UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 31,June 30, 2000
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______ to ______ ------------
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
----------- -------------------------------------------- ------------------
1-11377 CINERGY CORP. 31-1385023
(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
1-3543 PSI ENERGY, INC. 35-0594457
(An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(513) 287-2644
2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080
(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
--------------------------------------------
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
YESYes X NONo
--- ---
--------------------------------------------
This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas
& Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
The Union Light, Heat and Power Company meets the conditions set forth in
General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its
company specific information with the reduced disclosure format specified in
General Instruction H(2) of Form 10-Q.
---------------------------------------------
As of April 30,July 31, 2000, shares of Common Stock outstanding for each registrant were
as listed:
Registrant Description Shares
- --------------------------------------- --------------------------- ----------
Cinergy Corp. Par value $.01 per share 158,923,39958,923,399
The Cincinnati Gas & Electric Company Par value $8.50 per share 89,663,086
PSI Energy, Inc. Without par value, stated
value 53,913,701
$.01 per share 53,913,701
The Union Light, Heat and Power Company Par value $15.00 per share 585,333
Company---------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Item Page
Number Number
- -------------- -------
PART I FINANCIAL INFORMATION
1 Financial Statements ...............................................3
CINERGY CORP......................................................3................................................ 4
Cinergy Corp........................................................ 4
Consolidated Statements of Income...............................4Income................................. 5
Consolidated Balance Sheets.....................................5Sheets....................................... 6
Consolidated Statements of Changes in Common Stock Equity.......7Equity......... 8
Consolidated Statements of Cash Flows...........................8
THE CINCINNATI GASFlows............................. 10
The Cincinnati Gas & ELECTRIC COMPANY ............................9Electric Company .............................. 11
Consolidated Statements of Income and Comprehensive Income.....10Income........ 12
Consolidated Balance Sheets ...................................11
Consolidate...................................... 13
Consolidated Statements of Cash Flows...........................13Flows............................. 15
PSI ENERGY, INC..................................................14Energy, Inc..................................................... 16
Consolidated Statements of Income and Comprehensive Income.....15Income........ 17
Consolidated Balance Sheets ...................................16
Consolidate...................................... 18
Consolidated Statements of Cash Flows ..........................18
THE UNION LIGHT, HEAT AND POWER COMPANY .........................19............................ 20
The Union Light, Heat and Power Company ............................ 21
Statements of Income and Comprehensive Income..................20Income..................... 22
Balance Sheets.................................................21Sheets.................................................... 23
Statements of Cash Flows.......................................23Flows.......................................... 25
Notes to Financial Statements......................................24Statements........................................ 26
Cautionary Statements Regarding Forward-Looking Information........35Information.......... 40
2 Management's Discussion and Analysis of Financial Condition........37Condition and
Results of Operations Introduction.....................................................37
Liquidity........................................................37............................................ 42
Introduction........................................................ 42
Liquidity........................................................... 42
Capital Resources................................................38
First QuarterResources................................................... 43
2000 Quarterly Results of Operations - Historical................... 46
2000 Year to Date Results of Operations - Historical................ 50
2000 Results of Operations - Historical............41
Results of Operations - Future...................................46Future................................. 55
3 Quantitative and Qualitative Disclosures About Market Risk ........50.......... 60
PART II OTHER INFORMATION
1 Legal Proceedings..................................................51
4 Submission of Matters to a Vote of Security Holders................51Proceedings.................................................... 61
6 Exhibits and Reports on Form 8-K...................................538-K..................................... 62
Signatures ........................................................54.......................................................... 63
CINERGY CORP.
AND SUBSIDIARY COMPANIES
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended March 31Year To Date
June 30 June 30
2000 1999 (in2000 1999
- --------------------------------------------------------- --------------- -- --------------- --------------- -- ------------
(dollars in thousands, except per share amounts)
(unaudited)
Operating Revenues
Electric $1,066,697$1,250,353 $ 968,532942,093 $ 2,317,050 $1,910,625
Gas 498,728 421,308491,627 328,667 990,355 749,975
Other 17,652 12,439
---------- ----------27,534 4,639 45,186 17,078
--------------- -- --------------- --------------- -- -------------
Total Operating Revenues 1,583,077 1,402,2791,769,514 1,275,399 3,352,591 2,677,678
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
Operating Expenses
Fuel and purchased and exchanged power 500,778 433,169700,552 451,066 1,201,330 884,235
Gas purchased 406,145 334,402449,806 293,513 855,951 627,915
Operation and maintenance 245,423 244,548290,080 236,432 535,503 480,980
Depreciation and amortization 90,135 86,47793,311 88,201 183,446 174,678
Taxes other than income taxes 66,131 69,534
---------- ----------68,458 69,077 134,589 138,611
--------------- -- --------------- --------------- -- -------------
Total Operating Expenses 1,308,612 1,168,1301,602,207 1,138,289 2,910,819 2,306,419
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
Operating Income 274,465 234,149167,307 137,110 441,772 371,259
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
Equity in Earnings of Unconsolidated
Subsidiaries 1,842 44,6824,333 13,022 6,175 57,704
Miscellaneous - Net (2,503) (11,886)2,617 192 114 (11,694)
Interest 51,430 60,77253,113 60,781 104,543 121,553
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
Income Before Taxes 222,374 206,173121,144 89,543 343,518 295,716
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
Income Taxes 82,572 77,56444,754 29,120 127,326 106,684
Preferred Dividend Requirements
of Subsidiaries 1,363 1,364
----------- -----------1,275 1,365 2,638 2,729
=============== == =============== =============== == =============
Net Income $ 138,43975,115 $ 127,245
=========== ===========59,058 $ 213,554 $ 186,303
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
Average Common Shares Outstanding 158,923 158,746158,877 158,923 158,812
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
Earnings Per Common Share
Net Income $0.87 $0.80$ 0.47 $ 0.37 $ 1.34 $ 1.17
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
Earnings Per Common Share-Assuming Dilution
Net income $0.87 $0.80$ 0.47 $ 0.37 $ 1.34 $ 1.17
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
Dividends Declared Per Common Share $0.45 $0.45$ 0.45 $ 0.45 $ 0.90 $ 0.90
- --------------------------------------------------------- --------------- -- --------------- --------------- -- -------------
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31ASSETS
June 30 December 31
2000 1999
(unaudited)
- ------------------------------------------------------------------------ ------------------------- -------------------------
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 76,604102,274 $ 81,919
Restricted deposits 65815,961 628
Notes receivable 1,1215,062 481
Accounts receivable less accumulated provision for
doubtful accounts of $27,284$25,906 at March 31,June 30, 2000, 669,637 706,068
and $26,811 at December 31, 1999 897,562 706,068
Materials, supplies, and fuel - at average cost 174,986178,520 205,749
Prepayments and other 184,450 77,701
Energy risk management current assets 195,150589,163 131,145
Prepayments and other 94,235 77,701
---------- ----------------------------------- -------------------------
Total Current Assets 1,212,3911,972,992 1,203,691
- ------------------------------------------------------------------------ ------------------------- -------------------------
Utility Plant - Original Cost
In service
Electric 9,471,1409,543,587 9,414,744
Gas 834,411842,541 824,427
Common 189,897190,388 189,124
----------- ------------------------------------ -------------------------
Total 10,495,44810,576,516 10,428,295
Accumulated depreciation 4,337,3774,413,587 4,259,877
----------- ------------------------------------ -------------------------
Total 6,158,0716,162,929 6,168,418
Construction work in progress 289,390317,293 249,054
----------- ------------------------------------ -------------------------
Total Utility Plant 6,447,4616,480,222 6,417,472
- ------------------------------------------------------------------------ ------------------------- -------------------------
Other Assets
Regulatory assets 1,030,9011,005,820 1,055,012
Investments in unconsolidated subsidiaries 464,436473,292 358,853
Energy risk management non-current assets 40,65685,782 26,624
Other 556,895653,055 555,296
----------- ------------------------------------ -------------------------
Total Other Assets 2,092,8882,217,949 1,995,785
- ------------------------------------------------------------------------ ------------------------- -------------------------
Total Assets $ 9,752,74010,671,163 $ 9,616,948
=========== ==================================== =========================
- ------------------------------------------------------------------------ ------------------------- -------------------------
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31June 30 December 31
2000 1999
(unaudited)
- ------------------------------------------------------------------------- -------------------------- -------------------------
(dollars in thousands)
Current Liabilities
Accounts payable $ 604,275872,912 $ 734,937
Accrued taxes 261,265224,462 219,266
Accrued interest 46,98351,688 49,354
Long-term debt due within one year 32,475 31,000
Notes payable and other short-term obligations 639,321746,778 550,194
Long-term debt due within one year 31,871 31,000
Energy risk management current liabilities 173,452572,937 126,682
Other 82,674142,689 76,774
---------- ------------------------------------ -------------------------
Total Current Liabilities 1,839,8412,643,941 1,788,207
- ------------------------------------------------------------------------- -------------------------- -------------------------
Non-Current Liabilities
Long-term debt 2,988,2813,058,406 2,989,242
Deferred income taxes 1,160,3121,171,137 1,174,818
Unamortized investment tax credits 145,186142,821 147,550
Accrued pension and other postretirement
benefit costs 366,299385,898 355,917
Energy risk management non-current liabilities 145,126153,930 132,041
Other 288,370289,128 282,855
---------- ------------------------------------ -------------------------
Total Non-Current Liabilities 5,093,5745,201,320 5,082,423
- ------------------------------------------------------------------------- -------------------------- -------------------------
Total Liabilities 6,933,4157,845,261 6,870,630
- ------------------------------------------------------------------------- -------------------------- -------------------------
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,45781,354 92,597
- ------------------------------------------------------------------------- -------------------------- -------------------------
Common Stock Equity
Common Stock - $.01$0.01 par value;
authorized shares - 600,000,000; outstanding shares -
158,923,399 at March 31,June 30, 2000 and December 31, 1999 1,589 1,589
Paid-in capital 1,604,0961,612,572 1,597,554
Retained earnings 1,131,6951,135,703 1,064,319
Accumulated other comprehensive income (loss) (10,512)(5,316) (9,741)
---------- ------------------------------------ -------------------------
Total Common Stock Equity 2,726,8682,744,548 2,653,721
- ------------------------------------------------------------------------- -------------------------- -------------------------
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholders' Equity $9,752,740$10,671,163 $9,616,948
========== ==================================== =========================
- ------------------------------------------------------------------------- -------------------------- -------------------------
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Accumulated
Total
Other CommonTotal
Common Paid-in Retained Comprehensive Common Stock
Stock Capital Earnings Income/(Loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
Quarter Ended March 31,June 30, 2000
Balance at April 1, 2000 $1,589 $1,604,096 $1,131,695 $ (10,512) $2,726,868
Comprehensive income:
Net income 75,115 75,115
Other comprehensive income, net of tax effect of $(507)
Foreign currency translation adjustment 6,014 6,014
Unrealized gains (losses) on grantor and rabbi trusts (818) (818)
Total comprehensive income 80,311
Treasury shares reissued 5,546 5,546
Dividends on common stock (see page 5 for per share amounts) (71,114) (71,114)
Other 2,930 7 2,937
Ending balance at June 30, 2000 $1,589 $1,612,572 $1,135,703 $ (5,316) $2,744,548
======================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter Ended June 30, 1999
Balance at April 1, 1999 $1,588 $1,598,884 $1,001,034 $ (9,273) $2,592,233
Comprehensive income:
Net income 59,058 59,058
Other comprehensive income (loss), net of tax effect of $1,330
Foreign currency translation adjustment (1,581) (1,581)
Unrealized gain on grantor trust 495 495
------------
Total comprehensive income 57,972
Issuance of 106,267 shares of common stock-net 1 2,299 2,300
Treasury shares reissued 1,425 1,425
Dividends on common stock (see page 5 for per share amounts) (71,492) (71,492)
Other (2) (2)
----------------------------------------------------------------------
Ending balance at June 30, 1999 $1,589 $1,602,608 $ 988,598 $ (10,359) $ 2,582,436
======================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(Continued)
Accumulated
Other Total
Common Paid-in Retained Comprehensive Common Stock
Stock Capital Earnings Income/(Loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
Six Months Ended June 30, 2000
Balance at January 1, 2000 $1,589 $1,597,554 $1,064,319 $ (9,741) $2,653,721
Comprehensive income:
Net income 213,554 213,554
Other comprehensive income, (loss), net of tax effect of $534 138,439 138,439$27
Foreign currency translation adjustment (1,728) (1,728)4,286 4,286
Unrealized gains on grantor and rabbi trusts 957 957
--------139 139
------------
Total comprehensive income 137,668217,979
Treasury shares reissued 6,542 6,54212,088 12,088
Dividends on common stock (see page 45 for per share amounts) (71,077) (71,077)(142,191) (142,191)
Other 14 14
---------------------------------------------------------------------------------2,930 21 2,951
-------------------------------------------------------------------
Ending balance at March 31,June 30, 2000 $1,589 $1,604,096 $1,131,695 $(10,512) $2,726,868
====== ========== ========== ========= ==========$1,612,572 $1,135,703 $ (5,316) $2,744,548
- -----------------------------------------------------------------===================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
QuarterSix Months Ended March 31,June 30, 1999
Balance at January 1, 1999 $1,587 $1,595,237 $ 945,214 $ (807) $2,541,231
Comprehensive income:
Net income 127,245 127,245186,303 186,303
Other comprehensive income (loss), net of tax effect of $1,762$3,092
Foreign currency translation adjustment (8,451) (8,451)(10,032) (10,032)
Unrealized gains (losses)gain on grantor and
rabbi trusts (15) (15)
----------trust 480 480
-----------
Total comprehensive income 118,779176,751
Issuance of 115,368221,635 shares of common stock-net 1 1,978 1,9792 4,277 4,279
Treasury shares purchased (233) (233)
Treasury shares reissued 1,902 1,9023,327 3,327
Dividends on common stock (see page 45 for per share amounts) (71,422) (71,422)(142,914) (142,914)
Other (3) (3)
------------------------------------------------------------------------(5) (5)
-------------------------------------------------------------------
Ending balance at March 31,June 30, 1999 $1,588 $1,598,884 $1,001,034$1,589 $1,602,608 $ (9,273) $2,592,233
====== ========== ========== ========= ==========988,598 $ (10,359) $2,582,436
===================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR TO DATE
March 31
Year to Date
June 30
2000 1999
- ----------------------------------------------------------------------------- --------------------- -- -------------------
(dollars in thousands)
(unaudited)
Operating Activities
Net income $138,439 $127,245$213,554 $186,303
Items providing or (using) cash currently:
Depreciation and amortization 90,135 86,477183,446 174,678
Deferred income taxes and investment tax credits-net (841) 12,8779,625 20,900
Unrealized (gain) loss from energy risk management activities (18,182) (23,000)(49,032) (20,000)
Equity in earnings of unconsolidated subsidiaries (1,842) (44,682)(6,175) (45,687)
Allowance for equity funds used during construction (902) (775)(3,100) (1,279)
Regulatory assets-net 6,853 5,14018,511 14,925
Changes in current assets and current liabilities:
Restricted deposits (30) (54)(15,333) 2,247
Accounts and notes receivable, 35,226 182,265net of reserves on receivables sold (197,566) 179,251
Materials, supplies, and fuel 30,763 21,77827,229 5,324
Accounts payable (130,662) (235,128)137,975 (152,402)
Accrued taxes and interest 39,628 1,0317,530 (25,136)
Other items-net (5,766) 9,478
--------- ---------(99,238) (25,319)
--------------------- -- -------------------
Net cash provided by operating activities 182,819 142,652227,426 313,805
- ----------------------------------------------------------------------------- --------------------- -- -------------------
Financing Activities
Change in short-term debt 89,127 149,111196,584 (66,516)
Issuance of long-term debt - 6,623123,189 522,097
Redemption of long-term debt (594) (116,000)(55,720) (455,657)
Retirement of preferred stock of subsidiaries (105) (20)(10,951) (29)
Issuance of common stock - 1,9794,279
Dividends on common stock (71,077) (71,422)
--------- ---------(142,191) (142,914)
--------------------- -- -------------------
Net cash provided by (used in) financing activities 17,351 (29,729)110,911 (138,740)
- ----------------------------------------------------------------------------- --------------------- -- -------------------
Investing Activities
Construction expenditures (less allowance for equity funds used during
construction) (106,984) (79,143)(215,519) (174,705)
Investments in unconsolidated subsidiaries (98,501) (41,282)
---------- ----------(102,463) (23,455)
--------------------- -- -------------------
Net cash used in investing activities (205,485) (120,425)(317,982) (198,160)
- ----------------------------------------------------------------------------- --------------------- -- -------------------
Net decreaseincrease (decrease) in cash and cash equivalents (5,315) (7,502)20,355 (23,095)
Cash and cash equivalents at beginning of period 81,919 100,154
--------- ------------------------------ -- -------------------
Cash and cash equivalents at end of period $ 76,604102,274 $ 92,652
========= =========77,059
===================== == ===================
- ----------------------------------------------------------------------------- --------------------- -- -------------------
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Quarter Ended March 31Year to Date
June 30 June 30
2000 1999 2000 1999
- ---------------------------------------------------------- --------------- -- --------------- --------------- --- --------------
(dollars in thousands)
(unaudited)
Operating Revenues
Electric $538,018 $481,586$646,973 $ 477,037 $1,184,991 $ 958,623
Gas 178,462 163,797
-------- --------59,598 53,548 238,060 217,345
---------------- --- ------------- ---------------- --- -------------
Total Operating Revenues 716,480 645,383706,571 530,585 1,423,051 1,175,968
- ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- -------------
Operating Expenses
Fuel and purchased and exchanged power 240,352 198,871339,176 216,255 579,528 415,126
Gas purchased 89,616 78,87824,246 20,428 113,862 99,306
Operation and maintenance 105,047 108,156123,038 100,221 228,085 208,377
Depreciation and amortization 50,993 50,57052,805 50,726 103,798 101,296
Taxes other than income taxes 49,931 54,114
-------- --------53,891 54,869 103,822 108,983
---------------- --- ------------- ---------------- --- -------------
Total Operating Expenses 535,939 490,589593,156 442,499 1,129,095 933,088
- ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- -------------
Operating Income 180,541 154,794113,415 88,086 293,956 242,880
- ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- -------------
Miscellaneous - Net (1,973) (1,261)962 637 (1,011) (624)
Interest 25,749 24,407
-------- --------23,724 24,571 49,473 48,978
- ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- -------------
Income Before Taxes 152,819 129,12690,653 64,152 243,472 193,278
- ---------------------------------------------------------- ---------------- --- ------------- ---------------- --- -------------
Income Taxes 56,855 48,889
--------- ---------34,772 25,230 91,627 74,119
---------------- --- ------------- ---------------- --- -------------
Net Income $ 95,96455,881 $ 80,23738,922 $ 151,845 $ 119,159
Preferred Dividend Requirement 213212 214 --------- ---------425 428
---------------- --- ------------- ---------------- --- -------------
Net Income Applicable to Common Stock $ 95,75155,669 $ 80,02338,708 $ 151,420 $ 118,731
Other Comprehensive Income (Loss), Net of Tax - - --------- ---------- -
---------------- --- ------------- ---------------- --- -------------
Comprehensive Income $ 95,75155,669 $ 80,023
========= =========38,708 $ 151,420 $ 118,731
================ === ============= ================ === =============
- ---------------------------------------------------------- ---------------- --- -------------- ---------------- --- ------------
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial
statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31ASSETS
June 30 December 31
2000 1999
(unaudited)
- --------------------------------------------------------------------------- -------------------- --------------------
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 4,186 $ 9,554
14,937
Restricted deposits 110 132
Notes receivable from affiliated companies 41,772 -
Accounts receivable less accumulated provision for
doubtful accounts of $17,386$16,836 at March 31,June 30, 2000,
and $16,740 at December 31, 1999 196,271254,595 279,591
Accounts receivable from affiliated companies 80,6386,534 12,718
Materials, supplies, and fuel - at average cost 85,74598,268 98,999
Prepayments and other 86,145 35,527
Energy risk management current assets 95,145291,424 63,926
Prepayments and other 44,673 35,527
---------- ------------------------------ --------------------
Total Current Assets 506,768793,785 500,447
- --------------------------------------------------------------------------- -------------------- --------------------
Utility Plant-OriginalPlant - Original Cost
In service
Electric 4,898,9334,932,286 4,875,633
Gas 834,411842,541 824,427
Common 189,897190,388 189,124
--------- ----------------------------- --------------------
Total 5,923,2415,965,215 5,889,184
Accumulated depreciation 2,322,8822,365,909 2,279,587
--------- ----------------------------- --------------------
Total 3,600,3593,599,306 3,609,597
Construction work in progress 175,402184,959 153,229
--------- ----------------------------- --------------------
Total Utility Plant 3,775,7613,784,265 3,762,826
- --------------------------------------------------------------------------- -------------------- --------------------
Other Assets
Regulatory assets 526,754516,720 536,224
Energy risk management non-current assets 9,95332,657 7,368
Other 125,881133,019 109,753
---------- ------------------------------ --------------------
Total Other Assets 662,588682,396 653,345
- --------------------------------------------------------------------------- -------------------- --------------------
Total Assets $4,945,117$5,260,446 $4,916,618
========== ============================== ====================
- --------------------------------------------------------------------------- -------------------- --------------------
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial
statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31June 30 December 31
2000 1999
(unaudited)
- --------------------------------------------------------------------------- -------------------- --------------------
(dollars in thousands)
Current Liabilities
Accounts payable $ 220,540343,530 $ 253,115
Accounts payable to affiliated companies 29,78530,001 65,256
Accrued taxes 165,117145,632 136,118
Accrued interest 10,83217,900 17,375
Notes payable and other short-term obligations 233,812263,730 234,702
Notes payable to affiliated companies 54,0518,929 60,360
Energy risk management current liabilities 82,891281,973 60,478
Other 26,66730,411 25,468
---------- ------------------------------ --------------------
Total Current Liabilities 823,6951,122,106 852,872
- --------------------------------------------------------------------------- -------------------- --------------------
Non-Current Liabilities
Long-term debt 1,206,0021,206,089 1,205,916
Deferred income taxes 722,721730,984 720,168
Unamortized investment tax credits 103,120101,585 104,655
Accrued pension and other postretirement
benefit costs 156,993159,699 154,718
Energy risk management non-current liabilities 58,49360,657 57,644
Other 152,159155,409 140,794
---------- ------------------------------ --------------------
Total Non-Current Liabilities 2,399,4882,414,423 2,383,895
- --------------------------------------------------------------------------- -------------------- --------------------
Total Liabilities 3,223,1833,536,529 3,236,767
- --------------------------------------------------------------------------- -------------------- --------------------
Cumulative Preferred Stock
Not subject to mandatory redemption 20,60620,496 20,686
- --------------------------------------------------------------------------- -------------------- --------------------
Common Stock Equity
Common Stock-$8.50 par value;
authorizedAuthorized shares-120,000,000; outstanding shares-89,663,086 at March 31,June
30, 2000 and December 31, 1999 762,136 762,136
Paid-in capital 562,863562,881 562,851
Retained earnings 377,295379,370 335,144
Accumulated other comprehensive income (loss) (966) (966)
---------- ------------------------------ --------------------
Total Common Stock Equity 1,701,3281,703,421 1,659,165
- --------------------------------------------------------------------------- -------------------- --------------------
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholder's Equity $4,945,117$5,260,446 $4,916,618
========== ============================== ====================
- --------------------------------------------------------------------------- -------------------- --------------------
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial
statements.
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR TO DATE
March 31
Year to Date
June 30
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
Operating Activities
Net income $ 95,964151,845 $ 80,237119,159
Items providing or (using) cash currently:
Depreciation and amortization 50,993 50,570103,798 101,296
Deferred income taxes and investment tax credits-net 1,660 8,7958,378 2,660
Unrealized (gain) loss from energy risk management activities (10,542) (11,500)(28,280) (10,000)
Allowance for equity funds used during construction (734) (775)(2,646) (1,284)
Regulatory assets-net 4,182 4,4968,085 6,276
Changes in current assets and current liabilities:
Accounts and notes receivable, 12,569 80,619net of reserves on receivables sold (11,302) 142,297
Materials, supplies, and fuel 13,254 21,131731 10,290
Accounts payable (68,046) (89,741)55,160 (64,597)
Accrued taxes and interest 22,456 (20,010)10,039 (28,310)
Other items-net (9,900) (1,938)
-------- ---------(53,128) (12,447)
---------------------------------------------------
Net cash provided by operating activities 111,856 121,884242,680 265,340
- ------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Change in short-term debt (7,199) 86,977(22,403) 69,436
Redemption of long-term debt - (110,000)
Retirement of preferred stock (68) (17)(160) (26)
Dividends on preferred stock (214) (214)(425) (428)
Dividends on common stock (53,600) (71,400)
-------- ---------(107,200) (142,900)
---------------------------------------------------
Net cash used in financing activities (61,081) (94,654)(130,188) (183,918)
- ------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Construction expenditures (less allowance for equity funds used during
construction) (56,143) (36,363)
-------- ---------(107,109) (87,741)
---------------------------------------------------
Net cash used in investing activities (56,143) (36,363)(107,109) (87,741)
- ------------------------------------------------------------------------------------------------------------------------------
Net decreaseincrease (decrease) in cash and cash equivalents (5,368) (9,133)5,383 (6,319)
Cash and cash equivalents at beginning of period 9,554 26,989
-------- ------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,18614,937 $ 17,856
======== =========20,670
===================================================
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these consolidated financial
statements.
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
QUARTER ENDED
March 31
Quarter Ended Year to Date
June 30 June 30
2000 1999 2000 1999
- ------------------------------------------------------- ------------------ -- --------------- ---------------- --- --------------
(dollars in thousands)
(unaudited)
Operating Revenues
Electric $533,752 $482,465$619,760 $463,486 $1,153,512 $945,951
- ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- -------------
Operating Expenses
Fuel and purchased and exchanged power 271,429 234,927397,807 237,157 669,236 472,084
Operation and maintenance 111,075 113,240124,138 117,240 235,213 230,480
Depreciation and amortization 34,960 33,74335,001 34,121 69,961 67,864
Taxes other than income taxes 14,609 14,488
-------- --------13,800 14,269 28,409 28,757
------------------ -- --------------- ---------------- ---- -------------
Total Operating Expenses 432,073 396,398570,746 402,787 1,002,819 799,185
- ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- -------------
Operating Income 101,679 86,06749,014 60,699 150,693 146,766
- ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- -------------
Miscellaneous - Net (859) 3231,342 375 483 698
Interest 20,084 21,36419,769 20,496 39,853 41,860
- ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- -------------
Income Before Taxes 80,736 65,026
--------- ---------30,587 40,578 111,323 105,604
- ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- -------------
Income Taxes 30,523 25,185
--------- ---------11,671 14,998 42,194 40,183
------------------ -- --------------- ---------------- ---- -------------
Net Income $ 50,21318,916 $ 39,84125,580 $ 69,129 $ 65,421
Preferred Dividend Requirement 1,150 1,150
--------- ---------1,063 1,151 2,213 2,301
------------------ -- --------------- ---------------- ---- -------------
Net Income Applicable to Common Stock $ 49,06317,853 $ 38,69124,429 $ 66,916 $ 63,120
Other Comprehensive Income (Loss), Net of Tax 632 (15)
---------- ---------(597) 495 35 480
------------------ -- --------------- ---------------- ---- -------------
Comprehensive Income $ 49,69517,256 $ 38,676
========== =========24,924 $ 66,951 $ 63,600
================== == =============== ================ ==== =============
- ------------------------------------------------------- ------------------ -- --------------- ---------------- ---- ------------
The accompanying notes as they relate to PSI Energy, Inc.are an integral part of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
2000 1999
(unaudited)
- --------------------------------------------------------------------------- -------------------- --------------------
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 4,076 $ 8,842
Restricted deposits 155 -
Notes receivable 581 481
Notes receivable from affiliated companies 8,929 60,360
Accounts receivable less accumulated provision for doubtful accounts
of $9,069 at June 30, 2000, and $9,934 at December 31, 1999 264,276 253,022
Accounts receivable from affiliated companies 6,745 42,715
Materials, supplies, and fuel - at average cost 76,707 103,490
Prepayments and other 76,691 36,173
Energy risk management current assets 291,423 63,927
-------------------- --------------------
Total Current Assets 729,583 569,010
- --------------------------------------------------------------------------- -------------------- --------------------
Electric Utility Plant-Original Cost
In service 4,611,301 4,539,111
Accumulated depreciation 2,047,678 1,980,290
-------------------- --------------------
Total 2,563,623 2,558,821
Construction work in progress 132,334 95,825
-------------------- --------------------
Total Electric Utility Plant 2,695,957 2,654,646
- --------------------------------------------------------------------------- -------------------- --------------------
Other Assets
Regulatory assets 489,100 518,788
Energy risk management non-current assets 32,657 7,368
Other 96,556 85,024
-------------------- --------------------
Total Other Assets 618,313 611,180
- --------------------------------------------------------------------------- -------------------- --------------------
Total Assets $4,043,853 $3,834,836
==================== ====================
- --------------------------------------------------------------------------- -------------------- --------------------
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31LIABILITIES AND SHAREHOLDER'S EQUITY
June 30 December 31
2000 1999
(unaudited)
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 23,917 $ 8,842
Restricted deposits 52 - Notes receivable 583 481
Notes receivable from affiliated companies 54,051 60,360
Accounts receivable less accumulated
provision for doubtful accounts of
$9,898 at March 31, 2000, and $9,934
at December 31, 1999 252,559 253,022
Accounts receivable from affiliated companies 3,118 42,715
Materials, supplies, and fuel - at average cost 85,686 103,490
Energy risk management current assets 95,145 63,927
Prepayments and other 39,905 36,173
----------- -------------
Total Current Assets 555,016 569,010
Electric Utility Plant-Original Cost
In service 4,572,207 4,539,111
Accumulated depreciation 2,014,495 1,980,290
---------- ----------
Total 2,557,712 2,558,821
---------- ----------
Construction work in progress 113,988 95,825
---------- ----------
Total Electric Utility Plant 2,671,700 2,654,646
Other Assets
Regulatory assets 504,147 518,788
Energy risk management non-current assets 9,953 7,368
Other 89,069 85,024
--------- ----------
Total Other Assets 603,169 611,180
Total Assets $3,829,885 $3,834,836
========== ==========
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31 December 31
2000 1999
(unaudited)--------------------------------------------------------------------------- -------------------- --------------------
(dollars in thousands)
Current Liabilities
Accounts payable $ 193,880274,580 $ 241,072
Accounts payable to affiliated companies 96,85122,749 6,762
Accrued taxes 89,52267,267 93,056
Accrued interest 22,88628,835 26,989
Notes payable and other short-term obligations 155,508132,858 232,597
Notes payable to affiliated companies -48,038 6,707
Long-term debt due within one year 31,871 31,000
Energy risk management current liabilities 82,891281,973 60,478
Other 2,4162,623 1,986
---------- ------------------------------ --------------------
Total Current Liabilities 675,825890,794 700,647
- --------------------------------------------------------------------------- -------------------- --------------------
Non-Current Liabilities
Long-term debt 1,210,9231,211,427 1,211,552
Deferred income taxes 457,484466,096 460,748
Unamortized investment tax credits 42,06641,236 42,895
Accrued pension and other postretirement benefit costs 133,463137,537 129,103
Energy risk management non-current liabilities 58,49365,854 57,645
Other 92,36583,223 104,638
--------- ----------------------------- --------------------
Total Non-Current Liabilities 1,994,7942,005,373 2,006,581
- --------------------------------------------------------------------------- -------------------- --------------------
Total Liabilities 2,670,6192,896,167 2,707,228
--------- ---------- --------------------------------------------------------------------------- -------------------- --------------------
Cumulative Preferred Stock
Not subject to mandatory redemption 71,85160,858 71,911
- --------------------------------------------------------------------------- -------------------- --------------------
Common Stock Equity
Common Stock-without par value; $.01 stated value;
authorized shares-
60,000,000;shares-60,000,000; outstanding shares-
53,913,701shares-53,913,701 at March 31,June
30, 2000 and December 31, 1999 539 539
Paid-in capital 411,220411,459 411,198
Retained earnings 673,633673,404 642,569
Accumulated other comprehensive income (loss) 2,0231,426 1,391
--------- ----------------------------- --------------------
Total Common Stock Equity 1,087,4151,086,828 1,055,697
- --------------------------------------------------------------------------- -------------------- --------------------
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholder's Equity $3,829,885$4,043,853 $3,834,836
========== ============================== ====================
- --------------------------------------------------------------------------- -------------------- --------------------
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR TO DATE
March 31
Year to Date
June 30
2000 1999
- -------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
Operating Activities
Net income $ 50,21369,129 $ 39,84165,421
Items providing or (using) cash currently:
Depreciation and amortization 34,960 33,74369,961 67,864
Deferred income taxes and investment tax credits-net (2,166) (3,476)5,517 6,578
Unrealized (gain) loss from energy risk management activities (10,542) (11,500)(23,081) (10,000)
Allowance for equity funds used during construction (168) -(454) 5
Regulatory assets-net 2,671 64410,426 8,649
Changes in current assets and current liabilities:
Restricted deposits (52) (54)(155) 2,247
Accounts and notes receivable, 48,533 85,834net of reserves on receivables sold 75,266 98,478
Materials, supplies, and fuel 17,804 (3,344)26,783 (9,838)
Accounts payable 42,897 (94,074)49,495 (74,698)
Accrued taxes and interest (7,637) 20,950(23,943) 15,510
Other items-net (7,214) 7,593
---------- ---------(45,554) 3,600
----------------------------------------------
Net cash provided by operating activities 169,299 76,157213,390 173,816
- -------------------------------------------------------------------------------------------------------------------------
Financing Activities
Issuance of long-term debt 53,075 323,593
Change in short-term debt (83,796) (15,419)(58,408) (74,641)
Redemption of long-term debt (150) (6,000)(55,276) (336,213)
Retirement of preferred stock (37)(10,791) (3)
Dividends on preferred stock (1,150) (1,150)(2,295) (2,301)
Dividends on common stock (18,000)(36,000) -
----------- --------------------------------------------------------
Net cash used in financing activities (103,133) (22,572)(109,695) (89,565)
- -------------------------------------------------------------------------------------------------------------------------
Investing Activities
Construction expenditures (less allowance for equity funds used during
construction) (51,091) (41,186)
----------- ----------(108,461) (83,797)
----------------------------------------------
Net cash used in investing activities (51,091) (41,186)(108,461) (83,797)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 15,075 12,399(4,766) 454
Cash and cash equivalents at beginning of period 8,842 18,788
---------- -------------------------------------------------------
Cash and cash equivalents at end of period $ 23,9174,076 $ 31,187
=========== =========19,242
==============================================
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
QUARTER ENDED
March 31
Quarter Ended Year to Date
June 30 June 30
2000 1999 2000 1999
- ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------
(dollars in thousands)
(unaudited)
Operating Revenues
Electric $49,288 $49,159$55,080 $48,581 $104,368 $ 97,740
Gas 33,487 33,000
------- -------11,060 9,084 44,547 42,084
--------------- -- --------------- --------------- --- ------------
Total Operating Revenues 82,775 82,15966,140 57,665 148,915 139,824
- ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------
Operating Expenses
Electricity purchased from parent company
for resale 35,211 36,748Purchased and exchanged power 39,929 36,842 75,140 73,590
Gas purchased 17,994 17,3224,988 3,561 22,982 20,883
Operation and maintenance 9,228 10,1909,466 8,685 18,694 18,875
Depreciation and amortization 3,736 3,5713,922 3,506 7,658 7,077
Taxes other than income taxes 1,098 1,083
------- -------1,025 1,027 2,123 2,110
--------------- -- --------------- --------------- --- ------------
Total Operating Expenses 67,267 68,91459,330 53,621 126,597 122,535
- ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------
Operating Income 15,508 13,2456,810 4,044 22,318 17,289
- ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------
Miscellaneous - Net (191) (390)(439) (299) (630) (689)
Interest 1,571 1,563
------- -------1,573 1,432 3,144 2,995
- ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------
Income Before Taxes 13,746 11,2924,798 2,313 18,544 13,605
- ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------
Income Taxes 5,600 4,749
-------- --------2,021 894 7,621 5,643
--------------- -- --------------- --------------- --- ------------
Net Income Applicable to Common Stock $ 8,1462,777 $ 6,5431,419 $ 10,923 $ 7,962
Other Comprehensive Income (Loss), Net of Tax - - -------- --------- -
--------------- -- --------------- --------------- --- ------------
Comprehensive Income $ 8,1462,777 $ 6,543
======== ========1,419 $ 10,923 $ 7,962
=============== == =============== =============== === ============
- ---------------------------------------------------------- --------------- -- --------------- --------------- --- ------------
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
March 31ASSETS
June 30 December 31
2000 1999
(unaudited)
- --------------------------------------------------------------------------------- ---------------- -----------------
(dollars in thousands)
Current Assets
Cash and cash equivalents $ 1,9004,668 $ 3,641
Accounts receivable less accumulated provision for
doubtful accounts of $1,500$1,415 at March 31,June 30, 2000, and $1,513 at
December 31, 1999 9,47610,554 17,786
Accounts receivable from affiliated companies 881276 775
Materials, supplies, and fuel - at average cost 3,2165,157 7,654
Prepayments and other 107548 219
-------- ------------------------- -----------------
Total Current Assets 15,58021,203 30,075
- --------------------------------------------------------------------------------- ---------------- -----------------
Utility Plant - Original Cost
In service
Electric 224,097226,330 222,035
Gas 177,034179,157 173,011
Common 42,45742,546 42,351
-------- ------------------------- -----------------
Total 443,588448,033 437,397
Accumulated depreciation 158,655162,224 154,607
-------- ------------------------- -----------------
Total 284,933285,809 282,790
Construction work in progress 14,63915,890 13,761
-------- ------------------------- -----------------
Total Utility Plant 299,572301,699 296,551
- --------------------------------------------------------------------------------- ---------------- -----------------
Other Assets
Regulatory assets 10,42010,335 10,639
Other 5,9285,345 5,000
-------- ------------------------- -----------------
Total Other Assets 16,34815,680 15,639
- --------------------------------------------------------------------------------- ---------------- -----------------
Total Assets $331,500$338,582 $342,265
======== ========================= =================
- --------------------------------------------------------------------------------- ---------------- -----------------
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31June 30 December 31
2000 1999
(unaudited)
- ---------------------------------------------------------------------------------------- ---------------- -----------------
(dollars in thousands)
Current Liabilities
Accounts payable $ 6,2794,846 $ 8,487
Accounts payable to affiliated companies 14,08822,001 20,122
Accrued taxes 6,8525,053 739
Accrued interest 5521,278 1,298
Notes payable to affiliated companies 19,13721,523 37,752
Other 5,2116,179 4,062
-------- ------------------------ -----------------
Total Current Liabilities 52,11960,880 72,460
- ---------------------------------------------------------------------------------------- ---------------- -----------------
Non-Current Liabilities
Long-term debt 74,56574,573 74,557
Deferred income taxes 21,94721,987 23,000
Unamortized investment tax credits 3,8923,822 3,961
Accrued pension and other postretirement benefit costs 12,49712,770 12,333
Amounts due to customers - income taxes 11,89511,896 11,308
Other 14,38914,656 12,596
-------- ------------------------ -----------------
Total Non-Current Liabilities 139,185139,704 137,755
- ---------------------------------------------------------------------------------------- ---------------- -----------------
Total Liabilities 191,304200,584 210,215
- ---------------------------------------------------------------------------------------- ---------------- -----------------
Common Stock Equity
Common Stock-$15.00 par value; authorized shares- 1,000,000;shares-1,000,000; outstanding
shares-
585,333shares-585,333 at March 31,June 30, 2000 and December 31, 1999 8,780 8,780
Paid-in capital 20,14220,141 20,142
Retained earnings 111,274109,077 103,128
-------- ------------------------ -----------------
Total Common Stock Equity 140,196137,998 132,050
- ---------------------------------------------------------------------------------------- ---------------- -----------------
Commitments and Contingencies (Note 4)
Total Liabilities and Shareholder's Equity $331,500$338,582 $342,265
======== ======================== =================
- ---------------------------------------------------------------------------------------- ---------------- -----------------
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
YEAR TO DATE
March 31
Year to Date
June 30
2000 1999
- ------------------------------------------------------------------------------- ------------------- ---- -------------------
(dollars in thousands)
(unaudited)
Operating Activities
Net income $10,923 $ 8,146 $ 6,5437,962
Items providing or (using) cash currently:
Depreciation and amortization 3,736 3,5717,658 7,077
Deferred income taxes and investment tax credits - net (536) (200)(565) (1,339)
Allowance for equity funds used during construction - 16(28) (48)
Regulatory assets - net 169 35203 69
Changes in current assets and current liabilities:
Accounts and notes receivable, 7,351 4,006net of reserves on receivables sold 7,298 7,801
Materials, supplies, and fuel 4,438 4,6012,497 2,114
Accounts payable (8,242) 1,422(1,762) 2,978
Accrued taxes and interest 5,367 2,8734,294 (36
Other items - net 3,514 4,286
-------- ---------4,474 3,244
------------------- ---- -------------------
Net cash provided by operating activities 23,943 27,15334,992 29,822
- ------------------------------------------------------------------------------- ------------------- ---- -------------------
Financing Activities
Change in short-term debt (18,615) (20,431)
--------- ---------(16,229) (11,347)
Dividends on common stock (4,975) (4,975)
Net cash used in financing activities (18,615) (20,431)(21,204) (16,322)
- ------------------------------------------------------------------------------- ------------------- ---- -------------------
Investing Activities
Construction expenditures (less allowance for equity funds
used during construction) (7,069) (4,973)
--------- ---------(12,761) (12,717)
------------------- ---- -------------------
Net cash used in investing activities (7,069) (4,973)(12,761) (12,717)
- ------------------------------------------------------------------------------- ------------------- ---- -------------------
Net increase (decrease) in cash and cash equivalents (1,741) 1,7491,027 783
Cash and cash equivalents at beginning of period 3,641 3,244
--------- ---------------------------- ---- -------------------
Cash and cash equivalents at end of period $ 1,9004,668 $ 4,993
========= =========4,027
=================== ==== ===================
- ------------------------------------------------------------------------------- ------------------- ---- -------------------
The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Presentation These Financial Statements reflect all adjustments (which
include normal, recurring adjustments) necessary in the opinion of the
registrants for a fair presentation of the interim results. These statements
should be read in conjunction with the Financial Statements and the notes
thereto included in the combined 1999 Form 10-K of the registrants.
Certain amounts in the 1999 Financial Statements have been reclassified to
conform to the 2000 presentation.
(b) Energy Marketing and Trading We market and trade electricity, natural gas,
and other energy-related products. We designate transactions as physical or
trading at the time they are originated. Physical refers to our intent and
projected ability to fulfill obligations from company-owned assets. We sell
generation to third parties when it is not required to meet native load
requirements (end-use customers within our operating companies' franchise
service territory). We account for physical transactions on a settlement basis
and trading transactions using the mark-to-market method of accounting. Under
the mark-to-market method of accounting, trading transactions are shown at fair
value in our consolidated balance sheetsConsolidated Balance Sheets as energyEnergy risk management assets -
current and non-current, and energyEnergy risk management liabilities - current and
non-current. We reflect changes in fair value resulting in unrealized gains and
losses in fuelFuel and purchased and exchanged power and gasGas purchased. We record
the revenues and costs for all transactions in our consolidated statementsConsolidated Statements of
incomeIncome when the contracts are settled. We recognize revenues in operatingOperating
revenues; costs are recorded in fuelFuel and purchased and exchanged power and gasGas
purchased.
Although we intend to settle physical sales contracts with company-owned
generation, there are times when we have to settle these contracts with power
purchased on the open trading markets. The cost of these purchases could be in
excess of the associated revenues. We recognize the gains or losses on these
transactions as the power is delivered. Open market purchases may occur for some
of the following reasons:
*o generating station outages;
*o least-cost alternative;
*o native load requirements; and
*o extreme weather.
We value contracts in the trading portfolio using end-of-the-period market
prices, utilizing the following factors (as applicable):
*o closing exchange prices (that is, closing prices for standardized
electricity products traded on an organized exchange such as the New
York Mercantile Exchange);
*o broker-dealer and over-the-counter price quotations; and
*o model pricing (which considers time value and historical volatility
factors of electricity pricing underlying any options and contractual
commitments).
We anticipate that some of these obligations, even though considered trading
contracts, will ultimately be settled using company-owned generation. The cost
of this generation is usually below the market price at which the trading
portfolio has been valued.
Earnings volatility resultsmay occur from period to period due to the risks associated
with marketing and trading electricity, natural gas, and other energy-related
products.
(c) Financial Derivatives We use derivative financial instruments to manage: (1)
funding costs; (2) exposures to fluctuations in interest rates; and (3)
exposures to foreign currency exchange rates. These financial instruments must
be designated as a hedge (for example, an offset of foreign exchange or interest
rate risks) at the inception of the contract and must be effective at reducing
the risk associated with the underlying instrument. An underlying instrument is
one that gives rise to the derivative financial instrument, for example, a
foreign currency denominated contract. Accordingly, changes in the market values
of instruments designated as hedges must be highly correlated with changes in
the market values of the underlying instrument.
From time to time, we may utilize foreign exchange forward contracts (for
example, a contract obligating one party to buy, and the other to sell, a
specified quantity of a foreign currency for a fixed price at a future date) and
currency swaps (for example, a contract whereby two parties exchange principal
and interest cash flows denominated in different currencies) to hedge certain of
our net investments in foreign operations. Accordingly, any translation gains
and losses are recorded in accumulatedAccumulated other comprehensive income (loss), which
is a component of Common stock equity. Aggregate translation losses related to
these instruments are reflected net in currentCurrent liabilities in our Consolidated
Balance Sheets. At March 31,June 30, 2000, no such instruments were held.
We also use interest rate swaps (an agreement by two parties to exchange
fixed-interest rate cash flows for floating-interest rate cash flows). We use
the accrual method to account for these interest rate swaps. Accordingly, gains
and losses are calculated based on the difference between the fixed-rate and the
floating-rate interest amounts, using agreed upon principal amounts. These gains
and losses are recognized in our Consolidated Statements of Income as a
component of Interest over the life of the agreement.
(d) Accounting Changes During the second quarter of 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133). This standard requires companies to record derivative
instruments as assets or liabilities, measured at fair value. Changes in the
derivative's fair value must be recognized currently in earnings unless specific
hedge accounting criteria are met. Hedges are transactions entered into for the
purpose of reducing exposure to one or more types of business risk. Gains and
losses on derivatives that qualify as hedges can offset related results on the
hedged item in the income statement.
This standard, as subsequently amended byIn June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB Statement No.133 (Statement 137), is. Statement 137
deferred the effective date of Statement 133 by one year. As a result, Statement
133 will be effective for fiscal years beginning after June 15, 2000.
The purposeStatement of Financial Accounting Standards No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement 137No. 133 (Statement 138) was to delayissued in June 2000. Statement 138
addresses implementation issues and reflects decisions of the effective dateFASB regarding
recommendations of Statement 133 by one year.the FASB-sponsored Derivatives Implementation Group.
We expect to reflect the adoption of this standardStatement 133 in financial statements
issued beginning in the first quarter of 2001. In recognition of the complexity
of this new standard, the Derivatives Implementation Group has been formed by
the FASB. In preparation for our
implementation of this new standard, we have formed a cross-functional project
team. The project team is identifying and analyzing all contracts which could be
subject to the new standard, developing required documentation, defining
relevant processes and information systems needs, and promoting internal
awareness of the requirements and potential effects of the new standard. While
we continue to analyze and follow the development of implementation guidelines,
at this time we are unable to predict whether the implementation of this
accounting standard will be material to our results of operations and financial
position. However, the adoption of Statement 133 could increase the likelihood
of volatility in earnings and other comprehensive income.
2. Change in Preferred Stock of Subsidiaries
On January 14, 2000,The following represents the changes during the year in preferred stock of The
Cincinnati Gas & Electric Company (CG&E) repurchased
700 shares of its 4 3/4% Series Cumulative Preferred Stock at a redemption price
of $84.21 per share. On February 18, 2000,and PSI Energy, Inc. (PSI) repurchased:
- --------------------------------------------------------------------------------
Shares
Registrant Quarter Series Redeemed Par Value
- ---------- ------- ------- ----------------- ------------------
CG&E First 43/4% 800 $ 80,000
Second 43/4% 1,100 110,000
PSI First 31/2% 600 shares of its 3 1/$ 60,000
Second 31/2% Series Cumulative Preferred Stock at a redemption price
of $62 per share.1,184 118,400
6.875% 105,150 10,515,000
4.32% 14,380 359,500
- --------------------------------------------------------------------------------
3. Long-Term Debt
On February 15, 2000, PSI retired $150,000 principal amount of its Series YY
First Mortgage Bonds.
On May 16, 2000, PSI issued $44,025,000 of Indiana Development Finance Authority
Environmental Refunding Revenue Bonds Series 2000A, due May 1, 2035 and
$10,000,000 of Indiana Development Finance Authority Environmental Refunding
Revenue Bonds Series 2000B, due April 1, 2022. The initial interest rates on the
Series 2000A and Series 2000B bonds were 4.65% and 4.70%, respectively. The
rates reset every 35 days.
The proceeds from these issuances were used to pay a portion of the cost of
refunding the $29,795,000 principal amount outstanding of PSI's First Mortgage
Bonds, Series YY, the $14,250,000 principal amount outstanding of its First
Mortgage Bonds, Series UU, and the $10,000,000 principal amount outstanding of
its First Mortgage Bonds, Series TT, each at a redemption price of 102% of the
principal amount thereof, plus accrued interest.
4. Commitments and Contingencies
(a) Ozone Transport RulemakinGRulemaking
(i) NOxNOX SIP Call Ozone transport refers to the alleged wind-blown movement
of ozone or ozone-causing materials across city and state boundaries. As
discussed in the 1999 Form 10-k,10-K, in October 1998, the United States
Environmental Protection Agency (EPA) finalized its ozone transport rule, also
known as the NOxNOX SIP call.Call. (A SIP is a state's implementation plan for achieving
emissions reductions to address air quality concerns.) It applied to 22 states
in the eastern half of the United States (U.S.), including the three states in
which our electric utilities operate, and also proposes a model nitrogen oxide
(NOx)(NOX) emission allowance trading program. If implemented by the states, the
trading program would allow us to buy NOxNOX emission allowances from, or sell noxNOX
emission allowances to, other companies as necessary. This rule recommendsrecommended that
states reduce NOxNOX emissions primarily from industrial and utility sources to a
certain level by May 2003. The EPA gave the affected states until September 30,
1999, to incorporate NOxNOX reductions and, in the discretion of the state, a
trading program into their SIPs. The EPA proposed to implement a federal plan to
accomplish the equivalent NOxNOX reductions by May 2003, if states failed to revise
their SIPs. The EPA must approve all SIPs. Ohio, Indiana, a number of other
states, and various industry groups (some of which we are a member) filed legal
challenges to the NoxNOX SIP Call in late 1998. On May 25, 1999, the U.S. Circuit
Court of Appeals for the District of Columbia (Court of Appeals) granted a
request for a deferral of the rule and indefinitely suspended the September 30
filing deadline, pending further review by the Court of Appeals.
In March 2000, the Court of Appeals substantially upheld the EPA's rule. On
April 11, 2000, the EPA asked the Court of Appeals to remove its May 25, 1999,
suspension of the rule and also directed the states to submit SIP revisions by
September 1, 2000. On April 17, 2000, various states and industry groups (some
of which we are a member) filed a request with the courtCourt of appealsAppeals for a
rehearing of the NOxNOX SIP Call decisions. On April 24, 2000, the same group filed
a request with the Court of Appeals to (1) obtain more time to file their SIPs,
and (2) require rulemaking and a comment period
to determine a new compliance date. Nevertheless,The states also filed a request to obtain
more time to file their SIPs. On June 23, 2000, the Court of Appeals denied both
requests and directed the states to submit their SIP revisions by October 30,
2000. The states and other groups have appealed the Court of Appeals ruling to
the U.S. Supreme Court (Supreme Court). Pending determination of whether the
Supreme Court will hear the appeal, the states will have to begin adopting new
regulations requiring implementation of the requirements of the October 1998
ozone transport rulemaking this year.
We estimate the capital expenditures for compliance with the NOxNOX SIP Call at
$500 million to $700 million (in 1999 dollars) byto meet the May 2003.2003 deadline.
This estimate depends on several factors, including:
*o final determination regarding both the timing and strictness of the
final NOxNOX reductions required by the SIPs adopted by the states in
which we operate;
*o utilization of our generating units;
*o availability of adequate supplies of materials and labor to construct
the necessary control equipment; and
*o whether a viable market will exist to buy and sell NOxNOX allowances.
(ii) Section 126 Petitions As discussed in the 1999 Form 10-K, in February
1998, the northeast states filed petitions seeking the EPA's assistance in
reducing ozone in the eastern U.S. under Section 126 of the Clean Air Act (CAA).
The EPA believes that Section 126 petitions allow a state to claim that another
state is contributing to its air quality problem and request that the EPA
require the upwind state to reduce its emissions.
In December 1999, the EPA granted four Section 126 petitions relating to NOxNOX
emissions. This ruling affects all of our Ohio and Kentucky facilities, as well
as some of our Indiana facilities, and requires us to reduce our NOxNOX emissions
to a certain level by May 2003. The EPAsEPA's action granting the Section 126
petitions has been appealed into the courtCourt of appeals.Appeals. In April 2000, the parties
to the appeal filed a proposed scheduling order, which if approved, would set
oral arguments in late 2000, with a court decision expected in the spring of
2001. We currently cannot predict the outcome of this proceeding. We do not
anticipate that any Section 126 rulesrulings will have any significant financial
impact in addition to that of the NOxNOX SIP Call.
(iii) State Ozone Plans asAs discussed in the 1999 Form 10-K, on November 15,
1999, the State of Indiana and the Commonwealth of Kentucky (along with
Jefferson County, Kentucky) jointly filed an amendment to their SIPs on how they
intend to bring the greater Louisville area, including Floyd and Clark Counties
in Indiana, into attainment with the one-hour ozone standard. The SIP amendments
call for, among other things, statewide NOxNOX reductions from utilities in
Indiana, Kentucky, and surrounding states whichstates. These rules are less stringent than
the EPA's NOxNOX SIP Call. The states of Indiana and Kentucky have committed to
adopt utility NOx controlNOX reduction rules by December 2000, thatwhich would require controls
be installed by May 2003. The states are waiting for further guidance from the EPA
on how the NOx SIP Call and the state rules should be coordinated. Since the
state rules are the legal mechanism through which the SIP requirements are
imposed on regulated facilities, weWe do not anticipate that the State NOxstate NOX rules will
have any significant financial impact in addition to that of the NOxNOX SIP Call.
(b) New Source Review (NSR) As discussed in the 1999 Form 10-K, the CAA's NSR
provisions require that a company obtain a pre-construction permit if it plans
to build a new stationary source of pollution or make a major change to an
existing facility unless the changes are exempt. In July 1998, the EPA requested
comments on proposed revisions to the NSR rules that would change NSR
applicability by eliminating exemptions contained in the current regulation. We
believe that if these changes are finalized, it will be significantly harder to
maintain our facilities without triggering the NSR permit requirements.
Since July 1999, CG&E and PSI have received requests from the EPA (Region 5),
under Section 114 of the CAA, seeking documents and information regarding
capital and maintenance expenditures at several of their respective generating
stations. These activities are part of an industry-wide investigation assessing
compliance with the NSR and the New Source Performance Standards (NSPS,
emissions standards that apply to new and changed units) of the CAA at electric
generating stations.
On September 15, 1999, and on November 3, 1999, the Attorneys Generalattorneys general of the
Statesstates of New York and Connecticut, respectively, issued letters notifying
Cinergy (Cinergy Corp. and all of its regulated and non-regulated subsidiaries)
and CG&E of their intent to sue under the citizens suit provisions of the CAA.
New York and Connecticut allege violations of the CAA by constructing and
continuing to operate a major change to CG&E's W.C. Beckjord Station (Beckjord)
without obtaining the required NSR pre-construction permits.
On November 3, 1999, the EPA sued a number of holding companies and electric
utilities, including Cinergy, CG&E, and PSI, in various U.S. District Courts.
The Cinergy, CG&E, and PSI suit alleges violations of the CAA at some of our
generating stations relating to NSR and NSPS requirements. The suit seeks (1)
injunctive relief to require installation of pollution control technology on
each of the generating units at Beckjord and PSI's Cayuga Generating Station
(Cayuga), and (2) civil penalties in amounts of up to $27,500 per day for each
violation.
On March 1, 2000, the EPA filed an amended complaint against Cinergy, CG&E, and
PSI. The amended complaint added the alleged violations of the NSR requirements
of the CAA contained in the notice of violation (NOV) filed by the EPA on
November 3, 1999. It also added claims for relief alleging violations of (1)
nonattainment NSR, (2) Indiana and Ohio SIPs, and (3) particulate matter
emission limits (as discussed in Note 4(d) on page 30)33). The amended complaint
seeks (1) injunctive relief to require installation of pollution control
technology on each of the generating units at Beckjord, Cayuga, and PSI's Wabash
River and Gallagher Generating Stations, and such other measures as necessary,
and (2) civil penalties in amounts of up to $27,500 per day for each violation.
We believe the allegations contained in the amended complaint are without merit
and plan to defend the suit vigorously in court. At this time, it is not
possible to determine the likelihood that the EPA will prevail on its claims or
whether resolution of this matter will have a material effect on our financial
condition. In addition, we cannot predict whether any additional allegations
will be added to this proceeding.
On March 1, 2000, the EPA also filed an amended complaint alleging violations of
the CAA relating to NSR, Prevention of Significant Deterioration (PSD), and Ohio
SIP requirements regarding a generating stationConesville Station, which is operated by the Columbus
Southern Power Company (CSP) and jointly-owned by CSP, The Dayton Power and
Light Company (DP&L), and CG&E. The EPA is seeking injunctive relief and civil
penalties of up to $27,500 per day for each violation. We believe the
allegations in the amended complaint are without merit. At this time, it is not
possible to determine the likelihood that the EPA will prevail on its claims or
whether resolution of this matter will have a material effect on our financial
condition.
On June 28, 2000, the EPA issued an NOV to Cinergy, CG&E, and PSI for alleged
violations of NSR, PSD, and SIP requirements at CG&E's Miami Fort Station and
PSI's Gibson Station. In addition, Cinergy and CG&E have been informed by DP&L,
the operator of J.M. Stuart Station (Stuart), that on June 30, 2000, the EPA
issued an NOV for alleged violations of NSR, PSD, and SIP requirements at this
station. CG&E owns 39% of Stuart. The NOVs indicated that the EPA may (1) issue
an order requiring compliance with the requirements of the SIP, or (2) bring a
civil action seeking injunctive relief and civil penalties of up to $27,500 per
day for each violation. At this time, it is not possible to determine the
likelihood that the EPA will prevail on its claims or whether resolution of this
matter will have a material effect on our financial condition.
(c) Manufactured Gas PlanTPlant (MGP) Sites
(i) GeneraLGeneral As discussed in the 1999 Form 10-K, prior to the 1950s, gas was
produced at MGP sites through a process that involved the heating of coal and/or
oil. The gas produced from this process was sold for residential, commercial,
and industrial uses.
(ii) PSI Coal tar residues, related hydrocarbons, and various metals
associated with MGP sites have been found at former MGP sites in Indiana,
including at least 21 sites which PSI or its predecessors previously owned. PSI
acquired four of the sites from Northern Indiana Public Service Company (NIPSCO)
in 1931. At the same time, PSI sold NIPSCO the sites located in Goshen and
Warsaw, Indiana. In 1945, PSI sold 19 of these sites (including the four sites
it acquired from NIPSCO) to the predecessor of the Indiana Gas Company, Inc.
(IGC). IGC later sold the site located in Rochester, Indiana, to NIPSCO.
IGC (in 1994) and NIPSCO (in 1995) both made claims against PSI. The basis of
these claims was that PSI is a Potentially Responsible Party with respect to the
21 MGP sites under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA). The claims further asserted that PSI is therefore
legally responsible for the costs of investigating and remediating the sites. In
August 1997, NIPSCO filed suit against PSI in federal court claiming recovery
(pursuant to CERCLA) of NIPSCO's past and future costs of investigating and
remediating MGP-related contamination at the Goshen MGP site.
In November 1998, NIPSCO, IGC, and PSI entered into a Site Participation and
Cost Sharing Agreement. The agreement allocated CERCLA liability for past and
future costs at seven MGP sites in Indiana among the three companies. As a
result of the agreement, NIPSCO's lawsuit against PSI was dismissed. The parties
have assigned lead responsibility for managing further investigation and
remediation activities at each of the sites to one of the parties. Similar
agreements were reached between IGC and PSI that allocate CERCLA liability at 14
MGP sites with which NIPSCO was not involved. These agreements conclude all
CERCLA and similar claims between the three companies related to MGP sites. The
parties continue to investigate and remediate the sites, as appropriate under
the agreements and applicable laws. The Indiana Department of Environmental
Management (IDEM) oversees investigation and cleanup of some of the sites.
PSI notified its insurance carriers of the claims related to MGP sites raised by
IGC, NIPSCO, and the IDEM. In April 1998, PSI filed suit in Hendricks County
Circuit Court in the State of Indiana against its general liability insurance
carriers. Among other matters, PSI requested a declaratory judgment that would
obligate its insurance carriers to (1) defend MGP claims against PSI, or (2) pay
PSI's costs of defense and compensate PSI for its costs of investigating,
preventing, mitigating, and remediating damage to property and paying claims
related to MGP sites. The case was moved to the Hendricks County Superior Court
1 on a request for a change of judge. The Hendricks County Superior Court 1 has
set the case for trial beginning in May 2001. It ordered the parties to meet
certain deadlines for discovery proceedings based upon this trial date. PSI
cannot predict the outcome of this litigation. Recently, PSI has been involved
in settlement discussions with some of the insurance carriers. At the present
time, PSI cannot predict either the progress or outcome of these discussions.
PSI has accrued costs for the sites related to investigation, remediation, and
groundwater monitoring for the work performed to date. The estimated costs for
such remedial activities are accrued when the costs are probable and can be
reasonably estimated. PSI does not believe it can provide an estimate of the
reasonably possible total remediation costs for any site before a remedial
investigation/feasibility study has been completed. To the extent remediation is
necessary, the timing of the remediation activities impacts the cost of
remediation. Therefore, PSI currently cannot determine the total costs that may
be incurred in connection with the remediation of all sites, to the extent that
remediation is required. According to current information, these future costs at
the 21 Indiana MGP sites are not material to our financial condition or results
of operations. As further investigation and remediation activities are performed
at these sites, the potential liability for the 21 MGP sites could be material
to our financial position or results of operations.
(iii) CG&E CG&E and its utility subsidiaries are aware of potential sites
where MGP activities have occurred at some time in the past. None of these sites
is known to present a risk to the environment. CG&E and its utility subsidiaries
have begun preliminary site assessments to obtain information about some of
these MGP sites.
(d) Other As discussed in the 1999 Form 10-K, on November 30, 1999, the EPA
filed an NOV and a NOVFinding of Violation (FOV) against Cinergy and CG&E alleging
that emissions of particulate matter at Beckjord exceeded the allowable limit.
The NOV indicated that the EPA may (1) issue an administrative penalty order, or
(2) file a civil action seeking injunctive relief and civil penalties of up to
$27,500 per day for each violation. The allegations contained in this NOV were
incorporated within the March 1, 2000, amended complaint, as discussed in Note
4(b) on page 28.30. On June 22, 2000, the EPA issued an NOV and an FOV alleging
additional particulate emission violations at Beckjord and offered us an
opportunity to meet and discuss the allegations and corrective measures. The
NOV/FOV indicated that the EPA may (1) issue an administrative compliance order,
(2) issue an administrative penalty order, or (3) bring a civil or criminal
action. We are currently unable to determine whether resolution of this matterthese matters
will have a material effect on our financial condition.
5. Financial Information by Business Segment
As discussed in the 1999 Form 10-K, during 1998, we adopted the requirements of
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information (Statement 131). Statement 131 requires
disclosures about reportable operating segments in annual and interim condensed
financial statements.
The Energy Commodities Business Unit (Commodities) operates and maintains our
domestic electric generating plants and some of our jointly-owned plants. It
also conducts the following activities: (1) wholesale energy marketing and
trading, (2) energy risk management, (3) financial restructuring services, and
(4) proprietary arbitrage activities. Commodities earns revenues from external
customers from its marketing, trading, and risk management activities.
Commodities earns intersegment revenues from the sale of electric power to the
Energy Delivery Business Unit (Delivery).
Delivery plans, constructs, operates, and maintains our operating companies'
transmission and distribution systems and provides gas and electric energy to
consumers. Delivery earns revenues from customers other than consumers primarily
by transmitting electric power through our transmission system. Delivery
currently receives all of its electricity from Commodities at a transfer price
based upon current regulatory ratemaking methodology.
The Cinergy Investments Business Unit (Cinergy Investments) primarily manages
the development, marketing, and sales of our non-regulated retail energy and
energy-related products and services. This is accomplished through various
subsidiaries and joint ventures. Cinergy Investments earns all of its revenues
from the sale of such products and services to ultimate consumers. These
products and services include the following:
*o energy management and consulting services to commercial customers that
operate retail facilities (for example, finding more efficient ways
for a customer to use energy);
*o utility operations/services to other utilities (for example, providing
underground locating and construction services for other utilities);
*o building, operating, and maintaining combined heat and power
facilities through joint ventures with Trigen Energy Corporation;facilities; and
*o building and maintaining fiber optic telecommunication networks for
businesses, municipalities, telecommunications carriers, and schools.
The International Business Unit (International) directs and manages our
international business holdings, which include wholly- and jointly-owned
companies in sixeleven countries. In addition, International also directs our
renewable energy investing activities (for example, wind farms) both inside and
outside the U.S. International earns (1) revenues, and (2) equity earnings from
unconsolidated companies primarily from energy-related businesses.
Financial results by business unit for the quarters ended March 31,June 30, 2000, and
1999, and total segment assets at March 31, 2000, and December 31,
1999, are as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Business Units
- -----------------------------------------------------------------------------------------------------------------------------------
2000
Cinergy Business Units
2000
-----------------------------------------------------------------------------------------------------------
Cinergy (1)Business Units
------------------------------------------------------------
Reconciling
Cinergy All Other Eliminations
Commodities Delivery Investments International Total All Other Eliminations(2)(1) (2) Consolidated
----------- -------- ----------- ------------- --------- ---------- -------------- -------------
(in thousands)
Operating revenues -
External customers $983,745 $745,268 $ 690,05720,453 $ 860,621 $ 18,549 $ 13,850 $1,583,07720,048 $1,769,514 $ - $ - $1,583,077$1,769,514
Intersegment revenues 453,719445,875 - - 445,875 - 453,719 - (453,719)(445,875) -
Segment profit (loss) (3) 80,064 58,495 (56) (64)(4) 138,43957,154(3) 23,451 (3,536) (1,954 75,115 - - 138,439
Total segment assets at
March 31, 2000 5,165,144 4,044,712 138,409 351,654 9,699,919 52,82175,115
- 9,752,740
------------------------------------------------------------------------------------------------------------------------------------
1999
-----------------------------------------------------------------------------------------------------------
Cinergy Business Units
------------------------------------------------------------
Reconciling
Cinergy ReconcilingAll Other Eliminations
Commodities Delivery Investments International Total All Other Eliminations(1) (2) Consolidated
----------- -------- ----------- ------------- --------- ---------- ------------- -------------
(in thousands) (1) (2)
Operating revenues -
External customers $ 503,638 $ 868,367 $ 17,400 $ 12,874 $1,402,279$542,002 $707,193 $10,884 $15,320 $1,275,399 $ - $ - $1,402,279$1,275,399
Intersegment revenues 456,536423,777 - - - 456,536423,777 - (456,536)(423,777) -
Segment Profit (Loss) (3) 50,494 62,526 (1,949) 15,695 126,766 479profit (loss) 28,676 27,010 (2,965) 5,171(4) 57,892 1,166 - 127,245
Total segment assets at
December 31, 1999 5,041,578 4,058,164 129,935 339,905 9,569,582 47,366 - 9,616,94859,058
(1) The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of
segment profit measurement.
(2) The Reconciling Eliminations category eliminates the intersegment revenues of Commodities.
(3) Management utilizes segment profit (loss)The increase in 2000, as compared to evaluate segment
profitability.1999, is primarily due to improvements in gross margins.
(4) ReflectsIncludes the loss of earnings from the July 1999 sale of our 50% ownership interest in Avon Energy Partners Holdings, the parent company of Midlands Electricity plc, to GPU, Inc.which was sold in the third quarter of 1999.
- --------------------------------------------------------------------------------
Financial results by business unit for the six months ended June 30, 2000, and 1999, are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Business Units
- ------------------------------------------------------------------------------------------------------------------------------------
2000
-----------------------------------------------------------------------------------------------------------
Cinergy Business Units
--------------------------------------------------------------
Reconciling
Cinergy All Other Eliminations
Commodities Delivery Investments International Total (1) (2) Consolidated
----------- ---------- ----------- ------------- --------- ---------- ------------- -------------
(in thousands)
Operating revenues -
External customers $1,674,537 $1,605,154 $39,002 $ 33,898 $3,352,591 $ - $ - $3,352,591
Intersegment revenues 899,595 - - - 899,595 - (899,595) -
Segment profit (loss) 137,953(3) 81,210 (3,591) (2,018) 213,554 - - 213,554
- -------------------------------------------- ---------------------------------------------------------------------------------------
1999
----------------------------------------------------------------------------------------------------------
Cinergy Business Units
-------------------------------------------------------------
Reconciling
Cinergy All Other Eliminations
Commodities Delivery Investments International Total (1) (2) Consolidated
----------- ---------- ----------- ------------- --------- ---------- ------------- -------------
(in thousands)
Operating revenues -
External customers $1,045,640 $1,575,560 $28,284 $ 28,194 $2,677,678 $ - $ - $2,677,678
Intersegment revenues 880,314 - - - 880,314 - (880,314) -
Segment profit (loss) 79,078 89,627 (4,914) 20,866 (4) 184,657 1,646 - 186,303
(1) The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of
segment profit measurement.
(2) The Reconciling Eliminations category eliminates the intersegment revenues of Commodities.
(3) The increase in 2000, as compared to 1999, is primarily due to improvements in gross margins.
(4) Includes the earnings from our 50% ownership interest in Midlands Electricity plc, which was sold in the third quarter of 1999.
Total segment assets at June 30, 2000, and December 31, 1999, are as follows:
------------------------------------------------------------------------------------------
Cinergy Business Units
-------------------------------------------------------------
Cinergy All Other
Commodities Delivery Investments International Total (1) Consolidated
----------- ----------- ----------- ------------- ----- ---------- ------------
(in thousands)
Total segment assets at June 30, 2000 $ 5,887,973 $4,105,469 $152,619 $ 476,497 $10,622,558 $48,605 $10,671,163
Total segment assets at December 31, 1999 5,041,578 4,058,164 129,935 339,905 9,569,582 47,366 9,616,948
(1) The All Other category represents miscellaneous corporate items, which are not allocated to business units for purposes of
segment profit measurement.
6. Earnings Per Common Share
A reconciliation of earnings per common share (EPS) to earnings per common share
assuming dilution (diluted EPS) is presented below:
- --------------------------------------------------------------------------------
Income Shares EPS
----------------------------------------------- ------- -----
(in thousands,
except per share amounts)
Quarter ended March 31,June 30, 2000
Earnings per common share:
Net income $138,439$75,115 158,923 $0.87$0.47
Effect of dilutive securities:
Common stock options 9318
Contingently issuable common stock 343
----------------------------------------293
---------------------
EPS-assuming dilution:
Net income plus assumed conversions $138,439 159,275 $0.87$75,115 159,534 $0.47
Quarter ended March 31,June 30, 1999
Earnings per common share:
Net income $127,245 158,746 $0.80$59,058 158,877 $0.37
Effect of dilutive securities:
Common stock options 412418
Contingently issuable common stock 26
-------------------------------------------------------------
EPS-assuming dilution:
Net income plus assumed conversions $127,245 159,184 $0.80$59,058 159,321 $0.37
- --------------------------------------------------------------------------------
Options to purchase shares of common stock are excluded from the calculation of
diluted EPS when the exercise prices of these options are greater than the
average market price of the common shares during the period. For the quarters
ended March 31,June 30, 2000, and 1999, approximately seven2 million and two1.7 million shares,
respectively, were excluded from the diluted EPS calculation.
The Employee Stock Purchase and Savings Plan is also excluded from the diluted
EPS calculation, because the purchase price is greater than the average market
price during this period. This plan allows all full-time, regular employees to
purchase shares of common stock pursuant to a stock option feature. A detailed
description of this plan is available in the 1999 Form 10-K.
7. Ohio Deregulation
As discussed in the 1999 Form 10-K, on July 6, 1999, Ohio Governor Robert Taft
signed Amended Substitute Senate Bill No. 3 (Electric Restructuring Bill),
beginning the transition to electric deregulation and customer choice for the
state of Ohio. The Electric Restructuring Bill creates a competitive electric
retail service market beginning January 1, 2001. The legislation provides for a
market development period that begins January 1, 2001, and ends no later than
December 31, 2005. Ohio electric utilities have an opportunity to recover Public
Utilities Commission of Ohio (PUCO)-approved transition costs during the market
development period. The legislation also freezes retail electric rates during
the market development period, at the rates in effect on October 4, 1999, except
for a five percentfive-percent reduction in the generation component of residential rates
and other potential adjustments. Furthermore, the legislation contemplates that
twenty percent of the current electric retail customers will switch suppliers no
later than December 31, 2003.
The Electric Restructuring Bill required each utility supplying retail electric
service in Ohio to file a comprehensive proposed transition plan with the PUCO
addressing specific requirements of the legislation. CG&E filed its plan on
December 28, 1999. The PUCO is required to issue a transition order no later
than October 31, 2000. On March 27, 2000, the PUCO staff issued a Staff Report
on CG&E's plan, identifying exceptions and offering recommendations for
Commission action.
On May 8, 2000, CG&E reached a stipulated agreement with the PUCO staff and
various other interested parties with respect to its proposal to implement
electric customer choice in Ohio beginning January 1, 2001. The major features
of this agreement include:
*o Residential customer rates will be frozen through December 31, 2005;
*o Residential customers will receive a five-percent reduction in the
generation portion of their electric rates, effective January 1, 2001;
*o CG&E has agreed to provide $4 million over the next five years in
support of energy efficiency and weatherization services for low
income customers;
*o The creation of a Regulatory Transition Charge or RTC,(RTC), designed to
recover CG&E's regulatory assets and other transition costs over a
ten-year period;
*o Authority for CG&E to transfer its generation assets to a separate,
non-regulated corporate subsidiary to provide flexibility to manage
its generation asset portfolio in a manner that enhances opportunities
in a competitive marketplace;
*o Authority for CG&E to defer cost and apply the proceeds of transition cost recovery
to costs incurred during the transition period including
implementation costs and purchased power costs that may be incurred by
CG&E to continue to maintain a sufficientan operating reserve margin necessarysufficient to provide
reliable and adequate servicesservice to its customers;
*o CG&E will provide standard offer default supplier service (i.e., CG&E
will be the supplier of last resort, so that no customer will be
without an electric supplier); and
*o CG&E has agreed to provide shopping credits to switching customers.
CG&E expects to receive an order on the proposed settlement prior to the end of
the third quarter of 2000.
CG&E expects to discontinue the application of Statement of Financial Accounting
Standards No. 71, Accounting for the Effects of Certain Types of Regulation,
with respect to its generating assets coincident with the regulatory approval of
the settlement. To the extent the generating assets are financially impaired,
CG&E will be required to recognize a loss under generally accepted accounting
principles.
CAUTIONARY STATEMENTS
Cautionary Statements Regarding Forward-Looking Information
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations" (MD&A) discusses various matters that may make management's
corporate vision of the future more clear for you. Certain of management's goals
and aspirations are outlined and specific projections may be made. These goals
and projections are considered forward-looking statements and are based on
management's beliefs and assumptions.
Forward-looking statements involve risks and uncertainties that may cause actual
results to be materially different from the results predicted. Factors that
could cause actual results to differ are often presented with forward-looking
statements. In addition, other factors could cause actual results to differ
materially from those indicated in any forward-looking statement. These include:
*o Factors affecting operations, such as:
(1) unusual weather conditions;
(2) catastrophic weather-related damage;
(3) unscheduled generation outages;
(4) unusual maintenance or repairs;
(5) unanticipated changes in fossil fuel costs, gas supply costs, or
availability constraints; (6) environmental incidents; and (7)
electric transmission or gas pipeline system constraints.
*o Legislative and regulatory initiatives regarding deregulation of the
industry, including Ohio's comprehensive deregulation legislation and
the outcome of The Cincinnati Gas & Electric Company's (CG&E) Proposed
Stipulation and Settlement in its Transition Plan.
*Plan proceeding, as well
as potential deregulation legislation to be passed in Indiana in 2001,
and potential national deregulation legislation being contemplated by
the United States (U.S.) Congress.
o The timing and extent of the entry of additional competition in
electric or gas markets and the effects of continued industry
consolidation through the pursuit of mergers, acquisitions, and
strategic alliances.
*o Regulatory factors such as changes in the policies or procedures that
set rates, changes in our ability to recover investments made under
traditional regulation through rates, and changes to the frequency and
timing of rate increases.
*o Financial or regulatory accounting principles or policies imposed by
governing bodies.
*o Political, legal, and economic conditions and developments in the United
StatesU.S.
and the foreign countries in which we have a presence. This would
include inflation rates and monetary fluctuations.
*o Changing market conditions and other factors related to physical
energy and financial trading activities. These would include price,
basis, credit, liquidity, volatility, capacity, transmission, currency
exchange rates, interest rates, and warranty risks.
*o The performance of projects undertaken by our non-regulated businesses
and the success of efforts to invest in and develop new opportunities.
*o Availability of, or cost of, capital.
*o Employee workforce factors, including changes in key executives,
collective bargaining agreements with union employees, and work
stoppages.
*o Legal and regulatory delays and other obstacles associated with
mergers, acquisitions, and investments in joint ventures.
*o Costs and effects of legal and administrative proceedings,
settlements, investigations, and claims. Examples can be found in Note
4 of the "Notes to Financial Statements" in "Part 1. Financial
Information" beginning on page 26.
*29.
o Changes in international, federal, state, or local legislative
requirements, such as changes in tax laws, tax rates, and
environmental laws and regulations.
Unless we otherwise have a duty to do so, the Securities and Exchange
Commission's (SEC) rules do not require forward-looking statements to be revised
or updated (whether as a result of changes in actual results, changes in
assumptions, or other factors affecting the statements). Our forward-looking
statements reflect our best beliefs as of the time they are made and may not be
updated for subsequent developments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
In MD&A, we explain liquidity, capital resources, and results of operations.
Specifically, we discuss the following:
*o factors affecting current and future operations;
*o why revenues and expenses changed from period to period; and
*o how the above items affect our overall financial condition.
LIQUIDITY
In the "Liquidity" section, we discuss environmental issues and other investing
activities as they relate to our current and future cash needs. In the "Capital
Resources" section beginning on page 38,43, we discuss how we intend to meet these
capital requirements.
Environmental Issues
In the "Environmental Issues" section, we discuss ozone transport rulemakings,
new source review, and manufactured gas plant sites as they relate to us and our
operating companies.
Ozone Transport Rulemakings, New Source Review, Manufactured Gas Plant Sites,
and Other
See Notes 4(a), (b), (c), and (d), respectively, of the "Notes to Financial
Statements" in "Part I. Financial Information" on pages 2629 through 30.
CAPITAL RESOURCES
Debt
Cinergy Corp. has current authorization from33.
Other Investing Activities
As discussed in the SEC under1999 Form 10-K, our ability to invest in growth initiatives,
such as Exempt Wholesale Generators (EWG) and Foreign Utility Companies (FUCO),
is limited by certain legal and regulatory requirements, including the Public
Utility Holding Company Act of 1935, as amended (PUHCA), to issue. In late 1999, Cinergy
(Cinergy Corp. and sell short-term
notesall of its regulated and commercial paper and long-term unsecured debt through December 31,
2002, providednon-regulated subsidiaries) filed a
request with the total principal amount of all these debt securities may not
exceed $2 billion at any time. In addition, Cinergy Corp.'s long-term debt
cannot exceed $400 million at any time. As of March 31, 2000, Cinergy Corp. has
$400 million of long-term debt outstanding, and therefore,SEC under the current
authorization, it cannot issue any additional long-term debt. Cinergy Corp. has
a requestPUHCA for additional authority pendingto, among other
things, increase the amount we can invest in EWGs and FUCOs. On June 23, 2000,
the SEC issued an order granting Cinergy approximately $676 million in
additional authority under the PUHCA to invest in EWGs and FUCOs. This order
supplements our existing authority under PUHCA, based on a prior SEC order, to
make such investments, which had been capped at an amount equal to 100% of
Cinergy's average consolidated retained earnings for the preceding four calendar
quarters (approximately $1.055 billion). As of June 30, 2000, we had invested or
committed to invest approximately $722 million of the approximately $1.731
billion available.
CAPITAL RESOURCES
Debt
As discussed in the 1999 Form 10-K, Cinergy Corp. filed a request with the SEC.
SHORT-TERM DEBTSEC
under the PUHCA for authority to increase its financing capacity. On June 23,
2000, the SEC issued an order under the PUHCA authorizing Cinergy Corp. to
increase its total capitalization at December 31, 1999 (excluding retained
earnings and accumulated other comprehensive income) by an additional $5
billion, through issuance of any combination of equity and debt securities. This
increased authorization is subject to certain conditions, including, among
others, that common equity comprises at least 30% of Cinergy's consolidated
capital structure and that Cinergy maintains an investment grade rating on its
senior debt obligations. This increased authority is intended to provide Cinergy
flexibility to respond quickly and efficiently to the Company's financing needs
and available conditions in capital markets.
Short-term Debt In connection with the current SEC authorization, Cinergy Corp.
has established lines of credit. As of March 31,June 30, 2000, Cinergy Corp. had $468$372
million remaining unused and available on its established lines.
Our operating companies have regulatory authority to borrow up to a total of
$853 million in short-term debt ($453 million for CG&E and its subsidiaries
including $50 million for The Union Light, Heat and Power Company (ULH&P), and
$400 million for PSI Energy, Inc. (PSI)). In connection with this authority,
CG&E and PSI have established lines of credit, of which, $87$41 million and $129$164
million, respectively, remained unused and available at March 31,June 30, 2000.
As of March 31, 2000,Also, our non-regulated subsidiaries have $82 million in
short-term debt and established lines of credit of which $.6credit. As on
June 30, 2000, $2.4 million was unused and available.available on these established lines.
Our non-regulated subsidiaries have the availability of funds from Cinergy Corp.
if the need arises.
A portion of each company's committed lines is used to provide credit support
for commercial paper (discussed below) and other uncommitted lines. When
committed lines are reserved for commercial paper or other uncommitted lines,
they are not available for additional borrowings.
COMMERCIAL PAPERCommercial Paper The commercial paper (debt instruments exchanged between
companies) program is limited to a maximum outstanding principal amount of $400
million for Cinergy Corp. As of March 31,June 30, 2000, Cinergy Corp. had issued $156$216
million in commercial paper.
CG&E and PSI also have the capacity to issue commercial paper, which must be
supported by available committed lines of the respective company. The maximum
outstanding principal amount for CG&E is $200 million and for PSI is $100
million. At March 31,June 30, 2000, neither CG&E nor PSI had issued any commercial paper.
Variable Rate Pollution Control Notes CG&E and PSI have issued variable rate
pollution control notes (tax-exempt notes obtained to finance equipment or land
development for pollution control purposes). Because the holders of these notes
have the right to redeem their notes on any business day, they are reflected in
Notes payable and other short-term obligations in the Consolidated Balance
Sheets for Cinergy (Cinergy Corp. and all of its regulated and non-regulated
subsidiaries) on page 6,7, for CG&E on page 12,14, and for PSI on page 17.19. At
March
31,June 30, 2000, CG&E and PSI had $184 million and $83$82.6 million, respectively,
outstanding in pollution control notes.
Money Pool Our operating companies and their subsidiaries participate in a money
pool arrangement to better manage cash and working capital requirements. Under
this arrangement, our operating companies and their subsidiaries with surplus
short-term funds provide short-term loans to each other. This surplus cash may
be from internal or external sources. The amounts outstanding under this money
pool arrangement are shown as Notes receivable from affiliated companies or
Notes payable to affiliated companies on the Consolidated Balance Sheets for
CG&E on pages 1113 through 12,14, PSI on pages 1618 through 17,19, and the Balance Sheets
for ULH&P on pages 2123 through 22.
Long-Term24.
Long-term Debt Under the PUHCA authorization mentioned previously,above, we are able to
issue and sell long-term debt at the parent holding company level. Cinergy
Corp.'s long-term debt cannot exceed $400 million at any time. As of March 31,June
30, 2000, Cinergy Corp. has $400 million of long-term debt outstanding, and
therefore, under the current authorization, it cannot issue any additional
long-term debt. Cinergy Corp. has a request for additional authority pending
with the SEC.outstanding.
Currently, our operating companies have the following types of outstanding
long-term debt: First Mortgage Bonds and other Secured Notes, and Senior and
Junior Unsecured Debt. Under our existing authority, the remaining unissued
debt, as of AprilJune 30, 2000, is reflected in the following table:
- --------------------------------------------------------------------------------
Authorizing Agency CG&E PSI ULH&P
- --------------------------------------------------------------------------------
(in millions)
Applicable State Utility Commission
$200 $400 $30
(Secured or Unsecured Debt) $200 $346 $30
- --------------------------------------------------------------------------------
We may, at any time, request additional long-term debt authorization to increase
our authority.authorization. This
request is subject to regulatory approval, which may or may not be granted.
As of March 31,June 30, 2000, through shelf registrations filed with the SEC under the
Securities Act of 1933, we could issue the following amounts of debt securities:
- --------------------------------------------------------------------------------
CG&E PSI ULH&P
- --------------------------------------------------------------------------------
(in millions)
First Mortgage Bonds and Other Secured Notes $300 $265 $20
Senior or Junior Unsecured Debt 50 400 30
- --------------------------------------------------------------------------------
For information regarding recent issuances and redemptions of long-term debt
securities, see Note 3 of the "Notes to Financial Statements" in "Part I.
Financial Information" on page 26.28.
Securities Ratings
On June 1, 2000, Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co. merged,
and are now known as Fitch, thus they combined their ratings of Cinergy Corp.
and its affiliates. As of July 31, 2000, the major credit rating agencies rated
our securities as follows:
- --------------------------------------------------------------------------------
Fitch(1) Moody's (2) S&P (3)
--------------- --------------- ----------------
Cinergy Corp.
Corporate Credit BBB+ Baa2 BBB+
Commercial Paper F-2 P-2 A-2
CG&E
Secured Debt A- A3 A-
Senior Unsecured Debt BBB+ Baa1 BBB+
Junior Unsecured Debt BBB Baa2 BBB
Preferred Stock BBB baa1 BBB
Commercial Paper F-2 P-2 Not Rated
PSI
Secured Debt A- A3 A-
Senior Unsecured Debt BBB+ Baa1 BBB+
Junior Unsecured Debt BBB Baa1 BBB
Preferred Stock BBB baa1 BBB
Commercial Paper F-2 P-2 Not Rated
ULH&P
Secured Debt A- A3 A-
Unsecured Debt Not Rated Baa1 BBB+
- --------------------------------------------------------------------------------
(1) Fitch (Fitch)
(2) Moody's Investors Service (Moody's)
(3) Standard & Poor's Ratings Services (S&P)
- --------------------------------------------------------------------------------
These securities ratings may be revised or withdrawn at any time, and each
rating should be evaluated independently of any other rating.
Guarantees
We are subject to a SEC order under the PUHCA, which limits the amounts Cinergy
Corp. can have outstanding under guarantees (promises to pay by one party in the
event of default by another party) at any one time to $2 billion. This is an
increase from the previous $1 billion.billion guarantee level as a result of the June
23, 2000 order received from the SEC. As of March
31,June 30, 2000, we had $576$685 million
outstanding under the guarantees issued. Cinergy
Corp. has a request for additional authority to issue guarantees pending with
the SEC.
2000 RESULTS OF OPERATIONS
SUMMARY OF RESULTS
Electric and gas margins and net income for Cinergy, CG&E, and PSI for the
quarters ended March 31,June 30, 2000, and 1999, were as follows:
- --------------------------------------------------------------------------------
Cinergy (1) CG&E PSI
-------------------- ------------------- -----------------
2000 1999 2000 1999 2000 1999
-------------------- ------------------- -----------------
(in thousands)
Electric gross margin $565,919 $535,363 $297,666 $282,715 $262,323 $247,538$549,801 $491,027 $307,797 $260,782 $221,953 $226,329
Gas gross margin 92,583 86,906 88,846 84,91941,821 35,154 35,352 33,120 - -
Net income 138,439 127,245 95,964 80,237 50,213 39,84175,115 59,058 55,881 38,922 18,916 25,580
(1) The results of Cinergy also include amounts related to non-registrants.
- --------------------------------------------------------------------------------
Our diluted earnings per share for the firstsecond quarter of 2000 increased to $.87$.47
per share from $.80$.37 per share for the same period of 1999.
Earnings of our regulated operations, including the supply business, increased
$.21$.13 per share in the firstsecond quarter of 2000, when compared to the same period
of 1999. The improved results are attributable to growth in margins of the
company's regulated businesses and an increase in electricity trading volumes of
about 55 percent for the second quarter and the first six months over the prior
year. Partially offsetting this increase was a decrease of $.15$.03 per share in the
contribution to earnings of our non-regulated investment activities. This
decrease primarily reflects the loss of earnings from the July 1999 sale of our 50% ownership
interestcompany's share in Avon Energy Partners Holdings (Avon Energy), the parent company of
Midlands Electricity plc, to GPU, Inc. (GPU).which was sold in the third quarter of 1999.
The explanations below follow the line items on the Statements of Income for
Cinergy, CG&E, and PSI, which begin on page 4.5. However, only the line items that
varied significantly from prior periods are discussed.
ELECTRIC OPERATING REVENUES
- --------------------------------------------------------------------------------
Cinergy (1) CG&E PSI
- -------------------------------- ---------------------- ----------------------
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
- -------------------------------- ---------------------- ----------------------
(in millions)
Retail $650 $676 (4) $351 $358 (2) $298 $318 (6)$ 651 $623 4 $360 $345 4 $291 $278 5
Wholesale 384 266555 285 95 282 126 124 321 174 84
Other 44 182 121 50 227 157 45
Other34 29 5 6 (17) 8 11 (27)
--------------------- ---------------------- ---------------------
Total $1,250 $942 33 27 22 5 3 67 9 7 29
------ ---- ---- ---- ---- ----
Total $1,067 $969 10 $538 $482 12 $534 $482 11$647 $477 36 $620 $463 34
(1) The results of Cinergy also include amounts related to non-registrants.
- --------------------------------------------------------------------------------
Electric operating revenues for Cinergy, CG&E, and PSI increased for the quarter
ended March 31,June 30, 2000, as compared to 1999, mainly due to an increase in volumes
and the average price per kilowatt-hour (kWh) realized on non-firm wholesale
transactions related to energy marketing and trading activity. Non-firm power is
power without a guaranteed commitment for physical delivery. Partially offsetting this increase was a decreaseIn addition, the
growth in retail revenues reflects increased volumes due to growth in the
average price
per kilowatt-hour (kWh) realized for wholesale power transactionsnumber of residential and lower firm
wholesale kWh sales.
Despite an increase in customers, retailcommercial customers. Other electric operating
revenues declined during the first
quarter of 2000, as compared to last year. Retail revenuesincreased for Cinergy and CG&E
decreased as a result of an overall decrease in volumes and a lower average
realization per kWh. This decrease in volumes was mainly due to growth in the warmer than
normal weather experienced during the first quarter of 2000. PSI's retail
revenues decreased mainly as a result of a lower average realization per kWh.non-regulated activities.
GAS OPERATING REVENUES
- --------------------------------------------------------------------------------
Cinergy (1) CG&E
-------------------------------- ---------------------------------
2000 1999 % Change 2000 1999 % Change
-------------------------------- ---------------------------------
(in millions)
Non-regulated $321 $257 25$432 $275 57 $ - $ - -
Retail 154 142 8 154 142 848 42 14 48 42 14
Transportation 22 20 10 22 20 1011 11 - 11 11 -
Other 2 21 1 - 2 21 1 -
---- ----- ---- -------------------------- ----------------------
Total $499 $421 19 $178 $164 9$492 $329 50 $60 $ 54 11
(1) The results of Cinergy also include amounts related to non-registrants.
- --------------------------------------------------------------------------------
Gas operating revenues for Cinergy increased in the firstsecond quarter of 2000, when
compared to the same period last year. This increase is primarily the result of
a higher price receivedrealized per thousand cubic feet (mcf) sold by Cinergy Marketing
and& Trading, LLC.LLC (Marketing & Trading).
CG&E's retail revenues increased primarily due to a higher price receivedrealized per
mcf sold. ThisAlso, contributing to the increase was partially offset by a decline in retail revenues were higher mcf
sales, reflecting a return to more normal weather when compared to the same
period in 1999.
OTHER REVENUES
Other operating revenues for Cinergy increased $23 million in the second quarter
of 2000, when compared to the same period in 1999, primarily due to revenues
from the marketing of energy-related services.
OPERATING EXPENSES
- ---------------------------------------------------------------------------------------------------------------------------
Cinergy (1) CG&E PSI
-------------------------------- --------------------------------- --------------------------------
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
-------------------------------- --------------------------------- --------------------------------
(in millions)
Fuel $ 206 $ 186 11 $ 87 $ 76 14 $113 $104 9
Purchased and
exchanged power 495 265 87 252 140 80 285 133 114
Gas purchased 450 294 53 24 20 20 - - -
Operation 230 172 34 94 70 34 94 82 15
Maintenance 60 64 (6) 29 30 (3) 30 35 (14)
Depreciation and
amortization 93 88 6 53 51 4 35 34 3
Taxes other than
income taxes 68 69 (1) 54 55 (2) 14 14 -
--------------------- ------------------------ ------------------------
Total $1,602 $1,138 41 $593 $442 34 $571 $402 42
(1) The results of Cinergy also include amounts related to non-registrants.
- --------------------------------------------------------------------------------------------------------------------------
Fuel
Fuel represents the cost of coal, natural gas, and oil that is used to generate
electricity. The following table details the changes to fuel expense from the
quarter ended June 30, 1999, to the quarter ended June 30, 2000:
- --------------------------------------------------------------------------------
Cinergy (1) CG&E PSI
--------------------------------------
(in millions)
Fuel expense - June 30, 1999 $186 $76 $104
Increase (Decrease) due to changes
in:
Price of fuel (8) (5) (3)
Deferred fuel cost 21 11 10
kWh generation 7 5 2
--------------------------------------
Fuel expense - June 30, 2000 $206 $87 $113
(1) The results of Cinergy also include amounts related to non-registrants.
- --------------------------------------------------------------------------------
Purchased and Exchanged Power
Purchased and exchanged power expense increased for Cinergy, CG&E, and PSI for
the second quarter of 2000 compared to last year, primarily due to an increase
in purchases of non-firm wholesale power as a result of an increase in sales
volume in the energy marketing and trading operations.
Gas Purchased
Gas purchased expense increased for Cinergy and CG&E for the second quarter of
2000, when compared to the same period last year, primarily due to an increase
in the average cost per mcf of gas purchased.
CG&E's Gas purchased expense also increased due to higher mcf volumes purchased
during the second quarter of 2000, as compared to the same period of 1999.
Operation
Cinergy's, CG&E's, and PSI's Operation expenses increased for the quarter ended
June 30, 2000, as compared to the same period last year, primarily due to an
increase in expenses associated with the marketing of energy-related services
and expenses related to the limited early retirement plan (LERP). For a further
discussion of the LERP, see the "Corporate Center Restructuring" section on page
58.
Maintenance
Cinergy's and PSI's Maintenance expenses decreased for the quarter ended June
30, 2000, as compared to the same period last year, primarily due to activities
associated with planned production outages and other repairs performed at
certain facilities during 1999.
Depreciation and Amortization
Cinergy's Depreciation and amortization costs increased for the quarter ended
June 30, 2000, as compared to the same period last year, primarily due to
additions to depreciable plant.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES
Cinergy's Equity in earnings of unconsolidated subsidiaries decreased $9 million
(67%) for the second quarter of 2000, when compared to the same period last
year. This decrease is primarily due to the loss in earnings resulting from our
50% ownership interest in Midlands Electricity plc, which was sold in the third
quarter of 1999.
INTEREST
Cinergy's Interest expense decreased $8 million (13%) for the second quarter of
2000, when compared to the same period last year. This decrease is primarily due
to a reduction in residential customersshort-term borrowings as a result of the sale of Midlands
Electricity plc. This decrease was slightly offset by an increase in average
short-term interest rates.
2000 RESULTS OF OPERATIONS
SUMMARY OF RESULTS
Electric and gas margins and net income for Cinergy, CG&E, and PSI for the six
months ended June 30, 2000, and 1999, were as follows:
- -------------------------------------------------------------------------------------------------------------------------
Cinergy (1) CG&E PSI
----------------------------- ----------------------------- -----------------------------
2000 1999 2000 1999 2000 1999
----------------------------- ----------------------------- -----------------------------
(in thousands)
Electric gross margin $1,115,720 $1,026,390 $605,463 $543,497 $484,276 $473,867
Gas gross margin 134,404 122,060 124,198 118,039 - -
Net income 213,554 186,303 151,845 119,159 69,129 65,421
(1) The results of Cinergy also include amounts related to non-registrants.
- ---------------------------------------------------------------------------------------------------------------------------
Our diluted earnings per share for the six months ending June 30, 2000,
increased to $1.34 per share from $1.17 per share for the same period of 1999.
Earnings of our regulated operations, including the supply business, increased
$.34 per share for the six months ending June 30, 2000, when compared to the
same period in 1999. The improved results are attributable to growth in margins
of the company's regulated businesses and an increase in electricity trading
volumes of about 55 percent for the second quarter and the first six months over
the prior year. Partially offsetting this increase was a warmer than normal winter.decrease of $.17 per
share in the contribution to earnings of our non-regulated investment
activities. This decrease primarily reflects the loss of earnings from the
company's share in Midlands Electricity plc, which was sold in the third quarter
of 1999.
The explanations below follow the line items on the Statements of Income for
Cinergy, CG&E, and PSI, which begin on page 5. However, only the line items that
varied significantly from prior periods are discussed.
ELECTRIC OPERATING REVENUES
- -------------------------------------------------------------------------------------------------------------------
Cinergy (1) CG&E PSI
--------------------------------- -------------------------------- --------------------------------
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
--------------------------------- -------------------------------- --------------------------------
(in millions)
Retail $1,301 $1,300 - $ 712 $703 1 $ 589 $596 (1)
Wholesale 939 551 70 463 247 87 548 331 66
Other 77 60 28 10 9 11 17 19 (11)
----------------------- ---------------------- ----------------------
Total $2,317 $1,911 21 $1,185 $959 24 $1,154 $946 22
(1) The results of Cinergy also include amounts related to non-registrants.
- -------------------------------------------------------------------------------------------------------------------
Electric operating revenues for Cinergy, CG&E, and PSI increased for the six
months ended June 30, 2000, as compared to 1999, mainly due to an increase in
volumes and the average price per kWh realized on non-firm wholesale
transactions related to energy marketing and trading activity. Other electric
revenues increased for Cinergy due to growth in sales of energy related
services.
GAS OPERATING REVENUES
- --------------------------------------------------------------------------------
Cinergy (1) CG&E
-------------------------------- --------------------------------
2000 1999 % Change 2000 1999 % Change
-------------------------------- --------------------------------
(in millions)
Non-regulated $753 $533 41 $ - $ - -
Retail 201 184 9 201 184 9
Transportation 33 30 10 33 30 10
Other 3 3 - 4 3 33
---------------------- ----------------------
Total $990 $750 32 $238 $217 10
(1) The results of Cinergy also include amounts related to non-registrants.
- --------------------------------------------------------------------------------
Gas operating revenues for Cinergy increased in the six months ending June 30,
2000, when compared to the same period last year. This increase is primarily the
result of a higher price realized per mcf sold by Marketing & Trading.
CG&E's retail revenues increased primarily due to a higher price realized per
mcf sold. Transportation revenues increased due to the continued progressiontrend of
full-service customers (customers who purchase gas and utilize the
transportation services of CG&E) purchasing gas directly from suppliers and
using transportation services provided by CG&E.
OTHER REVENUES
Other operating revenues for Cinergy increased $5$28 million (42%) infor the first
quarter ofsix months
ending June 30, 2000, when compared to the same period in 1999, primarily due to
revenues from the marketing of energy-related services.
OPERATING EXPENSES
CINERGY (1) CG&E PSI
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
(in millions)
Fuel $ 186 $ 198 (6) $ 82 $ 86 (5) $ 99 $107 (7)
Purchased and
exchanged power 315 235 34 158 113 40 172 128 34
Gas purchased 406 334 22 90 79 14 - - -
Operation 194 195 (1) 80 84 (5) 85 88 (3)
Maintenance 51 50 2 25 24 4 26 25 4
Depreciation and
amortization 90 86 5 51 51 - 35 34 3
Taxes other than
income taxes 66 70 (6) 50 54 (7) 15 14 7
------ ------ ---- ---- ---- ----
Total $1,308 $1,168 12 $536 $491 9 $432 $396 9
- --------------------------------------------------------------------------------------------------------------------
Cinergy (1) CG&E PSI
-------------------------------- --------------------------------- --------------------------------
2000 1999 % Change 2000 1999 % Change 2000 1999 % Change
-------------------------------- --------------------------------- --------------------------------
(in millions)
Fuel $ 392 $ 384 2 $ 169 $162 4 $ 212 $211 -
Purchased and
exchanged power 809 500 62 411 253 62 458 261 75
Gas purchased 856 628 36 114 99 15 - - -
Operation 424 366 16 174 154 13 178 170 5
Maintenance 112 115 (3) 54 55 (2) 57 60 (5)
Depreciation and
amortization 183 175 5 104 101 3 70 68 3
Taxes other than
income taxes 135 139 (3) 104 109 (5) 28 29 (3)
--------------------- ------------------------ ------------------------
Total $2,911 $2,307 26 $1,130 $933 21 $1,003 $799 26
(1) The results of Cinergy also include amounts related to non-registrants.
- --------------------------------------------------------------------------------
Fuel
Fuel represents the cost of coal, natural gas, and oil that is used to generate
electricity. The following table details the changes to fuel expense from the
quarter ended March 31,six months ending June 30, 1999, to the quarter ended March 31,six months ending June 30, 2000:
- --------------------------------------------------------------------------------
Cinergy (1) CG&E PSI
--------------------------------------
(in millions)
Fuel expense - March 31,June 30, 1999 $198 $86 $107$384 $162 $211
Increase (decrease)(Decrease) due to changes
in:
Price of fuel (2) (2) -(10) (7) (3)
Deferred fuel cost (21) (3) (18)
KWh(1) 7 (8)
kWh generation 11 1 10
---- ---- ----19 7 12
--------------------------------------
Fuel expense - March 31,June 30, 2000 $186 $82 $99$392 $169 $212
(1) The results of Cinergy also include amounts related to non-registrants.
- --------------------------------------------------------------------------------
Purchased and Exchanged Power
Purchased and exchanged power
Purchased and exchanged power represents the electricity that is bought to be
sold through our energy marketing and trading activities. This expense increased for Cinergy, CG&E, and PSI for
the first quarter ofsix months ending June 30, 2000, compared to last year. This increase was
primarily due to an increase in purchases of non-firm wholesale power as a
result of an increase in sales volume in the energy marketing and trading
operations.
Gas purchasedPurchased
Gas purchased expense increased for Cinergy and CG&E for the first quarter ofsix months ending
June 30, 2000, when compared to the same period last year, primarily due to an
increase in the average cost per mcf of gas purchased.
Operation
Cinergy's, CG&E's, and PSI's Operation expenses increased for the six months
ended June 30, 2000, as compared to the same period last year, primarily due to
an increase in expenses associated with the marketing of energy-related services
and expenses related to the LERP. For a further discussion of the LERP, see the
"Corporate Center Restructuring" section on page 58.
Maintenance
Cinergy's and PSI's Maintenance expenses decreased for the six months ended June
30, 2000, as compared to the same period last year, primarily due to activities
associated with planned production outages and other repairs performed at
certain facilities during 1999.
Depreciation and amortizationAmortization
Cinergy's and PSI'S Depreciation and amortization costs increased for the quarter ended March 31,six months
ending June 30, 2000, as compared to the same period last year, primarily due to
additions to depreciable plant.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES
Cinergy's Equity in earnings of unconsolidated subsidiaries decreased $43$52
million (96%(89%) for the first quarter ofsix months ending June 30, 2000, when compared to the same
period last year. This decrease is primarily due to the loss in earnings
resulting from the sale of our 50% ownership interest in Avon Energy to GPU on July 15,Midlands Electricity plc, which was
sold in the third quarter of 1999.
INTEREST
Cinergy's Interest expense decreased $9$17 million (15%(14%) for the first quarter ofsix months ending
June 30, 2000, when compared to the same period last year. This decrease is
primarily due to a reduction in short-term borrowings as a result of the sale of
Avon Energy.Midlands Electricity plc. This decrease was slightly offset by an increase in
average short-term interest rates.
ULH&P
The format of the following Results of Operations discussion has been changed
from the format of prior reports. Unlike prior reports, the Results of Operations discussion for ULH&P is presented only for the quartersix
months ended March
31,June 30, 2000, in accordance with General Instruction H(2)(a).
Electric and gas margins and net income for ULH&P for the quarterssix months ended March
31,June
30, 2000, and 1999, were as follows:
- --------------------------------------------------------------------------------
ULH&P
------------------------------
2000 1999
------------------------------
(in thousands)
Electric gross margin $14,077 $12,411$29,228 $24,150
Gas gross margin 15,493 15,67821,565 21,201
Net income 8,146 6,543
Retail10,923 7,962
- --------------------------------------------------------------------------------
Electric operating revenues for the quartersix months ended March 31,June 30, 2000, compared to
last year, decreasedincreased mainly due to a lower average realization per
kWh. This decrease was offset byhigher retail kWh sales resulting from an
increase in electric property rental income
related to an intercompany transaction beginningkWh usage and growth in April 1999. Electricity
purchased from parent company for resale also decreased due tothe number of commercial and industrial
customers. This increase in kWh volume caused a lower average
realization per kWh.corresponding increase in
Purchased and exchanged power expense.
The increase in Gas operating revenues for the quartersix months ended March 31,June 30, 2000,
compared to last year, was mainly due to a higher price received per mcf sold
and an increase in the number of residential and commercial customers. Gas
purchased expense increased due to an increase in the average cost per mcf of
gas purchased.
The decreaseincrease in OperationDepreciation and maintenanceamortization costs for the quartersix months ended
March 31,June 30, 2000, as compared to the same period last year, was primarily due to
a
decrease in administrativeadditions to depreciable plant.
Interest expense increased for the six months ended June 30, 2000, as compared
to the same period last year, primarily due to increased borrowings from CG&E
and general expenses.PSI.
FUTURE EXPECTATIONS/TRENDS
In the "Future Expectations/Trends" section, we discuss electric industry
developments, market risk sensitive instruments and positions, impact of
acquisitions, accounting
changes, and the corporate center restructuring.restructuring, and the shareholder rights plan.
Each of these discussions will address the current status and potential future
impact on our results of operations and financial condition.
ELECTRIC INDUSTRY
Wholesale Market Developments
Supply-side Actions As discussed in the 1999 Form 10-K, on September 30, 1999,
one of our non-regulated subsidiaries formed a partnership (each party having a
50% ownership) with Duke Energy North America LLC, in an effort to increase the
available generating capacity for use during peak demand periods. This
partnership is to jointly construct and own three wholesale generating
facilities. On March 9, 2000, the Indiana Utility Regulatory Commission (IURC)
issued an order (Cause No. 41569), requiring us to immediately cease all
construction activities at the site located near Cadiz, (Henry County) Indiana
(a planned peaking plant with a total capacity of 132 megawatts (MW) capacity peaking plant)). In making
this decision the IURC found that it needs additional information related to the
project before issuing a final decision. The IURC has requested the Henry County
Planning Commission and/or the Henry County Commissioners to supply additional
information, which was provided in June 2000. The issues raised by June 1,Henry County
were air quality, water supply, noise control, landscaping, plant abandonment,
and emergency services training. On July 14, 2000, Cinergy filed its response to
the information provided by Henry County, indicating how it would address the
concerns of Henry County. Cinergy anticipates that further hearings on the
matter will be held in the fall of 2000. At this time, Cinergy cannot currently
predict the outcome of any potential decision. Construction of thethis matter.
The remaining facilities (with total capacity of approximately 1,268 MW) continues with the anticipation
of beingbecame
fully operational by the summer ofin June 2000. We are supplementing this additional capability
with block power purchases for the summer of 2000 peak period.
Retail Market Developments
Federal The Clinton Administration has introduced a bill--the Comprehensive
Electricity Competition Act--that would grant all retail electric customers the
right to choose their electricity supplier beginning January 1, 2003. The
legislation would allow a state regulatory authority to opt out of the retail
competition system if the authority conducted a public proceeding and determined
that the electric customers of that state would be better served by a monopoly
system or an alternative retail competition plan. A "compromise bipartisan"
deregulation bill introduced on May 26, 1999, by Representatives Largent (R-OK)
and Markey (D-MA) includes similar mandates and opt out provisions with an
effective date of January 1, 2002.
After attempting for several months to reach consensus on comprehensive electric
restructuring legislation, the U.S. Senate on June 30, 2000, approved S.2071,
the Electric Reliability 2000 Act. S.2071 would authorize the establishment of a
North American Electric Reliability Organization and not legislate on additional
issues surrounding the restructuring of the electricity industry. It remains
uncertain whether federal retail customer choice legislation will be passed by
this Congress.
Ohio As discussed in the 1999 Form 10-K, during 1999, Ohio Governor Robert Taft
signed into law a bill creating a competitive electric retail service market
beginning January 1, 2001. As required by the bill, CG&E filed its transition
plan on December 28, 1999.
On May 8, 2000, CG&E reached a stipulated agreement with the PUCOPublic Utilities
Commission of Ohio staff and various other interested parties with respect to
its proposal to implement electric customer choice in Ohio beginning January 1,
2001. The major features of this agreement include:
*o Residential customer rates will be frozen through December 31, 2005;
*o Residential customers will receive a five-percent reduction in the
generation portion of their electric rates, effective January 1, 2001;
*o CG&E has agreed to provide $4 million over the next five years in
support of energy efficiency and weatherization services for low
income customers;
*o The creation of a Regulatory Transition Charge or RTC,(RTC), designed to
recover CG&E's regulatory assets and other transition costs over a
ten-year period;
*o Authority for CG&E to transfer its generation assets to a separate,
non-regulated corporate subsidiary to provide flexibility to manage
its generation asset portfolio in a manner that enhances opportunities
in a competitive marketplace;
*o Authority for CG&E to apply the proceeds of transition cost recovery
to costs incurred during the transition period including
implementation costs and purchased power costs that may be incurred by
CG&E to continue to
maintain a sufficientan operating reserve margin necessarysufficient to provide
reliable and
adequate servicesservice to its customers;
and
*o CG&E will provide standard offer default supplier service (i.e., CG&E
will be the supplier of last resort, so that no customer will be
without an electric supplier); and
*o CG&E has agreed to provide shopping credits to switching customers.
CG&E expects the settlement to be approved prior to the end of the third quarter
of 2000.
For additional information, see Note 7 of the "Notes to Financial Statements" in
"Part I. Financial Information" on page 33.38.
Midwest ISO
As part of the effort to create a competitive wholesale power marketplace, the
Federal Energy Regulatory Commission (FERC) approved the formation of the
Midwest Independent Transmission SystemsSystem Operator, Inc. (Midwest ISO) during
1998. The Midwest ISO will oversee the combined transmission systems of its
members. The organization is expected to begin operations in late 2001. This
effort will help to facilitate a reliable and efficient market for electric
power and create open transmission access consistent with FERC policies. The
Midwest ISO currently includes 1316 members with over 52,000 miles of transmission
lines in 1112 states and an aggregate investment of approximately $8 billion.
Discussions are currently underwayFormal agreements have been signed to merge the Midwest ISO and the
Mid-Continent Area Power Pool (MAPP). The MAPP BoardPool. Several conditions of Directors and the MAPP
Members have approved the consolidation of assets between the two organizations.
The final requirement forthese agreements must be
met before the merger is two-thirds of the MAPP load voting for
the Midwest ISO becoming the operator of their transmission systems.can be consummated.
Significant Rate Developments
Purchased Power Tracker On May 28, 1999, PSI filed a petition with the IURC
seeking approval of a purchased power tracking mechanism (tracker). This request
is designed to provide for the recovery of costs related to purchases of power
necessary to meet native load requirements to the extent such costs are not
sought through the existing fuel adjustment clause. The tracker is intended to
apply to a limited number of purchases made for the purpose of ensuring adequate
power reserves to meet peak retail native load requirements, which in recent
years have coincided with periods of extreme price volatility. As proposed by
PSI, the tracker would only apply to capacity purchases which are presented to
the IURC for review and approvalapproved by the IURC as to reasonablenessreasonable under the
circumstances. A hearingOn May 31, 2000, the IURC approved the tracker for the summer of
2000. As requested in the order, PSI filed its actual purchase agreements for
the summer of 2000 with the IURC. When the summer of 2000 is concluded, the IURC
will (1) review PSI's purchases and rule on this request was completed on December 9, 1999. An orderthe associated requests for recovery
of costs, and (2) will determine whether it is expected duringappropriate to continue the
second quarter of 2000.tracking mechanism for future periods.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
Energy Commodities Sensitivity
We market and trade electricity, natural gas, and other energy-related products.
We use over-the-counter forward and option contracts for the purchase and sale
of electricity and also trade exchange-traded futures contracts. See Notes 1(b)
and 1(c) of the "Notes to Financial Statements" in "Part I. Financial
Information" on pages 2426 through 25,27, for our accounting policies for certain
derivative instruments. For additional information, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" pages
61 through 64, of our 1999 Form 10-K. Our market risks have not changed
materially from the market risks reported in the 1999 Form 10-K.
Exchange Rate Sensitivity
From time to time, we may utilize foreign exchange forward contracts and
currency swaps to hedge certain of our net investments in foreign operations.
See Notes 1(b) and 1(c) of the "Notes to Financial Statements" in "Part I.
Financial Information" on pages 2426 through 25,27, for our accounting policies for
certain derivative instruments.
Interest Rate Sensitivity
Our net exposure to changes in interest rates primarily consist of debt
instruments with floating interest rates that are benchmarked to various market
indices. To manage the exposure to fluctuations in interest rates and to lower
funding costs, we evaluate the use of, and have entered into, interest rate
swaps. See Notes 1(b) and 1(c) of the "Notes to Financial Statements" in "Part
I. Financial Information" on pages 2426 through 25,27, for our accounting policies
for certain derivative instruments. Our market risks have not changed materially
from the market risks reported in the 1999 Form 10-K.
ACCOUNTING CHANGES
During the second quarter of 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities (Statement 133). This standard
requires companies to record derivative instruments as assets or liabilities,
measured at fair value. Changes in the derivative's fair value must be
recognized currently in earnings unless specific hedge accounting criteria are
met. Hedges are transactions entered into for the purpose of reducing exposure
to one or more types of business risk. Gains and losses on derivatives that
qualify as hedges can offset related results on the hedged item in the income
statement.
This standard, as subsequently amended byIn June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB Statement No.133 (Statement 137), is. Statement 137
deferred the effective date of Statement 133 by one year. As a result, Statement
133 will be effective for fiscal years beginning after June 15, 2000.
The purposeStatement of Financial Accounting Standards No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FASB
Statement 137No. 133 (Statement 138) was to delayissued in June 2000. Statement 138
addresses implementation issues and reflects decisions of the effective dateFASB regarding
recommendations of Statement 133 by one year.the FASB sponsored Derivatives Implementation Group.
We expect to reflect the adoption of this standardStatement 133 in financial statements
issued beginning in the first quarter of 2001. In recognition of the complexity
of this new standard, the Derivatives Implementation Group has been formed by
the FASB. In preparation for our
implementation of this new standard, we have formed a cross-functional project
team. The project team is identifying and analyzing all contracts which could be
subject to the new standard, developing required documentation, defining
relevant processes and information systems needs, and promoting internal
awareness of the requirements and potential effects of the new standard. While
we continue to analyze and follow the development of implementation guidelines,
at this time we are unable to predict whether the implementation of this
accounting standard will be material to our results of operations and financial
position. However, the adoption of Statement 133 could increase volatility in
earnings and other comprehensive income.
CORPORATE CENTER RESTRUCTURING
On March 10, 2000, we announced a plan to reorganize our corporate center that
will eliminate approximately 240 jobs. ACinergy offered a limited early
retirement programplan (LERP) in connection with this reorganization. In June 2000, we
recorded a one-time expense of approximately $11 million relating to benefits
provided to LERP participants.
SHAREHOLDER RIGHTS PLAN
On July 19, 2000, Cinergy Corp.'s board of directors approved a Shareholder
Rights Plan (the Plan) that will take effect after approval by the SEC under the
PUHCA. We filed an application with the SEC on July 28, 2000, requesting
approval of the Plan.
Under the Plan, each shareholder would receive a right to purchase from Cinergy
Corp. one share of common stock at a price of $100. Initially, the Rights will
not be represented by separate certificates and unfilled vacancieswill not trade separately from
Cinergy shares of common stock. The rights would separate from the common stock
ten days after either of the following occurred:
o the public announcement of an acquisition of ten percent or more of
the company's common stock, or
o the commencement of a tender offer or exchange offer by which a person
or group would acquire ten percent or more of the common stock of
Cinergy Corp.
The Rights become exercisable if one of these events occurs and the rights are
expectedno longer redeemable by the board of directors. If the rights become exercisable
after someone has acquired ten percent or more of the company's common stock,
holders of the rights will have the right to reducepurchase the numbercommon stock of
employees displacedCinergy Corp. at a 50% discount. However, any rights held by the acquirer would
not be exercisable.
In addition, if the rights become exercisable and Cinergy Corp. engages in a
merger or consolidation in which it is not the surviving corporation or in which
all or part of its common stock is changed or exchanged, or if 50% or more of
the company's assets are sold, each holder of a right would have the right to
approximately 45. These employeesacquire common stock of the acquirer at a 50% discount.
The rights will be abledistributed to seek other job
opportunities withinholders of record at the close of business on
the tenth business day following announcement by Cinergy Corp. of approval from
the SEC under the PUHCA. The board of directors may direct Cinergy Corp. to
redeem the rights at $.01 per right at any time before the tenth day following
the acquisition of ten percent or voluntarily elect to accept a severance plan.
Overall, this reorganization is expected to achieve approximately $25 million in
annual savings for Cinergy.more of Cinergy Corp.'s common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Reference is made to the "Market Risk Sensitive Instruments and Positions"
section in "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations" in "Part I. Financial Information" on page 48,57, and
Notes 1(b) and 1(c) of the "Notes to Financial Statements" in "Part I. Financial
Information" on pages 2426 through 25.27.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NEW SOURCE REVIEW, MANUFACTURED GAS PLANT SITES, AND OTHERNew Source Review, Manufactured Gas Plant Sites, and Other
See Notes 4(b), (c), and (d), respectively, of the "Notes to Financial
Statements" in "Part I. Financial Information" on pages 2830 through 30.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS33.
M Metals Superfund Site
On July 6, 2000, the EPA identified PSI and the Indianapolis Power and Light
Company (IPL) as potentially responsible parties for the release of hazardous
substances at the M Metals Superfund Site (Site) located in Indianapolis,
Indiana. The annual meeting of shareholders of Cinergy Corp. was held April 27, 2000, in
Cincinnati, Ohio.
At the meeting, one Class I director was electedEPA advised that it had taken response actions relating to the boardSite
and had incurred costs of Cinergy Corp.
to serve for a one-year term ending in 2001, and four Class III directors were
electedapproximately $500 thousand. The EPA has demanded
reimbursement of the costs incurred related to the board of Cinergy Corp.Site and has encouraged PSI
and IPL to serve three-year terms ending in 2003,
as set forth below:
Class I Votes For Votes Withheld
Michael G. Browning 125,416,635 2,912,311
Class III Votes For Votes Withheld
Phillip R. Cox 125,499,093 2,829,853
James E. Rogers 124,687,045 3,641,901
John J. Schiff, Jr. 124,907,634 3,421,312
Oliver W. Waddell 125,368,524 2,960,422
In lieuwork out an allocation between themselves for the payment of the
annual meeting of shareholders of The Cincinnati Gas & Electric
Company (CG&E), a resolution was duly adopted via unanimous written consent of
Cinergy Corp., CG&E's sole shareholder, effective April 26, 2000, electing the
following members of the Board of Directors for one-year terms expiring in 2001:
* Jackson H. Randolph
* James E. Rogers
* James L. Turner
The annual meeting of shareholders ofcosts. However, PSI Energy, Inc. wasand IPL will be held April 27, 2000,
in Cincinnati, Ohio.
Proxies were not solicitedjointly and severally liable for the
annual meeting, at whichcosts. PSI is considering how to respond to the Board of
Directors was re-elected in its entirety (see below).
By unanimous vote, the following members of the Board of Directors were
re-elected at the annual meeting for one-year terms expiring in 2001:
* James K. Baker
* Michael G. Browning
* John A. Hillenbrand II
* Jackson H. Randolph
* James E. Rogersdemand.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits identified with a pound sign (#) are being filed herewith by the
registrant identified in the exhibit discussion below and are incorporated
herein by reference with respect to any other designated registrant.
Exhibits identified with a tilde (~) are not so identified are filed herewith:
Exhibit
Designation Registrant Nature of Exhibit
Articles of Incorporation/By-Laws
3a Cinergy By-Laws of Cinergy as amended April 27, 2000.
Financial Data Schedule
27 Cinergy Financial Data Schedules (included in
CG&E electronic submission only)
PSI
ULH&P
(b) The following reports on Form 8-K were filed during the quarter or priorherewith, however, a
copy will be provided to the filing of the Form 10-Q for the quarter ended March 31, 2000.
Date of Report Registrant Item Filed
May 10, 2000 Cinergy Item 5. Other Events
CG&E Item 7. Financial StatementsSecurities and Exhibits
SIGNATURES
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omittedExchange Commission pursuant to
such rules and regulations, although
Cinergy Corp., The Cincinnati Gas & Electric Company, PSI Energy Inc., and The
Union Light, Heat and Power Company 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) 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.ss.229.601(b).
Exhibit
Designation Registrant Nature of Exhibit Filed as Exhibit to:
----------- ---------- ----------------- --------------------
#Loan agreement between PSI and the Indiana
Cinergy Development Finance Authority dated as of
4a PSI May 1, 2000. PSI June 30, 2000 Form 10-Q.
~Trust Indenture between the Indiana
Cinergy Development Finance Authority and Fifth
4b PSI Third Bank, as Trustee, dated May 1, 2000.
Financial Data
Schedule
Cinergy
CG&E
PSI Financial Data Schedules (included in
27 ULH&P electronic submission only)
(b) No reports on Form 8-K were filed during the quarter.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed by an
officer and the chief accounting officer on their behalf by the undersigned
thereunto duly authorized.
CINERGY CORP.
THE CINCINNATI GASThe Cincinnati Gas & ELECTRIC COMPANYElectric Company
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANYEnergy, Inc.
The Union Light, Heat and Power Company
---------------------------------------
Registrants
DATE: MAY 12,Date: August 11, 2000 /S/ BERNARD F. ROBERTS/s/ Bernard F.Roberts
---------------------------------------
Bernard F. Roberts
Duly Authorized Officer
and
Chief Accounting Officer