UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)(MarkOne)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998March 31, 1999
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 October 31, 1998,April 30, 1999, shares of Common Stock outstanding for each registrant
were as listed:
Company Shares
- ------------------------------------------------------------------- ------------
Cinergy Corp., par value $.01 per share 158,584,688Company Shares
- ---------------------------------------------------------------- ------------
Cinergy Corp., par value $.01 per share 158,870,194
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 . . . . . . . . . . . . . 76
Consolidated Statements of Income (Loss). . . . . . . 9. . . 8
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . 109
Consolidated Statements of Cash Flows . . . . . . . . 1310
Results of Operations . . . . . . . . . . . . . . . . 1411
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . . 2415
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 2617
Consolidated Statements of Cash Flows . . . . . . . . 2718
Results of Operations . . . . . . . . . . . . . . . . 2819
PSI Energy, Inc.
Consolidated Balance SheetsSheets. . . . . . . . . . . . . . 3423
Consolidated Statements of Income and
Comprehensive Income.Income . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows. . . . . . . . 36
Consolidated Statements of Cash Flows . . . . . . . . 3726
Results of Operations . . . . . . . . . . . . . . . . 3827
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . . 4331
Statements of Income. . . . . . . . . . . . . . . . . 4533
Statements of Cash Flows. . . . . . . . . . . . . . . 4634
Results of Operations . . . . . . . . . . . . . . . . 4735
Notes to Financial Statements . . . . . . . . . . . . . 5137
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 6045
3 Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . 6751
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 6852
4 Submission of Matters to a Vote of Security Holders . . 52
5 Other Information . . . . . . . . . . . . . . . . . . . 6853
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 6853
Signatures. . . . . . . . . . . . . . . . . . . . . . . 7056
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
19971998 Form Combined 19971998 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 W. C. Beckjord Station (steam electric generating
plant)CAAA Clean Air Act Amendments of 1990
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 StationCIBU Cinergy Investments Business Unit
Cinergy or Cinergy Corp.
Company
Cinergy Global Cinergy Global Power, Inc., formerly Cinergy Investments
Power MPI, Inc. (a subsidiary of Cinergy Global Resources)
Cinergy Global Cinergy Global Resources, Inc. (a subsidiary of Cinergy),
Resources which holds Cinergy's international non-regulated
businesses
Committed Lines A line of credit providing short-term loans on a
committed basis
DSM Demand-side management
Destec Destec Energy, Inc.
DOE United States Department of Energy
Dynegy Dynegy Inc.
ECBU Energy Commodities Business Unit
EDBU Energy Delivery Business Unit
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 East Bend Station (steam electric generating plant)
Enertech Enertech Associates, Inc., formerly Power International,
Inc. (a subsidiary of Cinergy Investments, Inc.)
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 KentuckyIBU International Business Unit
ICR Information Collection Request
IDEM Indiana Department of Environmental Management
IGC Indiana Gas Company, Inc., formerly Indiana Gas and Water
Company, Inc.
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
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
IURC Indiana Utility Regulatory Commission
kwh Kilowatt-hour
mcf 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)
Moravske Moravske Teplarna a.s. (an indirect subsidiary of Cinergy
Global Power)MW Megawatts
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 Partyoxide
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
SIP State Implementation Plan
SO2 Sulfur dioxide
Statement 130131 Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income131,
Disclosures About Segments of an Enterprise and Related
Information
Statement 133 Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities
UCC Office of 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 A line of credit providing short-term loans on an
Lines uncommitted basis
US United States
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
September 30March 31 December 31
1999 1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 78,82692,652 $ 53,310100,154
Restricted deposits 1,531 2,3193,641 3,587
Notes receivable 71 11059 64
Accounts receivable less accumulated provision
for doubtful accounts of $20,689$31,355 at September
30, 1998,March
31, 1999, and $10,382$25,622 at December 31, 1997 832,766 413,5161998 397,686 580,305
Materials, supplies, and fuel - at average cost 189,300 163,156180,969 202,747
Prepayments and other 56,368 38,17173,692 74,849
Energy risk management assets 703,278 969,000
----------- ----------
1,158,862 670,582------------
1,451,977 1,930,706
Utility Plant - Original Cost
In service
Electric 9,102,204 8,981,1829,248,374 9,222,261
Gas 772,006 746,903794,785 786,188
Common 185,896 186,078197,299 186,364
----------- ----------
10,060,106 9,914,163-----------
10,240,458 10,194,813
Accumulated depreciation 3,982,686 3,800,3224,100,406 4,040,247
----------- ----------
6,077,420 6,113,841-----------
6,140,052 6,154,566
Construction work in progress 226,362 183,262209,461 189,883
----------- ---------------------
Total utility plant 6,303,782 6,297,1036,349,513 6,344,449
Other Assets
Regulatory assets 1,033,651 1,076,851940,386 970,767
Investments in unconsolidated subsidiaries 502,623 537,720645,250 574,401
Other 438,699 275,897459,022 478,472
----------- ----------
1,974,973 1,890,468-----------
2,044,658 2,023,640
$ 9,437,617 $8,858,1539,846,148 $10,298,795
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 30March 31 December 31
1999 1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 917,760433,732 $ 488,716668,860
Accrued taxes 206,361 187,033240,179 228,347
Accrued interest 49,011 46,62240,878 51,679
Notes payable and other short-term obligations 1,185,486 1,114,0281,052,811 903,700
Long-term debt due within one year 186,000 85,00025,959 136,000
Energy risk management liabilities 828,424 1,117,146
Other 98,848 79,19386,814 93,376
---------- ----------
2,643,466 2,000,592-----------
2,708,797 3,199,108
Non-Current Liabilities
Long-term debt 2,210,488 2,150,9022,605,657 2,604,467
Deferred income taxes 1,095,884 1,248,5431,100,473 1,091,075
Unamortized investment tax credits 159,030 166,262154,381 156,757
Accrued pension and other postretirement
benefit costs 305,269 297,142323,949 315,147
Other 388,483 277,523268,042 298,370
---------- ----------
4,159,154 4,140,372-----------
4,452,502 4,465,816
Total liabilities 6,802,620 6,140,9647,161,299 7,664,924
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,648 177,98992,616 92,640
Common Stock Equity
Common stock - $.01 par value; authorized
shares - 600,000,000; outstanding shares -
158,547,701158,779,900 at September 30, 1998,March 31, 1999, and
157,744,658158,664,532 at December 31, 1997 1,585 1,5771998 1,588 1,587
Paid-in capital 1,600,776 1,573,0641,598,884 1,595,237
Retained earnings 943,647 967,4201,001,034 945,214
Accumulated other comprehensive loss (3,659) (2,861)(9,273) (807)
---------- ---------------------
Total common stock equity 2,542,349 2,539,200
$9,437,617 $8,858,1532,592,233 2,541,231
$9,846,148 $10,298,795
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(LOSS)
(unaudited)
Quarter Ended Year to Date Twelve Months Ended
September 30 September 30 September 30
Quarter Ended
March 31
1999 1998 1997 1998 1997 1998 1997
(in thousands, except per share amounts)
Operating Revenues
Electric $1,601,996 $1,315,165 $3,782,641 $2,923,655 $4,720,684 $3,631,890$ 968,532 $1,158,724
Gas 355,945 39,941 666,136 326,964 830,318 494,936421,308 184,846
Other 18,545 5,423 43,888 21,705 56,568 31,45812,439 4,891
---------- ----------
---------- ---------- ---------- ----------
1,976,486 1,360,529 4,492,665 3,272,324 5,607,570 4,158,2841,402,279 1,348,461
Operating Expenses
Fuel and purchased and exchanged power 1,070,753 804,397 2,318,624 1,470,701 2,760,717 1,707,996433,169 652,404
Gas purchased 316,321 15,622 518,006 175,416 608,748 274,219334,402 107,586
Other operation and maintenance 235,074 213,458 774,149 651,648 991,075 899,859244,548 212,693
Depreciation and amortization 80,425 76,847 240,780 229,496 318,205 305,18486,477 79,935
Taxes other than income taxes 69,346 67,174 208,125 204,132 270,037 265,62569,534 70,135
---------- ----------
---------- ---------- ---------- ----------
1,771,919 1,177,498 4,059,684 2,731,393 4,948,782 3,452,8831,168,130 1,122,753
Operating Income 204,567 183,031 432,981 540,931 658,788 705,401234,149 225,708
Equity in Earnings of Unconsolidated
Subsidiaries 11,421 3,782 32,992 42,462 50,922 57,44544,682 11,854
Other Income and (Expenses) - Net (115) 6,268 (11,850) 3,634 (18,088) (8,972)(11,886) (11,815)
Interest 60,950 58,444 181,511 176,897 240,933 234,560
--------- ---------- ---------- ----------60,772 59,805
---------- ----------
Income Before Taxes 154,923 134,637 272,612 410,130 450,689 519,314206,173 165,942
Income Taxes 44,127 48,961 77,891 148,373 142,518 183,73277,564 57,449
Preferred Dividend Requirements
of Subsidiaries 1,365 3,142 5,152 9,617 8,104 12,856
---------- ---------- ---------- ----------1,364 2,422
---------- ----------
Net Income Before Extraordinary Item $ 109,431127,245 $ 82,534 $ 189,569 $ 252,140 $ 300,067 $ 322,726
Extraordinary Item - Equity Share of
Windfall Profits Tax (Less
Applicable Income Taxes of $0) - (109,400) - (109,400) - (109,400)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) $ 109,431 $ (26,866) $ 189,569 $ 142,740 $ 300,067 $ 213,326106,071
Average Common Shares Outstanding 158,539 157,679 158,110 157,679 158,007 157,679158,746 157,764
Earnings Per Common Share
Net income before
extraordinary item $0.69 $ 0.53 $1.20 $1.60 $1.90 $2.04
Net income (loss) $0.69 $(0.16) $1.20 $0.91 $1.90 $1.35$0.80 $0.67
Earnings Per Common Share - Assuming Dilution
Net income before
extraordinary item $0.69 $ 0.52 $1.20 $1.59 $1.90 $2.03
Net income (loss) $0.69 $(0.17) $1.20 $0.90 $1.90 $1.34$0.80 $0.67
Dividends Declared Per Common Share $0.45 $ 0.45 $1.35 $1.35 $1.80 $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 (Loss) Equity
Quarter Ended September 30, 1998March 31, 1999
Balance at JulyJanuary 1, 1998 $1,585 $1,599,4351999 $1,587 $1,595,237 $ 905,556 $(3,330) $2,503,246945,214 $ (807) $2,541,231
Comprehensive income
Net income 109,431 $109,431 109,431127,245 $127,245 127,245
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (329) (329)(8,451) (8,451)
Unrealized gains/losses -
grantor trusts (15) (15)
--------
Other comprehensive loss
total (329) (329)(8,466) (8,466)
--------
Comprehensive income total $109,102$118,779
Issuance of 12,423115,368 shares of
common stock - net 225 2251 1,978 1,979
Treasury shares purchased (1) (1,536) (1,537)(233) (233)
Treasury shares reissued 1 2,637 2,6381,902 1,902
Dividends on common stock (see
page 98 for per share amounts) (71,340) (71,340)(71,422) (71,422)
Other 15 15(3) (3)
------ ---------- ---------- ------- ----------
Balance at September 30, 1998 $1,585 $1,600,776 $ 943,647 $(3,659) $2,542,349March 31, 1999 $1,588 $1,598,884 $1,001,034 $(9,273) $2,592,233
Quarter Ended September 30, 1997
Balance at July 1, 1997 $1,577 $1,570,533 $1,021,210 $(1,973) $2,591,347
Comprehensive income
Net loss (26,866) $(26,866) (26,866)
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (514) (514)
--------
Other comprehensive loss
total (514) (514)
--------
Comprehensive loss total $(27,380)
========
Treasury shares purchased (214) (214)
Treasury shares reissued 1,614 1,614
Dividends on common stock (see
page 9 for per share amounts) (71,000) (71,000)
Other (406) 118 (288)
------ ---------- ---------- ------- ----------
Balance at September 30, 1997 $1,577 $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 Loss Income Equity
Nine Months Ended September 30,March 31, 1998
Balance at January 1, 1998 $1,577 $1,573,064 $ 967,420 $(2,861) $2,539,200
Comprehensive income
Net income 189,569 $189,569 189,569106,071 $106,071 106,071
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (747) (747)(367) (367)
Minimum pension liability
adjustment (51) (51)
--------
Other comprehensive loss
total (798) (798)(418) (418)
--------
Comprehensive income total $188,771$105,653
========
Issuance of 803,04319,362 shares of
common stock - net 8 27,018 27,0261 289 290
Treasury shares purchased (3) (6,468) (6,471)(1) (1,430) (1,431)
Treasury shares reissued 3 7,115 7,1181 2,149 2,150
Dividends on common stock (see
page 98 for per share amounts) (213,340) (213,340)(70,994) (70,994)
Other 478 (2) 456
------ ---------- ---------- ------- ----------
Balance at September 30,March 31, 1998 $1,585 $1,600,776 $ 943,647 $(3,659) $2,542,349
Nine Months Ended September 30, 1997
Balance at January 1, 1997 $1,577 $1,590,735 $ 993,526 $(1,384) $2,584,454
Comprehensive income
Net income 142,740 $142,740 142,740
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (1,103) (1,103)
--------
Other comprehensive loss
total (1,103) (1,103)
--------
Comprehensive income total $141,637
========
Treasury shares purchased (11) (45,939) (45,950)
Treasury shares reissued 11 27,073 27,084
Dividends on common stock (see
page 9 for per share amounts) (212,910) (212,910)
Other (342) 106 (236)
------ ---------- ---------- ------- ----------
Balance at September 30, 1997 $1,577 $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 Loss Income Equity
Twelve Months Ended September 30, 1998
Balance at October 1, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079
Comprehensive income
Net income 300,067 $300,067 300,067
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (39) (39)
Minimum pension liability
adjustment (1,133) (1,133)
--------
Other comprehensive loss
total (1,172) (1,172)
--------
Comprehensive income total $298,895
Issuance of 868,572 shares of
common stock - net 8 29,084 29,092
Treasury shares purchased (3) (6,728) (6,731)
Treasury shares reissued 3 6,771 6,774
Dividends on common stock (see
page 9 for per share amounts) (284,296) (284,296)
Other 122 4,414 4,536
------ ---------- ---------- ------- ----------
Balance at September 30, 1998 $1,585 $1,600,776 $ 943,647 $(3,659) $2,542,349
Twelve Months Ended September 30, 1997
Balance at October 1, 1996 $1,577 $1,592,393 $ 994,113 $(1,658) $2,586,425
Comprehensive income
Net income 213,326 $213,326 213,326
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (650) (650)
Minimum pension liability
adjustment (179) (179)
--------
Other comprehensive loss
total (829) (829)
--------
Comprehensive income total $212,497
========
Treasury shares purchased (12) (48,170) (48,182)
Treasury shares reissued 12 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 (216) (216)
Other (370) 105 (265)
------ ---------- ---------- ------- ----------
Balance at September 30, 1997 $1,577 $1,571,527 $ 923,462 $(2,487) $2,494,079$1,578 $1,574,080 $1,002,495 $(3,279) $2,574,874
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
September 30 September 30March 31
1999 1998 1997 1998 1997
(in thousands)
Operating Activities
Net income $ 189,569127,245 $ 142,740 $ 300,067 $ 213,326106,071
Items providing (using) cash currently:
Depreciation and amortization 240,780 229,496 318,205 305,184
WVPA settlement 80,000 - 80,000 (80,000)86,477 79,935
Deferred income taxes and investment tax
credits - net (79,350) 4,698 (16,410) 18,54912,877 (12,955)
Equity in earnings of unconsolidated subsidiaries (32,992) (17,309) (50,922) (32,292)
Extraordinary item - equity share of windfall
profits tax - 109,400 - 109,400(44,682) (11,854)
Allowance for equity funds used during
construction (793) (189) (701) (208)(775) (21)
Regulatory assets - net 57,122 40,355 68,210 68,1695,140 10,670
Changes in current assets and current liabilities
Restricted deposits 788 (229) 419 (230)(54) (29)
Accounts and notes receivable, net of reserves
on receivables sold (298,792) (180,916) (335,033) (275,404)182,265 (106,525)
Materials, supplies, and fuel (20,037) 9,871 (8,091) 30,35121,778 4,660
Accounts payable 293,435 175,165 301,566 218,405(235,128) 69,305
Accrued taxes and interest 21,717 22,719 (22,416) 36,9221,031 24,938
Energy risk management - net (23,000) -
Other items - net 94,458 (28,229) 137,017 37,645
--------- ---------9,478 25,788
--------- ---------
Net cash provided by operating
activities 545,905 507,572 771,911 649,817142,652 189,983
Financing Activities
Issuance of common stock 515 - 2,581 -1,979 290
Issuance of long-term debt 373,041 - 473,103 150,2176,623 98,901
Retirement of preferred stock of subsidiaries (85,292) (16,182) (85,379) (19,110)(20) (85,229)
Redemption of long-term debt (333,745) (336,312) (333,745) (365,912)(116,000) (160,291)
Change in short-term debt 61,642 323,128 (69,675) 243,891149,111 108,767
Dividends on common stock (212,730) (212,910) (283,686) (283,866)
--------- ---------(71,422) (70,994)
--------- ---------
Net cash used in financing activities (196,569) (242,276) (296,801) (274,780)(29,729) (108,556)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (238,364) (226,389) (340,030) (345,425)
Acquisition of businesses (net of cash acquired) (63,412) - (63,412) -(79,143) (66,348)
Investments in unconsolidated subsidiaries (22,044) - (51,076) -(41,282) (9,658)
--------- --------- --------- ----------
Net cash used in investing activities (323,820) (226,389) (454,518) (345,425)(120,425) (76,006)
Net increase (decrease) in cash and temporary
cash investments 25,516 38,907 20,592 29,612(7,502) 5,421
Cash and temporary cash investments at beginning
of period 100,154 53,310 19,327 58,234 28,622
--------- ---------
--------- ---------
Cash and temporary cash investments at end of period $ 78,82692,652 $ 58,234 $ 78,826 $ 58,23458,731
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 nine months, and twelve months ended September 30,
1998.March 31, 1999. For information concerning the
results of operations for each of the other registrants for the quarter and nine months ended
September 30, 1998,March 31, 1999, see the discussion under the heading "Results of Operations"
following the financial statements of each registrant.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998MARCH 31, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Quarter Ended
September 30March 31
Revenue Kwh Sales
1999 1998 19971999 1998 1997
($ and kwh in millions)
Retail $676 $ 713 $ 671 13,013 12,099633 12,276 11,678
Sales for resale 873 635 25,243 24,553266 515 10,694 21,733
Other 16 9 N/A N/A27 11 172 -
---- ------ ------ ------ -------------
Total $1,602 $1,315 38,256 36,652$969 $1,159 23,142 33,411
Electric operating revenues increased $287decreased $190 million (22%(16%) for the quarter ended
September 30, 1998, fromMarch 31, 1999, when compared to the comparablesame period of 1997.for 1998. This increasedecrease was
primarily the result of a higher average price per kwh receiveddue to decreased volumes on non-firm power sales for resale
transactions. Theretransactions related to energy marketing and trading operations. Partially
offsetting the decline was also an increase in the average price per kwh paid for the corresponding purchases of purchased and exchanged power described
below. Also contributing to the increase wereretail
customers, higher retail and firm power kwh sales due to the
warmer than normal weather during 1998 andresulting from growth in the
average number of residential and commercial customers.customers and a return to more
normal weather in the first quarter of 1999, as compared to 1998, and increased
international operations.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
September 30March 31
Revenue Mcf Sales
------------------- -------------------
1999 1998 19971999 1998 1997
---- ---- ---- -----
($ and mcf in millions)
Sales for resale $296$243 $ - 152 -143 N/A
Retail 48 33 6 4158 174 26 26
Transportation 8 620 11 12
Other 4 1 N/A N/A13 16
---- ---- --- ---
---
Total $356 $40 169 16$421 $185 182 42
Gas operating revenues increased $316$236 million in the thirdfirst quarter of 1998,1999, when
compared to the same period last year, primarily due to the gas operating
revenues of ProEnergy, which was acquired in June 1998. A lower average cost per
mcf of gas purchased, which was passed on to end users, contributed to the
decrease in retail sales. Transportation revenues increased as more residential
and commercial customers began to purchase gas directly from suppliers, using
transportation services provided by CG&E. This increase in transportation
revenues was partially offset by a decrease in mcf transportation volumes
resulting from the loss of a large industrial transportation customer during
late 1998.
Other Revenues
Other revenues increased $8 million for the quarter ended September 30, 1998, increased $13 million,March 31, 1999, over
the same period of 1997.1998. This increase was primarily the result of increased
sales andrevenues of new non-regulated initiatives operated by certain of Cinergy's non-regulated
entities.the various business
units.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
September 30March 31
1999 1998 1997
(in millions)
Fuel $ 206 $197$198 $181
Purchased and exchanged power 865 607
------235 471
---- ----
Total $1,071 $804$433 $652
Electric fuel costs increased $9$17 million (5%(9%) for the quarter ended September
30, 1998,March 31,
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
September 30March 31
(in millions)
Fuel expense - September 30, 1997 $197March 31, 1998 $181
Increase (Decrease) due to change in:
Price of fuel (6)(2)
Deferred fuel cost (4)5
Kwh generation 199
Other 5
----
Fuel expense - September 30, 1998 $206March 31, 1999 $198
Purchased and exchanged power expense increased $258decreased $236 million (43%(50%) for the
quarter ended September 30, 1998, whenMarch 31, 1999, as compared to the same period of 1997,last year,
primarily reflecting an increasedecreased purchases of non-firm power for resale to others
as a result of a decline in sales for resale volumes in the average price paid per kwh.energy marketing and
trading operations.
Gas Purchased
Gas purchased for the quarter ended September 30, 1998,March 31, 1999, increased $301$227 million, when
compared to the same period last year, primarily due to the gas purchased
expenses of ProEnergy, which was acquired in June 1998. Partially offsetting
this increase was a lower 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 30March 31
1999 1998 1997
(in millions)
Other operation $185 $171$195 $174
Maintenance 50 4239
---- ----
Total $235$245 $213
Other operation expenses increased $14$21 million (8%(12%) for the quarter ended September 30, 1998,March
31, 1999, as compared to the same period last year, primarily due to an increase
in new initiatives by certain of Cinergy's consolidatedoperating expenses related to various non-regulated businesses.subsidiaries and the
estimated loss on a specific customer account.
Maintenance expenses increased $8$11 million (19%(28%) for the quarter ended September
30, 1998,March 31,
1999, as compared to the same period of 1997,1998, primarily due to an increase in
maintenance activities associated with planned outages at certain production
maintenance at Wabash River, Cayuga, and Gibson, and an increase
in distribution line maintenance.facilities.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
September 30March 31
1999 1998 1997
(in millions)
Depreciation $74$79 $73
Amortization of phase-in deferrals 5 36 6
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $86 $80
$77
Amortization of phase-in deferrals reflectsDepreciation expense increased $6 million (8%) for the PUCO ordered phase-in plan for
Zimmer.quarter ended March 31,
1999, as compared to the same period last year, primarily due to additions to
depreciable plant.
Equity in Earnings of Unconsolidated Subsidiaries
For the quarter ended September 30, 1998, theThe $33 million increase in equity in earnings of unconsolidated subsidiaries
increased $8 million,for the quarter ended March 31, 1999, as compared to the same period of last year. This increase1998, 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 September 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, 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 taxable income
over the prior period.earnings of Avon Energy resulting
from increased profits related to Midlands' supply business and lower costs of
purchased electricity.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $2$1 million
(57%(44%) for the quarter ended September 30, 1998,March 31, 1999, as compared to the same period of
1997,1998, is primarily attributable to PSI's redemption of all outstanding shares of
its 7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred Stock on September 1, 1997, and March 1, 1998, respectively.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Nine Months
Ended September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------ -------
($ and kwh in millions)
Retail $1,955 $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 $859 million (29%) for the nine months
ended September 30, 1998, from the comparable period of 1997. This increase was
primarily due to increased volumes and a higher average price per kwh received
on sales for resale transactions. There was also an increase in the average
price per kwh paid for the corresponding purchases of purchased and exchanged
power described below. Also contributing to the increase were higher retail kwh
sales due to the warmer than normal weather during 1998, growth in the average
number of residential and commercial customers, and an increase in industrial
sales primarily reflecting growth in the primary metals and miscellaneous
manufacturers sectors.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Nine Months Ended
September 30 _
Revenue Mcf Sales
1998 1997 1998 1997
($ and mcf in millions)
Sales for resale $380 $ - 195 -
Retail 248 300 37 45
Transportation 28 24 42 40
Other 10 3 N/A N/A
---- ---- --- ---
Total $666 $327 274 85
Gas operating revenues increased $339 million for the nine months ended
September 30, 1998, when compared to the same period last year. This increase is
primarily due to the gas operating revenues of ProEnergy, which was acquired in
June 1998. This increase was partially offset by a decline in retail sales due
to lower mcf volumes reflecting, in part, the milder weather during the first
quarter of 1998, and a reduction in the average number of commercial and
industrial customers. Transportation revenues increased as customers continued
the trend of purchasing gas directly from suppliers, using transportation
services provided by CG&E.
Other Revenues
Other revenues for the nine months ended September 30, 1998, increased $22
million, 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:
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 $35 million (7%) for the first nine months of
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 $507
Increase (Decrease) due to change in:
Price of fuel (16)
Deferred fuel cost 12
Kwh generation 39
----
Fuel expense - September 30, 1998 $542
Purchased and exchanged power expense increased $813 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 was a higher 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 nine months ended September 30, 1998, increased $343
million when compared to the same period last year, primarily due to the
acquisition of ProEnergy in June 1998, and its related gas purchased expense.
Slightly offsetting this increase is a decrease in the retail volumes of gas
purchased by CG&E, due to lower demand, and a lower average cost per mcf of gas
paid by CG&E.
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 $629 $508
Maintenance 145 144
---- ----
Total $774 $652
Other operation expenses increased $121 million (24%) 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 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
penalty 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 $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 in 1997 on
the sale of a PSI investment.
Income Taxes
Income taxes decreased $70 million (48%) for the nine 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 $4 million
(46%)for the nine months ended September 30, 1998, as compared to the same
period of 1997, is primarily attributable to PSI's redemption of all outstanding
shares of its 7.15% Series Cumulative Preferred Stock and 7.44% Series
Cumulative Preferred Stock on September 1, 1997, and March 1, 1998,
respectively.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Twelve Months Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------- -------
($ 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 $1.1 billion (30%) for the twelve months
ended September 30, 1998, from the comparable period of 1997. This increase was
primarily due to increased volumes and a higher average price per kwh received
on sales for resale transactions. There was also an increase in the average
price per kwh paid for the corresponding purchases of purchased and exchanged
power described below. Also contributing to the increase were higher retail kwh
sales due to the warmer than normal weather during 1998, growth in the average
number of residential and commercial customers, and an increase in industrial
sales primarily reflecting growth in the primary metals, transportation
equipment, and miscellaneous manufacturers sectors.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Twelve Months Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
---- ---- ---- -----
($ and mcf 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 $335 million (68%) for the twelve months ended
September 30, 1998, when compared to the same period last year. This increase is
primarily due to the gas operating revenues of ProEnergy, which was acquired in
June 1998. This increase was partially offset by a decline in retail revenues
reflecting reduced mcf volumes due, in part, to the milder weather during the
first quarter of 1998, and a decline in the average number of commercial and
industrial customers. Transportation revenues increased as customers continued
the trend of purchasing gas directly from suppliers, using transportation
services provided by CG&E.
Other Revenues
Other revenues for the twelve months ended September 30, 1998, increased $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 twelve months ended
September 30, 1998, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Twelve Months Ended
September 30
(in millions)
Fuel expense - September 30, 1997 $681
Increase (Decrease) due to change in:
Price of fuel (11)
Deferred fuel cost (4)
Kwh generation 62
----
Fuel expense - September 30, 1998 $728
Purchased and exchanged power expense increased $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. Also contributing to the increase was a higher 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 $335
million when compared to the same period last year, primarily due to the
acquisition of ProEnergy in June 1998, and its 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 lower average cost per mcf of gas paid by
CG&E.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Twelve Months Ended
September 30
1998 1997
(in millions)
Other operation $809 $704
Maintenance 182 196
---- ----
Total $991 $900
Other operation expenses increased $105 million (15%) for the twelve 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
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 30March 31 December 31
1999 1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 6,32117,856 $ 2,34926,989
Restricted deposits 1,173 1,173
Notes receivable from affiliated companies 148,494 27,193109,725 84,358
Accounts receivable less accumulated provision
for doubtful accounts of $14,855$19,295 at September
30, 1998,March
31, 1999, and $9,199$17,607 at December 31, 1997 336,489 193,5491998 119,288 205,060
Accounts receivable from affiliated companies 6,553 35,507431 22,635
Materials, supplies, and fuel - at average cost 106,846 107,96794,163 115,294
Prepayments and other 36,543 31,82741,369 40,158
Energy risk management assets 351,639 484,500
---------- ----------
642,419 399,565---------
735,644 980,167
Utility Plant - Original Cost
In service
Electric 4,747,890 4,700,6314,817,108 4,806,958
Gas 772,006 746,903794,786 786,188
Common 185,896 186,078197,299 186,364
---------- ----------
5,705,792 5,633,6125,809,193 5,779,510
Accumulated depreciation 2,116,313 2,008,0052,184,770 2,147,298
---------- ----------
3,589,479 3,625,6073,624,423 3,632,212
Construction work in progress 151,226 118,133121,476 119,993
---------- ----------
Total utility plant 3,740,705 3,743,7403,745,899 3,752,205
Other Assets
Regulatory assets 678,344 667,765616,784 627,035
Other 92,517 103,368101,817 100,061
---------- ----------
770,861 771,133
$5,153,985 $4,914,438718,601 727,096
$5,200,144 $5,459,468
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 30March 31 December 31
1999 1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 415,171171,792 $ 249,538282,743
Accounts payable to affiliated companies 19,243 10,82134,376 13,166
Accrued taxes 168,019 149,129138,096 151,455
Accrued interest 29,362 25,43013,920 20,571
Long-term debt due within one year 20,000 130,000
Notes payable and other short-term obligations 230,276 289,000288,991 189,283
Notes payable to affiliated companies 8,747 12,253
Long-term debt due within one year 130,000 -4,289 17,020
Energy risk management liabilities 414,212 558,573
Other 25,780 29,95025,961 26,422
---------- ----------
1,026,598 766,1211,111,637 1,389,233
Non-Current Liabilities
Long-term debt 1,199,633 1,324,4321,219,901 1,219,778
Deferred income taxes 824,741 794,396779,201 771,145
Unamortized investment tax credits 112,328 116,966109,260 110,801
Accrued pension and other postretirement
benefit costs 142,810 180,566149,830 146,361
Other 186,389 100,576134,550 134,990
---------- ----------
2,465,901 2,516,9362,392,742 2,383,075
Total liabilities 3,492,499 3,283,0573,504,379 3,772,308
Cumulative Preferred Stock
Not subject to mandatory redemption 20,725 20,79320,697 20,717
Common Stock Equity
Common stock - $8.50 par value; authorized
shares - 120,000,000; outstanding shares -
89,663,086 at September 30, 1998,March 31, 1999, and
December 31, 19971998 762,136 762,136
Paid-in capital 534,672 534,649553,929 553,926
Retained earnings 344,858 314,553360,127 351,505
Accumulated other comprehensive loss (905) (750)(1,124) (1,124)
---------- ----------
Total common stock equity 1,640,761 1,610,588
$5,153,985 $4,914,4381,675,068 1,666,443
$5,200,144 $5,459,468
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Quarter Ended
Year to Date
September 30 September 30March 31
1999 1998 1997 1998 1997
(in thousands)
Operating Revenues
Electric $827,387 $672,372 $1,960,334 $1,485,974$481,586 $593,305
Gas 56,505 39,944 280,437 326,969163,797 173,462
-------- --------
---------- ----------
883,892 712,316 2,240,771 1,812,943645,383 766,767
Operating Expenses
Fuel and purchased and exchanged power 518,393 387,363 1,162,004 687,368198,871 325,171
Gas purchased 21,539 15,601 139,784 175,39578,878 96,588
Other operation and maintenance 96,193 96,851 302,764 307,316108,156 101,405
Depreciation and amortization 47,267 45,028 142,877 134,69650,570 47,660
Taxes other than income taxes 54,089 52,980 162,484 159,00154,114 54,683
-------- --------
---------- ----------
737,481 597,823 1,909,913 1,463,776490,589 625,507
Operating Income 146,411 114,493 330,858 349,167154,794 141,260
Other Income and (Expenses) - Net 511 (1,832) (2,349) (6,658)(1,261) (2,494)
Interest 25,072 27,633 77,034 87,62724,407 26,789
-------- -------- ---------- ----------
Income Before Taxes 121,850 85,028 251,475 254,882129,126 111,977
Income Taxes 43,178 32,724 88,925 96,82548,889 40,785
-------- -------- ---------- ----------
Net Income $ 78,67280,237 $ 52,304 $ 162,550 $ 158,05771,192
Preferred Dividend Requirement 214 217 644 653215
-------- -------- ---------- ----------
Net Income Applicable to Common Stock $ 78,45880,023 $ 52,087 $ 161,906 $ 157,40470,977
Other Comprehensive Income (Loss), Net of Tax - - (155) -
-------- -------- ---------- ----------
Comprehensive Income $ 78,45880,023 $ 52,087 $ 161,751 $ 157,40470,822
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 30March 31
1999 1998 1997
(in thousands)
Operating Activities
Net income $ 162,55080,237 $ 158,05771,192
Items providing (using) cash currently:
Depreciation and amortization 142,877 134,69650,570 47,660
Deferred income taxes and investment tax
credits - net (11,592) 18,2388,795 (27)
Allowance for equity funds used during
construction (770) (154)(775) (10)
Regulatory assets - net 23,716 15,1474,496 2,912
Changes in current assets and current
liabilities
Restricted deposits - (2)
Accounts and notes receivable, net of
reserves on receivables sold (232,865) (42,472)80,619 391
Materials, supplies, and fuel 1,121 41521,131 14,073
Accounts payable 174,055 85,545(89,741) 51,971
Accrued taxes and interest 22,822 (7,135)(20,010) (4,439)
Energy risk management - net (11,500) -
Other items - net 38,295 (12,251)(1,938) 9,753
--------- -----------------
Net cash provided by operating
activities 320,209 350,084121,884 193,476
Financing Activities
Retirement of preferred stock (45) (158)
Issuance of long-term debt 223,020 -(17) (9)
Redemption of long-term debt (220,409) (290,612)(110,000) (160,291)
Change in short-term debt (62,230) 178,84486,977 49,157
Dividends on preferred stock (645) (655)(214) (215)
Dividends on common stock (132,245) (127,800)(71,400) (42,600)
--------- ---------
Net cash used in financing
activities (192,554) (240,381)(94,654) (153,958)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (123,683) (106,612)(36,363) (36,483)
Net cash used in investing
activities (123,683) (106,612)(36,363) (36,483)
Net increase (decrease) in cash and temporary
cash investments 3,972 3,091(9,133) 3,035
Cash and temporary cash investments at
beginning of period 26,989 2,349 5,120
--------- ---------
Cash and temporary cash investments at
end of period $ 6,32117,856 $ 8,2115,384
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, 1998MARCH 31, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Quarter Ended
September 30March 31
Revenue Kwh Sales
1999 1998 19971999 1998 1997
($ and kwh in millions)
Retail $397 $372 6,423 6,025$358 $336 5,882 5,438
Sales for resale 425 298 12,209 13,913121 254 4,918 10,793
Other 5 23 3 N/A N/A
---- ---- ------ ------
Total $827 $672 18,632 19,938$482 $593 10,800 16,231
Electric operating revenues increased $155decreased $111 million (23%(19%) for the quarter ended
September 30, 1998, fromMarch 31, 1999, when compared to the comparablesame period of 1997.for 1998. This increasedecrease was
primarily a result of a higher average price per kwh receiveddue to decreased volumes on non-firm power sales for resale
transactions. There was also an increase intransactions related to Cinergy's energy marketing and trading operations.
Partially offsetting the average price per kwh
paid for the corresponding purchases of purchased and exchanged power described
below. Also contributing to the increasedecline was higher retail kwh sales due to the
warmer than normal weather during 1998 andresulting from
growth in the average number of residential and commercial customers.customers and a
return to more normal weather in the first quarter of 1999, as compared to 1998.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
September 30March 31
Revenue Mcf Sales
1999 1998 19971999 1998 1997
($ and mcf in millions)
Retail $48 $33 6 4$144 $162 26 26
Transportation 8 620 11 12
Other 1 1 N/A N/A
--- --- --- ---13 16
---- ---- -- --
Total $57 $40 17 16$164 $173 39 42
Gas operating revenues increased $17decreased $9 million (41%(5%) in the thirdfirst quarter of 1998,1999,
when compared to the same period last year, primarily attributableyear. A lower average cost per mcf of gas
purchased, which was passed on to end users, contributed to the annual
true-updecrease in
retail sales. Transportation revenues increased as more residential and
commercial customers began to purchase gas directly from suppliers, using
transportation services provided by CG&E. This increase in transportation
revenues was partially offset by a decrease in mcf transportation volumes
resulting from the loss of estimated revenues.a large industrial transportation customer during
late 1998.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
September 30March 31
1999 1998 1997
(in millions)
Fuel $ 9386 $ 8988
Purchased and exchanged power 425 298113 237
---- ----
Total $518 $387
$199 $325
Electric fuel costs increased $4decreased $2 million (4%(2%) for the quarter ended September
30, 1998,March 31,
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
September 30March 31
(in millions)
Fuel expense - September 30, 1997 $89March 31, 1998 $88
Increase (Decrease) due to change in:
Price of fuel 1
Deferred fuel cost (2)(7)
Kwh generation 64
---
Fuel expense - September 30, 1998 $93March 31, 1999 $86
Purchased and exchanged power expense increased $127decreased $124 million (52%) for the
quarter ended September 30, 1998, whenMarch 31, 1999, as compared to the same period last year. This
decline primarily reflects decreased purchases of last year,
primarily reflecting an increasenon-firm power for resale to
others as a result of a decline in the average price paid per kwh.sales for resale volumes in Cinergy's energy
marketing and trading operations.
Gas Purchased
Gas purchased for the quarter ended September 30, 1998, increased $6March 31, 1999, decreased $18 million (38%(18%),
when compared to the same period last year, primarily due to an increasedecrease 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 30March 31
1999 1998 1997
(in millions)
Other operation $73 $76$ 84 $ 82
Maintenance 23 2124 19
--- ---
Total $96 $97$108 $101
Maintenance expenses increased $2$5 million (10%(26%) for the quarter ended September
30, 1998,March 31,
1999, as compared to the same period of 1997,1998, primarily due to an increase in
maintenance activities associated with planned outages at certain production
maintenance at Beckjord and East Bend.facilities.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
September 30March 31
1999 1998 1997
(in millions)
Depreciation $41$43 $41
Amortization of phase-in deferrals 5 37 6
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $47 $45
Amortization$51 $48
Depreciation expense increased $2 million (5%) for the quarter ended March 31,
1999, as compared to the same period of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
1998, primarily due to additions to
depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $2$1 million for the quarter
ended September 30, 1998,March 31, 1999, as compared to the same period of 1997,1998, 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
The 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 942 3,001
Allowance for borrowed funds used
during construction (1,315) (1,341)
------- -------
Total $25,072 $27,633
The decrease in interest expense of $3 million (9%) for the quarter ended
September 30, 1998, as compared to the same period last year, was primarily due
to a reduction in other interest expense resulting from decreases in both the
average short-term debt borrowings and the short-term debt rates.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related kwh sales are
shown below:
Nine Months Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------ -------
($ 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 and an increase in allowance for equity funds
used during construction resulting from an increase in the balance of short-term loans to affiliated companies through Cinergy's money pool
arrangementequity rate applied
and an adjustment recordedincrease in 1997 relatedconstruction expenditures subject to the sale of certain
assets.allowance.
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$2 million (12%(9%) for the nine monthsquarter ended September 30, 1998,March
31, 1999, 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 wasis primarily due to a net redemption of approximately
$116$90 million of long-term debt during the period fromof March 19971998 through May 1998.February
1999. The decrease in other interest isexpense was due to a reduction in average
short-term borrowings.borrowings and lower short-term interest rates.
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30
March 31 December 31
1999 1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 30,48831,187 $ 18,16918,788
Restricted deposits 359 1,1462,468 2,414
Notes receivable 79 1108,298 17,024
Notes receivable from affiliated companies 8,752 21,99870 73
Accounts receivable less accumulated provision
for doubtful accounts of $5,760$11,968 at September
30, 1998,March
31, 1999, and $1,183$7,893 at December 31, 1997 370,260 197,8981998 139,685 225,449
Accounts receivable from affiliated companies 302 4,51610,674 384
Materials, supplies, and fuel - at average cost 74,732 55,18983,789 80,445
Prepayments and other 13,962 4,40527,485 31,461
Energy risk management assets 351,639 484,500
---------- ----------
Total current assets 498,934 303,431655,295 860,538
Electric Utility Plant - Original Cost
In service 4,354,315 4,280,5514,431,266 4,415,303
Accumulated depreciation 1,866,373 1,792,3171,915,636 1,892,949
---------- ----------
2,487,942 2,488,2342,515,630 2,522,354
Construction work in progress 75,135 65,12987,984 69,891
---------- ----------
Total electric utility plant 2,563,077 2,553,3632,603,614 2,592,245
Other Assets
Regulatory assets 355,307 409,086323,603 343,731
Other 119,713 127,94592,496 93,012
---------- ----------
Total other assets 475,020 537,031
$3,537,031 $3,393,825416,099 436,743
$3,675,008 $3,889,526
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
March 31 December 31
1999 1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 368,606141,076 $ 212,833217,959
Accounts payable to affiliated companies 20,757 40,71412,954 30,145
Accrued taxes 68,492 69,31090,558 58,901
Accrued interest 19,938 21,36917,628 28,335
Notes payable and other short-term obligations 117,084 190,600157,597 173,162
Notes payable to affiliated companies 163,897 16,435103,092 102,946
Long-term debt due within one year 56,000 85,0005,959 6,000
Energy risk management liabilities 414,212 558,573
Other 2,385 2,5602,161 2,227
---------- ----------
817,159 638,821945,237 1,178,248
Non-Current Liabilities
Long-term debt 976,623 826,4701,020,093 1,025,659
Deferred income taxes 371,490 403,535360,007 364,049
Unamortized investment tax credits 46,702 49,29645,121 45,956
Accrued pension and other postretirement
benefit costs 109,626 116,576116,664 112,387
Other 164,616 176,271101,641 115,656
---------- ----------
1,669,057 1,572,1481,643,526 1,663,707
Total liabilities 2,486,216 2,210,9692,588,763 2,841,955
Cumulative Preferred Stock
Not subject to mandatory redemption 71,919 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,March
31, 1999, and December 31, 19971998 539 539
Paid-in capital 400,916 390,188410,740 410,739
Retained earnings 578,079 636,519603,557 564,865
Accumulated other comprehensive loss (642) (1,586)(510) (495)
---------- ----------
Total common stock equity 978,892 1,025,660
$3,537,031 $3,393,8251,014,326 975,648
$3,675,008 $3,889,526
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Quarter Ended
Year to Date
September 30 September 30March 31
1999 1998 1997 1998 1997
(in thousands)
Operating Revenues
Electric $807,181 $650,987 $1,910,836 $1,464,380$482,465 $592,125
Operating Expenses
Fuel and purchased and exchanged power 584,415 425,228 1,242,253 810,032234,927 352,746
Other operation and maintenance 110,051 102,742 400,431 310,291113,240 101,685
Depreciation and amortization 32,688 31,820 97,433 94,80033,743 32,275
Taxes other than income taxes 14,882 14,011 44,356 44,19114,488 14,967
-------- --------
---------- ----------
742,036 573,801 1,784,473 1,259,314396,398 501,673
Operating Income 65,145 77,186 126,363 205,06686,067 90,452
Other Income and (Expenses) - Net (315) 6,512 1,616 9,390323 1,718
Interest 21,975 21,369 67,771 63,32121,364 22,898
-------- -------- ---------- ----------
Income Before Taxes 42,855 62,329 60,208 151,13565,026 69,272
Income Taxes 16,063 21,839 21,106 55,45925,185 25,944
-------- -------- ---------- ----------
Net Income $ 26,79239,841 $ 40,490 $ 39,102 $ 95,67643,328
Preferred Dividend Requirement 1,151 2,925 4,509 8,9641,150 2,208
-------- -------- ---------- ----------
Net Income Applicable to Common Stock $ 25,64138,691 $ 37,565 $ 34,593 $ 86,71241,120
Other Comprehensive Income (Loss), Net of Tax - -(15) 944
-
-------- -------- ---------- --------------------
Comprehensive Income $ 25,64138,676 $ 37,565 $ 35,537 $ 86,71242,064
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 30March 31
1999 1998 1997
(in thousands)
Operating Activities
Net income $ 39,10239,841 $ 95,67643,328
Items providing (using) cash currently:
Depreciation and amortization 97,433 94,800
WVPA settlement 80,000 -33,743 32,275
Deferred income taxes and investment tax
credits - net (44,433) (13,548)(3,476) (473)
Allowance for equity funds used during
construction (23) (35)- (11)
Regulatory assets - net 33,406 25,208644 7,758
Changes in current assets and current
liabilities
Restricted deposits 787 (227)(54) (29)
Accounts and notes receivable, net of
reserves on receivables sold (158,099) (173,862)85,834 (75,348)
Materials, supplies, and fuel (19,543) 9,456(3,344) (9,413)
Accounts payable 135,816 99,810(94,074) 33,541
Accrued taxes and interest (2,249) 15,78520,950 26,088
Energy risk management - net (11,500) -
Other items - net 12,994 (7,768)7,593 (14,292)
--------- ---------
Net cash provided by operating
activities 175,191 145,29576,157 43,424
Financing Activities
Issuance of long-term debt 150,021 - 98,901
Retirement of preferred stock (85,247) (16 024)(3) (85,220)
Redemption of long-term debt (113,336) (45,700)(6,000) -
Change in short-term debt 73,946 125,430(15,419) 8,481
Dividends on preferred stock (5,037) (9,059)(1,150) (2,736)
Dividends on common stock (81,800) (85,200)- (28,400)
--------- ---------
Net cash used in financing activities (61,453) (30,553)(22,572) (8,974)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (101,419) (96,423)(41,186) (26,803)
Net cash used in investing activities (101,419) (96,423)(41,186) (26,803)
Net increase in cash and temporary cash
investments 12,319 18,31912,399 7,647
Cash and temporary cash investments at
beginning of period 18,788 18,169 2,911
--------- ---------
Cash and temporary cash investments at
end of period $ 30,48831,187 $ 21,23025,816
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, 1998MARCH 31, 1999
Operating Revenues
The components of operating revenues and the related kwh sales are shown below:
Quarter Ended
September 30March 31
Revenue Kwh Sales
1999 1998 19971999 1998 1997
---- ---- ------ -------
($ and kwh in millions)
Retail $315 $299 6,590 6,074$318 $297 6,393 6,239
Sales for resale 481 345 13,980 13,321157 287 6,282 12,185
Other 11 7 8 N/A N/A
---- ---- ------ ------
Total $807 $651 20,570 19,395$482 $592 12,675 18,424
Operating revenues increased $156decreased $110 million (24%(19%) for the quarter ended September
30, 1998, fromMarch 31,
1999, when compared to the comparablesame period of 1997.for 1998. This increasedecrease was primarily a
result of a higher average price per kwh received and increaseddue
to decreased volumes on non-firm power sales for resale transactions. Theretransactions related to
Cinergy's energy marketing and trading operations. Partially offsetting the
decline was also an increase in the average price per kwh paid for the corresponding purchases of purchasedretail customers and exchanged power described
below. Also contributing to the increase were
higher retail and firm power kwh sales due to the
warmer than normal weather during 1998 andresulting from growth in the average
number of residential and commercial customers.customers and a return to more normal
weather in the first quarter of 1999, as compared to 1998.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
September 30March 31
1999 1998 1997
(in millions)
Fuel $113 $109$107 $ 92
Purchased and exchanged power 471 316128 261
---- ----
Total $584 $425$235 $353
Fuel costs increased $4$15 million (4%(16%) for the thirdfirst quarter of 1998,1999, as
compared to the same period last year.
An analysis of fuel costs is shown below:
Quarter Ended
September 30March 31
(in millions)
Fuel expense - September 30, 1997 $109March 31, 1998 $ 92
Increase (Decrease) due to change in:
Price of fuel (6)(3)
Deferred fuel cost (2)12
Kwh generation 126
----
Fuel expense - September 30, 1998 $113
March 31, 1999 $107
Purchased and exchanged power expense increased $155decreased $133 million (49%(51%) for the
quarter ended September 30, 1998, whenMarch 31, 1999, as compared to the same period last year,year. This
decline primarily reflecting an increasereflects decreased purchases of non-firm power for resale to
others as a result of a decline in the average price paid per kwhsales for resale volumes in Cinergy's energy
marketing and increased
demand due to the warmer than normal weather for the third quarter of 1998.trading operations.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
September 30March 31
1999 1998 1997
(in millions)
Other operation $ 8388 $ 8182
Maintenance 27 2225 20
---- ----
Total $110 $103
Maintenance$113 $102
Other operation expense increased $5$6 million (23%(7%) for the quarter ended September
30, 1998,March
31, 1999, as compared to the same period of 1997,1998, primarily due to the estimated
loss on a specific customer account.
Maintenance expense increased $5 million (25%) for the quarter ended March 31,
1999, as compared to the same period of 1998, primarily due to an increase in
maintenance activities associated with planned outages at certain production
maintenance at Wabash River, Cayuga, and Gibson, and an increase
in distribution line maintenance.facilities.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $7$1 million for the quarter
ended September 30, 1998,March 31, 1999, as compared to the same period of 1997,1998, is primarily
attributable to a gain recordeddecrease in 1997interest income.
Interest
The $2 million (7%) decrease in interest expense for the quarter ended March 31,
1999, as compared to the same period of 1998, is primarily due to a decrease in
other interest expense resulting from a reduction in average short-term
borrowings and lower short-term interest rates. Partially offsetting the
decrease was an increase in interest expense on long-term debt resulting from
the salenet issuance of an investment.approximately $144 million of long-term debt during the
period from March 1998 through December 1998.
Preferred Dividend Requirement
The decrease in preferred dividend requirement of $2$1 million (61%(48%) for the
quarter ended September 30, 1998,March 31, 1999, as compared to the same period of 1997,1998, is
primarily attributable to PSI's redemption of all outstanding shares of its
7.15% Series Cumulative Preferred Stock and 7.44% Series Cumulative Preferred Stock on September 1, 1997, and March 1, 1998, respectively.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating Revenues
The components of operating revenues and the related kwh sales are shown below:
Nine Months Ended
September 30
Revenue Kwh Sales
1998 1997 1998 1997
------ ------ ------ -------
($ 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 of a dispute
with the WVPA (see Note 14 of the "Notes to Financial Statements" in "Part I.
Financial Information").
Maintenance expenses increased $7 million (10%) for the nine 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.
Interest
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 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 UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
September 30
March 31 December 31
1999 1998 1997
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 2,8024,993 $ 5463,244
Accounts receivable less accumulated provision
for doubtful accounts of $1,015$1,826 at
September 30, 1998,March 31, 1999, and $996$1,248 at December
31, 1997 6,105 7,3081998 9,076 14,125
Accounts receivable from affiliated companies 10 446- 666
Materials, supplies, and fuel - at average cost 9,674 6,0943,668 8,269
Prepayments and other 462 385154 308
-------- --------
Total current assets 19,053 14,77917,891 26,612
Utility Plant - Original Cost
In service
Electric 209,763 204,111234,791 232,222
Gas 162,354 155,167165,629 164,040
Common 19,075 19,07320,358 18,908
-------- --------
391,192 378,351420,778 415,170
Accumulated depreciation 141,642 133,213146,128 143,386
-------- --------
249,550 245,138274,650 271,784
Construction work in progress 25,369 14,3469,971 11,444
-------- --------
Total utility plant 274,919 259,484284,621 283,228
Other Assets
Regulatory assets 11,063 11,06510,893 10,978
Other 3,844 6,2625,470 3,767
-------- --------
14,907 17,327
$308,879 $291,59016,363 14,745
$318,875 $324,585
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
March 31 December 31
1999 1998 1997
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 4,6896,729 $ 11,0975,903
Accounts payable to affiliated companies 19,128 19,71215,582 14,986
Accrued taxes 1,837 6,3326,616 3,216
Accrued interest 1,674 1,286
Notes payable to affiliated companies 39,744 23,4871,432 1,959
Long-term debt due within one year 20,000 -20,000
Notes payable to affiliated companies 11,386 31,817
Other 4,021 4,3644,179 4,247
-------- --------
91,093 66,27865,924 82,128
Non-Current Liabilities
Long-term debt 34,534 44,67154,571 54,553
Deferred income taxes 27,741 26,21125,711 26,134
Unamortized investment tax credits 4,307 4,5164,168 4,238
Accrued pension and other postretirement
benefit costs 11,434 14,04411,920 11,678
Amounts due to customers - income taxes 7,760 6,5669,253 8,959
Other 7,447 6,39111,968 8,077
-------- --------
93,223 102,399117,591 113,639
Total liabilities 184,316 168,677183,515 195,767
Common Stock Equity
Common stock - $15.00 par value; authorizedauthorize
shares - 1,000,000; outstanding shares -
585,333 at September 30, 1998,March 31, 1999, and
December 31, 19971998 8,780 8,780
Paid-in capital 18,683 18,68319,525 19,525
Retained earnings 97,100 95,450107,055 100,513
-------- --------
Total common stock equity 124,563 122,913
$308,879 $291,590135,360 128,818
$318,875 $324,585
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
(unaudited)
Quarter Ended
Year to Date
September 30 September 30March 31
1999 1998 1997 1998 1997
(in thousands)
Operating Revenues
Electric $56,368 $56,666 $144,903 $152,560$49,159 $46,999
Gas 7,077 8,647 44,183 53,62533,000 28,480
------- -------
-------- --------
63,445 65,313 189,086 206,18582,159 75,479
Operating Expenses
Electricity purchased from parent company
for resale 41,827 44,237 110,338 113,99236,748 34,090
Gas purchased 2,691 3,002 23,211 30,006
Other operation17,322 16,353
Operation and maintenance 8,987 9,402 27,319 29,19810,190 9,430
Depreciation 3,296 3,048 9,737 9,2293,571 3,232
Taxes other than income taxes 1,024 905 3,058 3,1191,083 1,005
------- -------
-------- --------
57,825 60,594 173,663 185,54468,914 64,110
Operating Income 5,620 4,719 15,423 20,64113,245 11,369
Other Income and (Expenses) - Net (175) (596) (1,051) (1,534)(390) (496)
Interest 1,244 1,153 3,328 3,5121,563 1,115
------- ------- -------- --------
Income Before Taxes 4,201 2,970 11,044 15,59511,292 9,758
Income Taxes 1,696 731 4,418 6,0784,749 3,989
------- ------- -------- --------
Net Income $ 2,5056,543 $ 2,239 $ 6,626 $ 9,5175,769
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 30March 31
1999 1998 1997
(in thousands)
Operating Activities
Net income $ 6,6266,543 $ 9,5175,769
Items providing (using) cash currently:
Depreciation 9,737 9,2293,571 3,232
Deferred income taxes and investment tax
credits - net 1,763 (322)(200) 462
Allowance for equity funds used during
construction (150) (33)16 14
Regulatory assets (31) (312)35 (41)
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 3,515 7,6874,006 240
Materials, supplies, and fuel (3,580) (354)4,601 3,111
Accounts payable (6,992) (9,819)1,422 (5,751)
Accrued taxes and interest (4,107) 6,5042,873 (1,000)
Other current assets and liabilities 86 -
Other items - net (330) 5,2674,200 1,627
-------- --------
Net cash provided by operating
activities 6,451 27,36427,153 7,663
Financing Activities
Issuance of long-term debt 20,127 -
Redemption of long-term debt (10,118) -
Change in short-term debt 16,257 (5,988)
Dividends on common stock (4,975) (4,975)(20,431) (2,030)
-------- --------
Net cash provided by (used in)used in financing
activities 21,291 (10,963)(20,431) (2,030)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (25,486) (14,808)(4,973) (6,175)
Net cash used in investing
activities (25,486) (14,808)(4,973) (6,175)
Net increase (decrease) in cash and temporary
cash investments 2,256 1,5931,749 (542)
Cash and temporary cash investments at
beginning of period 3,244 546 1,197
-------- --------
Cash and temporary cash investments at
end of period $ 2,8024,993 $ 2,7904
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 SEPTEMBER 30,MARCH 31, 1999
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $2 million (5%) for the quarter ended
March 31, 1999, as compared to the same period last year. This increase
primarily reflects a return to more normal weather conditions, as compared to
the same period in 1998, Operating Revenuesand higher retail kwh sales resulting from growth in
the average number of residential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
September 30March 31
Revenue Mcf Sales
1999 1998 19971999 1998 1997
------ ------ ----- -----
($ and mcf in thousands)
Retail $6,133 $7,837 764 934$31,555 $27,266 5,219 4,491
Transportation 819 682 779 854
Other 125 128 14 25
------ ------1,445 1,214 1,078 1,106
------- ------- ----- -----
Total $7,077 $8,647 1,557 1,813$33,000 $28,480 6,297 5,597
Gas operating revenues decreased $2increased $5 million (18%(16%) in the thirdfirst quarter of 1998,1999,
when compared to the same period last year, primarily due to a decreaseincrease in mcf
volumes sold.sold, a return to more normal weather conditions, and an increase in the
number of customers.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased decreased $2increased $3 million (5%(8%) for the quarter ended September
30, 1998,March 31,
1999, as compared to the same period last year. This decreaseincrease reflects lowerhigher
volumes purchased from CG&E.
Gas Purchased
Gas purchased for the quarter ended September 30, 1998, decreased $.3March 31, 1999, increased $1 million (10%(6%),
when compared to the same period last year, primarily due to a decreasean increase in the
volumes of gas purchased, due to lower demand.higher demand and an increase in the number of
customers.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
September 30March 31
1999 1998 1997
(in thousands)
Other operation $7,514 $7,967$ 8,948 $8,135
Maintenance 1,473 1,435
------1,242 1,295
------- -------
Total $8,987 $9,402$10,190 $9,430
Other operation expenses decreased $.4increased $.8 million (6%(10%) for the quarter ended September 30, 1998,March
31, 1999, as compared to the same period last year, primarily due to a
decreasean increase
in distribution expenses.administrative and general activities.
Depreciation
Depreciation increased $.2$.3 million (8%(10%) 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 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 net issuance of 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 $8 million (5%) for the nine months ended
September 30, 1998, from the comparable period of 1997. This decrease primarily
reflects a revision of ULH&P's estimate of unbilled revenue 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 $1.7 million.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Nine Months Ended
September 30
Revenue Mcf Sales
1998 1997 1998 1997
------- ------- ------ -------
($ and mcf in 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 $9 million (18%) for the nine months ended
September 30, 1998, when compared to the same period of last year. Decreased
volumes reflecting the milder weather during the first quarter of 1998, along
with a decrease in the price of gas sold, primarily attributed to the revenue
decrease.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased decreased $4 million (3%) for the nine months 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 nine months ended September 30, 1998, decreased $7 million
(23%), when compared to the same period in 1997. This decrease reflects a
decline in the average cost per mcf of gas purchased and lower volumes of gas
purchased.
Other Operation and Maintenance
The components 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 distribution maintenance.
Depreciation
Depreciation increased $.5 million (6%) for the nine months ended September 30,
1998,March 31, 1999,
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 $.5$.1 million for the nine
monthsquarter
ended September 30, 1998,March 31, 1999, as compared to the same period of 1997,1998, is due
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.
miscellaneous non-utility revenues.
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 decreaseincrease in interest expense of $.2$.4 million (5%(40%) for the nine monthsquarter ended
September 30, 1998,March 31, 1999, as compared to the same period last year, was primarily due to changes
in interest on long-term debt and 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$30 million of long-term debt during the
period of April 1998 through December 1998. Allowance for borrowed funds used during construction increased primarily
as a result of an increase in the average balance of 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)adjustments) necessary in the opinion of the registrants for a
fair presentation of the interim results. These statements should be read
in conjunction with the Financial Statements and the notes thereto included
in the combined 19971998 Form 10-K of the registrants.
TheStatements of IncomeCertain amounts in this reportthe 1998 Financial Statements have been reclassified in order to
presentconform to the operations of all non-regulated entities as a component of
operating income. Prior to this reclassification, the 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.1999 presentation.
Cinergy and CG&E
2. On April 7, 1998, CG&E16, 1999, Cinergy issued and sold $100$200 million principal amount of
its 6.40%6.125% Debentures due April 1, 2008.2004. Proceeds from the sale were used to repay a
portion of 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
5.3. On July 23, 1998,April 30, 1999, PSI redeemed the entire $24issued: $124.7 million principal amount of its 7 5/8% First
Mortgage Bonds, Series YBBB, 8%, due January 1, 2007, at the
redemption priceJuly 15, 2009, in exchange for $125.7
million principal amount of 102.11%, and the entire $26certain outstanding Secured Medium-term Notes,
Series A; $60.1 million principal amount of its 7% First Mortgage Bonds,
Series SCCC, 8.85%, due January 1, 2002, at the
redemption price of 100.73%.
6. On August 5, 1998, PSI issued and sold $5015, 2022, in exchange for $60.5 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,certain outstanding Secured Medium-term Notes, Series
A; 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 were used to redeem
in September 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$38 million principal amount of its 6.50% DebenturesFirst Mortgage Bonds, Series
DDD, 8.31%, due September 1, 2032, in exchange for $38 million principal
amount of certain outstanding Secured Medium-term Notes, Series B.
Also on 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 $101999, PSI issued $97 million principal amount of its
8%
Series First Mortgage Bonds,6.52% Senior Notes due 2003,2009 in exchange for a like principal amount of
outstanding 7.25% Junior Maturing Principal Securities due 2028
("JUMPS(sm)").
The Secured Medium-term Notes and JUMPS(sm) received by PSI 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.exchange
transactions described above have been cancelled.
Cinergy, CG&E, and PSI
9. Cinergy's4. Cinergy'senergy marketing and trading operations, conducted primarily
through its ECBU, markets and trades electricity, natural gas, and other
energy-related products. The power marketing and trading function actively marketsoperation has both
physical and trades
over-the-countertrading activities. Generation not required to meet native
load requirements is available to be sold to third parties, either under
long-term contracts, such as full requirements transactions or firm forward
sales contracts, or in short-term and option contractsspot market transactions. When
transactions are entered into, each transaction is designated as either a
physical or trading transaction. In order for a transaction to be
designated as physical, there must be intent and ability to physically
deliver the purchasepower from company-owned generation. Physical transactions are
accounted for on a settlement basis. All other transactions are considered
trading transactions and saleare accounted for using the mark-to-market method
of electricity. The majorityaccounting. Under the mark-to-market method of accounting, these contractstrading
transactions are settled via physical
delivery of electricity or netted outreflected at fair value as "Energy risk management assets"
and "Energy risk management liabilities." Changes in accordance with industry trading
standards. The Company also trades exchange-traded futures contracts.
Option premiumsfair value, resulting
in unrealized gains and losses, are deferred and includedreflected in the Consolidated Balance
Sheets and amortized to "Operating Revenues - Electric" or "Fuel and purchased and
exchanged power"power." Revenues and costs for all transactions are recorded
gross in
the Consolidated Statements of Income overas contracts are settled. Revenues
are recognized in "Operating Revenues - Electric" and costs are recorded in
"Fuel and purchased and exchanged power."
Although physical transactions are entered with the termintent and ability to
settle the contract with company-owned generation, it is likely, that from
time to time, due to numerous factors such as generating station outages,
native load requirements, and weather, power used to settle the physical
transactions will be required to be purchased on the open market. Depending
on the factors giving rise to these open market purchases, the cost of such
purchases could be in excess of the option contract. Cinergy values itsassociated revenues. Losses such as
this will be recognized as the power is delivered. In addition, physical
contracts are subject to permanent impairment tests. At March 31, 1999,
management has concluded that no physical contracts are impaired.
Prior to December 31, 1998, the transactions now included in the trading
portfolio of
contracts usingwere accounted for and valued at the aggregate lower of cost or
market method. Tomarket. Under this method, only the extent
there are net aggregate lossesvalue of the entire portfolio was
recorded as a liability in the Consolidated Balance Sheets.
Contracts in the trading portfolio Cinergy reserves forare valued at end-of-period market
prices, utilizing factors such losses. Net gains are recognized when realized. Dueas closing exchange prices, broker and
over-the-counter quotations, and model pricing. Model pricing considers
time value and volatility factors underlying any options and contractual
commitments. Management expects that some of these obligations, even though
considered as trading contracts, will ultimately be settled from time to
time by using company-owned generation. The cost of this generation is
typically below the lackmarket prices at which the trading portfolio has been
valued.
Because of
liquidity and the volatility currently experienced in the power markets, significant assumptions must be made byand
the Company when estimating current
market values for purposes offactors discussed above pertaining to both the aggregate lower of cost or market
comparison. It is possible that the actual gains and losses from the
Company's power marketingphysical and trading
activities, could differ substantiallyvolatility in future earnings (losses) from period to period in
the gainsECBU is likely.
Cinergy's ECBU also physically markets natural gas and losses estimated currently.trades natural gas
and other energy-related products. All of these operations are accounted
for on the mark-to-market method of accounting. Revenues and costs from
physical marketing are recorded gross in the Consolidated Statements of
Income as contracts are settled due to the exchanging of title to the
natural gas throughout the earnings process. All non-physical transactions
are recorded net in the Consolidated Statements of Income. Energy risk
management assets and liabilities and gross margins from these trading
activities currently are not significant.
Cinergy, CG&E, and PSI
5. 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 utilizesand its subsidiaries utilize 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"Accumulated other comprehensive income,loss," which
is a separate component of common stock equity. Aggregate translation
losses related to these instruments are reflected in "Current Liabilities Other"Liabilities"
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, PSI, and PSI
10.ULH&P
6. As discussed in the 1997 Form 10-K, in October 1995, a suit was filed in
the U.S. District Court 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 Central and Eastern 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.
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.
Cinergy and PSI
Coal tar residues, related hydrocarbons, and various metals associated with
MGP sites have been found at former MGP sites in Indiana, including at
least 21 MGP sites which PSI or its predecessors previously owned. PSI
acquired four of the sites from NIPSCO in 1931 and at the same time it sold
NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSI sold
19 of these sites (including the four it acquired from NIPSCO) to IGC, including the ShelbyvilleIndiana
Gas and Lafayette
sites. PSI or its predecessors acquired fiveWater Company, Inc. (now IGC). One 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,Rochester, Indiana, werewas later sold by PSI's predecessorIGC to NIPSCO in 1931.
PSI has received claims fromNIPSCO.
IGC and NIPSCO both made claims against PSI, contending that PSI is a
PRPPotentially Responsible Party under the CERCLA with respect to the 21 MGP
sites, and therefore legally responsible for the costs of investigating and
remediating these sites. InMoreover, in August 1997, NIPSCO filed suit
against PSI in the United States District Court for the Northern
District of Indiana, South Bend Division,federal court, 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 betweenamong the three companies, at seven
MGP sites in Indiana, namely the sites located in Lafayette, Goshen, Warsaw,
Rochester, Frankfort, Crawfordsville, and Lebanon.Indiana. Pursuant to thethis agreement, NIPSCO's lawsuit against
PSI referenced above, will bewas 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 achievedSimilar agreements were reached between
IGC and PSI in
August 1997, allocatingwhich allocate CERCLA liability at 1314 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 and applicable laws, the parties are continuing to investigate
and remediate the sites as appropriate. In the caseInvestigation and cleanup of some
of the sites the parties have appliedis subject 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 determinationoversight 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,IDEM.
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.
As also discussed in the 1997 Form 10-K, PSI previouslyhas 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.
Based upon the work performed to date, PSI has accrued costs for the sites
related to investigation, remediation, and groundwater monitoring.
Estimated costs of certain remedial activities are accrued when such costs
are reasonably estimable. PSI does not believe it can provide an estimate
of the reasonably possible total remediation costs for any site prior to
completion of a remedial investigation/feasibility study and the
development of some sense of the timing for the implementation of the
potential remedial alternatives, to the extent such remediation may be
required. Accordingly, the total costs that may be incurred in connection
with the remediation of all sites, to the extent remediation is necessary,
cannot be determined at this time. These future costs at the 21 Indiana MGP
sites, 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 the 21 MGP sites could be material to Cinergy's and
PSI's financial condition or results of operations.
Cinergy, CG&E, and ULH&P
CG&E and its utility subsidiaries are aware of otherpotential 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.7. 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.accounting
treatment. The standard is effective for fiscal years beginning after June
15, 1999, and Cinergy expects to adopt the provisions of Statement 133 in
the first quarter of 2000.
The Company has not yet quantified the impacts of adopting Statement 133 on its
consolidated financial statements. However, 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 September 30, 1998
Earnings per common share:
Net income $109,431 158,539 $ .69
Effect of dilutive securities:
Common stock options 606
Contingently issuable common
stock 104
EPS--assuming dilution:
Net income plus assumed
conversions $109,431 159,249 $ .69
Quarter ended September 30, 1997
Earnings per common share:
Net income before extraordinary
item $ 82,534 157,679 $ .53
Effect of dilutive securities:
Common stock options 885
Contingently issuable common stock 204
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $ 82,534 158,768 $ .52
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Nine months ended September 30, 1998
Earnings per common share:
Net income $189,569 158,110 $1.20
Effect of dilutive securities:
Common stock options 694
Contingently issuable common
stock 113
EPS--assuming dilution:
Net income plus assumed
conversions $189,569 158,917 $1.20
Nine months ended September 30, 1997
Earnings per common share:
Net income before extraordinary
item $252,140 157,679 $1.60
Effect of dilutive securities:
Common stock options 931
Contingently issuable common stock 204
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $252,140 158,814 $1.59
Income Shares Earnings
(Numerator) (Denominator) Per Share
(In thousands, except per share amounts)
Twelve months ended September 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
and costs of reacquisition of
preferred stock of subsidiary $322,726 157,679 $2.04
Effect of dilutive securities:
Common stock options 945
Contingently issuable common stock 232
EPS--assuming dilution:
Net income before extraordinary
item plus assumed conversions $322,726 158,856 $2.03
The after-tax impact of the extraordinary item - equity share of
windfall profits tax for the three, nine, and twelve months ended
September 30, 1997, was $.69 for both basic and diluted earnings per
share.
Cinergy
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 March 31, 1999
Earnings per common share:
Net income $127,245 158,746 $ .80
Effect of dilutive securities:
Common stock options 412
Contingently issuable common stock 13
EPS--assuming dilution:
Net income plus assumed conversions $127,245 159,171 $ .80
Quarter ended March 31, 1998
Earnings per common share:
Net income $106,071 157,764 $ .67
Effect of dilutive securities:
Common stock options 787
Contingently issuable common stock 123
EPS--assuming dilution:
Net income plus assumed conversions $106,071 158,674 $ .67
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
September 30March 31 Shares Price
1999 1,744,800 $35.70
1998 922,600 $37.51
1997 13,600 34.35
Nine Months Average
Ended Exercise
September 30 Shares Price
1998 766,900 $37.72
1997 9,300 34.50
Twelve Months Average
Ended Exercise
September 30 Shares Price
1998 574,100 $37.72
1997 8,500 34.39914,800 37.61
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 all matters has been reached with the parties. As a
result, PSI recorded a liability to the RUS and the CFC. 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 to the RUS.
Assumption of the liability (recorded as long-term debt in the 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's9. Midlands subsidiary (of which the Company owns 50%) has a 40% ownership interest in a
586 MW power project in Pakistan (Uch project("Uch project" or Uch)"Uch") which wasas
originally scheduled to begin commercial operation in late 1998. TheIn July
1998, the Pakistani government-owned utility has issued a notice of intent to
terminate certain key project agreements relative to the Uch project. The
notice assertsasserted 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 are pursuinghave pursued all available legal options to enforce their
contractual rights under the project agreements. Physical construction of
the project is substantially complete; however, commissioning, which
management believes could be completed within a 60- 90 day period, hascommercial operations have been delayed
as a resultpending resolution of the above situation. The Uch investors continue to
explore remedies to the situation with officials ofdispute. In December 1998, the Pakistani
government and are working with the project's lendersoffered 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 ofwithdraw 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.notice.
Through its 50% ownership of Midlands, the Company's current investment in the
Uch project is approximately $32$36 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 $12$8 million. At the present time, the Company cannot predict the
ultimate outcome of this matter.
Cinergy and PSI
16.10. 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 expectedsatisfactory to PSI, could be completed in 1999.
PSI will
investigateis investigating 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,Currently, natural gas prices have fallen to a level that has madewhich causes the
synthetic gas supply taken under the current gasification services
agreement uneconomical for PSI and its customers. Underto be substantially above market. If the current
proposal,buyout of the
gasification service costs wouldservices agreement is approved, the combustion turbine will be
replaced by lowerfired with natural gas, costs. In nominal dollars,or with synthetic gas if it is estimated that the total savings,
primarily ascan be produced at a
result of the purchase, would be approximately $275 million
over the life of the original contract.
Cinergy, CG&E, and ULH&P
19.cost competitive with natural gas.
11. As more fully discussed in the 19971998 Form 10-K, Cinergy made a filingthe collective-bargaining agreement
with the SECInternational Brotherhood of Electrical Workers Local No. 1393,
covering approximately 1,470 employees, expired on May 1, 1999. A new labor
agreement was ratified April 22, 1999, and is effective from May 1, 1999,
through April 30, 2002.
Cinergy, CG&E, PSI, and ULH&P
12. As discussed in Februarythe 1998 setting forthForm 10-K, during 1998, Cinergy and its
rationale supporting retentionsubsidiaries adopted the provisions of CG&E'sStatement 131. During the first
quarter of 1999, Cinergy reorganized its reportable segments. The business
unit structure effective with that reorganization is described below.
The ECBU operates and ULH&P's gas operations. As partmaintains, exclusive 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 determinationcertain jointly-owned plant,
all of the amountCompany's domestic electric generation facilities. In addition
to the production of increased operating costs that would resultelectric power, all energy risk management, marketing,
and proprietary arbitrage trading, with the exception of electric and gas
retail sales, is conducted through the ECBU. Revenues from external
customers are derived from the gas operations
being divestedECBU's marketing, trading, 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 debenturesrisk
management activities. Intersegment revenues 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 proceedsderived from the sale was usedof
electric power to repay approximately $115 millionthe EDBU.
The EDBU plans, constructs, operates, and maintains the Company's
transmission and distribution systems and provides gas and electric energy
to end users. Revenues from customers other than end users are primarily
derived from the transmission of short-term
indebtednesselectric power through the Company's
transmission system.
The CIBU manages the development, sales, and marketing of domestic,
non-regulated wholesale energy and energy-related products and services.
Most of the remainder will be usedCIBU's revenues are derived from the sales of such products and
services to external, end-use customers. In addition, some of the CIBU's
activities are conducted through joint-venture affiliates, including the
construction and sale or lease of cogeneration and trigeneration facilities
to large commercial/industrial customers and energy management services to
third parties.
The IBU directs and manages all of the Company's international business
holdings, which include wholly-owned subsidiaries and equity investments.
Revenues and equity earnings from unconsolidated companies are primarily
derived from energy-related businesses.
Transfer pricing for sales of electric energy and sales of electric and gas
transmission and distribution services between the acquisitionECBU and development of additional energy-related assets.EDBU are
derived from the operating utilities' retail and wholesale rate structures.
Financial results by business unit for the quarters ended March 31, 1999, and
1998, and Total Segments Assets at March 31, 1999, and December 31, 1998, are as
follows:
1999
All Reconciling
Cinergy Business Units Other Eliminations
ECBU EDBU CIBU IBU Total (1) (2) Consolidated
-------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
External Customers $ 503,638 $ 868,367 $17,400 $ 12,874 $1,402,279 $ - $ - $1,402,279
Intersegment Revenues 456,536 - - - 456,536 - (456,536) -
Segment Profit (Loss)
Before Taxes 83,317 102,754 (2,729) 24,136 207,478 (1,305) - 206,173
Total Segment Assets
at March 31, 1999 $5,081,083 $3,897,368 $46,876 $789,840 $9,815,167 $30,981 $ - $9,846,148
1998
All Reconciling
Cinergy Business Units Other Eliminations
ECBU EDBU CIBU IBU Total (1) (2) Consolidated
-------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
External Customers $ 502,098 $ 832,452 $13,765 $ 146 $ 1,348,461 $ - $ - $ 1,348,461
Intersegment Revenues 434,931 - - - 434,931 - (434,931) -
Segment Profit (Loss)
Before Taxes 91,153 90,572 (3,268) (961) 177,496 (11,554) - 165,942
Total Segment Assets
at December 31,
1998 $5,474,428 $3,987,055 $42,107 $751,861 $10,255,451 $ 43,344 $ - $10,298,795
1. The all other category represents miscellaneous corporate items, which are
not allocated to business units for the purposes of segment profit
measurement.
2. The reconciling eliminations category eliminates the intersegment revenues
of the ECBU and the EDBU.
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"Item 2. "Management'sManagement'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. Forward-looking statements
involve risks and uncertainties which may cause actual results to differ
materially from the forward-looking statements. 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--suchoperations, such as unusual weather conditions,
unscheduled generation outages; unusual maintenance or repairs, or unanticipated
changes in fuel costs;costs, environmental incidents, or system constraints;
legislative and regulatory initiatives regarding deregulation and restructuring
of the industry; increased competition in the electric and gas utility
environment; challenges related to Year 2000 readiness; regulatory factors, including the failure to obtain anticipated regulatory
approvals;factors;
changes in accounting principles or policies; adverse political, legal, or
economic conditions; changing market conditions; success of efforts to invest in
and develop new opportunities in non-traditional business; availability or cost
of capital; employee workforce factors; legal and regulatory delays and other
obstacles associated with mergers, acquisitions, and investments in joint
ventures; costs and effects of legal and administrative proceedings; changes in
legislative requirements; and other risks. The SEC'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
Acquisitions In June 1998,During the first quarter of 1999, Cinergy, 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.
In June 1998, a subsidiary of Cinergy Global Power acquired Moravske, a 410 MW
district heating plantits
international subsidiaries, invested an additional $41 million in the Czech Republic. In addition, in September 1998, a
subsidiary of Cinergy Global Power acquired a 406 MW district heating plant in
the city of Plzen, Czech Republic.
The purchase prices for these acquisitions were not material to Cinergy's
financial condition or results of operations.international
unconsolidated subsidiaries.
Competitive Pressures
Cinergy, CG&E, PSI, and ULH&P
Federal DevelopmentsOhio As discussed in the 19971998 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
introducedreintroduced in 1999 in both houses of the Ohio legislature during 1998.
This legislation, SB 237 and HB 732, "companion" electric restructuringGeneral Assembly. These
companion bills proposespropose to affordgive choice to all retail electric customers in Ohio beginningby
January 1, 2000. Legislative hearings2001. As written, the legislation has not gained consensus among the
stakeholders.
The Ohio Senate Ways and Means Committee has scheduled a vote on these bills occurred ina deregulation
bill during the spring and
summer. In addition, legislation to provide for securitizationsecond quarter of transition
costs through issuance of rate reduction bonds has been pending in Ohio since
1997.1999 with a full senate vote scheduled if a
bill is reported from committee. It is uncertain whether these pieces ofefforts will
produce 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.1999.
Indiana As also discussed in the 19971998 Form 10-K, HB 443legislation by a large group of
industrial customers was introduced into the KentuckyIndiana legislature in January
1999. This legislation did not pass in the 1999 session of the Indiana General
Assembly, in January 1998. HB 443 was not broughtwhich came 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 duringclose on April 1998.
Task force members will study electric restructuring in anticipation of the next
legislative session, which occurs in January 2000.29, 1999.
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 1610 of the "Notes to Financial Statements" in
"Part I. Financial Information."
Environmental Issues
Cinergy, CG&E, and PSI
Ambient Air StandardsOzone Transport Rulemaking As discussed in the 19971998 Form 10-K, duringin October 1998,
the EPA finalized its Ozone Transport Rule (or NOx SIP Call). It applies to 22
states in the eastern half of the US, including the three states in which the
Cinergy electric utilities operate, and also proposes a model NOx trading
program. This rule recommends that states reduce NOx emissions from primarily
industrial and utility sources to a certain limit by May 2003. The EPA gave the
affected states until September 30, 1999, to incorporate utility NOx reductions
with a trading program into their SIPs. Ohio, Indiana, a number of other states,
and various industry groups, including some of which Cinergy is a member, filed
legal challenges to the NOx SIP Call in late 1998. Ohio and Indiana have also
provided preliminary indications that they will seek fewer NOx reductions from
the utility sector in their implementing regulations than the EPA has budgeted
in its rulemaking.
On April 30, 1999, the EPA made an affirmative technical determination on the
February 1998 northeast state CAAA Section 126 petitions seeking to reduce ozone
in the eastern US. By affirming these Section 126 petitions the EPA makes a
finding that the named Midwest stationary sources (including all of Cinergy's
facilities) are significantly contributing to ozone problems in the northeast
for both the one- and eight-hour ozone standard. The EPA has stated that the
Section 126 petitions and the NOx SIP call requirements should be coordinated.
Therefore, the EPA will defer fully granting the relief sought by petitioners
until the affected states file their proposed SIPs in September 1999.
Ambient Air Standards and Regional Haze As discussed in the 1998 Form 10-K, in
1997, the EPA revised the National Ambient Air Quality Standards for ozone and
fine particulate matter. The EPA has also proposed, but not finalized,matter and was scheduled to finalize 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 toby
the EPA
proposed NOx rules. These 13 states and utility commentors proposed alternative
reduction strategiessummer of 1999. It is currently anticipated that would generally phase in NOx reductions by 65 percent
by 2002-2004, would determine by 2002 ifthe new ozone standard will
not require 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 bybeyond those resulting from the
affected states, industry, and other
stakeholders. Cinergy's initial estimate for compliance withNOx SIP Call discussed above.
The EPA finalized the new Ozone
Transport Rule is $500-$600 millionregional haze rules on April 22, 1999. These rules
established planning and emission reduction timelines for states to use to
improve visibility in capital expenditures between nownational parks throughout the US. The ultimate effect of
the new regional haze rules could be requirements for newer and 2003.
cleaner
technologies and additional controls on conventional particulates and/or
reductions in SO2 and NOx emissions from utility sources. If more utility
emissions reductions are required, the compliance cost could be significant. The
outcome or effects of the states' determination cannot currently be predicted.
Air Toxics As discussed in the 19971998 Form 10-K, the EPA was to announce, by April
15, 1998, its conclusions regarding the need for additional air toxics
regulations. In Aprilin November 1998, the EPA
announced that it wouldfinalized its Mercury ICR. Pursuant to the ICR, all generating units must
provide detailed information about coal use and mercury content. The EPA has
since selected about 100 generating units for one-time stack sampling, including
Cinergy's Gibson Unit No. 3 and the Wabash River Repowering Project. The EPA is
planning to make its regulatory determination on the need for additional
air toxics regulation by November 15,
1998.the fourth quarter of 2000. If more air toxics regulations are
issued, the compliance cost could be significant. Cinergy cannot predict theThe outcome or effects of the
EPA's determination.determination cannot currently be predicted.
MGP Sites See Note 116 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 127 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- 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 electricity,
natural gas, and other energy-related products. The Company utilizes
over-the-counter forward and option contracts for the purchase and sale of
electricity. The
Companyelectricity and also trades exchange-traded futures contracts. See Note 9Notes 4 and 5
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 lateThe
Company's market risks have not changed materially from the market risks
reported 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 the physical delivery of power to fulfill its
contractual obligations. The daily value-at-risk as of September 30, 1998 was
less than 3% of Cinergy's "Income Before Taxes" for the twelve months then
ended. The value-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 September 30, 1998, reflect the impacts of the events which
transpired in the Midwestern electric power markets during late June 1998.
Cinergy provides reserves as required for the 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. 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 September 30, 1998, approximately 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 September 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.Form 10-K.
Cinergy
Exchange Rate Sensitivity CinergyThe Company utilizes foreign exchange forward
contracts and currency swaps to hedge certain of its net investments in foreign
operations. See Note 9Notes 4 and 5 of the "Notes to Financial Statements" in "Part I.
Financial Information" for Cinergy'sthe Company's accounting policies for certain
derivative instruments. Cinergy'sThe Company's market risks have not changed materially
from the market risks reported in the 19971998 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 9Notes 4 and 5 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 19971998 Form 10-K.
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 203 of the "Notes to Financial
Statements" in "Part I. Financial Information."
On October 14, 1998,As of April 30, 1999, CG&E and 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'shave remaining state regulatory authority for
long-term debt issuances expired
in June 1998. CG&E is currently in the processissuance 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$200 million and sell
from time to time unsecured debt securities in an aggregate principal amount not
to exceed $400$30 million, outstanding at any time.respectively.
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 September 30,
1998,March 31, 1999,
were as follows:
Cinergy
Established
Lines Outstanding
(in millions)
Cinergy
Committed lines
Acquisition line $ 350160 $ 350160
Revolving line 600 -
Commercial paper - 301336
Uncommitted line 45 82*83*
Utility subsidiaries
Committed lines 300215 -
Uncommitted lines 360 81410 180
Pollution control notes 266 266267 267
Non-utility subsidiaries 125 105subsidiary 130 27
------ ------
Total $2,046 $1,185
CG&E
Established
Lines Outstanding
(in millions)
Committed lines $100 $ -
Uncommitted lines 190 46
Pollution control notes 184 184
---- ----
Total $474 $230
PSI
Established
Lines Outstanding
(in millions)
Committed lines $200 $ -
Uncommitted lines 170 35
Pollution control notes 82 82
---- ----
Total $452 $117$1,827 $1,053
* Excess over Established Line represents amount sold by dealers to other
investors.
CG&E
Established
Lines Outstanding
(in millions)
Committed lines $ 85 $ -
Uncommitted lines 215 105
Pollution control notes 184 184
---- ----
Total $484 $289
PSI
Established
Lines Outstanding
(in millions)
Committed lines $130 $ -
Uncommitted lines 195 75
Pollution control notes 83 83
---- ----
Total $408 $158
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. During July 1998, the
commercial paper program, was increasedwhich is limited 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. Approximately half of theThe proceeds from the commercial paper sales were used to reducefor general
corporate purposes.
The established committed lines for CG&E and PSI each include $75 million
designated as backup for certain of the acquisition
line to the quarter-end level of $350 million.uncommitted lines at March 31, 1999.
CG&E and PSI also have the capacity to issue commercial paper that must be
supported by committed lines of the respective company. Neither CG&E nor PSI
issued commercial paper during the thirdfirst 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 September 30, 1998. Regulatory authority
for1999.
Both CG&E and PSI excludeshave issued variable rate pollution control notes. Holders of
these pollution control notes have the Pollution Control Notes, whichright to put their notes on any business
day. Accordingly, these issuances 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 shownreflected in the above table) include $81Consolidated Balance
Sheets as "Notes payable and other short-term obligations."
Cinergy
Global Resources established a $100 million designated as backup for certain of the uncommitted lines at September 30, 1998.
Further, the committed lines are maintained by commitment fees.revolving credit agreement in 1998,
which was due to expire in March 1999 and has been extended to June 29, 1999.
Cinergy, CG&E, PSI, and ULH&P
Year 2000 The Year 2000 issue generally exists because many computer systems and
applications, including those embedded in equipment and facilities, use
two
digittwo-digit rather than four digitfour-digit date fields to designate an applicable year. As
a result, the systems and applications may not properly recognize dates
including and beyond the year 2000 or accurately process data in which includes it,such
dates are included, potentially causing data miscalculations orand inaccuracies or
operational malfunctions orand failures, which could materially affect Cinergy'sa
business's financial condition, or results of operations.operations, and cash flows.
Cinergy has established a centrally-managed, company-wide initiative, known as
the Cinergy Year 2000 Readiness Program, to identify, evaluate, and address Year
2000 issues. Cinergy'sThe Cinergy Year 2000 efforts,Readiness Program, which began in the fourth
quarter of 1996, is generally focused on three elements that are all encompassingintegral to
this initiative: (1) business continuity, (2) risk management, and include its(3)
regulatory compliance. Business continuity includes providing reliable electric
and gas supply and service in a safe and cost-effective manner. This element
encompasses mission-critical generation, transmission, and distribution systems
and related infrastructure.
Also within the scope of this initiative areinfrastructure, as well as operational and financial IT systems and
applications, end-user computing resources, and building systems such(such as
security, elevator, and heating and cooling systems. In addition, the
projectsystems). Risk management includes a
review of the Year 2000 readiness efforts of Cinergy's keycritical suppliers, andkey
customers and other principal business partners, and, as appropriate, the
development of joint business support, and continuitycontingency 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. Regulatory compliance includes communications with regulatory
agencies, other utilities, and various industry groups. While this initiative is
broad in scope, it has been structured to identify and prioritize efforts for
mission critical systems,mission-critical electric and gas systems and services and key business
partners.
Under its currentthe Cinergy Year 2000 plan,Readiness Program, Cinergy has established a target
date of June 30, 1999, for the remediation and testing of its mission-critical
generation, transmission, and distribution systems (gas and electric). One example of Cinergy'sAn
innovative remediation and testing efforts is the current operation of some of its generatingeffort which Cinergy has initiated involves
operating several electric-generating units with post Year 2000 dates. Cinergy's
experience has been that those units have continued to operate without any
material adverse result relating to a Year 2000 issue. Cinergy's progress to
date ranges from approximately 95% regarding IT systems to approximately 87%
regarding assessment of critical suppliers.
Cinergy has also reviewed its existing contingency and business continuity plans
and modified them in light of the Year 2000 issue. 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 have assessed 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.
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,public; the continued reliable delivery of gas and/or electricity,electricity; and the
ability to comply with applicable laws or regulations,
and revenues)regulations) will convert their
criticalmission-critical systems and processes in a timely manner. Failure or delay by
any of these third parties could significantly disrupt business. However, to
address this issue, Cinergy has established a supplier compliance program, and
is working with its keycritical suppliers in an effort to minimize such risks.
In addition, Cinergy is coordinating its findings and other issues with other
utilities and various industry groups via EPRI'sthe Electric Power Research Institute
Year 2000 Embedded Systems Project and with the Year 2000 Readiness Assessment
Program of the NERC, acting at the request of the U.S. DepartmentDOE. The DOE has asked NERC to
report on the integrity of Energy.
In additionthe transmission system for North America and to
coordinate and assess the preparation of the electric systems in North America
for the Year 2000. NERC submitted its initial quarterly status report and
coordination plan to the approximately $10 millionDOE in expenses incurred through
September 1998, and a second quarterly status
report for the fourth quarter of 1998 was submitted on January 11, 1999. A third
quarterly status report for the first quarter of 1999 was submitted on April 30,
1998, for matters historically identified as Year 2000-related,1999.
Cinergy currently estimates that it will incur additional expensesthe total cost for the inventory, assessment,
remediation, testing, and upgrading of approximately $3 million through the completionits systems as a result of the program. Cinergy's
progressYear 2000
effort is approximately $13 million. Approximately $12 million in expenses have
been incurred through March 31, 1999, for such things as external labor, for
hardware and software upgrades, and for Cinergy employees who are dedicated
full-time to date ranges from 80% for IT systems to approximately 40% regarding
assessment of critical vendors.the Cinergy Year 2000 Readiness Program. The timing of these
expenses may vary and is not necessarily indicative of readiness efforts or
progress to date. Cinergy anticipates that a portion of its Year 2000 expenses
will not be incremental costs, but rather, will represent the redeployment 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 arebusiness. These
costs have not being incurred sooner than originally plannedbeen accelerated as a result of the Year 2000 issue.
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 flow through to Cinergy's earnings as a result of such 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 reviewing 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'sabove information is a Year 2000 efforts are
forward-looking statements. Of necessity, this effort is based on estimates of
assessment, remediation, testing,Readiness Disclosure pursuant to the
Federal Year 2000 Information and contingency 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.Readiness Disclosure Act.
Cinergy
Other Commitments At March 31, 1999, Cinergy hashad issued performance$297 million in
guarantees primarily related to the energy marketing and trading activities of
its subsidiaries and affiliates. In addition, Cinergy had guaranteed $258
million of the debt guarantees to numerous
counterparties totaling approximately $421 million.securities of its subsidiaries and affiliates.
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" and Notes 4 and 5
of the "Notes to Financial Statements" 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
Manufactured Gas Plant Sites
See Notes 11 and 15Note 6 of the "Notes to Financial Statements" in "PartPart I. Financial
Information."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Cinergy
The annual meeting of shareholders of Cinergy was held April 21, 1999, in
Cincinnati, Ohio.
At the meeting, six Class II directors were elected to the board of Cinergy to
serve three-year terms, expiring in 2002, as set forth below:
Votes Votes
Class II For Withheld
Melvin Perelman, Ph.D. 128,436,454 2,555,756
Thomas E. Petry 128,566,730 2,425,480
Jackson H. Randolph 128,212,529 2,779,681
Mary L. Schapiro 128,329,336 2,662,874
Philip R. Sharp, Ph.D. 128,557,852 2,434,358
Dudley S. Taft 128,586,398 2,405,812
Also at the meeting, the following matters were submitted to a vote of security
holders:
Votes Votes Votes
Item For Against Abstain
Approval of Amended and Restated Cinergy
Corp. Retirement Plan for Directors 107,613,574 21,666,413 1,712,217
Approval of Cinergy Corp. Directors'
Equity Compensation Plan 112,705,936 16,438,145 1,848,122
Adoption of Amendment to Article III,
Section 3.1, of the Company's By-laws 127,811,378 4,740,599 1,979,187
CG&E
(a) In lieu of the annual meeting of shareholders of CG&E, a resolution was
duly adopted via unanimous written consent of CG&E's sole shareholder,
effective April 20, 1999.
(b) The following members of the Board of Directors were elected via unanimous
written consent of the sole shareholder of CG&E, in lieu of its annual
meeting, for one-year terms expiring in 2000:
Jackson H. Randolph
James E. Rogers
James L. Turner
PSI
(a) The annual meeting of shareholders of PSI was held April 21, 1999, in
Cincinnati, Ohio.
(b) Proxies were not solicited for the annual meeting, at which the Board of
Directors was re-elected in its entirety (see (c) below).
(c) The following members of the Board of Directors were unanimously re-elected
at the annual meeting for one-year terms expiring in 2000:
James K. Baker
Michael G. Browning
John A. Hillenbrand II
John M. Mutz
Jackson H. Randolph
James E. Rogers
ULH&P
Omitted pursuant to Instruction H(2)(b).
ITEM 5. OTHER INFORMATION
Cinergy and PSI
On October 28, 1998,April 20, 1999, the Company announced that Mary L. Schapiro has been
appointed to Cinergy's board, effective January 1, 1999. Ms. SchapiroJohn M. Mutz will fill the board vacancy resulting from the retirementretire May 31,
1999, as president of Van P. Smith.PSI. Mr. SmithMutz has served on Cinergy's boardas president of PSI since 1994 and has served on the PSI board
since 1986.October
1993.
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
4-A Base3-a By-laws of Cinergy, as amended on April 21, 1999.
4-a Indenture dated as of October 15, 1998, between Cinergy Global Resources and The Fifth Third Bank, as Trustee.
4-B First Supplemental IndentureTrustee, dated as
of OctoberApril 15, 1998,1999.
Cinergy and PSI
4-b #Fifty-second Supplemental Indenture between Cinergy Global ResourcesPSI and TheLaSalle National
Bank, as Trustee, dated as of April 30, 1999. (Exhibit to PSI's March
31, 1999, Form 10-Q in File No. 1-3543.)
4-c #Sixth Supplemental Indenture between PSI and Fifth Third Bank, as
Trustee.
Trustee, dated as of April 30, 1999. (Exhibit to PSI's March 31, 1999,
Form 10-Q in File No. 1-3543.)
Cinergy, CG&E, and PSI
10-A #Second10-a #First Amended and Restated Employment Agreement dated September 22,March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Cheryl M.
Foley. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
Exhibit
Designation Nature of Exhibit
10-b #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and William J.
Grealis. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
10-c #Employment Agreement dated July 1, 1998, between Cinergy, Cinergy
Services, Inc., CG&E, PSI, and M. Stephen Harkness. (Exhibit to
Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.)
10-d #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Donald B.
Ingle, Jr. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
10-e #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Madeleine W.
Ludlow. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
10-f #Employment Agreement dated July 1, 1998, between Cinergy, Cinergy
Services, Inc., CG&E, PSI, and William L. Sheafer. (Exhibit to
Cinergy's March 31, 1999, Form 10-Q in File No. 1-11377.)
10-g #Employment Agreement dated July 1, 1998, between Cinergy, Cinergy
Services, Inc., CG&E, PSI, and John P. Steffen. (Exhibit to Cinergy's
March 31, 1999, Form 10-Q in File No. 1-11377.)
10-h #Employment Agreement dated February 16, 1999, between Cinergy,
Cinergy Services, Inc., CG&E, PSI, and James E. Rogers.L. Turner. (Exhibit to
Cinergy's September 30, 1998,March 31, 1999, Form 10- Q10-Q in File No. 1-11377.)
10-i #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Charles J.
Winger. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
1-11377.)
10-j #First Amended and Restated Employment Agreement dated March 1, 1999,
between Cinergy, Cinergy Services, Inc., CG&E, PSI, and Larry E.
Thomas. (Exhibit to Cinergy's March 31, 1999, Form 10-Q in File No.
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 and
previously reported on Form 10-Q for the quarter ended June 30, 1998.March 31,
1999.
Date of Report Item Filed
Cinergy
July 15,December 31, 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 normal,
recurring adjustments and those adjustments discussed in Notes 9 and 14 of the
"Notes to Financial Statements" in "Part I. Financial Information")adjustments) necessary to reflect the results of operations for the
respective periods. The unaudited statements are subject to such adjustments as
the annual audit by independent public accountants may disclose to be necessary.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed by an
officer and the chief accounting officer on their behalf by the undersigned
thereunto duly authorized.
CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants
Date: November 12, 1998May 13, 1999 /s/John P. Steffen
--------------------------------------
John P. SteffenBernard F. Roberts
---------------------------------------
Bernard F. Roberts
Duly Authorized Officer
and
Chief Accounting Officer