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 JuneSeptember 30, 1998
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) 421-9500
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 421-9500
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) 421-9500
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 JulyOctober 31, 1998, shares of Common Stock outstanding for each registrant
were as listed:
Company Shares
Cinergy Corp., par value $.01 per share 158,535,278
Company Shares
- ------------------------------------------------------------------- ------------
Cinergy Corp., par value $.01 per share 158,584,688
The Cincinnati Gas & Electric Company, par value $8.50 per share 89,663,086
PSI Energy, Inc., without par value, stated value $.01 per share 53,913,701
The Union Light, Heat and Power Company, par value $15.00 per share 585,333
TABLE OF CONTENTS
Item Page
Number Number
Glossary of Terms . . . . . . . . . . . . . . . . . . . 3
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . . 67
Consolidated Statements of Income (Loss). . . . . . . 89
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . 910
Consolidated Statements of Cash Flows . . . . . . . . 1213
Results of Operations . . . . . . . . . . . . . . . . 1314
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . . 24
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Cash Flows . . . . . . . . 27
Results of Operations . . . . . . . . . . . . . . . . 28
PSI Energy, Inc.
Consolidated Balance Sheets . . . . . . . . . . . . . 34
Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss)Income. . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Cash Flows . . . . . . . . 37
Results of Operations . . . . . . . . . . . . . . . . 38
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . . 43
Statements of Income (Loss)Income. . . . . . . . . . . . . . . . . 45
Statements of Cash Flows. . . . . . . . . . . . . . . 46
Results of Operations . . . . . . . . . . . . . . . . 47
Notes to Financial Statements . . . . . . . . . . . . . 5051
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 5760
3 Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . 6267
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 6368
5 Other Information . . . . . . . . . . . . . . . . . . . 68
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 6368
Signatures. . . . . . . . . . . . . . . . . . . . . . . 6570
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
1997 Form Combined 1997 Annual Report on Form 10-K filed separately by
10-K Cinergy, CG&E, PSI, and ULH&P
ADR Alternative Dispute Resolution
Apache Apache Corporation
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
Bcf Billion cubic feet
Beckjord CG&E's&E'S W. C. Beckjord Station (steam electric generating
plant)
CC&T Cinergy Capital and Trading, Inc. (a subsidiary of
Investments)
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
CFC National Rural Utilities Cooperative Finance Corporation
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
CWIP Construction work in progress
Cayuga PSI's Cayuga Station
Cinergy or Cinergy Corp.
Company
Cinergy Global Cinergy Global Power, Inc., formerly Cinergy Investments
Power MPI, Inc. (a subsidiary of Cinergy Global Resources, Inc.)Resources)
Cinergy Global Cinergy Global Resources, Inc. (a subsidiary of Cinergy),
Resources which holds Cinergy's foreigninternational non-regulated
businessbusinesses
Committed Lines Unsecured linesA line of credit Conesvilleproviding short-term loans on a
committed basis
DSM Demand-side management
Destec Destec Energy, Inc.
Dynegy Dynegy, Inc.
EPA United States Environmental Protection Agency
EPRI Electric Power Research Institute
EPS Earnings per share
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
East Bend CG&E's ConesvilleEast Bend Station (steam electric generating plant)
Enertech Enertech Associates, Inc., formerly Power International,
Inc. (a subsidiary of Cinergy Investments, Inc.)
EPA United States Environmental Protection Agency
EPS Earnings per share
Exxon Exxon Coal and Minerals Company
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
February 1995 An IURC order issued in February 1995
Order
Gibson PSI's Gibson Generating Station (steam electric generating
plant)
HB 443 Customer choice bill introduced by the House Chairman of the
Tourism, Development and Energy Committee in Kentucky
HJR 95 House Joint Resolution, which calls for an executive task
force to study electricity restructuring in Kentucky
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
HB 732 and Companion electric restructuring bills introduced into the
SB 237 Ohio legislature during 1998
IDEM Indiana Department of Environmental Management
IGC Indiana Gas Company, Inc., formerly Indiana Gas and Water
Company, Inc.
IRS Internal Revenue Service
IT Information Technology
Investments Cinergy Investments, Inc. (a subsidiary of Cinergy), which
holds Cinergy's domestic, non-regulated businesses
IOU Investor-owned utility
ISO Independent System Operator
IT Information Technology
IURC Indiana Utility Regulatory Commission
kwh Kilowatt-hour
Mcfmcf Thousand cubic feet
MGP Manufactured gas plant
MW Megawatts
Midlands Midlands Electricity plc, a United Kingdom regional electric
company (a wholly-owned subsidiary of Avon Energy)
MW MegawattsMoravske Moravske Teplarna a.s. (an indirect subsidiary of Cinergy
Global Power)
N/A Not applicable
NERC North American Electric Reliability Council
NIPSCO Northern Indiana Public Service Company
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
NOx Nitrogen Oxide
Oryx Oryx Energy Company
PRP Potentially Responsible Party
ProEnergy Producers Energy Marketing, LLC (a subsidiary of CC&T),
which is engaged in the marketing of natural gas
PSI PSI Energy, Inc. (a subsidiary of Cinergy)
PUCO Public Utilities Commission of Ohio
RUS Rural Utilities Service
SB 237 and Companion electric restructuring bills introduced into the
HB 732 Ohio legislature during 1998
SEC United States Securities and Exchange Commission
SIP State Implementation Plan
September 1996 An IURC order issued in September 1996 on PSI's retail
Order rate proceeding
Statement 130 Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income
Statement 133 Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities
Teplarna Teplarna Svit a.s. (a subsidiaryUCC Office of Cinergy Global Power)Utility Consumer Counselor
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
U.S. District United States District Court for the Southern District of
Court Ohio, Western Division
Uncommitted Short-term borrowings with various banks arrangedA line of credit providing short-term loans on an
"as
Lines offered"uncommitted basis
WVPA Wabash Valley Power Association, Inc.
Wabash River PSI's Wabash River Station
Zimmer CG&E's William H. Zimmer Generating Station (steam electric
generating plant)
CINERGY CORP.
AND SUBSIDIARY COMPANIES
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $9,048,447 $8,981,182
Gas 759,774 746,903
Common 186,236 186,078
---------- ----------
9,994,457 9,914,163
Accumulated depreciation 3,922,498 3,800,322
---------- ----------
6,071,959 6,113,841
Construction work in progress 219,154 183,262
---------- ----------
Total utility plant 6,291,113 6,297,103
Current Assets
Cash and temporary cash investments 86,934 53,310
Restricted deposits 1,507 2,319
Notes receivable 78 110
Accounts receivable less accumulated provision for
doubtful accounts of $14,520 at June 30, 1998,
and $10,382 at December 31, 1997 528,923 413,516
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 72,272 57,916
Gas stored for current use 29,282 29,174
Other materials and supplies 70,475 76,066
Prepayments and other 68,126 38,171
---------- ----------
857,597 670,582
Other Assets
Regulatory assets
Amounts due from customers - income taxes 398,237 374,456
Post-in-service carrying costs and deferred
operating expenses 174,557 178,504
Coal contract buyout costs 112,936 122,485
Deferred merger costs 87,684 90,346
Deferred demand-side management costs 91,793 109,596
Phase-in deferred return and depreciation 82,232 89,689
Unamortized costs of reacquiring debt 64,443 66,242
Other 44,241 45,533
Investments in unconsolidated subsidiaries 589,724 537,720
Other 385,746 275,897
---------- ----------
2,031,593 1,890,468
$9,180,303
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 78,826 $ 53,310
Restricted deposits 1,531 2,319
Notes receivable 71 110
Accounts receivable less accumulated provision
for doubtful accounts of $20,689 at September
30, 1998, and $10,382 at December 31, 1997 832,766 413,516
Materials, supplies, and fuel - at average cost 189,300 163,156
Prepayments and other 56,368 38,171
----------- ----------
1,158,862 670,582
Utility Plant - Original Cost
In service
Electric 9,102,204 8,981,182
Gas 772,006 746,903
Common 185,896 186,078
----------- ----------
10,060,106 9,914,163
Accumulated depreciation 3,982,686 3,800,322
----------- ----------
6,077,420 6,113,841
Construction work in progress 226,362 183,262
----------- ----------
Total utility plant 6,303,782 6,297,103
Other Assets
Regulatory assets 1,033,651 1,076,851
Investments in unconsolidated subsidiaries 502,623 537,720
Other 438,699 275,897
----------- ----------
1,974,973 1,890,468
$ 9,437,617 $8,858,153
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
CINERGY CORP.
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 917,760 $ 488,716
Accrued taxes 206,361 187,033
Accrued interest 49,011 46,622
Notes payable and other short-term obligations 1,185,486 1,114,028
Long-term debt due within one year 186,000 85,000
Other 98,848 79,193
---------- ----------
2,643,466 2,000,592
Non-Current Liabilities
Long-term debt 2,210,488 2,150,902
Deferred income taxes 1,095,884 1,248,543
Unamortized investment tax credits 159,030 166,262
Accrued pension and other postretirement
benefit costs 305,269 297,142
Other 388,483 277,523
---------- ----------
4,159,154 4,140,372
Total liabilities 6,802,620 6,140,964
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,648 177,989
Common Stock Equity
Common stock - $.01 par value; authorized
shares - 600,000,000; outstanding shares -
158,547,701 at September 30, 1998, and
157,744,658 at December 31, 1997 1,585 1,577
Paid-in capital 1,600,776 1,573,064
Retained earnings 943,647 967,420
Accumulated other comprehensive loss (3,659) (2,861)
---------- ----------
Total common stock equity 2,542,349 2,539,200
$9,437,617 $8,858,153
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
CINERGY CORP.
CAPITALIZATION AND LIABILITIES
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - $.01 par value; authorized shares - 600,000,000; outstanding
shares - 158,535,278 at June 30, 1998, and
157,744,658 at December 31, 1997 $ 1,585 $ 1,577
Paid-in capital 1,599,435 1,573,064
Retained earnings 905,556 967,420
Accumulated other comprehensive income (3,330) (2,861)
---------- ----------
Total common stock equity 2,503,246 2,539,200
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,688 177,989
Long-term Debt 2,192,975 2,150,902
---------- ----------
Total capitalization 4,788,909 4,868,091
Current Liabilities
Long-term debt due within one year 251,569 85,000
Notes payable and other short-term obligations 1,120,559 1,114,028
Accounts payable 655,241 488,716
Accrued taxes 187,197 187,033
Accrued interest 35,420 46,622
Other 88,405 79,193
---------- ----------
2,338,391 2,000,592
Other Liabilities
Deferred income taxes 1,209,293 1,248,543
Unamortized investment tax credits 161,464 166,262
Accrued pension and other postretirement
benefit costs 315,348 297,142
Other 366,898 277,523
---------- ----------
2,053,003 1,989,470
$9,180,303 $8,858,153
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
Quarter Ended Year to Date Twelve Months Ended
JuneSeptember 30 JuneSeptember 30 JuneSeptember 30
1998 1997 1998 1997 1998 1997
(in thousands, except per share amounts)
Operating Revenues
Electric $1,021,922 $790,576 $2,180,646 $1,608,490 $4,433,854 $3,041,642$1,601,996 $1,315,165 $3,782,641 $2,923,655 $4,720,684 $3,631,890
Gas 50,081 74,757 223,142 287,023 427,264 495,782
---------- --------355,945 39,941 666,136 326,964 830,318 494,936
Other 18,545 5,423 43,888 21,705 56,568 31,458
---------- ---------- ---------- ---------- 1,072,003 865,333 2,403,788 1,895,513 4,861,118 3,537,424---------- ----------
1,976,486 1,360,529 4,492,665 3,272,324 5,607,570 4,158,284
Operating Expenses
Fuel used in electric production 155,547 134,602 336,066 310,348 719,153 668,341
Gasand purchased 21,668 35,826 118,279 159,794 224,643 275,730
Purchased and exchanged
power 439,920 195,364 911,805 355,956 1,775,207 456,3711,070,753 804,397 2,318,624 1,470,701 2,760,717 1,707,996
Gas purchased 316,321 15,622 518,006 175,416 608,748 274,219
Other operation 237,130 158,488 400,158 321,900 716,203 625,574
Maintenance 55,613 51,201 94,679 97,055 174,095 199,157and maintenance 235,074 213,458 774,149 651,648 991,075 899,859
Depreciation 73,790 72,171 147,095 143,727 292,445 285,698
Amortization of phase-in deferrals 5,540 3,370 11,079 6,741 17,821 13,540
Amortization of post-in-service
deferred operating expenses 1,090 1,090 2,181 2,181 4,362 2,379
Income taxes (10,897) 39,937 59,894 103,856 204,975 215,122and amortization 80,425 76,847 240,780 229,496 318,205 305,184
Taxes other than income taxes 68,157 67,841 137,806 136,213 266,617 261,482
---------- --------69,346 67,174 208,125 204,132 270,037 265,625
---------- ---------- ---------- ---------- 1,047,558 759,890 2,219,042 1,637,771 4,395,521 3,003,394---------- ----------
1,771,919 1,177,498 4,059,684 2,731,393 4,948,782 3,452,883
Operating Income 24,445 105,443 184,746 257,742 465,597 534,030204,567 183,031 432,981 540,931 658,788 705,401
Equity in Earnings of
Unconsolidated Subsidiaries 11,421 3,782 32,992 42,462 50,922 57,445
Other Income and Expenses(Expenses) - Net Allowance for equity funds used
during construction 111 180 132 371 (141) 748
Post-in-service carrying costs - - - - - 386
Phase-in deferred return 1,811 2,002 3,622 4,004 7,626 8,190
Equity in earnings of
unconsolidated subsidiaries 9,717 12,180 21,571 38,680 43,283 61,677
Income taxes 12,788 3,653 26,130 4,444 57,623 18,433
Other - net (12,684) (8,080) (31,715) (10,707) (52,510) (37,545)
---------- --------(115) 6,268 (11,850) 3,634 (18,088) (8,972)
Interest 60,950 58,444 181,511 176,897 240,933 234,560
--------- ---------- ---------- ---------- ---------- 11,743 9,935 19,740 36,792 55,881 51,889----------
Income Before Interest and Other
Charges 36,188 115,378 204,486 294,534 521,478 585,919
Interest and Other Charges
Interest on long-term debt 43,835 44,977 87,593 94,252 175,113 187,713
Other interest 18,845 13,430 36,839 27,297 69,489 50,274
Allowance for borrowed funds used
during construction (1,925) (1,754) (3,872) (3,096) (6,176) (6,499)Taxes 154,923 134,637 272,612 410,130 450,689 519,314
Income Taxes 44,127 48,961 77,891 148,373 142,518 183,732
Preferred dividend requirementsDividend Requirements
of subsidiaries 1,366 3,236 3,788 6,475 9,882 16,209
---------- --------Subsidiaries 1,365 3,142 5,152 9,617 8,104 12,856
---------- ---------- ---------- ---------- 62,121 59,889 124,348 124,928 248,308 247,697---------- ----------
Net Income (Loss) Before Extraordinary Item $ (25,933)109,431 $ 55,48982,534 $ 80,138189,569 $ 169,606252,140 $ 273,170300,067 $ 338,222322,726
Extraordinary Item - Equity Share of
Windfall Profits Tax (Less
Applicable Income Taxes of $0) - - -(109,400) - (109,400) - ---------- --------(109,400)
---------- ---------- ---------- ----------------- ---------- ----------
Net Income (Loss) $ (25,933)109,431 $ 55,489(26,866) $ 80,138189,569 $ 169,606142,740 $ 163,770300,067 $ 338,222213,326
Average Common Shares Outstanding 158,018158,539 157,679 157,892158,110 157,679 157,790158,007 157,679
Earnings Per Common Share
Net income (loss) before
extraordinary item $(.16) $.35 $.51 $1.07 $1.73 $2.02$0.69 $ 0.53 $1.20 $1.60 $1.90 $2.04
Net income (loss) $(.16) $.35 $.51 $1.07 $1.04 $2.02$0.69 $(0.16) $1.20 $0.91 $1.90 $1.35
Earnings Per Common Share - Assuming Dilution
(Note 13)Net income before
extraordinary item $0.69 $ 0.52 $1.20 $1.59 $1.90 $2.03
Net income (loss) before
extraordinary item $(.16) $.35 $.51 $1.06 $1.72 $2.01
Net income (loss) $(.16) $.35 $.51 $1.06 $1.03 $2.01$0.69 $(0.17) $1.20 $0.90 $1.90 $1.34
Dividends Declared Per Common Share $0.45 $ .45 $.45 $.90 $ .900.45 $1.35 $1.35 $1.80 $1.78$1.80
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(dollars in thousands)
(unaudited)
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Loss Income Income(Loss) Equity
Quarter Ended JuneSeptember 30, 1998
Balance Aprilat July 1, 1998 $1,578 $1,574,080 $1,002,495 $(3,279) $2,574,874$1,585 $1,599,435 $ 905,556 $(3,330) $2,503,246
Comprehensive income
Net income (loss) (25,933) $(25,933) (25,933)109,431 $109,431 109,431
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (51) (51)(329) (329)
--------
Other comprehensive income
(loss)loss
total (51) (51)(329) (329)
--------
Comprehensive income (loss) total $(25,984)$109,102
Issuance of 771,25812,423 shares of
common stock - net 7 26,504 26,511225 225
Treasury shares purchased (1) (3,502) (3,503)(1,536) (1,537)
Treasury shares reissued 1 2,329 2,3302,637 2,638
Dividends on common stock (see
page 89 for per share amounts) (71,006) (71,006)(71,340) (71,340)
Other 24 2415 15
------ ---------- ---------- ------- ----------
Balance Juneat September 30, 1998 $1,585 $1,599,435$1,600,776 $ 905,556 $(3,330) $2,503,246943,647 $(3,659) $2,542,349
Quarter Ended JuneSeptember 30, 1997
Balance at AprilJuly 1, 1997 $1,577 $1,579,934 $1,036,643 $(2,419) $2,615,735$1,570,533 $1,021,210 $(1,973) $2,591,347
Comprehensive income
Net income 55,489 $ 55,489 55,489loss (26,866) $(26,866) (26,866)
Other comprehensive income,
net of tax
Foreign currency translation
adjustment 446 446(514) (514)
--------
Other comprehensive incomeloss
total 446 446(514) (514)
--------
Comprehensive incomeloss total $ 55,935$(27,380)
========
Treasury shares purchased (4) (13,778) (13,782)(214) (214)
Treasury shares reissued 4 4,325 4,3291,614 1,614
Dividends on common stock (see
page 89 for per share amounts) (70,910) (70,910)(71,000) (71,000)
Other 52 (12) 40(406) 118 (288)
------ ---------- ---------- ------- ----------
Balance Juneat September 30, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347$1,571,527 $ 923,462 $(2,487) $2,494,079
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
(dollars in thousands)
(unaudited)
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings IncomeLoss Income Equity
SixNine Months Ended JuneSeptember 30, 1998
Balance at January 1, 1998 $1,577 $1,573,064 $ 967,420 $(2,861) $2,539,200
Comprehensive income
Net income 80,138 $ 80,138 80,138189,569 $189,569 189,569
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (418) (418)(747) (747)
Minimum pension liability
adjustment (51) (51)
--------
Other comprehensive income
(loss)loss
total (469) (469)(798) (798)
--------
Comprehensive income total $ 79,669
========$188,771
Issuance of 790,620803,043 shares of
common stock - net 8 26,793 26,80127,018 27,026
Treasury shares purchased (2) (4,932) (4,934)(3) (6,468) (6,471)
Treasury shares reissued 2 4,478 4,4803 7,115 7,118
Dividends on common stock (see
page 89 for per share amounts) (142,000) (142,000)(213,340) (213,340)
Other 3247 (2) 3045
------ ---------- ---------- ------- ----------
Balance Juneat September 30, 1998 $1,585 $1,599,435$1,600,776 $ 905,556 $(3,330) $2,503,246
Six943,647 $(3,659) $2,542,349
Nine Months Ended JuneSeptember 30, 1997
Balance at January 1, 1997 $1,577 $1,590,735 $ 993,526 $(1,384) $2,584,454
Comprehensive income
Net income 169,606 $169,606 169,606142,740 $142,740 142,740
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (589) (589)(1,103) (1,103)
--------
Other comprehensive income
(loss)loss
total (589) (589)(1,103) (1,103)
--------
Comprehensive income total $169,017$141,637
========
Treasury shares purchased (11) (45,725) (45,736)(45,939) (45,950)
Treasury shares reissued 11 25,459 25,47027,073 27,084
Dividends on common stock (see
page 89 for per share amounts) (141,910) (141,910)(212,910) (212,910)
Other 64 (12) 52(342) 106 (236)
------ ---------- ---------- ------- ----------
Balance Juneat September 30, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347$1,571,527 $ 923,462 $(2,487) $2,494,079
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
(dollars in thousands)
(unaudited)
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings IncomeLoss Income Equity
Twelve Months Ended JuneSeptember 30, 1998
Balance Julyat October 1, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347$1,571,527 $ 923,462 $(2,487) $2,494,079
Comprehensive income
Net income 163,770 $163,770 163,770300,067 $300,067 300,067
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (224) (224)(39) (39)
Minimum pension liability
adjustment (1,133) (1,133)
--------
Other comprehensive income
(loss)loss
total (1,357) (1,357)(1,172) (1,172)
--------
Comprehensive income total $162,413$298,895
Issuance of 856,149868,572 shares of
common stock - net 8 28,859 28,86729,084 29,092
Treasury shares purchased (2) (5,406) (5,408)(3) (6,728) (6,731)
Treasury shares reissued 2 5,748 5,7503 6,771 6,774
Dividends on common stock (see
page 89 for per share amounts) (283,956) (283,956)(284,296) (284,296)
Other (299) 4,532 4,233122 4,414 4,536
------ ---------- ---------- --------------- ----------
Balance Juneat September 30, 1998 $1,585 $1,599,435$1,600,776 $ 905,556 $(3,330) $2,503,246943,647 $(3,659) $2,542,349
Twelve Months Ended JuneSeptember 30, 1997
Balance at JulyOctober 1, 1996 $1,577 $1,594,920$1,592,393 $ 982,076 $(1,640) $2,576,933994,113 $(1,658) $2,586,425
Comprehensive income
Net income 338,222 $338,222 338,222213,326 $213,326 213,326
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (153) (153)(650) (650)
Minimum pension liability
adjustment (180) (180)(179) (179)
--------
Other comprehensive income
(loss)loss
total (333) (333)(829) (829)
--------
Comprehensive income total $337,889$212,497
========
Treasury shares purchased (14) (54,070) (54,084)(12) (48,170) (48,182)
Treasury shares reissued 14 29,647 29,66112 27,674 27,686
Dividends on common stock (see
page 9 for per share amounts) (283,866) (283,866)
Costs of reacquisition of
preferred stock of subsidiary (18,391) (18,391)
Dividends on common stock (see
page 8 for per share amounts) (280,668) (280,668)(216) (216)
Other 36 (29) 7(370) 105 (265)
------ ---------- --------------------- ------- ----------
Balance Juneat September 30, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347$1,571,527 $ 923,462 $(2,487) $2,494,079
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date Twelve Months Ended
JuneSeptember 30 JuneSeptember 30
1998 1997 1998 1997
(in thousands)
Operating Activities
Net income $ 80,138189,569 $ 169,606142,740 $ 163,770300,067 $ 338,222213,326
Items providing (using) cash currently:
Depreciation 147,095 143,727 292,445 285,698
Reserves related to electric trading business 67,000 - 71,000 -and amortization 240,780 229,496 318,205 305,184
WVPA settlement 80,000 - 80,000 -(80,000)
Deferred income taxes and investment tax
credits - net (61,871) 8,146 (2,379) 23,275(79,350) 4,698 (16,410) 18,549
Equity in earnings of unconsolidated subsidiaries (21,571) (38,680) (18,130) (61,677)(32,992) (17,309) (50,922) (32,292)
Extraordinary item - equity share of windfall
profits tax - 109,400 - 109,400 -
Allowance for equity funds used during
construction (132) (371) 141 (748)(793) (189) (701) (208)
Regulatory assets - net 36,171 38,881 68,600 57,14457,122 40,355 68,210 68,169
Changes in current assets and current liabilities
Restricted deposits 812 (224) 438 (270)788 (229) 419 (230)
Accounts and notes receivable, net of
reserves on receivables sold (1,456) 25,529 (244,142) (37,429)(298,792) (180,916) (335,033) (275,404)
Materials, supplies, and fuel (4,667) 20,980 (3,830) 52,803(20,037) 9,871 (8,091) 30,351
Accounts payable 40,353 7,025 216,624 54,493
Litigation settlement - - - (80,000)293,435 175,165 301,566 218,405
Accrued taxes and interest (11,038) 9,548 (42,000) 20,00821,717 22,719 (22,416) 36,922
Other items - net 23,850 (56,281) 108,306 (2,345)94,458 (28,229) 137,017 37,645
--------- --------- --------- ---------
Net cash provided by operating
activities 374,684 327,886 800,243 653,864545,905 507,572 771,911 649,817
Financing Activities
Issuance of common stock 290515 - 2,3562,581 -
Issuance of long-term debt 321,921373,041 - 421,983473,103 150,217
Retirement of preferred stock of subsidiaries (85,269) (114) (101,424) (197,487)(85,292) (16,182) (85,379) (19,110)
Redemption of long-term debt (220,409) (206,312) (350,409) (282,375)(333,745) (336,312) (333,745) (365,912)
Change in short-term debt 972 182,642 10,141 347,35961,642 323,128 (69,675) 243,891
Dividends on common stock (141,599) (141,910) (283,555) (280,668)(212,730) (212,910) (283,686) (283,866)
--------- --------- --------- ---------
Net cash used in financing activities (124,094) (165,694) (300,908) (262,954)(196,569) (242,276) (296,801) (274,780)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (144,524) (144,372) (328,207) (341,600)(238,364) (226,389) (340,030) (345,425)
Acquisition of businesses (net of cash acquired) (46,141)(63,412) - (46,141)(63,412) -
Deferred demand-side management costs (4,703) (10,783) (13,787) (37,921)
Investments in unconsolidated subsidiaries (21,598)(22,044) - (50,630) (46,351)(51,076) -
--------- --------- --------- -------------------
Net cash used in investing activities (216,966) (155,155) (438,765) (425,872)(323,820) (226,389) (454,518) (345,425)
Net increase (decrease) in cash and temporary cash investments 33,624 7,037 60,570 (34,962)25,516 38,907 20,592 29,612
Cash and temporary cash investments at
beginning of period 53,310 19,327 26,364 61,32658,234 28,622
--------- --------- --------- ---------
Cash and temporary cash investments at
end of period $ 86,93478,826 $ 26,36458,234 $ 86,93478,826 $ 26,36458,234
The accompanying notes as they relate to Cinergy Corp. 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, sixnine months, and twelve months ended JuneSeptember 30,
1998. For information concerning the results of operations for each of the other
registrants for the quarter and sixnine months ended JuneSeptember 30, 1998, see the
discussion under the heading "Results of Operations" following the financial
statements of each company.registrant.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNESEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Quarter Ended
September 30
Revenue Kwh Sales
Kwh sales1998 1997 1998 1997
($ and kwh in millions)
Retail $ 713 $ 671 13,013 12,099
Sales for resale 873 635 25,243 24,553
Other 16 9 N/A N/A
------ ------ ------ ------
Total $1,602 $1,315 38,256 36,652
Electric operating revenues increased 25.5%$287 million (22%) for the quarter ended
JuneSeptember 30, 1998, from the comparable period of last year,1997. This increase was
primarily reflecting increased activity in
Cinergy's power marketing and trading operations which led tothe result of a higher non-firm
poweraverage price per kwh received on sales for
resale. Also contributing to the higher kwh sales levelresale transactions. There was also an increase in residential and commercial sales due to the return to more normal
weather conditionsaverage price per kwh
paid for the quarter ended June 30, 1998, as compared to the same
period last year,corresponding purchases of purchased and an increase in industrial sales primarily reflecting
growth in the chemicals, transportation equipment, and miscellaneous
manufacturers sectors.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the quarter ended June 30, 1998,
decreased when compared to the same period in 1997. The decline in Mcf sales was
partially offset by an increase in gas transportation volumes as customers
continued the trend of purchasing gas directly from suppliers, using
transportation services provided by Cinergy.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the quarter ended June 30, 1998, increased $231
million (29%), as compared to the same period last year, primarily as a result
of the increased kwh sales discussed above.exchanged power described
below. Also contributing to the increase was awere higher retail kwh sales due to the
warmer than normal weather during 1998 and growth in the average price received on non-firm power transactions.
An analysisnumber of
electricresidential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues isand the related mcf sales are shown
below:
Quarter Ended
JuneSeptember 30
(inRevenue Mcf Sales
1998 1997 1998 1997
---- ---- ---- -----
($ and mcf in millions)
Electric operating revenues - June 30, 1997 $ 791
Increase (Decrease) due to change in:
Price per kwh
Retail (3)
Sales for resale Firm power obligations 2
Non-firm power transactions 89$296 $ - 152 -
Retail 48 33 6 4
Transportation 8 6 11 12
Other 4 1 N/A N/A
---- --- --- ---
Total change in price per kwh 88
Kwh sales
Retail 50
Sales for resale
Firm power obligations 10
Non-firm power transactions 80
Total change in kwh sales 140
Other 3
Electric operating revenues - June 30, 1998 $1,022
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing CG&E facilities to transport the gas continues to put
downward pressure on gas operating revenues. Since providing transportation
services does not necessitate recovery of the cost of gas purchased, the revenue
per Mcf transported is less than the revenue per Mcf sold. As a result, a higher
relative volume of gas transported to gas sold translates into lower gas
operating revenues.$356 $40 169 16
Gas operating revenues decreased $25increased $316 million (33%) in the secondthird quarter of 1998, when
compared to the same period last year, primarily due to the declinegas operating
revenues of ProEnergy, which was acquired in volumeJune 1998.
Other Revenues
Other revenues for the quarter ended September 30, 1998, increased $13 million,
over the same period of 1997. This increase was primarily the result of
increased sales discussed above and the aforementioned trend toward increased
transportation services.new initiatives by certain of Cinergy's non-regulated
entities.
Operating Expenses
Fuel Used in Electric Productionand Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Fuel $ 206 $197
Purchased and exchanged power 865 607
------ ----
Total $1,071 $804
Electric fuel costs increased $21$9 million (16%(5%) for the quarter ended JuneSeptember
30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
JuneSeptember 30
(in millions)
Fuel expense - JuneSeptember 30, 1997 $135$197
Increase (Decrease) due to change in:
Price of fuel (2)(6)
Deferred fuel cost 7(4)
Kwh generation 1619
----
Fuel expense - JuneSeptember 30, 1998 $156$206
Purchased and exchanged power expense increased $258 million (43%) for the
quarter ended September 30, 1998, when compared to the same period of 1997,
primarily reflecting an increase in the average price paid per kwh.
Gas Purchased
Gas purchased for the quarter ended JuneSeptember 30, 1998, decreased $14increased $301 million, (40%),
when compared to the same period last year, primarily due to a decrease in the
volumes of gas purchased
due to lower demand.
Purchasedexpenses of ProEnergy, which was acquired in June 1998.
Other Operation and Exchanged Power
PurchasedMaintenance
The components of other operation and exchanged powermaintenance expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Other operation $185 $171
Maintenance 50 42
---- ----
Total $235 $213
Other operation expenses increased $245$14 million (8%) for the quarter ended
JuneSeptember 30, 1998, whenas compared to the same period last year, primarily reflectingdue to
an increase in new initiatives by certain of Cinergy's consolidated
non-regulated businesses.
Maintenance expenses increased purchases of non-firm power for resale to others as a result of
increased activity in Cinergy's power marketing and trading operations and the
provision of $61$8 million of reserves for the electric trading business recorded
during the second quarter of 1998 (see Note 9 of the "Notes to Financial
Statements" in "Part I. Financial Information"(19%).
Other Operation
Other operation expenses for the quarter ended JuneSeptember
30, 1998, increased $79
million (50%), as compared to the same period of 1997. This increase is1997, primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements"an increase
in "Part I.
Financial Information"). This increase also reflects a provision of $4 million
recorded in the second quarter of 1998 for potential bad debts related to
certain power marketingproduction maintenance at Wabash River, Cayuga, and trading accounts.
Maintenance
For the quarter ended June 30, 1998, maintenance expenses increased $4 million
(9%), when compared to the quarter ended June 30, 1997. This increase is
primarily due to forced outages at Conesville and BeckjordGibson, and an increase
in overheaddistribution line maintenance costs resulting from storm damage during the second
quartermaintenance.
Depreciation and Amortization
The components of 1998.depreciation and amortization expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Depreciation $74 $73
Amortization of Phase-in Deferralsphase-in deferrals 5 3
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $80 $77
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiaries
The $2 million (20%) decrease inFor the quarter ended September 30, 1998, the equity in earnings of
unconsolidated subsidiaries increased $8 million, as compared to the same period
of last year. This increase is primarily attributable to Midlands.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $6 million for the quarter
ended JuneSeptember 30, 1998, from the same period of 1997, is due primarily to a
gain recorded in 1997 on the sale of a PSI investment.
Income Taxes
Income taxes decreased $5 million (10%) for the quarter ended September 30,
1998, as compared to the same period of 1997, is primarily attributable to the decrease in earnings of Midlands.
Other - net
The change in other - net of $5 million for the quarter ended June 30, 1998,
from the same period of 1997, is primarily due to the recognition
by Cinergy of Foreign Tax Credits in the third quarter of 1998. Previous
projections indicated that these Foreign Tax Credits would expire unused and
therefore previous Federal tax provisions had not given benefit to these Foreign
Tax Credits. This decrease is somewhat offset by an increase in expenses
related to Cinergy Global Power, which was formed in September 1997, a higher
level of expenses associated with PSI's sales of accounts receivable duringtaxable income
over the second quarter of 1998, and expenses related to the acquisitions and start-up
costs of other non-regulated entities.
Interest and Other Charges
Other Interest
Other interest increased $5 million (40%) for the second quarter of 1998, as
compared to the same period last year, partially due to increased interest on
the currency swap, interest expense recognized on a settlement agreement between
PSI and WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information"), and increased short-term borrowings.prior period.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $2 million
(58%(57%) for the quarter ended JuneSeptember 30, 1998, fromas compared to the same period
of 1997, is primarily attributable to PSI's redemption of all outstanding shares
of its 7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative
Preferred Stock on September 1, 1997, and March 1, 1998, respectively.
RESULTS OF OPERATIONS FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Nine Months
Ended September 30
Revenue Kwh Sales
Kwh sales1998 1997 1998 1997
------ ------ ------ -------
($ and kwh in millions)
Retail $1,955 $1,843 35,898 33,934
Sales for resale 1,790 1,056 63,349 46,283
Other 38 25 N/A N/A
------ ------ ------ ------
Total $3,783 $2,924 99,247 80,217
Electric operating revenues increased 47.3%$859 million (29%) for the sixnine months
ended JuneSeptember 30, 1998, from the comparable period of last year,1997. This increase was
primarily reflectingdue to increased activity in
Cinergy's power marketingvolumes and trading operations which led toa higher non-firm
poweraverage price per kwh received
on sales for resale.resale transactions. There was also an increase in the average
price per kwh paid for the corresponding purchases of purchased and exchanged
power described below. Also contributing to the increase were higher retail kwh
sales levels wasdue to the warmer than normal weather during 1998, growth in the average
number of residential and commercial customers, and an increase in industrial
sales primarily reflecting growth in the transportation
equipmentprimary metals and miscellaneous
manufacturers sectors,sectors.
Gas Operating Revenues
The components of gas operating revenues and increases in the average
number of residential and commercial customers.related mcf sales are shown
below:
Nine Months Ended
September 30 _
Revenue Mcf Sales
1998 1997 1998 1997
($ and mcf in millions)
Sales for resale $380 $ - 195 -
Retail 248 300 37 45
Transportation Mcf gas sales and transportation volumes28 24 42 40
Other 10 3 N/A N/A
---- ---- --- ---
Total $666 $327 274 85
Gas operating revenues increased $339 million for the sixnine months ended
JuneSeptember 30, 1998,
decreased when compared to the same period last year. This increase is
primarily due to the gas operating revenues of ProEnergy, which was acquired in
1997. Decreased McfJune 1998. This increase was partially offset by a decline in retail sales reflect,due
to lower mcf volumes reflecting, in part, the milder weather during the first
quarter of 1998, as compared to the
same period of 1997, and were partially offset by an increasea reduction in the average number of residentialcommercial and
commercialindustrial customers. Industrial sales declined and
gas transportation volumesTransportation revenues increased as customers continued
the trend of purchasing gas directly from suppliers, using transportation
services provided by CG&E.
OperatingOther Revenues
Electric Operating Revenues
Electric operatingOther revenues for the sixnine months ended JuneSeptember 30, 1998, increased $572$22
million, (36%), as compared toover the same period last year,of 1997. This increase was primarily as athe result of
the increased kwh sales previously discussed. Also contributing to the
increase was a higher average price received on non-firm power transactions.
An analysis of electric operating revenues is shown below:
Six Months
Ended June 30
(in millions)
Electric operating revenues - June 30, 1997 $1,609
Increase due to change in:
Price per kwh
Retail 13
Sales for resale
Non-firm power transactions 105
Total change in price per kwh 118
Kwh sales
Retail 58
Sales for resale
Firm power obligations 10
Non-firm power transactions 380
Total change in kwh sales 448
Other revenues 6
Electric operating revenues - June 30, 1998 $2,181
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the heading "Gas Operating Revenues" for Cinergy in "Results of Operations for
the Quarter Ended June 30, 1998."
Gas operating revenues decreased $64 million (22%) for the six months ended June
30, 1998, when compared to the same period last year. This decrease is primarily
due to the previously discussed changes in Mcf sales and transportation volumes.new initiatives by certain of Cinergy's non-regulated
entities.
Operating Expenses
Fuel Used in Electric Productionand Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Fuel $ 542 $ 507
Purchased and exchanged power 1,777 964
------ ------
Total $2,319 $1,471
Electric fuel costs increased $26$35 million (8%(7%) for the first sixnine months of
1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
SixNine Months Ended
JuneSeptember 30
(in millions)
Fuel expense - JuneSeptember 30, 1997 $310$507
Increase (Decrease) due to change in:
Price of fuel (8)(16)
Deferred fuel cost 1712
Kwh generation 1739
----
Fuel expense - JuneSeptember 30, 1998 $336
Gas Purchased
Gas purchased for the six months ended June 30, 1998, decreased $42 million
(26%) when compared to the same period last year, reflecting a decrease in the
volume of gas purchased, due to lower demand, and a lower average cost per Mcf
purchased.
Purchased and Exchanged Power$542
Purchased and exchanged power expense increased $556$813 million (84%) for the sixnine
months ended JuneSeptember 30, 1998, when compared to the same period last year,
primarily reflecting increased purchases of non-firm power for resale to others as a result of
increased activity in Cinergy's power marketing and trading operations and the
provision of $63 million of reserves for the electric trading business recorded
during 1998 (see Note 9 of the "Notes to Financial Statements" in "Part I.
Financial Information").
Other Operation
Other operation expenses for the first six months of 1998 increased by $78
million (24%), as comparedothers.
Also contributing to the same period of 1997. This increase is
primarilywas a higher average price paid per kwh and
increased demand due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information"). This increase also reflects a provision of $4 millionwarmer than normal weather for potential bad debts related to certain power marketing and trading accounts
recorded during the six months ended June 30, 1998.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiaries
The $17 million (44%) decrease in equity in earnings of unconsolidated
subsidiaries for the six months ended June 30, 1998, as compared to the same
period of 1997, is primarily attributable to the decrease in earnings of
Midlands, which is due to milder weather conditions during the first quarter of
1998, and a penalty imposed on each electric distribution company due to the
delay in opening the electricity supply business to competition.
Other - net
The change in other - net of $21 million for the six months ended June 30, 1998,
from the same period of 1997, is primarily due to a litigation settlement (see
Note 10 of the "Notes to Financial Statements" in "Part I. Financial
Information"), an increase in expenses related to Cinergy Global Power, which
was formed in September 1997, and expenses related to the acquisitions and
start-up costs of other non-regulated entities.
Interest and Other Charges
Interest on Long-term Debt
Interest on long-term debt decreased $7 million (7%) for the six months ended
June 30, 1998, as compared to the same period last year, primarily due to the
net redemption of approximately $190 million of long-term debt by CG&E and ULH&P
during the period from March 1997 through June 1998.
Other Interest
Other interest increased $10 million (35%) for the first half of 1998, as
compared to the same period last year, primarily due to increased interest
expense on the currency swap, which was initiated in mid-February 1997, interest
expense recognized on a settlement agreement between PSI and WVPA (see Note 14
of the "Notes to Financial Statements" in "Part I. Financial Information"), and
increased short-term borrowings.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $3 million
(41%) for the six months ended June 30, 1998, from the same period of 1997, is
primarily attributable to PSI's redemption of all outstanding shares of its
7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred
Stock on September 1, 1997, and March 1, 1998, respectively.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1998
Kwh Sales
Kwh sales increased 71.5% for the twelve months ended June 30, 1998, from the comparable period
of last year, primarily reflecting increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales levels was an
increase in residential and commercial sales due to an increase in the average
number of residential and commercial customers, and an increase in industrial
sales primarily reflecting growth in the miscellaneous manufacturers and primary
metals sectors.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the twelve months ended June 30,
1998, decreased when compared to the same period in 1997. Decreased Mcf sales
reflect, in part, milder weather during the period, as compared to the same
period a year ago and were partially offset by an increase in the average number
of residential and commercial customers. Industrial sales declined and gas
transportation volumes increased as customers continued the trend of purchasing
gas directly from suppliers, using transportation services provided by CG&E.
Operating Revenues
Electric Operating Revenues
Compared to the same period last year, electric operating revenues for the
twelve months ended June 30, 1998, increased $1.4 billion (46%), reflecting the
increased kwh sales discussed above.
An analysis of electric operating revenues is shown below:
Twelve Months
Ended June 30
(in millions)
Electric operating revenues - June 30, 1997 $3,042
Increase (Decrease) due to change in:
Price per kwh
Retail 14
Sales for resale
Firm power obligations (2)
Non-firm power transactions 231
Total change in price per kwh 243
Kwh sales
Retail 91
Sales for resale
Firm power obligations 22
Non-firm power transactions 1,026
Total change in kwh sales 1,139
Other 10
Electric operating revenues - June 30, 1998 $4,434
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the caption "Gas Operating Revenues" for Cinergy in "Results of Operations for
the Quarter Ended June 30, 1998."
Gas operating revenues decreased $69 million (14%) for the twelve months ended
June 30, 1998, when compared to the same period last year. This decrease was
largely the result of the previously discussed changes in Mcf sales and
transportation volumes.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $51 million (8%) for the twelve months ended June
30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Twelve Months
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $668
Increase due to change in:
Price of fuel 4
Kwh generation 47
Fuel expense - June 30, 1998 $719
Gas Purchased
Gas purchased for the twelvenine months ended June 30, 1998, decreased $51 million
(19%) when compared to the same period last year, reflecting a lower volume of
gas purchased, due to lower demand, and a decrease in the average cost per Mcf
purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $1.3 billion for the twelve months ended
June 30, 1998, when compared to the same period of last year, primarily
reflecting increased purchases of non-firm power for resale to others as a
result of increased activity in Cinergy's power marketing and trading operations
and the provision of $67 million of reserves for the electric trading business
recorded during the period (see Note 9 of the "Notes to Financial Statements" in
"Part I. Financial Information").
Other Operation
Other operation expenses increased $91 million (14%) for the twelve months ended
June 30, 1998, as compared to the same period last year, primarily due to the
one-time charge of $80 million recorded during the second quarter of 1998,
reflecting the implementation of a 1989 settlement of a dispute with the WVPA
(see Note 14 of the "Notes to Financial Statements" in "Part I. Financial
Information"). This increase also reflects a provision of $4 million recorded in
the second quarter of 1998 for potential bad debts related to certain power
marketing and trading accounts.
Maintenance
Maintenance expenses decreased $25 million (13%) for the twelve months ended
June 30, 1998, as compared to the twelve months ended June 30, 1997, primarily
due to decreased outage-related expenses at PSI's and CG&E's production
facilities.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Amortization of Post-in-service Deferred Operating Expenses
Amortization of post-in-service deferred operating expenses reflects the
amortization and related recovery in rates of various deferrals of depreciation,
operation and maintenance expenses (exclusive of fuel costs), and property taxes
on certain generating units and other utility plant from the in-service date
until the related plant was reflected in retail rates.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiaries
The $18 million (30%) decrease in equity in earnings of unconsolidated
subsidiaries for the twelve months ended June 30, 1998, as compared to the same
period of 1997, is partially attributable to the decrease in earnings of
Midlands, which is due to milder weather conditions and a penalty imposed on
each electric distribution company due to the delay in opening the electricity
supply business to competition. The decrease also reflects losses recognized on
several non-utility subsidiaries.
Other - net
The change in other - net of $15 million for the twelve months ended June 30,
1998, from the same period of 1997, is primarily due to a litigation settlement
(see Note 10 of the "Notes to Financial Statements" in "Part I. Financial
Information"). Additionally, the change also reflects a gain in 1996 related to
the sale of certain CG&E assets.
Interest and Other Charges
Interest on Long-term Debt
Interest on long-term debt decreased $13 million (7%) for the twelve months
ended June 30, 1998, as compared to the same period last year, primarily due to
the net redemption of approximately $190 million of long-term debt by CG&E and
ULH&P during the period from March 1997 through June 1998.
Other Interest
Other interest increased $19 million (38%) for the twelve months ended June 30,
1998, as compared to the same period last year, partially due to increased
interest expense on the currency swap, which was initiated in mid-February 1997,
interest expense recognized on a settlement agreement between PSI and WVPA (see
Note 14 of the "Notes to Financial Statements" in "Part I. Financial
Information"), and increased short-term borrowings.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $6 million
(39%) for the twelve months ended June 30, 1998, from the same period of 1997,
is primarily attributable to the September 1996 reacquisition and retirement of
approximately 90 percent of the outstanding preferred stock of CG&E.
Additionally, PSI redeemed all outstanding shares of its 7.15% Series Cumulative
Preferred Stock and 7.44% Series Cumulative Preferred Stock on September 1,
1997, and March 1, 1998, respectively.
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $4,729,327 $4,700,631
Gas 759,774 746,903
Common 186,236 186,078
---------- ----------
5,675,337 5,633,612
Accumulated depreciation 2,082,014 2,008,005
---------- ----------
3,593,323 3,625,607
Construction work in progress 143,734 118,133
---------- ----------
Total utility plant 3,737,057 3,743,740
Current Assets
Cash and temporary cash investments 12,673 2,349
Restricted deposits 1,173 1,173
Notes receivable from affiliated companies 73,442 27,193
Accounts receivable less accumulated
provision for doubtful accounts of $11,799
at June 30, 1998, and $9,199 at
December 31, 1997 173,035 193,549
Accounts receivable from affiliated
companies 32,216 35,507
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 26,867 29,682
Gas stored for current use 25,734 29,174
Other materials and supplies 40,193 49,111
Prepayments and other 52,130 31,827
---------- ----------
437,463 399,565
Other Assets
Regulatory assets
Amounts due from customers - income taxes 372,567 350,515
Post-in-service carrying costs and
deferred operating expenses 131,261 134,672
Deferred merger costs 16,090 16,557
Deferred demand-side management costs 37,573 38,318
Phase-in deferred return and depreciation 82,233 89,689
Unamortized costs of reacquiring debt 36,051 36,575
Other 4,575 1,439
Other 90,118 103,368
---------- ----------
770,468 771,133
$4,944,988 $4,914,438
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CAPITALIZATION AND LIABILITIES
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding
shares - 89,663,086 at June 30, 1998, and
December 31, 1997 $ 762,136 $ 762,136
Paid-in capital 534,668 534,649
Retained earnings 312,799 314,553
Accumulated other comprehensive income (904) (750)
---------- ----------
Total common stock equity 1,608,699 1,610,588
Cumulative Preferred Stock
Not subject to mandatory redemption 20,735 20,793
Long-term Debt 1,219,487 1,324,432
---------- ----------
Total capitalization 2,848,921 2,955,813
Current Liabilities
Long-term debt due within one year 110,000 -
Notes payable and other short-term
obligations 214,000 289,000
Notes payable to affiliated companies 11,362 12,253
Accounts payable 267,277 249,538
Accounts payable to affiliated companies 13,339 10,821
Accrued taxes 167,240 149,129
Accrued interest 18,094 25,430
Other 28,009 29,950
---------- ----------
829,321 766,121
Other Liabilities
Deferred income taxes 815,233 794,396
Unamortized investment tax credits 113,898 116,966
Accrued pension and other postretirement
benefit costs 156,796 180,566
Other 180,819 100,576
---------- ----------
1,266,746 1,192,504
$4,944,988 $4,914,438
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Quarter Ended Year to Date
June 30 June 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
Electric
Non-affiliated companies $521,198 $404,117 $1,096,039 $ 799,742
Affiliated companies 18,444 7,785 36,908 13,860
Gas
Non-affiliated companies 50,082 74,757 223,142 287,023
Affiliated companies 388 1 790 2
-------- -------- ---------- ----------
590,112 486,660 1,356,879 1,100,627
Operating Expenses
Fuel used in electric production 77,642 60,358 165,705 130,597
Gas purchased 21,657 35,826 118,245 159,794
Purchased and exchanged power
Non-affiliated companies 230,665 93,909 460,159 164,771
Affiliated companies 10,133 3,065 17,747 4,637
Other operation 77,266 79,897 158,913 159,172
Maintenance 27,901 23,957 47,659 51,293
Depreciation 41,588 40,878 82,886 81,282
Amortization of phase-in deferrals 5,540 3,370 11,079 6,741
Amortization of post-in-service
deferred operating expenses 822 822 1,645 1,645
Income taxes 8,806 27,037 53,419 70,837
Taxes other than income taxes 53,712 52,507 108,395 106,021
-------- -------- ---------- ----------
555,732 421,626 1,225,852 936,790
Operating Income 34,380 65,034 131,027 163,837
Other Income and Expenses - Net
Allowance for equity funds used
during construction 97 87 107 206
Phase-in deferred return 1,811 2,002 3,622 4,004
Income taxes 3,844 3,730 7,672 6,736
Other - net (2,273) (4,261) (6,588) (9,036)
-------- -------- ---------- ----------
3,479 1,558 4,813 1,910
Income Before Interest 37,859 66,592 135,840 165,747
Interest
Interest on long-term debt 24,415 27,831 50,467 57,876
Other interest 2,269 2,562 4,370 4,258
Allowance for borrowed funds
used during construction (1,511) (1,231) (2,875) (2,140)
-------- -------- ---------- ----------
25,173 29,162 51,962 59,994
Net Income $ 12,686 $ 37,430 $ 83,878 $ 105,753
Preferred Dividend Requirement 215 217 430 436
-------- -------- ---------- ----------
Net Income Applicable to Common
Stock $ 12,471 $ 37,213 $ 83,448 $ 105,317
Other Comprehensive Income, Net
of Tax - - (155) -
-------- -------- ---------- -------
Comprehensive Income $ 12,471 $ 37,213 $ 83,293 $ 105,317
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
June 30
1998 1997
(in thousands)
Operating Activities
Net income $ 83,878 $ 105,753
Items providing (using) cash currently:
Depreciation 82,886 81,282
Reserves related to electric trading
business 59,000 -
Deferred income taxes and investment tax
credits - net (14,433) 15,055
Allowance for equity funds used during
construction (107) (206)
Regulatory assets - net 15,541 15,011
Changes in current assets and current
liabilities
Restricted deposits - (2)
Accounts and notes receivable, net of
reserves on receivables sold (22,325) 45,703
Materials, supplies, and fuel 15,173 10,429
Accounts payable 20,257 (4,353)
Accrued taxes and interest 10,775 (2,802)
Other items - net (4,146) (29,645)
--------- ---------
Net cash provided by operating
activities 246,499 236,225
Financing Activities
Retirement of preferred stock (39) (113)
Issuance of long-term debt 223,020 -
Redemption of long-term debt (220,409) (160,612)
Change in short-term debt (75,891) 87,398
Dividends on preferred stock (430) (438)
Dividends on common stock (85,200) (85,200)
--------- ---------
Net cash used in financing
activities (158,949) (158,965)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (75,571) (67,963)
Deferred demand-side management costs (1,655) (4,708)
Net cash used in investing
activities (77,226) (72,671)
Net increase in cash and temporary cash
investments 10,324 4,589
Cash and temporary cash investments at
beginning of period 2,349 5,120
--------- ---------
Cash and temporary cash investments at
end of period $ 12,673 $ 9,709
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998
Kwh Sales
Kwh sales for the quarter ended June 30, 1998, increased 25.2%, as compared to
the second quarter of 1997, primarily due to higher non-firm power sales for
resale resulting from increased activity in Cinergy's power marketing and
trading operations, increased residential and commercial sales due to a return
to more normal weather in the second quarter of 1998, as compared to the
relatively mild weather during the second quarter of 1997, and an increase in
the average number of residential and commercial customers, and an increase in
industrial sales primarily reflecting growth in the chemicals and the
miscellaneous manufacturers sectors. Nonsystem kwh sales (and related revenues
and expenses) resulting from Cinergy's power marketing and trading operations
are allocated 50%/50% between CG&E and PSI pursuant to the operating agreements
filed with the companies' regulators.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the quarter ended June 30, 1998,
decreased when compared to the same period in 1997. The decline in Mcf sales was
partially offset by an increase in gas transportation volumes as customers
continued the trend of purchasing gas directly from suppliers, using
transportation services provided by CG&E.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $128$343
million (31%) for the quarter ended
June 30, 1998, from the comparable period of 1997. This increase is primarily a
result of the increased kwh sales previously discussed, higher average price
received on non-firm power transactions, and the operation of fuel adjustment
clauses reflecting a higher average cost per kwh.
An analysis of electric operating revenues is shown below:
Quarter
Ended June 30
(in millions)
Electric operating revenues - June 30, 1997 $412
Increase due to change in:
Price per kwh
Retail 11
Sales for resale
Non-firm power transactions 49
Total change in price per kwh 60
Kwh sales
Retail 25
Sales for resale
Firm power 1
Non-firm power transactions 41
Total change in kwh sales 67
Other 1
Electric operating revenues - June 30, 1998 $540
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing CG&E facilities to transport the gas continues to put
downward pressure on gas operating revenues. Since providing transportation
services does not necessitate recovery of the cost of gas purchased, the revenue
per Mcf transported is less than the revenue per Mcf sold. As a result, a higher
relative volume of gas transported to gas sold translates into lower gas
operating revenues.
Gas operating revenues decreased $24 million (32%) in the second quarter of
1998, when compared to the same period last year, primarily due to the
declineacquisition of ProEnergy in volume sales discussed aboveJune 1998, and the aforementioned trend toward increased
transportation services.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $17 million (29%) for the quarter ended June 30,
1998, as compared to the same period last year.
An analysis of these fuel costsits related gas purchased expense.
Slightly offsetting this increase is shown below:
Quarter
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $60
Increase due to change in:
Deferred fuel cost 14
Kwh generation 3
Fuel expense - June 30, 1998 $77
Gas Purchased
Gas purchased for the quarter ended June 30, 1998, decreased $14 million (40%),
when compared to the same period last year, primarily due to a decrease in the retail volumes of gas
purchased due to lower demand.
Purchased and Exchanged Power
Purchased and exchanged power for the quarter ended June 30, 1998, increased
$144 million over the comparable period of 1997, primarily reflecting increased
purchases of non-firm power for resale to others as a result of increased
activity in Cinergy's power marketing and trading operations and the provision
of additional reserves of $56 million for the electric trading business recorded
during the second quarter of 1998 (see Note 9 of the "Notes to Financial
Statements" in "Part I. Financial Information").
Maintenance
The $4 million (16%) increase in maintenance expenses for the quarter ended June
30, 1998, as compared to the same period of 1997, is primarily due to forced
outages at Conesville and Beckjord and an increase in overhead line maintenance
costs resulting from storm damage during the second quarter of 1998.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for
Zimmer.
Interest
Interest on Long-term Debt
Interest on long-term debt decreased $3 million (12%) for the quarter ended June
30, 1998, as compared to the same period of 1997, primarily due to the net
redemption of approximately $174 million of long-term debt during the period
from April 1997 through June 1998.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
Kwh Sales
Kwh sales for the six months ended June 30, 1998, increased 50.4%, as compared
to the six months ended June 30, 1997, primarily due to higher non-firm power
sales for resale resulting from increased activity in Cinergy's power marketing
and trading operations, increased residential and commercial sales due to an
increase in the average number of residential and commercial customers, and
increased industrial sales primarily reflecting growth in the chemicals,
miscellaneous manufacturers and primary metals sectors. Nonsystem kwh sales (and
related revenues and expenses) resulting from Cinergy's power marketing and
trading operations are allocated 50%/50% betweenby CG&E, and PSI pursuant to the
operating agreements filed with the companies' regulators.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the six months ended June 30, 1998,
decreased when compared to the same period in 1997. Decreased Mcf sales reflect,
in part, milder weather during the first quarter of 1998, as compared to the
same period of 1997, and were partially offset by an increase in the average
number of residential and commercial customers. Industrial sales declined and
gas transportation volumes increased as customers continued the trend of
purchasing gas directly from suppliers, using transportation services provided
by CG&E.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $319 million (39%) for the six months
ended June 30, 1998, from the comparable period of 1997. This increase is
primarily a result of the increased kwh sales previously discussed, a higher
average price received on non-firm power transactions, and the operation of fuel
adjustment clauses reflecting a higher average cost per kwh.
An analysis of electric operating revenues is shown below:
Six Months
Ended June 30
(in millions)
Electric operating revenues - June 30, 1997 $ 814
Increase (Decrease) due to change in:
Price per kwh
Retail 32
Sales for resale
Firm power (1)
Non-firm power transactions 71
Total change in price per kwh 102
Kwh sales
Retail 23
Sales for resale
Non-firm power transactions 192
Total change in kwh sales 215
Other 2
Electric operating revenues - June 30, 1998 $1,133
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the caption "Gas Operating Revenues" for CG&E in "Results of Operations for the
Quarter Ended June 30, 1998."
Gas operating revenues decreased $63 million (22%) for the six months ended June
30, 1998, when compared to the same period last year. This decrease is primarily
due to the previously discussed changes in Mcf sales and transportation volumes.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $35 million (27%) for the six months ended June
30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Six Months
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $131 Increase (Decrease) due to change in:
Price of fuel (1)
Deferred fuel cost 35
Kwh generation 1
---
Fuel expense - June 30, 1998 $166
Gas Purchased
Gas purchased for the six months ended June 30, 1998, decreased $42 million
(26%) when compared to the same period last year, reflecting a decrease in the
volumes of gas purchased, due to lower demand, and a lower average cost per Mcf
purchased.
Purchasedmcf of gas
paid by CG&E.
Other Operation and Exchanged Power
Purchased and exchanged power for the six months ended June 30, 1998, increased
$308 million over the comparable period of 1997, primarily reflecting increased
purchases of non-firm power for resale to others as a result of increased
activity in Cinergy's power marketing and trading operations and the provision
of reserves of $57 million for the electric trading business recorded in 1998
(see Note 9 of the "Notes to Financial Statements" in "Part I. Financial
Information"). Maintenance
The $4 million (7%) decrease incomponents of other operation and maintenance expenses for the six months ended
June 30, 1998, as compared to the same period of 1997, is primarily due to
decreased outage-related expenses. These decreases were offset in part by
overhead line maintenance costs resulting from storm damage during the second
quarter of 1998.
Amortization of Phase-in Deferrals
Amortization of phase-in deferrals reflects the PUCO-ordered phase-in plan for
Zimmer.
Other Income and Expenses - Net
Other - net
The change in other - net of $2 million for the six months ended June 30, 1998,
as compared to the same period of 1997, is due, in part, to a higher level of
expenses in the prior year associated with CG&E's and ULH&P's sales of accounts
receivable, an increase in interest revenue related to an increase in the
balance of short-term loans to affiliated companies through Cinergy's money pool
arrangement, and an adjustment recorded in the prior year related to the sale of
certain assets.
Interest
Interest on Long-term Debt
Interest on long-term debt decreased $7 million (13%) for the six months ended
June 30, 1998, as compared to the same period of 1997, primarily due to the net
redemption of $190 million of long-term debt during the period from March 1997
through June 1998.
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Electric Utility Plant - Original Cost
In service $4,319,120 $4,280,551
Accumulated depreciation 1,840,484 1,792,317
---------- ----------
2,478,636 2,488,234
Construction work in progress 75,420 65,129
---------- ----------
Total electric utility plant 2,554,056 2,553,363
Current Assets
Cash and temporary cash investments 36,744 18,169
Restricted deposits 334 1,146
Notes receivable 84 110
Notes receivable from affiliated companies 11,367 21,998
Accounts receivable less accumulated
provision for doubtful accounts of $2,676
at June 30, 1998, and $1,183 at
December 31, 1997 227,227 197,898
Accounts receivable from affiliated companies 621 4,516
Materials, supplies, and fuel - at average cost
Fuel 45,405 28,234
Other materials and supplies 29,161 26,955
Prepayments and other 11,619 4,405
---------- ----------
362,562 303,431
Other Assets
Regulatory assets
Amounts due from customers - income taxes 25,670 23,941
Post-in-service carrying costs and
deferred operating expenses 43,296 43,832
Coal contract buyout costs 112,936 122,485
Deferred merger costs 71,594 73,789
Deferred demand-side management costs 54,220 71,278
Unamortized costs of reacquiring debt 28,391 29,667
Other 39,666 44,094
Other 114,753 127,945
---------- ----------
490,526 537,031
$3,407,144 $3,393,825
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - without par value; $0.01 stated value; authorized shares -
60,000,000; outstanding shares - 53,913,701
at June 30, 1998, and December 31, 1997 $ 539 $ 539
Paid-in capital 400,904 390,188
Retained earnings 577,438 636,519
Accumulated other comprehensive income (642) (1,586)
---------- ----------
Total common stock equity 978,239 1,025,660
Cumulative Preferred Stock
Not subject to mandatory redemption 71,953 157,196
Long-term Debt 950,425 826,470
---------- ----------
Total capitalization 2,000,617 2,009,326
Current Liabilities
Long-term debt due within one year 141,569 85,000
Notes payable and other short-term obligations 106,500 190,600
Notes payable to affiliated companies 88,919 16,435
Accounts payable 265,035 212,833
Accounts payable to affiliated companies 40,254 40,714
Accrued taxes 48,350 69,310
Accrued interest 18,026 21,369
Other 2,473 2,560
---------- ----------
711,126 638,821
Other Liabilities
Deferred income taxes 381,598 403,535
Unamortized investment tax credits 47,566 49,296
Accrued pension and other postretirement
benefit costs 108,196 116,576
Other 158,041 176,271
---------- ----------
695,401 745,678
$3,407,144 $3,393,825
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
Quarter Ended Year to Date
June 30 June 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
Non-affiliated companies $500,723 $386,459 $1,084,607 $808,748
Affiliated companies 10,807 3,079 19,048 4,645
-------- -------- ---------- --------
511,530 389,538 1,103,655 813,393
Operating Expenses
Fuel 77,905 74,244 170,361 179,751
Purchased and exchanged power
Non-affiliated companies 209,255 101,455 451,645 191,185
Affiliated companies 17,932 7,799 35,832 13,868
Other operation 160,983 78,078 243,360 161,787
Maintenance 27,712 27,244 47,020 45,762
Depreciation 32,202 31,293 64,209 62,445
Amortization of post-in-service
deferred operating expenses 268 268 536 536
Income taxes (19,543) 13,067 6,718 33,292
Taxes other than income taxes 14,507 15,323 29,474 30,180
-------- -------- ---------- --------
521,221 348,771 1,049,155 718,806
Operating Income (Loss) (9,691) 40,767 54,500 94,587
Other Income and Expenses - Net
Allowance for equity funds used
during construction 14 93 25 165
Income taxes 1,358 117 1,675 (328)
Other - net 199 (133) 1,906 2,713
-------- -------- ---------- --------
1,571 77 3,606 2,550
Income (Loss) Before Interest (8,120) 40,844 58,106 97,137
Interest
Interest on long-term debt 19,420 17,146 37,126 36,376
Other interest 3,892 2,075 9,667 6,532
Allowance for borrowed funds
used during construction (414) (523) (997) (956)
-------- -------- ---------- --------
22,898 18,698 45,796 41,952
Net Income (Loss) $(31,018) $ 22,146 $ 12,310 $ 55,185
Preferred Dividend Requirement 1,150 3,019 3,358 6,039
-------- -------- ---------- --------
Net Income (Loss) Applicable to
Common Stock $(32,168) $ 19,127 $ 8,952 $ 49,146
Other comprehensive income,
net of tax - - 944 -
-------- -------- ---------- -----
Comprehensive Income (Loss) $(32,168) $ 19,127 $ 9,896 $ 49,146
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
Juneshown below:
Nine Months Ended
September 30
1998 1997
(in thousands)
Operating Activities
Net income $ 12,310 $ 55,185
Items providing (using) cash currently:
Depreciation 64,209 62,445
Reserves related to electric trading business 8,000 -
WVPA settlement 80,000 -
Deferred income taxes and investment tax
credits - net (32,596) (6,916)
Allowance for equity funds used during
construction (25) (165)
Regulatory assets - net 20,630 23,870
Changes in current assets and current
liabilities
Restricted deposits 812 (222)
Accounts and notes receivable, net of
reserves on receivables sold (19,676) (52,661)
Materials, supplies, and fuel (19,377) 10,552
Accounts payable 51,742 32,054
Accrued taxes and interest (24,303) (11,516)millions)
Other items - net (1,142) (5,203)
-------- --------
Net cash provided by operating
activities 140,584 107,423
Financing Activities
Issuance of long-term debt 98,901 -
Retirement of preferred stock (85,230) (1)
Redemption of long-term debt - (45,700)
Change in short-term debt (11,616) 73,844
Dividends on preferred stock (3,887) (6,039)
Dividends on common stock (56,800) (56,800)
-------- --------
Net cash used in financing activities (58,632) (34,696)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (60,329) (60,320)
Deferred demand-side management costs (3,048) (6,075)
Net cash used in investing activities (63,377) (66,395)
Net increase in cash and temporary cash
investments 18,575 6,332
Cash and temporary cash investments at
beginning of period 18,169 2,911
-------- --------
Cash and temporary cash investments at
end of period $ 36,744 $ 9,243
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.operation $629 $508
Maintenance 145 144
---- ----
Total $774 $652
PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998
Kwh Sales
Kwh sales for the second quarter of 1998 increased 29.5%, as compared to the
same period last year, primarily due to higher non-firm power sales for resale
resulting from increased activity in Cinergy's power marketing and trading
operations. An increase in retail sales reflects higher industrial sales and a
higher average number of customers in all retail customer classes. The increased
industrial sales primarily reflect growth in the primary metals and
transportation equipment sectors. Also contributing to the higher kwh sales
levels was a return to more normal weather conditions when compared to the same
period last year. Nonsystem kwh sales (and related revenues and expenses)
resulting from Cinergy's power marketing and trading operations are allocated
50%/50% between CG&E and PSI pursuant to the operating agreements filed with the
companies' regulators.
Operating Revenues
Operating revenues increased $122 million (31%) for the quarter ended June 30,
1998, when compared to the same period last year, primarily as a result of the
increased kwh sales previously discussed and a higher average price on non-firm
power transactions.
An analysis of operating revenues is shown below:
Quarter
Ended June 30
(in millions)
Operating revenues - June 30, 1997 $390 Increase (Decrease) due to change in:
Price per kwh
Retail (13)
Sales for resale
Firm power obligations 2
Non-firm power transactions 46
Total change in price per kwh 35
Kwh sales
Retail 25
Sales for resale
Firm power obligations 9
Non-firm power transactions 50
Total change in kwh sales 84
Other 3
Operating revenues - June 30, 1998 $512
Operating Expenses
Fuel
Fuel costs increased $4 million (5%) for the second quarter of 1998, as compared
to the same period last year.
An analysis of fuel costs is shown below:
Quarter
Ended June 30
(in millions)
Fuel expense - June 30, 1997 $74 Increase (Decrease) due to change in:
Price of fuel (2)
Deferred fuel cost (7)
Kwh generation 13
---
Fuel expense - June 30, 1998 $78
Purchased and Exchanged Power
For the quarter ended June 30, 1998, purchased and exchanged power increased
$118 million, as compared to the same period last year, due primarily to
increased purchases of non-firm power for resale to others as a result of
increased activity in Cinergy's power marketing and trading operations. In
addition, a provision of $5 million of reserves for the electric trading
business was recorded during the second quarter of 1998 (see Note 9 of "Notes to
Financial Statements" in "Part I. Financial Information").
Other Operation
Other operation expenses increased $83$121 million (24%) for the quarternine months ended
JuneSeptember 30, 1998, as compared to the same period last year. This increase is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information"). This increase was also the result of increased growth
and new initiatives by certain of Cinergy's consolidated non-regulated
businesses.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Depreciation $221 $216
Amortization of phase-in deferrals 17 10
Amortization of post-in-service
deferred operating expenses 3 3
---- ----
Total $241 $229
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Equity in Earnings of Unconsolidated Subsidiaries
For the nine months ended September 30, 1998, the equity in earnings of
unconsolidated subsidiaries decreased $9 million (22%), as compared to the same
period of last year. This decrease is primarily attributable to the decline in
the earnings of Midlands, which is due to milder weather conditions and a
provisionpenalty imposed on each electric distribution company due to the delay in
opening the electricity supply business to competition.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $2$15 million for the nine
months ended September 30, 1998, as compared to the same period of 1997, is due
primarily to a litigation settlement (see Note 10 of the "Notes to Financial
Statements" in "Part I. Financial Information") and a gain recorded duringin 1997 on
the second quartersale of 1998 for potential bad debts related to certain
power marketing and trading accounts.
Interest
Interest on Long-term Debt
Interest on long-term debt increased $2a PSI investment.
Income Taxes
Income taxes decreased $70 million (13%(48%) for the quarternine months ended JuneSeptember 30,
1998, as compared to the same period of 1997, primarily due to a decrease in
taxable income over the net
issuanceprior period. Also contributing to the decrease is
Cinergy's recognition of $65Foreign Tax Credits in the third quarter of 1998.
Previous projections indicated that these Foreign Tax Credits would expire
unused and therefore previous Federal tax provisions had not given benefit to
these Foreign Tax Credits.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $4 million
of long-term debt during the period from March 1997
through March 1998.
Other Interest
Other interest increased $2 million (88%(46%)for the quarternine months ended JuneSeptember 30, 1998, as compared to the same
period last year,of 1997, is primarily due to interest expense
recognized on a settlement agreement between PSI and WVPA (see Note 14 of the
"Notes to Financial Statements" in "Part I. Financial Information").
Preferred Dividend Requirement
The preferred dividend requirement decreased $2 million (62%) for the second
quarter of 1998, as compared to the same period of 1997. This decrease is attributable to thePSI's redemption of all outstanding
shares of theits 7.15% Series Cumulative Preferred Stock and 7.44% Series
Cumulative Preferred Stock on September 1, 1997, and March 1, 1998,
respectively.
RESULTS OF OPERATIONS FOR THE SIXTWELVE MONTHS ENDED JUNESEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Twelve Months Ended
September 30
Revenue Kwh Sales
For1998 1997 1998 1997
------ ------ ------- -------
($ and kwh in millions)
Retail $2,566 $2,445 47,264 44,905
Sales for resale 2,103 1,152 74,546 48,525
Other 52 35 N/A N/A
------ ------ ------- ------
Total $4,721 $3,632 121,810 93,430
Electric operating revenues increased $1.1 billion (30%) for the sixtwelve months
ended JuneSeptember 30, 1998, kwh sales increased 47.7% when compared
tofrom the samecomparable period last year,of 1997. This increase was
primarily due to increased activity in Cinergy's
power marketing and trading operations, which led to higher non-firm power sales
for resale. An increase in retail sales reflects higher industrial salesvolumes and a higher average price per kwh received
on sales for resale transactions. There was also an increase in the average
price per kwh paid for the corresponding purchases of purchased and exchanged
power described below. Also contributing to the increase were higher retail kwh
sales due to the warmer than normal weather during 1998, growth in the average
number of residential and commercial customers, and an increase in all retail customer classes. The increased industrial
sales primarily reflectreflecting growth in the primary metals, sector.
Nonsystem kwh sales (and relatedtransportation
equipment, and miscellaneous manufacturers sectors.
Gas Operating Revenues
The components of gas operating revenues and expenses) resulting from Cinergy's
power marketingthe related mcf sales are shown
below:
Twelve Months Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
---- ---- ---- -----
($ and trading operations are allocated 50%/50% between CG&E and
PSI pursuant to the operating agreements filed with the companies' regulators.
Operating Revenuesmcf in millions)
Sales for resale $380 $ - 195 -
Retail 402 458 61 70
Transportation 37 30 56 52
Other 11 7 N/A N/A
---- ---- --- ---
Total $830 $495 312 122
Gas operating revenues increased $291$335 million (36%(68%) for the sixtwelve months ended
JuneSeptember 30, 1998, when compared to the same period last year. This increase is
primarily reflectsdue to the gas operating revenues of ProEnergy, which was acquired in
June 1998. This increase in kwh sales previously discussed and a higher
average price on non-firm power transactions,was partially offset by a decline in retail revenues
reflecting reduced mcf volumes due, in part, to the operationmilder weather during the
first quarter of fuel adjustment clauses reflecting1998, and a lowerdecline in the average costnumber of fuel used in
electric production.
An analysiscommercial and
industrial customers. Transportation revenues increased as customers continued
the trend of operatingpurchasing gas directly from suppliers, using transportation
services provided by CG&E.
Other Revenues
Other revenues is shown below:
Six Months
Ended June 30
(in millions)
Operating revenues - June 30, 1997 $ 813
Increase (Decrease) due to change in:
Price per kwh
Retail (18)
Sales for resale
Firm power obligations 1
Non-firm power transactions 49
Total change in price per kwh 32
Kwh sales
Retail 33
Sales for resale
Firm power obligations 10
Non-firm power transactions 209
Total change in kwh sales 252
Other 7
Operating revenues - Junethe twelve months ended September 30, 1998, $1,104increased $25
million (80%), over the same period of 1997. This increase was primarily the
result of increased sales and new initiatives by certain of Cinergy's
non-regulated entities.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Twelve Months Ended
September 30
1998 1997
(in millions)
Fuel $ 728 $ 681
Purchased and exchanged power 2,033 1,027
------ ------
Total $2,761 $1,708
Electric fuel costs increased $47 million (7%) for the sixtwelve months ended
JuneSeptember 30, 1998, decreased $10 million (5%)
whenas compared to the same period last year.
An analysis of these fuel costs is shown below:
SixTwelve Months Ended
JuneSeptember 30
(in millions)
Fuel expense - JuneSeptember 30, 1997 $180$681
Increase (Decrease) due to change in:
Price of fuel (8)(11)
Deferred fuel cost (19)(4)
Kwh generation 1762
----
Fuel expense - JuneSeptember 30, 1998 $170$728
Purchased and Exchanged Power
For the six months ended June 30, 1998, purchased and exchanged power expense increased $282 million, as$1.1 billion (62%) for the
twelve months ended September 30, 1998, when compared to the same period of last
year, primarily reflecting increased purchases of non-firm power for resale to
others asothers. Also contributing to the increase was a resulthigher average price paid per
kwh and increased demand due to the warmer than normal weather for the
comparable period of 1997.
Gas Purchased
Gas purchased for the twelve months ended September 30, 1998, increased activity$335
million when compared to the same period last year, primarily due to the
acquisition of ProEnergy in Cinergy's power marketingJune 1998, and trading operationsits related gas purchased expense.
Slightly offsetting this increase is a decrease in the volumes of gas purchased
by CG&E, due to lower demand, and a provisionlower average cost per mcf of $6 milliongas paid by
CG&E.
Other Operation and Maintenance
The components of reserves for the electric trading business recorded
duringother operation and maintenance expenses are shown below:
Twelve Months Ended
September 30
1998 (see Note 9 of the "Notes to Financial Statements" in "Part I.
Financial Information").1997
(in millions)
Other Operationoperation $809 $704
Maintenance 182 196
---- ----
Total $991 $900
Other operation expenses increased $82$105 million (50%(15%) for the sixtwelve months
ended JuneSeptember 30, 1998, as compared to the same period last year. This
increase is primarily due to the one-time charge of $80 million recorded during
the second quarter of 1998, reflecting the implementation of a 1989 settlement
of a dispute with the WVPA (see Note 14 of the "Notes to Financial Statements"
in "Part I. Financial Information"). This increase was also the result of
increased growth and new initiatives by certain of Cinergy's consolidated
non-regulated businesses.
Maintenance expenses decreased $14 million (7%) for the twelve months ended
September 30, 1998, as compared to the same period of 1997, primarily due to
decreased outage related expenses at PSI's and CG&E's production facilities.
Equity in Earnings of Unconsolidated Subsidiaries
For the twelve months ended September 30, 1998, the equity in earnings of
unconsolidated subsidiaries decreased $7 million (11%), as compared to the same
period of last year. This decrease is partially due to a decline in the earnings
of Midlands, which is due to milder weather conditions and a penalty imposed on
each electric distribution company due to the delay in opening the electricity
supply business to competition. The decrease also reflects losses on certain
non-utility subsidiaries.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $9 million for the twelve
months ended September 30, 1998, as compared to the same period of 1997, is due,
in part, to a litigation settlement (see Note 10 of the "Notes to Financial
Statements" in "Part I. Financial Information").
Income Taxes
Income taxes decreased $41 million (22%) for the twelve months ended September
30, 1998, as compared to the same period of 1997, primarily due to a decrease in
taxable income over the prior period. Also contributing to the decrease is
Cinergy's recognition of Foreign Tax Credits in the third quarter of 1998.
Previous projections indicated that these Foreign Tax Credits would expire
unused and therefore previous Federal tax provisions had not given benefit to
these Foreign Tax Credits.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $5 million
(37%) for the twelve months ended September 30, 1998, as compared to the same
period of 1997, is primarily attributable to PSI's redemption of all outstanding
shares of its 7.15% Series Cumulative Preferred Stock and 7.44% Series
Cumulative Preferred Stock on September 1, 1997, and March 1, 1998,
respectively.
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 6,321 $ 2,349
Restricted deposits 1,173 1,173
Notes receivable from affiliated companies 148,494 27,193
Accounts receivable less accumulated provision
for doubtful accounts of $14,855 at September
30, 1998, and $9,199 at December 31, 1997 336,489 193,549
Accounts receivable from affiliated companies 6,553 35,507
Materials, supplies, and fuel - at average cost 106,846 107,967
Prepayments and other 36,543 31,827
---------- ----------
642,419 399,565
Utility Plant - Original Cost
In service
Electric 4,747,890 4,700,631
Gas 772,006 746,903
Common 185,896 186,078
---------- ----------
5,705,792 5,633,612
Accumulated depreciation 2,116,313 2,008,005
---------- ----------
3,589,479 3,625,607
Construction work in progress 151,226 118,133
---------- ----------
Total utility plant 3,740,705 3,743,740
Other Assets
Regulatory assets 678,344 667,765
Other 92,517 103,368
---------- ----------
770,861 771,133
$5,153,985 $4,914,438
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 415,171 $ 249,538
Accounts payable to affiliated companies 19,243 10,821
Accrued taxes 168,019 149,129
Accrued interest 29,362 25,430
Notes payable and other short-term obligations 230,276 289,000
Notes payable to affiliated companies 8,747 12,253
Long-term debt due within one year 130,000 -
Other 25,780 29,950
---------- ----------
1,026,598 766,121
Non-Current Liabilities
Long-term debt 1,199,633 1,324,432
Deferred income taxes 824,741 794,396
Unamortized investment tax credits 112,328 116,966
Accrued pension and other postretirement
benefit costs 142,810 180,566
Other 186,389 100,576
---------- ----------
2,465,901 2,516,936
Total liabilities 3,492,499 3,283,057
Cumulative Preferred Stock
Not subject to mandatory redemption 20,725 20,793
Common Stock Equity
Common stock - $8.50 par value; authorized
shares - 120,000,000; outstanding shares
- 89,663,086 at September 30, 1998, and
December 31, 1997 762,136 762,136
Paid-in capital 534,672 534,649
Retained earnings 344,858 314,553
Accumulated other comprehensive loss (905) (750)
---------- ----------
Total common stock equity 1,640,761 1,610,588
$5,153,985 $4,914,438
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Quarter Ended Year to Date
September 30 September 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
Electric $827,387 $672,372 $1,960,334 $1,485,974
Gas 56,505 39,944 280,437 326,969
-------- -------- ---------- ----------
883,892 712,316 2,240,771 1,812,943
Operating Expenses
Fuel and purchased and exchanged
power 518,393 387,363 1,162,004 687,368
Gas purchased 21,539 15,601 139,784 175,395
Other operation and maintenance 96,193 96,851 302,764 307,316
Depreciation and amortization 47,267 45,028 142,877 134,696
Taxes other than income taxes 54,089 52,980 162,484 159,001
-------- -------- ---------- ----------
737,481 597,823 1,909,913 1,463,776
Operating Income 146,411 114,493 330,858 349,167
Other Income and (Expenses) - Net 511 (1,832) (2,349) (6,658)
Interest 25,072 27,633 77,034 87,627
-------- -------- ---------- ----------
Income Before Taxes 121,850 85,028 251,475 254,882
Income Taxes 43,178 32,724 88,925 96,825
-------- -------- ---------- ----------
Net Income $ 78,672 $ 52,304 $ 162,550 $ 158,057
Preferred Dividend Requirement 214 217 644 653
-------- -------- ---------- ----------
Net Income Applicable to Common
Stock $ 78,458 $ 52,087 $ 161,906 $ 157,404
Other Comprehensive Income (Loss),
Net of Tax - - (155) -
-------- -------- ---------- ----------
Comprehensive Income $ 78,458 $ 52,087 $ 161,751 $ 157,404
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1998 1997
(in thousands)
Operating Activities
Net income $ 162,550 $ 158,057
Items providing (using) cash currently:
Depreciation and amortization 142,877 134,696
Deferred income taxes and investment tax
credits - net (11,592) 18,238
Allowance for equity funds used during
construction (770) (154)
Regulatory assets - net 23,716 15,147
Changes in current assets and current
liabilities
Restricted deposits - (2)
Accounts and notes receivable, net of
reserves on receivables sold (232,865) (42,472)
Materials, supplies, and fuel 1,121 415
Accounts payable 174,055 85,545
Accrued taxes and interest 22,822 (7,135)
Other items - net 38,295 (12,251)
--------- ---------
Net cash provided by operating
activities 320,209 350,084
Financing Activities
Retirement of preferred stock (45) (158)
Issuance of long-term debt 223,020 -
Redemption of long-term debt (220,409) (290,612)
Change in short-term debt (62,230) 178,844
Dividends on preferred stock (645) (655)
Dividends on common stock (132,245) (127,800)
--------- ---------
Net cash used in financing
activities (192,554) (240,381)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (123,683) (106,612)
Net cash used in investing
activities (123,683) (106,612)
Net increase in cash and temporary cash
investments 3,972 3,091
Cash and temporary cash investments at
beginning of period 2,349 5,120
--------- ---------
Cash and temporary cash investments at
end of period $ 6,321 $ 8,211
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Quarter Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
($ and kwh in millions)
Retail $397 $372 6,423 6,025
Sales for resale 425 298 12,209 13,913
Other 5 2 N/A N/A
---- ---- ------ ------
Total $827 $672 18,632 19,938
Electric operating revenues increased $155 million (23%) for the quarter ended
September 30, 1998, from the comparable period of 1997. This increase was
primarily a result of a higher average price per kwh received on sales for
resale transactions. There was also an increase in the average price per kwh
paid for the corresponding purchases of purchased and exchanged power described
below. Also contributing to the increase was higher retail kwh sales due to the
warmer than normal weather during 1998 and growth in the average number of
residential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
($ and mcf in millions)
Retail $48 $33 6 4
Transportation 8 6 11 12
Other 1 1 N/A N/A
--- --- --- ---
Total $57 $40 17 16
Gas operating revenues increased $17 million (41%) in the third quarter of 1998,
when compared to the same period last year, primarily attributable to the annual
true-up of estimated revenues.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Fuel $ 93 $ 89
Purchased and exchanged power 425 298
---- ----
Total $518 $387
Electric fuel costs increased $4 million (4%) for the quarter ended September
30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $89
Increase (Decrease) due to change in:
Deferred fuel cost (2)
Kwh generation 6
Fuel expense - September 30, 1998 $93
Purchased and exchanged power expense increased $127 million for the quarter
ended September 30, 1998, when compared to the same period of last year,
primarily reflecting an increase in the average price paid per kwh.
Gas Purchased
Gas purchased for the quarter ended September 30, 1998, increased $6 million
(38%), when compared to the same period last year, primarily due to an increase
in the average cost per mcf of gas purchased.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Other operation $73 $76
Maintenance 23 21
--- ---
Total $96 $97
Maintenance expenses increased $2 million (10%) for the quarter ended September
30, 1998, as compared to the same period of 1997, primarily due to an increase
in production maintenance at Beckjord and East Bend.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Depreciation $41 $41
Amortization of phase-in deferrals 5 3
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $47 $45
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $2 million for potential bad debts relatedthe quarter
ended September 30, 1998, as compared to certain power marketing and trading accounts
recorded during the second quartersame period of 1998.1997, is due
primarily to an increase in interest income resulting from an increase in the
balance of short-term loans to affiliated companies through Cinergy's money pool
arrangement.
Interest
OtherThe components of interest expense are shown below:
Quarter Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $25,445 $25,973
Other interest increased942 3,001
Allowance for borrowed funds used
during construction (1,315) (1,341)
------- -------
Total $25,072 $27,633
The decrease in interest expense of $3 million (48%(9%) for the six monthsquarter ended
JuneSeptember 30, 1998, as compared to the same period last year, was primarily due
to a reduction in other interest expense recognizedresulting from decreases in both the
average short-term debt borrowings and the short-term debt rates.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Nine Months Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------ -------
($ and kwh in millions)
Retail $1,075 $ 994 17,357 16,575
Sales for resale 873 484 30,825 23,006
Other 12 8 N/A N/A
------ ------ ------ ------
Total $1,960 $1,486 48,182 39,581
Electric operating revenues increased $474 million (32%) for the nine months
ended September 30, 1998, from the comparable period of 1997. This increase was
primarily due to a higher average price per kwh received and increased volumes
on sales for resale transactions. There was also an increase in the average
price per kwh paid for the corresponding purchases of purchased and exchanged
power described below. Also contributing to the increase were higher retail kwh
sales due to the warmer than normal weather and growth in the average number of
residential and commercial customers.
as Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Nine Months Ended
September 30
Revenue Mcf Sales
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- -----
($ and mcf in millions)
Retail $248 $300 37 45
Transportation 28 24 42 40
Other 4 3 N/A N/A
---- ---- --- ---
Total $280 $327 79 85
Gas operating revenues decreased $47 million (14%) for the nine months ended
September 30, 1998, when compared to the same period last year. Decreased retail
revenues reflecting a decline in mcf sales due to the milder weather during the
first quarter of 1998 was the primary reason for this decrease. A decrease in
the average number of commercial and industrial customers also contributed to
the decline in revenues. Partially offsetting the decline was an increase in
transportation revenues, as customers continued the trend of purchasing gas
directly from suppliers, using transportation services provided by CG&E.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Fuel $ 258 $219
Purchased and exchanged power 904 468
------ ----
Total $1,162 $687
Electric fuel costs increased $39 million (18%) for the nine months ended
September 30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Nine Months Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $219
Increase (Decrease) due to change in:
Price of fuel (1)
Deferred fuel cost 33
Kwh generation 7
----
Fuel expense - September 30, 1998 $258
Purchased and exchanged power expense increased $436 million (93%) for the nine
months ended September 30, 1998, when compared to the same period last year,
primarily reflecting a higher average price paid per kwh and increased purchases
of power for resale to others.
Gas Purchased
Gas purchased for the nine months ended September 30, 1998, decreased $36
million (20%) when compared to the same period last year, reflecting a decrease
in the volumes of gas purchased, due to lower demand, and a lower average cost
per mcf of gas purchased.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Depreciation $123 $122
Amortization of phase-in deferrals 17 10
Amortization of post-in-service
deferred operating expenses 3 3
---- ----
Total $143 $135
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $4 million for the nine
months ended September 30, 1998, as compared to the same period of 1997, is
largely due to an increase in interest income resulting from an increase in the
balance of short-term loans to affiliated companies through Cinergy's money pool
arrangement and an adjustment recorded in 1997 related to the sale of certain
assets.
Interest
The components of interest expense are shown below:
Nine Months Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $75,913 $83,850
Other interest 5,312 7,259
Allowance for borrowed funds used
during construction (4,191) (3,482)
------- -------
Total $77,034 $87,627
The decrease in interest expense of $11 million (12%) for the nine months ended
September 30, 1998, as compared to the same period last year, was due to
decreases in both interest on long-term debt and other interest expense. The
decrease in interest expense on long-term debt was primarily due to a net
redemption of approximately $116 million of long-term debt during the period
from March 1997 through May 1998. The decrease in other interest is due to a
reduction in average short-term borrowings.
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 30,488 $ 18,169
Restricted deposits 359 1,146
Notes receivable 79 110
Notes receivable from affiliated companies 8,752 21,998
Accounts receivable less accumulated provision
for doubtful accounts of $5,760 at September
30, 1998, and $1,183 at December 31, 1997 370,260 197,898
Accounts receivable from affiliated companies 302 4,516
Materials, supplies, and fuel - at average cost 74,732 55,189
Prepayments and other 13,962 4,405
---------- ----------
Total current assets 498,934 303,431
Electric Utility Plant - Original Cost
In service 4,354,315 4,280,551
Accumulated depreciation 1,866,373 1,792,317
---------- ----------
2,487,942 2,488,234
Construction work in progress 75,135 65,129
---------- ----------
Total electric utility plant 2,563,077 2,553,363
Other Assets
Regulatory assets 355,307 409,086
Other 119,713 127,945
---------- ----------
Total other assets 475,020 537,031
$3,537,031 $3,393,825
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
PSI ENERGY, INC.
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 368,606 $ 212,833
Accounts payable to affiliated companies 20,757 40,714
Accrued taxes 68,492 69,310
Accrued interest 19,938 21,369
Notes payable and other short-term obligations 117,084 190,600
Notes payable to affiliated companies 163,897 16,435
Long-term debt due within one year 56,000 85,000
Other 2,385 2,560
---------- ----------
817,159 638,821
Non-Current Liabilities
Long-term debt 976,623 826,470
Deferred income taxes 371,490 403,535
Unamortized investment tax credits 46,702 49,296
Accrued pension and other postretirement
benefit costs 109,626 116,576
Other 164,616 176,271
---------- ----------
1,669,057 1,572,148
Total liabilities 2,486,216 2,210,969
Cumulative Preferred Stock
Not subject to mandatory redemption 71,923 157,196
Common Stock Equity
Common stock - without par value; $0.01
stated value; authorized shares - 60,000,000;
outstanding shares - 53,913,701 at September
30, 1998, and December 31, 1997 539 539
Paid-in capital 400,916 390,188
Retained earnings 578,079 636,519
Accumulated other comprehensive loss (642) (1,586)
---------- ----------
Total common stock equity 978,892 1,025,660
$3,537,031 $3,393,825
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Quarter Ended Year to Date
September 30 September 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
Electric $807,181 $650,987 $1,910,836 $1,464,380
Operating Expenses
Fuel and purchased and exchanged
power 584,415 425,228 1,242,253 810,032
Other operation and maintenance 110,051 102,742 400,431 310,291
Depreciation and amortization 32,688 31,820 97,433 94,800
Taxes other than income taxes 14,882 14,011 44,356 44,191
-------- -------- ---------- ----------
742,036 573,801 1,784,473 1,259,314
Operating Income 65,145 77,186 126,363 205,066
Other Income and (Expenses) - Net (315) 6,512 1,616 9,390
Interest 21,975 21,369 67,771 63,321
-------- -------- ---------- ----------
Income Before Taxes 42,855 62,329 60,208 151,135
Income Taxes 16,063 21,839 21,106 55,459
-------- -------- ---------- ----------
Net Income $ 26,792 $ 40,490 $ 39,102 $ 95,676
Preferred Dividend Requirement 1,151 2,925 4,509 8,964
-------- -------- ---------- ----------
Net Income Applicable to
Common Stock $ 25,641 $ 37,565 $ 34,593 $ 86,712
Other Comprehensive Income,
Net of Tax - - 944 -
-------- -------- ---------- -----------
Comprehensive Income $ 25,641 $ 37,565 $ 35,537 $ 86,712
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1998 1997
(in thousands)
Operating Activities
Net income $ 39,102 $ 95,676
Items providing (using) cash currently:
Depreciation and amortization 97,433 94,800
WVPA settlement 80,000 -
Deferred income taxes and investment tax
credits - net (44,433) (13,548)
Allowance for equity funds used during
construction (23) (35)
Regulatory assets - net 33,406 25,208
Changes in current assets and current
liabilities
Restricted deposits 787 (227)
Accounts and notes receivable, net of
reserves on receivables sold (158,099) (173,862)
Materials, supplies, and fuel (19,543) 9,456
Accounts payable 135,816 99,810
Accrued taxes and interest (2,249) 15,785
Other items - net 12,994 (7,768)
--------- ---------
Net cash provided by operating
activities 175,191 145,295
Financing Activities
Issuance of long-term debt 150,021 -
Retirement of preferred stock (85,247) (16 024)
Redemption of long-term debt (113,336) (45,700)
Change in short-term debt 73,946 125,430
Dividends on preferred stock (5,037) (9,059)
Dividends on common stock (81,800) (85,200)
--------- ---------
Net cash used in financing activities (61,453) (30,553)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (101,419) (96,423)
Net cash used in investing activities (101,419) (96,423)
Net increase in cash and temporary cash
investments 12,319 18,319
Cash and temporary cash investments at
beginning of period 18,169 2,911
--------- ---------
Cash and temporary cash investments at
end of period $ 30,488 $ 21,230
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Operating Revenues
The components of operating revenues and the related kwh sales are shown below:
Quarter Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
---- ---- ------ -------
($ and kwh in millions)
Retail $315 $299 6,590 6,074
Sales for resale 481 345 13,980 13,321
Other 11 7 N/A N/A
---- ---- ------ ------
Total $807 $651 20,570 19,395
Operating revenues increased $156 million (24%) for the quarter ended September
30, 1998, from the comparable period of 1997. This increase was primarily a
result of a higher average price per kwh received and increased volumes on sales
for resale transactions. There was also an increase in the average price per kwh
paid for the corresponding purchases of purchased and exchanged power described
below. Also contributing to the increase were higher retail kwh sales due to the
warmer than normal weather during 1998 and growth in the average number of
residential and commercial customers.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Fuel $113 $109
Purchased and exchanged power 471 316
---- ----
Total $584 $425
Fuel costs increased $4 million (4%) for the third quarter of 1998, 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, 1997 $109
Increase (Decrease) due to change in:
Price of fuel (6)
Deferred fuel cost (2)
Kwh generation 12
----
Fuel expense - September 30, 1998 $113
Purchased and exchanged power expense increased $155 million (49%) for the
quarter ended September 30, 1998, when compared to the same period last year,
primarily reflecting an increase in the average price paid per kwh and increased
demand due to the warmer than normal weather for the third quarter of 1998.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
September 30
1998 1997
(in millions)
Other operation $ 83 $ 81
Maintenance 27 22
---- ----
Total $110 $103
Maintenance expense increased $5 million (23%) for the quarter ended September
30, 1998, as compared to the same period of 1997, primarily due to an increase
in production maintenance at Wabash River, Cayuga, and Gibson, and an increase
in distribution line maintenance.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $7 million for the quarter
ended September 30, 1998, as compared to the same period of 1997, is primarily
attributable to a gain recorded in 1997 on the sale of an investment.
Preferred Dividend Requirement
The decrease in preferred dividend requirement of $2 million (61%) for the
quarter ended September 30, 1998, as compared to the same period of 1997, is
primarily attributable to PSI's redemption of all outstanding shares of its
7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred
Stock on September 1, 1997, and March 1, 1998, respectively.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
The components of operating revenues and the related kwh sales are shown below:
Nine Months Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------ -------
($ and kwh in millions)
Retail $ 880 $ 849 18,541 17,358
Sales for resale 1,003 599 35,789 24,893
Other 28 16 N/A N/A
------ ------ ------ ------
Total $1,911 $1,464 54,330 42,251
Total operating revenues increased $446 million (30%) for the nine months ended
September 30, 1998, when compared to the same period last year. This increase
was primarily due to increased volumes and a higher average price per kwh
received on sales for resale transactions. There was also an increase in the
average price per kwh paid for the corresponding purchases of purchased and
exchanged power described below. Also contributing to the increase were higher
retail kwh sales due to the warmer than normal weather during 1998, and an
increase in industrial sales, primarily reflecting growth in the primary metals
and transportation equipment sectors.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Fuel $ 284 $288
Purchased and exchanged power 958 522
------ ----
Total $1,242 $810
Fuel costs decreased $4 million (1%) for the nine months ended September 30,
1998, 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, 1997 $288
Increase (Decrease) due to change in:
Price of fuel (15)
Deferred fuel cost (21)
Kwh generation 32
----
Fuel expense - September 30, 1998 $284
Purchased and exchanged power expense increased $436 million (84%) for the nine
months ended September 30, 1998, when compared to the same period last year,
primarily reflecting increased purchases of non-firm power for resale to others.
Also contributing to the increase were a higher average price paid per kwh and
increased demand due to warmer than normal weather for the comparable period of
1997.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Nine Months Ended
September 30
1998 1997
(in millions)
Other operation $326 $243
Maintenance 74 67
---- ----
Total $400 $310
Other operation expenses increased $83 million (34%) for the nine months ended
September 30, 1998, as compared to the same period last year. This increase is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement agreement between PSI andof a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information").
Additionally, the increase is due to interest resulting from an IRS audit of the
1989 and 1990 tax years.
Preferred Dividend Requirement
The preferred dividend requirement decreased $3
Maintenance expenses increased $7 million (44%(10%) for the first half
ofnine months ended
September 30, 1998, as compared to the same period of 1997, primarily due to an
increase in production maintenance at Wabash River, Cayuga, and Gibson, and an
increase in distribution line maintenance.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $8 million for the nine
months ended September 30, 1998, as compared to the same period of 1997, is due
primarily to a gain recorded in 1997 on the sale of an investment and DSM
carrying costs also recorded in 1997.
ThisInterest
The components of interest expense are shown below:
Nine Months Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $60,459 $53,928
Other interest 8,976 10,630
Allowance for borrowed funds used
during construction (1,664) (1,237)
------- -------
Total $67,771 $63,321
The increase in interest expense of $4 million (7%) for the nine months ended
September 30, 1998, as compared to the same period last year, was due to an
increase of $7 million in interest on long-term debt, which was partially offset
by a decrease of $2 million in other interest expense. The increase in interest
on long-term debt was due primarily to the net issuance of approximately $303
million of long-term debt during the period from February 1997 to August 1998.
The decrease in other interest expense was primarily due to a reduction in
average short-term borrowings.
Preferred Dividend Requirement
The decrease in preferred dividend requirement of $4 million (50%) for the nine
months ended September 30, 1998, as compared to the same period of 1997, is
primarily attributable to thePSI's redemption of all outstanding shares of theits
7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred
Stock on September 1, 1997, and March 1, 1998, respectively.
THE UNION LIGHT, HEAT
AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Utility Plant - Original Cost
In service
Electric $207,160 $204,111
Gas 159,155 155,167
Common 19,057 19,073
-------- --------
385,372 378,351
Accumulated depreciation 138,999 133,213
-------- --------
246,373 245,138
Construction work in progress 21,387 14,346
-------- --------
Total utility plant 267,760 259,484
Current Assets
Cash and temporary cash investments 885 546
Accounts receivable less accumulated provision
for doubtful accounts of $1,038 at
June 30, 1998, and $996 at December 31, 1997 4,694 7,308
Accounts receivable from affiliated companies 11 446
Materials, supplies, and fuel - at average cost
Gas stored for current use 5,552 5,401
Other materials and supplies 944 693
Prepayments and other 100 385
-------- --------
12,186 14,779
Other Assets
Regulatory assets
Deferred merger costs 5,214 5,213
Unamortized costs of reacquiring debt 3,608 3,590
Other 2,275 2,262
Other 4,069 6,262
-------- --------
15,166 17,327
$295,112
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 2,802 $ 546
Accounts receivable less accumulated provision
for doubtful accounts of $1,015 at
September 30, 1998, and $996 at December
31, 1997 6,105 7,308
Accounts receivable from affiliated companies 10 446
Materials, supplies, and fuel - at average cost 9,674 6,094
Prepayments and other 462 385
-------- --------
Total current assets 19,053 14,779
Utility Plant - Original Cost
In service
Electric 209,763 204,111
Gas 162,354 155,167
Common 19,075 19,073
-------- --------
391,192 378,351
Accumulated depreciation 141,642 133,213
-------- --------
249,550 245,138
Construction work in progress 25,369 14,346
-------- --------
Total utility plant 274,919 259,484
Other Assets
Regulatory assets 11,063 11,065
Other 3,844 6,262
-------- --------
14,907 17,327
$308,879 $291,590
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
LIABILITIES AND SHAREHOLDER'S EQUITY
September 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 4,689 $ 11,097
Accounts payable to affiliated companies 19,128 19,712
Accrued taxes 1,837 6,332
Accrued interest 1,674 1,286
Notes payable to affiliated companies 39,744 23,487
Long-term debt due within one year 20,000 -
Other 4,021 4,364
-------- --------
91,093 66,278
Non-Current Liabilities
Long-term debt 34,534 44,671
Deferred income taxes 27,741 26,211
Unamortized investment tax credits 4,307 4,516
Accrued pension and other postretirement
benefit costs 11,434 14,044
Amounts due to customers - income taxes 7,760 6,566
Other 7,447 6,391
-------- --------
93,223 102,399
Total liabilities 184,316 168,677
Common Stock Equity
Common stock - $15.00 par value; authorized
shares - 1,000,000; outstanding shares -
585,333 at September 30, 1998, and
December 31, 1997 8,780 8,780
Paid-in capital 18,683 18,683
Retained earnings 97,100 95,450
-------- --------
Total common stock equity 124,563 122,913
$308,879 $291,590
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
CAPITALIZATION AND LIABILITIES
June 30 December 31
1998 1997
(unaudited)
(dollars in thousands)
Common Stock Equity
Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding
shares -
585,333 at June 30, 1998, and December 31, 1997 $ 8,780 $ 8,780
Paid-in capital 18,683 18,683
Retained earnings 94,595 95,450
-------- --------
Total common stock equity 122,058 122,913
Long-term Debt 54,516 44,671
-------- --------
Total capitalization 176,574 167,584
Current Liabilities
Notes payable to affiliated companies 27,323 23,487
Accounts payable 7,504 11,097
Accounts payable to affiliated companies 18,158 19,712
Accrued taxes 216 6,332
Accrued interest 1,361 1,286
Other 4,077 4,364
-------- --------
58,639 66,278
Other Liabilities
Deferred income taxes 27,474 26,211
Unamortized investment tax credits 4,400 4,516
Accrued pension and other postretirement benefit
costs 12,458 14,044
Amounts due to customers - income taxes 7,362 6,566
Other 8,205 6,391
-------- --------
59,899 57,728
$295,112 $291,590
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
(LOSS)
(unaudited)
Quarter Ended Year to Date
JuneSeptember 30 JuneSeptember 30
1998 1997 1998 1997
(in thousands)
Operating Revenues
Electric $41,536 $47,314 $ 88,535 $ 95,894$56,368 $56,666 $144,903 $152,560
Gas Non-affiliated companies 8,564 10,825 36,939 44,788
Affiliated companies 62 69 167 1907,077 8,647 44,183 53,625
------- ------- -------- --------
50,162 58,208 125,641 140,87263,445 65,313 189,086 206,185
Operating Expenses
Electricity purchased from parent
company for resale 34,421 34,626 68,511 69,75541,827 44,237 110,338 113,992
Gas purchased 4,167 6,555 20,520 27,0042,691 3,002 23,211 30,006
Other operation 7,527 8,203 15,662 16,737
Maintenance 1,375 1,496 2,670 3,059and maintenance 8,987 9,402 27,319 29,198
Depreciation 3,209 3,111 6,441 6,181
Income taxes (1,013) 903 3,204 5,6453,296 3,048 9,737 9,229
Taxes other than income taxes 1,029 1,115 2,034 2,2141,024 905 3,058 3,119
------- ------- -------- --------
50,715 56,009 119,042 130,59557,825 60,594 173,663 185,544
Operating Income (Loss) (553) 2,199 6,599 10,2775,620 4,719 15,423 20,641
Other Income and Expenses(Expenses) - Net (175) (596) (1,051) (1,534)
Interest 1,244 1,153 3,328 3,512
------- ------- -------- --------
Income Before Taxes 4,201 2,970 11,044 15,595
Income Taxes 1,696 731 4,418 6,078
------- ------- -------- --------
Net Income $ 2,505 $ 2,239 $ 6,626 $ 9,517
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1998 1997
(in thousands)
Operating Activities
Net income $ 6,626 $ 9,517
Items providing (using) cash currently:
Depreciation 9,737 9,229
Deferred income taxes and investment tax
credits - net 1,763 (322)
Allowance for equity funds used during
construction 24 27 10 23
Income(150) (33)
Regulatory assets (31) (312)
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 3,515 7,687
Materials, supplies, and fuel (3,580) (354)
Accounts payable (6,992) (9,819)
Accrued taxes 254 206 482 298and interest (4,107) 6,504
Other items - net (404) (514) (886) (961)
------- -------(330) 5,267
-------- --------
(126) (281) (394) (640)
Income (Loss) Before Interest (679) 1,918 6,205 9,637
Interest
Interest onNet cash provided by operating
activities 6,451 27,364
Financing Activities
Issuance of long-term debt 951 881 1,834 1,762
Other interest 197 333 548 634
Allowance20,127 -
Redemption of long-term debt (10,118) -
Change in short-term debt 16,257 (5,988)
Dividends on common stock (4,975) (4,975)
-------- --------
Net cash provided by (used in)
financing activities 21,291 (10,963)
Investing Activities
Construction expenditures (less allowance
for borrowedequity funds used during construction (179) (7) (298) (37)
------- -------construction) (25,486) (14,808)
Net cash used in investing
activities (25,486) (14,808)
Net increase in cash and temporary cash
investments 2,256 1,593
Cash and temporary cash investments at
beginning of period 546 1,197
-------- --------
969 1,207 2,084 2,359
Net Income (Loss) $(1,648)Cash and temporary cash investments at
end of period $ 7112,802 $ 4,121 $ 7,2782,790
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
June 30
1998 1997
(in thousands)
Operating Activities
Net income $ 4,121 $ 7,278
Items providing (using) cash currently:
Depreciation 6,441 6,181
Deferred income taxes and investment tax
credits - net 1,192 438
Allowance for equity funds used during
construction (10) (23)
Regulatory assets (13) (68)
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 4,671 6,513
Materials, supplies, and fuel (402) 1,604
Accounts payable (5,147) (1,877)
Accrued taxes and interest (6,041) 3,421
Other items - net 1,481 3,334
-------- --------
Net cash provided by operating
activities 6,293 26,801
Financing Activities
Issuance of long-term debt 20,127 -
Redemption of long-term debt (10,118) -
Change in short-term debt 3,836 (9,721)
Dividends on common stock (4,975) (4,975)
-------- --------
Net cash provided by (used in)
financing activities 8,870 (14,696)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (14,824) (8,758)
Net cash used in investing
activities (14,824) (8,758)
Net increase in cash and temporary cash
investments 339 3,347
Cash and temporary cash investments at
beginning of period 546 1,197
-------- --------
Cash and temporary cash investments at
end of period $ 885 $ 4,544
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNESEPTEMBER 30, 1998
Operating Revenues
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
------ ------ ----- -----
($ and mcf in thousands)
Retail $6,133 $7,837 764 934
Transportation Mcf gas sales and transportation volumes for819 682 779 854
Other 125 128 14 25
------ ------ ----- -----
Total $7,077 $8,647 1,557 1,813
Gas operating revenues decreased $2 million (18%) in the third quarter ended June 30,of 1998,
decreased
when compared to the same period in 1997. Thelast year, primarily due to a decrease in Mcfmcf
volumes sold.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased decreased $2 million (5%) for the quarter ended September
30, 1998, as compared to the same period last year. This decrease reflects lower
volumes purchased from CG&E.
Gas Purchased
Gas purchased for the quarter ended September 30, 1998, decreased $.3 million
(10%), when compared to the same period last year, primarily due to a decrease
in the volumes of gas purchased, due to lower demand.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
September 30
1998 1997
(in thousands)
Other operation $7,514 $7,967
Maintenance 1,473 1,435
------ -------
Total $8,987 $9,402
Other operation expenses decreased $.4 million (6%) for the quarter ended
September 30, 1998, as compared to the same period last year, primarily due to a
decrease in distribution expenses.
Depreciation
Depreciation increased $.2 million (8%) for the quarter ended September 30,
1998, as compared to the same period last year, due to additions to depreciable
plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $.4 million for the quarter
ended September 30, 1998, as compared to the same period of 1997, is primarily
attributable to a decrease in expenses associated with the sales of accounts
receivable and an increase in allowance for equity funds used during
construction resulting from an increase in the average balance of CWIP.
Interest
The components of interest expense are shown below:
Quarter Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $1,011 $ 881
Other interest 409 317
Allowance for borrowed funds used
during construction (176) (45)
------ ------
Total $1,244 $1,153
The increase in interest expense of $.1 million (8%) for the quarter ended
September 30, 1998, as compared to the same period last year, was due to changes
in part,interest on long-term debt, other interest, and allowance for borrowed funds
used during construction. The increase in interest on long-term debt was due
primarily to the continued trendnet issuance of customers purchasing gas
directly from suppliers, using transportation services provided by ULH&P.approximately $10 million of long-term debt
during April 1998. Increased short-term borrowings and a higher average balance
of CWIP contributed to the increase in other interest expense and allowance for
borrowed funds used during construction, respectively.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
Electric operating revenues decreased $6$8 million (12%(5%) for the quarternine months ended
JuneSeptember 30, 1998, from the comparable period of 1997. This decrease primarily
reflects a revision of ULH&P's estimate of unbilled revenue in the third quarter
of 1997. This adjustment, which was recorded
in the second quarter of 1998, which resulted in a decrease in electric
operating revenues of $3.6 million and a corresponding decrease to operating
income and net income of $1.7 million.
Gas Operating Revenues
The increasing trendcomponents of industrial customers purchasing gas directly from
producers and utilizing ULH&P facilities to transport the gas continues to put
downward pressure on gas operating revenues. Since providing transportation
services does not necessitate recovery ofrevenues and the cost of gas purchased, the revenue
perrelated mcf sales are shown
below:
Nine Months Ended
September 30
Revenue Mcf transported is less than the revenue per Mcf sold. As a result, a higher
relative volume of gas transported to gas sold translates into lower gas
operating revenues.Sales
1998 1997 1998 1997
------- ------- ------ -------
($ and mcf in thousands)
Retail $40,586 $50,297 6,361 7,427
Transportation 2,904 2,518 2,734 2,740
Other 693 810 97 131
------- ------- ----- ------
Total $44,183 $53,625 9,192 10,298
Gas operating revenues decreased $2$9 million (21%(18%) infor the second quarter ofnine months ended
September 30, 1998, when compared to the same period last year, primarily due to the decline in
volume sales discussed above.
Operating Expenses
Gas Purchased
Gas purchased for the quarter ended June 30, 1998, decreased $2 million (36%)
from the second quarter of last year, reflecting a decrease in the average cost
per Mcf purchased and a decrease in theyear. Decreased
volumes of gas purchased.
Other Operation
The $.7 million (8%) decrease in other operation expenses for the second quarter
of 1998, as compared to the same period of 1997, is primarily due to lower
distribution expenses.
Maintenance
The $.1 million (8%) decrease in maintenance expenses for the second quarter of
1998, as compared to 1997, is primarily due to a decrease in overhead line
maintenance.
Taxes Other Than Income Taxes
The $.1 million (8%) decrease in taxes other than income taxes for the second
quarter of 1998, as compared to the same period of 1997, is primarily due to a
decrease in property taxes.
Other Income and Expenses - Net
Other - net
The change in other - net of $.1 million (21%) for the quarter ended June 30,
1998, as compared to the same period of 1997, is partially attributable to a
higher level of expenses associated with the sales of accounts receivable in the
prior year.
Interest
Allowance for Borrowed Funds Used During Construction
The increase in allowance for borrowed funds used during construction of $.2
million is primarily due to an increase in construction expenditures subject to
allowance during the quarter ended June 30, 1998, as compared to the same period
of 1997.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998
Mcf Sales and Transportation
For the six months ended June 30, 1998, Mcf gas sales and transportation volumes
decreased, as compared to the same period in 1997. Decreased Mcf sales reflecting the milder weather during the first quarter of 1998, were slightly
offset by an increase in the number of residential and commercial customers.
Industrial sales declined and gas transportation volumes increased as customers
continued the trend of purchasing gas directly from suppliers, using
transportation services provided by ULH&P.
Operating Revenues
Electric Operating Revenues
Electric operating revenues decreased $7 million (8%) for the six months ended
June 30, 1998, from the comparable period of 1997. This decrease primarily
reflects a revision of ULH&P's estimate of unbilled revenue in the third quarter
of 1997. This adjustment, which was recorded in the second quarter of 1998,
resulted inalong
with a decrease in electric operating revenuesthe price of $3.6 million and a
corresponding decrease to operating income and net income of $1.7 million.
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refersold, primarily attributed to the discussion under
the heading "Gas Operating Revenues" for ULH&P in "Results of Operations for the
Quarter Ended June 30, 1998."
Gas operating revenues decreased $8 million (18%) for the six months ended June
30, 1998, when compared to the same period of last year, primarily due to the
decline in volume sales discussed above and the aforementioned trend toward
increased transportation services.revenue
decrease.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased decreased $1$4 million (2%(3%) for the sixnine months ended
JuneSeptember 30, 1998, as compared to the same period last year. This decrease
reflects lower volumes purchased from CG&E.
Gas Purchased
Gas purchased for the sixnine months ended JuneSeptember 30, 1998, decreased $6$7 million
(24%(23%), aswhen compared to the same period in 1997. This decrease reflects a
decreasedecline in the average cost per Mcfmcf of gas purchased and a decrease in thelower volumes of gas
purchased.
Other Operation and Maintenance
The $1.1components of other operation and maintenance expenses are shown below:
Nine Months Ended
September 30
1998 1997
(in thousands)
Other operation $23,176 $24,705
Maintenance 4,143 4,493
------- --------
Total $27,319 $29,198
Other operation expenses declined $2 million (6%) for the nine months ended
September 30, 1998, as compared to the same period last year, primarily due to
decreases in distribution and administrative and general expenses.
Maintenance expenses declined $.4 million (8%) for the nine months ended
September 30, 1998, as compared to the same period last year, primarily due to a
decrease in other operation expensesdistribution maintenance.
Depreciation
Depreciation increased $.5 million (6%) for the sixnine months ended JuneSeptember 30,
1998, as compared to the same period last year, due to additions to depreciable
plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $.5 million for the nine
months ended September 30, 1998, as compared to the same period of 1997, is due
primarily due to lower distribution and administrative and general expenses.
Maintenance
The $.4 million (13%)a decrease in maintenanceexpenses associated with the sales of accounts
receivable and an increase in allowance for equity funds used during
construction resulting from an increase in the average balance of CWIP.
Interest
The components of interest expense are shown below:
Nine Months Ended
September 30
1998 1997
(in thousands)
Interest on long-term debt $2,845 $2,643
Other interest 958 951
Allowance for borrowed funds used
during construction (475) (82)
------ ------
Total $3,328 $3,512
The decrease in interest expense of $.2 million (5%) for the sixnine months ended
JuneSeptember 30, 1998, as compared to the same period of 1997, is primarilylast year, was due to a
decreasechanges
in overhead line maintenance.
Taxes Other Than Income Taxes
The $.2 million (8%) decrease in taxes other than income taxes for the six
months ended June 30, 1998, as compared to the same period of 1997, is primarily
due to a decrease in property taxes.
Interest
Other Interest
Other interest charges decreased $.1 million (14%) for the six months ended June
30, 1998, as compared to the same period of 1997, primarily due to increased
short-term borrowings in the prior year. This decrease was partially offset by
payments to the Kentucky State Treasurer resulting from a sales tax auditon long-term debt and
underpayment of tax year 1996 income taxes.
Allowance for Borrowed Funds Used During Construction
The increase in allowance for borrowed funds used during
construction. The increase in interest on long-term debt was due primarily to
the net issuance of approximately $10 million of long-term debt during April
1998. Allowance for borrowed funds used during construction of $.3
million isincreased primarily
due toas a result of an increase in construction expenditures subject to
allowance during the six months ended June 30, 1998, as compared to the same
periodaverage balance of 1997.CWIP.
NOTES TO FINANCIAL STATEMENTS
Cinergy, CG&E, PSI, and ULH&P
1. These Financial Statements reflect all adjustments (which include normal,
recurring adjustments and those adjustments discussed in Notes 9 and 14)
necessary in the opinion of the registrants for a fair presentation of the
interim results. These statements should be read in conjunction with the
Financial Statements and the notes thereto included in the combined 1997
Form 10-K of the registrants.
Certain
amountsTheStatements of Income in the 1997 Financial Statementsthis report have been reclassified in order to
conformpresent the operations of all non-regulated entities as a component of
operating income. Prior to this reclassification, the 1998 presentation.operations of such
entities were reflected in "Other Income and Expense - Net." Similarly,
"Income Taxes" now includes the income taxes associated with the
non-regulated entities. These changes had no effect on net income.
Additionally, the Balance Sheets have been reformatted.
Cinergy and CG&E
2. On April 7, 1998, CG&E issued and sold $100 million principal amount of its
6.40% Debentures due April 1, 2008. Proceeds from the sale were used to
repay short-term indebtedness incurred in connection with CG&E's March 1998
redemptions of $100 million principal amount of its 8 1/2% Series First
Mortgage Bonds due 2022 and $60 million principal amount of its 7 3/8%
Series First Mortgage Bonds due 2001.
3. On May 1, 1998, CG&E redeemed the entire $50 million principal amount of
its 7 3/8% Series First Mortgage Bonds due 1999, at the regular redemption
price of 100.00%. This redemption effectively eliminates the maintenance
and replacement fund provisions of CG&E's First Mortgage Bond indenture,
which provisions required CG&E to make cash payments, deposit bonds, or
pledge unfunded property additions to the trustee each year based on an
amount related to net revenues.
4. On June 15, 1998, CG&E issued and sold $100 million principal amount of
unsecured Reset Put Securities. These debentures will bear interest at a
rate of 6.35% for the first five years, and the interest rate may be reset
on June 15, 2003, and every five years thereafter to final maturity in 2038
if the callholder exercises its option on any reset date to purchase the
bonds and reset the interest rate. If the callholder does not exercise the
option on any reset date, the bonds will be redeemed by CG&E at par.
Proceeds from the sale were used to repay short-term indebtedness incurred
in connection with the redemption of CG&E's 7 3/8% First Mortgage Bonds
referred to above and for general corporate purposes.
Cinergy and PSI
5. On July 23, 1998, PSI redeemed the entire $24 million principal amount of
its 7 5/8% First Mortgage Bonds, Series Y due January 1, 2007, at the
redemption price of 102.11%, and the entire $26 million principal amount of
its 7% First Mortgage Bonds, Series S due January 1, 2002, at the
redemption price of 100.73%.
6. On August 5, 1998, PSI issued and sold $50 million principal amount of
unsecured Synthetic Putable Yield Securities. These debentures will bear
interest at a rate of 6.50% for the first seven years, and the interest
rate may be reset every seven years thereafter to final maturity in 2026 if
the callholder exercises its option on any reset date to purchase the bonds
and reset the interest rate. If the callholder does not exercise the option
on any reset date, the bonds will be redeemed by PSI at par. Proceeds from
the sale were used to repay short-term indebtedness incurred in connection
with PSI's July 1998 redemptions of the above-mentioned Series Y and Series
S First Mortgage Bonds.
7. On August 12, 1998, the Indiana Development Finance Authority loaned the
proceeds from the sale of its $23 million principal amount of Environmental
Refunding Revenue Bonds, Series 1998, to PSI. The bonds, which are included
in notes payable and other short-term obligations in the consolidated
balance sheets, will bear interest initially at a daily rate, will mature
on August 1, 2028, and are backed by an irrevocable direct-pay letter of
credit through August 1, 2002. Proceeds from the sale will bewere used to redeem
onin September 15, 1998, the $23 million 8 1/4% First Mortgage Bonds, Series QQ,
due June 15, 2013 (Pollution Control), at a redemption price of 102% plus
accrued interest.
Cinergy, CG&E, and ULH&P
8. On April 30, 1998, ULH&P issued and sold $20 million principal amount of
its 6.50% Debentures due April 30, 2008. Proceeds from the sale were used
by ULH&P to repay short-term indebtedness incurred in connection with the
redemption, on April 24, 1998, of $10 million principal amount of its 8%
Series First Mortgage Bonds, due 2003, and in connection with its
construction program. The redemption of said First Mortgage Bonds
effectively eliminates the maintenance and replacement fund provisions of
ULH&P's First Mortgage Bond indenture, which provisions required ULH&P to
make cash payments, deposit bonds, or pledge unfunded property additions to
the trustee each year based on an amount related to net revenues.
Cinergy, CG&E, and PSI
9. Cinergy's power marketing and trading function actively markets and trades
over-the-counter forward and option contracts for the purchase and sale of
electricity. The majority of these contracts are settled via physical
delivery of electricity or netted out in accordance with industry trading
standards. The Company also trades exchange-traded futures contracts.
Option premiums are deferred and included in the Consolidated Balance
Sheets and amortized to "Operating Revenues - Electric" or "Purchased"Fuel and
purchased and exchanged power" in the Consolidated Statements of Income
over the term of the option contract. Cinergy values its portfolio of
contracts using the aggregate lower of cost or market method. To the extent
there are net aggregate losses in the portfolio, Cinergy reserves for such
losses. Net gains are recognized when realized. Due to the lack of
liquidity and the volatility currently experienced in the power markets,
significant assumptions must be made by the Company when estimating current
market values for purposes of the aggregate lower of cost or market
comparison. It is possible that the actual gains and losses from the
Company's power marketing and trading activities could differ substantially
from the gains and losses estimated currently.
Cinergy and its subsidiaries use derivative financial instruments to hedge
exposures to foreign currency exchange rates, lower funding costs, and
manage exposures to fluctuations in interest rates. Instruments used as
hedges must be designated as a hedge at the inception of the contract and
must be effective at reducing the risk associated with the exposure being
hedged. Accordingly, changes in market values of designated hedge
instruments must be highly correlated with changes in market values of the
underlying hedged items at inception of the hedge and over the life of the
hedge contract.
Cinergy utilizes foreign exchange forward contracts and currency swaps to
hedge certain of its net investments in foreign operations. Accordingly,
any translation gains or losses related to the foreign exchange forward
contracts or the principal exchange on the currency swap are recorded in
accumulated other comprehensive income, which is a separate component of
common stock equity. Aggregate translation losses related to these
instruments are reflected in "Current Liabilities Other" in the
Consolidated Balance Sheets.
Interest rate swaps are accounted for under the accrual method.
Accordingly, gains and losses based on any interest differential between
fixed-rate and floating-rate interest amounts, calculated on agreed upon
notional principal amounts, are recognized in the Consolidated Statements
of Income as a component of interest expense as realized over the life of
the agreement.
Cinergy, CG&E, and PSI
10. As discussed in the 1997 Form 10-K, in October 1995, a suit was filed in
the FederalU.S. District Court for the Southern District of Ohio by three former employees of Enertech naming as
defendants Enertech, Cinergy, Investments, CG&E, PSI, James E. Rogers, and
William J. Grealis. (Mr. Rogers and/or Mr. Grealis are officers and/or
directors of the foregoing companies.) The lawsuit, which stemmed from the
termination of employment of the three former employees, alleged that they
entered into employment contracts with Enertech based on the opportunity to
participate in potential profits from future investments in energy projects
in centralCentral and easternEastern Europe. The suit alleged 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 alleged compensatory damages of $154 million based upon
assumed future success of potential future investments and punitive damages
of three times that amount.
In April 1998, the parties reached a comprehensive settlement and all
claims were dismissed by the U.S. District Court. The obligations of the
Company arising out of the settlement are not material to its financial
condition or its results of operations.
Cinergy and PSI
11. As discussed in the 1997 Form 10-K, prior to the 1950s, gas was produced at
MGP sites through a process that involved the heating of coal and/or oil.
The gas produced from this process was sold for residential, commercial,
and industrial uses.
Coal tar residues, related hydrocarbons, and various metals associated with
MGP sites have been found at former MGP sites in Indiana, including at
least 21 MGP sites which PSI or its predecessors previously owned. In 1945,
PSI sold 19 of these sites to IGC, including the Shelbyville and Lafayette
sites. PSI or its predecessors acquired five of the 21 MGP sites from
NIPSCO (or its predecessors), which were among the 19 sites PSI sold to
IGC. Two other sites, located in Goshen and Warsaw, Indiana, were sold by
PSI's predecessor to NIPSCO in 1931.
PSI has received claims from IGC and NIPSCO that PSI is a PRP under the
CERCLA with respect to the 21 MGP sites, and therefore responsible for the
costs of investigating and remediating these sites. In August 1997, NIPSCO
filed suit against PSI in the United States District Court for the Northern
District of Indiana, South Bend Division, claiming, pursuant to the CERCLA,
recovery from PSI of NIPSCO's past and future costs of investigating and
remediating MGP related contamination at the Goshen MGP site. Recently,
NIPSCO increased its estimate of the cost of remediating the Goshen site to
approximately $3.8 million.
In November 1998, NIPSCO, IGC and PSI entered into a Site Participation and
Cost Sharing Agreement by which they settled allocation of CERCLA liability
for past and future costs, as between the three companies, at seven MGP
sites in Indiana, namely the sites located in Lafayette, Goshen, Warsaw,
Rochester, Frankfort, Crawfordsville, and Lebanon. Pursuant to the
agreement, NIPSCO's lawsuit against PSI, referenced above, will be
dismissed. The parties have assigned one of the parties lead responsibility
for managing any further investigation and remediation activities at each
of the sites.
This agreement follows a similar agreement achieved between IGC and PSI in
August 1997, allocating CERCLA liability at 13 MGP sites with which NIPSCO
had no involvement. These two agreements, together with an agreement
between IGC and PSI entered into several years ago, relating to the
Shelbyville MGP site, conclude all CERCLA and similar claims between the
three companies relative to MGP sites. Pursuant to the agreements, the
parties are continuing to investigate and remediate the sites as
appropriate. In the case of some sites, the parties have applied to the
IDEM for inclusion of such sites in the Indiana Voluntary Remediation
Program.
PSI and IGC submitted a proposed agreed order to the IDEM in 1997 related
to the Shelbyville MGP site. On April 15, 1998, the IDEM signed the
proposed agreed order, which will result in a determination by the IDEM of
whether the activities previously undertaken at the site are sufficient to
adequately protect human health and the environment. Based upon
environmental investigations and remediation completed to date, PSI
believes that any further investigation and remediation required for the
Shelbyville site will not have a material adverse effect on its financial
condition or results of operations.
In August 1997, NIPSCO filed suit against PSI in the United States
District Court for the Northern District of Indiana, South Bend
Division, claiming, pursuant to the CERCLA, recovery from PSI of
NIPSCO's past and future costs of investigating and remediating MGP
related contamination at the Goshen MGP site. Recently, NIPSCO
increased its estimate of the cost of remediating the Goshen site from
$2.7 million to about $3.0 million.
As also discussed in the 1997 Form 10-K, PSI previously placed its
insurance carriers on notice of IGC's, NIPSCO's, and the IDEM's claims
related to MGP sites. In April 1998, PSI filed suit in Hendricks County
Circuit Court against its general liability insurance carriers seeking,
among other matters, a declaratory judgment that its insurance carriers are
obligated to defend MGP claims against PSI or pay PSI's costs of defense
and to indemnify PSI for its costs of investigating, preventing,
mitigating, and remediating damage to property and paying claims associated
with MGP sites. PSI cannot predict the outcome of this litigation.
CG&E and its utility subsidiaries are aware of other sites owned or
previously owned by CG&E, its subsidiaries, or their predecessors, where
MGP activities may have occurred at some time in the past. None of these
sites is known to present a risk to the environment. CG&E and its utility
subsidiaries have undertaken preliminary site assessments to obtain more
information about some of these MGP sites.
Reserves recorded, based on information currently available, are not
material to Cinergy's financial condition or results of operations.
However, as further investigation and remediation activities are undertaken
at these sites, the potential liability for MGP sites could be material to
Cinergy's financial condition or results of operations.
Cinergy, CG&E, PSI, and ULH&P
12. Effective with the first quarter of 1998, Cinergy and its subsidiaries
adopted the provisions of Statement 130. Statement 130 establishes
standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources.
During the second quarter of 1998, the FASB issued Statement 133. The new
standard requires companies to record derivative instruments, as defined in
Statement 133, as assets or liabilities, measured at fair value. The
Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
The standard is effective for fiscal years beginning after June 15, 1999,
and Cinergy expects to adopt the provisions of Statement 133 effective forin the year beginning January 1,first
quarter of 2000.
The Company has not yet quantified the impacts of adopting Statement 133 on
its consolidated financial statements. However, the Statement 133 could
increase volatility in earnings and other comprehensive income.
Cinergy
13. Presented below is a reconciliation of earnings per common share (basic
EPS) and earnings per common share assuming dilution (diluted EPS).
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Quarter ended JuneSeptember 30, 1998
Earnings per common share:
Net loss $(25,933) 158,018 $(.16)income $109,431 158,539 $ .69
Effect of dilutive securities:
Common stock options 689606
Contingently issuable common
stock 113104
EPS--assuming dilution:
Net lossincome plus assumed
conversions $(25,933) 158,820 $(.16)$109,431 159,249 $ .69
Quarter ended JuneSeptember 30, 1997
Earnings per common share:
Net income before extraordinary
item $ 55,48982,534 157,679 $ .35.53
Effect of dilutive securities:
Common stock options 925885
Contingently issuable common stock 204
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $ 55,489 158,80882,534 158,768 $ .35.52
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
SixNine months ended JuneSeptember 30, 1998
Earnings per common share:
Net income $ 80,138 157,892 $ .51$189,569 158,110 $1.20
Effect of dilutive securities:
Common stock options 738694
Contingently issuable common
stock 118113
EPS--assuming dilution:
Net income plus assumed
conversions $ 80,138 158,748 $ .51
Six$189,569 158,917 $1.20
Nine months ended JuneSeptember 30, 1997
Earnings per common share:
Net income $169,606before extraordinary
item $252,140 157,679 $1.07$1.60
Effect of dilutive securities:
Common stock options 954931
Contingently issuable common stock 204
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $169,606 158,837 $1.06$252,140 158,814 $1.59
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Twelve months ended JuneSeptember 30, 1998
Earnings per common share:
Net income $300,067 158,007 $1.90
Effect of dilutive securitie
Common stock options 757
Contingently issuable common stock 136
EPS--assuming dilution:
Net income plus assumed
conversions $300,067 158,900 $1.90
Twelve months ended September 30, 1997
Earnings per common share:
Net income before extraordinary item
$273,170 157,790 $1.73and costs of reacquisition of
preferred stock of subsidiary $322,726 157,679 $2.04
Effect of dilutive securities:
Common stock options 827945
Contingently issuable common stock 162232
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $273,170 158,779 $1.72
Twelve months ended June 30, 1997
Net income $338,222
Less: costs of reacquisition of
preferred stock of subsidiary 18,391
Earnings per common share:
Net income applicable to common
stock 319,831 157,679 $2.02
Effect of dilutive securities:
Common stock options 938
Contingently issuable common st 260
EPS--assuming dilution:
Net income applicable to common
stock plus assumed conversions $319,831 158,877 $2.01$322,726 158,856 $2.03
The after-tax impact of the extraordinary item - equity share of
windfall profits tax infor the three, nine, and twelve months ended
JuneSeptember 30, 1998,1997, was $.69 for both basic and diluted earnings per
share.
Options to purchase shares of common stock that were excluded from the
calculation of EPS--assuming dilution because the exercise prices of
these options were greater than the average market price of the common
shares during the period are summarized below:
Quarter Average
Ended Exercise
JuneSeptember 30 Shares Price
1998 930,600 $37.54922,600 $37.51
1997 10,400 34.50
Six13,600 34.35
Nine Months Average
Ended Exercise
JuneSeptember 30 Shares Price
1998 694,700 $37.83766,900 $37.72
1997 8,8009,300 34.50
Twelve Months Average
Ended Exercise
JuneSeptember 30 Shares Price
1998 345,000 $37.82574,100 $37.72
1997 188,900 33.528,500 34.39
Cinergy and PSI
14. In February 1989, PSI and WVPA entered into a settlement agreement to
resolve all claims related to Marble Hill, a nuclear project canceled in
1984. Implementation of the settlement was contingent upon a number of
events, including the conclusion of WVPA's bankruptcy proceeding,
negotiation of certain terms and conditions with WVPA, the RUS, and the
CFC, and certain regulatory approvals. In December 1996, following the
resolution of issues associated with WVPA's bankruptcy proceeding, PSI, on
behalf of itself and its officers, paid $80 million on behalf of WVPA to
the RUS and the CFC. The $80 million obligation, net of insurance proceeds,
other credits, and applicable income tax effects, was charged to income in
1988. In January 1997, an order dismissing the WVPA litigation against PSI
and its officers with prejudice was entered by the United States District
Court for the Southern District of Indiana and final negotiations to
implement the settlement agreement were begun with WVPA, the RUS, and the
CFC. An agreement on substantially all matters has been reached with the parties. As a
result, PSI recorded a liability to the RUS and the CFC andCFC. PSI will repay the
obligation to the RUS with interest over a 35-year term. A lump sum payment
was made to the CFC in 1998, in full satisfaction of PSI's obligation to
the CFC. PSI will use the net proceeds from a 35-year power sales agreement
with WVPA to fund the principal and interest on the obligation.obligation to the RUS.
Assumption of the liability (recorded as long-term debt in the consolidated balance sheet)Consolidated
Balance Sheet) resulted in a charge against second quarter earnings of $80
million ($50 million after tax or $.32 per share basic and diluted).
Cinergy
15. The Company's Midlands subsidiary (of which the Company owns 50%) has a 40%
ownership interest in a 586 MW power project in Pakistan (Uch project or
Uch) which was originally scheduled to begin commercial operation in late
1998. The Pakistani government-owned utility has recently issued a notice of intent
to terminate certain key project agreements relative to the Uch project.
The notice asserts that various forms of corruption were involved in the
original granting of the agreements to the Uch investors by a predecessor
government. The Company believes that this notice is similar to notices
received by a number of other independent power projects in Pakistan.
The Uch investors, including a subsidiary of Midlands, strongly deny the
allegations and intend to pursueare pursuing all available legal options to enforce their
contractual rights under the project agreements. At
present,Physical construction of
the project is substantially complete; however, commissioning, which
management believes could be completed within a 60- 90 day period, has been
delayed as a result of the above situation. The Uch investors continue to
explore remedies to the situation with officials of the Pakistani
government.government and are working with the project's lenders to ensure their
continued support to the project.
Arising from the delay of the completion of the plant, the project turnkey
contractor has given notice of its desire to invoke dispute resolution
procedures (under the terms of the turnkey contract) in relation to a claim
for additional costs arising from the failure of the project to provide
fuel gas and interconnection facilities. Uch Power Limited denies that it
is liable for any additional costs arising from this delay and will defend
itself against the claim.
Through its 50% ownership of Midlands, the Company's current investment in
the Uch project is approximately $30$32 million. In addition, project lenders
could require investors to make additional capital contributions to the
project under certain conditions. The Company's share of these additional
contributions is approximately $14$12 million. At the present time, the
Company cannot predict the ultimate outcome of this matter.
Cinergy and PSI
16. As discussed in the 1997 Form 10-K, PSI filed a petition with the FERC for
recovery, through the fuel adjustment clause, of the wholesale
jurisdictional portion of the costs resulting from the Exxon contract
buyout. During July 1998, the FERC accepted PSI's request to recover these
buyout costs from its wholesale customers for the period August 1996
through December 2002.
17. As discussed in the 1997 Form 10-K, PSI agreed to begin pre-funding its
obligations for postretirement benefits other than pensions in connection
with the settlement which resulted in the February 1995 Order.
Implementation of pre-funding was subject to negotiations with the UCC and
approval by the IURC.
In October 1998, the IURC approved a settlement agreement between PSI and
the UCC authorizing three optional funding alternatives.
18. As discussed in the 1997 Form 10-K, PSI and Dynegy (formerly Destec)
entered into a 25-year contractual agreement for the provision of coal
gasification services in November 1995. The agreement requires PSI to pay
Dynegy a base monthly fee including certain monthly operating expenses. PSI
received authorization in the September 1996 Order for the inclusion of
these costs in retail rates. In addition, PSI received authorization to
defer, for subsequent recovery in retail rates, the base monthly fees and
expenses incurred prior to the effective date of the September 1996 Order.
Over the next five years, the base monthly fees and expenses for the coal
gasification service agreement are expected to total $201 million.
During the third quarter of 1998, PSI reached an agreement with Dynegy to
purchase the remainder of its 25-year contract for coal gasification
services for $265.7 million. The proposed purchase, which is contingent
upon regulatory approval, is expected to be completed in 1999. PSI will
investigate financing alternatives. The transaction, if approved as
proposed, is not expected to have a material impact on PSI's earnings.
Due to the competition within the natural gas market, natural gas prices
have fallen to a level that has made the current gasification services
agreement uneconomical for PSI and its customers. Under the current
proposal, the gasification service costs would be replaced by lower natural
gas costs. In nominal dollars, it is estimated that the total savings,
primarily as a result of the purchase, would be approximately $275 million
over the life of the original contract.
Cinergy, CG&E, and ULH&P
19. As more fully discussed in the 1997 Form 10-K, Cinergy made a filing with
the SEC in February 1998, setting forth its rationale supporting retention
of CG&E's and ULH&P's gas operations. As part of its order approving the
merger, the SEC had previously reserved judgment over Cinergy's ownership
of CG&E's and ULH&P's gas operations, pending a determination of the amount
of increased operating costs that would result from the gas operations
being divested and operated on a stand- alone basis.
On November 2, 1998, the SEC issued an order unconditionally approving
Cinergy's retention of CG&E's and its subsidiaries', including ULH&P's, gas
businesses. The order was issued based on the SEC's finding that a
divestiture of CG&E's and its subsidiaries', including ULH&P's, gas
businesses would likely result in increased expenses and the potential loss
of competitive advantages.
Cinergy
20. On November 3, 1998, Cinergy Global Resources issued and sold $150 million
of its 6.20% Debentures due 2008. The debentures are unconditionally
guaranteed as to the payment of principal and interest by Cinergy. In
addition, payment of principal of and interest on the debentures is also
insured by a financial guaranty insurance policy. A portion of the proceeds
from the sale was used to repay approximately $115 million of short-term
indebtedness and the remainder will be used for the acquisition and
development of additional energy-related assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in
this Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in "Part I. Financial Information" reflect and elucidate
Cinergy's corporate vision of the future and, as a part of that, outline goals
and aspirations, as well as specific projections. These goals and projections
are considered forward-looking statements and are based on management's beliefs,
as well as certain assumptions made by management. In addition to any
assumptions and other factors that are referred to specifically in connection
with these statements, other factors that could cause actual results to differ
materially from those indicated in any forward-lookingforward- looking statements include,
among others: factors generally affecting utility operations--such as unusual
weather conditions, unusual maintenance or repairs, or unanticipated changes in
fuel costs; increased competition in the electric and gas utility environment;
regulatory factors, including the failure to obtain anticipated regulatory
approvals; changes in accounting principles or policies; adverse economic
conditions; changing market conditions; availability or cost of capital;
employee workforce factors; costs and effects of legal and administrative
proceedings; changes in legislative requirements; and other risks. The Securities and Exchange Commission'sSEC's
rules do not require forward-looking statements to be revised or updated, and
Cinergy does not intend to do so.
FINANCIAL CONDITION
Recent Developments
Cinergy
CG&E, and PSI
Ambient Air Standards As discussed in the 1997 Form 10-K, during 1997, the EPA
revised the National Ambient Air Quality Standards for ozone and fine
particulate matter. EPA has also proposed, but not finalized, new rules for both
ozone transport and regional haze. Relative to ozone transport, during May 1998,
the EPA supplemented its proposed rule to reduce utility NOx emissions by
approximately 85% by 2003 by proposing a model NOx trading program for 22 states
in the eastern half of the United States. On June 25, 1998, 13 midwestern and
southern states and numerous industry groups within those states, including
Cinergy, filed comments in opposition to the EPA proposed NOx rules. These 13
states and utility commentors proposed alternative reduction strategies that
would generally phase in NOx reduction by 65 percent by 2002-2004, would
determine by 2002 if additional reductions are needed, and then implement
necessary controls between 2005-2007. Commentors also generally opposed EPA's 22
state trading program in favor of smaller and more flexible multi-state
programs. The EPA is expected to finalize its ozone transport rulemaking in the
fall of 1998 and states would then have 12 to 18 months to incorporate utility
NOx reductions into their SIPs. The EPA is scheduled to finalize new regional
haze rules in the summer of 1998. Congress, as part of the funding bill for the
Surface Transportation Act, combined the schedules for fine particulates and
regional haze implementation. The impact of the particulate standards and
regional haze rules cannot be determined at this time. Since EPA guidance and
technical studies concerning these new regulations have not been provided,
Cinergy cannot predict the outcome or effect of the new rulemakings.
Air Toxics As discussed in the 1997 Form 10-K, the EPA was to announce, by April
15, 1998, its conclusions regarding the need for additional air toxics
regulations. In April 1998, the EPA announced that it would make its regulatory
determination on the need for additional air toxics regulation by November 15,
1998. If more air toxics regulations are issued, the compliance cost could be
significant. Cinergy cannot predict the outcome or effects of the EPA's
determination.
Cinergy, CG&E, and ULH&P
Competitive Pressures - State Developments As discussed in the 1997 Form
10-K, competition legislation was to be introduced in the Ohio legislature
during 1998. This legislation, SB 237 and HB 732, "companion" electric
restructuring bills that propose to afford choice to all retail electric
customers in Ohio beginning January 1, 2000, was introduced in 1998. Legislative
hearings on these bills occurred in the spring. In addition, legislation to
provide for securitization of transition costs through issuance of rate
reduction bonds has been pending in Ohio since 1997. It is uncertain whether
these pieces of legislation will be passed in Ohio in 1998.
As also discussed in the 1997 Form 10-K, HB 443 was introduced into the Kentucky
General Assembly in January 1998. HB 443 was not brought to a vote during the
1998 legislative session. Rather, HJR 95, which calls for the formation of an
executive task force comprised of members from the governor's office and the
General Assembly to further study electricity restructuring, was passed by the
General Assembly. HJR 95 was signed by the governor during April 1998.
Kentucky's General Assembly does not reconvene until the year 2000.
Cinergy
Acquisitions In June 1998, Cinergy, through its subsidiaries, acquired ProEnergy
and Teplarna. Through CC&T, Cinergy acquired ProEnergy from Apache
and Oryx. ProEnergy has had and will continue to have exclusive marketing rights
to North American gas production owned or controlled by Apache and Oryx, which
represents approximately 1.1 Bcf per day of dedicated natural gas supply. These
supplies, combined with the active marketing of third party gas, are
geographically diverse and are spread through the Southwest, Rocky Mountains,
Gulf Coast, Gulf of Mexico, and Michigan. The acquisition was funded with cash
and by the issuance of 771,258 new shares of Cinergy common stock.
AIn June 1998, a subsidiary of Cinergy Global Power acquired Teplarna,Moravske, a 410 MW
district heating plant in the Czech Republic. In addition, to hot water and steam,in September 1998, a
subsidiary of Cinergy Global Power acquired a 406 MW district heating plant in
the plant produces 36 MWcity of electric capacity.Plzen, Czech Republic.
The purchase prices for ProEnergy and Teplarnathese acquisitions were not material to Cinergy's
financial condition or results of operations.
Competitive Pressures
Cinergy, CG&E, PSI, and ULH&P
Federal Developments As discussed in the 1997 Form 10-K, Cinergy collaborated
with other Midwestern utility companies to form the Midwest ISO. During the
third quarter of 1998, the FERC approved the formation of the Midwest ISO.
Cinergy, CG&E, and ULH&P
State Developments As discussed in the 1997 Form 10-K, comprehensive electric
restructuring legislation was introduced in the Ohio legislature during 1998.
This legislation, SB 237 and HB 732, "companion" electric restructuring bills,
proposes to afford choice to all retail electric customers in Ohio beginning
January 1, 2000. Legislative hearings on these bills occurred in the spring and
summer. In addition, legislation to provide for securitization of transition
costs through issuance of rate reduction bonds has been pending in Ohio since
1997. It is uncertain whether these pieces of legislation will be passed in Ohio
in 1998. During the third quarter of 1998, Ohio's IOUs, including CG&E, released
a draft bill that sets forth the utilities' approach to comprehensive electric
restructuring in Ohio. Under the IOUs' proposal, choice to all retail electric
customers would be introduced by January 1, 2001, rates would be frozen during a
five-year transition period, low income protections would be maintained, and a
fixed charge for certain government approved transition costs would be imposed
(and costs could be securitized if rates are not increased). Both this proposal
and SB 237/HB 732 are being studied by a legislative working group that was
convened in September 1998. It is uncertain at this time whether the IOUs'
proposal will be introduced in Ohio's General Assembly, or, if introduced,
whether it will be passed and signed into law.
As also discussed in the 1997 Form 10-K, HB 443 was introduced into the Kentucky
General Assembly in January 1998. HB 443 was not brought to a vote during the
1998 legislative session. Rather, HJR 95, which calls for the formation of an
executive task force comprised of members from the Governor's office and the
Kentucky General Assembly to further study electric restructuring, was passed by
the Kentucky General Assembly, and was signed by the Governor during April 1998.
Task force members will study electric restructuring in anticipation of the next
legislative session, which occurs in January 2000.
Regulatory Matters
Cinergy, CG&E, and ULH&P Potential Divestiture of Gas Operations See Note 19 of
the "Notes to Financial Statements" in "Part I. Financial Information."
Cinergy and PSI Coal Contract Buyout Costs See Note 16 of the "Notes to
Financial Statements" in "Part I. Financial Information."
Environmental Issues
Cinergy, CG&E, and PSI
Ambient Air Standards As discussed in the 1997 Form 10-K, during 1997, the EPA
revised the National Ambient Air Quality Standards for ozone and fine
particulate matter. The EPA has also proposed, but not finalized, new rules for
regional haze. The United States Congress, as part of the funding bill for the
Surface Transportation Act, combined the schedules for fine particulates and
regional haze implementation. The impact of the particulate standards and
regional haze rules cannot be determined at this time.
In June 1998, 13 Midwestern and Southern states and numerous industry groups
within those states, including Cinergy, filed comments in opposition to the EPA
proposed NOx rules. These 13 states and utility commentors proposed alternative
reduction strategies that would generally phase in NOx reductions by 65 percent
by 2002-2004, would determine by 2002 if additional reductions are needed, and
then implement necessary controls between 2005-2007. Commentors also generally
opposed the EPA's 22 state trading program in favor of smaller and more flexible
multi-state programs.
In September 1998, the EPA finalized its Ozone Transport Rule. It applies to 22
states in the eastern half of the United States, including the three states in
which Cinergy operates, and also proposes a model NOx trading program. This rule
recommends that states reduce utility NOx emissions by approximately 85% from
1990 levels by 2003. The affected states have until September 24, 1999, to
incorporate utility NOx reductions into their SIPs. It is anticipated that this
new rule will be heavily litigated by the affected states, industry, and other
stakeholders. Cinergy's initial estimate for compliance with the new Ozone
Transport Rule is $500-$600 million in capital expenditures between now and
2003.
Air Toxics As discussed in the 1997 Form 10-K, the EPA was to announce, by April
15, 1998, its conclusions regarding the need for additional air toxics
regulations. In April 1998, the EPA announced that it would make its regulatory
determination on the need for additional air toxics regulation by November 15,
1998. If more air toxics regulations are issued, the compliance cost could be
significant. Cinergy cannot predict the outcome or effects of the EPA's
determination.
MGP Sites See Note 11 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Accounting Issues
Cinergy, CG&E, PSI, and ULH&P New Accounting Standards See Note 12 of the "Notes
to Financial Statements" in "Part I. Financial Information."
Market Risk Sensitive Instruments and Positions
Cinergy, CG&E, PSI, and ULH&P
The following discussions about Cinergy's market risk sensitive instruments and
positions and risk management activities include forward-looking information and
statements that involve risks and uncertainties. The forward-lookingforward- looking
information and statements presented are only estimates of what may occur in the
future, assuming certain adverse market conditions, due to their dependence on
model characteristics and assumptions. As a result, actual future results may
differ materially from those presented. These disclosures are not precise
indicators of expected future losses, rather they merely present indications of
reasonably possible losses.
Cinergy, CG&E, and PSI
Energy Commodities Sensitivity The Company markets and trades over-the-counter
forward and option contracts for the purchase and sale of electricity. The
Company also trades exchange-traded futures contracts. See Note 9 of the "Notes
to Financial Statements" in "Part I. Financial Information" for the Company's
accounting policies for certain derivative instruments.
During a few days late in the second quarter, wholesale electric power markets
in the Midwest exhibited unprecedented price volatility due to several market
factors, including an extended period of unseasonably hot weather, scheduled and
unplanned generating unit outages, transmission constraints, and defaults by
certain power marketers on their supply obligations. The simultaneous
culmination of these events resulted in temporary but extreme price spikes in
the hourly and daily markets and very little trading liquidity and price
transparency in the term markets. During this period of extreme price volatility
and trading illiquidity, Cinergy's power marketing and trading function
maintained its ability to provide trading-based services, including the physical delivery of power to fulfill all of its
contractual obligations. As of June 30,
1998, Cinergy's daily value-at-risk for its power marketing and trading
activities increased by 80% from December 31, 1997. The daily value-at-risk as of JuneSeptember 30, 1998, was
less than 3% of Cinergy's "Income Before Interest And Other
Charges"Taxes" for the twelve months then
ended. The value-at riskvalue-at-risk model utilizes a 95% confidence interval and uses the
variance-covariance statistical modeling technique and historical volatilities
and correlations over the past 200 day period. The estimated market prices used
to value these transactions for value-at-risk purposes reflect the use of
established pricing models and various factors, including quotations from
exchanges and over-the-counter markets, price volatility factors, the time value
of money, and location differentials. The variables used for value-at-risk
purposes at JuneSeptember 30, 1998, reflect the impacts of the events which
transpired in the Midwestern electric power markets during late June 1998.
The Company provided
Cinergy provides reserves of $65 million ($41 million after tax), or $.26
per share (basic and diluted), inas required for the second quarter for its electric power
marketing and trading business. The reserve represents potential unrealized losses in the
fair value of its portfolio of open forward and option contract positions and
potential unrealized losses due to nonperformance of certain counterparties
pursuant to contractual supply obligations. Despite the volatile
activity at the end of June, the Company experienced modest net realized gains
from its electric power marketing and trading operations during the second
quarter. Due to the basic lack of liquidity,
price transparency, and extreme price volatility currently experienced in the
electric power markets, significant assumptions regarding estimated market
prices and potential counterparty credit risk must be made by the Company for
the purposes of providing appropriate reserves. It is possible that actual
realized results from the Company's power marketing and trading activities could
differ substantially from those currently estimated.
As of JuneSeptember 30, 1998, approximately 62%69% of Cinergy's power marketing and
trading activity represents commitments with 10 counterparties. The majority of
these contracts are for terms of one year or less. The temporary but extreme
price volatility and trading illiquidity exhibited in the Midwestern electric
power markets late in the second quarter resulted in a few power marketers
defaulting on contractual supply obligations and industry-wide uncertainty as to
whether others will be able to fulfill existing contractual supply obligations
for future delivery of electricity. As of JuneSeptember 30, 1998, Cinergy believes
it has adequately reserved for credit exposure relating to its portfolio of
existing contracts.
Cinergy remains committed to being a long-term participant in the evolving
competitive wholesale electric power market and will continue to manage its
power marketing and trading portfolio to maximize its existing value while
creating additional value. The New York Mercantile Exchange electricity futures
contracts for delivery into Cinergy's transmission grid, which started trading
on July 10, 1998, should provide additional liquidity and greater price
transparency, as well as additional risk management capabilities in Cinergy's
core service territory and trading region. Cinergy continues to review and
enhance its current risk management practices to ensure their responsiveness to
evolving and changing market and business conditions. In addition, efforts are
ongoing to develop and enhance systems to improve the timeliness and quality of
market and credit risk information.
Cinergy
Exchange Rate Sensitivity Cinergy utilizes foreign exchange forward contracts
and currency swaps to hedge certain of its net investments in foreign
operations. See Note 9 of the "Notes to Financial Statements" in "Part I.
Financial Information" for Cinergy's accounting policies for certain derivative
instruments. Cinergy's market risks have not changed materially from the market
risks reported in the 1997 Form 10-K.
Cinergy, CG&E, PSI, and ULH&P
Interest Rate Sensitivity The Company's net exposure to changes in interest
rates primarily consists of debt instruments with floating interest rates that
are benchmarked to various market indices. To manage the Company's exposure to
fluctuations in interest rates and to lower funding costs, the Company
constantly evaluates the use of, and has entered into, interest rate swaps. See
Note 9 of the "Notes to Financial Statements" in "Part I. Financial Information"
for the Company's accounting policies for certain derivative instruments. The
Company's market risks have not changed materially from the market risks
reported in the 1997 Form 10-K.
Accounting Issues
Cinergy, CG&E, PSI, and ULH&P New Accounting Standards See Note 12 of the "Notes
to Financial Statements" in "Part I. Financial Information."
Other Commitments
Cinergy, CG&E, and PSI Enertech See Note 10 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Cinergy, CG&E, and PSI MGP Sites See Note 11 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Cinergy and PSI WVPA See Note 14 of the "Notes to Financial Statements" in "Part
I. Financial Information."
CAPITAL RESOURCES AND REQUIREMENTS
Cinergy, CG&E, PSI, and ULH&P Long-term Debt For information regarding recent
issuances and redemptions of long-term debt securities, see Notes 2, 3, 4, 5, 6,
7, 8, and 820 of the "Notes to Financial Statements" in "Part I. Financial
Information."
On October 14, 1998, PSI issued a promissory note to the RUS (recorded as
long-term debt in the consolidated balance sheet) in the amount of $86.4
million. For information concerning the WVPA settlement, see Note 14 of the
"Notes to Financial Statements" in "Part I. Financial Information." This
issuance effectively reduces PSI's remaining authority for long-term debt
issuances to $40.6 million. In October 1998, PSI filed with the IURC for state
regulatory authority for long-term debt issuances of $400 million.
CG&E's remaining state regulatory authority for long-term debt issuances expired
in June 1998. CG&E is currently in the process of filing an application with the
PUCO requesting authorization to issue additional long-term debt.
On August 21, 1998, the SEC issued an order permitting Cinergy to issue and sell
from time to time unsecured debt securities in an aggregate principal amount not
to exceed $400 million outstanding at any time.
Cinergy, CG&E, PSI, and ULH&P
Short-term Debt Obligations representing notes payable and other short-term
obligations (excluding notes payable to affiliated companies) at JuneSeptember 30,
1998, were as follows:
Cinergy
Established
Lines Outstanding
(in millions)
Cinergy
Committed lines
Acquisition line $ 350 $ 350
Revolving line 400 160600 -
Commercial paper - 189301
Uncommitted line 45 82*
Utility subsidiaries
Committed lines 300 10-
Uncommitted lines 360 6781
Pollution control notes 244 244266 266
Non-utility subsidiaries 118 101125 105
------ ------
Total $1,772 $1,121$2,046 $1,185
CG&E
Established
Lines Outstanding
(in millions)
Committed lines $100 $ -
Uncommitted lines 190 3046
Pollution control notes 184 184
---- ----
Total $474 $214$230
PSI
Established
Lines Outstanding
(in millions)
Committed lines $200 $ 10-
Uncommitted lines 170 3735
Pollution control notes 60 6082 82
---- ----
Total $430 $107$452 $117
* Excess over Established Line represents amount sold by dealers to other
investors.
Cinergy, CG&E, and PSI
Cinergy's committed lines are comprised of an acquisition line and a revolving
line. The established revolving line (as shown in the above table) also provides
credit support for Cinergy's commercial paper program. As of June 30, 1998, this
program was limited to a maximum outstanding principal amount of $200 million.
During July 1998, the
commercial paper program was increased to a maximum principal amount of $400
million. This increase is supported by an additional revolving line of $200
million, which was also established in July 1998. The
majorityApproximately half of the
proceeds from the commercial paper sales were used to reduce the acquisition
line to the year-endquarter-end level of $350 million. CG&E and PSI also have the
capacity to issue commercial paper that must be supported by committed lines (unsecured lines of credit) of
the respective company. Neither CG&E nor PSI issued commercial paper during the
secondthird quarter of 1998.
Cinergy, CG&E, PSI, and ULH&P
Cinergy's utility subsidiaries had regulatory authority to borrow up to $853
million ($453 million for CG&E and its subsidiaries, including $50 million for
ULH&P, and $400 million for PSI) as of JuneSeptember 30, 1998. Regulatory authority
for CG&E and PSI excludes the Pollution Control Notes, which are considered
long-term debt for regulatory purposes. In connection with this authority,
committed lines, as well as uncommitted lines, have been arranged. The
established committed lines (as shown in the above table) include $100$81 million
designated as backup for certain of the uncommitted lines at JuneSeptember 30, 1998.
Further, the committed lines are maintained by commitment fees.
Cinergy, CG&E, PSI, and ULH&P
Year 2000 Cinergy, like most owners and users of IT systems, will be impacted by
what has become known as Year 2000 issues. Cinergy is currently working to
resolve the potential impact of the Year 2000 on the processing of
date-sensitive information by the Company's computerized information systems.
The Year 2000 issues are the result of computer programs being written using two
digits, rather than four, to define the applicable year. Any of Cinergy's
programs which have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in system
malfunctions. The Year 2000 issue impactsgenerally exists because many computer systems and
applications, including those embedded in equipment and facilities, use two
digit rather than four digit date fields to designate an applicable year. As a
result, the systems and applications may not only IT systems but also non-IT
systems (i.e., systems incorporating "embedded processors").properly recognize the year 2000 or
process data which includes it, potentially causing data miscalculations or
inaccuracies or operational malfunctions or failures, which could materially
affect Cinergy's financial condition or results of operations.
Cinergy is addressing the impacts of thehas established a centrally-managed, company-wide initiative to
identify, evaluate, and address Year 2000 issues by focusing on IT
systems, non-IT systems associated withissues. Cinergy's Year 2000 efforts,
which began in the fourth quarter of 1996, are all encompassing and include its
generating stations and itsgeneration, transmission, and distribution systems and an assessmentrelated infrastructure.
Also within the scope of this initiative are operational and financial IT
systems and applications, end-user computing resources, and building systems,
such as security, elevator, and heating and cooling systems. In addition, the
project includes a review of the abilityYear 2000 readiness efforts of Cinergy's key
suppliers and customers and other principal business partners, and, as
appropriate, the development of joint business support and continuity plans for
Year 2000 issues. Further, the scope of the Year 2000 project includes
communications with regulatory agencies and the inclusion of Year 2000 concerns
as a regular part of the due diligence process in any new business venture.
While this initiative is broad in scope, it has been structured to identify and
prioritize efforts for mission critical systems, electric and gas systems and
services, and key business partners.
Under its critical vendors to provide an uninterrupted supply of goods and/or services to
Cinergy.
Cinergy anticipates that itscurrent Year 2000 plan, Cinergy has established a target date of June
30, 1999, for the remediation and testing of its generation, transmission, and
distribution systems (gas and electric). One example of Cinergy's remediation
and testing efforts is the current operation of some of its generating units
with post Year 2000 dates. Cinergy cannot guarantee that third parties on whom
it depends for essential goods and services (those where the interruption of the
supply of such goods and services could lead to issues involving the safety of
employees, customers, or the public, the continued reliable delivery of gas
and/or electricity, the ability to comply with applicable laws or regulations,
and revenues) will be completedconvert their critical systems and processes in a timely
manner. Failure or delay by June 1999. Asany of July 31,these third parties could significantly
disrupt business. However, to address this issue, Cinergy has established a
supplier compliance program, and is working with its key suppliers in an effort
to minimize such risks. In addition, Cinergy is coordinating its findings and
other issues with other utilities via EPRI's Year 2000 Embedded Systems Project
and with the Year 2000 Readiness Assessment Program of the NERC, acting at the
request of the U.S. Department of Energy.
In addition to the approximately $10 million in expenses incurred through
September 30, 1998, for matters historically identified as Year 2000-related,
Cinergy currently estimates that it will incur additional expenses of
approximately $3 million through the extentcompletion of completion rangedthe program. Cinergy's
progress to date ranges from approximately 75%80% for IT systems to approximately 25%40% regarding
assessment of critical vendors. The timing of expenses may vary and is not
necessarily indicative of readiness efforts or progress to date. Cinergy
estimatesanticipates that a portion of its Year 2000 expenses will not be incremental
costs, but rather will represent the total costredeployment of existing IT resources.
Since its formation, Cinergy has incurred, and will continue to incur,
significant capital improvement costs for IT systems. These costs related to
planned system upgrades or replacements would have been required in the normal
course of business and are not being incurred sooner than originally planned as
a result of the Year 2000 planissue.
Avon Energy has also undertaken activities to address Year 2000 issues. The
estimated proportionate share of Avon Energy's incremental Year 2000 costs
(costs which would not have been required in the normal course of business) that
will be
approximately $13 million,flow through to Cinergy's earnings as a result of which approximately $10 million has been incurred
through June 30, 1998. These costs are being funded through operating cash
flows.
The Companysuch activities is not
expected to have a material impact on the financial condition or results of
operations of Cinergy.
As part of the Year 2000 initiative, Cinergy is in the process of developing areviewing its
existing contingency and business continuity plans to determine if any
modifications are needed in light of the Year 2000 problem. Contingency planning
to maintain and restore service in the event of natural and other disasters
(including software and hardware-related problems) has been part of Cinergy's
standard operation for many years, and Cinergy is working to leverage this
experience in the review of existing plans to address Year 2000- related
challenges. These reviews are expected to assess the potential for business
disruption in various scenarios, including the most reasonably likely worst-case
scenario, and to provide for key operational back-up, recovery, and restoration
alternatives.
The above information is based on Cinergy's current best estimates, which were
derived using numerous assumptions of future events, including the availability
and future costs of certain technological and other resources, third-party
modification actions and other factors. Given the complexity of these issues and
possible as yet unidentified risks, actual results may vary materially from
those anticipated and discussed above. Specific factors that might cause such
differences include, among others, the ability to locate and correct all
affected computer code, the timing and success of remedial efforts of
third-party suppliers, and similar uncertainties.
The descriptions herein of the elements of Cinergy's Year 2000 efforts are
forward-looking statements. Of necessity, this effort is based on estimates of
assessment, remediation, testing, and contingency plan.planning activities and dates
for perceived problems not yet identified. There can be no assurances that
actual results will not materially differ from expectations. The SEC's rules do
not require forward-looking statements to be revised or updated, and Cinergy
does not intend to do so.
Cinergy
Other Commitments In connection with its energy marketing and trading
activities, Cinergy has issued performance and debt guarantees to numerous
counterparties totaling approximately $170$421 million.
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P Reference is made to "Item 1. Financial
Statements" in "Part I. Financial Information."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cinergy, CG&E, PSI, and ULH&P Reference is made to the "Market Risk Sensitive
Instruments and Positions" section in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" in "Part I. Financial
Information."
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy and CG&E
Skinner Landfill Remediation
As discussed in the 1997 Form 10-K, CG&E was notified, in the first quarter of
1998, by the Allocator in a court-mandated ADR proceeding, that it had been
identified as a PRP under CERCLA with respect to the Skinner Landfill Superfund
Site, which is located approximately 15 miles north of Cincinnati, Ohio. In
March 1997, the plaintiffs from the underlying CERCLA litigation brought suit in
the U.S. District Court, against over 80 PRPs. In August 1997, the U.S. District
Court entered an order staying the litigation and requiring all parties to
engage in a non-binding, confidential ADR process. The Allocator, which has been
given authority by the U.S. District Court to identify other parties that may be
responsible for response costs, has informed CG&E that it was identified by a
site owner, operator, or worker as one that had arranged for the disposal of
waste at the landfill and has concluded that a reasonable basis exists for
CG&E's participation in the ADR process.
In early October 1998, the Allocator issued a report which concluded that CG&E
was responsible for $500 of clean-up costs related to the disposal of a small
amount of utility poles, shop waste, tree mulch and light ballast. The total
clean-up costs for the site are estimated to be $15 million. While the Allocator
has not identified a responsible party for approximately 70% of the costs, CG&E
does not expect any further allocations to substantially increase its share of
the clean-up costs.
Cinergy, CG&E, and PSI
See Notes 10, 11 14, and 15 of the "Notes to Financial Statements" in "Part I.
Financial Information."
ITEM 5. OTHER INFORMATION
Cinergy and PSI
On October 28, 1998, the Company announced that Mary L. Schapiro has been
appointed to Cinergy's board, effective January 1, 1999. Ms. Schapiro will
fill the board vacancy resulting from the retirement of Van P. Smith. Mr.
Smith has served on Cinergy's board since 1994 and has served on the PSI board
since 1986.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits identified with a pound sign (#) are being filed herewith by the
registrant identified in the exhibit discussion below and are incorporated
herein by reference with respect to any other designated registrant.
Exhibits not so identified are filed herewith:
Exhibit
Designation Nature of Exhibit
Cinergy
and CG&E
4-A #Fifth SupplementalBase Indenture dated as of June 9,October 15, 1998, between CG&ECinergy
Global Resources and The Fifth Third Bank as Trustee.
(Exhibit to CG&E's June 30, 1998, Form
10-Q in File No. 1-1232.)
Cinergy and PSI
4-B #FourthFirst Supplemental Indenture dated as of August
5,October 15, 1998, between
PSICinergy Global Resources and The Fifth Third Bank as Trustee.
(Exhibit to PSI's June 30, 1998, Form
10-Q in File No. 1-3543.)
4-C #Loan Agreement between PSI and the Indiana
Department Finance Authority dated as of July 15,
1998. (Exhibit to PSI's June 30, 1998, Form 10-Q
in File No. 1-3543.)
Cinergy, CG&E, and PSI
10-A #Third Amendment to#Second Amended and Restated Employment Agreement dated May
1,September 22,
1998, between Cinergy, Cinergy Services, Inc., CG&E, and PSI and LarryJames
E. Thomas.Rogers. (Exhibit to Cinergy's JuneSeptember 30, 1998, Form 10-Q10- Q in File
No. 1-
11377.1-11377.)
Cinergy, CG&E, PSI, and ULH&P
27 Financial Data Schedules (included in electronic submission only).
(b) The following reports on Form 8-K were filed during the quarter or prior to
the filing of theand
previously reported on Form 10-Q for the quarter ended June 30, 1998.
Date of Report Item Filed
Cinergy
July 15, 1998 Item 5. Other Events
Item 7. Financial Statements and Exhibits
CG&E
July 15, 1998 Item 5. Other Events
PSI
July 15, 1998 Item 5. Other Events
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)adjustments and those adjustments discussed in Notes 9 and 14 of the
"Notes to Financial Statements" in "Part I. Financial Information") 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: August 13,November 12, 1998 /s/John P. Steffen
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John P. Steffen
Duly Authorized Officer
and
Chief Accounting Officer