part, by higher interest rates and an increase in the average short-term debt outstanding. Allowance for Borrowed Funds Used During Construction The debt component of AFUDC decreased $4 million (40.5%) for the twelve months ended September 30, 1995, as compared to the same period last year. This decrease was due primarily to a decrease in the average balance of CWIP and was partially offset by an increase in the debt component of the AFUDC rate.
THE UNION LIGHT, HEAT AND POWER COMPANY BALANCE SHEETS (unaudited) ASSETS September 30 December 31 1995 1994 (dollars in thousands) Utility Plant - original cost In service Electric $185 701 $179 098 Gas 139 083 134 103 Common 19 121 19 122 343 905 332 323 Accumulated depreciation 110 256 104 113 233 649 228 210 Construction work in progress 8 257 8 638 Total utility plant 241 906 236 848 Current Assets Cash 1 502 1 071 Accounts receivable less accumulated provision of $1,140,000 at September 30, 1995, and $457,000 at December 31, 1994, for doubtful accounts 22 858 33 892 Materials, supplies, and fuel - at average cost Gas stored for current use 5 774 6 216 Other materials and supplies 1 240 1 406 Property taxes applicable to subsequent year 2 287 2 200 Prepayments and other 637 593 34 298 45 378 Other Assets Regulatory assets Deferred merger costs 1 785 1 785 Unamortized costs of reacquiring debt 2 544 - Other 2 590 2 718 Other 1 689 399 8 608 4 902 $284 812 $287 128 The accompanying notes as they relate to ULH&P are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY CAPITALIZATION AND LIABILITIES September 30 December 31 1995 1994 (dollars in thousands) Common Stock Equity Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding shares - 585,333 at September 30, 1995 and December 31, 1994 $ 8 780 $ 8 780 Paid-in capital 18 839 18 839 Retained earnings 80 450 74 203 Total common stock equity 108 069 101 822 Long-term Debt 69 362 89 238 Total capitalization 177 431 191 060 Current Liabilities Notes payable 26 500 14 500 Accounts payable 21 903 21 655 Accrued taxes (1 082) 2 876 Accrued interest 2 157 2 123 Other 4 461 4 123 53 939 45 277 Other Liabilities Deferred income taxes 24 536 23 226 Unamortized investment tax credits 5 151 5 364 Accrued pension and other postretirement benefit costs 11 838 10 356 Income taxes refundable through rates 4 887 4 282 Other 7 030 7 563 53 442 50 791 $284 812 $287 128
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF INCOME (unaudited) Quarter Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 1995 1994 1995 1994 1995 1994 (in thousands) Operating Revenues Electric $51 203 $49 354 $138 585 $138 280 $177 869 $180 019 Gas 5 995 6 678 45 870 53 065 64 776 79 185 Total operating revenues 57 198 56 032 184 455 191 345 242 645 259 204 Operating Expenses Electricity purchased from parent company for resale 40 750 37 289 107 725 105 396 137 216 137 031 Gas purchased 2 168 2 727 23 884 29 936 34 456 44 837 Other operation 7 428 7 764 22 481 23 105 31 665 31 435 Maintenance 903 1 424 3 040 4 166 4 347 6 216 Depreciation 2 907 2 643 8 553 7 892 11 305 10 509 Income taxes (242) 461 3 719 4 688 4 373 6 748 Taxes other than income taxes 986 930 2 965 2 945 4 022 3 660 54 900 53 238 172 367 178 128 227 384 240 436 Operating Income 2 298 2 794 12 088 13 217 15 261 18 768 Other Income And Expenses - Net Allowance for equity funds used during construction 22 50 78 61 95 53 Income taxes (10) (101) (48) (57) 65 (56) Other - net (8) 82 59 417 (122) 361 4 31 89 421 38 358 Income Before Interest 2 302 2 825 12 177 13 638 15 299 19 126 Interest Interest on long-term debt 1 721 2 039 5 674 6 121 7 714 8 160 Other interest 157 79 376 296 475 460 Allowance for borrowed funds used during construction (24) (59) (120) (134) (169) (162) 1 854 2 059 5 930 6 283 8 020 8 458 Net Income $ 448 $ 766 $ 6 247 $ 7 355 $ 7 279 $ 10 668 The accompanying notes as they relate to ULH&P are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (unaudited) Common Paid-in Retained Total Common Stock Capital Earnings Stock Equity (dollars in thousands) Quarter Ended September 30, 1995 Balance July 1, 1995 $8 780 $18 839 $80 002 $107 621 Net income 448 448 Balance September 30, 1995 $8 780 $18 839 $80 450 $108 069 Quarter Ended September 30, 1994 Balance July 1, 1994 $8 780 $18 839 $75 916 $103 535 Net income 766 766 Balance September 30, 1994 $8 780 $18 839 $76 682 $104 301 Nine Months Ended September 30, 1995 Balance January 1, 1995 $8 780 $18 839 $74 203 $101 822 Net income 6 247 6 247 Balance September 30, 1995 $8 780 $18 839 $80 450 $108 069 Nine Months Ended September 30, 1994 Balance January 1, 1994 $8 780 $18 839 $69 327 $ 96 946 Net income 7 355 7 355 Balance September 30, 1994 $8 780 $18 839 $76 682 $104 301 Twelve Months Ended September 30, 1995 Balance October 1, 1994 $8 780 $18 839 $76 682 $104 301 Net income 7 279 7 279 Dividends on common stock (3 511) (3 511) Balance September 30, 1995 $8 780 $18 839 $80 450 $108 069 Twelve Months Ended September 30, 1994 Balance October 1, 1993 $8 780 $18 839 $68 941 $ 96 560 Net income 10 668 10 668 Dividends on common stock (2 927) (2 927) Balance September 30, 1994 $8 780 $18 839 $76 682 $104 301 The accompanying notes as they relate to ULH&P are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY STATEMENTS OF CASH FLOWS (unaudited) Quarter Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 1995 1994 1995 1994 1995 1994 (in thousands) Operating Activities Net income $ 448 $ 766 $ 6 247 $ 7 355 $ 7 279 $ 10 668 Items providing (using) cash currently: Depreciation 2 907 2 643 8 553 7 892 11 305 10 509 Deferred income taxes and investment tax credits - net 2 044 1 588 1 702 1 798 1 946 669 Allowance for equity funds used during construction (22) (50) (78) (61) (95) (53) Regulatory assets Deferred merger costs - (1 785) - (1 785) - (1 785) Other 43 43 128 128 170 170 Changes in current assets and current liabilities Accounts receivable 2 943 3 982 11 034 12 367 7 468 2 099 Materials, supplies, and fuel (1 476) (1 974) 608 436 1 215 358 Accounts payable (992) (3 512) 248 (7 434) 5 305 (1 085) Accrued taxes and interest (6 083) (1 868) (3 924) 1 736 (2 353) 1 313 Other items - net (3 378) (1 097) 595 2 491 884 4 305 Net cash provided by (used in) operating activities (3 566) (1 264) 25 113 24 923 33 124 27 168 Financing Activities Issuance of long-term debt 14 704 - 14 704 - 14 704 - Redemption of long-term debt (21 302) - (37 036) - (37 036) - Change in short-term debt 13 000 7 000 12 000 (12 500) 14 000 (6 000) Dividends on common stock - - - - (3 511) (2 927) Net cash provided by (used in) financing activities 6 402 7 000 (10 332) (12 500) (11 843) (8 927) Investing Activities Construction expenditures (less allowance for equity funds used during construction) (4 582) (5 070) (14 350) (13 564) (21 115) (18 655) Net cash provided by (used in) investing activities (4 582) (5 070) (14 350) (13 564) (21 115) (18 655) Net increase (decrease) in cash and temporary cash investment (1 746) 666 431 (1 141) 166 (414) Cash and temporary cash investments at beginning of period 3 248 670 1 071 2 477 1 336 1 750 Cash and temporary cash investments at end of period $ 1 502 $ 1 336 $ 1 502 $ 1 336 $ 1 502 $ 1 336 The accompanying notes as they relate to ULH&P are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales increased 7.2% for the quarter ended September 30, 1995, as a result of increased sales to domestic and commercial customers. The increase in domestic and commercial sales resulted from warmer weather during the period and increases in the average number of customers. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the third quarter of 1995 decreased .6% as compared to the third quarter of 1994. The decline was attributable to decreased sales volumes to domestic, commercial, and industrial customers. Warmer weather contributed to the decrease in domestic and commercial sales. The decrease in industrial sales was attributable to the trend of industrial customers electing to purchase directly from suppliers, creating additional demand for transportation services provided by ULH&P. The resulting significant increase in transportation volumes more than offset the decline in industrial sales and was primarily attributable to growth in the chemicals and paper products sectors. Operating Revenues Electric Operating Revenues Electric operating revenues increased $1.8 million (3.7%) for the quarter ended September 30, 1995, over the comparable period of 1994. This increase reflects the previously discussed increases in kwh sales. Gas Operating Revenues Gas operating revenues decreased $.7 million (10.2%) for the quarter ended September 30, 1995, over the comparable period of 1994. This decrease was the result of the previously discussed decline in total volumes sold and the operation of adjustment clauses reflecting a decline in the average cost of gas purchased. An increase in the relative volume of gas transported to gas sold also contributed to the decrease. Providing transportation services does not necessitate the recovery of gas purchased costs. Consequently, the revenue per Mcf transported is below the revenue per Mcf sold. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased expense, ULH&P's largest operating expense, increased $3.5 million (9.3%) for the quarter as compared to the same period last year. An analysis of electricity purchased costs is shown below: Quarter Ended September 30 (in thousands) Electricity purchased expense - September 30, 1994 $37 289 Increase due to change in: Price of electricity 565 Kwh purchased 2 896 Electricity purchased expense - September 30, 1995 $40 750 Gas Purchased Gas purchased for the quarter decreased $.6 million (20.5%) when compared to the same period last year. This decrease was attributable to a 15.5% decline in the average cost per Mcf purchased and a 5.9% decrease in volumes purchased. Other Operation Other operation expense decreased $.3 million (4.3%) for the quarter ended September 30, 1995, as compared to the same period last year. The decrease was primarily attributable to decreased gas and electric distribution expenses. Maintenance The decrease in maintenance expense of $.5 million (36.6%) for the third quarter of 1995 as compared to the same period last year was primarily due to lower maintenance costs on gas and electric distribution facilities. Depreciation The increase in depreciation expense of $.3 million (10.0%) for the third quarter of 1995 as compared to the same period last year was primarily due to additions to electric and gas plant in service. Interest Interest charges for the three month period ended September 30, 1995, decreased $.2 million (10.0%) from the comparable period of 1994, primarily due to the refinancing of $35 million of long-term debt during 1995. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales for the nine months ended September 30, 1995, increased 3.5% over the same period of 1994, primarily as a result of increased commercial and industrial sales volumes. The higher commercial sales were the result of warmer weather during the latter part of the summer cooling season and an increase in the average number of customers. The increased industrial sales reflect continued growth in the paper products and primary metals sectors. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the nine months ended September 30, 1995, decreased 2.3% as compared to the same period of 1994, as a result of decreased sales volumes to domestic, commercial, and industrial customers. Milder weather during the winter heating season contributed to the decrease in domestic and commercial sales. The decrease in industrial sales was attributable to the trend of industrial customers electing to purchase directly from suppliers, creating additional demand for transportation services provided by ULH&P. The resulting increase in transportation volumes more than offset the decline in industrial sales. Operating Revenues Electric Operating Revenues Electric operating revenues increased $.3 million (.2%) for the nine months ended September 30, 1995, over the comparable period of 1994. This increase reflects the previously discussed increases in kwh sales, the effects of which were partially offset by decreases in fuel adjustment clauses reflecting a decline in the average cost of electricity purchased. An analysis of electric operating revenues is shown below: Nine Months Ended September 30 (in thousands) Operating revenues - September 30, 1994 $138 280 Increase (Decrease) due to change in: Price per kwh (4 508) Kwh sales 4 840 Other (27) Operating revenues - September 30, 1995 $138 585 Gas Operating Revenues Gas operating revenues decreased $7.2 million (13.6%) in the first nine months of 1995 when compared to the same period last year. This decrease was the result of the previously discussed decline in total volumes sold and the operation of adjustment clauses reflecting a decline in the average cost of gas purchased. An increase in the relative volume of gas transported to gas sold also contributed to the decrease. Providing transportation services does not necessitate the recovery of gas purchased costs. Consequently, the revenue per Mcf transported is below the revenue per Mcf sold. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased expense increased $2.3 million (2.2%) for the first nine months of 1995 as compared to last year. An analysis of electricity purchased costs is shown below: Nine Months Ended September 30 (in thousands) Electricity purchased expense - September 30, 1994 $105 396 Increase (Decrease) due to change in: Price of electricity (4 995) Kwh purchased 7 324 Electricity purchased expense - September 30, 1995 $107 725 Gas Purchased Gas purchased expense for the first nine months decreased $6.1 million (20.2%) when compared to the same period last year. The decrease was attributable to a 7.7% decline in volumes purchased and a 13.5% decrease in the average cost per Mcf of gas purchased. Other Operation Other operation expenses decreased $.6 million (2.7%) for the nine months ended September 30, 1995, as compared to the same period last year. The decrease was attributable to decreased gas and electric distribution expenses and reduced gas production costs. Maintenance The decrease in maintenance expense of $1.1 million (27.0%) for the nine months ended September 30, 1995, as compared the same period last year was due primarily to lower maintenance costs on gas and electric distribution facilities and reduced maintenance on facilities used for administrative and general functions. Depreciation The increase in depreciation expense of $.7 million (8.4%) for the nine months ended September 30, 1995, as compared the same period last year was primarily due to additions to electric and gas plant in service. Interest Interest charges for the nine month period ended September 30, 1995, decreased $.4 million (5.6%) from the comparable period of 1994, primarily due to the refinancing of $35 million of long-term debt during 1995. RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1995 Kwh Sales Kwh sales for the twelve months ended September 30, 1995, increased 2.7% when compared to the same period of 1994. A decline in domestic sales volumes due to milder weather during the winter heating season was more than offset by increases in commercial and industrial sales and sales to public authorities. The higher commercial sales and sales to public authorities resulted from warmer weather during the summer cooling season and increases in the average number of both customer groups. The increased industrial sales primarily reflect growth in the primary metals sector. Mcf Sales and Transportation Mcf gas sales and transportation volumes for the twelve months ended September 30, 1995, decreased 7.4% when compared to the same period of 1994, as a result of lower domestic, commercial, and industrial sales. Milder weather during the winter heating season contributed to the decrease in domestic and commercial sales, while industrial sales decreased as customers elected to purchase directly from suppliers, creating additional demand for transportation services provided by ULH&P. The resulting increase in transportation volumes more than offset the lower industrial sales and was primarily due to growth in the paper products and primary metals sectors. Operating Revenues Electric Operating Revenues Electric operating revenues decreased $2.2 million (1.2%) for the twelve months ended September 30, 1995, over the comparable period of 1994. The decrease was attributable to the operation of adjustment clauses reflecting a decline in the average cost of electricity purchased and was partially offset by the previously discussed increases in sales volumes. An analysis of electric operating revenues is shown below: Twelve Months Ended September 30 (in thousands) Operating revenues - September 30, 1994 $180 019 Increase (Decrease) due to change in: Price per kwh (6 896) Kwh sales 4 833 Other (87) Operating revenues - September 30, 1995 $177 869 Gas Operating Revenues Gas operating revenues declined $14.4 million (18.2%) for the twelve months ended September 30, 1995, when compared to the same period last year. This decrease was the result of the aforementioned decline in volumes sold and the operation of adjustment clauses reflecting a lower average cost of gas purchased. An increase in the relative volume of gas transported to gas sold also contributed to the decrease. Providing transportation services does not necessitate the recovery of gas purchased costs. Consequently, the revenue per Mcf transported is below the revenue per Mcf sold. Operating Expenses Electricity Purchased from Parent Company for Resale Electricity purchased expense increased slightly for the twelve months ended September 30, 1995, as compared to last year. An analysis of electricity purchased costs is shown below: Twelve Months Ended September 30 (in thousands) Electricity purchased expense - September 30, 1994 $137 031 Increase (Decrease) due to change in: Price of electricity (7 151) Kwh purchased 7 336 Electricity purchased expense - September 30, 1995 $137 216 Gas Purchased Gas purchased expense for the twelve months ended September 30, 1995, decreased $10.4 million (23.2%) when compared to the same period last year. This decrease was attributable to a 12.1% decline in volumes purchased and a 12.6% decrease in the average cost per Mcf of gas purchased. Other Operation Other operation expenses increased $.2 million (.7%) for the twelve months ended September 30, 1995, as compared to the same period last year, primarily due to recognition of nonrecurring charges in December 1994 for merger-related costs and other costs ULH&P does not expect to recover from customers. These nonrecurring charges were partially offset by a number of items, including decreased gas production and distribution expenses and reductions in administrative and general expenses. Maintenance The decrease in maintenance expense of $1.9 million (30.1%) for the twelve months ended September 30, 1995, as compared the same period last year was due primarily to lower maintenance costs on gas and electric distribution facilities. Depreciation The increase in depreciation expense of $.8 million (7.6%) for the twelve months ended September 30, 1995, as compared the same period last year was primarily due to additions to electric and gas plant in service. Taxes Other than Income Taxes Taxes other than income taxes increased $.4 million (9.9%) for the twelve months ended September 30, 1995, over the same period of 1994, primarily due to increased property taxes as a result of higher property tax rates. Interest Interest charges for the twelve month period ended September 30, 1995, decreased $.4 million (5.2%) from the comparable period of 1994, primarily due to the refinancing of $35 million of long-term debt during 1995. NOTES TO FINANCIAL STATEMENTS Cinergy, CG&E, PSI, and ULH&P 1. These Financial Statements reflect all adjustments (which include only normal, recurring adjustments) necessary in the opinion of these companies 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 each registrant's 1994 Form 10-K. Certain amounts in the 1994 Financial Statements have been reclassified to conform to the 1995 presentation. Cinergy and PSI 2. As discussed in Cinergy's and PSI's 1994 Form 10-K, in July 1994, PSI filed a petition with the IURC for a retail rate increase, and in May 1995, filed testimony supporting a 12.8% ($127.9 million) annual increase. In an October 1995 update filing with the IURC, PSI lowered its rate increase request to 11.5% ($115.6 million) reflecting updated revenue and expense items. Major components of the increase include, among other things, the costs of the Clean Coal Project and a scrubber at Gibson. On November 1, 1995, the UCC filed testimony with the IURC recommending a 3.7% ($36.9 million) retail rate increase. The primary differences between PSI's case and the UCC's filing are the requested rate of return and other expense items, including DSM costs. An order is anticipated in the second quarter of 1996. PSI cannot predict what action the IURC may take with respect to this proposed rate increase. Cinergy and CG&E 3. In July 1995, CG&E filed a request with the PUCO to begin settlement discussions on a gas rate increase with intervenors who have participated in previous rate applications and represent the various classes of gas customers served by CG&E. The proposed annual increase, estimated to be $30.8 million, would increase annual revenues approximately 8.8%. The proposed increase, to be effective in late 1996, is being requested, in part, to recover capital investments made since the last gas rate increase in 1993. Also, the request includes a proposal to initiate a pilot program that would allow residential customers to choose their gas supplier and have CG&E transport the gas for them. A full rate application is expected to be filed with the PUCO in December 1995. CG&E cannot predict the outcome of these settlement discussions nor what actions the PUCO may take with respect to the proposed rate increase. Cinergy, CG&E, PSI, and ULH&P 4. SFAS 121, which is effective for Cinergy and its subsidiaries in January 1996, is not expected to have an adverse impact on financial condition or results of operations upon adoption, based on the regulatory environment in which Cinergy currently operates. However, this may change in the future as deregulation, competitive factors, and potential restructuring influence the electric utility industry. Cinergy and CG&E 5. All outstanding shares of CG&E's Cumulative Preferred Stock, 7.44% Series and 9.15% Series, totaling $90 million, were redeemed at a per share price of $101 and $106.10, respectively, on July 1, 1995. Cinergy and CG&E 6.(a) As previously discussed in Cinergy's and CG&E's 1994 Form 10-K, CG&E redeemed $59 million principal amount of its 9.70% first mortgage bonds (due June 15, 2019) on April 30, 1995, and $55 million principal amount of its 10 1/8% first mortgage bonds (due May 1, 2020) on May 1, 1995. Additionally, $41 million principal amount of the 9.70% first mortgage bonds and $45 million principal amount of the 10 1/8% first mortgage bonds were retired on March 31, 1995. Cinergy, CG&E, and ULH&P (b) In June 1995, ULH&P redeemed $5 million principal amount of its 10 1/4% first mortgage bonds (due June 1, 2020) at par with cash deposited in the Maintenance and Replacement Fund, and the remaining $10 million principal amount of such bonds at the redemption price of 107.34%. Additionally, on September 1, 1995, ULH&P redeemed all of its 9.70% first mortgage bonds (due July 1, 2019) at a redemption price of 106.51%. Cinergy and CG&E 7.(a) CG&E issued $150 million principal amount of 6.90% debentures (due June 1, 2025) and $100 million principal amount of 8.28% junior subordinated deferrable interest debentures (due June 30, 2025) in June and July 1995, respectively. The proceeds from these issuances were used in conjunction with the early redemption of preferred stock and long-term debt. Cinergy, CG&E, and ULH&P (b) On July 25, 1995, ULH&P issued $15 million of 7.65% debentures (due July 15, 2025). The proceeds from the issuance were used in conjunction with the early redemption of long-term debt. Cinergy and CG&E (c) On September 13, 1995, CG&E issued Series A and Series B ($42 million each series) of State of Ohio, Air Quality Development Revenue Refunding Bonds (due September 1, 2030). The bonds were issued at a variable interest rate, determined daily, and will continue to bear interest at such rate until converted by CG&E to a different interest rate mode as permitted by the respective indentures. Proceeds from the sales are being held in escrow and will be used to redeem on December 1, 1995, $84 million of State of Ohio 10 1/8% Pollution Control Revenue Bonds, 1985 Series (due December 1, 2015) at a redemption price of 102.5%. The amount being held in escrow is reflected in the consolidated balance sheets as a restricted deposit. Cinergy and PSI 8.(a) Coal tar residues, related hydrocarbons, and various metals have been found at former MGP sites in Indiana, including, but not limited to, several sites previously owned by PSI. PSI has identified at least 21 MGP sites which it previously owned, including 19 it sold in 1945 to IGC. IGC has informed PSI of the basis for its position that PSI, as a PRP under the CERCLA, should contribute to IGC's response costs related to investigating and remediating contamination at MGP sites which PSI sold to IGC. In February 1995, PSI received notification from NIPSCO alleging PSI is a PRP under the CERCLA with respect to contamination associated with MGP sites previously owned and/or operated by both PSI and NIPSCO (or their predecessors). The notification included seven sites, five of which PSI acquired from NIPSCO and subsequently sold to IGC. PSI has placed its insurance carriers on notice of IGC's and NIPSCO's claims. In May 1995, the IURC denied IGC's request for recovery of costs incurred in complying with Federal, state, and local environmental regulations related to MGP sites in which IGC has an interest, including sites acquired from PSI. IGC has appealed this decision, which IGC contends is contrary to decisions made by other state utility commissions with respect to this issue. In August 1995, the IURC granted PSI's motion to establish a sub-docket to PSI's pending retail rate case in order to consider PSI's rate recovery of any MGP site- related costs it may incur. At this time, PSI is unable to predict the nature, extent, and costs of, or PSI's responsibility for, any future environmental investigations and remediations which may be required at MGP sites owned or previously owned by PSI; however, any costs that ultimately are incurred may be material. In addition, PSI is unable to predict, at this time, the extent to which the IURC may allow rate recovery of such costs. Cinergy and CG&E (b) Lawrenceburg also has an MGP site which is under investigation to determine a remediation strategy. Lawrenceburg had applied to have the site included in the IDEM's voluntary cleanup program. In May 1995, Lawrenceburg and the IDEM reached an agreement to include the Lawrenceburg MGP site in such voluntary cleanup program. A proposed remediation plan will be submitted in the near future. The remediation and cleanup costs for this site are not expected to have a material impact on results of operations or financial condition. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Senior Security Ratings Cinergy, CG&E, PSI, and ULH&P In July 1995, S&P Ratings Group raised its ratings of Cinergy's operating units' senior secured debt to A- from BBB+, removing the companies from its credit watch list. The companies had been on credit watch since October 31, 1994. S&P also raised the ratings of the operating units' senior unsecured debt and preferred stock from BBB to BBB+. The ratings group indicated these actions are a result of lower combined power production costs, reduced operation and maintenance expenses, and deferral of capital expenditures brought about as a result of the merger. In addition, in August 1995, D&P raised Cinergy's operating units' credit ratings. The ratings of CG&E's first mortgage bonds and collateralized pollution control revenue bonds were raised to A- from BBB+ while the ratings of CG&E's unsecured debentures were raised to BBB+ from BBB. PSI's first mortgage bonds and medium term notes were upgraded to A- from BBB+. The preferred stock ratings of both companies were reaffirmed at BBB. ULH&P's first mortgage bonds were assigned a new rating of A-. In assigning these ratings, D&P stated the merger will result in lower new capacity needs and electric production costs and enhanced transmission capabilities. Regulatory Matters Cinergy, CG&E, PSI, and ULH&P PUHCA Reform In June 1995, after a year-long review of its continuing regulation of public utility holding companies under the PUHCA, the SEC endorsed recommendations for reform of the PUHCA. The recommendations call for repeal and, pending repeal, significant administrative reform of the 60 year old statute. While the report offers three alternative approaches to repeal and legislative reform, the report's preferred option is repeal coupled with a transition period of one year or longer and a transfer of certain consumer-protection provisions of PUHCA to the FERC. The report further recommends that, pending consideration of legislative options, the SEC take prompt administrative action, by rulemaking and on a case-by-case basis, to modernize and simplify regulation under PUHCA, with particular reference to financing transactions, diversification into nonutility businesses, utility mergers and acquisitions and PUHCA's "integration" standards. In the latter regard, the report recommends a changed interpretation of PUHCA to permit registered holding companies to own combination electric and gas utility companies provided the affected states agree. Subsequent to the report's issuance, the SEC adopted rule changes exempting various types of financing transactions by utility and nonutility subsidiaries of registered holding companies. The SEC also proposed a rule that would exempt investments by registered systems in specified "energy-related companies" subject to certain conditions. In October 1995, a bill was introduced in the U.S. Senate providing for the repeal of PUHCA. The bill is pending before Congress. Cinergy and PSI PSI's July 1994 Retail Rate Petition As discussed in Cinergy's and PSI's 1994 Form 10-K, in July 1994, PSI filed a petition with the IURC for a retail rate increase, and in May 1995, filed testimony supporting a 12.8% ($127.9 million) annual increase. In an October 1995 update filing with the IURC, PSI lowered its rate increase request to 11.5% ($115.6 million) reflecting updated revenue and expense items. Major components of the increase include, among other things, the costs of the Clean Coal Project and a scrubber at Gibson. On November 1, 1995, the UCC filed testimony with the IURC recommending a 3.7% ($36.9 million) retail rate increase. The primary differences between PSI's case and the UCC's filing are the requested rate of return and other expense items, including DSM costs. An order is anticipated in the second quarter of 1996. Assuming this petition is satisfactorily addressed by the IURC, Cinergy's objective is to manage costs in order to delay the need for additional rate relief by PSI. PSI cannot predict what action the IURC may take with respect to this proposed rate increase. Cinergy and CG&E CG&E Rate Matters In July 1995, CG&E filed a request with the PUCO to begin settlement discussions on a gas rate increase involving intervenors who have participated in previous rate applications and represent the various classes of gas customers served by CG&E. The proposed annual increase, estimated to be $30.8 million, would increase annual revenues approximately 8.8%. The proposed increase, anticipated to be effective in late 1996, is being requested, in part, to recover capital investments made since the last gas rate increase in 1993. Also, the request includes a proposal to initiate a pilot program that would allow residential customers to choose their gas supplier and have CG&E transport the gas for them. A full rate application is expected to be filed with the PUCO in December 1995. CG&E cannot predict the outcome of these settlement discussions nor what actions the PUCO may take with respect to the proposed rate increase. Cinergy, CG&E, PSI, and ULH&P MEGA-NOPR The FERC's MEGA-NOPR on open access as proposed would, among other things, provide for mandatory filing of open access/comparability transmission tariffs, provide for functional unbundling of all services, require utilities to use the filed tariffs for their own bulk power transactions, establish an electronic bulletin board, and establish a contract-based approach to stranded costs. Cinergy filed comments in June 1995 in response to the MEGA-NOPR. In the filing, Cinergy reaffirmed support for FERC's authority to order utilities owning transmission systems to provide access to other entities at rates and terms comparable to those they provide affiliated companies. In August 1995, Cinergy filed additional comments concerning the transmission pricing aspects of the MEGA-NOPR. A final order is expected to be issued during the first half of 1996. Environmental Issues Cinergy, CG&E, and PSI MGP Sites Coal tar residues, related hydrocarbons, and various metals have been found at former MGP sites in Indiana, including, but not limited to, several sites previously owned by PSI. PSI has identified at least 21 MGP sites which it previously owned, including 19 it sold in 1945 to IGC. IGC has informed PSI of the basis for its position that PSI, as a PRP under the CERCLA, should contribute to IGC's response costs related to investigating and remediating contamination at MGP sites which PSI sold to IGC. In February 1995, PSI received notification from NIPSCO alleging PSI is a PRP under the CERCLA with respect to contamination associated with MGP sites previously owned and/or operated by both PSI and NIPSCO (or their predecessors). The notification included seven sites, five of which PSI acquired from NIPSCO and subsequently sold to IGC. PSI has placed its insurance carriers on notice of IGC's and NIPSCO's claims. In May 1995, the IURC denied IGC's request for recovery of costs incurred in complying with Federal, state, and local environmental regulations related to MGP sites in which IGC has an interest, including sites acquired from PSI. IGC has appealed this decision, which IGC contends is contrary to decisions made by other state utility commissions with respect to this issue. In August 1995, the IURC granted PSI's motion to establish a sub-docket to the pending retail rate case in order to consider PSI's rate recovery of any MGP site- related costs it may incur. At this time, PSI is unable to predict the nature, extent, and costs of, or PSI's responsibility for, any future environmental investigations and remediations which may be required at MGP sites owned or previously owned by PSI; however, any costs that ultimately are incurred may be material. In addition, PSI is unable to predict, at this time, the extent to which the IURC may allow rate recovery of such costs. Lawrenceburg also has an MGP site which is under investigation to determine a remediation strategy. Lawrenceburg had applied to have the site included in the IDEM's voluntary cleanup program. In May 1995, Lawrenceburg and the IDEM reached an agreement to include the Lawrenceburg MGP site in such voluntary cleanup program. A proposed remediation plan will be submitted in the near future. The remediation and cleanup costs for this site are not expected to have a material impact on results of operations or financial condition. Accounting Issues Cinergy, CG&E, PSI, and ULH&P New Accounting Standard SFAS 121, which is effective for Cinergy and its subsidiaries in January 1996, is not expected to have an adverse impact on financial condition or results of operations upon adoption, based on the regulatory environment in which Cinergy currently operates. However, this may change in the future as deregulation, competitive factors, and potential restructuring influence the electric utility industry. CAPITAL REQUIREMENTS Cinergy and PSI New Generation PSI's 25-year contractual agreement with Destec will commence upon commercial operation of the Clean Coal Project. The agreement requires PSI to pay Destec a fixed monthly fee plus certain monthly operating expenses. Over the next five years, the fixed fee is expected to total $56 million, and the variable fee is estimated at $95 million. As discussed in Cinergy's and PSI's 1994 Form 10-K, PSI received authorization in the February 1995 Order to defer these costs for subsequent recovery in an IURC order associated with PSI's July 1994 retail rate petition. Additionally, PSI's portion of the Clean Coal Project's operating costs is estimated to be approximately $9 million, including fuel, during the one-year demonstration period. CAPITAL RESOURCES Cinergy, CG&E, PSI, and ULH&P Long-term Debt Currently, Cinergy's utility subsidiaries have state utility commission regulatory authority for securities issuances as follows: CG&E $250 million PSI 298 million ULH&P 40 million For information regarding recent securities redemptions and issuances, see Notes 6 and 7 of the "Notes to Financial Statements". Cinergy, CG&E, and PSI Preferred Stock Currently, PSI has IURC authority to issue up to $40 million of preferred stock. For information regarding recent redemptions of preferred stock by CG&E, see Note 5 of the "Notes to Financial Statements". Cinergy, CG&E, PSI, and ULH&P Short-term Debt The operating subsidiary companies of Cinergy have the following short-term debt authorizations and lines of credit: Committed Unused Authorized Lines Lines (in millions) Cinergy & Subsidiaries $783 $343 $113 CG&E & Subsidiaries 435 112 91 PSI 338 230 21 ULH&P 35 30 9 Additionally, Cinergy has a $100 million credit facility, which expires September 27, 1997, of which $79 million remained unused at September 30, 1995. Cinergy and CG&E Other In September 1995, CG&E began soliciting proxies from the holders of preferred stock and from Cinergy, as the holder of all outstanding shares of common stock, for a special meeting of shareholders to be held November 20, 1995, for the purpose of amending CG&E's Articles. The proposed amendment would, if adopted, eliminate a restriction on the amount of unsecured debt that CG&E can issue, or, if such proposal is not adopted, an alternate proposal, if adopted, would amend the Articles by suspending, for a 10-year period, the restriction on the amount of unsecured debt CG&E can issue. RESULTS OF OPERATIONS Cinergy, CG&E, PSI, and ULH&P Reference is made to "ITEM 1. FINANCIAL STATEMENTS" in "PART I - Financial Information". PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Cinergy, CG&E, and PSI Power International Litigation On October 25, 1995, a suit was filed in the Federal District Court for the Southern District of Ohio by three former employees of Power International, naming as defendants Power International, Cinergy, Cinergy Investments, CG&E, PSI, James E. Rogers, and William J. Grealis. The lawsuit, which stems from the termination of employment of the three former employees, alleges that they entered into employment contracts with Power International based on the opportunity to participate in potential profits from future investments in energy projects in central and eastern Europe. The suit alleges causes of action based upon, among other theories, breach of contract related to the events surrounding the termination of their employment and fraud and misrepresentation related to the level of financial support for future projects. The suit alleges compensatory damages of $154 million based upon assumed future success of potential future investments and punitive damages of three times that amount. All defendants intend to vigorously defend against the charges based upon meritorious defenses. Cinergy, CG&E, and PSI are currently unable to predict the outcome of the litigation. Cinergy, CG&E, and PSI Merger Litigation In August 1995, AEP filed a petition in the United States Court of Appeals for the District of Columbia Circuit for review of the FERC's Merger Order. AEP has objected to the Merger Order alleging that the post-merger operations of Cinergy would require the use of AEP's transmission facilities on a continuous basis without compensation. AEP contends that the FERC, in issuing the Merger Order, did not adequately evaluate the impact on AEP or whether the need to use AEP's transmission facilities would interfere with Cinergy achieving merger benefits. In addition, AEP claims that the FERC failed to evaluate the extent to which the merged facilities' operations would be consistent with the integrated public utility concept of the PUHCA. CG&E and PSI have intervened in this action and have filed a Motion to Dismiss. At this time, Cinergy, CG&E, and PSI cannot predict the outcome of the appeal. Cinergy, CG&E, and PSI Shareholder Litigation As previously reported in Cinergy's, CG&E's, and PSI's 1994 Form 10-K, in March 1993, in conjunction with a proposed tender offer for Resources, IPALCO filed suit in District Court against Resources, Cinergy, and James E. Rogers, which was subsequently dismissed in November 1993. In March 1993 and in the weeks following, six suits with claims similar to those of IPALCO were filed by purported shareholders of Resources. Four of the suits were filed in District Court, and two were filed in state courts, although one of those two was subsequently consolidated with the four in the District Court. In January 1994, the parties to this shareholder litigation executed a Stipulation and Agreement of Dismissal settling and dismissing with prejudice all of the parties' claims except for plaintiffs' petitions for fees and expenses and defendants' right to object thereto. An agreement in principle has been reached which contemplates that counsel for all plaintiffs will receive from PSI a portion of the fees and expenses claimed. The parties have provided notice to affected shareholders of a hearing to be held on November 9, 1995, during which the order on the fees and expenses will be considered by the District Court. Pending such order, the agreed upon fees and expenses have been deposited into an interest- bearing escrow account. Cinergy, CG&E, and PSI Also, see Notes 2, 3, and 8 of the "Notes to Financial Statements" in "Part I - Financial Information". ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit Designation Nature of Exhibit Cinergy and CG&E 4-a Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of September 13, 1995. Cinergy and CG&E 4-b Loan Agreement between CG&E and the State of Ohio Air Quality Development Authority dated as of September 13, 1995. Cinergy, CG&E, PSI, and ULH&P 27 Financial Data Schedules (included in electronic submission only). Cinergy, CG&E, PSI, and ULH&P (b) No reports on Form 8-K were filed during the quarter ended September 30, 1995. SIGNATURES Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make the information presented not misleading. In the opinion of Cinergy, CG&E, PSI, and ULH&P, these statements reflect all adjustments (which include only normal, recurring adjustments) necessary to reflect the results of operations for the respective periods. The unaudited statements are subject to such adjustments as the annual audit by independent public accountants may disclose to be necessary. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed by an officer and the chief accounting officer on their behalf by the undersigned thereunto duly authorized. CINERGY CORP. The Cincinnati Gas & Electric Company PSI Energy, Inc. The Union Light, Heat and Power Company Registrants Date: November 8, 1995 /S/J. Wayne Leonard Duly Authorized Officer Date: November 8, 1995 /S/Charles J. Winger Chief Accounting Officer EX-4.A 2 LOAN AGREEMENT between OHIO AIR QUALITY DEVELOPMENT AUTHORITY and THE CINCINNATI GAS & ELECTRIC COMPANY _______________________________ $42,000,000 State of Ohio Air Quality Development Revenue Refunding Bonds, 1995 Series A (The Cincinnati Gas & Electric Company Project) _______________________________ Dated as of September 1, 1995 INDEX (This Index is not a part of the Agreement but rather is for convenience of reference only.) Preambles 1 ARTICLE I DEFINITIONS Section 1.1 Use of Defined Terms Section 1.2 Definitions Section 1.3 Interpretation Section 1.4 Captions and Headings ARTICLE II REPRESENTATIONS Section 2.1 Representations of the Authority Section 2.2 No Warranty by Authority of Condition or Suitability of the Project Section 2.3 Representations and Covenants of the Company ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS Section 3.1 Acquisition, Construction and Installation Section 3.2 Project Description Section 3.3 Issuance of the Bonds; Application of Proceeds Section 3.4 Investment of Fund Moneys Section 3.5 Rebate Fund ARTICLE IV LOAN BY AUTHORITY; LOAN PAYMENTS; ADDITIONAL PAYMENTS; AND CREDIT FACILITY Section 4.1 Loan Repayment Section 4.2 Additional Payments Section 4.3 Place of Payments Section 4.4 Obligations Unconditional Section 4.5 Assignment of Revenues and Agreement Section 4.6 Credit Facility; Alternate Credit Facility; Cancellation Section 4.7 Company's Option to Elect Rate Periods Section 4.8 Company's Obligation to Purchase Bonds ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS Section 5.1 Right of Inspection Section 5.2 Maintenance Section 5.3 Removal of Portions of the Project Facilities Section 5.4 Operation of Project Facilities Section 5.5 Insurance Section 5.6 Workers' Compensation Coverage Section 5.7 Damage; Destruction and Eminent Domain Section 5.8 Company to Maintain its Corporate Existence; Conditions Under Which Exceptions Permitted Section 5.9 Indemnification Section 5.10 Company Not to Adversely Affect Exclusion of Interest on Bonds From Gross Income For Federal Income Tax Purposes Section 5.11 Use of Project Facilities Section 5.12 Assignment by Company ARTICLE VI REDEMPTION Section 6.1 Optional Redemption Section 6.2 Extraordinary Optional Redemption Section 6.3 Mandatory Redemption Section 6.4 Notice of Redemption Section 6.5 Actions by Authority ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1 Events of Default Section 7.2 Remedies on Default Section 7.3 No Remedy Exclusive Section 7.4 Agreement to Pay Attorneys' Fees and Expenses Section 7.5 No Waiver Section 7.6 Notice of Default ARTICLE VIII MISCELLANEOUS Section 8.1 Term of Agreement Section 8.2 Amounts Remaining in Funds Section 8.3 Notices Section 8.4 Extent of Covenants of the Authority; No Personal Liability Section 8.5 Binding Effect Section 8.6 Amendments and Supplements Section 8.7 References to Credit Facility Section 8.8 Execution Counterparts Section 8.9 Severability Section 8.10 Governing Law Signatures Exhibit A - DESCRIPTION OF AIR QUALITY FACILITIES AT WILLIAM H. ZIMMER ELECTRIC GENERATING STATION LOAN AGREEMENT THIS LOAN AGREEMENT is made and entered into as of September 1, 1995 between the OHIO AIR QUALITY DEVELOPMENT AUTHORITY (the "Authority"), a body politic and corporate organized and existing under the laws of the State of Ohio, and THE CINCINNATI GAS & ELECTRIC COMPANY (the "Company"), a public utility and corporation duly organized and validly existing under the laws of the State of Ohio. Capitalized terms used in the following recitals are used as defined in Article I of this Agreement. Pursuant to Section 13 of Article VIII of the Ohio Constitution and the Act, the Authority has determined to issue, sell and deliver the Bonds, together with another issue of bonds in the amount of $42,000,000 to be issued and secured under a separate loan agreement and a separate trust indenture, each dated the same date as this Agreement, 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 originally issued to provide funds to make loans to the Company to assist in the financing of its portion of the costs of the Project as defined below. The Company and the Authority 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 Authority and the Company agree as follows (provided that any obligation of the Authority or the State created by or arising out of this Agreement shall never constitute a general debt of the Authority or the State or give rise to any pecuniary liability of the Authority or the State but shall be payable solely out of Revenues, including the Loan Payments made pursuant hereto and moneys drawn under any Credit Facility): ARTICLE I DEFINITIONS Section 1.1. Use of Defined Terms. In addition to the words and terms defined elsewhere in this Agreement 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: "Act" means Chapter 3706, Ohio Revised Code, as enacted and amended from time to time pursuant to Section 13 of Article VIII of the Ohio Constitution. "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, any Paying Agent and any Authenticating Agent. "Agreement" means this Loan Agreement, as amended or supplemented from time to time. "Air Quality Facility" or "Air Quality Facilities" means those facilities which are air quality facilities as defined in Section 3706.01, Ohio Revised Code. "Alternate Credit Facility" means an Alternate Credit Facility as defined in the Indenture. "Authenticating Agent" means the Authenticating Agent as defined in the Indenture. "Authority Fee" means the aggregate fee of $131,250 due to the Authority from the Company in connection with the issuance of the Bonds hereunder and the $42,000,000 of bonds to be issued and sold on the same date as the Bonds by the Authority under a separate loan agreement and a separate trust indenture, each dated the same date as this Agreement, all for the same purpose as set forth in Section 3.3 hereof for the Bonds. "Bank" means the Bank as defined in the Indenture. "Bond Fund" means the Bond Fund created in the Indenture. "Bond Purchase Fund" means the Bond Purchase Fund as defined in the Indenture. "Bond Resolution" means the resolution of the Authority providing for the issuance of the Bonds and approving this Agreement, the Indenture and related matters, as amended or supplemented from time to time. "Bond Service Charges" means, for any period or time, the principal of, premium, if any, and interest due on the Bonds for that period or payable at that time whether due at maturity or upon acceleration or redemption or otherwise. "Bonds" means the $42,000,000 Air Quality Development Revenue Refunding Bonds, 1995 Series A (The Cincinnati Gas & Electric Company Project), issued by the Authority pursuant to the Bond Resolution and the Indenture. "Bonds Outstanding" or "Outstanding Bonds" means Outstanding Bonds as defined in the Indenture. "Code" means the Internal Revenue Code of 1986, as amended from time to time. References to the Code and Sections of the Code include relevant applicable regulations and proposed regulations thereunder and under the Internal Revenue Code of 1954, as amended, and any successor provisions to those Sections, regulations or proposed regulations and, in addition, all applicable official rulings and judicial determinations under the foregoing applicable to the Bonds. "Conversion Date" means the Conversion Date as defined in the Indenture. "Credit Facility" means a Credit Facility as defined in the Indenture. "Credit Facility Account" means the Credit Facility Account as defined in the Indenture. "Credit Facility Issuer" means a Credit Facility Issuer as defined in the Indenture. "Eligible Investments" means Eligible Investments as defined in the Indenture. "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 Environmental Protection Agency 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 causes, circumstances or events described as constituting Force Majeure in Section 7.1 hereof. "Government Obligations" means Government Obligations as defined in the Indenture. "Holder" or "Holder of a Bond" means the Person in whose name a Bond is registered on the Register. "Indenture" means the Trust Indenture, dated as of the same date as this Agreement, between the Authority and the Trustee, as amended or supplemented from time to time. "Interest Rate for Advances" means the interest rate per year payable on the Bonds. "Letter of Credit" means the Letter of Credit as defined in the Indenture. "Loan" means the loan by the Authority 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 Authority: Ohio Air Quality Development Authority 1901 LeVeque Tower 50 West Broad Street Columbus, Ohio 43215 Attention: Executive Director (b) As to the Company: The Cincinnati Gas & Electric Company P. O. Box 960 Cincinnati, Ohio 45201 Attention: Treasurer (c) As to the Trustee: The Fifth Third Bank 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. "Opinion of Bond Counsel" means a written opinion of nationally recognized bond counsel selected by the Company and acceptable to the Trustee who is experienced in matters relating to the exclusion from gross income for federal income tax purposes of interest on obligations issued by states and their political subdivisions. Bond Counsel may be counsel to the Trustee or the Company. "Original Purchaser" means the Original Purchaser as defined in the Indenture. "Paying Agent" means the Paying Agent as defined in the Indenture. "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. "Plant" means the William H. Zimmer Electric Generating Station. "Project" or "Project Facilities" means the real, personal or real and personal property, including undivided or other interests therein, identified in the Project Description. "Project Description" means the description of the Project Facilities attached hereto as Exhibit A, as the same may be amended in accordance with this Agreement. "Project Purposes" means the purposes of Air Quality Facilities as described in the Act and as particularly described in Exhibit A hereto. "Project Site" means the William H. Zimmer Electric Generating Station in Clermont County, Ohio. "Rate Period" means a Rate Period as defined in the Indenture. "Rebate Fund" means the Rebate Fund created in the Indenture. "Refunded Bonds" means the $84,000,000 State of Ohio 10-1/8% Pollution Control Revenue Bonds, 1985 Series (The Cincinnati Gas & Electric Company Project) dated as of December 1, 1985. "Refunded Bonds Indenture" means the Trust Indenture for the Refunded Bonds between the Authority and the Refunded Bonds Trustee dated as of December 1, 1985. "Refunded Bonds Loan Agreement" means the Loan Agreement between the Authority and the Company dated as of December 1, 1985 entered into in connection with the Refunded Bonds. "Refunded Bonds Trustee" means The Bank of New York (formerly Irving Trust Company), New York, New York, as trustee under the Refunded Bonds Indenture. "Refunding Fund" means the Refunding Fund created in the Indenture. "Register" means the books kept and maintained for the registration and transfer of Bonds pursuant to Section 3.05 of the Indenture. "Registrar" means the Registrar as defined in the Indenture. "Reimbursement Agreement" means the Reimbursement Agreement as defined in the Indenture. "Remarketing Agent" means the Remarketing Agent as defined in the Indenture. "Revenues" means (a) the Loan Payments, (b) all other moneys received or to be received by the Authority (excluding the Authority Fee) 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. "State" means the State of Ohio. "Term Rate Period" means a Term Rate Period as defined in the Indenture. "Trustee" means The Fifth Third Bank, Cincinnati, Ohio, 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 Authority Rights" means all of the rights of the Authority 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. "Variable Rate" means a Variable Rate as defined in the Indenture. Section 1.3. Interpretation. Any reference herein to the State, to the Authority 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 Ohio Revised 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 Authority, the State, the Holders, the Trustee, the Registrar, an Authenticating Agent, a Paying Agent, the Credit Facility Issuer, 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 2.1. Representations of the Authority. The Authority represents that: (a) it is a body politic and corporate 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 public body; and (g) following reasonable notice, a public hearing was held on August 8, 1995 with respect to the issuance of the Bonds as required by Section 147(f) of the Code. Section 2.2. No Warranty by Authority of Condition or Suitability of the Project. The Authority 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 2.3. Representations and Covenants of the Company. The Company represents that: (a) The Company has been duly incorporated and is validly existing as a corporation in good standing 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 Articles of Incorporation, as amended, or the Regulations 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) Substantially all (at least 90%) of the proceeds of the Refunded Bonds were used to provide "pollution control facilities" within the meaning of Sections 103(b)(4)(F) of the 1954 Code, the original use of which facilities commenced with the Company, the construction of which facilities began before September 26, 1985 and was completed on or after such date, and which facilities were described in an inducement resolution adopted by the Authority before September 26, 1985, and all of the proceeds of the Refunded Bonds have been spent for the Project pursuant to the Refunded Bonds Loan Agreement or to pay costs of issuance of the Refunded Bonds. The proceeds of the Bonds (other than any accrued interest thereon) will be used exclusively to refund the Refunded Bonds, any investment earnings thereon 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 Refunded Bonds were issued prior to August 16, 1986. 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. (e) It has caused the Project to be substantially completed. The Project constitutes Air Quality Facilities under the Act and is consistent with the purposes of Section 13 of Article VIII of the Ohio Constitution and 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. (f) 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. (g) None of the proceeds of the Refunded Bonds were used and none of the proceeds of the Bonds will be used to provide any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard and ice skating), racquet sports facility (including handball or racquetball court), hot tub facility, suntan facility, racetrack, airplane, skybox or other private luxury box, or health club facility; any facility primarily used for gambling; any store the principal business of which is the sale of alcoholic beverages for consumption off premises; or any facilities for retail food and beverage services (except grocery stores), automobile sales or service, or the provision of recreation or entertainment. (h) Less than 25% of the proceeds of the Refunded Bonds have been used and less than 25% of the proceeds of the Bonds will be used directly or indirectly to acquire land or any interest therein, and none of such proceeds has been or will be used to provide land which is to be used for farming purposes. (i) No portion of the proceeds of the Refunded Bonds has been used and no portion of the proceeds of the Bonds will be 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. (j) After the expiration of any applicable temporary period under Section 148(d)(3) of the Code, at no time during any bond year will the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments (within the meaning of Section 148(b) of the Code) exceed 150 percent of the debt service on the Bonds for such bond year and the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments, if any, will be promptly and appropriately reduced as the outstanding amount of the Bonds is reduced, provided however that the foregoing shall not require the sale or disposition of any investments in higher yielding investments if such sale or disposition would result in a loss which exceeds the amount which would be paid to the United States (but for such sale or disposition) at the time of such sale or disposition if a payment were due at such time. 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. The terms "bond year", "gross proceeds", "higher yielding investments", "yield", and "debt service" have the meanings assigned to them for purposes of Section 148 of the Code. (k) The Refunded Bonds were not, and the Bonds will not be, "federally guaranteed" within the meaning of Section 149(b) of the Code. (l) 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. (m) On the date of issuance and delivery of the Refunded Bonds, the Company reasonably expected that at least 85% of the spendable proceeds of such Refunded Bonds would be expended to carry out the governmental purposes of such issue within the 5-year period beginning on the date such issue was issued but did not reasonably expect that 85% of such spendable proceeds would be so expended within the 3-year period beginning on such date. All of the spendable proceeds of the Refunded Bonds have been expended as of the date of issuance of the Bonds. None of the proceeds of such issue, if any, were invested in nonpurpose investments having a substantially guaranteed yield for 4 years or more. (n) The respective average maturities of the Refunded Bonds and the Bonds do not exceed 120% of the respective average reasonably expected economic life of the Project Facilities financed by the proceeds of the Refunded Bonds and the Bonds (determined under Section 147(b) of the Code). (o) The information furnished by the Company and used by the Authority in preparing the certifications and statements pursuant to Sections 148 and 149(e) of the Code or their statutory predecessors with respect to the Refunded Bonds was accurate and complete as of the date of issuance of the Refunded Bonds, and the information furnished by the Company and used by the Authority 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. (p) 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 3.1. Acquisition, Construction and Installation. The Company represents that it and the other public utility companies which own undivided interests in the Project Facilities with the Company as tenants-in-common have caused the Project Facilities to be acquired, constructed and installed on the Project Site, 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 Refunded Bonds, including any investment thereof, were expended in accordance with the Refunded Bonds Indenture and the Refunded Bonds Loan Agreement. Section 3.2. 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 Authority 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 Air Quality 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 3.3. 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 Authority 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 Authority notify the Refunded Bonds Trustee (unless the Refunded Bonds Trustee has already received such notice), pursuant to Section 4.03 of the Refunded Bonds Indenture, that the entire outstanding principal amount of the Refunded Bonds is to be redeemed on December 1, 1995 at a redemption price of 102-1/2% of the principal amount thereof plus accrued interest to that redemption date. 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 November 30, 1995 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 on December 1, 1995. 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 Authority to the Trustee for the payment of Bond Service Charges. Any accrued interest shall be deposited in the Bond Fund. Section 3.4. 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 Authority (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 the statutory predecessor of the Code 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 Authority with, and the Authority 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 3.5. Rebate Fund. To the extent required by Section 5.09 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 5.09 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 AUTHORITY; LOAN PAYMENTS; ADDITIONAL PAYMENTS; AND CREDIT FACILITY Section 4.1. Loan Repayment. Upon the terms and conditions of this Agreement, the Authority 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 Authority, payments which correspond, as to time, and are equal in amount, to the 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. The Company's obligation to make Loan Payments shall be reduced to the extent of any payments made by any Credit Facility Issuer to the Trustee in respect of the principal of, premium, if any, or interest on the Bonds when due pursuant to any Credit Facility, provided, that the Credit Facility Issuer has been reimbursed for such payments in accordance with the terms of the Reimbursement Agreement. Except for such interest of the Company as may hereafter arise pursuant to Section 8.2 hereof or Sections 5.07 or 5.08 of the Indenture, the Company and the Authority each acknowledge that neither the Company, the State nor the Authority 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 4.2. Additional Payments. The Company shall pay to the Authority, the Authority Fee and, as Additional Payments hereunder, any and all costs and expenses incurred or to be paid by the Authority in connection with the issuance and delivery of the Bonds or otherwise related to actions taken by the Authority under this Agreement or the Indenture. The Company shall pay the Administration Expenses to the Trustee, the Registrar, the Remarketing 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 Authority and any Administration Expenses claimed to be due to the Trustee, the Registrar, 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 4.3. 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 4.4. Obligations Unconditional. The obligations of the Company to make Loan Payments, Additional Payments and any payments required of the Company under Section 5.09 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 Authority, the Trustee, the Registrar, the Remarketing Agent or any other Person. Section 4.5. Assignment of Revenues and Agreement. To secure the payment of Bond Service Charges, the Authority shall, by the Indenture, (a) absolutely and irrevocably assign to the Trustee, its successors in trust and its and their assigns forever, (1) all right, title and interest of the Authority in and to all moneys and investments (including, without limitation, the proceeds of the Credit Facility) in the Bond Fund and (2) all of the Authority's rights and remedies under this Agreement (except for the Unassigned Authority 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 Authority under the Agreement in respect of repayment of the Loan (other than the Credit Facility Account, all moneys and investments therein and the proceeds of the Credit Facility). The Company hereby agrees and consents to those assignments and that grant of a security interest. Section 4.6. Credit Facility; Alternate Credit Facility; Cancellation. (a) The Company agrees to provide for the payment of the principal of and interest on the Bonds and for payment of the purchase price of Bonds delivered to the Trustee or Paying Agent pursuant to the Indenture by causing the Letter of Credit to be delivered to the Trustee on the date of the delivery of the Bonds. The Company hereby authorizes and directs the Trustee to draw moneys under the Letter of Credit, in accordance with its terms and the terms of the Indenture, to the extent necessary to pay the principal of and interest on the Bonds when due and to pay the purchase price of Bonds as provided in the Indenture. The Company may, at its election and with the consent of the Bank, provide for one or more extensions of the Letter of Credit beyond its then stated date of expiration. (b) Upon satisfaction of the requirements contained in Section 14.03 of the Indenture, the Company may provide for the delivery of an Alternate Credit Facility. (c) Upon satisfaction of the conditions contained in Section 14.02 of the Indenture, the Company may cancel any Credit Facility in effect at such time and direct the Trustee in writing to surrender such Credit Facility to the Credit 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 Credit Facility. Section 4.8. Company's Option to Elect Rate Period. 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 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. To exercise such options, the Company shall give the written notice required by the Indenture. Section 4.9. 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 Credit 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 5.1. Right of Inspection. The Company agrees that, subject to reasonable security and safety regulations and to reasonable requirements as to notice, the Authority 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 5.2. 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 Air Quality 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 Air Quality 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 5.3. 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 Air Quality 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 Air Quality 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 Air Quality Facilities. Section 5.4. 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 Authority 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 5.5. 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 5.6. 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 5.7. 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 Air Quality Facilities and as shall not impair the character or significance of the Project Facilities as furthering the purposes of the Act. Section 5.8. 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 Ohio 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 5.9. Indemnification. The Company releases the Authority from, agrees that the Authority shall not be liable for, and indemnifies the Authority against, all liabilities, claims, costs and expenses imposed upon or asserted against the Authority 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 Authority under Section 3.4 hereof or for inclusion in, or as a basis for preparation of, the information statements filed by the Authority pursuant to Section 8(a)(ii) of the Bond Resolution); 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 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 Authority 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 Authority and any other indemnified party or parties, the Company shall pay the Authority's legal expenses in connection with the Authority'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 Authority, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar, respectively. That indemnification is intended to and shall be enforceable by the Authority, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar, respectively, to the full extent permitted by law. Section 5.10. 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 5.11. Use of Project Facilities. The Authority 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 5.12. Assignment by Company. This Agreement may be assigned in whole or in part by the Company without the necessity of obtaining the consent of either the Authority or the Trustee, subject, however, to each of the following conditions: (a) No assignment (other than pursuant to Section 5.8 hereof) shall relieve the Company from primary liability for any of its obligations hereunder, and in the event of any such assignment the Company shall continue to remain primarily liable for the payment of the Loan Payments and Additional Payments and for performance and observance of the agreements on its part herein provided to be performed and observed by it. (b) Any assignment by the Company must retain for the Company such rights and interests as will permit it to perform its obligations under this Agreement, and any assignee from the Company shall assume the obligations of the Company hereunder to the extent of the interest assigned. (c) The Company shall, within 30 days after execution thereof, furnish or cause to be furnished to the Authority 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. (End of Article V) ARTICLE VI REDEMPTION Section 6.1. 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 6.2. 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 in accordance with the applicable provisions of the Indenture upon the occurrence of any of the following events: (a) The Project or the Plant shall have been damaged or destroyed to such an extent that (1) the Project or the Plant 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 the Project or the Plant for a period of six consecutive months. (b) Title to, or the temporary use of, all or a significant part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain to such an extent (1) that the Project or the Plant 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 the Project or the Plant 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 Authority 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 Authority or the Company with respect to the Project or the Plant 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 the Project or the Plant. (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 the Project or the Plant 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 the Project or the Plant 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 the Project or the Plant to such extent that the Company is or will be prevented from carrying on its normal operations at the Project or the Plant for a period of six consecutive months. (g) The termination by the Company of operations at the Plant. 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 Outstanding Bonds 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 Authority 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 6.3. 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 Section 4.01(b) of the Indenture. Section 6.4. 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 Authority 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 Authority shall cooperate. Section 6.5. Actions by Authority. At the request of the Company or the Trustee, the Authority 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 7.1. 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), (c) or (d) 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 Authority or the Trustee, or for such longer period as the Authority 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 Authority and the Trustee may agree to in writing; and (c) 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; and (d) 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 Authority 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 term Force Majeure shall mean 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. 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 7.2. 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 Authority 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 Authority 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 4.9 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 Authority 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 Authority at no cost or expense to the Authority. 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 5.08 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 7.3. No Remedy Exclusive. No remedy conferred upon or reserved to the Authority 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 Authority 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 7.4. Agreement to Pay Attorneys' Fees and Expenses. If an Event of Default should occur and the Authority 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 Authority and the Trustee, as applicable, for the expenses so incurred upon demand. Section 7.5. No Waiver. No failure by the Authority 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 7.6. Notice of Default. The Company shall notify the Trustee 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 8.1. 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. Section 8.2. 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 5.07 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 8.3. 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 Authority, the Company, any Credit Facility Issuer or the Trustee shall also be given to the others. The Company, the Authority, any Credit Facility Issuer 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 8.4. Extent of Covenants of the Authority; No Personal Liability. All covenants, obligations and agreements of the Authority 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 Authority in other than his official capacity, and neither the members of the Authority 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 Authority contained in this Agreement or in the Indenture. Section 8.5. Binding Effect. This Agreement shall inure to the benefit of and shall be binding in accordance with its terms upon the Authority, 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 Authority 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 Authority. Section 8.6. 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 8.7. References to Credit Facility. During such time or times as no Credit Facility is in effect, and during the continuation of any event of default under the Indenture due to a failure by the Credit Facility Issuer to honor a drawing by the Trustee under the Credit Facility then in effect in accordance with the terms thereof, references herein to the Credit Facility Issuer shall be ineffective. Section 8.8. 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 8.9. 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 8.10. 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 Authority and the Company have caused this Agreement to be duly executed in their respective names, all as of the date hereinbefore written. OHIO AIR QUALITY DEVELOPMENT AUTHORITY By: Executive Director THE CINCINNATI GAS & ELECTRIC COMPANY By: Treasurer Exhibit A DESCRIPTION OF AIR QUALITY FACILITIES AT WILLIAM H. ZIMMER ELECTRIC GENERATING STATION The Project consists of: (A) a high efficiency electrostatic precipitator system designed to remove particulates from the flue gas, (B) a flue gas desulfurization ("scrubber") system designed to remove sulfur dioxide from the flue gas, (C) a stack, (D) a coal dust control system, (E) a nitrous oxide control system, and (F) a cooling tower and circulating water system. The precipitator system includes electrostatic precipitators and a fly ash handling system, as well as all other necessary earthwork, piling, foundations, structural and miscellaneous steel, supports, siding, enclosures, electrical equipment, instrumentation and controls, mechanical equipment, related pumps and tanks, hoppers and storage silos, and associated equipment required for the foregoing and used exclusively in connection therewith. The precipitator system includes related drains, sumps and piping necessary to transmit collected waste waters to the waste water pond. The Project also includes precipitator inlet and outlet ductwork. The scrubber system includes an inlet plenum, six induced draft fans, ductwork to and including six absorber modules, ductwork to the stack, FGD reagent and lime unloading and handling system including required river cells, FGD reagent and lime silos, an FGD reagent and lime preparation facility, slurry tanks, scrubber sludge handling facilities which include thickener tanks, a sludge pond underflow and overflow tanks, a sludge handling building, stockpile facilities and auxiliary facilities. The scrubber system includes all earthwork including stream relocation, piling, foundations, structural and miscellaneous steel, siding, painting, electrical and mechanical components and associated equipment required for the scrubber system and used exclusively in connection therewith. The scrubber system includes related drains, sumps and piping necessary to transmit collected waste waters to the waste water pond, and also includes all pipes, pumps and associated mechanical and electrical components to supply and recycle water for the scrubber system operation. The scrubber system also includes a disposal area and the roads and bridges used exclusively for the transportation of scrubber sludge, bottom ash and other solid waste along with truck wash facilities and truck scales. The stack includes the stack shell and brick liner, as well as earthwork, piling, foundation and associated components. The coal dust control systems include a coal dust collection system, a coal dust suppression system and a coal wetting system. The cooling tower and circulating water system includes a natural draft cooling tower, a cooling tower basin, a cooling water flume, three circulating water pumps, circulating water pipes and valves, the make-up water subsystem, the blowdown subsystem, the cooling water chemical conditioning subsystem, mechanical and electrical auxiliaries, and related controls and instrumentation. The cooling water system also includes all related site development and earthwork, piling, foundations, structural and miscellaneous steel, siding, painting, electrical and mechanical components and associated equipment required for the cooling tower and circulating water system and used exclusively in connection therewith. EX-4.B 3 LOAN AGREEMENT between OHIO AIR QUALITY DEVELOPMENT AUTHORITY and THE CINCINNATI GAS & ELECTRIC COMPANY _______________________________ $42,000,000 State of Ohio Air Quality Development Revenue Refunding Bonds, 1995 Series B (The Cincinnati Gas & Electric Company Project) _______________________________ Dated as of September 1, 1995 INDEX (This Index is not a part of the Agreement but rather is for convenience of reference only.) Preambles ARTICLE I DEFINITIONS Section 1.1 Use of Defined Terms Section 1.2 Definitions Section 1.3 Interpretation Section 1.4 Captions and Headings ARTICLE II REPRESENTATIONS Section 2.1 Representations of the Authority Section 2.2 No Warranty by Authority of Condition or Suitability of the Project Section 2.3 Representations and Covenants of the Company ARTICLE III COMPLETION OF THE PROJECT; ISSUANCE OF THE BONDS Section 3.1 Acquisition, Construction and Installation Section 3.2 Project Description Section 3.3 Issuance of the Bonds; Application of Proceeds Section 3.4 Investment of Fund Moneys Section 3.5 Rebate Fund ARTICLE IV LOAN BY AUTHORITY; LOAN PAYMENTS; ADDITIONAL PAYMENTS; AND CREDIT FACILITY Section 4.1 Loan Repayment Section 4.2 Additional Payments Section 4.3 Place of Payments Section 4.4 Obligations Unconditional Section 4.5 Assignment of Revenues and Agreement Section 4.6 Credit Facility; Alternate Credit Facility; Cancellation Section 4.7 Company's Option to Elect Rate Periods Section 4.8 Company's Obligation to Purchase Bonds ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS Section 5.1 Right of Inspection Section 5.2 Maintenance Section 5.3 Removal of Portions of the Project Facilities Section 5.4 Operation of Project Facilities Section 5.5 Insurance Section 5.6 Workers' Compensation Coverage Section 5.7 Damage; Destruction and Eminent Domain Section 5.8 Company to Maintain its Corporate Existence; Conditions Under Which Exceptions Permitted Section 5.9 Indemnification Section 5.10 Company Not to Adversely Affect Exclusion of Interest on Bonds From Gross Income For Federal Income Tax Purposes Section 5.11 Use of Project Facilities Section 5.12 Assignment by Company ARTICLE VI REDEMPTION Section 6.1 Optional Redemption Section 6.2 Extraordinary Optional Redemption Section 6.3 Mandatory Redemption Section 6.4 Notice of Redemption Section 6.5 Actions by Authority ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1 Events of Default Section 7.2 Remedies on Default Section 7.3 No Remedy Exclusive Section 7.4 Agreement to Pay Attorneys' Fees and Expenses Section 7.5 No Waiver Section 7.6 Notice of Default ARTICLE VIII MISCELLANEOUS Section 8.1 Term of Agreement Section 8.2 Amounts Remaining in Funds Section 8.3 Notices Section 8.4 Extent of Covenants of the Authority; No Personal Liability Section 8.5 Binding Effect Section 8.6 Amendments and Supplements Section 8.7 References to Credit Facility Section 8.8 Execution Counterparts Section 8.9 Severability Section 8.10 Governing Law Signatures Exhibit A - DESCRIPTION OF AIR QUALITY FACILITIES AT WILLIAM H. ZIMMER ELECTRIC GENERATING STATION LOAN AGREEMENT THIS LOAN AGREEMENT is made and entered into as of September 1, 1995 between the OHIO AIR QUALITY DEVELOPMENT AUTHORITY (the "Authority"), a body politic and corporate organized and existing under the laws of the State of Ohio, and THE CINCINNATI GAS & ELECTRIC COMPANY (the "Company"), a public utility and corporation duly organized and validly existing under the laws of the State of Ohio. Capitalized terms used in the following recitals are used as defined in Article I of this Agreement. Pursuant to Section 13 of Article VIII of the Ohio Constitution and the Act, the Authority has determined to issue, sell and deliver the Bonds, together with another issue of bonds in the amount of $42,000,000 to be issued and secured under a separate loan agreement and a separate trust indenture, each dated the same date as this Agreement, 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 originally issued to provide funds to make loans to the Company to assist in the financing of its portion of the costs of the Project as defined below. The Company and the Authority 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 Authority and the Company agree as follows (provided that any obligation of the Authority or the State created by or arising out of this Agreement shall never constitute a general debt of the Authority or the State or give rise to any pecuniary liability of the Authority or the State but shall be payable solely out of Revenues, including the Loan Payments made pursuant hereto and moneys drawn under any Credit Facility): ARTICLE I DEFINITIONS Section 1.1. Use of Defined Terms. In addition to the words and terms defined elsewhere in this Agreement 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: "Act" means Chapter 3706, Ohio Revised Code, as enacted and amended from time to time pursuant to Section 13 of Article VIII of the Ohio Constitution. "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, any Paying Agent and any Authenticating Agent. "Agreement" means this Loan Agreement, as amended or supplemented from time to time. "Air Quality Facility" or "Air Quality Facilities" means those facilities which are air quality facilities as defined in Section 3706.01, Ohio Revised Code. "Alternate Credit Facility" means an Alternate Credit Facility as defined in the Indenture. "Authenticating Agent" means the Authenticating Agent as defined in the Indenture. "Authority Fee" means the aggregate fee of $131,250 due to the Authority from the Company in connection with the issuance of the Bonds hereunder and the $42,000,000 of bonds to be issued and sold on the same date as the Bonds by the Authority under a separate loan agreement and a separate trust indenture, each dated the same date as this Agreement, all for the same purpose as set forth in Section 3.3 hereof for the Bonds. "Bank" means the Bank as defined in the Indenture. "Bond Fund" means the Bond Fund created in the Indenture. "Bond Purchase Fund" means the Bond Purchase Fund as defined in the Indenture. "Bond Resolution" means the resolution of the Authority providing for the issuance of the Bonds and approving this Agreement, the Indenture and related matters, as amended or supplemented from time to time. "Bond Service Charges" means, for any period or time, the principal of, premium, if any, and interest due on the Bonds for that period or payable at that time whether due at maturity or upon acceleration or redemption or otherwise. "Bonds" means the $42,000,000 Air Quality Development Revenue Refunding Bonds, 1995 Series B (The Cincinnati Gas & Electric Company Project), issued by the Authority pursuant to the Bond Resolution and the Indenture. "Bonds Outstanding" or "Outstanding Bonds" means Outstanding Bonds as defined in the Indenture. "Code" means the Internal Revenue Code of 1986, as amended from time to time. References to the Code and Sections of the Code include relevant applicable regulations and proposed regulations thereunder and under the Internal Revenue Code of 1954, as amended, and any successor provisions to those Sections, regulations or proposed regulations and, in addition, all applicable official rulings and judicial determinations under the foregoing applicable to the Bonds. "Conversion Date" means the Conversion Date as defined in the Indenture. "Credit Facility" means a Credit Facility as defined in the Indenture. "Credit Facility Account" means the Credit Facility Account as defined in the Indenture. "Credit Facility Issuer" means a Credit Facility Issuer as defined in the Indenture. "Eligible Investments" means Eligible Investments as defined in the Indenture. "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 Environmental Protection Agency 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 causes, circumstances or events described as constituting Force Majeure in Section 7.1 hereof. "Government Obligations" means Government Obligations as defined in the Indenture. "Holder" or "Holder of a Bond" means the Person in whose name a Bond is registered on the Register. "Indenture" means the Trust Indenture, dated as of the same date as this Agreement, between the Authority and the Trustee, as amended or supplemented from time to time. "Interest Rate for Advances" means the interest rate per year payable on the Bonds. "Letter of Credit" means the Letter of Credit as defined in the Indenture. "Loan" means the loan by the Authority 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 Authority: Ohio Air Quality Development Authority 1901 LeVeque Tower 50 West Broad Street Columbus, Ohio 43215 Attention: Executive Director (b) As to the Company: The Cincinnati Gas & Electric Company P. O. Box 960 Cincinnati, Ohio 45201 Attention: Treasurer (c) As to the Trustee: The Fifth Third Bank 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. "Opinion of Bond Counsel" means a written opinion of nationally recognized bond counsel selected by the Company and acceptable to the Trustee who is experienced in matters relating to the exclusion from gross income for federal income tax purposes of interest on obligations issued by states and their political subdivisions. Bond Counsel may be counsel to the Trustee or the Company. "Original Purchaser" means the Original Purchaser as defined in the Indenture. "Paying Agent" means the Paying Agent as defined in the Indenture. "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. "Plant" means the William H. Zimmer Electric Generating Station. "Project" or "Project Facilities" means the real, personal or real and personal property, including undivided or other interests therein, identified in the Project Description. "Project Description" means the description of the Project Facilities attached hereto as Exhibit A, as the same may be amended in accordance with this Agreement. "Project Purposes" means the purposes of Air Quality Facilities as described in the Act and as particularly described in Exhibit A hereto. "Project Site" means the William H. Zimmer Electric Generating Station in Clermont County, Ohio. "Rate Period" means a Rate Period as defined in the Indenture. "Rebate Fund" means the Rebate Fund created in the Indenture. "Refunded Bonds" means the $84,000,000 State of Ohio 10-1/8% Pollution Control Revenue Bonds, 1985 Series (The Cincinnati Gas & Electric Company Project) dated as of December 1, 1985. "Refunded Bonds Indenture" means the Trust Indenture for the Refunded Bonds between the Authority and the Refunded Bonds Trustee dated as of December 1, 1985. "Refunded Bonds Loan Agreement" means the Loan Agreement between the Authority and the Company dated as of December 1, 1985 entered into in connection with the Refunded Bonds. "Refunded Bonds Trustee" means The Bank of New York (formerly Irving Trust Company), New York, New York, as trustee under the Refunded Bonds Indenture. "Refunding Fund" means the Refunding Fund created in the Indenture. "Register" means the books kept and maintained for the registration and transfer of Bonds pursuant to Section 3.05 of the Indenture. "Registrar" means the Registrar as defined in the Indenture. "Reimbursement Agreement" means the Reimbursement Agreement as defined in the Indenture. "Remarketing Agent" means the Remarketing Agent as defined in the Indenture. "Revenues" means (a) the Loan Payments, (b) all other moneys received or to be received by the Authority (excluding the Authority Fee) 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. "State" means the State of Ohio. "Term Rate Period" means a Term Rate Period as defined in the Indenture. "Trustee" means The Fifth Third Bank, Cincinnati, Ohio, 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 Authority Rights" means all of the rights of the Authority 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. "Variable Rate" means a Variable Rate as defined in the Indenture. Section 1.3. Interpretation. Any reference herein to the State, to the Authority 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 Ohio Revised 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 Authority, the State, the Holders, the Trustee, the Registrar, an Authenticating Agent, a Paying Agent, the Credit Facility Issuer, 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 2.1. Representations of the Authority. The Authority represents that: (a) it is a body politic and corporate 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 public body; and (g) following reasonable notice, a public hearing was held on August 8, 1995 with respect to the issuance of the Bonds as required by Section 147(f) of the Code. Section 2.2. No Warranty by Authority of Condition or Suitability of the Project. The Authority 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 2.3. Representations and Covenants of the Company. The Company represents that: (a) The Company has been duly incorporated and is validly existing as a corporation in good standing 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 Articles of Incorporation, as amended, or the Regulations 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) Substantially all (at least 90%) of the proceeds of the Refunded Bonds were used to provide "pollution control facilities" within the meaning of Sections 103(b)(4)(F) of the 1954 Code, the original use of which facilities commenced with the Company, the construction of which facilities began before September 26, 1985 and was completed on or after such date, and which facilities were described in an inducement resolution adopted by the Authority before September 26, 1985, and all of the proceeds of the Refunded Bonds have been spent for the Project pursuant to the Refunded Bonds Loan Agreement or to pay costs of issuance of the Refunded Bonds. The proceeds of the Bonds (other than any accrued interest thereon) will be used exclusively to refund the Refunded Bonds, any investment earnings thereon 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 Refunded Bonds were issued prior to August 16, 1986. 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. (e) It has caused the Project to be substantially completed. The Project constitutes Air Quality Facilities under the Act and is consistent with the purposes of Section 13 of Article VIII of the Ohio Constitution and 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. (f) 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. (g) None of the proceeds of the Refunded Bonds were used and none of the proceeds of the Bonds will be used to provide any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard and ice skating), racquet sports facility (including handball or racquetball court), hot tub facility, suntan facility, racetrack, airplane, skybox or other private luxury box, or health club facility; any facility primarily used for gambling; any store the principal business of which is the sale of alcoholic beverages for consumption off premises; or any facilities for retail food and beverage services (except grocery stores), automobile sales or service, or the provision of recreation or entertainment. (h) Less than 25% of the proceeds of the Refunded Bonds have been used and less than 25% of the proceeds of the Bonds will be used directly or indirectly to acquire land or any interest therein, and none of such proceeds has been or will be used to provide land which is to be used for farming purposes. (i) No portion of the proceeds of the Refunded Bonds has been used and no portion of the proceeds of the Bonds will be 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. (j) After the expiration of any applicable temporary period under Section 148(d)(3) of the Code, at no time during any bond year will the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments (within the meaning of Section 148(b) of the Code) exceed 150 percent of the debt service on the Bonds for such bond year and the aggregate amount of gross proceeds of the Bonds invested in higher yielding investments, if any, will be promptly and appropriately reduced as the outstanding amount of the Bonds is reduced, provided however that the foregoing shall not require the sale or disposition of any investments in higher yielding investments if such sale or disposition would result in a loss which exceeds the amount which would be paid to the United States (but for such sale or disposition) at the time of such sale or disposition if a payment were due at such time. 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. The terms "bond year", "gross proceeds", "higher yielding investments", "yield", and "debt service" have the meanings assigned to them for purposes of Section 148 of the Code. (k) The Refunded Bonds were not, and the Bonds will not be, "federally guaranteed" within the meaning of Section 149(b) of the Code. (l) 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. (m) On the date of issuance and delivery of the Refunded Bonds, the Company reasonably expected that at least 85% of the spendable proceeds of such Refunded Bonds would be expended to carry out the governmental purposes of such issue within the 5-year period beginning on the date such issue was issued but did not reasonably expect that 85% of such spendable proceeds would be so expended within the 3-year period beginning on such date. All of the spendable proceeds of the Refunded Bonds have been expended as of the date of issuance of the Bonds. None of the proceeds of such issue, if any, were invested in nonpurpose investments having a substantially guaranteed yield for 4 years or more. (n) The respective average maturities of the Refunded Bonds and the Bonds do not exceed 120% of the respective average reasonably expected economic life of the Project Facilities financed by the proceeds of the Refunded Bonds and the Bonds (determined under Section 147(b) of the Code). (o) The information furnished by the Company and used by the Authority in preparing the certifications and statements pursuant to Sections 148 and 149(e) of the Code or their statutory predecessors with respect to the Refunded Bonds was accurate and complete as of the date of issuance of the Refunded Bonds, and the information furnished by the Company and used by the Authority 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. (p) 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 3.1. Acquisition, Construction and Installation. The Company represents that it and the other public utility companies which own undivided interests in the Project Facilities with the Company as tenants-in-common have caused the Project Facilities to be acquired, constructed and installed on the Project Site, 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 Refunded Bonds, including any investment thereof, were expended in accordance with the Refunded Bonds Indenture and the Refunded Bonds Loan Agreement. Section 3.2. 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 Authority 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 Air Quality 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 3.3. 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 Authority 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 Authority notify the Refunded Bonds Trustee (unless the Refunded Bonds Trustee has already received such notice), pursuant to Section 4.03 of the Refunded Bonds Indenture, that the entire outstanding principal amount of the Refunded Bonds is to be redeemed on December 1, 1995 at a redemption price of 102-1/2% of the principal amount thereof plus accrued interest to that redemption date. 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 November 30, 1995 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 on December 1, 1995. 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 Authority to the Trustee for the payment of Bond Service Charges. Any accrued interest shall be deposited in the Bond Fund. Section 3.4. 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 Authority (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 the statutory predecessor of the Code 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 Authority with, and the Authority 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 3.5. Rebate Fund. To the extent required by Section 5.09 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 5.09 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 AUTHORITY; LOAN PAYMENTS; ADDITIONAL PAYMENTS; AND CREDIT FACILITY Section 4.1. Loan Repayment. Upon the terms and conditions of this Agreement, the Authority 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 Authority, payments which correspond, as to time, and are equal in amount, to the 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. The Company's obligation to make Loan Payments shall be reduced to the extent of any payments made by any Credit Facility Issuer to the Trustee in respect of the principal of, premium, if any, or interest on the Bonds when due pursuant to any Credit Facility, provided, that the Credit Facility Issuer has been reimbursed for such payments in accordance with the terms of the Reimbursement Agreement. Except for such interest of the Company as may hereafter arise pursuant to Section 8.2 hereof or Sections 5.07 or 5.08 of the Indenture, the Company and the Authority each acknowledge that neither the Company, the State nor the Authority 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 4.2. Additional Payments. The Company shall pay to the Authority, the Authority Fee and, as Additional Payments hereunder, any and all costs and expenses incurred or to be paid by the Authority in connection with the issuance and delivery of the Bonds or otherwise related to actions taken by the Authority under this Agreement or the Indenture. The Company shall pay the Administration Expenses to the Trustee, the Registrar, the Remarketing 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 Authority and any Administration Expenses claimed to be due to the Trustee, the Registrar, 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 4.3. 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 4.4. Obligations Unconditional. The obligations of the Company to make Loan Payments, Additional Payments and any payments required of the Company under Section 5.09 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 Authority, the Trustee, the Registrar, the Remarketing Agent or any other Person. Section 4.5. Assignment of Revenues and Agreement. To secure the payment of Bond Service Charges, the Authority shall, by the Indenture, (a) absolutely and irrevocably assign to the Trustee, its successors in trust and its and their assigns forever, (1) all right, title and interest of the Authority in and to all moneys and investments (including, without limitation, the proceeds of the Credit Facility) in the Bond Fund and (2) all of the Authority's rights and remedies under this Agreement (except for the Unassigned Authority 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 Authority under the Agreement in respect of repayment of the Loan (other than the Credit Facility Account, all moneys and investments therein and the proceeds of the Credit Facility). The Company hereby agrees and consents to those assignments and that grant of a security interest. Section 4.6. Credit Facility; Alternate Credit Facility; Cancellation. (a) The Company agrees to provide for the payment of the principal of and interest on the Bonds and for payment of the purchase price of Bonds delivered to the Trustee or Paying Agent pursuant to the Indenture by causing the Letter of Credit to be delivered to the Trustee on the date of the delivery of the Bonds. The Company hereby authorizes and directs the Trustee to draw moneys under the Letter of Credit, in accordance with its terms and the terms of the Indenture, to the extent necessary to pay the principal of and interest on the Bonds when due and to pay the purchase price of Bonds as provided in the Indenture. The Company may, at its election and with the consent of the Bank, provide for one or more extensions of the Letter of Credit beyond its then stated date of expiration. (b) Upon satisfaction of the requirements contained in Section 14.03 of the Indenture, the Company may provide for the delivery of an Alternate Credit Facility. (c) Upon satisfaction of the conditions contained in Section 14.02 of the Indenture, the Company may cancel any Credit Facility in effect at such time and direct the Trustee in writing to surrender such Credit Facility to the Credit 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 Credit Facility. Section 4.8. Company's Option to Elect Rate Period. 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 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. To exercise such options, the Company shall give the written notice required by the Indenture. Section 4.9. 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 Credit 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 5.1. Right of Inspection. The Company agrees that, subject to reasonable security and safety regulations and to reasonable requirements as to notice, the Authority 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 5.2. 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 Air Quality 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 Air Quality 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 5.3. 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 Air Quality 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 Air Quality 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 Air Quality Facilities. Section 5.4. 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 Authority 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 5.5. 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 5.6. 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 5.7. 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 Air Quality Facilities and as shall not impair the character or significance of the Project Facilities as furthering the purposes of the Act. Section 5.8. 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 Ohio 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 5.9. Indemnification. The Company releases the Authority from, agrees that the Authority shall not be liable for, and indemnifies the Authority against, all liabilities, claims, costs and expenses imposed upon or asserted against the Authority 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 Authority under Section 3.4 hereof or for inclusion in, or as a basis for preparation of, the information statements filed by the Authority pursuant to Section 8(a)(ii) of the Bond Resolution); 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 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 Authority 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 Authority and any other indemnified party or parties, the Company shall pay the Authority's legal expenses in connection with the Authority'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 Authority, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar, respectively. That indemnification is intended to and shall be enforceable by the Authority, the Trustee, the Paying Agent, the Remarketing Agent and the Registrar, respectively, to the full extent permitted by law. Section 5.10. 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 5.11. Use of Project Facilities. The Authority 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 5.12. Assignment by Company. This Agreement may be assigned in whole or in part by the Company without the necessity of obtaining the consent of either the Authority or the Trustee, subject, however, to each of the following conditions: (a) No assignment (other than pursuant to Section 5.8 hereof) shall relieve the Company from primary liability for any of its obligations hereunder, and in the event of any such assignment the Company shall continue to remain primarily liable for the payment of the Loan Payments and Additional Payments and for performance and observance of the agreements on its part herein provided to be performed and observed by it. (b) Any assignment by the Company must retain for the Company such rights and interests as will permit it to perform its obligations under this Agreement, and any assignee from the Company shall assume the obligations of the Company hereunder to the extent of the interest assigned. (c) The Company shall, within 30 days after execution thereof, furnish or cause to be furnished to the Authority 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. (End of Article V) ARTICLE VI REDEMPTION Section 6.1. 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 6.2. 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 in accordance with the applicable provisions of the Indenture upon the occurrence of any of the following events: (a) The Project or the Plant shall have been damaged or destroyed to such an extent that (1) the Project or the Plant 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 the Project or the Plant for a period of six consecutive months. (b) Title to, or the temporary use of, all or a significant part of the Project or the Plant shall have been taken under the exercise of the power of eminent domain to such an extent (1) that the Project or the Plant 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 the Project or the Plant 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 Authority 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 Authority or the Company with respect to the Project or the Plant 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 the Project or the Plant. (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 the Project or the Plant 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 the Project or the Plant 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 the Project or the Plant to such extent that the Company is or will be prevented from carrying on its normal operations at the Project or the Plant for a period of six consecutive months. (g) The termination by the Company of operations at the Plant. 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 Outstanding Bonds 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 Authority 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 6.3. 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 Section 4.01(b) of the Indenture. Section 6.4. 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 Authority 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 Authority shall cooperate. Section 6.5. Actions by Authority. At the request of the Company or the Trustee, the Authority 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 7.1. 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), (c) or (d) 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 Authority or the Trustee, or for such longer period as the Authority 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 Authority and the Trustee may agree to in writing; and (c) 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; and (d) 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 Authority 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 term Force Majeure shall mean 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. 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 7.2. 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 Authority 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 Authority 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 4.9 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 Authority 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 Authority at no cost or expense to the Authority. 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 5.08 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 7.3. No Remedy Exclusive. No remedy conferred upon or reserved to the Authority 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 Authority 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 7.4. Agreement to Pay Attorneys' Fees and Expenses. If an Event of Default should occur and the Authority 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 Authority and the Trustee, as applicable, for the expenses so incurred upon demand. Section 7.5. No Waiver. No failure by the Authority 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 7.6. Notice of Default. The Company shall notify the Trustee 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 8.1. 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. Section 8.2. 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 5.07 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 8.3. 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 Authority, the Company, any Credit Facility Issuer or the Trustee shall also be given to the others. The Company, the Authority, any Credit Facility Issuer 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 8.4. Extent of Covenants of the Authority; No Personal Liability. All covenants, obligations and agreements of the Authority 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 Authority in other than his official capacity, and neither the members of the Authority 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 Authority contained in this Agreement or in the Indenture. Section 8.5. Binding Effect. This Agreement shall inure to the benefit of and shall be binding in accordance with its terms upon the Authority, 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 Authority 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 Authority. Section 8.6. 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 8.7. References to Credit Facility. During such time or times as no Credit Facility is in effect, and during the continuation of any event of default under the Indenture due to a failure by the Credit Facility Issuer to honor a drawing by the Trustee under the Credit Facility then in effect in accordance with the terms thereof, references herein to the Credit Facility Issuer shall be ineffective. Section 8.8. 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 8.9. 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 8.10. 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 Authority and the Company have caused this Agreement to be duly executed in their respective names, all as of the date hereinbefore written. OHIO AIR QUALITY DEVELOPMENT AUTHORITY By: Executive Director THE CINCINNATI GAS & ELECTRIC COMPANY By: Treasurer Exhibit A DESCRIPTION OF AIR QUALITY FACILITIES AT WILLIAM H. ZIMMER ELECTRIC GENERATING STATION The Project consists of: (A) a high efficiency electrostatic precipitator system designed to remove particulates from the flue gas, (B) a flue gas desulfurization ("scrubber") system designed to remove sulfur dioxide from the flue gas, (C) a stack, (D) a coal dust control system, (E) a nitrous oxide control system, and (F) a cooling tower and circulating water system. The precipitator system includes electrostatic precipitators and a fly ash handling system, as well as all other necessary earthwork, piling, foundations, structural and miscellaneous steel, supports, siding, enclosures, electrical equipment, instrumentation and controls, mechanical equipment, related pumps and tanks, hoppers and storage silos, and associated equipment required for the foregoing and used exclusively in connection therewith. The precipitator system includes related drains, sumps and piping necessary to transmit collected waste waters to the waste water pond. The Project also includes precipitator inlet and outlet ductwork. The scrubber system includes an inlet plenum, six induced draft fans, ductwork to and including six absorber modules, ductwork to the stack, FGD reagent and lime unloading and handling system including required river cells, FGD reagent and lime silos, an FGD reagent and lime preparation facility, slurry tanks, scrubber sludge handling facilities which include thickener tanks, a sludge pond underflow and overflow tanks, a sludge handling building, stockpile facilities and auxiliary facilities. The scrubber system includes all earthwork including stream relocation, piling, foundations, structural and miscellaneous steel, siding, painting, electrical and mechanical components and associated equipment required for the scrubber system and used exclusively in connection therewith. The scrubber system includes related drains, sumps and piping necessary to transmit collected waste waters to the waste water pond, and also includes all pipes, pumps and associated mechanical and electrical components to supply and recycle water for the scrubber system operation. The scrubber system also includes a disposal area and the roads and bridges used exclusively for the transportation of scrubber sludge, bottom ash and other solid waste along with truck wash facilities and truck scales. The stack includes the stack shell and brick liner, as well as earthwork, piling, foundation and associated components. The coal dust control systems include a coal dust collection system, a coal dust suppression system and a coal wetting system. The cooling tower and circulating water system includes a natural draft cooling tower, a cooling tower basin, a cooling water flume, three circulating water pumps, circulating water pipes and valves, the make-up water subsystem, the blowdown subsystem, the cooling water chemical conditioning subsystem, mechanical and electrical auxiliaries, and related controls and instrumentation. The cooling water system also includes all related site development and earthwork, piling, foundations, structural and miscellaneous steel, siding, painting, electrical and mechanical components and associated equipment required for the cooling tower and circulating water system and used exclusively in connection therewith. EX-27 4 CINERGY 09/30/95 10-Q
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1995 JAN-01-1995 SEP-30-1995 9-MOS PER-BOOK 6,225,211 0 862,440 1,007,195 149,085 8,243,931 1,572 1,585,470 941,652 2,528,694 160,000 227,913 2,694,676 284,000 0 0 134,400 0 0 0 2,214,248 8,243,931 2,245,462 172,415 1,624,077 1,796,492 448,970 16,517 465,487 170,850 294,637 24,084 270,553 201,251 160,654 484,506 1.73 1.73 -----END PRIVACY-ENHANCED MESSAGE-----